Good night, everyone. Thank you for joining us for Afya’s First Quarter 2023 Conference Call.

I'm here today with Afya’s CEO, Virgilio Gibbon, and Luis Andre Blanco, our CFO. During today's presentation, our executives will make forward-looking statements.

Forward-looking statements can be related to future events, future financial or operating performance, known and unknown risks, uncertainties, and other factors that may cause Afya’s actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to.

Statements related to the business and financial performance, expectations and guidance for future periods, or expectations regarding the company's strategic product initiatives. Its related benefits and our expectations regarding the market, as well as any remaining facts from COVID-19.

These risks include those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof.

You should not rely on them as predictions of future events and we disclaim any obligation to update any forward-looking statements except as required by law. In addition, management may reference non-IFRS financial measures on this call.

These measures are not intended to be considered in isolation or as a substitute of the results prepared in accordance with IFRS. This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures.

Now let me turn the call over to Virgilio Gibbon, Afya’s CEO, starting with slide number three.

Thank you, Renata. And thanks everyone for joining us today on our first conference call, related to 2023 results.

We proudly present our first quarter of 2023 showing another great start for the year ahead. Since our IPO, our top line has grown more than 2 times, improving the resilience and differentials of our business.

In this quarter, once again, our net rental has jumped 25% over last year. During this presentation, I will first run through some main strategic topics such as our performance highlights, the successful business execution within our three segments, this year guidance, some recent awards recognition, and at the end Luis Blanco will explore our financial and operational overview.

So moving now to page number four. Let's start with our performance and highlights.

First, adjusted net revenue increased 25%, reaching BRL709.4 million, followed by an adjusted EBITDA growth of almost 22% year-over-year, reaching BRL330.2 million with a margin of 46.5%. We also report a strong cash flow generation again of BRL349.4 million, an increase of 19% year-over-year, boosted by the solid operational results of the company with a cash conversion of 112% and a solid cash position of (ph) million at the end of the quarter.

Adjusted net income was BRL166.4 million in line with the same period last year, mainly due to the higher financial expense related to the new debenture issue in December 2022 and higher interest rate in demand. Moving to our operational updates of the quarter, we have reached 3,113 operating seats, an increase of over 25.5% over first quarter of 2022, with the beginning of four Mais Medicos campuses magical campuses, along with new seats in Ji-Parana and Itabuna.

And also the acquisition of UNIT Alagoas and FITS. In addition, our number of undergrad medical students has reached almost 21,000, representing 18.8% growth, compared to the first quarter of the previous year.

We also saw great results in net revenues. For our continuing education business, the segment grew more than 46.6% year-over-year, representing a net revenue of BRL34.9 million in the first quarter.

The digital health services reported great results as well. With revenue increase of almost 20% in the comparison of first quarter 2022 and in the quarter's net revenue of BRL56.8 million.

This result reinforce the opportunity ahead in the digital services, and it explained by the ramp up on B2B engagements. With new contracts, with the pharmaceutical industry companies, and the continuous ramp up in B2B contracts, as we will discuss further on.

Lastly, our ecosystem has 295,000 active users, representing a great penetration among physicians and medical students in Brazil. In the next slide, we will talk about our solid business execution within our three business units, starting with the undergrad segment.

We saw important movements throughout the quarter such as higher tickets and medicine course with more than 8% increase of meds in tuition. The maturation of medical seats, the beginning of four new Mais Medicos campuses in 2022, the consolidation of UNIT and FITS acquisitions and the consolidation of 92 new medical seats; 28 in UniSaoLucas, Ji-Parana located in Rondonia and 64 additional seats in Faculdade Santo Agostinho in the city of Itabuna.

This movement is part of our strategy to add 600 new medical seats on our current operation by 2028. We are delighted to see that the most significant growth of the quarter in terms of revenue came from our continued education segment with a robust intake process, 6 new campuses and course maturation.

On our Digital Services segment, we ended the quarter with a revenue increase of 20% when compared to last year. This result reinforces the opportunity ahead in digital service, and it is explained by the ramp-up in the B2B engagements with new contracts with pharmaceutical industries companies and the continued ramp-up in B2B contracts.

And now I will turn the call over to Luis Blanco, Afya CFO, to give more color on the financial and operational metrics. Thank you.

Thank you, Virgilio, and good evening, everyone. Starting with slide number seven to discuss the financial highlights of the first quarter.

With much satisfaction, I presented another strong quarter results for Afya. Adjusted net revenue for the first quarter of 2023 was BRL709 million, an increase of 25% over the same period of the prior year, mainly due to higher tickets in medicine courses by more than 8.3%; maturations of medical seats; the beginning of four Mais Medicos campuses; the big business combinations with UNIT Alagoas and FITS Jaboatao; a strong continuing educational segment performance; and the great results of the digital service.

First quarter 2023 adjusted EBITDA increased 21.9% to BRL330 million, with an adjusted EBITDA margin of 46.5%, a decrease of 120 basis points, when compared to the first quarter 2022. The adjusted EBITDA margin reduction in this quarter is mainly due to the following: Consolidations of four Mais new management medical campuses, operations started on the third quarter 2022; UNIT and FITS, which are performing better-than-expected, but still present lower margins when compared to the integrated companies; and digital segments primarily due to net sale performance.

Moving to the next slide. Adjusted cash flow generations over the year was almost 20% higher quarter-over-quarter, totaling BRL349 million, boosted by the solid operational results.

Operating cash flow ratio was 112% for the first quarter 2023, compared to 113% in the first quarter 2022. Adjusted net income for the first quarter of 2023 was BRL167 million, in line with the same period from the previous year, mainly due to the higher financial expenses related to UNIT and FITS acquisitions and higher interest rates.

Our adjusted EPS for the quarter reached BRL1.77, the same when compared to the first quarter 2022. Our EPS performance reflected the decrease in our net income that was compensated by capital allocation discipline executing buyback programs.

Moving to slide number nine for discussions of key operational metrics by business unit. Our number of medical students grew 19% over first quarter 2023, reaching 20,800 students with operating medical seats increasing 25% due to the income base of 632 medical seats related to four Mais Medicos and Ji-Parana, Itabuna seats increase; UNIT Alagoas and FITS Jaboatão acquisition, as previously said.

Therefore, we have reached 3,163 approved seats and expect to achieve almost 23,000 undergrad medical students at maturity. Our net average ticket, excluding acquisitions, increased by 8.3% over the same period last year, reaching BRL8,570 in the first quarter 2023, compared to BRL7,861 in first quarter 2022.

The left graph shows a 24% growth in combined tuition fees reaching BRL806 million, up from BRL649 million, from the first quarter 2022, 78% of which are related to medicine courses. All these efforts means one thing, our medical educational business remains and will continue to be the cornerstone of our business in the short and the middle terms, delivering high predictable growth, combined with solid profitability and cash generation.

On the next page, I will present our continued educational metrics. As I said before, we saw another year of great recovery in our continued educational segments with an increase of more than 37% in the number of students compared to the same quarter last year, reaching 4,774 students.

In additions, for the quarter, net revenues grew 47%, when compared to the first quarter 2022. This recovery is mainly due to the robust intake process and course maturation.

Moving to slide number 11. I will discuss the digital service operational metrics.

On the first graph, you can see our total active payers, which are the ones that generate revenues in business to physicians, B2P. With a continuous growth trend we reached 218,000 paying users, a 24% growth compared to the same period last year.

As you can see in the second graph, our ecosystem grew 13.6% compared to the previous year, achieving 295,000 monthly active users, representing almost 40% of all medical students and physicians in Brazil. Finally, on our last graph, we can see our digital service net revenues, which increased more than 19% when compared to the same quarter of the last year, reaching BRL56.8 million with the breakdown of our digital service net revenue within B2P and B2B segments which accounted for more than BRL46 million coming from B2P and more than BRL10 million coming from B2B since B2B strategy is still pumping up, representing a growth of 62% compared to the prior year.

And now moving to my three last slides, I will discuss our cash and net debt positions, also giving more color on our cost of debt. Cash and cash equivalents at the end of the first quarter were BRL723 million, a decrease of 8% over March 2022 and 34%, when compared to the fourth quarter of 2022, mainly to the new debentures issues during the fourth quarter that was used to fund the down payment of UNIT Alagoas and FITS Jaboatao acquisitions in January.

On the next page, we can look closely to the net debt variation. In the first quarter 2023, net adds totally BRL2.29 billion, an increase of BRL648 million when compared to the fourth quarter 2022, mainly to the 825 million UNIT Alagoas and FITS Jaboatao acquisitions, which was partially offset by BRL177 million of free cash flow generation in the first quarter of 2023.

On the next slide, you can see a table with the breakdown of our gross debt and the total cost of our debt, considering our main source of debt, the SoftBank transactions, debentures, account payables to selling shareholders and other financial obligations. This ends our prepared remarks.

Strong performance, consistent growth and success in all segments. We are committed to provide an ecosystem that integrates educational and digital solutions for the entire medical journey, enhancing the development, updating effectiveness and productivity of health professionals.

We are very proud of our business and what we have achieved so far and excited about what we plan for the future. I will now open the conference for a Q&A session.

Thank you.

Good evening, everyone and thank you for taking our question. Regarding Medcel, we've seen a decrease in the number of active payers for the past quarters.

So can you please provide more color on the competitive landscape and comment if you have seen any sign of recovery here, especially considering the initiatives implemented at the end of last year? So that would be helpful, please.

Thank you.

Hi, Lucca, this is Virgilio. I can start here, and then Blanco can give more details after.

So just about the dynamic on Medcel. We are combining the Medcel offering on Pillar 1 together with Alem da Medicina and CardioPapers.

So we are seeing a very good intake enrollments coming on Alem da Medicina and CardioPapers also shifting demand between these offerings in the Pillar 1. So Medcel, as we saw in the last quarter, like we see in the fourth quarter, we still have a lower volume coming this year.

So we are ending the seasonality right now in the first quarter. So the next cycle, the big cycle start in September.

So we still have, for this semester, a lower number coming from Medcel when we compare to last year. So the landscape, the competition, we still have the same.

So we still have a lot of competitors on this. That's the reason why we change not only the product, but also change the offering, combining Alem da Medicina and CardioPapers.

We're offering much more related also for specialization, it's much more online continued medical education but only resident's spread course as it should -- it used to be Medcel in the past, back in 2019, 2018. Just to give more figures, I pass back to Blanco that can color a little bit about the numbers.

Thanks, Virgilio. Lucca, as Virgilio mentioned, we end at the first quarter the intake of the collection of 2023.

So all the collection of 2022 is disconnected during this quarter and now the new intake will take place in the fourth quarter. Medcel, as we mentioned, is not the cornerstone for our business-to-business strategy.

And we still feel comfortable that with this combined offer that we are doing with the presence of Medcel within CardioPapers and Alem da Medicina content, we're going to stop this following of Medcel. And then we can have some kind of recovery during the next intake cycle for the 2024 collections that we are going to start on September.

Virgilio, you want to complement?

Yes, just to add a point here. So moving forward for the following quarters on the digital and as the next quarter will be consolidated, it's no more -- it will be fully organic when you compare to the previous year.

So Pillar 1 should be moving around 10% to 15% above last year. And the other components of our digital services should be growing above 30%.

So the combination of them will be around something 15% to 20% for the rest of the year. At least for the rest of the first half because we still have that intake that will be stronger on the second half, okay?

That’s very clear. Thank you, Virgilio and Luis.

Thank you.

Okay. So our next question comes from Mauricio Cepeda from Credit Suisse.

Mauricio, you may go.

Hi, Virgilio, Blanco, Renata. Thank you for this space here.

So a little bit on margins. I understand that you are, in fact, reconfiguring the mix of business there.

So we see that the margins are being a little bit lower, but for a very positive reason, right? You're ramping up a lot, continuous education.

You're opening lots of medical seats. So my first question would be, how do you expect this to go on for this year in terms of this apparent margin pressures, which are, in fact, the success of the businesses?

And thinking a little bit more further, if you see -- when you see basically a convergence to, let's say, a new margin level given that you are going -- you're integrating new operations on top of the mentioned effects. Thank you.

Cepeda, it's Blanco speaking. Regarding the expectations in the year, we are fully committed for what we have guided for the market in the first -- with the disclosure of the results of 2022.

The margins embedded in our guidance is between 40% to 42%, from the bottom to the top line of the guidance. We are committed with that.

Remember that the first quarter is the best quarter that we always have due to the seasonality of our business. We have this, a little bit pressure in these margins caused by Medcel performance, the four new Mais Medicos and for the beginning of UNIT that is coming with margins that were initially better than expected in the regional business plan, but still behind the margins of the integrated companies.

If we exclude these acquisitions for 2023, the decreasing margins is just 50 bps, five-zero bps. So we are pretty committed to deliver the margins of this 40% to 42%.

And as you mentioned, as continued education will grow and the digital segment will grow with higher rates than the undergrad segments, we're going to have some kind of shifts for margins. But for this year, the guidance is between 40% to 42%.

Yes, but we unfortunately do not give guidance for longer term. But there is no reason for margins in all the segments to increase in the following years.

Virgilio, do you want to complement?

Yes. I think just as we are growing very fast in continuing education in the med, we launched six new campuses.

We are preparing to launch another two or three campus still this year. So as any other on-ground operation for education, we will ramp up the number of students per campuses.

So gross margin will increase and also the EBITDA margin will increase along the year. So we expect to have better contribution margin coming from continued medication for the following semester not only for the legacy operation, but also for -- mainly for the new campus that we launched last year and also this year, okay?

That’s very clear. Thank you.

The next question will come from Lucas Nagano from Morgan Stanley. Lucas, you may now talk.

Hey, good evening, all. Thanks for taking our questions.

I have two, the first one is related to your med schools. The situation seems still very comfortable.

You increased by 8%, filled 100% of seats. But have you noticed any underlying change in the demand, for example, how it evolved in the Southeast versus the medical schools in terms of candidates proceed or pricing, for example?

And the second question is related to B2B. It seems to be performing well.

Can you tell us a little, in which part of the product development process and the commercialization process you are in? And also, if you could comment a little -- if you're developing solutions for companies that are not in the pharma industry.

Yes. Lucas, I can take the first one here, Blanco help me on the second one.

So about the tuition adjustment that was the average across the board. About intake level, this year was when you compare to the last four years, was the candidate per seat ratio higher -- the highest candidate ratio, candidate per seat that we had for the last four years, we are reaching around eight candidates per seat.

Of course, this is a national average. But as we have like a very integrated process, we can manage to have 100% of occupancy in all of our units.

And of course, that we have different ratio between our campuses, when we analyze our campuses in large cities like when you get here, in Rio de Janeiro, we have more than 20, 25 candidates per seat. And for some institutions have around four and five candidates per seat.

But it's pretty feasible and easy to keep enrolling 100% of the seats every semester. So even consider that we are passing tuition a little bit above inflation semester, I think we are strengthening our commercial process, our enrollment process and our capacity to convert students to all of our campuses.

If I may point here, I just want to mention that we do have different prices in different regions, and that's mainly, because of the region. But that does not mean that we have different margins in different regions.

Because all the costs and expenses related to different regions are also different. So what I'm trying to say here at the end of the day, that ticket from a medical school comparing to, I don't know, unit, is different.

But in the end of the day, we can see similar margins. What changed the margin level is mostly how much concentrated the school was from medicine.

That's what changed the game. Blanco, may you take the second question?

Yes. Lucas, thank you for your question.

Just to give you more color on the B2B. I'll just give a step back to give more color in our strategy.

So our digital strategy is focused on penetrating within the physicians, with the best solutions to increase their productivity, to increase their assertiveness and to increase their updating from topics. And we've been -- these channels to connect these physicians to the health care players.

So we divided the digital in these two parts, okay? So regarding the chain, the companies that we provide service for the physicians, we are increasing a lot the users, the monthly active users and we're increasing the payers as well.

Regarding the B2B, what we had in place until right now, is the connections that we've made in parts with other educational companies to provide solutions such as our prep course Medcel and our medicine image solutions that is Medical Harbour. And most part of the digital revenues are coming from the pharmaceutical industry.

We have more than 100 contracts established to now with more 40 industry pharmaceutical industry players right now, multinationals and national players on that. So all the B2B revenues are coming for these two parts.

What we have launched right now, we started the connections for the second pillar of the industry that is relevant for our B2B strategy. That is the providers.

So we just are getting up a team to do this connections and starting to offer our connections with the physicians to the providers. In the pharmaceutical industry, what we are providing right now is what the industry calls e-detailing that its marketing and commercial efforts to connect the physicians with the industry players to get their latest drugs, the latest treatments for the physicians.

And for providers, we are going to offer recruitment offers and offer the best leads that can come from the -- our ecosystem, leads for them to get their treatments, buying some medicines and doing their treatments or doing the access. So that's the strategy, Lucas.

Very clear, Virgilio, Renata. Thank you very much.

Of course. The next question comes from Jessica from JPMorgan.

Jessica, you may now go.

Thank you for taking my questions. I have two.

So first, how are medicine ticket expected to behave going forward? I mean do you expect to increase prices above inflation?

And do you have any updates -- this is the second question. Do you have any updates regarding the new Mais Medicos program?

Thank you.

Jessica, it's Blanco speaking. I will take the first one and Virgilio is going to take the second one.

The first -- regarding the first one, what we have already discussed in the last call, is the pricing for this first semester. We have disclosed that we've made readjustments for the medicine students that were 7.5% for these years.

And within the ticket maturations, we're going to get something around 1% above that. So what we delivered for the first quarter is 8.3% increase in terms of net tickets, excluding acquisitions.

And just remember about our ticket dynamic, we established ticket, our price increase annually. We usually do that in the month of September, in the beginning of October.

And we established the price for the inflation that we expect for the year. When we take the year from -- when we did that in 2021 or 2022, we did the same 7.5%.

We were behind after the inflation of 2021, because inflation speed up at the end of the year. And this year of 2022, the opposite has happened.

We established the same 7.5%, but the inflation started to decrease at the end of the year. So that's how we do that.

So in next September, we're going to see this inflation perspective for the year, we established a new pricing for 2024. And above this price readjustments, we have these tickets maturation effect that will come this around -- of this 1%.

Yes. So just to add a point view on this question about ticket.

You take a look on our table, too, we also have a very high incremental tuition when we consider also other health programs. Even excluding acquisition, the tuition fees is jumping more than 15%.

So that's an effect not only about price adjustment, but an effect of mix, much more concentrated in high-value programs than we had in the past. So it's a good dynamic also for the year on other programs besides the medical programs for 2022.

So about the Mais Medicos, so we are just following after the normative rule that they said that we should have to take along 120-days to release what will be the new rules for the Mais Medicos or the new wave of capacity. So it's just 60-days after they release that information.

So we're expecting to have something by the end of July, beginning of August. They are working.

They have like their commission, getting together, asking the sector, many professionals, many areas participating, how should be in addressing the new conditions for the new wave capacity. But it's still early in the process to have any information, okay?

Thank you, very clear.

So we do not have other questions. Thank you so much for participating with us today.

If you have any follow-up questions or if you want to schedule a call with us, just contact me, and I will be pleased to help you guys. Have a good night and a great end of week.

Thank you.

Thank you all. Bye-bye.