Afya Limited Reports 2Q19 Results

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NOVA LIMA, Brazil, Aug. 30, 2019 (GLOBE NEWSWIRE) -- Afya Limited, or Afya AFYA, today reported financial and operating results for the second quarter of 2019.

CEO Statement

"The year of 2019 has been transformational to our company. Afya became the largest medical education group in Brazil and the only player providing education and digital content in every stage of the medical career. In 19th of July, we concluded our IPO at Nasdaq, taking a huge step into our future. These achievements demonstrate the tremendous commitment of our team, which remains devoted to our mission to create an extraordinary lifelong learning experience for medical and healthcare professionals, creating strong value to our shareholders and to society.

During the first semester, we continued to deliver robust growth, margin expansion and cash generation in line with our strategy. In addition, we have concluded an acquisition of 120 medical school seats and secured the authorization of a new medical school with 50 medical school seats, taking our network to 1.522 authorized medical school seats as of today.

We will remain focused on the medical career, generating highly predictable growth, with high profitability and cash generation".

Financial Highlights

Selected financial data for the six months ended June 30, 2019:

  • Net revenue totaled R$323.1 million, representing an increase of R$186.5 million, or 137%, from $136.6 million for the six months ended June 30, 2018. This increase was mainly due to organic growth and to the acquisition of (i) three medical schools (FADEP, Novafapi and FASA), (ii) our medical residency preparatory course (Medcel) and (iii) our medical specialization institution (IPEMED). Pro Forma¹ Net revenue totaled R$357.8 for the six months ended June 30, 2019.

  • Medical schools tuition fees represented 68% of total combined tuition fees, an increase of 5 p.p. when compared with the six months ended June 30, 2018. This increase was mainly due to the maturation and acquisition of medical school seats and average medical tuition fees raising above inflation indexes

  • Adjusted EBITDA totaled R$122.2 million, representing an increase of R$72.3 million, or 145.0%, from R$49.9 million for the six months ended June 30, 2018. Adjusted EBITDA margin increased from 36.6% in the first half of 2018 to 37.8% in the same period of 2019, mainly due to productivity gains. Pro Forma1 Adjusted EBITDA summed R$145.3 million, representing a margin of 40.6% for the six months ended June 30, 2019.

  • Adjusted Net Income totaled R$90.1 million, representing an increase of R$47.3 million, or 110.2%, from R$42.9 million for the six months ended June 30, 2019. Pro Forma¹ Adjusted Net Income summed R$110.0 million for the six months ended June 30, 2019.
     
  • Operating Cash Conversion Ratio² was 80.4% for the six months ended June 30, 2019, from 69.0% for the six months ended June 30, 2018.

Segment Highlights – Operating Data

Business Unit 1 (Undergraduate – medical schools, other healthcare programs and ex-health degrees)

  • As of June 30, 2019, our network of 1,352 medical school seats consisted of 1,102 operating seats (seats that have been approved by MEC and that have commenced operations) and 250 approved seats, compared to 636 operating and approved seats as of June 30, 2018, respectively.

  • Medical degree students totaled 5,550 as of June 30, 2019, representing an increase of 2.162 students, or 63.8%, from 3,388 as of June 30, 2018, which generated combined tuition fees2 of R$239.3 million, an increase of R$100.9 million, or 72.9%, from R$138.4 million for the six months ended June 30, 2018, mainly due to the maturation and acquisitions of medical school seats.

  • Other undergraduate health science programs students totaled 6,939 as of June 30, 2019, representing an increase of 3,860 students, or 125.4%, from 3,079 as of June 30, 2018, which generated combined tuition fees² of R$49.6 million, an increase of R$25.8 million, or 108.3%, from R$27.3 million for the six months ended June 30, 2018.

  • Other undergraduate students totaled 12,711 as of June 30, 2019, representing an increase of 7,843 students, or 161.1%, from 4,868 as of June 30, 2018, which generated combined tuition fees² of R$60.5 million, an increase of R$33.2 million, or 121.7%, from R$27.3 million for the six months ended June 30, 2018.
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Business Unit 2 (Medical residency preparatory courses, medical specialization programs and continuing medical education throughout medical career)

Business Unit 2 operating segment resulted from the corporate reorganization on March 29, 2019 and the acquisition of IPEMED on May 9, 2019. Accordingly, such segment did not have results of operations during the first quarter of 2019. Moreover, because of seasonality³, the segment did not have significant results of operations in the second quarter of 2019. In fact, medical residency preparatory courses sales, a significant component of Business Unit 2, are concentrated in the first and last quarter of the year, as a result of enrollments at the beginning of the year and revenue recognition³ from printed books and e-books.

  • Business Unit 2 generated a net revenue of R$23.4 million, residency preparatory and CME revenue represented almost half of the total, while medical specialization represented the other half as of June 30, 2019.

  • Residency preparatory and CME totaled 8.6 thousand active paying students and medical specialization summed 1.8 thousand active paying students as of June 30,2019

Conference Call and Webcast Information

Afya will hold a conference call to discuss its earnings for the second fiscal quarter of 2019 on August 30, 2019 at 11:30 a.m. Sao Paulo time (10:30 a.m. ET). For those wishing to participate by telephone, please follow the instructions below:

Participant Dial in Number
US/CANADA Participant Toll-Free Dial-In Number: (877) 591-8865
US/CANADA Participant International Dial-In Number: (336) 698-3012

and ask for the Afya call or use conference ID: 7056317. Afya will also broadcast the conference call on the Afya website at https://ir.afya.com.br/.

Afya will archive a telephone replay of the call until September 03, 2019. To access the replay, (855) 859-2056 (domestic) or (404) 537-3406 (international), conference ID: 7056317. To access the webcast replay, please visit Afya's website.

About Afya Limited AFYA

Afya is a leading medical education group in Brazil based on number of medical school seats, delivering an end-to-end physician-centric ecosystem that serves and empowers students to be lifelong medical learners from the moment they join us as medical students through their medical residency preparation, graduation program, and continuing medical education activities.

Forward – Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain customers; our ability to increase the price of our solutions; our ability to expand our sales and marketing capabilities; general market, political, economic, and business conditions, and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share, and free cash flow.

We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect our financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled "Risk Factors" in our most recent Rule 424(b) prospectus. These documents are available on the SEC Filings section of the investor relations section of our website at: https://ir.afya.com.br/.

Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board—IASB, we use Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro Forma Adjusted Net Income and Operating Cash Conversion Ratio information for the convenience of investors, which are non‑GAAP financial measures. A non‑GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.

We calculate our Adjusted EBITDA as net income plus/minus net financial result plus income taxes expense plus depreciation and amortization plus interest received on late payments of monthly tuition fees, minus payment of lease liabilities, plus share‑based compensation plus/minus non‑recurring expenses. We calculate our Pro Forma Adjusted EBITDA as pro forma net income plus/minus net financial result plus income taxes expense plus depreciation and amortization plus interest received on late payments of monthly tuition fees, minus payment of lease liabilities plus share‑based compensation plus/minus non‑recurring expenses. We calculate Pro Forma Adjusted Net Income as (i) for the six months ended June 30, 2019 and the year ended December 31, 2018, net income plus amortization of customer relationships and trademark plus/minus tax effect, and (ii) for the six months ended June 30, 2019, net income plus amortization of customer relationships and trademark, plus depreciation of right‑of‑use of assets plus interest expense of lease liabilities, minus payment of lease liabilities plus/minus tax effect, plus shared based compensation. We calculate Operating Cash Conversion Ratio as the cash flows from operations, adjusted with payment of lease liabilities divided by Adjusted EBITDA plus/minus non‑recurring expenses.

We present Adjusted EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Adjusted Net Income because we believe these measures provide investors with a supplemental measure of the financial performance of our core operations that facilitates period‑to‑period comparisons on a consistent basis. We also present Operating Cash Conversion Ratio because we believe this measure provides investors with a measure of how efficiently we convert our EBITDA into cash. The non‑GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, our calculations of Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro Forma Adjusted Net Income and Operating Cash Conversion Ratio may be different from the calculations used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

Unaudited Pro Forma Condensed Consolidated Financial Information

The unaudited interim pro forma condensed consolidated statement of income for the six months ended June 30, 2019 is based on the historical unaudited interim consolidated financial statements of Afya Brazil, and gives effect of the acquisition of Medcel by Afya Brazil as if it had been consummated on January 1, 2019. Pro forma adjustments were made to reflect the acquisition of Medcel by Afya Brazil. Medcel is eligible to the presumed profit income tax regime effect and calculate income taxes as a percentage of gross

______________________________________________
1
Pro Forma explained on "Unaudited Pro Forma Condensed Consolidated Financial Information".
2 Combined tuition fees is the sum equal to the total tuition fees charged to undergraduate students, as recorded in the internal management records of Afya Brazil.
3 The majority of Business Unit 2's revenues is derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer, which mostly happens in the first and fourth quarter of the year.

Contact: Investor Relations: ir@afya.com.br

 
 
Unaudited interim condensed consolidated statements of income and comprehensive income
For the three and six months periods ended June 30, 2019 and 2018
(In thousands of Brazilian reais, except earnings per share)
 
  Three months period ended Six months period ended
  June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
  (unaudited) (unaudited) (unaudited) (unaudited)
         
Net revenue 178,493  75,235  323,071  136,555 
Cost of services (82,283) (38,680) (136,647) (66,875)
Gross profit 96,210   36,555  186,424   69,680 
         
General and administrative expenses (59,584) (14,583) (90,818) (28,846)
Other income (expenses), net 576  502  370  1,254 
         
Operating income 37,202  22,474  95,976  42,088 
         
Finance income 4,650  1,936  9,817  3,624 
Finance expenses (19,721) (1,552) (31,957) (2,603)
Finance result (15,071) 384  (22,140) 1,021 
         
Share of income of associate 920  -  920  - 
         
Income before income taxes 23,051  22,858  74,756  43,109 
         
Income taxes expense (1,725) (267) (3,954) (1,661)
         
Net income 21,326  22,591  70,802  41,448 
         
 Other comprehensive income -  -  -  - 
Total comprehensive income 21,326  22,591  70,802  41,448 
         
Income attributable to        
Equity holders of the parent 16,317  20,462  57,852  37,974 
Non-controlling interests 5,009  2,129  12,950  3,474 
  21,326  22,591  70,802  41,448 
Basic earnings per share        
Per common share (*) 6.56  16.52  25.41  31.79 
Diluted earnings per share
Per common share (*)
 6.44  16.23  24.91  31.23 
             
(*) The basic and diluted earnings per common share are in effect with the share split occurred on July 7, 2019.
 
 


Unaudited interim condensed consolidated statements of financial position
As of June 30, 2019 and December 31, 2018
(In thousands of Brazilian reais)
 
  June 30, 2019 December 31, 2018
Assets (unaudited)  
Current assets    
Cash and cash equivalents 68,471 62,260
Trade receivables 125,014 58,445
Inventories 2,812 1,115
Recoverable taxes 5,362 2,265
Derivatives 197 556
Restricted cash 12,540 -
Other assets 24,548 8,859
Total current assets 238,944 133,500
     
Non-current assets    
Restricted cash 12,984 18,810
Trade receivables 9,728 5,235
Related parties 3,293 1,598
Derivatives - 663
Other assets 13,353 10,380
Investment in associate 49,835 -
Property and equipment 110,065 65,763
Right-of-use assets 268,121 -
Intangible assets 1,226,095 682,469
Total non-current assets 1,693,474 784,918
     
Total assets 1,932,418 918,418
     
Liabilities    
Current liabilities    
Trade payables 19,856 8,104
Loans and financing 61,664 26,800
Lease liabilities 37,094 -
Accounts payable to selling shareholders 129,847 88,868
Advances from customers 19,644 13,737
Labor and social obligations 53,722 31,973
Taxes payable 17,301 6,468
Income taxes payable 1,671 282
Dividends payable 39,331 4,107
Derivatives 959 -
Other liabilities 7,780 1,993
Total current liabilities 388,869 182,332
     
 Non-current liabilities    
Loans and financing 35,318 51,029
Lease liabilities 236,489 -
Accounts payable to selling shareholders 172,850 88,862
Taxes payable 21,462 150
Provision for legal proceedings 6,810 3,465
Derivatives 548 -
Other liabilities 387 2,226
Total non-current liabilities 473,864 145,732
Total liabilities 862,733 328,064
     
Equity    
Share capital 635,830 315,000
Additional paid-in capital 331,424 125,014
Share-based compensation reserve 4,070 2,161
Earnings reserves 26,806 59,807
Retained earnings 23,959 -
Equity attributable to equity holders of the parent 1,022,089 501,982
Non-controlling interests 47,596 88,372
Total equity 1,069,685 590,354
     
Total liabilities and equity 1,932,418 918,418
     
     


Unaudited interim condensed consolidated statements of cash flows
For the six months periods ended June 30, 2019 and 2018
(In thousands of Brazilian reais)
 
 June 30, 2019 June 30, 2018
 (unaudited) (unaudited)
Operating activities   
 Income before income taxes74,756  43,109 
  Adjustments to reconcile income before income taxes   
   Depreciation and amortization28,441  3,405 
   Provision/(reversal) of allowance for doubtful accounts8,606  2,382 
   Share-based compensation expense1,909  911 
   Net foreign exchange differences(1,858) - 
   Loss on derivative instruments2,809  - 
   Accrued interest9,873  158 
   Accrued lease interest14,540  - 
   Share of income of associate(920) - 
   Provision for legal proceedings(347) (1,658)
Changes in assets and liabilities   
 Trade receivables(28,624) (12,249)
 Inventories884  (235)
 Recoverable taxes(2,827) (1,429)
 Other assets(15,758) (756)
 Trade payables5,257  (3,434)
 Taxes payables1,139  1,236 
 Advances from customers1,428  (2,193)
 Labor and social obligations13,352  8,877 
 Other liabilities(1,458) (2,530)
     
 Income taxes paid(2,392) (2,183)
 Net cash flows from operating activities108,810  33,411 
       
Investing activities   
 Acquisition of property and equipment(20,674) (6,010)
 Acquisition of intangibles assets(718) (641)
 Payments of accounts payable to selling shareholders(30,674) (10,022)
 Acquisition of subsidiaries, net of cash acquired(148,880) 1,289 
 Loans to related parties(1,695) 2,175 
 Restricted Cash(1,153) - 
 Net cash flows used in investing activities(203,794) (13,209)
    
Financing activities   
 Payments of loans and financing(23,868) (3,981)
 Payment of lease liabilities(17,316) - 
 Dividends paid to non-controlling interest(7,621) - 
 Capital increase150,000  55,000 
 Net cash flows from (used in) financing activities101,195  51,019 
     
 Net increase in cash and cash equivalents6,211  71,221 
 Cash and cash equivalents at the beginning of the period62,260  25,490 
 Cash and cash equivalents at the end of the period68,471  96,711 
  
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
  
  


Reconciliation between Adjusted EBITDA and Net Income     
      
 Three months period ended Six months period ended
 June 30, 2019June 30, 2018 June 30, 2019June 30, 2018
Net income21,32622,591 70,80241,448
Net financial result15,071-384 22,140-1,021
Income taxes expense1,725267 3,9541,661
Depreciation and amortization19,3872,125 28,4413,405
Interest received (1)1,410738 3,9152,018
Payment of lease liabilities (2)-9,6460 -17,3160
Share-based compensation868911 1,909911
Non-recurring expenses:     
Integration of new companies (3)2,607464 3,607502
M&A advisory and due diligence (4)9590 1,099150
Expansion projects (5)638257 943346
Restructuring expenses (6)77010 2,681497
Adjusted EBITDA55,11526,980 122,17549,918
      
(1) Represents the interest received on late payments of monthly tuition fees.    
(2) Consists of payment of lease liabilities recorded under IFRS 16 as from January 1, 2019.   
(3) Consists of expenses related to the integration of newly acquired companies.    
(4) Consists of expenses related to professional and consultant fees in connection with due diligence services for our M&A transactions.
(5) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses. 
(6) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of our acquired companies.
      
      
Reconciliation between Adjusted Net Income and Net Income    
 Three months period ended Six months period ended
 June 30, 2019June 30, 2018 June 30, 2019June 30, 2018
Net income21,32622,591 70,80241,448
Amortization of customer relationships and trademark (1)9,182527 12,196527
Depreciation of right-of-use of assets (2)4,6350 8,0180
Interest expense of lease liabilities (3)8,1220 14,5400
Payment of lease liabilities (4)-9,6460 -17,3160
Share-based compensation868911 1,909911
Adjusted Net Income34,48724,029 90,14942,886
      
(1) Consists of amortization of customer relationships and trademark recorded under business combinations. 
(2) Consists of depreciation of right-of-use of assets recorded under IFRS 16 as from January 1, 2019.  
(3) Consists of interest expenses of lease liabilities recorded under IFRS 16 as from January 1, 2019.   
(4) Consists of payment of lease liabilities recorded under IFRS 16 as from January 1, 2019.   
    

 

Reconciliation between Adjusted Pro Forma EBITDA and Pro Forma Net Income   
     
 Six months
period ended
Three months
period ended
 Six months
period ended
 June 30, 2019March 31, 2019 June 30, 2019
 Afya Brazil
Historical (1)
Medcel (2)Pro Forma
Adjustments
Afya Brazil Pro
Forma
Net income70,80220,044-5,31585,531
Net financial result22,14065022,205
Income taxes expense3,9541,40905,363
Depreciation and amortization28,4411,7265,31535,482
Interest received (3)3,915003,915
Payment of lease liabilities (4)-17,316-2280-17,544
Share-based compensation1,9097001,979
Non-recurring expenses:0000
Integration of new companies (5)3,607003,607
M&A advisory and due diligence (6)1,099001,099
Expansion projects (7)94300943
Restructuring expenses (8)2,681002,681
Pro Forma Adjusted EBITDA122,17523,0860145,261
     
(1) Represents the historical consolidated statement of income of Afya Brazil for the six months ended June 30, 2019.   
(2) Represents the historical consolidated statement of income of Medcel for the period from January 1, 2019 to March 28, 2019.   
(3) Represents the interest received on late payments of monthly tuition fees.   
(4) Consists of payment of lease liabilities recorded under IFRS 16 as from January 1, 2019.   
(5) Consists of expenses related to the integration of newly acquired companies.   
(6) Consists of expenses related to professional and consultant fees in connection with due diligence services for our M&A transactions.   
(7) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.   
(8) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of our acquired companies.   
    

 

Reconciliation between Pro Forma Adjusted Net Income and Pro Forma Net Income  
     
 Six months
period ended
Three months
period ended
 Six months
period ended
 June 30, 2019March 31, 2019 June 30, 2019
 Afya Brazil
Historical (1)
Medcel (2)Pro Forma
Adjustments
Afya Brazil Pro
Forma
Net income70,80220,044-5,31585,531
Amortization of customer relationships and trademark (3)12,1960012,196
Depreciation of right-of-use of assets (4)8,0181595,04613,223
Interest expense of lease liabilities (5)14,540121014,661
Payment of lease liabilities (6)-17,316-2280-17,544
Share Based Compensation1,90970 1,979
Adjusted Net Income90,14920,166-269110,046
     
(1) Represents the historical consolidated statement of income of Afya Brazil for the six months ended June 30, 2019. 
(2) Represents the historical consolidated statement of income of Medcel for the period from January 1, 2019 to March 28, 2019.
(3) Consists of amortization of customer relationships and trademark recorded under business combinations. 
(4) Consists of depreciation of right-of-use of assets recorded under IFRS 16 as from January 1, 2019. 
(5) Consists of interest expenses of lease liabilities recorded under IFRS 16 as from January 1, 2019. 
(6) Consists of payment of lease liabilities recorded under IFRS 16 as from January 1, 2019. 
 


 Operating cash conversion ratio  
 Six months period ended
 June 30,
2019
June 30,
2018
Cash flow from operations108,81033,411
Payment of lease liabilities (1)-17,3160
Adjusted Cash flow from operations91,49433,411
Adjusted EBITDA122,17549,918
Non-recurring expenses:  
Integration of new companies (2)3,607502
M&A advisory and due diligence (3)1,099150
Expansion projects (4)943346
Restructuring expenses (5)2,681497
Adjusted EBITDA ex. non-recurring expenses113,84548,422
Operating cash conversion ratio80.4%69.0%
   
(1) Consists of payment of lease liabilities recorded under IFRS 16 as from January 1, 2019.  
(2) Consists of expenses related to the integration of newly acquired companies.  
(3) Consists of expenses related to professional and consultant fees in connection with due diligence services for our M&A transactions.  
(4) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.  
(5) Consists of expenses related to the employee redundancies in connection with the organizational restructuring of our acquired companies.  
   

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