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Afya Limited Reports 2Q19 Results

|GlobeNewswire|About: AFYA

NOVA LIMA, Brazil, Aug. 30, 2019 (GLOBE NEWSWIRE) -- Afya Limited (AFYA), or Afya (Nasdaq: 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.

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 (Nasdaq: 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 taxes 74,756     43,109  
    Adjustments to reconcile income before income taxes      
      Depreciation and amortization 28,441     3,405  
      Provision/(reversal) of allowance for doubtful accounts 8,606     2,382  
      Share-based compensation expense 1,909     911  
      Net foreign exchange differences (1,858 )   -  
      Loss on derivative instruments 2,809     -  
      Accrued interest 9,873     158  
      Accrued lease interest 14,540     -  
      Share of income of associate (920 )   -  
      Provision for legal proceedings (347 )   (1,658 )
Changes in assets and liabilities      
  Trade receivables (28,624 )   (12,249 )
  Inventories 884     (235 )
  Recoverable taxes (2,827 )   (1,429 )
  Other assets (15,758 )   (756 )
  Trade payables 5,257     (3,434 )
  Taxes payables 1,139     1,236  
  Advances from customers 1,428     (2,193 )
  Labor and social obligations 13,352     8,877  
  Other liabilities (1,458 )   (2,530 )
         
  Income taxes paid (2,392 )   (2,183 )
  Net cash flows from operating activities 108,810     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 increase 150,000     55,000  
  Net cash flows from (used in) financing activities 101,195     51,019  
         
  Net increase in cash and cash equivalents 6,211     71,221  
  Cash and cash equivalents at the beginning of the period 62,260     25,490  
  Cash and cash equivalents at the end of the period 68,471     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, 2019 June 30, 2018   June 30, 2019 June 30, 2018
Net income 21,326 22,591   70,802 41,448
Net financial result 15,071 -384   22,140 -1,021
Income taxes expense 1,725 267   3,954 1,661
Depreciation and amortization 19,387 2,125   28,441 3,405
Interest received (1) 1,410 738   3,915 2,018
Payment of lease liabilities (2) -9,646 0   -17,316 0
Share-based compensation 868 911   1,909 911
Non-recurring expenses:          
Integration of new companies (3) 2,607 464   3,607 502
M&A advisory and due diligence (4) 959 0   1,099 150
Expansion projects (5) 638 257   943 346
Restructuring expenses (6) 770 10   2,681 497
Adjusted EBITDA 55,115 26,980   122,175 49,918
           
(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, 2019 June 30, 2018   June 30, 2019 June 30, 2018
Net income 21,326 22,591   70,802 41,448
Amortization of customer relationships and trademark (1) 9,182 527   12,196 527
Depreciation of right-of-use of assets (2) 4,635 0   8,018 0
Interest expense of lease liabilities (3) 8,122 0   14,540 0
Payment of lease liabilities (4) -9,646 0   -17,316 0
Share-based compensation 868 911   1,909 911
Adjusted Net Income 34,487 24,029   90,149 42,886
           
(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, 2019 March 31, 2019   June 30, 2019
  Afya Brazil
Historical (1)
Medcel (2) Pro Forma
Adjustments
Afya Brazil Pro
Forma
Net income 70,802 20,044 -5,315 85,531
Net financial result 22,140 65 0 22,205
Income taxes expense 3,954 1,409 0 5,363
Depreciation and amortization 28,441 1,726 5,315 35,482
Interest received (3) 3,915 0 0 3,915
Payment of lease liabilities (4) -17,316 -228 0 -17,544
Share-based compensation 1,909 70 0 1,979
Non-recurring expenses: 0 0 0 0
Integration of new companies (5) 3,607 0 0 3,607
M&A advisory and due diligence (6) 1,099 0 0 1,099
Expansion projects (7) 943 0 0 943
Restructuring expenses (8) 2,681 0 0 2,681
Pro Forma Adjusted EBITDA 122,175 23,086 0 145,261
         
(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, 2019 March 31, 2019   June 30, 2019
  Afya Brazil
Historical (1)
Medcel (2) Pro Forma
Adjustments
Afya Brazil Pro
Forma
Net income 70,802 20,044 -5,315 85,531
Amortization of customer relationships and trademark (3) 12,196 0 0 12,196
Depreciation of right-of-use of assets (4) 8,018 159 5,046 13,223
Interest expense of lease liabilities (5) 14,540 121 0 14,661
Payment of lease liabilities (6) -17,316 -228 0 -17,544
Share Based Compensation 1,909 70   1,979
Adjusted Net Income 90,149 20,166 -269 110,046
         
(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 operations 108,810 33,411
Payment of lease liabilities (1) -17,316 0
Adjusted Cash flow from operations 91,494 33,411
Adjusted EBITDA 122,175 49,918
Non-recurring expenses:    
Integration of new companies (2) 3,607 502
M&A advisory and due diligence (3) 1,099 150
Expansion projects (4) 943 346
Restructuring expenses (5) 2,681 497
Adjusted EBITDA ex. non-recurring expenses 113,845 48,422
Operating cash conversion ratio 80.4% 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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Source: Afya 2019 GlobeNewswire, Inc.