Afya Limited Reports 2Q19 Results
CEO Statement
“The year of 2019 has been transformational to our company.
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
- Net revenue totaled
R$323.1 million , representing an increase ofR$186.5 million , or 137%, from$136.6 million for the six months endedJune 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 totaledR$357.8 for the six months endedJune 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 ofR$72.3 million , or 145.0%, fromR$49.9 million for the six months endedJune 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. ProForma 1 Adjusted EBITDA summedR$145.3 million , representing a margin of 40.6% for the six months endedJune 30, 2019 . - Adjusted Net Income totaled
R$90.1 million , representing an increase ofR$47.3 million , or 110.2%, fromR$42.9 million for the six months endedJune 30, 2019 . Pro Forma¹ Adjusted Net Income summedR$110.0 million for the six months endedJune 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 ofJune 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 ofJune 30, 2018 , which generated combined tuition fees2 ofR$239.3 million , an increase ofR$100.9 million , or 72.9%, fromR$138.4 million for the six months endedJune 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 ofJune 30, 2018 , which generated combined tuition fees² ofR$49.6 million , an increase ofR$25.8 million , or 108.3%, fromR$27.3 million for the six months endedJune 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 ofJune 30, 2018 , which generated combined tuition fees² ofR$60.5 million , an increase ofR$33.2 million , or 121.7%, fromR$27.3 million for the six months endedJune 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
- 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 ofJune 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
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About
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
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
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
______________________________________________
1 Pro
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. | ||
Source: Afya