afya20200528_6k.htm - Generated by SEC Publisher for SEC Filing

 

 

 

 

UNITED STATES 

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May, 2020

 

 

 Commission File Number: 001-38992

 

Afya Limited

 

(Exact name of registrant as specified in its charter)

 

Alameda Oscar Niemeyer, No. 119, Salas 502, 504, 1,501 and 1,503

 

Vila da Serra, Nova Lima, Minas Gerais

 

Brazil

 

+55 (31) 3515 7550

 

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

X

 

 

 

 

 

 

TABLE OF CONTENTS

 

EXHIBIT  
99.1 Afya Limited Announces First Quarter 2020 Financial Results
99.2 Unaudited interim condensed consolidated financial statements


 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Afya Limited
     
     
      By: /s/ Virgilio Deloy Capobianco Gibbon
        Name: Virgilio Deloy Capobianco Gibbon
        Title: Chief Executive Officer

Date: May 28, 2020

 

 

 

 

exhibit99_1.htm - Generated by SEC Publisher for SEC Filing  

 

 

Afya Limited Announces First Quarter 2020 Financial Results

 

Continuing Trend of Growth, Maintaining Strong and Consistent Results;

1H20 Guidance Reaffirmed; Solid Cash Position of R$ 1.3 billion

Nova Lima, Brazil, May 28, 2020 – Afya Limited (Nasdaq: AFYA) (“Afya” or the “Company”), the leading medical education group in Brazil, today reported financial and operating results for the three-month period ended March 31, 2020. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).


First quarter 2020 main highlights

·     

Pro forma Net Revenue grew by 27.2% year over year (YoY), reaching R$272.3 million. Pro forma Net Revenue excluding UniRedentor grew 20.1%.

·     

Pro forma Adjusted EBITDA increased 36.0% YoY reaching R$140.6 million, with EBITDA margin of 51.6%, increasing 330 basis points (bps). Pro forma Adjusted EBITDA excluding UniRedentor grew 33.3%, with EBITDA margin expanding 530 bps.

·     

Adjusted Net Income of R$124.0 million, up 131.7% YoY.

·     

Cash conversion of 80.7% with a solid cash position of R$1,299 million at quarter-end.

·     

Intake process for the 2H20 have already captured more candidates than medical seats available, ensuring 100% occupancy

·     

Considering the consolidation of UniSL figures,  a 22% growth is projected in medical student base for 2H20 when compared to 1Q20, reaching 9,718 medical students.

·     

16,008 monthly active users of Afya Digital in the end of March, 2020.

 

Table 1: Financial Highlights

First Quarter

 

Considering the adoption of IFRS 16

(in thousand of R$)

2020

2019

% Chg

 

2020
ex-Uniredentor

2019

% Chg
ex-Uniredentor

(a) Net Revenue

272,304

144,578

88.3%

 

257,088

144,578

77.8%

(b) Pro forma Net Revenue¹

272,304

214,095

27.2%

 

257,088

214,095

20.1%

(c) Adjusted EBITDA²

140,644

74,730

88.2%

 

137,794

74,730

84.4%

(d) = (c )/(a)  Adjusted EBITDA Margin²

51.6%

51.7%

-10 b.p

 

53.6%

51.7%

+190 b.p

(g) Pro forma Adjusted EBITDA¹ ²

140,644

103,409

36.0%

 

137,794

103,409

33.3%

(h) = (e)/(b)   Pro forma Adjusted EBITDA¹ ² Margin

51.6%

48.3%

+330 b.p

 

53.6%

48.3%

+530 b.p

(i) Adjusted Net Income

124,011

53,531

131.7%

 

121,964

53,531

127.8%

1.  Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.

2. See more information on "Non-GAAP Financial Measures" (Item 10).

 


 
 

 

 

Message from Management

Virgilio Gibbon, Afya’s CEO, stated: “This was an eventful and historical quarter. We are living and operating our business in an unprecedented time and we want to take a moment to acknowledge the challenges that the world is facing. We are fortunate that, as a business, we are able to help by providing free courses at this time to assist hospitals, medical schools, physicians and nurses to deal with the rapid spread of COVID-19.

 

I also want to thank our employees and professors who made it possible, within one week, to move 100% of the on-site classes onto our online platform. The feedback from students, professors and physicians could not be better – they are all very satisfied with the effectiveness of the platform. While the environment continues to evolve quickly, our teams are managing our priorities and business well. I am extremely proud of Afya’s team and glad to report that we and our families are safe and healthy – our first priority.

 

First quarter results grew significantly on the back of the positive dynamics and a very strong intake process concluded by the end of this quarter.  Afya had already completed the enrollment process with a 100% occupancy that maintained, as expected, our highly predictable topline growth even during these challenging times. Our business is tracking in line with our first half 2020 expectations as we are successfully executing our long-term strategy and showing the resilience of our business model during this unprecedented crisis. It is worth mentioning that our collection process by end of April is performing even better results when compared to the same period last year, signaling that Afya’s strong cash flow generation will continue even during the crisis. Considering the next intake cycle and the additional medical students added after UniSL acquisition, we are expecting to grow 22% our  medical student base in 2H20 when compared to 1Q20 reported figures, reaching 9,718 students, attesting the resilience of our business and ability to keep 100% of occupancy rate even during this crisis.

 

In March, as we started to see the Covid-19 outbreak in Brazil, we prioritized the well-being of our students and professors by quickly moving campus classes to our online platform. Most of our corporate staff started to work from home and are keeping all activities up and running. We are also providing a full package of social and health assistance to our employees and families to help them during the pandemic, including all HR initiatives such as online yoga classes, free psychological care, launch of corporate courses platform, free lectures, support for family professional placement, among others.

 

At Afya, we’re highly aware that we are privileged to have a service that is even more meaningful to students and health care professionals in this uncertain time. To help students in the last two years of graduation we released temporary free access to our digital platform, in parallel we launched the 2nd season of our webseries “Residência Médica”, and  to the general medical professional public we released several free courses and webinars to enhance their knowledge process during these challenging moments.

 

These actions brought a significant number of new students, physicians and medical schools to our platforms and positively changed the dynamic of our continuing medical education business unit. The monthly active users (MaU) of our platforms in the end of March has soared to more than 16.0 thousand, from 13.6 thousand in the end of January, attesting the potential to accelerate our market penetration and to offer to these users new programs and services to support their life long educational journey. And we expect a higher MaU in the second quarter due to other Covid initiatives. This is completely in sync with our strategy to combine quality medical education with intensive use of technology that will sprawl thru their medical carrers.

 

M&A remains a key growth strategy for us and we continue to evaluate opportunities to deploy capital into strategic acquisitions. Given that we are ahead of schedule in terms of acquisitions –we have already reached more than 40% of our target to acquire at least 1,000 medical school seats within three years after our IPO - we are taking this time to reevaluate all assets we have under Memorandum of Understandings (MoU), which currently represents more than 500 seats. We are also looking for assets and digital platforms that can add services to medical professionals, thus maximizing our product offering. Importantly, our financial soundness and cash flow generation capabilities allows us flexibility, and we intend to remain opportunistic. Last but not least, integration continued running smoothly and even during the pandemic we were able to conclude IPEMED’s integration and we are very close to conclude MedCel and Uninovafapi’s integration process (expected by the third quarter of 2020), extracting all sizeable synergies we identified when acquiring these businesses. It is worth mentioning that in the beginning of this month we closed the UniSL acquisition in Rondônia entering another important State in northern region.

 

2


 
 

 

 

Afya is also proud of its engagement with society. All of our initiatives and beliefs are detailed in our first Sustainability Report, released in the beginning of May. In this report we detail our initiatives and strategy  that contributed to us to achieve 12 of the 17 UN Sustainable Development Goals (SDGs). We also became a signatory of the UN Global Compact, with my personal commitment, and support from the Board, to meet fundamental responsibilities in four areas: human rights, labor, environment and anti-corruption.

 

We are operating in truly extraordinary times, times of great challenges, but also times in which we see many key opportunities ahead for Afya.”

 

1.        COVID-19 Update

COVID-19 did not have an impact on the Company’s 1Q20 financial results. As a matter of fact, Afya’s collection rate is 400 bps higher from January to April, when compared to the same period last year and a 100% occupancy in Medical School seats is maintained. However, taking into consideration the interruption of on-campus activities and that a significant portion of non-practical educational activities being temporarily offered through the Company’s online platform, Afya is expecting that some practical classes will have to be replaced during the 2H2020 postponing the revenue recognition proportionally. Those effects were already considered in the Company’s 1H20 guidance indicated by the Net Revenue guidance range, which already contemplated that a certain amount of practical classes would be delivered in the 2H2020. Aside from this, Afya does not expect other meaningful impacts on its 2Q20 results.

 

Afya understands the importance of its unique positioning in the medical community and therefore has played an important role in sharing knowledge with other institutions, physicians, students and patients through the initiatives below:

 

§ 

Temporary access to Afya’s digital platform – MedCel – free of charge for other medical education institutions through the duration of the pandemic. With this initiative, Afya aims to help other public and private medical schools to minimize the impact of the pandemic on their students. Over 9,000 medical students at 32 public and private schools are already accessing Medcel’s platform;

§ 

Development and launch of a free course of “Conducts for Emergencies in COVID-19” for hospitals, medical associations, medical schools and other interested professionals and students. The course focuses on mechanical ventilation, respiratory emergencies and imaging diagnosis. The online training is provided by two pulmonologists and a cardiologist from Afya and also selected guest specialists, which has had more than 23,000 participants and 34 institutions enrolled;

§ 

Launch of the free course “Therapeutic Update in the Era of Telemedicine”. This course aims to update doctors of several specialties on how to make routine emergency care and when is it really necessary to refer the patient to a specific specialist. It also teaches when and how telemedicine could be used, reducing the risk exposure of health professionals and patients and also relieving the burden on the health system. The course is composed of 60 study units, including 426 video lessons, 59 podcasts, 177 questions resolution, among others, with 1,572 users accessing the platform.

§ 

Promotion of a Free Webinar Week to discuss the “Impacts of Covid in the World’s Health Systems” together with iHeed, a world-class medical online education platform, with renowned physicians and health professionals from the US, UK, Ireland, Germany, South Korea, India and Singapore focusing on good practices to combat the pandemic and identify the lasting changes in the medical industry. Several themes such as technology, changes in medical education, welfare of doctors, among others were discussed, with an attendance of 5,800 participants.

§ 

Donation of masks, gloves and other safety equipment to health departments and hospitals to the 13 cities where Afya’s medical courses are located.

 

 

2.        First Half 2020 Guidance Reaffirmed

The Company is reaffirming its previously issued guidance for 1H20 including the successfully concluded admissions of new students for the first semester of 2020 and assuming a certain degree of potential impacts of COVID-19 into the business during 1H20. The impacts contemplated in the guidance below take into consideration the interruption of on-campus activities, with a significant portion of non-practical educational activities being temporarily offered through the Company’s online platform (rather than on-site) and the calendar of the practical educational activities being rescheduled to when authorities allow on-campus activities to resume.

 

3


 
 

 

 

Under these assumptions, Afya expects to partially mitigate the potential impact over the academic calendar and to its business results in 1H20. This timing effect was already contemplated within the Net Revenue´s guidance range provided and it will not change the tuition payment schedule for the 1H20. 

 

The global Coronavirus outbreak is an unprecedented and rapidly evolving situation. When considering Afya’s guidance for 1H20, it is paramount that shareholders and the market in general be advised that the COVID-19 pandemic is still evolving in Brazil, some state authorities may maintain a lockdown status for a still undefined period of time and/or take other actions not contemplated into the guidance, all of which are outside of the Company’s control.

 

Considering the above factors, the guidance for 1H20 is defined in the following table.

 

Guidance for 1H20

Important considerations

Net Revenues is expected to be between R$475 million – R$510 million

·       Includes UniRedentor starting February 1st, 2020

·       Excludes any acquisition that may be concluded after the issuance of the guidance; for instance does not include UniSaoLucas that was concluded on May 5, 2020.

 

 

Adjusted EBITDA margin is expected to be between 45-46.5%

·       Includes UniRedentor starting February 1st, 2020

·       Excludes any acquisition that may be concluded after the issuance of the guidance; for instance does not include UniSaoLucas that was concluded on May 5, 2020.

·       Includes the impact of the adoption of IFRS 16

 

 

3.        Overview of 1Q20

Operational Review

Afya is the only company offering technological solutions to support students across every stage of the medical career, from undergraduate students in its medical school years through medical residency preparatory courses, medical specialization programs and continuing medical education.

The Company operates two distinct business units. The first (Business Unit 1 or BU1), is comprised of Undergraduate – medical schools, other healthcare programs and ex-health degrees. Revenue is generated from the monthly tuition fees the Company charges students enrolled in the undergraduate programs. The Company also offers Residency Preparatory and Specialization Programs (Business Unit 2 or BU2). Revenue is comprised of fees from these programs.

 

4


 
 

 

 

Table 2: Key Revenue Drivers

First Quarter

 

2020

2019

% Chg

Business Unit 1: Educational Services Segment ¹

 

 

 

MEDICAL SCHOOL

 

 

 

Approved Seats²

1,866

1,267

47.3%

Operating Seats

1,516

  917

65.3%

Total Students

7,956

5,011

58.8%

Total Students (ex-Uniredentor)

7,339

5,011

46.5%

Tuition Fees (ex- Uniredentor - R$MM)

  181,308

  114,188

58.8%

Medical School Average Ticket (ex- Uniredentor - R$/month)

8,235

7,596

8.4%

UNDERGRADUATE HEALTH SCIENCE

 

 

 

Total Students

7,596

6,425

18.2%

Total Students (ex-Uniredentor)

6,544

6,425

1.9%

Tuition Fees (ex- Uniredentor - R$MM)

  25,860

  22,565

14.6%

OTHER UNDERGRADUATE

 

 

 

Total Students

  10,617

7,985

33.0%

Total Students (ex-Uniredentor)

8,744

7,985

9.5%

Tuition Fees (ex- Uniredentor - R$MM)

  27,031

  22,390

20.7%

Business Unit 2: Prep Courses & CME and Medical Specialization

 

 

 

Active Paying Students

 

 

 

Prep Courses & CME - B2C

9,375

7,249

29.3%

Prep Courses & CME - B2B

  890

  732

21.6%

Medical Specialization & Others

4,187

1,722

143.1%

Medical Specialization & Others  (ex-Uniredentor)

1,542

1,722

-10.5%

Revenue from courses (ex- Uniredentor - R$MM) ³

  57,894

  -

-

       

1. As Uniredentor tuition fees consolidates only two months of operation in the 1Q20, tuition fees of this table do not consider  Uniredentor results. Uniredentor average tuition fee for medical school in February and March was R$10,222.

2. This number includes UniSl that was acquired in May 5, 2020 and contribute 182 seats to Afya.

3. As Medcel and Ipemed were acquired on March 31, 2019 and on May 9, 2019 respectively, revenue from courses for BU2 were not accounted for in 1Q19. The number of students is disclosed to contribute with investors analysis.

 

Besides the active paying students, 9,000 medical students from 32 public and private medical schools are accessing our digital platform with a temporary free access during the crisis.

Total monthly active users (MaU) grew at 17.5% increase from January to March, reaching 16,008 user at the end of March. MaU represents the number of unique individuals that consumed Afya’s digital content in the last 30 days. Afya’s offers to its MaU a great number of learning assets, that can be e-books, videos, podcasts and questions. In the last quarter, MaU’s average consumption of learning assets were 54, increasing 26% the engagement of Afya’s digital users since January to March.

Table 3: Key Operational Drivers for BU2

First Quarter

 

January

February

March

 

 

 

 

Total Monthly Active Users (MaU)

 13,624

 14,602

 16,008

Average Learning Assets Consumption

 46

 59

 58

 

5


 
 

 

 

 Seasonality

Afya’s two businesses are impacted by seasonality but at different time periods. The first is associated with the concentration of prep course revenues in the first and fourth quarters of each year, when new content (books and e-books) is delivered and revenues are recognized. The second is associated with the maturation of several medical schools, which leads to a higher enrollment base in the second half of each year. As a result, in a typical year, the first quarter is normally the strongest. The fourth quarter is normally the second strongest, followed by the third and second quarters, respectively. Finally, the second half of the year is normally stronger than the first half.

 

Revenue

Pro forma Net Revenue, which considers results of Medcel, IPEMED and FASA as if they were acquired on January 1st 2019, for the three-months ended March 31, 2020, was up 27.2% over the same period of last year, to R$272.3 million.

Excluding the acquisition of UniRedentor, which closed in the end of January 2020, Pro Forma Net Revenue grew by 20.1% YoY, reaching R$257.1 million.

 

Total Net Revenue for the three-months ended March 31, 2020 was R$272.3 million, an increase of 88.3% over the same period of last year. Excluding the acquisition of UniRedentor Net Revenue grew 77.8% in the quarter,  with a contribution of 75% from Medcel, IPEMED, FASA and IPEC acquisitions and 25% from organic growth, which is comprised of the maturation of medical school seats and average ticket.

 

Table 3: Revenue & Revenue Mix 

     

(in thousand of R$)

First Quarter

 

2020

2019

% Chg

Net Revenue Mix

 

 

 

    Business Unit-1

211,784

144,578

46.5%

    Business Unit-2

61,497

-

 

    Inter-segment transactions

-977

 

 

Total Reported Net Revenue

272,304

144,578

88.3%

Total Pro Forma Net Revenue¹

272,304

214,095

27.2%

1.  Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.

 

Adjusted EBITDA and Pro forma Adjusted EBITDA

 

Pro forma Adjusted EBITDA was R$140.6 million in three-months ended March 31, 2020, up 36.0%, from R$103.4 million in the three-months ended March 31, 2019. Pro forma Adjusted EBITDA margin increased 330 basis points to 51.6% in the three-months ended March 31, 2020, from 48.3% in the same period of the prior year reflecting the operational leverage, synergies obtained from recent acquisitions and other improvements. Excluding the consolidation of UniRedentor, Pro forma Adjusted EBITDA increased 33.3% year over year to R$137.8 million from R$103.4 million and Pro forma Adjusted EBITDA margin increased 530 basis points, to 53.6% from 48.3%.

 

Adjusted EBITDA in three-months ended March 31, 2020 increased 88.2% to R$140.6 million, from R$74.7 million in the three-months ended March 31, 2019, Adjusted EBITDA margin of 51.6% was generally in line with the 51.7% reported in the three-months ended March 31, 2019, reflecting the consolidation of UniRedentor. Excluding this effect, Adjusted EBITDA increased 84.4% to R$137.8 million and Adjusted EBITDA margin expanded 190 basis points to 53.6% from 51.7%. Of this growth 75% came from consolidating acquisitions and 25% from maturation of the medical schools combined with synergies from acquisitions.

 

Upon closing and being included in the financial results for the first time, UniRedentor had a negative impact on the Adjusted EBITDA Margin in the quarter. However, with a proven track record of successfully integrating acquisitions, Afya expects that the full integration of this business will result in synergies that will converge to similar margin gains as the integration process progresses.

 

6


 
 

 

 

Table 4: Adjusted EBITDA

First Quarter

(in thousand of R$)

Considering the adoption of IFRS 16

 

2020

2019

% Chg

2020
ex-Uniredentor

2019

% Chg

Adjusted EBITDA

140,644

74,730

88.2%

137,794

74,730

84.4%

% Margin

51.6%

51.7%

-10 b.p

53.6%

51.7%

+190 b.p

Proforma Adjusted EBITDA¹

140,644

103,409

36.0%

137,794

103,409

33.3%

% Margin

51.6%

48.3%

+330 b.p

53.6%

48.3%

+530 b.p

1.  Includes the pro-forma results of Medcel, IPEMED and FASA, as if the acquisition had been consummated on January 1, 2019.

 

Net Income

During the three-months ended March 31, 2020, the Company reported Adjusted Net Income of R$124.0 million, compared to a Adjusted Net Income of R$53.5 million in the three-months ended March 31, 2019, an increase of 131.7%, mainly reflecting the revenue contribution, synergies captured and margin expansion from the consolidation of acquisitions.

 

Balance Sheet and Cash Flow

Cash and cash equivalents, including restricted cash of R$16.0 million, at March 31, 2020 were R$1,299.3 million, compared to R$960.1 million at December 31, 2019, and primarily reflects the proceeds from the 2019 IPO and 2020 Follow On offering.

 

For the three-month period ended March 31, 2020, Afya reported an Adjusted Cash Flow from Operations of R$107.4 million compared to R$59.0 million in 1Q19, a 82.0% increase.

 

Operating Cash Conversion Ratio for 1Q20 decreased to 80.7% from 82.7% in 1Q19, mainly due to the consolidation of Medcel results in 1Q20 figures. Since the prep course’s revenues are recognized mainly in the first and fourth quarters of each year, but collection is mostly stable during the year, Medcel’s negatively affects cash conversion in the first and fourth quarters.

Excluding Medcel consolidation for comparison purposes, operating cash conversion in 1Q20 would be 91.6%, representing a 890 bps increase, when compared with 1Q19.

 

7


 
 

 

 

Table 5: Operating Cash Conversion Ratio Reconciliation

First Quarter

(in thousand of R$)

Considering the adoption of IFRS 16

 

2020

2019

% Chg

(a) Cash flow from operations

101,396

57,732

75.6%

(b) Income taxes paid

6,057

1,297

367.0%

(c) = (a) + (b) Adjusted cash flow from operations

107,453

59,029

82.0%

   

 

 

(d) Adjusted EBITDA

140,644

74,730

88.2%

(e) Non-recurring expenses:

 

 

 

 - Integration of new companies (1)

3,120

1,000

212.0%

 - M&A advisory and due diligence  (2)

2,750

140

1864.3%

 - Expansion projects (3)

783

305

156.7%

 - Restructuring Expenses (4)

816

1,911

-57.3%

(f) = (d) - (e) Adjusted EBITDA ex- non-recurring expenses

133,175

71,374

86.6%

(g) = (a) / (f) Operating cash conversion ratio

80.7%

82.7%

-200 b.p

(1) Consists of expenses related to the integration of newly acquired companies.

(2) Consists of expenses related to professional and consultant fees in connection with due diligence services for M&A transactions.

(3) Consists of expenses related to professional and consultant fees in connection with the opening of new campuses.

(4) Consists of expenses related to the employee redundancies in conneciotn with the organizational restructuring of acquied companies.

 

4.        Subsequent Events

Closing of UniSL

 

On May 5, 2020, the Company announced that it had closed on the previously announced acquisition of Centro Universitário São Lucas, or UniSL, a post-secondary education institution that offers on-campus, undergraduate courses in medicine in the State of Rondônia. In 2019, UniSL reported gross revenue of R$227.5 million with approximately 65% of its gross revenue derived from health-related programs.

 

The purchase price was R$341.6 million, including the assumption of an estimated total net debt of R$140.1 million, of which 70% of the purchase price was paid in cash on closing and 30% is payable in three equal installments through 2023, adjusted by the CDI rate.

 

This acquisition will contribute 182 medical school seats to Afya, with a potential upside of 100 additional seats pending approval by the Ministry of Education that, if approved, could result in an additional payment of up to R$80 million, adjusted by the CDI rate.

 

5.        Conference Call and Webcast Information

When: May 29, 2020 at 11:00 a.m. ET.

Who:

 

Mr. Virgilio Gibbon, Chief Executive Officer

Mr. Luis André Blanco, Chief Financial Officer

Ms. Renata Costa Couto, Head of Investor Relations

 

Dial-in: +1-877- 591-8865 (U.S. Toll-Free); +1-336-698-3012 (International). Conference ID: 2699538

 

Webcast: ir.afya.com.br

 

Replay: Available between May 29, 2020 until June 4, 2020, by dialing +1-855-859-2056 (U.S. domestic) or +1-404-537-3406 (International), conference ID: 2699538.

 

8


 
 

   

 

6.        About Afya Limited (Nasdaq: AFYA)

Afya is the 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 enroll as medical students through their medical residency preparation, graduation program, and continuing medical education activities. For more information, please visit www.afya.com.br.

 

7.        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 students; our ability to increase tuition prices and prep course fees; our ability to anticipate and meet the evolving needs of student and teachers; our ability to source and successfully integrate acquisitions; 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. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential impacts of the COVID-19 pandemic on our business operations, financial results and financial position and on the Brazilian economy.

 

The Company undertakes 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. Readers should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect the Company’s financial results is included in filings made with the United States Securities and Exchange Commission (SEC) from time to time, including the section titled “Risk Factors” in the most recent Rule 434(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/.

 

8.        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, Afya uses Proforma Revenue, 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.

 

Afya calculates Adjusted EBITDA ex IFRS- 16 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. Pro Forma Adjusted EBITDA is calculated 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. The calculation for Adjusted Net Income ex- IFRS16 is 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.

 

9


 
 

 

 

Afya calculates Adjusted EBITDA considering IFRS- 16 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,  plus share-based compensation plus/minus non-recurring expenses. Pro Forma Adjusted EBITDA is calculated 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, plus share-based compensation plus/minus non-recurring expenses. The calculation for Adjusted Net Income considering IFRS 16 is net income plus amortization of customer relationships and trademark, plus shared based compensation. We calculate Operating Cash Conversion Ratio as the cash flows from operations, divided by Adjusted EBITDA plus/minus non-recurring expenses.

 

Management presents Adjusted EBITDA, Pro Forma Adjusted EBITDA and Pro Forma Adjusted Net Income because it believes these measures provide investors with a supplemental measure of the financial performance of the core operations that facilitates period-to-period comparisons on a consistent basis. Afya also presents Operating Cash Conversion Ratio because it believes this measure provides investors with a measure of how efficiently the Company converts EBITDA into cash. The non-GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, 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 competitors in the education services industry, and therefore, Afya’s measures may not be comparable to those of other companies.

 

9.        Unaudited Pro Forma Condensed Consolidated Financial Information

The unaudited interim pro forma condensed consolidated statement of income for the three months ended March 31, 2019 is based on the historical unaudited interim consolidated financial statements of Afya, and gives effect of the acquisition of Medcel, IPEMED and FASA by Afya Brazil as if it had been consummated on January 1, 2019. Pro forma adjustments were made to reflect the acquisition of Medcel, IPEMED and FASA by Afya Brazil.

10.     Investor Relations Contact

Renata Couto, Head of Investor Relations
Phone: +55 31 3515.7564 | +55 31 98463.3341
E-mail: renata.couto@afya.com.br

 

11.     Financial Tables

 

 

10


 
 

 

Interim condensed consolidated statements of income and comprehensive income

For the three-months periods ended March 31, 2020 and 2019

(In thousands of Brazilian Reais, except earnings per share)

 

 

 

March 31, 2020

 

March 31, 2019

 

 

(unaudited)

 

(unaudited)

 

 

 

 

 

Net revenue

 

 272,304

 

144,578

Cost of services

 

 (89,251)

 

 (54,364)

Gross profit

 

183,053

 

90,214

 

 

 

 

 

General and administrative expenses

 

(86,723)

 

(31,234)

Other expenses, net

 

(59)

 

(206)

 

 

 

 

 

Operating income

 

96,271

 

58,774

 

 

 

 

 

Finance income

 

30,013

 

5,167

Finance expenses

 

(18,859)

 

(12,236)

Finance result

 

11,154

 

(7,069)

 

 

 

 

 

Share of income of associate

 

2,302

 

-

 

 

 

 

 

Income before income taxes

 

109,727

 

51,705

 

 

 

 

 

Income taxes expense

 

(6,057)

 

(2,229)

 

 

 

 

 

Net income

 

103,670

 

49,476

 

 

 

 

 

 Other comprehensive income

 

-

 

-

Total comprehensive income

 

103,670

 

49,476

 

 

 

 

 

Income attributable to

 

 

 

 

Equity holders of the parent

 

 99,816

 

 41,535

Non-controlling interests

 

 3,854

 

 7,941

 

 

103,670

 

49,476

Basic earnings per share

 

 

 

 

Per common share

 

1.09

 

0.72

Diluted earnings per share

 

 

 

 

Per common share

 

1.09

 

0.71

 

 

11


 
 

 

Interim condensed consolidated statements of financial position

As of March 31, 2020, and March 31, 2019

(In thousands of Brazilian Reais)

 

 

March 31, 2020

 

December 31, 2019

Assets

 

(unaudited)

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

1,283,109

 

943,209

Restricted cash

 

14,137

 

14,788

Trade receivables

 

156,308

 

125,439

Inventories

 

5,580

 

3,932

Recoverable taxes

 

11,103

 

6,485

Derivatives

 

13,299

 

-

Other assets

 

15,923

 

17,912

Total current assets

 

1,499,459

 

1,111,765

 

 

 

 

 

Non-current assets

 

 

 

 

Restricted cash

 

2,053

 

2,053

Trade receivables

 

12,964

 

9,801

Other assets

 

23,219

 

17,267

Property and equipment

 

157,297

 

139,320

Investment in associate

 

47,936

 

45,634

Right-of-use assets

 

334,221

 

274,275

Intangible assets

 

1,524,985

 

1,312,338

Total non-current assets

 

2,102,675

 

1,800,688

 

 

 

 

 

Total assets

 

3,602,134

 

2,912,453

 

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade payables

 

22,853

 

17,628

Loans and financing

 

74,078

 

53,607

Derivatives

 

-

 

757

Lease liabilities

 

29,420

 

22,693

Accounts payable to selling shareholders

 

154,774

 

131,883

Advances from customers

 

33,738

 

36,860

Labor and social obligations

 

58,246

 

46,770

Taxes payable

 

24,248

 

19,442

Income taxes payable

 

2,522

 

3,213

Other liabilities

 

192

 

376

Total current liabilities

 

400,071

 

333,229

 

 

 

 

 

 Non-current liabilities

 

 

 

 

Loans and financing

 

16,724

 

6,750

Lease liabilities

 

319,159

 

261,822

Accounts payable to selling shareholders

 

241,166

 

168,354

Taxes payable

 

21,222

 

21,304

Provision for legal proceedings

 

6,795

 

5,269

Other liabilities

 

3,295

 

1,999

Total non-current liabilities

 

608,361

 

465,498

Total liabilities

 

1,008,432

 

798,727

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

17

 

17

Additional paid-in capital

 

2,300,513

 

1,931,047

Share-based compensation reserve

 

26,554

 

18,114

Retained earnings

 

215,732

 

115,916

Equity attributable to equity holders of the parent

 

2,542,816

 

2,065,094

Non-controlling interests

 

50,886

 

48,632

Total equity

 

2,593,702

 

2,113,726

Total liabilities and equity

 

3,602,134

 

2,912,453

 

12


 
 

 

Interim condensed consolidated statements of cash flows

For the three-months periods ended March 31, 2020 and 2019

(In thousands of Brazilian Reais)

 

March 31, 2020

 

March 31, 2019

 

(unaudited)

 

(unaudited)

Operating activities

 

 

 

 

Income before income taxes

109,727

 

51,705

   

Adjustments to reconcile income before income taxes

 

 

 

     

Depreciation and amortization

24,947

 

9,054

 

 

 

Allowance for doubtful accounts

6,332

 

3,803

 

 

 

Share-based compensation expense

8,440

 

1,041

 

 

 

Net foreign exchange differences

(1,201)

 

(1,115)

 

 

 

Net (gain) loss on derivatives

(14,055)

 

1,966

 

 

 

Accrued interest

5,781

 

334

 

 

 

Accrued lease interest

9,900

 

6,418

 

 

 

Share of income of associate

(2,302)

 

-

 

 

 

Provision for legal proceedings

816

 

(874)

Changes in assets and liabilities

 

 

 

 

Trade receivables

(35,564)

 

(8,710)

 

Inventories

(1,648)

 

(92)

 

Recoverable taxes

(4,615)

 

(632)

 

Other assets

(767)

 

(14,830)

 

Trade payables

4,479

 

6,833

 

Taxes payables

3,183

 

3,824

 

Advances from customers

(14,116)

 

1,479

 

Labor and social obligations

7,005

 

3,585

 

Other liabilities

1,111

 

(4,760)

 

 

 

 

 

 

Income taxes paid

(6,057)

 

(1,297)

 

Net cash flows from operating activities

101,396

 

57,732

     

 

 

 

 

Investing activities

 

 

 

 

Acquisition of property and equipment

(17,676)

 

(8,815)

 

Acquisition of intangibles assets

(3,172)

 

(832)

 

Restricted cash

651

 

-

 

Payments of accounts payable to selling shareholders

(9,458)

 

(8,759)

 

Acquisition of subsidiaries, net of cash acquired

(102,811)

 

1,548

 

Loans to related parties

-

 

(140)

 

Net cash flows used in investing activities

(132,466)

 

(16,998)

 

Financing activities

 

 

 

 

Payments of loans and financing

(1,316)

 

-

 

Issuance of loans and financing

911

 

-

 

Payments of lease liabilities

(11,735)

 

(7,670)

 

Capital increase

-

 

150,000

 

Proceeds from issuance of common shares

389,170

 

-

 

Shares issuance cost

(19,704)

 

-

 

Dividends paid to non-controlling interests

(1,600)

 

-

 

Net cash flows from financing activities

355,726

 

142,330

 

Net foreign exchange differences

15,244

 

-

 

Net increase in cash and cash equivalents

339,900

 

183,064

 

Cash and cash equivalents at the beginning of the period

943,209

 

62,260

 

Cash and cash equivalents at the end of the period

1,283,109

 

245,324

 

13


 
 

 

Reconciliation between Net Income and Adjusted Net Income

(in thousand of R$)

           
 

Considering the adoption of IFRS 16

Excluding the adoption of IFRS 16

 

2020

2019

% Chg

2020

2019

% Chg

Net income

103,670

49,476

109.5%

103,670

49,476

109.5%

Amortization of customer relationships and trademark (1)

  11,901

  3,014

  2.95

11,901

3,014

294.9%

Depreciation of right-of-use of assets (2)

-

-

  -

5,953

3,383

76.0%

Interest expense of lease liabilities (3)

-

-

  -

9,900

6,418

54.3%

Payment of lease liabilities (4)

-

-

  -

(11,735)

(7,670)

53.0%

Share-based compensation

8,440

1,041

710.8%

8,440

1,041

710.8%

Adjusted Net Income

124,011

53,531

131.7%

128,129

55,662

130.2%

             

(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 Net Income and Adjusted EBITDA

Reconciliation between Adjusted EBITDA and Net Income; Proforma Adjusted EBITDA

         

(in thousand of R$)

First Quarter

 

Considering the adoption of IFRS 16

Excluding the adoption of IFRS 16

 

2020

2019

% Chg

2020

2019

% Chg

Net income

103,670

49,476

109.5%

103,670

49,476

109.5%

Net financial result

(11,154)

7,069

  -

(11,154)

7,069

-

Income taxes expense

6,057

2,229

171.7%

6,057

2,229

171.7%

Depreciation and amortization

24,947

9,054

175.5%

24,947

9,054

175.5%

Interest received (1)

3,517

2,505

40.4%

3,517

2,505

40.4%

Payment of lease liabilities (2)

-

   -

-

(11,735)

(7,670)

53.0%

Share-based compensation

8,440

1,041

710.8%

8,440

1,041

710.8%

Income share associate

(2,302)

0

-

(2,302)

0

-

Non-recurring expenses:

7,469

3,356

122.6%

7,469

3,356

122.6%

 - Integration of new companies (3)

3,120

1,000

212.0%

3,120

1,000

212.0%

 - M&A advisory and due diligence (4)

2,750

140

1864.3%

2,750

140

1864.3%

 - Expansion projects (5)

783

305

156.7%

783

305

156.7%

 - Restructuring expenses (6)

816

1,911

-57.3%

816

1,911

-57.3%

Adjusted EBITDA

140,644

74,730

88.2%

128,909

67,060

92.2%

Adjusted EBITDA Margin

51.6%

51.7%

-10 b.p

47.3%

46.4%

+90 b.p

Pro Forma Adjusted EBITDA (7)

140,644

103,409

36.0%

128,909

94,342

36.6%

Pro Forma Adjusted EBITDA Margin (7)

51.6%

48.3%

+330 b.p

47.3%

44.1%

+260 b.p

             

(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.

(7) See Pro Forma Adjusted EBITDA Reconciliation to Proforma Net Income.

 

 

14


 
 

 

Reconciliation between Net Income and Pro Forma Adjusted EBITDA

 

First quarter

 

 

First quarter

(in thousand of R$)

2019

2019

 

 

2019

 

Afya Brazil Historical (1)

Medcel (2)

Pro Forma Adjustments

FASA + IPEMED EBITDA Pre Acq.

Afya Brazil Pro Forma

Net income

  49,476

20,044

-  5,315

-

64,205

Net financial result

7,069

65

  -

-

7,134

Income taxes expense

2,229

1,409

  -

-

3,638

Depreciation and amortization

9,054

1,726

5,315

-

16,095

Interest received (3)

2,505

  -

  -

-

2,505

Payment of lease liabilities (4)

  -

  -

  -

-

0

Share-based compensation

1,041

70

  -

-

1,111

Non-recurring expenses:

3,356

  -

  -

-

3,356

Integration of new companies (5)

1,000

  -

  -

-

1,000

M&A advisory and due diligence (6)

  140

  -

  -

-

140

Expansion projects (7)

  305

  -

  -

-

305

Restructuring expenses (8)

1,911

  -

  -

-

1,911

Adjusted EBITDA

  74,730

23,314

  -

5,365

 

Pro Forma Adjusted EBITDA

 

 

 

 

103,409

 

 

 

 

 

 

(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.

 

 

15

exhibit99_2.htm - Generated by SEC Publisher for SEC Filing  

Afya Limited

 

Unaudited interim condensed

consolidated financial statements

 

March 31, 2020

 


 
 

Afya Limited

Unaudited interim condensed consolidated statements of financial position

As of March 31, 2020 and December 31, 2019

(In thousands of Brazilian reais)

 

 

Notes

 

March 31, 2020

 

December 31, 2019

Assets

 

 

(unaudited)

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

5

 

1,283,109

 

943,209

Restricted cash

6

 

14,137

 

14,788

Trade receivables

7

 

156,308

 

125,439

Inventories

 

 

5,580

 

3,932

Recoverable taxes

 

 

11,103

 

6,485

Derivatives

12.1

 

13,299

 

-

Other assets

 

 

15,923

 

17,912

Total current assets

 

 

1,499,459

 

1,111,765

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Restricted cash

6

 

2,053

 

2,053

Trade receivables

7

 

12,964

 

9,801

Other assets

 

 

23,219

 

17,267

Property and equipment

10

 

157,297

 

139,320

Investment in associate

9

 

47,936

 

45,634

Right-of-use assets

12.2.2

 

334,221

 

274,275

Intangible assets

11

 

1,524,985

 

1,312,338

Total non-current assets

 

 

2,102,675

 

1,800,688

 

 

 

 

 

 

Total assets

 

 

3,602,134

 

2,912,453

 

Liabilities

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade payables

 

 

22,853

 

17,628

Loans and financing

12.2.1

 

74,078

 

53,607

Derivatives

12.2

 

-

 

757

Lease liabilities

12.2.2

 

29,420

 

22,693

Accounts payable to selling shareholders

12.2.3

 

154,774

 

131,883

Advances from customers

 

 

33,738

 

36,860

Labor and social obligations

 

 

58,246

 

46,770

Taxes payable

 

 

24,248

 

19,442

Income taxes payable

 

 

2,522

 

3,213

Other liabilities

 

 

192

 

376

Total current liabilities

 

 

400,071

 

333,229

 

 

 

 

 

 

 Non-current liabilities

 

 

 

 

 

Loans and financing

12.2.1

 

16,724

 

6,750

Lease liabilities

12.2.2

 

319,159

 

261,822

Accounts payable to selling shareholders

12.2.3

 

241,166

 

168,354

Taxes payable

 

 

21,222

 

21,304

Provision for legal proceedings

22

 

6,795

 

5,269

Other liabilities

 

 

3,295

 

1,999

Total non-current liabilities

 

 

608,361

 

465,498

Total liabilities

 

 

1,008,432

 

798,727

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

16

 

17

 

17

Additional paid-in capital

 

 

2,300,513

 

1,931,047

Share-based compensation reserve

 

 

26,554

 

18,114

Retained earnings

 

 

215,732

 

115,916

Equity attributable to equity holders of the parent

 

 

2,542,816

 

2,065,094

Non-controlling interests

 

 

50,886

 

48,632

Total equity

 

 

2,593,702

 

2,113,726

Total liabilities and equity

 

 

3,602,134

 

2,912,453

 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

F-2


 
 

Afya Limited

Unaudited interim condensed consolidated statements of income and comprehensive income

For the three-month periods ended March 31, 2020 and 2019

(In thousands of Brazilian reais, except earnings per share)

 

 

 

Notes

 

March 31, 2020

 

March 31, 2019

   

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

Net revenue

18

 

 272,304

 

144,578

Cost of services

19

 

 (89,251)

 

 (54,364)

Gross profit

 

 

183,053

 

90,214

   

 

 

 

 

General and administrative expenses

19

 

(86,723)

 

(31,234)

Other expenses, net

 

 

(59)

 

(206)

   

 

 

 

 

Operating income

 

 

96,271

 

58,774

 

 

 

 

 

 

Finance income

20

 

30,013

 

5,167

Finance expenses

20

 

(18,859)

 

(12,236)

Finance result

 

 

11,154

 

(7,069)

 

 

 

 

 

 

Share of income of associate

9

 

2,302

 

-

 

 

 

 

 

 

Income before income taxes

 

 

109,727

 

51,705

 

 

 

 

 

 

Income taxes expense

21

 

(6,057)

 

(2,229)

 

 

 

 

 

 

Net income

 

 

103,670

 

49,476

 

 

 

 

 

 

 Other comprehensive income

 

 

-

 

-

Total comprehensive income

 

 

103,670

 

49,476

 

 

 

 

 

 

Income attributable to

 

 

 

 

 

Equity holders of the parent

 

 

 99,816

 

 41,535

Non-controlling interests

 

 

 3,854

 

 7,941

 

 

 

103,670

 

49,476

Basic earnings per share

 

 

 

 

 

Per common share

17

 

1.09

 

0.72

Diluted earnings per share

 

 

 

 

 

Per common share

17

 

1.09

 

0.71

 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-3


 
 

Afya Limited

Unaudited interim condensed consolidated statements of changes in equity

For the three-month periods ended March 31, 2020 and 2019

(In thousands of Brazilian reais)

 

 

 

Equity attributable to equity holders of the parent

 

 

 

 

Share

capital

Additional paid-in capital

Share-based compensation reserve

Legal

reserve

Retained earnings reserve

Retained earnings

Total

Non-controlling interests

Total equity

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

315,000

125,014

2,161

7,223

52,584

-

501,982

88,372

590,354

Net income

 

-

-

-

-

-

41,535

41,535

7,941

49,476

Total comprehensive income

 

-

-

-

-

-

41,535

41,535

7,941

49,476

 

 

 

 

 

 

 

 

 

 

 

Capital increase with cash

 

150,000

-

-

-

-

-

150,000

-

150,000

Capital increase from corporate reorganization

 

122,062

137,051

-

-

-

-

259,113

-

259,113

Share-based compensation

 

-

-

1,041

-

-

-

1,041

-

1,041

Dividends cancelled

 

-

-

-

-

-

4,107

4,107

-

4,107

Allocation to additional paid-in capital

 

-

33,001

-

-

(33,001)

-

-

-

-

Balances at March 31, 2019 (unaudited)

 

587,062

295,066

3,202

7,223

19,583

45,642

957,778

96,313

1,054,091

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2019

 

17

1,931,047

18,114

-

-

115,916

2,065,094

48,632

2,113,726

 

 

 

 

 

 

 

 

 

 

 

Net income

 

-

-

-

-

-

99,816

99,816

3,854

103,670

Total comprehensive income

 

-

-

-

-

-

99,816

99,816

3,854

103,670

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares

 

-

389,170

-

-

-

-

389,170

-

389,170

Shares issuance cost

 

-

(19,704)

-

-

-

-

(19,704)

-

(19,704)

Share-based compensation

 

-

-

8,440

-

-

-

8,440

-

8,440

Dividends declared to non-controlling interests

 

-

-

-

-

-

-

-

(1,600)

(1,600)

Balances at March 31, 2020 (unaudited)

 

17

2,300,513

26,554

-

-

215,732

2,542,816

50,886

2,593,702

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-4


 
 

 

Afya Limited

Unaudited interim condensed consolidated statements of cash flows

For the three-month periods ended March 31, 2020 and 2019

(In thousands of Brazilian reais)

 

 

March 31, 2020

 

March 31, 2019

 

(unaudited)

 

(unaudited)

Operating activities

 

 

 

 

Income before income taxes

109,727

 

51,705

   

Adjustments to reconcile income before income taxes

 

 

 

     

Depreciation and amortization

24,947

 

9,054

 

 

 

Allowance for doubtful accounts

6,332

 

3,803

 

 

 

Share-based compensation expense

8,440

 

1,041

 

 

 

Net foreign exchange differences

(1,201)

 

(1,115)

 

 

 

Net (gain) loss on derivatives

(14,055)

 

1,966

 

 

 

Accrued interest

5,781

 

334

 

 

 

Accrued lease interest

9,900

 

6,418

 

 

 

Share of income of associate

(2,302)

 

-

 

 

 

Provision for legal proceedings

816

 

(874)

Changes in assets and liabilities

 

 

 

 

Trade receivables

(35,564)

 

(8,710)

 

Inventories

(1,648)

 

(92)

 

Recoverable taxes

(4,615)

 

(632)

 

Other assets

(767)

 

(14,830)

 

Trade payables

4,479

 

6,833

 

Taxes payables

3,183

 

3,824

 

Advances from customers

(14,116)

 

1,479

 

Labor and social obligations

7,005

 

3,585

 

Other liabilities

1,111

 

(4,760)

 

 

 

 

 

 

Income taxes paid

(6,057)

 

(1,297)

 

Net cash flows from operating activities

101,396

 

57,732

     

 

 

 

 

Investing activities

 

 

 

 

Acquisition of property and equipment

(17,676)

 

(8,815)

 

Acquisition of intangibles assets

(3,172)

 

(832)

 

Restricted cash

651

 

-

 

Payments of accounts payable to selling shareholders

(9,458)

 

(8,759)

 

Acquisition of subsidiaries, net of cash acquired

(102,811)

 

1,548

 

Loans to related parties

-

 

(140)

 

Net cash flows used in investing activities

(132,466)

 

(16,998)

Financing activities

 

 

 

 

Payments of loans and financing

(1,316)

 

-

 

Issuance of loans and financing

911

 

-

 

Payments of lease liabilities

(11,735)

 

(7,670)

 

Capital increase

-

 

150,000

 

Proceeds from issuance of common shares

389,170

 

-

 

Shares issuance cost

(19,704)

 

-

 

Dividends paid to non-controlling interests

(1,600)

 

-

 

Net cash flows from financing activities

355,726

 

142,330

 

Net foreign exchange differences

15,244

 

-

 

Net increase in cash and cash equivalents

339,900

 

183,064

 

Cash and cash equivalents at the beginning of the period

943,209

 

62,260

 

Cash and cash equivalents at the end of the period

1,283,109

 

245,324

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

F-5


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

1.    Corporate information

 

Afya Limited (“Afya” or “Afya Limited”), collectively with its subsidiaries referred to as the “Company”, is a holding company incorporated under the laws of the Cayman Islands on March 22, 2019. Afya Limited became the holding company of Afya Participações S.A. (hereafter referred to as “Afya Brazil”), formerly denominated NRE Participações S.A., through the completion of the corporate reorganization described below.

 

Until the contribution of Afya Brazil shares to Afya Limited, in July 2019, Afya Limited did not have commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, Afya Limited’s consolidated financial information substantially reflect the operations of Afya Brazil after the corporate reorganization.

 

The Company is formed by a network of higher education institutions located in ten Brazilian states forming a large educational group in the country, with emphasis on offering undergraduate and graduate courses related to medicine and health sciences and comprises the development and sale of electronically distributed educational courses on medicine science and related printed and technological educational content.

 

Corporate reorganization

 

On March 29, 2019, Afya Brazil merged (i) BR Health Participações S.A. (“BR Health”), a wholly-owned subsidiary of Bozano Educacional II Fundo de Investimento em Participações Multiestratégia (“Crescera”) that controlled Guardaya Empreendimentos and Participações S.A. (“Guardaya”) and was one of Afya Brazil’s shareholders; and (ii) Guardaya which owned 100% of Medcel Editora e Eventos S.A. (“Medcel Editora”) and CBB Web Serviços e Transmissões On Line S.A. (“CBB Web”), focused on medical residency preparation courses located in the state of São Paulo, resulting in the transfer to Afya Brazil of 100% of Medcel Editora and CBB Web and 15% of União Educacional do Planalto Central S.A. (“UEPC”), a medical school located in the Federal District. On June 18, 2019 Afya Brazil acquired an additional 15% interest in UEPC resulting in an interest of 30%.

 

On July 7, 2019, each of the Afya Brazil´s shareholders had agreed to contribute their respective shares on the Company to Afya Limited, exchanging one common share as 28 Class A or Class B common shares of Afya Limited. The holders of the Class A common shares and Class B common shares have identical rights, except that (i) the holder of Class B common shares is entitled to 10 votes per share, whereas holders of Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holders of Class B common shares are entitled to maintain their proportional ownership interest in the event that common shares and/or preferred shares are proposed to be issued. The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, unless otherwise required by law and subject to certain exceptions.

F-6


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

Initial public offering

 

On July 18, 2019, Afya Limited priced its initial public offering (“IPO”) of 13,744,210 Class A common shares, which began trading on the Nasdaq Global Select Market (“NASDAQ”) on July 19, 2019 under the symbol “AFYA”. On July 23, 2019, the underwriters exercised the option to buy an additional 2,061,631 Class A common shares to cover over-allotments, totaling 15,805,841 Class A common shares, which 13,888,887 Class A common shares were offered by Afya Limited and 1,916,954 Class A common shares were offered by the selling shareholders at the initial public offering price. The initial offering price was US$ 19.00 per Class A common share.

 

On July 23, 2019, the share capital of Afya Limited was increased by 13,888,887 Class A shares through the proceeds received as a result of the IPO of US$ 263,888 thousand (or R$ 992,778). The net proceeds from the IPO were US$ 242,711 thousand (or R$ 913,108), after deducting US$ 15,833 thousand (or R$ 59,566) in underwriting discounts and commissions and other offering expenses totaled US$ 5,344 thousand (or R$ 20,104). The share issuance costs totaled R$ 79,670.

 

Afya Limited transferred US$ 251,800 thousand (or R$ 961,438) of the net proceeds from the Cayman Islands to bank accounts in Brazil. These deposits are invested on first-line financial institutions in Brazil and are denominated in Brazilian reais.

 

Issuance of additional common shares

 

On February 6, 2020, Afya completed its follow-on public offering of 3,019,928 Class A common shares offered by the Company and 9,406,812 Class A common shares offered by the selling shareholders.

 

The offering price was US$ 27.50 per Class A common shares and gross proceeds of R$ 358,286 (US$ 83,048 thousand). The Company received net proceeds of R$ 339,648 (US$ 78,846 thousand), after deducting R$ 18,638 (US$ 4,202 thousand) in underwriting discounts, commissions and other offering expenses.

 

On March 10, 2020, the underwriters exercised their option to acquire additional 240,552 Class A common shares at the public offering price, resulting in gross proceeds of R$ 30,884 (US$ 6,615 thousand). The net proceeds from the additional shares were R$ 29,819 (US$ 6,387 thousand), after deducting R$ 1,066 (U$ 228 thousand) in underwriting discounts and commissions.

 

Afya transferred R$ 294,312 (US$ 68,060 thousand) of the net proceeds to bank accounts in Brazil with an increase in the capital of Afya Brazil. These deposits are invested in first-line financial institutions in Brazil and are denominated in Brazilian reais.

 

Acquisitions in 2020

 

On January 31, 2020, Afya Brazil acquired control of Sociedade Universitária Redentor ("UniRedentor"), through the acquisition of 100% of its shares. UniRedentor is a post-secondary education institution with governmental authorization to offer on-campus, undergraduate degrees and graduate programs in medicine and health, as well as other courses, in the State of Rio de Janeiro. UniRedentor is in line with the Company’s strategy to focus on medical education. See Note 4.

F-7


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

 

On May 5, 2020, Afya Brazil acquired control of Centro Universitário São Lucas (“UniSL”), through the acquisition of 100% of its shares. UniSL is a post-secondary education institution with governmental authorization to offer on-campus, undergraduate courses in medicine in the State of Rondônia. UniSL is in line with the Company’s strategy to focus on medical education. See Note 25.

 

COVID-19

 

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have emerged in Wuhan, China. COVID-19 has since spread to most of the countries around the globe, including every state in Brazil. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and on March 20, 2020 the Brazilian federal government declared a national emergency with respect to COVID-19.

 

Since March 17, 2020, there has been an interruption of our on-campus activities in light of authorities mandatory lockdowns. We managed to rapidly adapt our business to these unusual times, and although there has been an interruption of our on-campus activities, a significant portion of our non-practical educational activities are being successfully offered to our students through our online platform (rather than on-site) and we have received positive feedback from students, professors and physicians with respect to their digital experience. Regarding the offering of practical classes, we already resumed to provide in-hospital internships for the 5th and 6th year students, which is the highest portion of our practical curriculum. We expect that some practical educational activities (particularly for students in the 1st to 4th years) will have to be replaced during the second half of 2020 and will postpone a portion of our revenue recognition.

 

As we continue to offer our high quality education to our students through our platform and practical activities for the 5th and 6th year, through the same professors, staff and suppliers, we remain regularly charging our standard monthly tuitions fees. We do not have any current legal decision seeking the establishment of temporary discounts in the monthly tuition fees we charge our customers as a result of the COVID19 pandemic. We are committed to deliver the best quality service, minimizing the impact to our students, employees and our local communities during this crisis.  Finally, we are also not seeing any significant impact on the payment delinquency rate of our students, as of today, in fact, the accumulated ratio for 2020 is improved, when compared to same period in 2019. We continue to support our students providing special payment conditions for families impacted by the economic crisis. No significant impacts on financial performance and position of assets or trade receivables collection were noted and no significant change in the Company’s condition has triggered indicators of impairment in relation to these interim financial statements.

 

It is important to understand that the COVID-19 pandemic is still evolving in Brazil, and authorities may maintain a lockdown of our on-campus activities for a longer or undefined extended of period of time, impose a more severe lockdown, among other measures, all of which are outside of our control and may adversely affect our business and results of operations. We also may suffer labor shortages -- particularly labor

 

F-8


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

 

shortage of our teaching faculty, which is mostly comprised of doctors that continue to have work shifts at hospitals and are consequently more exposed to the COVID-19 than regular administrative staff. The COVID-19 pandemic is expect to cause a material and adverse effect on the general economic, financial, political, demographic and business conditions in Brazil, which may reduce the disposable income of our students and their families, and consequently (i) result in an adverse impact on the ability of our students (current and/or prospective) to pay our tuition fees and/or (ii) trigger an increase in our attrition rates.

 

While we are quite aware of the uncertainties created by COVID-19, we remain confident in our strategy, in the financial robustness of our business and in Afya’s contribution of high quality medical professionals who will help our society to overcome COVID-19 and other future challenges.

 

2.      Significant accounting policies

 

2.1 Basis for preparation of the unaudited interim condensed consolidated financial statements

 

The unaudited interim condensed consolidated financial statements as of March 31, 2020 and for the three-month periods ended March 31, 2020 and 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting.

 

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value.

 

The corporate reorganization described in Note 1, occurred on July 7, 2019, was accounted for as a reorganization of entities under common control whereby Afya Limited was created as a holding company of Afya Brazil. As a result, the assets and liabilities of Afya Brazil is carried at historical cost and there was no step-up in basis or goodwill, or other intangible assets recorded as a result of the corporate reorganization.

 

As a result, the unaudited interim condensed consolidated financial statements prepared by the Company subsequent to the completion of the reorganization are presented “as if” Afya Brazil is the predecessor of the Company. Accordingly, these unaudited interim condensed consolidated financial statements reflect: (i) the historical operating results of Afya Brazil prior to the reorganization; (ii) the consolidated results of the Company and Afya Brazil following the reorganization; (iii) the assets and liabilities of Afya Brazil at their historical cost; and (iv) the Company’s equity and earnings per share for all periods presented.

 

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of December 31, 2019.

 

Afya Limited is a holding company, as such the primary source of revenue derives from its interest on the operational companies in Brazil. As result, the Brazilian Real has been assessed as the Company`s functional currency.

 

F-9


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“BRL” or “R$”), which is the Company’s functional and presentation currency. All amounts are rounded to the nearest thousand, except when otherwise indicated.

 

These unaudited interim condensed consolidated financial statements for the three-month period ended March 31, 2020 were authorized for issue by the Board of Directors on May 27, 2020.

 

2.2  Changes in accounting policies and disclosures

 

New standards, interpretations and amendments adopted by the Company

 

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated  financial statements for the year ended 31 December 2019. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

Several amendments and interpretations apply for the first time in 2020, which include Amendments to IFRS 3: Definition of a Business; Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform; and Amendments to IAS 1 and IAS 8:  Definition of Material; and Conceptual Framework for Financial Reporting issued on March 29, 2018, but do not have a material impact on the Company’s unaudited interim condensed consolidated financial statements.

 

 

 

F-10


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

2.3  Basis consolidation

 

 

 

 

 

Direct and indirect interest

Name

Principal activities

Location

Investment type

March

December 31, 2019

31, 2020

Afya Participações S.A (Afya Brazil)

Holding

Nova Lima - MG

Subsidiary

100%

100%

Instituto Tocantinense Presidente Antônio Carlos Porto S.A. - ITPAC Porto Nacional

Undergraduate and graduate degree programs

Porto Nacional - TO

Subsidiary

100%

100%

Instituto Tocantinense Presidente Antônio Carlos S.A. - ITPAC Araguaina

Undergraduate and graduate degree programs

Araguaína - TO

Subsidiary

100%

100%

União Educacional do Vale do Aço S.A. – UNIVAÇO

Medicine undergraduate degree program

Ipatinga – MG

Subsidiary

100%

100%

IPTAN - Instituto de Ensino Superior Presidente Trancredo de Almeida Neves S.A. (“IPTAN”)

Undergraduate and graduate degree programs

São João Del Rei - MG

Subsidiary

100%

100%

Instituto de Educação Superior do Vale do Parnaíba S.A. (“IESVAP”)

Undergraduate and graduate degree programs

Parnaíba – PI

Subsidiary

80%

80%

Centro de Ciências em Saúde de Itajubá S.A. (“CCSI”)

Medicine undergraduate degree program

Itajubá – MG

Subsidiary

60%

60%

Instituto de Ensino Superior do Piauí S.A. (”IESP”)

Undergraduate and graduate degree programs

Teresina - PI

Subsidiary

100%

100%

RD Administração e Participações Ltda.

Holding

Pato Branco – PR

Subsidiary

100%

100%

FADEP - Faculdade Educacional de Pato Branco Ltda. (“FADEP”)

Undergraduate and graduate degree programs

Pato Branco – PR

Subsidiary

100%

100%

CBB Web Serviços e Transmissões Online S.A. (“CBBW”)

Medical education courses and online platform

São Paulo- SP

Subsidiary

100%

100%

Medcel Editora e Eventos S.A. (“Medcel”)

Medical education content

São Paulo- SP

Subsidiary

100%

100%

Instituto Educacional Santo Agostinho S.A. (“FASA”)

Undergraduate and graduate degree programs

Montes Claros – MG

Subsidiary

100%

100%

ESMC Educação Superior Ltda.**

Undergraduate and graduate degree programs

Montes Claros – MG

Subsidiary

100%

-

Instituto de Pesquisa e Ensino Médico do Estado de Minas Gerais Ltda. (“IPEMED”)

Post-graduate

Belo Horizonte – MG

Subsidiary

100%

100%

União Educacional do Planalto Central S.A. (“UEPC”)

Undergraduate and graduate degree programs

Brasília – DF

Associate

30%

30%

Instituto Paraense de Educação e Cultura Ltda (IPEC)

Undergraduate and graduate degree programs

Marabá - PA

Subsidiary

100%

100%

Sociedade Universitária Redentor (UniRedentor*”)

Undergraduate and graduate degree programs

Itaperuna – RJ

Subsidiary

100%

-

 

*              See Note 4 for further details on the business combinations during 2020.

**             On January 1, 2020, the Company incorporated ESMC Educação Superior Ltda., or ESMC, and transferred the two FASA campuses located in the State of Minas Gerais, which do not offer medicine courses, to ESMC. This spin-off did not have an impact on the consolidated financial statements.

 

The financial information of the acquired subsidiaries is included in the Company’s consolidated financial statements beginning on the respective acquisition dates.

 

The Company consolidates the financial information for all entities it controls. Control is achieved when the Company is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and it ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.

 

F-11


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

 

When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.

 

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of income.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of financial position, consolidated statements of income and comprehensive income and consolidated statements of changes in equity.

 

3.   Segment information

 

As a result of the corporate reorganization described in Note 1 which occurred on March 29, 2019, the Company has two reportable segments, as follows:

 

• Education Services Segment (Business Unit 1), which provides educational services through undergraduate and graduate courses related to medicine, other health sciences and other undergraduate programs; and

 

• Residency Preparatory and Specialization Programs Segment (Business Unit 2), which provides residency preparatory courses and medical post-graduate specialization programs, delivering printed and digital content, an online medical education platform and practical medical training.

 

No operating segments have been aggregated to form the above reportable operating segments. There is only one geographic region and the results are monitored and evaluated as a single business.

 

Segment information is presented consistently with the internal reports provided to the Company’s Chief Executive Officer (CEO), which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Company’s operating segments, and making the Company’s strategic decisions.

 

F-12


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The following table presents assets and liabilities information for the Company’s operating segments as of March 31, 2020:

 

 

Business

Unit 1

Business

Unit 2

Total

Adjustments and eliminations

Consolidated

Assets

3,339,092

263,363

3,602,455

(321)

3,602,134

Current assets

1,394,628

105,152

1,499,780

(321)

1,499,459

Non-current assets

1,944,464

158,211

2,102,675

-

2,102,675

 

 

 

 

 

 

Liabilities and equity

3,339,092

263,363

3,602,455

(321)

3,602,134

Current liabilities

372,644

27,748

400,392

(321)

400,071

Non-current liabilities

460,295

148,066

608,361

-

608,361

Equity

2,506,153

87,549

2,593,702

-

2,593,702

Other disclosures

 

 

 

 

 

Investments in associate

47,936

-

47,936

-

47,936

Capital expenditures (*)

17,275

3,573

20,848

-

20,848

 

(*) Capital expenditures consider the acquisitions of property and equipment and intangible assets.

 

The following table presents statements of income for the Company's operating segments for the three-month period ended March 31, 2020:

 

 

 

Business Unit 1

Business Unit 2

Total reportable segments

Adjustments and eliminations *

Total 

External costumer

211,784

60,520

272,304

 -  

 272,304

Inter-segment

-

977

977

 (977)

 -  

Net revenue

211,784

61,497

273,281

 (977)

 272,304

Cost of services

(76,281)

(13,947)

(90,228)

 977

 (89,251)

Gross profit

135,503

47,550

183,053

 -  

 183,053

General and administrative expenses

       

(86,723)

Other expenses, net

       

(59)

Operating income

       

96,271

Finance income

       

30,013

Finance expenses

       

(18,859)

Share of income of associate

       

2,302

Income before income taxes

       

109,727

Income taxes expense

       

(6,057)

Net income

       

103,670

 

(*) These eliminations are related to sale transactions from Medcel to other entities in Business Unit 1.

 

There were no results of operations derived from the Business Unit 2 for three-month period ended March 31, 2019, given such segment has commenced following the business combination occurred on March 29, 2019.

 

Seasonality of operations

 

Business Unit 1´s tuition revenues do not have significant fluctuations during the year.

 

Business Unit 2’s sales are concentrated in the first and last quarter of the year, as a result of enrollments at the beginning of the year. 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. Consequently, Business Unit 2 generally has higher revenues and results of operations in the first and last quarter of the year compared to the second and third quarters of the year.

F-13


 
 
Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

March 31, 2020 and 2019

Expressed in thousands of Brazilian reais, unless otherwise stated

 

4.    Business combination

 

4.1 Acquisition in 2020

 

The preliminary fair values of the identifiable assets acquired and liabilities assumed as of each acquisition date were:

 

 

 

UniRedentor

Assets

 

Cash and cash and equivalents

11,796

Trade receivables

4,800

Recoverable taxes

3

Other assets

2,486

Right-of-use assets

10,265

Property and equipment

4,207

Indemnification assets

710

Intangible assets

134,281

 

168,548

Liabilities

 

Trade payables

(746)

Loans and financing

(16,187)

Lease liabilities

(10,265)

Labor and social obligations

(4,471)

Taxes payable

(850)

Provision for legal proceedings