Afya Limited Consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Afya Limited Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of Afya Limited (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, chang ...

Company Performance - Afya (AFYA) closed at $20.74, reflecting a +1.52% change from the previous session, outperforming the S&P 500's daily gain of 1.12% [1] - Over the past month, Afya's shares have decreased by 2.81%, while the Consumer Discretionary sector and S&P 500 gained 1.03% and 2.06%, respectively [1] - Afya is projected to report earnings of $0.34 per share, indicating a year-over-year growth of 30.77%, with revenue estimates at $141.83 million, representing a 27.8% increase compared to the same quarter last year [1] Analyst Forecasts - Recent revisions to analyst forecasts for Afya are important as they reflect short-term business trends, with positive revisions indicating a favorable business outlook [2] - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently ranks Afya at 3 (Hold), with the consensus EPS estimate remaining stagnant over the past month [2] Valuation Metrics - Afya is trading at a Forward P/E ratio of 13.32, which is below the industry average Forward P/E of 18.35 [3] - The company has a PEG ratio of 0.76, compared to the Schools industry's average PEG ratio of 1.16 [3] - The Schools industry, part of the Consumer Discretionary sector, holds a Zacks Industry Rank of 22, placing it in the top 9% of over 250 industries [3]

The latest trading session saw Afya (AFYA) ending at $21.02, denoting a +0.57% adjustment from its last day's close. This move outpaced the S&P 500's daily loss of 0.1%. Meanwhile, the Dow gained 0.33%, and the Nasdaq, a tech-heavy index, lost 0.3%.Prior to today's trading, shares of the medical education company had lost 0.99% over the past month. This has lagged the Consumer Discretionary sector's gain of 3.76% and the S&P 500's gain of 5.78% in that time.Analysts and investors alike will be keeping a clo ...

In the latest market close, Afya (AFYA) reached $20.44, with a +1.79% movement compared to the previous day. The stock outperformed the S&P 500, which registered a daily loss of 0.32%. Elsewhere, the Dow saw a downswing of 0.71%, while the tech-heavy Nasdaq depreciated by 0.2%.Heading into today, shares of the medical education company had lost 3.6% over the past month, lagging the Consumer Discretionary sector's gain of 2.23% and the S&P 500's gain of 4.59% in that time.Market participants will be closely ...

Core Insights - Afya Limited has received authorization to increase medical seats at Faculdades Integradas Padrão (FIP Guanambi) by 40, resulting in a total of 100 medical seats at this campus and 3,203 approved seats overall [1][2] - The additional payment associated with this increase is R$49.6 million, indicating a significant financial impact for the company [1] Company Overview - Afya Limited is recognized as a leading medical education group in Brazil, focusing on the number of medical school seats and providing a comprehensive ecosystem for medical students and physicians [2] - The company offers a range of services from medical residency preparation to continuing medical education, along with digital products aimed at enhancing healthcare services throughout a physician's career [2]

Afya Limited (NASDAQ:AFYA) Q3 2023 Earnings Conference Call November 13, 2023 5:00 PM ET Company Participants Renata Couto - IR Executive Manger Virgilio Gibbon - CEO Luis Blanco - CFO Conference Call Participants Lucas Nagano - Morgan Stanley Marcelo Santos - JPMorgan Lucca Marquezini - Itau BBA Renata Couto Thank you for joining us for Afya's Third Quarter 2023 Conference Call. Today, I'm here with Afya's CEO, Virgilio Gibbon; and Luis Andre Blanco, our CFO. During this presentation, our executives will m ...

Afya Limited Unaudited interim condensed consolidated financial statements September 30, 2023 Afya Limited Unaudited interim condensed consolidated statements of financial position As of September 30, 2023, and December 31, 2022 (In thousands of Brazilian reais) | | Notes | September 30, 2023 | December 31, 2022 | | --- | --- | --- | --- | | Assets | | (unaudited) | | | Current assets | | | | | Cash and cash equivalents | 5 | 822,008 | 1,093,082 | | Trade receivables | 6 | 480,556 | 452,831 | | Inventories ...

Financial Data and Key Metrics Changes - Adjusted net revenue increased by 24% year-over-year, reaching R$712 million [8][19] - Adjusted EBITDA grew by more than 22%, reaching R$268 million with a margin of 38% [8][20] - Record cash flow from operating activities was R$566 million, an increase of 26% year-over-year, with a cash conversion rate of 99% [8][21] - Adjusted net income was R$132 million, an 11% growth year-over-year, with an EPS of R$1.42, representing a growth of 12% [8][22] Business Line Data and Key Metrics Changes - Undergrad segment saw an 18% growth in the number of medical students, reaching almost 21,000 [9][23] - Continuing Education segment reported a strong net revenue growth of 50% year-over-year [9][24] - Digital Health Services segment ended the quarter with a revenue increase of 28% year-over-year [9][26] Market Data and Key Metrics Changes - The ecosystem reached almost 282,000 active users, a growth of 6% year-over-year, representing around 34% of the Brazilian physicians and medical students market [10][25] - The number of operating seats increased by over 25% year-over-year, reaching 3,113 [9][23] Company Strategy and Development Direction - The company aims to grow its Undergrad segment by maturing existing seats, organic growth, and acquisitions, targeting over 32,000 students by 2028 [16] - Continuing Education is expected to reach R$440 million in net revenue by 2028, 4x higher than 2022 [17] - Digital Services aims for a net revenue of $1.2 billion by 2028, focusing on B2B and B2P business acquisitions [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience and ability to deliver solid results with high predictability [12][14] - The company is focused on integrating new acquisitions and enhancing operational leverage across all segments [20][32] Other Important Information - The company received three significant awards in the second quarter, highlighting its performance in innovation and education [14] - The new brand strategy aims to consolidate the value under a single brand to enhance recognition and engagement [15] Q&A Session Summary Question: Impact of adjusted EBITDA margin due to revenue mix and integration of UNIT - Management confirmed that integration of UNIT is expected to occur in Q4, and noted that Medcel's performance is less relevant in Q2 and Q3 due to revenue concentration in other quarters [30][31] Question: Expectations for medical seat requests and FG-FIES impact - Management indicated that it is too early to assess the impact of new seat requests and confirmed that the expected impact of FG-FIES for the year is R$24 million, evenly distributed across the first and second halves [34][39] Question: Outlook for FG-FIES contribution in 2024 - Management stated that it is difficult to predict the impact for 2024 but expects a reduction in retention rates for medical programs due to lower delinquency rates [40][42] Question: Mitigation strategies for FG-FIES effects - Management highlighted that the delinquency rates for medical programs are much lower than for non-medical programs and discussed ongoing efforts to propose amendments to limit retention rates [44][46]

[Unaudited Interim Condensed Consolidated Financial Statements](index=2&type=section&id=Unaudited%20interim%20condensed%20consolidated%20financial%20statements) [Statements of Financial Position](index=2&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20financial%20position) As of June 30, 2023, Afya's total assets increased to R$7.85 billion from R$7.20 billion at year-end 2022, primarily driven by a rise in intangible assets from acquisitions; total liabilities also grew to R$4.40 billion from R$3.95 billion, mainly due to increased accounts payable to selling shareholders and loans, consequently, total equity rose to R$3.45 billion from R$3.25 billion Consolidated Statements of Financial Position (in thousands of BRL) | | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | 1,374,239 | 1,637,657 | | **Total non-current assets** | 6,475,229 | 5,561,882 | | **Total assets** | **7,849,468** | **7,199,539** | | **Total current liabilities** | 1,170,681 | 905,689 | | **Total non-current liabilities** | 3,232,590 | 3,043,692 | | **Total liabilities** | **4,403,271** | **3,949,381** | | **Total equity** | **3,446,197** | **3,250,158** | | **Total liabilities and equity** | **7,849,468** | **7,199,539** | - The increase in non-current assets was primarily due to a significant rise in Intangible Assets, which grew from **R$4.04 billion** to **R$4.83 billion**[2](index=2&type=chunk) - Current liabilities increased notably due to a rise in 'Accounts payable to selling shareholders' from **R$261.7 million** to **R$401.8 million**[2](index=2&type=chunk) [Statements of Income and Comprehensive Income](index=3&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20income%20and%20comprehensive%20income) For the six months ended June 30, 2023, net revenue increased by **22.2%** year-over-year to R$1.42 billion, however, higher costs and finance expenses led to a decrease in net income to R$205.3 million, compared to R$241.0 million in the same period of 2022, and basic earnings per share fell to R$2.17 from R$2.55 Consolidated Statements of Income (Six-Month Period Ended June 30, in thousands of BRL) | | 2023 (unaudited) | 2022 (unaudited) | Change (%) | | :--- | :--- | :--- | :--- | | **Net revenue** | 1,422,568 | 1,164,480 | +22.2% | | **Gross profit** | 890,666 | 758,508 | +17.4% | | **Operating income** | 406,182 | 371,013 | +9.5% | | **Net income** | 205,310 | 241,015 | -14.8% | | **Basic earnings per share (R$)** | 2.17 | 2.55 | -14.9% | - Finance expenses for the six-month period increased significantly to **R$238.4 million** in 2023 from **R$165.0 million** in 2022, impacting overall profitability[4](index=4&type=chunk) [Statements of Changes in Equity](index=4&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20changes%20in%20equity) Total equity increased from R$3.25 billion at the end of 2022 to R$3.45 billion as of June 30, 2023, with growth primarily driven by net income of R$205.3 million, partially offset by treasury share repurchases of R$12.4 million and dividends paid to non-controlling interests of R$10.3 million Changes in Equity for the Six-Month Period Ended June 30, 2023 (in thousands of BRL) | Description | Amount | | :--- | :--- | | **Balances at December 31, 2022** | **3,250,158** | | Net income | 205,310 | | Treasury shares | (12,369) | | Share-based compensation | 13,398 | | Dividends declared (non-controlling interests) | (10,300) | | **Balances at June 30, 2023 (unaudited)** | **3,446,197** | [Statements of Cash Flows](index=5&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20cash%20flows) For the first six months of 2023, net cash from operating activities was R$537.5 million, an increase from R$427.9 million in the prior year period, while a significant cash outflow of R$737.9 million was used in investing activities, largely for the acquisition of subsidiaries (R$640.9 million), and financing activities used R$150.9 million, resulting in a net decrease in cash and cash equivalents of R$351.9 million Consolidated Statements of Cash Flows (Six-Month Period Ended June 30, in thousands of BRL) | | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | **Net cash flows from operating activities** | **537,492** | **427,916** | | **Net cash flows used in investing activities** | **(737,914)** | **(287,510)** | | **Net cash flows used in financing activities** | **(150,925)** | **(272,398)** | | Net decrease in cash and cash equivalents | (351,886) | (132,312) | | Cash and cash equivalents at the beginning of the period | 1,093,082 | 748,562 | | **Cash and cash equivalents at the end of the period** | **741,196** | **616,250** | - The primary driver for the large cash outflow in investing activities was the **R$640.9 million** used for the acquisition of subsidiaries, net of cash acquired[8](index=8&type=chunk) [Notes to the Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20the%20consolidated%20financial%20statements) [Note 1: Corporate Information](index=6&type=section&id=1%20Corporate%20information) Afya Limited is a Cayman Islands holding company listed on Nasdaq (AFYA), with Bertelsmann SE & Co. KGaA as its ultimate parent, operating the largest network of medical higher education institutions in Brazil and providing digital services for physicians, and in January 2023, Afya acquired Sociedade Educacional e Cultural Sergipe DelRey Ltda. ("DelRey"), with no significant direct impact from COVID-19 or the Russia-Ukraine conflict as of the reporting date - Afya is the largest educational group in Brazil by the number of medical seats, with operations in **19 states**[10](index=10&type=chunk) - On January 2, 2023, the company acquired Sociedade Educacional e Cultural Sergipe DelRey Ltda. ("DelRey"), a post-secondary education institution[11](index=11&type=chunk) - The company's ultimate parent is Bertelsmann SE & Co. KGaA, following an acquisition of control on May 5, 2022[9](index=9&type=chunk) [Note 2: Significant Accounting Policies](index=7&type=section&id=2%20Significant%20accounting%20policies) The unaudited interim financial statements were prepared in accordance with IAS 34 and are consistent with the annual statements for 2022, with the Brazilian Real (BRL) as the functional and presentation currency, authorized for issuance on August 28, 2023, and the note also lists the company's subsidiaries and its **30%** associate, UEPC, detailing the basis of consolidation - The financial statements are prepared in accordance with IAS 34 Interim Financial Reporting and should be read with the 2022 annual statements[20](index=20&type=chunk)[21](index=21&type=chunk) - The company's functional and presentation currency is the Brazilian Real (BRL)[23](index=23&type=chunk)[24](index=24&type=chunk) - The company consolidates all entities it controls, with a notable merger in February 2023 being ESMC with UnifipMoc[31](index=31&type=chunk)[34](index=34&type=chunk) [Note 3: Segment Information](index=10&type=section&id=3%20Segment%20information) Afya operates in three reportable segments: Undergrad, Continuing Education, and Digital Services, with the Undergrad segment being the largest contributor for the six months ended June 30, 2023, generating R$1.25 billion in net revenue, while the Continuing Education and Digital Services segments generated R$70.6 million and R$105.7 million, respectively, and the Digital Services segment experiences seasonality with higher revenues in the first and last quarters - The company has three reportable segments: Undergrad (medical and health undergraduate courses), Continuing Education (specialization programs), and Digital Services (medical education content and technology)[38](index=38&type=chunk) Segment Net Revenue (Six-Month Period Ended June 30, 2023, in thousands of BRL) | Segment | Net Revenue | | :--- | :--- | | Undergrad | 1,246,240 | | Continuing Education | 70,584 | | Digital Services | 105,744 | | **Total** | **1,422,568** | - The Undergrad segment holds the vast majority of the company's assets, with **R$7.41 billion** out of a total of **R$7.85 billion** as of June 30, 2023[42](index=42&type=chunk) [Note 4: Business Combinations](index=13&type=section&id=4%20Business%20combinations) On January 2, 2023, Afya acquired **100%** of DelRey for a total consideration of R$832.2 million, including R$575 million in cash paid at closing, R$250 million in deferred payments, and R$7.2 million in digital solutions, resulting in preliminary goodwill of R$91.4 million and adding R$722.7 million in intangible assets (primarily licenses), with DelRey contributing R$116.3 million in net revenue for 2023 DelRey Acquisition Purchase Price Allocation (in thousands of BRL) | | Amount | | :--- | :--- | | Total identifiable net assets at fair value | 740,846 | | Preliminary goodwill arising on acquisition | 91,390 | | **Purchase consideration transferred** | **832,236** | | Cash paid | 575,000 | | Consideration to be transferred | 250,000 | | Digital solutions | 7,236 | - The acquisition includes a potential additional payment of up to **R$105,000**, contingent on the approval of **84 additional medical seats**, which was not measured at the acquisition date[48](index=48&type=chunk) - The goodwill of **R$91.4 million** is allocated entirely to the Undergrad segment and is not expected to be tax-deductible[52](index=52&type=chunk) [Note 5: Cash and Cash Equivalents](index=15&type=section&id=5%20Cash%20and%20cash%20equivalents) As of June 30, 2023, cash and cash equivalents totaled R$741.2 million, a decrease from R$1.09 billion at the end of 2022, with the majority (**R$724.1 million**) held in financial investments like Bank Certificates of Deposit (CDB) with highly rated institutions, yielding an average of **100.25%** of the CDI rate Cash and Cash Equivalents (in thousands of BRL) | | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Cash and bank deposits | 17,057 | 57,509 | | Cash equivalents | 724,139 | 1,035,573 | | **Total** | **741,196** | **1,093,082** | [Note 6: Trade Receivables](index=15&type=section&id=6%20Trade%20receivables) Net trade receivables increased to R$552.4 million as of June 30, 2023, from R$495.4 million at year-end 2022, with the allowance for doubtful accounts also growing to R$59.1 million from R$44.0 million over the same period, and the majority of receivables are from tuition fees Trade Receivables Breakdown (in thousands of BRL) | | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Gross Trade Receivables | 611,545 | 539,445 | | (-) Allowance for doubtful accounts | (59,132) | (44,046) | | **Net Trade Receivables** | **552,413** | **495,399** | | Current | 509,520 | 452,831 | | Non-current | 42,893 | 42,568 | Change in Allowance for Doubtful Accounts (in thousands of BRL) | | June 30, 2023 (unaudited) | June 30, 2022 (unaudited) | | :--- | :--- | :--- | | Beginning Balance | (44,046) | (45,013) | | Additions | (39,086) | (30,420) | | Write-offs | 24,000 | 28,548 | | **Ending Balance** | **(59,132)** | **(46,885)** | [Note 7: Related Parties](index=16&type=section&id=7%20Related%20parties) Transactions with related parties include sales of educational content to associate UEPC and lease agreements with entities linked to shareholders, and as of June 30, 2023, accounts payable to selling shareholders included R$32.6 million due to shareholder Nicolau Carvalho Esteves, with key management compensation for the first six months of 2023 totaling R$17.0 million, including R$9.9 million in share-based compensation Key Management Personnel Compensation (Six-Month Period, in thousands of BRL) | | June 30, 2023 (unaudited) | June 30, 2022 (unaudited) | | :--- | :--- | :--- | | Short-term employee benefits | 7,131 | 8,037 | | Share-based compensation plan | 9,905 | 8,273 | | **Total** | **17,036** | **16,310** | - The company has accounts payable of **R$32.6 million** to shareholder Nicolau Carvalho Esteves related to the development of the ITPAC Garanhuns medical school, due in November 2023[61](index=61&type=chunk)[62](index=62&type=chunk) [Note 8: Other Assets](index=17&type=section&id=8%20Other%20assets) Total other assets increased to R$264.4 million as of June 30, 2023, from R$243.5 million at year-end 2022, with the largest component being indemnification assets of R$148.2 million, which represent the selling shareholders' responsibility for pre-acquisition liabilities of acquired subsidiaries Other Assets Breakdown (in thousands of BRL) | | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Indemnification assets | 148,175 | 145,300 | | Advances | 29,013 | 30,626 | | Judicial deposits | 14,412 | 12,693 | | Other | 72,778 | 67,382 | | **Total** | **264,378** | **243,501** | [Note 9: Investment in Associate](index=18&type=section&id=9%20Investment%20in%20associate) Afya holds a **30%** interest in UEPC, a medical school, accounted for using the equity method, with the carrying amount of this investment being R$52.7 million as of June 30, 2023, and for the first six months of 2023, Afya's share of UEPC's income was R$7.1 million, and it received R$5.1 million in dividends Reconciliation of Investment in Associate (in thousands of BRL) | | June 30, 2023 (unaudited) | | :--- | :--- | | **Opening balance** | **53,907** | | Dividends received | (5,101) | | Dividends receivable | (3,193) | | Share of income | 7,056 | | **Closing balance** | **52,669** | [Note 10: Property and Equipment](index=19&type=section&id=10%20Property%20and%20equipment) The net book value of property and equipment increased to R$588.2 million as of June 30, 2023, from R$542.1 million at year-end 2022, driven by additions of R$56.9 million and assets acquired through business combinations of R$25.0 million, offset by depreciation of R$35.6 million Property and Equipment Movement (Six-Month Period Ended June 30, 2023, in thousands of BRL) | | Amount | | :--- | :--- | | **Net Book Value at Jan 1, 2023** | **542,087** | | Additions | 56,907 | | Business combinations | 24,980 | | Depreciation | (35,550) | | Write-off (net) | (246) | | **Net Book Value at June 30, 2023** | **588,178** | [Note 11: Intangible Assets and Goodwill](index=20&type=section&id=11%20Intangible%20assets%20and%20goodwill) The net book value of intangible assets and goodwill rose significantly to R$4.83 billion as of June 30, 2023, from R$4.04 billion at year-end 2022, primarily due to the DelRey acquisition, which added R$814.0 million in intangibles, including R$576.6 million in licenses and R$91.4 million in goodwill, with goodwill now totaling R$1.35 billion Intangible Assets and Goodwill Movement (Six-Month Period Ended June 30, 2023, in thousands of BRL) | | Amount | | :--- | :--- | | **Net Book Value at Jan 1, 2023** | **4,041,491** | | Business combinations (DelRey) | 814,044 | | Additions | 45,250 | | Amortization | (71,553) | | Other (Remeasurement, Write-off, etc.) | (249) | | **Net Book Value at June 30, 2023** | **4,831,529** | - Goodwill increased from **R$1.26 billion** to **R$1.35 billion** due to the DelRey acquisition, and licenses with indefinite useful life increased from **R$2.19 billion** to **R$2.77 billion**[71](index=71&type=chunk) - No impairment of goodwill or intangible assets was indicated for the six-month period ended June 30, 2023[74](index=74&type=chunk)[75](index=75&type=chunk) [Note 12: Financial Instruments](index=21&type=section&id=12%20Financial%20assets%20and%20financial%20liabilities) This note details the company's financial instruments, as of June 30, 2023, total financial liabilities at amortized cost were R$3.80 billion, up from R$3.45 billion at year-end 2022, with the increase mainly from higher accounts payable to selling shareholders related to acquisitions, and the company manages market, credit, and liquidity risks, with primary exposure to interest rate fluctuations on its floating-rate debt [Loans and Financing](index=21&type=section&id=12.2.1%20Loans%20and%20financing) Total loans and financing stood at R$1.93 billion as of June 30, 2023, a slight increase from R$1.88 billion at year-end 2022, with the largest components being an R$825.0 million loan from Softbank and two loans from Banco Itaú totaling R$550.1 million, and the majority of the debt is indexed to the CDI rate Loans and Financing Breakdown (in thousands of BRL) | Financial institution | June 30, 2023 (unaudited) | | :--- | :--- | | Banco Itaú Unibanco S.A. (CDI + 1.90%) | 517,844 | | Softbank (6.5% p.y.) | 825,003 | | Debentures (CDI + 1.80%) | 537,426 | | Other | 44,881 | | **Total** | **1,925,154** | [Leases](index=21&type=section&id=12.2.2%20Leases) Lease liabilities increased to R$851.8 million as of June 30, 2023, from R$769.5 million at year-end 2022, primarily due to R$65.4 million in lease liabilities assumed from the DelRey acquisition and R$35.1 million from remeasurements Lease Liabilities Movement (Six-Month Period Ended June 30, 2023, in thousands of BRL) | | Amount | | :--- | :--- | | **Balance at Jan 1, 2023** | **769,525** | | Business combinations | 65,408 | | Additions & Remeasurement | 37,625 | | Interest expense | 49,033 | | Payments | (66,239) | | Write-off | (3,507) | | **Balance at June 30, 2023** | **851,845** | [Accounts Payable to Selling Shareholders](index=22&type=section&id=12.2.3%20Accounts%20payable%20to%20selling%20shareholders) This liability increased significantly to R$764.6 million as of June 30, 2023, from R$528.7 million at year-end 2022, with the primary driver being the addition of R$250.0 million in deferred payments for the DelRey acquisition, and this balance represents future payments due to the sellers of acquired companies Accounts Payable to Selling Shareholders Movement (Six-Month Period Ended June 30, 2023, in thousands of BRL) | | Amount | | :--- | :--- | | **Opening balance** | **528,678** | | Additions (DelRey) | 250,000 | | Interest | 47,758 | | Payments and deductions | (64,397) | | Remeasurement | 2,556 | | **Closing balance** | **764,595** | - The largest outstanding balances relate to the acquisitions of Unigranrio (**R$230.8M**) and DelRey (**R$266.1M**)[82](index=82&type=chunk) [Financial Risk Management](index=24&type=section&id=12.4%20Financial%20instruments%20risk%20management%20objectives%20and%20policies) The company is exposed to market (interest rate, foreign currency), credit, and liquidity risks, with the primary market risk being interest rate risk on floating-rate debt (CDI-indexed), and a sensitivity analysis shows that a **150 basis point** increase in interest rates would decrease pre-tax profit by R$17.4 million, while foreign currency risk is minimal, and credit risk is managed through monitoring of receivables, with liquidity risk managed by maintaining reserves and monitoring cash flows - The company's main financial risk is interest rate risk, as a significant portion of its debt is tied to floating rates like CDI and SELIC[93](index=93&type=chunk) Interest Rate Sensitivity Analysis (Effect on Profit Before Tax, in thousands of BRL) | Increase in basis points | Effect on profit before tax | | :--- | :--- | | +75 | (8,704) | | +150 | (17,408) | [Note 13: Fair Value Measurement](index=27&type=section&id=13%20Fair%20value%20measurement) This note outlines the fair value hierarchy for the company's financial instruments, where all disclosed financial assets and liabilities, including non-current receivables, loans, leases, and payables to selling shareholders, are categorized as **Level 2**, with their fair values determined using observable inputs, such as discounted cash flow (DCF) models with current market rates, and there were no transfers between levels during the period - The company's financial instruments, including loans, lease liabilities, and accounts payable to selling shareholders, are measured at fair value using **Level 2 inputs** (significant observable inputs)[106](index=106&type=chunk) - The fair value of interest-bearing borrowings is determined using the Discounted Cash Flow (DCF) method, reflecting the issuer's current borrowing rate[89](index=89&type=chunk) [Note 15: Labor and Social Obligations](index=28&type=section&id=15%20Labor%20and%20social%20obligations) This note details compensation plans, for the first half of 2023, share-based compensation expense was R$13.4 million, comprising R$9.7 million for the stock option plan and R$3.7 million for the Restricted Stock Units (RSU) program, and the company granted **45,000** new stock options and **24,000** new RSUs during the period - The company has two main share-based compensation plans: a stock option plan and a Restricted Stock Units (RSU) program[111](index=111&type=chunk)[117](index=117&type=chunk) Share-Based Compensation Expense (Six-Month Period Ended June 30, in thousands of BRL) | Plan | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | Stock Options Plan | 9,672 | 11,581 | | RSU Program | 3,726 | - | | **Total** | **13,398** | **11,581** | [Note 16: Equity](index=30&type=section&id=16%20Equity) As of June 30, 2023, Afya had **93.7 million** shares outstanding, and during the period, subsidiaries CCSI and IESVAP paid R$10.3 million in dividends to non-controlling shareholders, and in March 2023, the board approved a new share repurchase program for up to **2 million Class A shares**, under which the company repurchased R$12.4 million worth of shares by June 30, 2023 - On March 24, 2023, the board approved the fourth share repurchase program, authorizing the buy-back of up to **2,000,000 Class A common shares** until December 31, 2024[125](index=125&type=chunk) - In the first six months of 2023, the company repurchased **216,339 shares** for **R$12.4 million** under the new program[125](index=125&type=chunk)[127](index=127&type=chunk) - Dividends of **R$10.3 million** were paid to non-controlling shareholders during the six-month period ended June 30, 2023[123](index=123&type=chunk) [Note 17: Earnings Per Share (EPS)](index=31&type=section&id=17%20Earnings%20per%20share%20(EPS)) For the six-month period ended June 30, 2023, basic EPS was R$2.17, calculated on a net income of R$194.9 million and **89.9 million** weighted average shares, diluted EPS was R$2.16, reflecting the potential dilution from stock options and restricted share units, and this is a decrease from the R$2.55 basic and diluted EPS in the same period of 2022 EPS Calculation (Six-Month Period Ended June 30) | | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | Net income attributable to parent (thousands BRL) | 194,916 | 231,115 | | Weighted average shares (basic) | 89,872,136 | 90,740,133 | | Weighted average shares (diluted) | 90,429,310 | 90,740,133 | | **Basic EPS (R$)** | **2.17** | **2.55** | | **Diluted EPS (R$)** | **2.16** | **2.55** | [Note 18: Revenue](index=32&type=section&id=18%20Revenue) Net revenue from contracts with customers for the six months ended June 30, 2023, was R$1.42 billion, up from R$1.16 billion in the prior-year period, with revenue primarily from tuition fees, which totaled R$1.73 billion before deductions, and the vast majority of revenue (R$1.39 billion) is recognized over time Revenue Breakdown (Six-Month Period Ended June 30, in thousands of BRL) | | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | Tuition fees | 1,729,136 | 1,400,931 | | Other | 127,092 | 98,693 | | Deductions (Discounts, Taxes, PROUNI, etc.) | (423,660) | (335,144) | | **Net revenue from contracts with customers** | **1,422,568** | **1,164,480** | - Revenue is primarily generated in Brazil, and the Undergrad segment contributed **R$1.25 billion** to net revenue in the first half of 2023[131](index=131&type=chunk)[133](index=133&type=chunk) [Note 19: Expenses and Costs by Nature](index=33&type=section&id=19%20Expenses%20and%20costs%20by%20nature) For the six months ended June 30, 2023, total costs and expenses amounted to R$1.01 billion, up from R$791.9 million in the same period of 2022, with the largest expense categories being payroll (R$529.9 million), depreciation and amortization (R$138.3 million), and maintenance (R$48.6 million) Expenses and Costs by Nature (Six-Month Period Ended June 30, in thousands of BRL) | Expense Category | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | Payroll | (529,916) | (419,197) | | Depreciation and amortization | (138,264) | (99,089) | | Maintenance | (48,622) | (35,633) | | Hospital and medical agreements | (41,446) | (30,131) | | Allowance for doubtful accounts | (39,086) | (30,523) | | Consulting fees | (32,488) | (14,869) | | Other | (184,886) | (162,462) | | **Total** | **(1,014,708)** | **(791,901)** | [Note 20: Finance Result](index=34&type=section&id=20%20Finance%20result) The company reported a net finance expense of R$186.8 million for the first six months of 2023, a significant increase from the R$117.5 million expense in the same period of 2022, with the rise driven by higher interest expenses on loans (R$152.4 million) and lease liabilities (R$49.0 million), reflecting a higher interest rate environment and increased debt levels Finance Result (Six-Month Period Ended June 30, in thousands of BRL) | | 2023 (unaudited) | 2022 (unaudited) | | :--- | :--- | :--- | | **Finance income** | **51,579** | **47,443** | | **Finance expenses** | **(238,357)** | **(164,967)** | | *Interest expense* | *(152,404)* | *(95,165)* | | *Interest expense on lease liabilities* | *(49,033)* | *(41,392)* | | **Finance result** | **(186,778)** | **(117,524)** | [Note 21: Income Taxes](index=34&type=section&id=21%20Income%20taxes) For the six months ended June 30, 2023, the income tax expense was R$21.2 million on a pre-tax income of R$226.5 million, resulting in an effective tax rate of **9.3%**, which is significantly lower than the Brazilian statutory rate of **34%** primarily due to tax exemptions from the PROUNI federal program, providing a tax benefit of R$167.7 million Income Tax Reconciliation (Six-Month Period Ended June 30, 2023, in thousands of BRL) | | Amount | | :--- | :--- | | Income before income taxes | 226,460 | | Income taxes at statutory rates (34%) | (76,996) | | PROUNI - Fiscal Incentive | 167,681 | | Unrecognized deferred tax assets | (91,241) | | Other adjustments | (1,304) | | **Income taxes expense – current** | **(21,150)** | - The company had unrecognized deferred tax assets of **R$1.02 billion** (tax-basis) as of June 30, 2023, due to a lack of available tax planning opportunities to support their recognition[139](index=139&type=chunk) [Note 22: Legal Proceedings and Contingencies](index=35&type=section&id=22%20Insurance%20contracts%20and%20contingencies) As of June 30, 2023, the company had provisions of R$202.9 million for labor, civil, and tax proceedings where loss is deemed probable, with a significant portion of these potential liabilities (R$148.2 million) covered by indemnification agreements with the selling shareholders of acquired companies, and additionally, there are proceedings with a possible risk of loss totaling R$77.5 million for which no provision has been made Provision for Legal Proceedings (in thousands of BRL) | Type | June 30, 2023 (unaudited) | | :--- | :--- | | Labor | 24,400 | | Civil | 26,683 | | Taxes | 151,857 | | **Total** | **202,940** | - The company has an indemnification asset of **R$148.2 million**, corresponding to provisions for legal proceedings arising from events prior to acquisitions, for which selling shareholders are responsible[144](index=144&type=chunk) [Note 24: Subsequent Events](index=36&type=section&id=24%20Subsequent%20events) After the reporting period, on July 31, 2023, the company modified its share-based compensation plan, allowing holders to exchange stock options for Restricted Stock Units (RSUs) and changing the index for strike price adjustments from CDI to the IPCA inflation rate, and in August 2023, a subsidiary settled a tax proceeding with the municipality of Rio de Janeiro by paying R$14.8 million through a tax amnesty program - On July 31, 2023, the company approved changes to its share-based compensation plan, including an option to exchange stock options for RSUs and changing the strike price index to IPCA[146](index=146&type=chunk) - In August 2023, subsidiary Unigranrio settled a tax proceeding by paying **R$14.8 million** under a tax amnesty program[147](index=147&type=chunk)

Afya Limited (NASDAQ:AFYA) Q1 2023 Earnings Conference Call May 24, 2023 5:00 PM ET Company Participants Renata Couto - Investor Relations Executive Manger Virgilio Gibbon - Chief Executive Officer Luis Andre Blanco - Chief Financial Officer Conference Call Participants Lucca Marquezini - Itau BBA Mauricio Cepeda - Credit Suisse Lucas Nagano - Morgan Stanley Jessica Mehler - JPMorgan Renata Couto Good night, everyone. Thank you for joining us for Afya’s First Quarter 2023 Conference Call. I'm here today wit ...