Afya Limited (NASDAQ:AFYA) Q3 2021 Results Earnings Conference Call November 22, 2021 5:00 PM ET Company Participants Renata Costa Couto - Director of Investor Relations Virgilio Gibbon - Chief Executive Officer Luis Andre Blanco - Chief Financial Officer Conference Call Participants Marcelo Santos - JPMorgan Vinicius Figueiredo - Itau BBA Mauricio Cepeda - Credit Suisse Yan Cesquim - BTG Pactual Vinicius Ribeiro - UBS Renata Costa Couto Good evening everyone. Thank you for joining us for Afya's third quart ...

Financial Data and Key Metrics Changes - Adjusted net revenue increased by 39% year-over-year, reaching R$382 million [8][17] - Adjusted EBITDA rose by 36% year-over-year to R$161 million, with an adjusted EBITDA margin of 42% [8][17] - Cash position stood at R$1.4 billion, reflecting a strong cash generation and a cash conversion rate of 104%, up 21 percentage points from the previous year [8][17] Business Line Data and Key Metrics Changes - Undergrad medical student enrollment grew by 47% year-over-year, reaching 13,400 students [9][20] - Average medical school tuition increased by over 5%, reaching R$8,598 [20] - Continuing education net revenues decreased by 33%, driven by a 27% lower student base [21] - Digital services reported a strong increase of 89% in net revenue, with active paying users reaching 148,000 [22] Market Data and Key Metrics Changes - The digital ecosystem reached 232,000 monthly active users, representing almost 40% of the Brazilian physician market [9][22] - The average monthly medical tuition fees derived from medical school increased to 80% of total tuition fees, up from 73% in the previous year [20] Company Strategy and Development Direction - The company focuses on M&A as a primary growth driver, successfully integrating acquisitions to enhance margins [10][11] - Plans to acquire at least 200 medical school seats per year starting in 2022, with a strong pipeline for future acquisitions [11] - The digital business strategy includes expanding product offerings across six pillars, with a focus on telemedicine and digital prescriptions [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving similar top-line growth in the second half of the year as seen in the first half [35] - Anticipated recovery in continuing medical education demand post-COVID, with new intakes expected to drive growth [36][66] - Management acknowledged the impact of inflation but plans to adjust tuition fees accordingly while embedding digital services into the curriculum [59] Other Important Information - The company released its annual sustainability report, committing to gender equality and establishing a Compensation and ESG Committee [14][15] - The company aims to achieve a 50% margin for new acquisitions within two years through synergies [32] Q&A Session Summary Question: What is the profitability of UNIFIPMoc? - Management indicated that UNIFIPMoc's performance aligns with expectations, operating at around 20%-25% EBITDA margin [27][28] Question: What are the growth perspectives for digital services and continuing education? - Management expects growth in digital services to continue, with a recovery in continuing education anticipated after October [35][36] Question: How will inflation affect pricing strategies? - The company plans to increase tuition fees above inflation, leveraging added value from digital services [59] Question: What is the margin comparison between digital services and medical education? - Digital services are expected to have lower margins than medical education, with a focus on increasing penetration and scale [51][52] Question: What is the status of the MVP for pharma? - The MVP projects are in early stages, focusing on market research rather than clinical research [54][56]

[Unaudited Interim Condensed Consolidated Financial Statements](index=1&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) Afya Limited's consolidated statements of financial position show a significant increase in total assets and liabilities as of June 30, 2021, compared to December 31, 2020, primarily driven by growth in cash and cash equivalents, loans and financing, and intangible assets Statements of Financial Position (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Total Assets | 5,981,934 | 4,793,093 | | Total Liabilities | 2,965,123 | 1,959,313 | | Total Equity | 3,016,811 | 2,833,780 | | Cash and cash equivalents| 1,424,718 | 1,045,042 | | Loans and financing (Non-current) | 1,348,942 | 510,323 | | Intangible assets | 3,112,982 | 2,573,010 | [Statements of Income and Comprehensive Income](index=4&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20income%20and%20comprehensive%20income) For the six-month period ended June 30, 2021, Afya Limited reported increased net revenue and operating income, but a substantial negative shift in finance result led to a decrease in net income and basic/diluted earnings per share compared to the same period in 2020 Statements of Income and Comprehensive Income (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net revenue | 766,725 | 546,515 | | Cost of services | (270,951) | (195,934) | | Gross profit | 495,774 | 350,581 | | Operating income | 231,484 | 173,071 | | Finance result | (88,284) | 1,978 | | Net income | 135,293 | 167,556 | | Basic earnings per share | 1.34 | 1.74 | | Diluted earnings per share | 1.33 | 1.73 | [Statements of Changes in Equity](index=5&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20changes%20in%20equity) Afya Limited's total equity increased from December 31, 2020, to June 30, 2021, primarily due to net income and a capital increase, partially offset by treasury share repurchases and dividends to non-controlling interests Statements of Changes in Equity (in R$ thousands) | Metric (in R$ thousands) | Balances at December 31, 2020 | Balances at June 30, 2021 (unaudited) | | :----------------------- | :---------------------------- | :------------------------------------ | | Total equity | 2,833,780 | 3,016,811 | | Net income | - | 125,327 | | Capital increase | - | 74,500 | | Treasury shares | - | (64,752) | | Dividends declared to non-controlling interests | - | (10,617) | [Statements of Cash Flows](index=6&type=section&id=Unaudited%20interim%20condensed%20consolidated%20statements%20of%20cash%20flows) The company experienced a substantial net increase in cash and cash equivalents for the six-month period ended June 30, 2021, driven by strong operating and financing cash inflows, despite significant cash outflows for investing activities, mainly due to acquisitions Statements of Cash Flows (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash flows from operating activities | 320,515 | 189,417 | | Net cash flows used in investing activities | (623,052) | (351,025) | | Net cash flows from financing activities | 706,835 | 239,973 | | Net increase in cash and cash equivalents | 379,676 | 98,253 | | Cash and cash equivalents at beginning of period | 1,045,042 | 943,209 | - Acquisition of subsidiaries, net of cash acquired, resulted in a significant cash outflow of **R$547,529** in the first six months of 2021, an increase from **R$307,935** in the same period of 2020[13](index=13&type=chunk)[236](index=236&type=chunk) [Notes to the Unaudited Interim Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20unaudited%20interim%20condensed%20consolidated%20financial%20statements) [1 Corporate Information](index=7&type=section&id=1%20Corporate%20information) Afya Limited, a Cayman Islands holding company, operates as the largest medical education group in Brazil through Afya Brazil, offering higher education, post-graduate courses, and digital services for physicians, completing a follow-on public offering in early 2020 and making six strategic acquisitions in 2021 - Afya Limited is a holding company incorporated in the Cayman Islands, with its consolidated financial information reflecting the operations of Afya Brazil, a network of higher education and post-graduate institutions focused on medicine in **18** Brazilian states[16](index=16&type=chunk)[17](index=17&type=chunk)[239](index=239&type=chunk) - In February 2020, Afya completed a follow-on public offering, generating net proceeds of **R$339,648** (**US$78,846 thousand**) for the Company[18](index=18&type=chunk)[241](index=241&type=chunk) - In 2021, Afya Brazil acquired six companies: iClinic (SaaS medical practice management), Medicinae (healthcare payments), Medical Harbour (medical imaging solutions), Cliquefarma (drug price tracking), Shosp (clinical management software), and UNIFIPMoc (post-secondary medical education)[20](index=20&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) [COVID-19 Impact](index=8&type=section&id=COVID-19) The COVID-19 pandemic led to temporary suspension of on-campus activities, transitioning to online platforms, deferring some junior student practical classes, and imposing mandatory discounts, yet the company reported no significant impact on financial performance or asset position - On-campus activities were interrupted due to mandatory lockdowns, with non-practical educational activities moved to an online platform[25](index=25&type=chunk)[248](index=248&type=chunk) - Deferred revenues of **R$3,540** were recorded as of June 30, 2021, due to the suspension of some practical educational activities for first to fourth-year students[25](index=25&type=chunk)[248](index=248&type=chunk) - Mandatory discounts granted due to COVID-19 totaled **R$17,318** during 2021, with **R$13,531** related to the subsidiary FCMPB, leading to ongoing legal proceedings[26](index=26&type=chunk)[249](index=249&type=chunk) - The COVID-19 pandemic has had no significant impact on the company's financial performance, asset position, or student payment default rates as of June 30, 2021[28](index=28&type=chunk)[251](index=251&type=chunk) [2 Significant Accounting Policies](index=9&type=section&id=2%20Significant%20accounting%20policies) The unaudited interim condensed consolidated financial statements are prepared in accordance with IAS 34 on a historical cost basis, presented in Brazilian Reais, with no material impact from new standards, and consolidate all controlled entities - The interim financial statements are prepared in accordance with IAS 34 Interim Financial Reporting on a historical cost basis, except for derivative financial instruments measured at fair value[30](index=30&type=chunk)[253](index=253&type=chunk) - The financial statements are presented in Brazilian Reais (BRL), which is the Company's functional and presentation currency[32](index=32&type=chunk)[255](index=255&type=chunk) - No new standards, interpretations, or amendments adopted in 2021 had a significant impact on the interim condensed consolidated financial statements[34](index=34&type=chunk)[257](index=257&type=chunk) - The Company consolidates the financial information for all entities it controls, including numerous subsidiaries and one associate (UEPC)[38](index=38&type=chunk)[261](index=261&type=chunk) [3 Segment Information](index=12&type=section&id=3%20Segment%20information) Afya revised its operating segments in Q1 2021 to Undergrad, Continuing Education, and Digital Services, with the Digital Services segment experiencing seasonality due to enrollment cycles and revenue recognition practices - The Company revised its operating segments in Q1 2021 to Undergrad, Continuing Education, and Digital Services, replacing previous business units[42](index=42&type=chunk)[265](index=265&type=chunk) Segment Information (in R$ thousands) | Segment (in R$ thousands) | Total Assets (June 30, 2021) | Net Revenue (6 months ended June 30, 2021) | | :------------------------ | :--------------------------- | :----------------------------------------- | | Undergrad | 5,660,661 | 650,286 | | Continuing Education | 88,084 | 35,272 | | Digital Services | 233,189 | 81,167 | - Digital Services revenues, primarily from Medcel, are concentrated in the first and last quarters of the year due to enrollments and revenue recognition for printed books and e-books[52](index=52&type=chunk)[275](index=275&type=chunk) [4 Business Combinations](index=15&type=section&id=4%20Business%20combinations) Afya Brazil completed six acquisitions in H1 2021, primarily in digital health and medical education, involving cash and shares with contingent considerations, recognizing goodwill mainly allocated to the Digital Services segment with preliminary valuations Business Combinations (in R$ thousands) | Acquisition | Date of Acquisition | Purchase Consideration (R$ thousands) | Primary Business | Goodwill (R$ thousands) | | :---------- | :------------------ | :------------------------------------ | :--------------- | :---------------------- | | iClinic | Jan 21, 2021 | 191,120 | SaaS medical practice management | 99,260 | | Medicinae | Mar 25, 2021 | 9,172 | Healthcare payments & financial services | 4,584 | | Medical Harbour | Apr 8, 2021 | 11,278 | Educational health & medical imaging | 3,891 | | Cliquefarma | Apr 16, 2021 | 22,089 | Healthtech (drug price tracking) | 7,826 | | Shosp | May 13, 2021 | 7,901 | Clinical management software | 3,076 | | UNIFIPMoc | Jun 1, 2021 | 328,937 | Post-secondary medical education | 89,843 | - Goodwill recognized from these acquisitions is primarily allocated to the Digital Services segment, except for UNIFIPMoc, which is allocated to the Undergrad segment[283](index=283&type=chunk)[288](index=288&type=chunk)[293](index=293&type=chunk)[299](index=299&type=chunk)[304](index=304&type=chunk)[312](index=312&type=chunk) - The valuations of identifiable assets and liabilities for these business combinations are preliminary and may be adjusted[283](index=283&type=chunk)[288](index=288&type=chunk)[293](index=293&type=chunk)[299](index=299&type=chunk)[304](index=304&type=chunk)[312](index=312&type=chunk) [5 Cash and Cash Equivalents](index=22&type=section&id=5%20Cash%20and%20cash%20equivalents) Afya Limited's cash and cash equivalents significantly increased to **R$1,424,718** as of June 30, 2021, primarily held in highly-rated Bank Certificates of Deposit and investment funds, with a portion denominated in U.S. dollars Cash and Cash Equivalents (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Cash and bank deposits | 49,528 | 57,729 | | Cash equivalents | 1,375,190 | 987,313 | | Total Cash and cash equivalents | 1,424,718 | 1,045,042 | - Cash equivalents are mainly invested in Bank Certificates of Deposit (CDB) and investment funds with highly rated financial institutions, yielding an average interest of **100.28% of CDI** as of June 30, 2021[91](index=91&type=chunk)[314](index=314&type=chunk) - Cash equivalents denominated in U.S. dollars totaled **R$87,378** as of June 30, 2021[91](index=91&type=chunk)[314](index=314&type=chunk) [6 Trade Receivables](index=23&type=section&id=6%20Trade%20receivables) Total trade receivables increased to **R$398,793** as of June 30, 2021, from **R$342,924** at December 31, 2020, with a corresponding increase in the allowance for doubtful accounts and a rise in overdue receivables Trade Receivables (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Total Trade Receivables | 398,793 | 342,924 | | Allowance for doubtful accounts | (40,339) | (32,980) | | Net Trade Receivables | 358,454 | 309,944 | Aging of Trade Receivables (in R$ thousands) | Aging of Trade Receivables (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :------------------------------------------- | :------------------------ | :---------------- | | Neither past due nor impaired | 140,682 | 145,076 | | Past due (1 to 30 days) | 52,794 | 44,365 | | Past due (31 to 90 days) | 72,084 | 57,198 | | Past due (91 to 180 days) | 61,474 | 51,521 | | Past due (More than 180 days) | 71,759 | 44,764 | - Additions to the allowance for doubtful accounts for the six-month period ended June 30, 2021, were **R$20,509**, compared to **R$13,953** in the same period of 2020[97](index=97&type=chunk)[320](index=320&type=chunk) [7 Related Parties](index=24&type=section&id=7%20Related%20parties) Related party transactions include educational content sales to UEPC and shareholder reimbursements, with key management personnel compensation, including share-based compensation, increasing for the six-month period ended June 30, 2021 Related Party Assets (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Related Party Assets | 540 | 595 | Related Party Transactions (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net revenue from UEPC | 321 | 104 | | Key management personnel compensation | 18,305 | 15,059 | | Short-term employee benefits | 7,056 | 5,679 | | Share-based compensation plan | 11,249 | 9,380 | [8 Investment in Associate](index=24&type=section&id=8%20Investment%20in%20associate) Afya Brazil maintains a **30%** interest in UEPC, a medical school, accounted for using the equity method, with the carrying amount remaining stable and Afya's share of UEPC's net income increasing - Afya Brazil holds a **30%** interest in UEPC, a medical school, and accounts for this investment using the equity method[105](index=105&type=chunk)[328](index=328&type=chunk) Carrying Amount of Investment (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Carrying amount of the investment | 51,261 | 51,410 | UEPC Financial Performance (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | UEPC Net revenue | 62,037 | 61,193 | | UEPC Net income for the period | 18,739 | 16,351 | | Company's share of income for the period | 5,622 | 4,905 | [9 Property and Equipment](index=27&type=section&id=9%20Property%20and%20equipment) The net book value of property and equipment increased to **R$329,330** as of June 30, 2021, from **R$260,381** at December 31, 2020, primarily due to additions and business combinations, with no impairment identified Property and Equipment Net Book Value (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Net book value | 329,330 | 260,381 | - Additions to property and equipment for the six-month period ended June 30, 2021, totaled **R$58,132**, and **R$24,806** was added through business combinations[112](index=112&type=chunk)[335](index=335&type=chunk) - Depreciation expense for the six-month period ended June 30, 2021, was **R$13,241**[112](index=112&type=chunk)[335](index=335&type=chunk) - No indications of impairment of property and equipment were identified for the six-month periods ended June 30, 2021 and 2020[112](index=112&type=chunk)[335](index=335&type=chunk) [10 Intangible Assets and Goodwill](index=28&type=section&id=10%20Intangible%20assets%20and%20goodwill) Intangible assets and goodwill significantly increased to **R$3,112,982** as of June 30, 2021, primarily driven by business combinations, with annual impairment tests revealing no indications of impairment Intangible Assets and Goodwill Net Book Value (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Net book value | 3,112,982 | 2,573,010 | | Goodwill | 1,019,136 | 810,656 | | Licenses with indefinite useful life | 1,636,342 | 1,451,270 | - Business combinations contributed **R$208,480** to goodwill and **R$185,072** to licenses with indefinite useful life in the first six months of 2021[115](index=115&type=chunk)[338](index=338&type=chunk) - No indications of impairment of goodwill and intangible assets with indefinite lives were found for the six-month period ended June 30, 2021[116](index=116&type=chunk)[339](index=339&type=chunk) [11 Financial Assets and Financial Liabilities](index=29&type=section&id=11%20Financial%20assets%20and%20financial%20liabilities) Afya Limited's financial assets increased to **R$1,786,324** and liabilities to **R$2,707,749** as of June 30, 2021, driven by increased loans and financing, including Softbank shares, while the company actively manages market, credit, and liquidity risks Total Financial Assets and Liabilities (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Total Financial Assets (at amortized cost) | 1,786,324 | 1,357,039 | | Total Financial Liabilities (at amortized cost) | 2,707,749 | 1,759,191 | - Loans and financing increased significantly to **R$1,466,621** as of June 30, 2021, from **R$617,485** at December 31, 2020, primarily due to the issuance of **R$817,238** in perpetual convertible preferred shares to Softbank[122](index=122&type=chunk)[126](index=126&type=chunk)[345](index=345&type=chunk)[349](index=349&type=chunk) - The company is exposed to market risk (interest rate and foreign currency), credit risk, and liquidity risk, which are monitored and managed by the treasury department and Board of Directors[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[160](index=160&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[383](index=383&type=chunk)[386](index=386&type=chunk)[389](index=389&type=chunk) [11.1 Financial Assets](index=29&type=section&id=11.1%20Financial%20assets) Financial Assets (in R$ thousands) | Financial assets (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :--------------------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | 1,424,718 | 1,045,042 | | Financial investments | 3,152 | - | | Restricted cash | - | 2,053 | | Trade receivables | 358,454 | 309,944 | | Total | 1,786,324 | 1,357,039 | [11.2 Financial Liabilities](index=29&type=section&id=11.2%20Financial%20liabilities) Financial Liabilities (in R$ thousands) | Financial liabilities (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :-------------------------------------- | :------------------------ | :---------------- | | Trade payables | 41,490 | 35,743 | | Loans and financing | 1,466,621 | 617,485 | | Lease liabilities | 583,545 | 447,703 | | Accounts payable to selling shareholders | 466,663 | 518,240 | | Notes payable | 74,138 | 76,181 | | Advances from customers | 75,292 | 63,839 | | Total | 2,707,749 | 1,759,191 | [11.2.1 Loans and Financing](index=29&type=section&id=11.2.1%20Loans%20and%20financing) Loans and Financing Details (in R$ thousands) | Financial institution | Currency | Interest rate | Maturity | June 30, 2021 (unaudited) (R$ thousands) | December 31, 2020 (R$ thousands) | | :-------------------- | :------------- | :----------------- | :------- | :--------------------------------------- | :------------------------------- | | Banco Itaú Unibanco S.A. | Brazilian real | CDI + 1.62% p.y. | 2023 | 505,745 | 504,365 | | Banco Votorantim | Brazilian real | CDI + 1.65% p.y. | 2021 | 102,062 | 101,785 | | BNDES | Brazilian real | 10.03% p.y. | 2024 | 333 | 471 | | FINEP | Brazilian real | TJLP p.y. | 2027 | 10,865 | 10,864 | | Softbank | Brazilian real | 6.5% p.y. | 2026 | 817,238 | - | | Banco Itaú Unibanco S.A. | Brazilian real | CDI + 1.75% p.y. | 2024 | 30,000 | - | | Pronampe | Brazilian real | SELIC +1.27% p.y. | 2023 | 375 | - | | Banco Bradesco S.A. | Brazilian real | 32.9% p.y | 2021 | 3 | - | | Total | | | | 1,466,621 | 617,485 | - On April 26, 2021, the Company issued **150,000** Series A perpetual convertible preferred shares to Softbank for **US$150,000 thousand** (**R$821,805**), classified as a financial liability at amortized cost[126](index=126&type=chunk)[130](index=130&type=chunk)[349](index=349&type=chunk)[353](index=353&type=chunk) [11.2.2 Leases](index=31&type=section&id=11.2.2%20Leases) Lease Liabilities and Right-of-Use Assets (in R$ thousands) | Metric (in R$ thousands) | Right-of-use assets (June 30, 2021) | Lease liabilities (June 30, 2021) | | :----------------------- | :---------------------------------- | :-------------------------------- | | As at December 31, 2020 | 419,074 | 447,703 | | Additions | 35,495 | 35,495 | | Remeasurement | 61,061 | 61,061 | | Business combinations | 52,167 | 52,167 | | Depreciation expense | (18,981) | - | | Interest expense | - | 29,213 | | Payments of lease liabilities | - | (37,888) | | Disposals | (3,832) | (4,206) | | As at June 30, 2021 (unaudited) | 544,984 | 583,545 | [11.2.3 Accounts Payable to Selling Shareholders](index=32&type=section&id=11.2.3%20Accounts%20payable%20to%20selling%20shareholders) Accounts Payable to Selling Shareholders (in R$ thousands) | Acquisition (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :---------------------------- | :------------------------ | :---------------- | | Acquisition of IESP | 39,260 | 38,771 | | Acquisition of FASA | 38,406 | 70,356 | | Acquisition of IPEMED | 29,334 | 38,622 | | Acquisition of IPEC | 28,666 | 28,307 | | Acquisition of UniRedentor | 82,945 | 97,773 | | Acquisition of UniSãoLucas | 41,394 | 53,386 | | Acquisition of FCMPB | 191,824 | 189,420 | | Acquisition of Medicinae | 3,572 | - | | Acquisition of Medical Harbour | 6,278 | - | | Acquisition of Cliquefarma | 2,939 | - | | Acquisition of Shosp | 2,045 | - | | Total | 466,663 | 518,240 | - The balance of accounts payable to selling shareholders decreased from **R$518,240** at December 31, 2020, to **R$466,663** at June 30, 2021, due to payments of **R$75,804**, partially offset by interest and new business combinations[136](index=136&type=chunk)[359](index=359&type=chunk) [11.2.4 Notes Payable](index=34&type=section&id=11.2.4%20Notes%20payable) - Notes payable, primarily assumed from the acquisition of UniSL, totaled **R$74,138** as of June 30, 2021, with a final maturity in 2023 and adjusted by **100% of IPCA-E**[145](index=145&type=chunk)[368](index=368&type=chunk) Notes Payable Movement (in R$ thousands) | Metric (in R$ thousands) | 2021 (unaudited) | 2020 (unaudited) | | :----------------------- | :--------------- | :--------------- | | As at January 1 | 76,181 | - | | Payments | (5,288) | (1,611) | | Monetary indexation | 3,245 | (478) | | As at June 30 | 74,138 | 78,437 | [11.3 Fair Values](index=34&type=section&id=11.3%20Fair%20values) Fair Value Measurement (in R$ thousands) | Financial Instrument (in R$ thousands) | Total (June 30, 2021) | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :-------------------- | :------ | :---------- | :------ | | **Financial assets** | | | | | | Financial investments | 3,152 | - | 3,152 | - | | Restricted cash | - | - | - | - | | Trade receivables (non-current) | 26,061 | - | 26,061 | - | | **Financial liabilities** | | | | | | Loans and financing | (1,466,621) | - | (1,466,621) | - | | Lease liabilities | (583,545) | - | (583,545) | - | | Accounts payable to selling shareholders | (466,663) | - | (466,663) | - | | Notes payable | (74,138) | - | (74,138) | - | - There were no transfers between Level 1 and Level 2 in the fair value hierarchy during the six-month period ended June 30, 2021[174](index=174&type=chunk)[397](index=397&type=chunk) [11.4 Financial Instruments Risk Management Objectives and Policies](index=35&type=section&id=11.4%20Financial%20instruments%20risk%20management%20objectives%20and%20policies) - The Company's primary financial liabilities include loans and financing, lease liabilities, accounts payable to selling shareholders, notes payable, trade payables, and advances from customers, used to finance operations[152](index=152&type=chunk)[375](index=375&type=chunk) - The Company monitors market risk (interest rate and foreign currency), credit risk, and liquidity risk, with policies reviewed by the Board of Directors, and no trading of derivatives for speculative purposes[153](index=153&type=chunk)[154](index=154&type=chunk)[160](index=160&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk)[376](index=376&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[383](index=383&type=chunk)[386](index=386&type=chunk)[389](index=389&type=chunk) [11.4.1 Market Risk](index=35&type=section&id=11.4.1%20Market%20risk) - The Company is exposed to interest rate risk on floating-rate cash equivalents, loans, and payables, and foreign currency risk on U.S. dollar-denominated cash equivalents (**R$87,378** as of June 30, 2021)[155](index=155&type=chunk)[160](index=160&type=chunk)[378](index=378&type=chunk)[383](index=383&type=chunk) Interest Rate Sensitivity (in R$ thousands) | Financial Instrument (in R$ thousands) | Exposure (June 30, 2021) | Income before income taxes sensitivity (+75 bps) | Income before income taxes sensitivity (-75 bps) | | :------------------------------------- | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Cash equivalents | 1,287,812 | 9,659 | (9,659) | | Loans and financing (CDI + 1.62%) | (505,745) | (3,793) | 3,793 | | Accounts payable to selling shareholders (CDI) | (413,423) | (3,101) | 3,101 | Foreign Currency Sensitivity (in R$ thousands) | Foreign Currency Exposure (in R$ thousands) | Exposure (June 30, 2021) | Income before income taxes sensitivity (+10%) | Income before income taxes sensitivity (-10%) | | :------------------------------------------ | :----------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash equivalents (USD) | 87,378 | 8,378 | (8,378) | [11.4.2 Credit Risk](index=36&type=section&id=11.4.2%20Credit%20risk) - Credit risk arises from operating activities (trade receivables) and financing activities (cash and cash equivalents, restricted cash)[163](index=163&type=chunk)[386](index=386&type=chunk) - Customer credit risk is managed through established policies and regular monitoring of outstanding receivables[163](index=163&type=chunk)[386](index=386&type=chunk) - Credit risk from banks and financial institutions is managed by the treasury department, with investments made only with approved counterparties within set limits[165](index=165&type=chunk)[388](index=388&type=chunk) [11.4.3 Liquidity Risk](index=37&type=section&id=11.4.3%20Liquidity%20risk) - Liquidity risk is monitored by management, maintaining reserves and bank credit facilities, and continuously reviewing projected and actual cash flows and maturity profiles[166](index=166&type=chunk)[389](index=389&type=chunk) - Main financial resource requirements include payments for suppliers, operating expenses, labor and social obligations, loans and financing, lease liabilities, accounts payable to selling shareholders, and notes payable[166](index=166&type=chunk)[389](index=389&type=chunk) Contractual Maturities of Financial Liabilities (in R$ thousands) | Financial Liabilities (in R$ thousands) | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total | | :-------------------------------------- | :--------------- | :----------- | :----------- | :---------------- | :---------- | | Trade payables | 41,490 | - | - | - | 41,490 | | Loans and financing | 188,441 | 666,301 | 996,821 | 2,143 | 1,853,706 | | Lease liabilities | 85,530 | 170,388 | 162,851 | 919,952 | 1,338,721 | | Accounts payable to selling shareholders | 214,714 | 275,701 | | | 490,415 | | Notes payable | 12,679 | 69,211 | | | 81,890 | | Advances from customers | 75,292 | - | - | - | 75,292 | | Total | 618,146 | 1,181,601 | 1,159,672 | 922,095 | 3,881,514 | [11.5 Changes in Liabilities Arising from Financing Activities](index=38&type=section&id=11.5%20Changes%20in%20liabilities%20arising%20from%20financing%20activities) Changes in Liabilities from Financing Activities (in R$ thousands) | Metric (in R$ thousands) | January 1, 2021 | Payments | Additions * | Interest | Foreign exchange movement | Business combinations | Other | June 30, 2021 (unaudited) | | :----------------------- | :-------------- | :--------- | :---------- | :------- | :------------------------ | :-------------------- | :------ | :------------------------ | | Loans and financing | 617,485 | (12,952) | 809,539 | 21,422 | (20) | 31,147 | - | 1,466,621 | | Lease liabilities | 447,703 | (37,888) | 96,556 | 29,213 | - | 52,167 | (4,206) | 583,545 | | Dividends payable | - | (10,617) | 10,617 | - | - | - | - | - | | Total | 1,065,188 | (61,457) | 916,712 | 50,635 | (20) | 83,314 | (4,206) | 2,050,166 | - Additions to loans and financing include **R$822,569** from the SoftBank transaction, net of **R$13,030** in transaction costs[170](index=170&type=chunk)[393](index=393&type=chunk) [12 Fair Value Measurement](index=39&type=section&id=12%20Fair%20value%20measurement) Afya Limited's financial instruments primarily use Level 2 fair value measurements for assets like financial investments and non-current trade receivables, and for various liabilities, with no transfers between Level 1 and Level 2 during the period Fair Value Hierarchy (in R$ thousands) | Financial Instrument (in R$ thousands) | Total (June 30, 2021) | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :-------------------- | :------ | :---------- | :------ | | **Financial assets** | | | | | | Financial investments | 3,152 | - | 3,152 | - | | Restricted cash | - | - | - | - | | Trade receivables (non-current) | 26,061 | - | 26,061 | - | | **Financial liabilities** | | | | | | Loans and financing | (1,466,621) | - | (1,466,621) | - | | Lease liabilities | (583,545) | - | (583,545) | - | | Accounts payable to selling shareholders | (466,663) | - | (466,663) | - | | Notes payable | (74,138) | - | (74,138) | - | - There were no transfers between Level 1 and Level 2 in the fair value hierarchy during the six-month period ended June 30, 2021[174](index=174&type=chunk)[397](index=397&type=chunk) [13 Capital Management](index=39&type=section&id=13%20Capital%20management) Afya Limited's capital management aims to maximize shareholder value by monitoring net debt and total equity, with net debt significantly increasing to **R$1,163,097** as of June 30, 2021, and no changes to policies - The primary objective of the Company's capital management is to maximize shareholder value, monitoring capital using net debt and total equity[175](index=175&type=chunk)[398](index=398&type=chunk) Capital Management Metrics (in R$ thousands) | Metric (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :----------------------- | :------------------------ | :---------------- | | Net debt | 1,163,097 | 612,514 | | Total equity | 3,016,811 | 2,833,780 | | Total equity and net debt | 4,179,908 | 3,446,294 | - No changes were made in the objectives, policies, or processes for managing capital during the six-month period ended June 30, 2021[178](index=178&type=chunk)[401](index=401&type=chunk) [14 Labor and Social Obligations](index=40&type=section&id=14%20Labor%20and%20social%20obligations) Afya Limited's labor and social obligations include variable and share-based compensation, with share-based compensation expense increasing significantly, the plan's strike price modified, and new stock options granted in H1 2021 Labor and Social Obligations (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Variable compensation (bonuses) | 9,645 | 6,731 | | Share-based compensation expense | 25,102 | 14,597 | - The strike price of the share-based compensation plan was changed in July 2020 to be measured in Brazilian Reais adjusted by the CDI rate[180](index=180&type=chunk)[403](index=403&type=chunk) Stock Options Movement | Stock Options Movement | Weighted average exercise price (in Reais) | Number of stock options | | :--------------------------------------- | :--------------------------------------- | :---------------------- | | Outstanding at January 1, 2021 | 78.22 | 2,510,983 | | Granted | 112.36 | 929,000 | | Exercised | 76.27 | (311,270) | | Outstanding at June 30, 2021 (unaudited) | 89.71 | 3,128,713 | [15 Equity](index=41&type=section&id=15%20Equity) As of June 30, 2021, Afya Limited's share capital remained at **R$17**, with **93,722,831** shares, dividends declared to non-controlling interests, and **521,117** Class A common shares repurchased for **R$64,752** under a buy-back program - As of June 30, 2021, the Company's share capital was **R$17**, represented by **93,722,831** shares (**45,688,516** Class A and **48,034,315** Class B common shares)[186](index=186&type=chunk)[409](index=409&type=chunk) - Interim dividends of **R$34,881** were approved, with **R$24,264** distributed to Afya and **R$10,617** to non-controlling shareholders in the six-month period ended June 30, 2021[187](index=187&type=chunk)[410](index=410&type=chunk) - Under a share buy-back program, Afya repurchased **521,117** Class A common shares for **R$64,752** in H1 2021, using **311,270** of these shares (**R$38,677**) to settle the share-based program[190](index=190&type=chunk)[413](index=413&type=chunk) [16 Earnings Per Share (EPS)](index=43&type=section&id=16%20Earnings%20per%20share%20%28EPS%29) Basic and diluted earnings per share decreased for the six-month period ended June 30, 2021, reflecting lower net income attributable to equity holders of the parent Earnings Per Share (in R$ thousands) | Metric | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net income attributable to equity holders of the parent | 125,327 | 160,495 | | Weighted average number of outstanding shares | 93,307,071 | 92,215,329 | | Basic earnings per share (R$) | 1.34 | 1.74 | | Diluted earnings per share (R$) | 1.33 | 1.73 | - Diluted EPS calculations include the effect of stock options granted to key management using the treasury shares method[193](index=193&type=chunk)[416](index=416&type=chunk) [17 Revenue](index=44&type=section&id=17%20Revenue) Net revenue from contracts with customers significantly increased to **R$766,725** for the six-month period ended June 30, 2021, primarily driven by higher tuition fees, with revenue recognized over time for tuition and digital content, and at a point in time for other services Revenue from Contracts with Customers (in R$ thousands) | Revenue Category (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Tuition fees | 900,615 | 617,421 | | Other revenue | 89,272 | 46,793 | | Granted discounts | (76,190) | (30,748) | | Taxes | (33,224) | (22,862) | | PROUNI | (74,824) | (45,769) | | Net revenue from contracts with customers | 766,725 | 546,515 | Revenue by Segment (in R$ thousands) | Revenue by Segment (in R$ thousands) | June 30, 2021 (unaudited) | June 30, 2020 (unaudited) | | :----------------------------------- | :------------------------ | :------------------------ | | Undergrad | 650,286 | 451,886 | | Continuing Education | 35,272 | 52,325 | | Digital Services | 81,167 | 43,281 | - The majority of revenue (**R$714,372** in H1 2021) is recognized over time for tuition, digital content, and app subscriptions, while **R$52,353** is recognized at a point in time for other revenue[419](index=419&type=chunk)[421](index=421&type=chunk)[423](index=423&type=chunk) [18 Expenses and Cost by Nature](index=45&type=section&id=18%20Expenses%20and%20cost%20by%20nature) Total expenses and costs by nature increased to **R$536,539** for the six-month period ended June 30, 2021, from **R$372,696** in the prior year, driven by higher payroll, depreciation and amortization, and share-based compensation Expenses and Cost by Nature (in R$ thousands) | Expense Category (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Cost of services | 270,951 | 195,934 | | General and administrative expenses | 265,588 | 176,762 | | Total | 536,539 | 372,696 | | Payroll | 285,192 | 204,899 | | Depreciation and amortization | 66,915 | 51,330 | | Share-based compensation | 25,102 | 14,597 | | Allowance for doubtful accounts | 20,509 | 13,953 | [19 Finance Result](index=46&type=section&id=19%20Finance%20result) Afya Limited's finance result shifted from a net income of **R$1,978** in H1 2020 to a significant net expense of **R$(88,284)** in H1 2021, primarily due to increased finance expenses from loans, lease liabilities, and foreign exchange losses Finance Result (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Finance income | 22,250 | 42,780 | | Finance expenses | (110,534) | (40,802) | | Finance result | (88,284) | 1,978 | - Key components of finance expenses for H1 2021 include interest expense (**R$34,075**), interest expense on lease liabilities (**R$29,213**), and net foreign exchange loss (**R$24,622**)[204](index=204&type=chunk)[427](index=427&type=chunk) [20 Income Taxes](index=47&type=section&id=20%20Income%20taxes) Income tax expenses for the six-month period ended June 30, 2021, were **R$(13,529)**, a slight decrease from **R$(12,398)** in the prior year, influenced by the PROUNI fiscal incentive and presumed profit regime, with unrecognized deferred income tax assets reported - Income taxes are assessed and paid by legal entity in Brazil, not on a consolidated basis[206](index=206&type=chunk)[429](index=429&type=chunk) Income Taxes (in R$ thousands) | Metric (in R$ thousands) | Six-month period ended June 30, 2021 (unaudited) | Six-month period ended June 30, 2020 (unaudited) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | | Income before income taxes | 148,822 | 179,954 | | Income taxes expense – current | (13,529) | (12,398) | | PROUNI - Fiscal incentive | 93,688 | 63,127 | - As of June 30, 2021, the Company had unrecognized deferred income tax assets on temporary differences and tax losses totaling **R$298,855** (tax-basis)[208](index=208&type=chunk)[431](index=431&type=chunk) [21 Insurance Contracts and Contingencies](index=48&type=section&id=21%20Insurance%20contracts%20and%20contingencies) Afya Limited maintains a risk management program with provisions for probable legal proceedings (labor, civil, and taxes) increasing to **R$70,195** as of June 30, 2021, while selling shareholders are responsible for pre-acquisition contingencies with indemnification assets recorded - The Company has a risk management program for insurance contracts[211](index=211&type=chunk)[434](index=434&type=chunk) Legal Proceedings Provisions (in R$ thousands) | Legal Proceedings (in R$ thousands) | June 30, 2021 (unaudited) | December 31, 2020 | | :---------------------------------- | :------------------------ | :---------------- | | Total provisions for probable loss | 70,195 | 53,139 | | Labor | 5,621 | 4,519 | | Civil | 15,127 | 13,280 | | Taxes | 49,447 | 35,340 | - Selling shareholders are exclusively responsible for pre-acquisition legal proceedings, with **R$68,411** recorded as indemnification assets[216](index=216&type=chunk)[218](index=218&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) - Other legal proceedings with a possible risk of loss totaled **R$58,508** as of June 30, 2021[215](index=215&type=chunk)[438](index=438&type=chunk) [22 Non-Cash Transactions](index=49&type=section&id=22%20Non-cash%20transactions) Significant non-cash transactions in H1 2021 included share issuance for iClinic and Cliquefarma acquisitions, additions and remeasurements of right-of-use assets and lease liabilities, and provisions for legal proceedings with indemnification assets - Issuance of shares for the acquisitions of iClinic and Cliquefarma were non-cash transactions[219](index=219&type=chunk)[442](index=442&type=chunk) - Additions and remeasurements of right-of-use assets and lease liabilities were non-cash transactions[219](index=219&type=chunk)[442](index=442&type=chunk) - The addition of the provision for legal proceedings with corresponding indemnification assets was a non-cash transaction[219](index=219&type=chunk)[442](index=442&type=chunk) [23 Subsequent Events](index=49&type=section&id=23%20Subsequent%20events) Significant subsequent events include Afya Brazil's acquisition of UNIGRANRIO for **R$627,603** with potential additional payments, and Bertelsmann's acquisition of Crescera's Class B common shares in Afya - On August 4, 2021, Afya Brazil acquired **100%** of UNIGRANRIO, a post-secondary education institution in Rio de Janeiro, for **R$627,603** (**60%** cash, **40%** payable)[220](index=220&type=chunk)[443](index=443&type=chunk) - The UNIGRANRIO acquisition includes a potential additional payment of up to **R$90,200** if **82** additional medical seats are approved by the Ministry of Education[220](index=220&type=chunk)[443](index=443&type=chunk) - On August 5, 2021, an affiliate of Bertelsmann SE& Co. KGaA acquired all **23,074,134** Class B common shares of Afya from Crescera Educacional II Fundo de Investimento em Participações Multiestrategia[222](index=222&type=chunk)[445](index=445&type=chunk)

Afya Limited (NASDAQ:AFYA) Q1 2021 Earnings Conference Call May 28, 2021 11:00 AM ET Company Participants Renata Couto - Head of Investor Relations Virgilio Gibbon - Chief Executive Officer Luis Andre Blanco - Chief Financial Officer Conference Call Participants Gabriel Martinez - JPMorgan Caio Moscardini - Morgan Stanley Vitor Tomita - Goldman Sachs Mauricio Cepeda - Credit Suisse Lucca Brendim - Bradesco BBI Renata Couto [Call starts abruptly] for Afya's First Quarter 2021 Conference Call. With me on the ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...

Financial Data and Key Metrics Changes - Adjusted net revenue for 2020 increased by 61% year-over-year, reaching R$1.2 billion, driven by the maturation of medical school seats and consolidation of acquired companies [16][23] - Adjusted EBITDA rose by 69%, reaching R$563 million, with a margin expansion of 220 basis points [27][24] - Adjusted net income increased by 72%, totaling R$388 million, with earnings per share rising by 55% to R$3.15 [24][25] - Operating cash flow for 2020 was R$391 million, a 27% increase from the previous year [28] Business Line Data and Key Metrics Changes - Medical seats increased by 55% year-over-year, totaling 1,893 operating seats, while the medical student base grew by 67% to 11,030 students [23][24] - Average monthly medical tuition fees rose by 9% compared to 2019, reaching R$7,975 [25] - The specialization business saw a 163% increase year-over-year, primarily due to the consolidation of UniRedentor [25] Market Data and Key Metrics Changes - The company reported a significant increase in active paying users, with almost 125,000 at the quarter end, including 170,000 from WhiteBook [25] - Monthly active users of WhiteBook reached 163,000, showing a slight decline of 1.5% from the previous quarter [26] Company Strategy and Development Direction - The company aims to be the one-stop shop for physicians in Brazil, focusing on enhancing digital services and integrating acquisitions to strengthen its ecosystem [18][20] - The digital strategy has been accelerated due to the COVID-19 pandemic, with a focus on building a comprehensive healthcare ecosystem [11][12] - The company plans to continue its M&A strategy, with a pipeline of 4,000 seats under analysis and 500 in close conversation [45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving guidance for the first half of 2021, expecting net revenue between R$740 million to R$780 million, representing up to 43% year-over-year growth [21] - The company is adapting to the dynamic environment and remains committed to generating value while managing through volatility [12][19] Other Important Information - The company will start reporting ESG metrics in its earnings release, highlighting its commitment to social and environmental policies [13][31] - The recent acquisition of Medical Harbour enhances the company's medical education and imaging solutions, further integrating its offerings [14][15] Q&A Session Summary Question: Initiatives to accelerate digital services penetration in Business Unit 2 - Management discussed building a single data lake to enhance service performance and creating bundled offers for users [34][35] Question: Plans for the healthcare ecosystem - The focus is on empowering doctors with services, with plans to develop a marketplace for patient engagement in the future [37][38] Question: Opportunities for bundling and cross-selling - Management highlighted ongoing efforts to create service bundles and integrate new acquisitions into existing platforms [43][44] Question: Update on Mais Médicos campuses - Two additional campuses are awaiting final approval, with expectations for authorization by the end of the first half of the year [45] Question: Impact of mandatory discounts on guidance - Management is confident that any potential revenue recognition postponements are accounted for in the guidance provided [49][51] Question: M&A landscape in medical education - Management noted that the pace of acquisitions is steady, with ongoing negotiations and a strong pipeline [52][54] Question: Guidance on EBITDA margins - The expected margin decline is attributed to the mix of newly acquired institutions with lower margins and ongoing integration efforts [66][67]

Financial Data and Key Metrics Changes - Adjusted net revenue for Q3 2020 increased by 52% year over year to BRL 313 million, primarily due to the maturation of medical school seats and consolidation of acquired companies [9][19] - Adjusted EBITDA increased by 63% to BRL 149 million, with a margin expansion of 340 basis points [20] - Net income rose by 47% to BRL 101 million, with earnings per share increasing by 48% from BRL 0.54 to BRL 0.80 [10][21] - Cash and cash equivalents at the end of the quarter were approximately BRL 1.1 billion, reflecting strong cash flow generation [10][27] Business Line Data and Key Metrics Changes - The number of medical seats increased by 294 year over year, totaling 1,516 seats [18] - The total number of students reached 9,567, a 50% increase compared to the same period last year [19] - Average monthly medical tuition fees increased by 17% to BRL 8,053, contributing to a 41% rise in net tuition fees year over year [21][22] Market Data and Key Metrics Changes - 78% of combined tuition fees were derived from medical schools, up from 69% in the same period of the prior year [22] - Active paying users reached 130,000 at the quarter end, including 95,000 from PEBMED, with a 40% increase in active paying students excluding PEBMED [22] Company Strategy and Development Direction - The company aims to maintain long-term relationships with physicians from their entry into medical school through their entire career, focusing on digital health products and medical programs [16] - The company is committed to disciplined acquisitions to further grow its digital assets and enhance its service offerings [17][56] - Recent acquisitions in digital health services, including PEBMED, iClinic, and MedPhone, are expected to strengthen the company's position in the health tech segment [11][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong cash flow and healthy balance sheet to navigate through the challenges posed by COVID-19 [10][17] - The company anticipates maintaining a 100% occupancy rate for medical seats in 2021, with no surprises expected in the intake [34] - Management acknowledged the impact of COVID-19 on traditional on-campus programs but remains focused on sustainable operations [45] Other Important Information - The company won awards in the education sector, recognizing its leadership in financials, corporate governance, and sustainability [12] - The company reaffirmed its second-half 2020 guidance, expecting net revenue between BRL 600 million and BRL 640 million [30] Q&A Session Summary Question: Update on the intake for the medical unit in 2021 - Management indicated a positive trend for 2021 intake, expecting 100% occupancy of all seats [34] Question: PEBMED integration and cross-sell initiatives - Integration activities are ongoing, with commercial activities promoting both PEBMED and Medcel products [35] Question: Plans for MedPhone and WhiteBook - Both applications will be maintained, with a focus on converting MedPhone users to WhiteBook subscribers [39] Question: Discounts recognized in the quarter - All mandatory discounts for Q3 have been recognized, with expectations of 1% to 2% of net revenues in Q4 [44] Question: Non-medical programs and their future - The company is closing non-sustainable programs, focusing on maintaining high margins and operational efficiency [45][46] Question: Receivables and cash flow insights - Receivables increased due to lower student advances and financial support during the pandemic, but are expected to decrease moving forward [49] Question: Dropouts and M&A perspective - Management noted no significant increase in dropouts and remains disciplined in pursuing M&A opportunities [53][56]