Good morning, ladies and gentlemen, and welcome to the Afya’s Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today’s conference, Renata Couto, Afya’s Head of IR. You may begin.

Thank you. I am pleased to welcome you to Afya’s fourth quarter 2019 conference call. With me on the call today is Afya’s CEO, Virgilio Gibbon; Luciano Campos, CFO; and Luis André Blanco, as recently announced, will become our new CFO in April. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risk, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations and guidance for our future periods or expectations regarding our strategic product initiatives and the related benefits and our expectations regarding the market. These risks include those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof. You should not rely on them as predictions of future events, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, management may refer to non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of the non-IFRS financial measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgilio Gibbon, Afya's CEO.

Thank you, Renata, and thanks everyone, for joining us today for Afya fourth quarter and full-year 2019 earnings conference call. I'll begin with a discussion of the highlights of the year, followed by an overview of the key short and medium-term perspectives for the company. Luciano will then discuss our financial results and our 2020 guidance. To begin, we could not be more proud and pleased with Afya’s performance throughout its first year as a public company. In 2019, we delivered strong topline growth, profitability and cash generation towards the higher end of second half 2019 guidance range. We have made significant progress on our strategic objectives, creating the foundations for Afya's highly predictable and sustainable growth. Moreover, synergies from our first round of acquisitions are starting to materialize; support an attractive first half 2020 as we'll be indicating our new guidance. We have executed meaningful M&A transactions after IPO, including the acquisition of IPEC and UniRedentor in 2019, and the recent agreement to acquire UniSL and São Lucas, which combined contributed 414 additional seats to our network. Important to mention that with these two acquisitions, we have strengthened our presence in both business units. And in less than one year, we have reached more than 40% of our target to acquire at least 1,000 medical school seats up to three years after IPO. Our strong operational performance was also driven by organic growth and our ability to successfully integrate recent acquisitions, extracting synergies and cost efficiencies. Out of the 11 companies acquired over the last two years, six of them have already been fully integrated in terms of process, systems, and curriculum, showing our strong capacity to grow inorganically and extract synergies fastly. As can be seen on the Slide number 4, in 2019, we had a strong operational…

Thank you, Virgilio, and good morning, everyone. Moving to Slide number 10 for a discussion of our key operating metrics by business unit. We delivered strong results in the fourth quarter as both business units continue to drive. Growth in the key operating metrics, as shown in this slide, is being driven by a combination of organic growth and acquisitions. In Business Unit 1, we have increased the number of medical students by approximately 40% to 6,597 enrollments in the fourth quarter of 2019 compared with the fourth quarter of 2018. We continue to have 100% occupancy of our regulatory capacity of medical schools and that represents a huge growth potential in the next years. For instance, considering the seats that we are allowed to start operating in 2020 and 2021 and the acquisitions that we have committed to deliver within three years after our IPO, we estimate a potential of approximately 76,000 medical students if we keep 100% occupancy of our seats. Our average medical school tuition fees increased 10% in 4Q 2019 versus the same period of 2018 and 23% considering the full-year average of 2019 versus 2018. As a reminder, we increased our ticket in line with inflation. Therefore, the above inflation increase reflects the impact of price increases taken a few years ago for new students, combined with the effect of mix with an increasing percentage of students in the new price. The combination of 40% increase in the number of students and 23% increase in average ticket led our combined tuition fees to go up 86% year-over-year. With respect to Business Unit 2, we had 44,000 active paying students, an increase of 24% since the last quarter and almost 39% higher than the number in the second quarter of 2019. We believe we have outpaced…

[Operator Instructions] Our first question comes from the line of Marcelo Santos with JPMorgan. Your line is now open.

Hi. Thanks for the question, and good morning Virgilio, Luciano, Renata, and Luis. The first question will be about COVID-19 and if you relatively made efforts to incorporate some effects of stating your guidance. Could you please expand a little bit more on maybe conceptually, what kind of – how you incorporate the diverse revenue lines you have and how do you incorporate the cost? That would be the first question. The second question is more about Medcel. So, you showed an impressive sequential evolution of students. But when we compare to last year, [indiscernible] which was also like 12,000. So can this 12,000 now be considered as a basis for 2020 revenues or is this more like the normal seasonality that you would expect in Medcel? Thank you.

Good morning, Marcelo. This is Luciano speaking. I'll start with the first question. The points that COVID can bring in the first half of 2020 is our ability to deliver service and then recognize revenues, okay. As we have been communicating, we have already implemented online solutions for continuation of the activities of the non-practical education activities that are required in our curriculum. And we are reorganizing the practical activities for when our campuses and hostel partners are allowed to receive and hold those activities again, okay. The balance of things here is if we will be able to deliver all the service or have visibility for when the full-service of the first half of the year will be deliverable. If we have visibility on that, we could be in a situation of recognizing 100% of the revenues that we would normally recognize in the first semester. If the situation changed in a way that lockdown lasts very, very long and not all of these activities can be delivered or have visibility of when they will be fully delivered. At some point, some revenues can then be transferred to part of the second half of the year. One of the things that is important to mention here is that as long as we deliver the service, and as long as we have the students, those revenues would just be recognized in another time, probably still within 2020, that's not been a change or than the cutoff of a time period the service and the revenues would be there, okay. That's the main point affecting what can happen in the first half of 2020.

Okay. Luciano, let me help you here with the second question. We have, on the Medcel operation, Marcelo, top 1,000 students, we grew almost 24% when you compare the student base that we had in the same period last year. So that was a very strong intake coming on the fourth quarter. This is not just because of the seasonality. We have a strong intake and also we recognize the net revenues during the fourth quarter. Of course, we still have intake process moving forward during the first quarter. That's a good trend that will have a healthy student base during 2020.

Perfect. Thank you. Just a follow-up on Luciano's answer. So, you might not be able to recognize everything, but on a cash flow basis, are the students paying for everything and this becomes liability, like revenue through prepaid -- revenue for something like this or the students also don't pay during the semester in the situation where you mentioned that the recognition might come in the second half?

Hi. Marcelo, we are not changing anything in the schedule of the student payment that means you're not changing the time, the tuitions are due, okay. And we are not changing prices, anything of that nature. We are communicating with our student community that continuation is the best scenario for everyone, which means that we are also paying our professors, we are paying our partners in a way that we continue and to be always in a position to continue or to resume normality as soon as possible. So we are collecting all the tuitions that are due. And we've made them – if that happens, is that we cannot recognize revenues at a certain period, you're right, our balance sheet would show a prepayment of tuitions as we have like advancements from clients that we already have in a normal situation in our balance sheet.

Very clear. Thank you.

Our next question comes from the line of Susana Salaru with Itaú. Your line is now open.

Hi. Thank you for taking our question. Our first question is related to the increased flexibility that the CME business [indiscernible] allows for most of the problems in terms of replacing cancelled classes for the [indiscernible]. How does it apply for med school seats or medical students? That would be our first question. And the second question is related to the pipeline of acquisitions or actually the environment of M&A, and if you guys are following the difference between beginning of the year and now in terms of negotiation and bargaining [ph] power with the acquired company. Thank you.

Hi, Susana. Thanks for the question. About the medical curriculum and the directions that we received under the new certification, what we are doing is starting 100% telepresence [ph] classes for all non-practical content or non-practical classes. This should be something that we can do around 60% to 70% for the first and fourth year students. We still have internship students at the fifth and six-years, most of them are 100% practical inside the hospitals that we need to return on-campus activities to continue the curriculum, and all the requirements that we have to fulfill their semesters. So, what we think is that even consider that we have 30, 40 days completed without any on-campus activity. We still have the conditions to complete and replace this class by the end of June and also use in July that was the vacation period to replace all these classes. On the M&A pipeline, you must have seen that we have already 500 seats under MoU contract. So the pipeline is huge. And what we are doing is being more conservative in terms of timing, of course, that to conclude the transaction right now, considering all these lock down issues being more difficult. So we are getting more conservative in terms of timing to give additional step and moving forward to conclude all these acquisitions. But nothing changes, at least in the short-term in terms of the pipeline and the opportunities that we have in front of us. What can be – what can happen, imagine small players, they can struggle in the short-term and maybe can change some negotiation, but that is not something that we didn't see yet.

Perfect. Thank you, Virgilio. Very clear.

Our next question comes from Vinicius Ribeiro with UBS. Your line is now open.

Hi guys. Good morning. Thanks for taking our question, and I hope everyone is safe. Two questions from our side here. First of all, I would like to get – if you guys could share us the level of seat occupancy that you had in this first half of 2020, intake and the tuition dynamics for new enrollments? Or what's the price? And what should we expect for administration? And my second is more related – is more long-term question. We are seeing several changes in the healthcare sector dynamics with increasing technology, telehealth and everything else. So do you guys see an opportunity here for the Business Unit 2 to like increase or expand the presence a little bit aside from the current formal education that you had? And if yes, what kind of capabilities have you been developing to tackle these opportunities? Thanks.

Hi Vinicius. This is Luciano. I'll take the first question. As we have observed until March to now, we continue to have 100% occupancy of our medical school seats. We don't have any change on that. And the pricing dynamic remains exactly as we have been doing in early 2019. We have passed inflation to our medical schools tuition for new and existing students. And as you see, the average ticket goes considerably above the inflation just because of price increases taken back 2017 when we introduced our new curriculum and repriced for new students at that moment. So far, no change at all, and that's a decision of the company to not change price in this environment, okay.

On the second question, Vinicius, this is Virgilio. I think it's a huge opportunity that can change the dynamics in the industry and will change in the mid and the long-term. You can see that the telemedicine that it's being allowed to treat all the strides here in Brazil. And the telepresence that we are almost having 100% of our operation right now running our classes, our 30,000 students. This is something that we are much ahead than the other players. Today, as we have a fully integrated curriculum in all of our institutions from north to south, we are offering what we are talking the Afya talk using the telepresence to discuss case, clinical case, using our best professors in all students involved in the national classes. So in terms of digitalization of the content, the learning process, I think we are much ahead and have a strong opportunity here to differentiate ourselves. I'd like to – if you can add something what we are doing in terms of hologram in all technology that we put in our platform, I think it to be worth. Júlio Angeli: Hey guys. Júlio here. Thank you, Virgilio. Yes, as we mentioned in other calls, we've now put together a team for – as a corporate division, to offer our solutions. The platform is built not only for the students, but also for other people and doctors that could, of course, get the content that we developed with our professors on the healthcare sector. So the team is now working not only with conversations with other institutions, education institutions, but also with players in the healthcare industry so that we can offer solutions for them. So this is on the way, and we see a lot of potential, especially in a moment like this, as Virgilio said, I just wanted to reinforce, we have a couple of activities on the way to help actually companies that they need, for example, training in the situation that we have today. And we'll announce very soon some of these efforts that we're putting together. Not only, and I would like to add here, for example, that we opened a platform for other institutions to help them with the interruption of classes, but also, we will add to that offer courses that we can help healthcare professionals in this tough times.

Very clear, Júlio, Virgilio and Luciano. Thanks for answering my questions.

[Operator Instructions] Our next question comes from the line of Irma Sgarz with Goldman Sachs. Your line is now open.

Yes. Hi. Good morning, Virgilio and Luciano, and thanks for taking my question. So we have two questions. Firstly, I want to applaud your decision to open up the Medcel platform to other schools and their students in this critical moment. My question is, so when you think about Medcel, I think it's an incredible platform and actually currently utilized by a relatively small basis of students considering the market overall. Do you think there is an opportunity here to almost change a little bit of sort of the go-to-market approach of Medcel in the centers, we’re opening up that product to a broader set of potential clients. I know you're not charging right now. But as maybe we look beyond the current time frame to maybe continue some partnerships with schools and to leverage that into the future. But part of that question is also, how do you think – do you see any potential downside risk to your pricing power of this product to the students that are acquiring that obviously had a relatively high ticket and to some extent, now see it obviously being made available for free. And then the second question, if I may. Just in relation to Mais Médicos, if you're seeing any signs or any direction from any talks that are going on with the Ministry of Education at this point regarding potentially accelerating or changing something on the time lines here, given the current situation? Thank you.

Okay. Irma, thanks for the question. The first one with Medcel platform, what we designed is to open our platform for the institutions. It's not for the B2C, it's the B2B. So today, we have almost 50 medical schools interested, getting connected in more than 18 already preparing the platform for their students. So the size of the impact, I think for us, it's very, very important to keep their learning process alive, not only here in Afya, but the entire country during this moment. And yes, I think this can be a mid-term opportunity here as we are having these leads and showing our platform to the entire market. So we are very confident and it's very important in our strategy to spread our platform. And the price fall for the B2C, I think it's not critical here. Because what we are helping is the internship content. And for the B2C students, they are concerned about the prep, the residence approvals. It's another objective. So we are not seeing, at least at this moment, any price impression coming from this front, okay. And your second question about the Mais Médicos schedule, we are expecting to open two new campuses during the first semester. We have the visit, we have the report, 100%, okay, and they are moving the process. The only thing is the formal authorization and the signature coming from the Ministry. So everything now stopped. I don't know how this bureaucratic steps are going to be managed by the Ministry of Education during this time. The other, we still have the visit pending they have to schedule the visit. So it's difficult to say that we'll be able to open the four new campuses by the end of this year. I think the first two, it's much more likely to happen as we are not waiting any visit any – just the signature and the authorization to start the first intake.

That’s super helpful. Thank you, Virgilio. Maybe just if I may add, is it then – are the two companies included in your first half guidance? Or did you leave that out to prudence?

Hi Irma. This is Luciano speaking. It is included in the guidance that we have expenses associated with the preparedness of these units, but no revenues, okay. So the short answer is, yes, they are in the guidance. We do not contribute with revenues in the first half to contribute with key operational expenses that did not exclude because we do expect them to be recovering as we actually prepare to do the initiation of operations of them as soon as Ministry of Education give the last action of approval, which is just a document, everything else has been done, okay. Just to follow-up as well in your question in terms of Mais Médicos schedule. In moments like this, what the Ministry of Health and Ministry and Education are doing is to take care of their short-term related challenges, trying to respond as fast as they can with the challenge of COVID-19, anything about another wave of Mais Médicos, imagine that would take any impact in maybe seven, eight years from now to get new physicians in the market. So we do not see any change on decisions related to another wave of Mais Médicos or equivalent program in a moment like this as the authorities are dealing with very stringent short-term challenges, okay.

Thank you.

And that will conclude today's question-and-answer session. I'd like to turn the call back to Mr. Gibbon for closing remarks.

Thank you. We are very pleased with our performance last year. Our team is successfully executing our strategic priorities, and we'll continue to focus on medical school growth, creating long-term value for all our stakeholders. Looking ahead, the short-term challenges, we are very well positioned to pay the COVID-19 crisis with a very strong balance sheet and cash position. Our business, as deeply discussed, is highly predictable and our medical student base is 100% filled allowing us to release the strong guidance for our first half of 2020, even under this uncertainty coming from the COVID. Thank you again for joining us today, and we look forward to speak with you in the next quarter. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.