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 make forward-looking statements. Forward-looking statements could be related to future events, future financial operating performance, known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to the business and financial performance, expectations and guidance for future periods or expectations regarding the company's strategic product initiatives, its 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 the date hereof. You should not rely on that 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 reference non-IFRS measures on this call. These measures are not intended to be considered in insolation or as a substitute of the results prepared in accordance with IFRS. This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures. Let me now turn the call over to Virgilio Gibbon, Afya's CEO.

Thank you, Renata, and thanks, everyone for joining us today. As we approach to the end of the year, we can see Afya maintaining the strong pace. So moving on to Page number 3. Let's start with our quarter highlights. Adjusted net revenue grew almost 25% year-over-year, reaching BRL723 million, followed by an adjusted EBITDA growth of nearly 22% year-over-year, reaching BRL278 million with a margin of 39%. We also reported a record cash flow from operating activities generated, ending the nine months period with BRL934 million, 26% higher than last year, with a cash conversion of 109%, and we were able to reduce our net debt to BRL418 million when compared to December 2022, even with UNIT and FITS acquisition in January, as we will see on the Slide 14. Adjusted net income followed the same positive trend of last quarter and reached BRL128 million, a growth of 7% year-over-year with an adjusted EPS of BRL1.38, 7% higher than last year, even considering a higher net debt level and a higher interest rate. This result reflects Afya's great capital allocation discipline on buybacks, M&A and an efficient capital structure. In this quarter, we have reached 3,113 operating seats with the acquisition of UNIT and FITS, the beginning of Mais Medicos operations, along with Ji-Parana campus (ph), representing an increase of 15% year-over-year. Our number of undergrad medical students has reached more than 21,000, representing a 20% growth compared to the same period last year. In the Continuing Education segment, we continue to see great results, presenting a net revenue growth of 35% year-over-year. Once again, after reporting great results on the Digital Health Services revenue, which ended the quarter with an increase of more than 19% year-over-year, reaching more than BRL53 million in the three months period. This result…

Thank you, Virgilio, and good evening, everyone. Starting with Slide number 8 to discuss the financial highlights of the third quarter. It is with much satisfaction that I present another strong quarter results for Afya. Adjusted net revenue for the quarter was up almost 25% year-over-year to BRL723 million. For the nine-month period, adjusted net revenue was BRL2,145 million, an increase of 24% over the same period of the last year, reflecting the maturation of medical seats, higher tickets in medicine courses and the ramp-up of Continuing Education, boosted by the growth in the number of students. Once again, the Digital Services segment has also contributed to the revenue growth this quarter with the increase of the B2B engagements and the active payers expansions in B2B (ph). Adjusted EBITDA for this quarter increased almost 22% to BRL278 million, while the adjusted EBITDA margin decreased 90 basis points to 38.5%. For the nine-month period, adjusted EBITDA was BRL877 million, an increase of around 22% over the same period of the prior year, with adjusted EBITDA margin decrease of 80 basis points in the same period. The adjusted EBITDA margin reduction is mainly due to mix of net revenues with higher participations of the Continuing Education segments and the consolidation of four Mais Medicos campuses that started operation on the third quarter 2022 and UNIT Alagoas and FITS Jaboatao, which are performing better than expected, but still present lower margins when compared to the integrated companies. Moving to the next slide. Cash flow from operating activities for the nine-month period was 26% higher year-over-year, totaling BRL934 million, resulting in a strong cash conversion ratio of over 109%. Adjusted net income for the third quarter of 2023 was BRL128 million, an increase of 7% over the same period of the prior year, mainly…

[Operator Instructions] We are going to start our Q&A with Lucas Nagano from Morgan Stanley. Lucas, you can now talk.

Hello. Good evening. Thanks for taking our questions. We have two questions. First one is related to Mais Medicos 3. Is it possible to provide us some color on your plans for the program in terms of how many proposals you plan to submit, how many seats does it represent, and which regions you're targeting? And the second question is related to tuition readjustment for the next year. So how much you're increasing prices for 2024? And if it -- there is between schools, so -- if you could give us some color on the range of tuition readjustment in all of Afya's schools? Thank you.

Hi, Lucas. Virgilio, thanks for your question. So regarding the Mais Medicos 3, we have 18 institutions that all of them is going to propose for additional two medical schools. So we will be allowed to send the proposal for 36 new additional schools. So the number of medical seats will be 36x60 per school. So this is the number that we are going to participate on this entire process. So regarding the tuition adjustment, I'll pass to Blanco here to give you more color.

Hi, Lucas. It's Blanco speaking. Regarding the second question about readjustments. We have defined the increase in tuition fees for the next year. Specifically from the medicine courses, we are increasing most part of the courses in 4.95% for freshmen and existing students. Most part of our institutions, we're going to have this kind of readjustments.

Okay. Thank you. Thank you very much.

Thank you, Lucas. The next question comes from Marcelo Santos from JPMorgan. Marcelo, you may now go ahead and start.

Thank you. Thank you very much. Good evening, Virgilio, Luis, Renata. Thanks for the opportunity. I have two questions. The first is, considering we are already in the middle of the fourth quarter, would you please provide an update on the outlook of the prep business, probably already had a lot of the intake. So it would be interesting to see how do you see this next cycle? The second question is, if you could comment a bit on Digital business. We saw a slight sequential decline in revenues, so isn't this a business where we should be hoping for a little bit higher growth? Could you please comment this change from the second to the third quarter, what are the moving parts here? And how do you see this moving forward? Thank you.

Marcelo, I will get the question about the prep course here. So this is basically regarding the Medcel operations. So the nine months, we are operating below the trend when you compare to last year, the same period last year. Remember that the seasonality -- we have the new offer for 2024 cohort starting in end of September, October. So what we are seeing from October and November that the volume intake that we are seeing, it's ahead last year. So it's the first month when you compare to the last 12 months that we are seeing a stronger intake from when you compare to the last year same period intake. So we expect to reduce the gap between last year and for 2024, resumed growth also on prep course offerings. So regarding the Digital, Blanco will give more color for that.

Hi, Marcelo. Blanco speaking here. Medcel tends to have a pushback on the Digital results as a whole, Medcel, it's not our most important business in the Digital. We -- it's lagging with white book, it's lagging with our white book. But as you noticed in our release, the number of students of Medcel decreased more than 50% year-over-year. Now we can have this new intake that started here in the fourth quarter that we can recover and stop this fall from the last year. So the Digital as a whole, to achieve this BRL1.2 billion net revenue that we have guided for 2028 has to grow around 35%. And you are right, we delivered 19% in this quarter. But this drop on the net revenues come mostly from Medcel. If you take the main important part of the [indiscernible] business, we are growing around 30%, okay? The numbers of the active base users are growing 16% and the number of the B2B business is growing 75%. So we have this specific pushback because of Medcel. We took all the actions on that and for the first numbers of the fourth quarter, as Virgilio mentioned, we saw a recovery year-over-year.

Just summarizing that, Marcelo, the way that I like to see that is that separating on Digital, the Pillar 1 that is basically medical education, medical education, most of that comes from Medcel operations. And even combining Medcel operations, there is a business to physician type of business with other programs that we have on Pillar 2 and also Pillar 3. We are growing on B2B more than 14%, even considering the downturn coming from Medcel. But if you see the B2B business that we started ramping up last year, we are moving above 75%, at least where we put our efforts here to leverage our Digital operations. So this is basically medical practices (ph). So on Digital, medical practices (ph) is growing faster than expected. But when we have the Pillar 1 that's more regarded to medical education impacted by Medcel operations, it is just expanding 14% year-over-year.

If I may complement, Marcelo, other thing that's important to remember is that when we look for the future of the company, especially in the Digital, what comes mostly of the money comes from the B2B part of the Digital Services, right? And to accomplish that, we don't need the Pillar 1. Let me -- I don't want to make you guys think that that's not important or that. But to complement a strategy here, we need to have the contact with the physicians, right? And the products that most matter here is the products that are Pillars 2, 3, 4, 5 and 6. So Medcel, it's really important to [indiscernible] we want to keep up with the physicians, but what we are seeing with Medcel, it doesn't make us believe that we cannot achieve the BRL1.2 billion or anything like that, okay? Our B2B segment is going great.

Perfect. No. Thank you very much for all the explanation.

Thank you. So the next question comes from [indiscernible].

Thank you. Thank you, Renata. Good evening, everyone. I have two questions as well. If I can just go back to Mais Medicos program, just trying to get your understanding, do you think that eventually, as it looks like the restrictions of the request per institution, they are more restricted than previous programs. Do you think that eventually this could bring an opportunity for you in terms of M&A as I don't know, maybe smaller companies gaining some of these seats and eventually, they don't have the CapEx to do the investment and then you could eventually buy in the Mais Medicos more seats than you can request? That will be my first question. And then the second one, more like a perspective. If you have any idea or any view when the Supreme Court would eventually restart or resume the case of [indiscernible] as well? Thank you.

Hi, France (ph). This is Virgilio. So about the first question, there is a restriction about two proposals for each institution. They are also limit and allowing small players to be differently and also in two different cities. So thinking about the M&A opportunities here, for sure, we may have some small players that they can come to the table with new opportunities for M&A, but being very sincere, it's not something that we are thinking right now. We still have a hot pipeline for more traditional schools. And seeing the size of our pipeline coming from the Mais Medicos 3, more than 30 new possible institutions, I think this is much more important than thinking about acquiring additional institutions that will be implemented using Mais Medicos 3, so this is what we are thinking right now. Secondly, about the Supreme Court, we are seeing that the other judge, the other federal judge is moving and having a lot of question coming to the sector. I think they are preparing to release additional votes. Maybe we'll have some additional votes that is still pending by the end of this year. So maybe in November, we can have one or two additional judges voting, but for being very sincere, we don't know if they will complete this session by the end of this year or start in 2024. So we still -- a lot of speculation about that. We don't have anything that would be more tangible for you guys right now, okay?

And France (ph) Blanco speaking, just to give more color on the first topic regarding M&A in Mais Medicos, you need to remember that we always keep our capital discipline allocation, okay? So the first restrictions regarding this possible new targets with Mais Medicos, first, we needed to buy the entity as a whole. And as you know, we have this threshold of having 60% of the revenues coming from medicine business. So if an institution that doesn't have medicine, just want this Mais Medicos 3 license, we need to see how important these licenses will be under the future operations of this company. Why I'm saying that because it's important to remember that's not the Mais Medicos program, you cannot carve out the license from [indiscernible] if you don't have the course recognized. So it's not possible to carve out just the medicine course and buy this medicine course coming from Mais Medicos, if the course is not recognized by the Ministry of Education. So I think this will take some time to get to the table. But that's for sure, with or without these kind of targets, we'll keep have in our capital discipline allocation, okay?

Okay. Super clear. Thank you, Virgilio. Thank you, Blanco.

Okay. So next question comes from Lucca Marquezini from Itau.

Good evening, everyone and thank you for taking our question. As regarding the Digital Services segment, so the release mentioned that the company had a strong increase in B2B engagements. Can you please provide some color on this performance and also comment what should be the next steps within this vertical if you have new initiatives and you expect still strong growth in the coming quarters? That would be very helpful. Thank you.

Hi, Lucca. So just to remember, we started offering the B2B offerings to the market beginning on first quarter of 2022. Today, we almost have around 200 contracts signed, most of them with pharma companies to give them all kinds of access to our physician ecosystem, the spreading content, new protocols, education and learning objects to the physicians and also typical ads using our social network here. So this type of offering is getting even more used for the pharma companies, the kind of exchanging the traditional way that they have the sales representative reaching physicians to do the marketing to sell their medicine, their drugs. So they are using even the more the digital channel and with a strong growth of -- not only reputation, but we are, I think, the right pattern to them to have the right way to reach physicians and the best time using their time in the best way. So what we think is that, well, our strategy here to reach the pharma industry as on the B2B contracts, it's more basically on landing and expanding strategy. So today, we have like for the fifth, the five big companies, we have more than 10 contracts with them. So it's been more recurring relationship with them and ramping out B2B contracts. So that's the type of offer that we are offering to B2B and to pharma companies and also start using this type of product also to providers in the same way that we are doing to pharma companies. By the end of the day, providers, they also want to reach physicians to generate more demand and also to drive more volume for their operations for their hospitals. So this is the type of solutions and opportunities that we are offering using our ecosystem.

And if I may add, Lucca, one point here, is that until the first semester of this year, most of our contracts basically were campaign-based, okay? So the pharmaceutical companies hire us for specific campaigns for specific drugs for a specific type of physicians. From the third quarter, we started new products. We launched it as a matter of fact, our first product that is generate recurring kind of revenues and recurring type of relationship that is -- it is Rx Insights that provides insights for prescribed drugs under our ecosystem. So we are moving from campaigns to these kind of recurring revenues, that's very, very important for us in the ramp-up of the business.

That’s very clear. Thank you, guys.

[Operator Instructions] While we wait for next question, I'm going to read a question that we received from the Q&A. It is regarding the Mais Medicos 3, how does the CapEx in terms of cost per seat compare to usual M&A per seat cost of roughly BRL2 million per seat? You want to take this?

Yes. I'm going to take this. We are seeing that these Mais Medicos 3 will be around BRL25 million to invest and deploy the site. Just making a round calculation, if we consider BRL30 million, just rounding with 60 seats, we would say about BRL500,000 per seat that is much, much less than this BRL2 million per seat that it's kind of number of multiple that you see in the market. So it's doing this, getting the license and deploying these greenfields is accretive for us.

Yeah. And BRL25 million to BRL30 million is our expectation as of today. So the next question comes from Lucas Nagano from Morgan Stanley.

I have a follow-up question on the regulation related to injunctions (ph). So now that the Ministry of Education revoked that measure that basically invalidated the injunctions that didn't comply with Mais Medicos 3, the current value decision is from [indiscernible] to evaluate some of those requests. Do you think that more medical schools could be opened outside of Mais Medicos in the meantime, like while the [indiscernible] trial doesn't resume? Like how do you perceive this risk?

Lucas, so that's a very good question. That's our opinion here. So in my opinion, I think the Ministry of Education, they will expect the final decision from the Supreme Court in order to evaluate and give the final word if that process that we analyzed and through the injunctions, we will follow or not. So what -- if you read this new ordinance, they expect that they will follow the process. They will visit these institutions. But by the end of the process, they still have a final world from Ministry of Education in order to approve or not that new medical institution. So I think with that measure, the Ministry of Education is waiting for the final word coming from the Supreme Court in order to analyze what they are going to do with all this process coming from injunction. So I think that's the main point. We are -- I think we are not going to see any approval before the decision coming from the Supreme Court.

Maybe if I may add, Lucas, this [indiscernible] Virgilio is saying, it's after what we are seeing since [indiscernible] give his decision on beginning of August. And since then, while this normative was not released yet, we were not seeing a float of seats being released because of that because they were not in the municipalities as they mentioned. So we don't see a big risk here as Virgilio said.

Yeah. By the end of the day, they still have to follow the Mais Medicos requirements that they have to have the hospital beds, they have to follow the social demand and how critical is for that region for that city to open new medical school and also to follow all the academic and also the necessity that they have to pay to the municipality and the health secretary in order to approve the new medical school. So that is -- when we analyze that and apply for all the regions that they are trying to open this new Mais Medicos, these new injunctions, I think the impact on overall demand will be much lower than the overall process that we are seeing being analyzed by the Ministry of Education.

It's very clear. Thank you, Virgilio and Renata.

Thank you, Lucas.

Of course, since we do not see any other questions here, I appreciate you all participating, and we, from Investor Relations, we are available if you still want any follow-up question. Thank you and have a nice night.