Good night [sic] everyone and thank you for joining us for Afya's Fourth Quarter and Full Year 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 Afya's 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 welcome to our final conference call of 2022 [ph]. We are excited to present another year of exceptional operational and financial performance for Afya. Once again, we have demonstrated the resilience of our business, the successful implementation of our strategy, and the reliability of our business model. In this presentation, I will cover key strategic topics, including our performance highlights, the successful business execution across our three segments, guidance for 2023, and the new goals for 2024. And finally, Luis Blanco will provide an in-depth look at our financial and operational performance. Now turning to page number three, let's begin by highlighting our performance achievements. Initially, our adjusted net revenue increased by 24%, reaching R$2,874 million, accompanied by a growth of adjusted EBITDA of over 21% year-over-year, reaching R$1,166 million, with a margin of 40.6%. Furthermore, we are pleased to report a record on cash flow generation from operating activities, concluding the year with R$1,088.8 million, reflecting a 24% increase compared to the previous year, with a cash conversion rate of 97%, which is 270 bps better than the previous year. With consistent momentum throughout the year, our adjusted net income reached R$591 million, in 2023, marking over 10% growth year-over-year, with an EPS of R$6.37, a remarkable 12% increase compared to the previous year. This underscores our disciplined capital allocation on buyback programs, M&A, and an efficient capital structure. Transition to our operational updates for the year, we have expanded to 3,113 operating seats, witnessing an year-over-year increase of over 12%, facilitated by the acquisition of UNIMA and Faculdade de Ciências Médicas de Aboatão in January of 2022 [ph]. In addition, our number of undergrad medical students has reached more than 21,000, representing a 19% growth compared to 2022. Additionally, we are delighted to report…

Thank you, Virgilio, and good evening, everyone. Slide number nine will now guide us through the discussions of the financial highlights of the fourth quarter. With great pleasure, I present another strong quarterly result for Afya. Adjusted net revenue for the fourth quarter of 2023 reached R$730 million, marking a 23% increase compared to the same period of the prior year. Furthermore, in 2023, adjusted net revenue reached R$2,874 million, reflecting a 24% surge over 2022. This growth trajectory can be attributed primarily to higher tickets in medicine course, maturations of medical seats, the acquisitions of UNIMA and FCM Jabotão, the continual educational segment growth, and digital service performance. Adjusted EBITDA for the fourth quarter of 2023 saw a 19% increase, reaching R$289 million, with an adjusted EBITDA margin of 39.6%. For the full year, adjusted EBITDA amounted to R$1,166 million, reflecting a 21% increase with an adjusted EBITDA margin of 40.6%, representing a marginal decrease of 90 basis points compared to 2022. These reductions can be attributed to factors such mix of net revenue with higher participations of continual educational segment and launch of four medical campus in the third quarter of 2022 that are still in early stage of maturation. However, in each semester until full maturation, revenues will increase, offsetting the impacts of the fixed costs of the operation. Transitioning to the next slide, adjusted cash flow generation witnessed a 24% year-over-year increase, totaling R$1,089 million for 2023. The operational cash conversion ratio stood at 97% for 2023, 270 bps above 2022. It is important to highlight that one of our differentiations is our cash flow from operational activities. Adjusted net income for the fourth quarter of 2023 amounted to R$164 million, marking a 28% increase over 2022. For the full year, adjusted net income reached R$591…

[Operator Instructions] Our first question will come from Mirela Oliveira from Bank of America. Mirela, you may now talk.

Good evening, guys. Thank you for your time. I have two questions here. First, if you guys could comment a bit on the competitive environment for 2024, if you have seen any significant change on the candidate per seat on any region. And second, what are the expectations on the Mais Médicos auction in terms of timing after the postponements? And also, if the recent change that established a cap for proposals for the big players changed any expectation you may have on the final results, given that now you'll be able to submit less proposals. Thank you.

Okay, Mirela. Thanks for your question. Regarding your first question about the competition landscape, we just completed our intake process for the first half of 2024. Our ratio of candidates per seat was around almost six candidates per seat, so it was a very strong intake. So we have also not only the intake, but our renewal also completed. So we are running as expected with a very good demand for all of our campuses around the country. So no changing when we compare to last year. Actually, the ratio that we are seeing is even higher than before the pandemic. So that was how we are seeing the competition on the intake process for undergrad, medical undergrad process. Besides that, we are also seeing a very strong intake coming from health programs on our campuses. I think that this can be related to the new brand that now it's all the campuses working under the umbrella of Afya. So a very good campaign and a strong intake coming from all the other health programs, both online on campus and online programs. So for the second question about the Mais Médicos 3 schedule. So we are expecting to deliver the proposal now by the current schedule by July of this year. And the answer will be only beginning of 2024 with the new change 2025. I'm sorry. And by the new changing we have, the change was from the previous one. We got 36 opportunities to bid in order to participate on the public bid. And now with the change that each institution can only offer for one state that's reduced to 36 from 36 to 23 campuses that will be allowed to bid for the Mais Médicos 3. So that's all the updates on this front, okay.

If I may add two points here Mirela. The first one regarding the Mais Médicos. Yes, we can bid for less campus, but all the competitive players also can bid for less campus. So in the end of the day, we will be less competitive than we thought before. And regarding the first question, I would also like to add that we established the prices to increase around 4.9% when we started our intake process. But now we can see that on average, we should see price increases over than 5.8% considering the maturation of new tickets and also the ticket increase across all campuses. That's it.

Thank you, guys.

So the next question will come from Jessica Meller from JPMorgan. Jessica, you may now talk.

Hello, good evening. Thank you for taking my questions. I have two as well. So first, what is the outlook for digital education margins in 2024? And also, should we continue to see continued education expanding in 2024? What is the outlook for this segment? Thank you.

Hi Jessica, it's Blanco speaking here. As a whole, we see in our three segments, margin expansions during 2024. Starting with the continued educational, what we see that we're going to expand margins because we are having leverage, leveraging, operational leverage operations. We established new campuses, this campus being fulfilled with students. So we can get more efficiency on this campus regarding our graduate courses. Regarding our digital service, what we see that with the expansions of our service, the expansions in our B2B users and the new B2B contracts, we are going to see increasing in margins year over year as well. And in undergrad, we have the fact that we finalized the integrations of UNIT in last November. So it will be the first year that will be 100% of FITS having UNIMA/FITS FCM Jabotão being 100% integrated. So we're going to have expansions on these three segments. And on top of that, on holding level, we established last year our zero budget project and we are going to run our zero budget during 2024. So with these scenarios, we are comfortable to give this guidance of 2024, whereas implied expansions in terms of EBITDA margins for 2024, if you compare to 2023.

Jessica, just adding here. So based on our guidance here, that our top line is moving close to 12%, around 12%, and the bottom line growing 16% year-over-year. That is a combination of around 10% growth coming from undergrad, year-over-year, pure organic, 50% coming from volume, 50% come from attrition. On continuing medical education, it's around 20% organic growth and digital services around 30% growth expected to 2024. And all the three segments, we are seeing margin expansion as expected also in our guidance.

Very clear. Thank you very much.

Thank you.

[Operator Instructions] The next question will come from Lucas Nagano from Morgan Stanley. Nagano, you may now go.

Good evening. Thanks for taking our questions. We have two questions. The first one is related to digital services growth. B2B seems to be growing at a consistent rate, but there was an acceleration in B2B sales growth in Q4 compared to the rest of the year. Can you give us some color on the initiatives on B2B, the challenges to help us better understand the growth rates from there? And the second question is related to M&A. If you could comment about a potential return in M&A, like how active is the pipeline, if discussions are somewhat returning as rates fall, and if you see upside in the current multiples. Thanks.

Hi, Lucas. Virgilio here. So first on B2B business to physician contracts, I think that the constant growth here is much more related across selling, upselling our solutions as we have a very large penetration under the, or at least our biggest penetration solution, that is WhiteBook from PEBMED. That's almost 80% of physician between one to five years after graduation that are using this solution. So the opportunity here is more upselling of other solutions and also cross selling, continuing medical education for these clients, for these physicians. On B2B, we are collecting the hanging fruit from the lending expanding strategy. So as we said in the past that we are just experiencing our relationship with big pharma companies, now we have multiple contracts with very large companies and we also with a higher value from each company. So the B2B contracts this year grew more than 60% pure organic. So it's a huge opportunity. And the sales, the opportunity that we are seeing on our pipeline for 2024 is even higher here. So it's keeping a very good trend and the growth will be boosted for sure by B2B contracts along 2024.

Yes. And if I may add with some question that we received through the chat here about the B2B growth on the digital segment over here, what is driving the B2B growth on that? If I may add, Virgilio, we saw during 2023 the increases in terms of contracts within the pharmaceutical industry come from products that we call campaign products. So we are hired by the pharmaceutical companies that have been the international ones and the national ones. They are hiring us to do campaigns, certain campaigns about certain drugs that they have under their portfolio to do these marketing campaigns for them using our apps and our sites as the channel to reach the right physicians at the right time. So these kind of products drive our growth during 2023 and for the next year for 2024. On top of that, we launched at the end of 2003 some recurring products to the pharmaceutical companies as well to provide insights in their sales on that. These products didn't get traction during 2023, but we are excited for the perspective of these offers for the pharmaceutical companies. And I think we have this additional growth in 2024 with this new product that we launched that we call RxInsights [ph].

And just to finish your question again about M&A, we are seeing a... Do you want to go?

Yes, sorry. Again, I forgot the question about M&A. Talking about M&A does not stop. We're always talking with the targets as we have a very specific niche of targets. Just remember that our targets is just the institutions that have on the maturations more than 60% of their revenues coming from the medicine business. Always we have come and goes with targets and we are still comfortable with the target that we've put in the market to grow to 200 seats per year. About multiples on that, we don't like this. If you perceive multiple, we prefer always to see a targets within EBITDA and evaluate it through IRR from these acquisitions to have more than 20% on leverage IRR on each transactions. But I think the next deal would have a multiple that was below the last acquisition that we have, that was UNIMA/FCM Jabotão. I would say that it's our expectations to have this kind of multiple in the next transaction. But we are always talking and always look for opportunities to best allocate our capital.

Very clear. Thank you, Luiz, Virgilio, Renata.

Thank you, Nagano. The next question comes from Lucca Marquezini from Itau. Lucca, you may now ask.

Hey, good evening, everyone. Thank you for taking our questions. Just two questions from our side. The first one, if you could just provide an updated view on the potential authorization of new seats via injunctions, and then how this could impact the competitive landscape in the regions where the company operates. And then the second question, if you consider the midpoint of the guidance for 2024, this implies an adjusted EBITDA margin expansion for the year. Can you please comment on which of the segments should be the most responsible for this expansion, please? Thank you.

Hi, Luca. About the new seats authorization from the injunctions here. So, we still don't have like a final result from the Supreme Court in this matter here. But what I expect here is that by the end of the day, independently, what is the final response from the Supreme Court will be the ministerial application that we will have to fulfill and to approve all the additional seats. So, what I believe is that the combination between the public policy that they're aiming to expand more medical seats for countryside through the medical street, combined with any alternative way that can be from the legal side, if that is, will be the final solution, can be combined what the Minister of Education is expecting to have as a total expansion for the sector. So, we are seeing that the total estimative by what they released in the past was around 9 to 10,000 additional seats. If they come from injunction, from additional seats, from the other alternatives, from medical streets, I think in the long-term, I think it will be added something close to 10,000 seats in five to six years. That's the time that, well, you have to get the final answer, you have to build the campus, you have to receive the final visit to get the authorization, the normative authorization, and then start all the intake process. So, by the end of the day, that is, I think it will be the largest impact around 9 to 10,000 seats in all of the cities that the Minister of Education is aiming to have additional program or additional seats as an increase of supply for the entire country.

Okay, and Luca, Blanco speaking, taking your question about the margin expansions for 2024. As Virgilio mentioned before, in terms of top line, we can expect around 10% in the undergrad segment, around 20% in the continuing educational, and around 30% in terms of digital service expansion in top line. Coming to the expansions in these three segments, giving you more color on that, on the undergrads, we can expect margin expansion because it will be the full year, the first two years that we're going to have UNIMA/FCM, Jabotão, a full field, 100% of the year under our model. So, we did the migrations of the operations to our shared service. We implement our national curriculum in UNIMA in this first semester of 2024. So, we're going to pass one-year, entire year, with them, with other structures, so we can expect expansions on margins on the undergrads because of that. On the continuing educational segment, what we're doing is the operational leverage of the segment itself. We've ended 2023 with a growth of roughly 35% in this segment. We have new locations of continuing educational, and we're fulfilling these units with students. We have a good, a very good, strong demand for our graduate courses as a path for them to get the specialization title. So, our offer is very strong and it's getting better attractions within the physicians. And with this increase and these new units being fulfilled, we're going to gain operational leverage and increase margins. And this itself, as we are still growing both B2P and B2B, we can get this more efficient and get more margins as well. All of them being supported by this zero budget product, a project that we implemented for the budget of 2024. We are very confident that we can gain some efficiencies on the holding levels in each one of the segments that will be supported. And that's why we established this guidance that is implied in the midpoint of the guidance, as you mentioned, margin expansion.

Lucca, just an additional point about the dynamic on undergrad here. If you remember, during the three first quarters, we were losing margin, gross margins on the undergrad segment. And the reason of that was not only because of the physician, but most of them come from the maturation, the maturation of the six Mais Medicos campuses that was launched in 2022. In 2021, they were maturing as they have only 60 seats. The margin coming from these campuses was very low. The gross margin coming from this campus was lower. And then in the fourth quarter, if you take a look on the spreadsheet that we are releasing also together for our financial statement, is the first quarter that we have higher gross margin on the undergrad segment when you compare to the fourth quarter 2022. So that's a very good trend that will keep the same trend on 2024, but also pushing that will be pushed also for the other two segments as Blanco mentioned.

That's very clear. Thank you, guys.

Thank you, Luca. So just a reminder, if you want to ask a question, please raise your hand. Our next question comes from Leandro Bastos from [Indiscernible]. Leandro, you may now ask.

Yes, thank you. Thank you, Renata. Hello, guys. Good evening. Just one question on our side. If you could comment a little bit on the latest intake cycle we have for prep courses, how you saw competition, the new strategy for Medcel, how was acceptance from the students? As much as you could share, I think it would be helpful to hear. Thank you.

Leandro, thank you for your question here. So we are not tracking here only the prep course intake, but not for residency, but also all the prep for title that we are offering with another brand here, that is papers, the card papers, not only for residence, but also for title. But take a look product by product on the Medicel, there's a focus on residency prep programs. The fourth quarter was the first quarter since the last two years that will have a higher intake and higher sales volume when you compare to the last year. On the other hand, for title prep, we are boosting our operation here when you compare to last year, growing more than 30% year-over-year when you take a look for the papers and all. All of this is combined on our digital operation. It's one of the reasons why we also leverage margins along 2024.

Okay, that's clear. Thank you so much.

Thank you, Leandro. And our next question comes from Lucas Nagano from Morgan Stanley. Lucas, you may now go.

Thank you, Renata. I have a follow up question on the Supreme Court debate. The vote by André Mendonza [ph] seemed a little open to different scenarios for us. First, does it count as a vote against the injunctions? And second, you commented on some things about reviewing the Mais Médicos policy. Does it imply any change to the current Mais Médicos program taking place now?

Hi, Lucas. We are seeing the André Mendonza vote as a very strong argument against not the Mais Médicos 3, but all the noise that is coming from the injunctions. So what we still have to wait is another vote. If we have another vote against the modulation, that is the modulation to the second modulation where the Ministry of Education is allowed to analyze some injunctions process after some stage, that will finish all the questions about that. But one thing is true. All of the changes on Mais Médicos 3 is creating some noise. I hope they fulfill their schedule now and we can release our proposals by July this year and wait for the final answer in the beginning of 2025 to start working on the new campus and the new programs released to the market.

Okay, Virgilio, thanks.

We do not have any other questions. So if you want to have a follow up question, please just contact our IR team. We'll be happy to help you. Have a good night, everyone.

Thank you.