UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of November, 2024

 

 Commission File Number: 001-38992

 

Afya Limited

(Exact name of registrant as specified in its charter)

 

Alameda Oscar Niemeyer, No. 119, Salas 502, 504, 1,501 and 1,503

Vila da Serra, Nova Lima, Minas Gerais

Brazil

+55 (31) 3515 7550

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

X

 

 

 

 

 

TABLE OF CONTENTS

 

EXHIBIT  
99.1 Afya Limited Unaudited interim condensed consolidated financial statements September 30, 2024.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Afya Limited
     
     
      By: /s/ Virgilio Deloy Capobianco Gibbon
        Name: Virgilio Deloy Capobianco Gibbon
        Title: Chief Executive Officer

Date: November 12, 2024

 

 

 

Afya Limited

 

 

Unaudited interim condensed

consolidated financial statements

 

September 30, 2024

 
 

Afya Limited

Unaudited interim condensed consolidated statements of financial position

As of September 30, 2024 and December 31, 2023

(In thousands of Brazilian reais)

 

  Notes September 30, 2024   December 31, 2023
    (unaudited)    
Assets        
Current assets        
Cash and cash equivalents 5 836,876   553,030
Trade receivables 6 552,381   546,438
Inventories   235   1,382
Recoverable taxes   41,424   43,751
Other assets 8 45,304   58,905
Total current assets   1,476,220   1,203,506
         
Non-current assets        
Trade receivables 6 36,940   39,485
Other assets 8 117,789   117,346
Investment in associate 9 55,365   51,834
Property and equipment 10 639,187   608,685
Right-of-use assets 12.2.2 846,333   767,609
Intangible assets 11 5,541,793   4,796,016
Total non-current assets   7,237,407   6,380,975
         
Total assets   8,713,627   7,584,481
         
Liabilities        
Current liabilities        
Trade payables   129,920   108,222
Loans and financing 12.2.1 30,051   179,252
Lease liabilities 12.2.2 45,133   36,898
Accounts payable to selling shareholders 12.2.3 247,192   353,998
Advances from customers   154,759   153,485
Labor and social obligations   269,381   192,294
Taxes payable   32,470   27,765
Income taxes payable   12,066   3,880
Other liabilities   4,213   2,773
Total current liabilities   925,185   1,058,567
         
Non-current liabilities        
Loans and financing 12.2.1 2,115,219   1,621,523
Lease liabilities 12.2.2 929,647   837,671
Accounts payable to selling shareholders 12.2.3 338,850   212,869
Taxes payable   86,016   88,198
Provision for legal proceedings 21 115,042   104,361
Other liabilities   52,025   18,280
Total non-current liabilities   3,636,799   2,882,902
Total liabilities   4,561,984   3,941,469
         
Equity 15      
Share capital   17   17
Additional paid-in capital   2,344,053   2,365,200
Treasury shares   (276,944)   (299,150)
Share-based compensation reserve   181,372   155,073
Retained earnings   1,861,948   1,380,365
Equity attributable to equity holders of the parent   4,110,446   3,601,505
Non-controlling interests   41,197   41,507
Total equity   4,151,643   3,643,012
         
Total liabilities and equity   8,713,627   7,584,481

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

F-2 
 

Afya Limited

Unaudited interim condensed consolidated statements of income and comprehensive income

For the three and nine-month periods ended September 30, 2024 and 2023

(In thousands of Brazilian reais, except for earnings per share information)

 

    Three-month period ended   Nine-month period ended
  Notes September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
    (unaudited) (unaudited)   (unaudited) (unaudited)
             
Revenue 17 841,185 723,479   2,455,314 2,146,047
Cost of services 18 (324,083) (288,234)   (908,429) (820,136)
Gross profit   517,102 435,245   1,546,885 1,325,911
             
Selling, general and administrative expenses 18 (280,027) (257,002)   (784,953) (739,808)
Other income (expenses), net   (3,183) 12,043   (7,868) 10,365
             
Operating income   233,892 190,286   754,064 596,468
             
Finance income 19 30,396 34,771   79,659 86,259
Finance expenses 19 (130,240) (115,306)   (322,420) (353,572)
Net finance result   (99,844) (80,535)   (242,761) (267,313)
             
Share of income of associate 9 2,526 615   9,726 7,671
             
Income before income taxes   136,574 110,366   521,029 336,826
             
Income taxes expenses 20 (12,432) (12,146)   (26,388) (33,296)
             
Net income   124,142 98,220   494,641 303,530
             
Other comprehensive income   - -   - -
Total comprehensive income   124,142 98,220   494,641 303,530
             
Income attributable to:            
Equity holders of the parent   119,979 93,347   481,583 288,263
Non-controlling interests   4,163 4,873   13,058 15,267
    124,142 98,220   494,641 303,530
             
Basic earnings per common share 16 1.33 1.04   5.35 3.21
Diluted earnings per common share 16 1.31 1.03   5.28 3.18

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

F-3 
 

Afya Limited

Unaudited interim condensed consolidated statements of changes in equity

For the nine-month periods ended September 30, 2024 and 2023

(In thousands of Brazilian reais)

 

    Equity attributable to equity holders of the parent  
  Notes Share capital Additional paid-in capital Treasury shares Share-based compensation reserve Retained earnings Total Non-controlling interests Total equity
                   
Balances at January 1, 2023   17 2,375,344 (304,947) 123,538 1,004,886 3,198,838 51,320 3,250,158
Net income   - - - - 288,263 288,263 15,267 303,530
Total comprehensive income   - - - - 288,263 288,263 15,267 303,530
Treasury shares   - - (12,369) - - (12,369) - (12,369)
Share-based compensation 18 - - - 20,082 - 20,082 - 20,082
Restricted shares transferred under the share-based compensation plan   - (2,571) 2,571 - - - - -
Treasury shares transferred to executives from exercise of stock options   - (1,196) 4,742 - - 3,546 - 3,546
Dividends declared 15.b - - - - - - (15,914) (15,914)
Balances at September 30, 2023 (unaudited)   17 2,371,577 (310,003) 143,620 1,293,149 3,498,360 50,673 3,549,033
                   
Balances at January 1, 2024   17 2,365,200 (299,150) 155,073 1,380,365 3,601,505 41,507 3,643,012
Net income   - - - - 481,583 481,583 13,058 494,641
Total comprehensive income   - - - - 481,583 481,583 13,058 494,641
Share-based compensation 18 - - - 26,299 - 26,299 - 26,299
Restricted shares transferred under the share-based compensation plan 14.b.2 - (17,753) 12,771 - - (4,982) - (4,982)
Treasury shares transferred to executives from exercise of stock options 14.b.1 - (3,394) 9,435 - - 6,041 - 6,041
Dividends declared 15.b - - - - - - (13,368) (13,368)
Balances at September 30, 2024 (unaudited)   17 2,344,053 (276,944) 181,372 1,861,948 4,110,446 41,197 4,151,643

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

F-4 
 

Afya Limited

Unaudited interim condensed consolidated statements of cash flows

For the nine-month periods ended September 30, 2024 and 2023

(In thousands of Brazilian reais)

 

  Notes September 30, 2024   September 30, 2023
    (unaudited)   (unaudited)
Operating activities        
Income before income taxes   521,029   336,826
Adjustments to reconcile income before income taxes        
Depreciation and amortization 18 249,135   212,172
Write-off of property and equipment   2,108   1,209
Write-off of intangible assets   243   288
Allowance for expected credit losses 6 41,589   57,160
Share-based compensation 18 26,299   20,082
Net foreign exchange differences   7,462   448
Accrued interest 19 166,343   224,349
Accrued interest on lease liabilities 12.2.2, 12.5, 19 82,803   74,867
Share of income of associate 9 (9,726)   (7,671)
Provision (reversal) for legal proceedings   4,619   (27,119)
         
Changes in assets and liabilities        
Trade receivables   (35,619)   (52,169)
Inventories   1,147   7,828
Recoverable taxes   2,409   (34,921)
Other assets   20,107   35,960
Trade payables   19,966   1,920
Taxes payable   (6,625)   25,321
Advances from customers   40   (27,883)
Labor and social obligations   69,719   94,465
Other liabilities   4,417   (9,331)
    1,167,465   933,801
Income taxes paid   (19,290)   (37,599)
Net cash flows from operating activities   1,148,175   896,202
         
Investing activities        
Acquisition of property and equipment 10 (93,367)   (88,014)
Acquisition of intangibles assets 11 (223,399)   (67,113)
Dividends received 9 6,195   8,294
Acquisition of subsidiaries, net of cash acquired 12.2.3 (579,074)   (726,530)
Payments of interest from acquisition of subsidiaries and intangibles 12.2.3 (55,898)   (36,674)
Net cash flows used in investing activities   (945,543)   (910,037)
         
Financing activities        
Payments of principal of loans and financing 12.5 (126,666)   (12,216)
Payments of interest of loans and financing 12.5 (156,897)   (124,468)
Proceeds from loans and financing 12.5 492,351   5,288
Payments of principal of lease liabilities 12.2.2, 12.5 (30,218)   (22,657)
Payments of interest of lease liabilities 12.2.2, 12.5 (82,567)   (78,001)
Treasury shares   -   (12,369)
Proceeds from exercise of stock options   6,041   3,546
Dividends paid to non-controlling shareholders 15.b (13,368)   (15,914)
Net cash flows generated (used) in financing activities   88,676   (256,791)
Net foreign exchange differences   (7,462)   (448)
Net increase (decrease) in cash and cash equivalents   283,846   (271,074)
Cash and cash equivalents at the beginning of the period 5 553,030   1,093,082
Cash and cash equivalents at the end of the period 5 836,876   822,008

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

F-5 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

1Corporate information

 

Afya Limited (“Afya”), collectively with its subsidiaries referred to as the “Company”, is a holding company incorporated under the laws of the Cayman Islands on March 22, 2019. Afya completed its initial public offering (IPO) on July 19, 2019, and its shares are listed on the Nasdaq under the symbol “AFYA”. The Company’s ultimate parent company is Bertelsmann SE& Co. KGaA (“Bertelsmann”), as a result of Bertelsmann’s acquisition of control on May 5, 2022.

The Company is formed by a network of higher education and post-graduate institutions focused on medical schools located in 19 Brazilian States forming the largest educational group by the number of medical school seats in the country. In non-regulated education, the Company provides services that comprise the development and sale of electronically distributed educational courses on medicine science and soft skills educational content. The Company also offers solutions to empower the physicians in their daily routine including supporting clinic decisions through mobile app subscription, delivering practice management tools through a SaaS (Software as a Service) model and supporting the patient-physician relationship.

 

On January 24, 2024, the Ministry of Education (“MEC”) authorized the increase of 40 medical school seats of Faculdades Integradas Padrão (FIP Guanambi) located in the city of Guanambi, State of Bahia, which resulted in an additional payment of R$49,600. With the authorization, the Company reaches 100 medical school seats on this campus. The operation of these medical school seats started in the first quarter of 2024.

 

On July 12, 2024, MEC authorized the increase of 80 medical school seats of Centro Universitário Tiradentes Alagoas (“UNIMA”) located in the city of Maceió, State of Alagoas, which resulted in an additional payment of R$1,250 per increased medical school seat updated by IPCA since January 2, 2023, which resulted in an additional payment of R$107,627. With this authorization, Afya reaches 220 medical school seats on this campus. The operation of these medical school seats started in the third quarter of 2024. Such additional seats were accounted for as intangible assets (Licenses with indefinite useful life). See Note 11.

 

Acquisition in 2024

 

On July 1, 2024, Afya Participações S.A. ("Afya Brazil”), a wholly-owned subsidiary of Afya, acquired Unidom Participações S.A. (“Unidom”). Unidom is a post-secondary education institution with governmental authorization to offer on-campus, undergraduate degrees and graduate programs in medicine and health, as well as other courses, and encompasses “Unidompedro” and “Faculdade Dom Luiz”, both located in the State of Bahia with operations in the cities of Salvador, Luis Eduardo Magalhães, Barreiras and Ribeira do Pombal.

 

As of September 30, 2024, Afya reached 3,593 total approved medical school seats, including 300 medical school seats from the acquisition of Unidom. Of these, 175 medical school seats are subject to final approval from MEC. See Note 4.

 

Acquisition in 2023

 

On January 2, 2023, Afya Brazil acquired Sociedade Educacional e Cultural Sergipe DelRey Ltda. (“DelRey”). DelRey is a post-secondary education institution with governmental authorization to offer on-campus, undergraduate degrees and graduate programs in medicine and health, as well as other courses, and encompasses the operations of UNIMA and Faculdade Tiradentes Jaboatão dos Guararapes (FCM Jaboatão).

 

F-6 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The aggregate purchase price of R$816,236 is comprised of: i) R$809,000 of which R$575,000 was paid in cash on the transaction closing date (R$567,196 of cash paid net of cash acquired (included in cash flows from investing activities)), and R$234,000 is payable in cash in three annual installments, respectively, of R$134,000 in January 2024, R$50,000 in January 2025 and R$50,000 in January 2026, adjusted by the SELIC rate; and ii) offer of Afya’s digital solutions free of charge until December 31, 2030, for students of medicine of universities owned by the sellers which are not part of the transaction. The fair value of this service was estimated at R$7,236 at the acquisition date.

 

2Material accounting policies

 

2.1 Basis for preparation of the unaudited interim condensed consolidated financial statements

 

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and the basis it will continue to operate as a going concern for the foreseeable future.

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for contingent consideration (earn-outs) that have been measured at fair value.

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of December 31, 2023.

Afya is a holding company, as such the primary source of revenue derives from its interest on the operational companies in Brazil. As result, the Brazilian Real has been determined as the Company’s functional currency.

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), which is the Company’s functional and presentation currency. All amounts are rounded to the nearest thousand.

 

The Company segregated the payments of principal and interest of lease liabilities in the unaudited interim condensed consolidated statements of cash flows for the nine-month period ended September 30, 2024, in accordance with the provisions set forth in IAS 7 – Statement of Cash Flows. As a result, Management revised, retrospectively, the prior period unaudited interim condensed consolidated statements of cash flows for the nine-month period ended September 30, 2023, for comparative purposes. The Company assessed the materiality of this matter and, based on an analysis of quantitative and qualitative considerations, determined that the segregation of payments of principal and interest on prior period over such transactions is not material to its unaudited interim condensed consolidated financial statements. However, even if it is not material, the segregation of payments of principal and interest regarding such transactions for the nine-month period ended September 30, 2023 are appropriate for the users of the unaudited interim condensed consolidated financial statements, considering the comparability of such information over the periods presented. The payments of interest of lease liabilities are classified within the unaudited interim condensed consolidated statements of cash flows under the same activities of which the payments of principal are classified. As a result, no change occurred in the net cash flows used in financing activities in the unaudited interim condensed consolidated statements of cash flows for the nine-month period ended September 30, 2023.

 

F-7 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

These unaudited interim condensed consolidated financial statements were approved by the Board of Directors for issuance on November 13, 2024.

 

2.2 Changes in accounting policies and disclosures

 

New standards, interpretations and amendments issued and adopted by the Company

 

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2023. Certain amendments apply for the first time in 2024, but do not have significant impacts on the Company’s interim condensed consolidated financial statements. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

2.3 Basis consolidation

 

The table below presents a list of the Company’s subsidiaries and associate:

 

        Direct and indirect interest
Name Main activities Location Investment type

September 30, 2024

(unaudited)

December 31, 2023
Afya Participações S.A. (“Afya Brazil”) Holding Nova Lima - MG Subsidiary 100% 100%
Instituto Tocantinense Presidente Antônio Carlos Porto S.A. - (“ITPAC Porto”) Undergraduate degree programs Porto Nacional - TO Subsidiary 100% 100%
Instituto Tocantinense Presidente Antônio Carlos S.A. - (“ITPAC Araguaína”) Undergraduate degree programs Araguaína - TO Subsidiary 100% 100%
União Educacional do Vale do Aço S.A. - (“UNIVAÇO”) Medicine undergraduate degree program Ipatinga - MG Subsidiary 100% 100%
IPTAN - Instituto de Ensino Superior Presidente Tancredo de Almeida Neves S.A. (“IPTAN”) Undergraduate degree programs São João Del Rei - MG Subsidiary 100% 100%
Instituto de Educação Superior do Vale do Parnaíba S.A. (“IESVAP”) Undergraduate degree programs Parnaíba - PI Subsidiary 80% 80%
Centro de Ciências em Saúde de Itajubá S.A. (“CCSI”) Medicine undergraduate degree program Itajubá - MG Subsidiary 75% 75%
Instituto de Ensino Superior do Piauí S.A. (“IESP”) Undergraduate and graduate degree programs Teresina - PI Subsidiary 100% 100%
FADEP - Faculdade Educacional de Pato Branco Ltda. (“FADEP”) Undergraduate degree programs Pato Branco - PR Subsidiary 100% 100%
Medcel Editora e Eventos S.A. (“Medcel”) (i) Medical education content São Paulo - SP Subsidiary - 100%
Instituto Educacional Santo Agostinho S.A. (“FASA”) Undergraduate degree programs Montes Claros - MG Subsidiary 100% 100%
Instituto de Pesquisa e Ensino Médico do Estado de Minas Gerais Ltda. (“IPEMED”) Graduate Belo Horizonte - MG Subsidiary 100% 100%
Instituto Paraense de Educação e Cultura Ltda. (“IPEC”) Medicine degree programs Marabá - PA Subsidiary 100% 100%
Sociedade Universitária Redentor S.A. (“UniRedentor”) Undergraduate and graduate degree programs Itaperuna - RJ Subsidiary 100% 100%
Centro de Ensino São Lucas Ltda. (“UniSL”) Undergraduate degree programs Porto Velho - RO Subsidiary 100% 100%
Peb Med Instituição de Pesquisa Médica e Serviços Ltda. (“PebMed”) (i) Content and clinical tools and online platform Rio de Janeiro - RJ Subsidiary - 100%
Sociedade de Educação, Cultura e Tecnologia da Amazônia S.A. - (“FESAR”) Undergraduate degree programs Redenção - PA Subsidiary 100% 100%
Centro Superior de Ciências da Saúde S/S Ltda. (“FCMPB”) Medicine degree programs João Pessoa - PB Subsidiary 100% 100%
iClinic Desenvolvimento de Software Ltda. (“iClinic”) Electronic Medical Record, Clinical Management System Ribeirão Preto - SP Subsidiary 100% 100%
Medicinae Solutions S.A. (“Medicinae”) Healthcare payments and financial services Rio de Janeiro - RJ Subsidiary 100% 100%
Medical Harbour Aparelhos Médico Hospitalares e Serviços em Tecnologia Ltda. (“Medical Harbour”) Educational health and medical imaging Florianópolis - SC Subsidiary 100% 100%
Cliquefarma Drogarias Online Ltda. (“Cliquefarma”) Online platform São Paulo - SP Subsidiary 100% 100%
Shosp Tecnologia da Informação Ltda. (“Shosp”) Electronic Medical Record, Clinical Management System Rio de Janeiro - RJ Subsidiary 100% 100%
Sociedade Padrão de Educação Superior Ltda. (“UnifipMoc”) Undergraduate degree programs Montes Claros - MG Subsidiary 100% 100%
Companhia Nilza Cordeiro Herdy de Educação e Cultura (“Unigranrio”) Undergraduate and graduate degree programs Duque de Caxias - RJ Subsidiary 100% 100%
Policlínica e Centro de Estética Duque de Caxias Ltda. (“Policlínica”) Outpatient care Duque de Caxias - RJ Subsidiary 100% 100%
RX PRO Soluções de Tecnologia Ltda. (“RX PRO”) Marketing for pharmaceutical industry São Paulo - SP Subsidiary 100% 100%
RX PRO LOG Transporte e Logística Ltda. (“RX PRO LOG”) (ii) Marketing for pharmaceutical industry São Paulo - SP Subsidiary - 100%
BMV Atividades Médicas Ltda. (“Além da Medicina”) (i) Medical education content São Paulo - SP Subsidiary - 100%
Cardiopapers Soluções Digitais Ltda. (“CardioPapers”) (i) Medical education content Recife - PE Subsidiary - 100%
Quasar Telemedicina Desenvolvimento de Sistemas Computacionais Ltda. (“Glic”) Patient physician relationship Barueri - SP Subsidiary 100% 100%
Sociedade Educacional e Cultural Sergipe DelRey Ltda. (“DelRey”) Undergraduate degree programs Maceió - AL Subsidiary 100% 100%
Unidom Participações S.A. (“Unidom”) Undergraduate degree programs Salvador - BA Subsidiary 100% -
União Educacional do Planalto Central S.A. (“UEPC”) Undergraduate degree programs Brasília - DF Associate 30% 30%

(i) PebMed was merged with Afya Brazil in April 2024; Medcel, Além da Medicina and CardioPapers was merged with Afya Brazil in August 2024

(ii) RX PRO LOG had its operations closed down in January 2024.

 

F-8 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The financial information of the subsidiaries acquired is included in the Company’s unaudited interim condensed consolidated financial statements beginning on the respective acquisition dates.

 

The Company consolidates the financial information for all entities it controls. Control is achieved when the Company is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and it ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.

 

When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.

 

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of income.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of financial position, consolidated statements of income and comprehensive income and consolidated statements of changes in equity.

 

3Segment information

 

The Company has three reportable segments as follows:

 • Undergrad, which provides educational services through undergraduate courses related to medical school, undergraduate health science and other ex-health undergraduate programs;

• Continuing education, which provides medical education (including residency preparation programs, specialization test preparation and other medical capabilities), specialization and graduate courses in medicine, delivered through digital and in-person content; and

• Medical practice solutions, which provides clinical decision, clinical management and doctor-patient relationships for physicians and provide access, demand and efficiency for the healthcare players.

 

Segment information is presented consistently with the internal reports provided to the Company's Chief Executive Officer (CEO), which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Company's operating segments, and making the Company's strategic decisions.

 

No operating segments have been aggregated to form the reportable operating segments. There is only one geographic region, and the results are monitored and evaluated as a single business.

 

 

F-9 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

Business units restructuring

 

In connection with a restructuring project occurred across the Continuing education and Medical practice solutions segments, the Pilar 1 entities (Medcel, Além da Medicina, CardioPapers and Medical Harbour), which offer residency preparation programs, specialization test preparation and other medical capabilities, were moved into the Continuing education segment. This strategic project aims to integrate all continuing education capabilities into one single structure that will be responsible for offerings that address physicians education and continuous update needs from the graduation and throughout their careers, while exploring the potential synergies among those operations.

 

This restructuring project took place since the first quarter of 2024 and represents how the segments are monitored internally. Due to changes in operating segments, the segment information as of December 31, 2023 and for the nine-month period ended September 30, 2023 have been retroactively adjusted for comparison purposes.

 

The tables below present assets and liabilities information for the Company’s operating segments as of September 30, 2024 and December 31, 2023, respectively:

 

As of September 30, 2024

(unaudited)

Undergrad Continuing education Medical practice solutions Total reportable segments Adjustments and eliminations Total
             
Total assets 8,331,696 232,615 154,918 8,719,229 (5,602) 8,713,627
Current assets 1,376,933 40,779 64,110 1,481,822 (5,602) 1,476,220
Non-current assets 6,954,763 191,836 90,808 7,237,407 - 7,237,407
             
Total liabilities and equity 8,331,696 232,615 154,918 8,719,229 (5,602) 8,713,627
Current liabilities 735,546 132,703 62,538 930,787 (5,602) 925,185
Non-current liabilities 3,537,307 76,515 22,977 3,636,799 - 3,636,799
Equity 4,058,843 23,397 69,403 4,151,643 - 4,151,643
             
Other disclosures            
Investments in associate (i) 55,365 - - 55,365 - 55,365
Capital expenditures (ii) 264,746 35,202 16,818 316,766 - 316,766

 

(i) Investment in UEPC is included in non-current assets in the statement of financial position.

(ii) Capital expenditures consider the acquisitions of property and equipment and intangible assets.

 

As of December 31, 2023 Undergrad Continuing education Medical practice solutions Total reportable segments Adjustments and eliminations Total
             
Total assets 7,104,154 336,908 154,636 7,595,698 (11,217) 7,584,481
Current assets 1,001,156 155,511 58,056 1,214,723 (11,217) 1,203,506
Non-current assets 6,102,998 181,397 96,580 6,380,975 - 6,380,975
             
Total liabilities and equity 7,104,154 336,908 154,636 7,595,698 (11,217) 7,584,481
Current liabilities 787,658 221,002 61,124 1,069,784 (11,217) 1,058,567
Non-current liabilities 2,783,855 73,960 25,087 2,882,902 - 2,882,902
Equity 3,532,641 41,946 68,425 3,643,012 - 3,643,012
             
Other disclosures            
Investments in associate (i) 51,834 - - 51,834 - 51,834
Capital expenditures (ii) 98,535 28,165 28,427 155,127 - 155,127

 

(i) Investment in UEPC is included in non-current assets in the statement of financial position.

(ii) Balances for the nine-month period ended September 30, 2023 (unaudited). Capital expenditures consider the acquisitions of property and equipment and intangible assets.

 

F-10 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The tables below present the statements of income for the Company’s operating segments for the nine-month periods ended September 30, 2024 and 2023:

 

September 30, 2024

(unaudited)

Undergrad Continuing education Medical practice solutions Total reportable segments Elimination (inter-segment transactions) Total
             
External customer 2,155,895 186,315 113,104 2,455,314 - 2,455,314
Inter-segment - 1,416 4,186 5,602 (5,602) -
Revenue 2,155,895 187,731 117,290 2,460,916 (5,602) 2,455,314
Cost of services (809,393) (74,097) (30,541) (914,031) 5,602 (908,429)
Gross profit 1,346,502 113,634 86,749 1,546,885 - 1,546,885
Selling, general and administrative expenses           (784,953)
Other expenses, net           (7,868)
Operating income           754,064
Finance income           79,659
Finance expenses           (322,420)
Share of income of associate           9,726
Income before income taxes           521,029
Income taxes expenses           (26,388)
Net income           494,641

 

September 30, 2023

(unaudited)

Undergrad Continuing education Medical practice solutions Total reportable segments Elimination (inter-segment transactions) Total
             
External customer 1,883,089 162,513 100,445 2,146,047 - 2,146,047
Inter-segment - 7,497 1,844 9,341 (9,341) -
Revenue 1,883,089 170,010 102,289 2,155,388 (9,341) 2,146,047
Cost of services (738,224) (65,319) (25,934) (829,477) 9,341 (820,136)
Gross profit 1,144,865 104,691 76,355 1,325,911 - 1,325,911
Selling, general and administrative expenses           (739,808)
Other income, net           10,365
Operating income           596,468
Finance income           86,259
Finance expenses           (353,572)
Share of income of associate           7,671
Income before income taxes           336,826
Income taxes expenses           (33,296)
Net income           303,530

 

Seasonality of operations

 

Undergrad tuition revenues are related to the intake process, and monthly tuition fees charged to students and do not significantly fluctuate during each semester.

 

Continuing education revenues are mostly related to: (i) monthly intakes and tuition fees on medical education, which do not have a considerable concentration in any period; and (ii) Medcel’s revenue, derived from e-books transferred at a point of time, which are concentrated at in the first and last quarter of the year due to the enrollments.

 

Medical practice solutions are comprised mainly of Afya Whitebook and Afya iClinic revenues, which do not have significant fluctuations regarding seasonality.

 

F-11 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

4Business combination

 

The preliminary fair values of the identifiable assets acquired and liabilities assumed as of acquisition date were:

 

Assets  
Cash and cash equivalents 3,272
Trade receivables 9,368
Advances 94
Recoverable taxes 82
Other assets 854
Indemnification assets 7,185
Property and equipment 5,709
Rights-of use assets 28,989
Intangible assets 467,178
  522,731
Liabilities  
Trade payables 1,732
Loans and financing 4,377
Labor and social obligations 7,368
Taxes payables 5,254
Advances from customers 1,234
Lease liabilities 28,989
Deferred taxes * 28,274
Provision for legal proceedings 7,246
Other liabilities 4,393
  88,867
Total identifiable net assets at fair value 433,864
Preliminary goodwill arising on acquisition 186,372
   
Purchase consideration transferred 620,236
Cash paid 340,773
Consideration to be transferred 279,463
   
Analysis of cash flows on acquisition  
Transaction costs of the acquisition (included in cash flows from operating activities) 1,585
Cash paid net of cash acquired with the subsidiary (included in cash flows from investing activities) 337,501
Net of cash flow on acquisition 339,086

* Refers to deferred tax liabilities arising from transactions prior to Afya’s acquisition of Unidom.

 

On July 1, 2024, Afya Brazil acquired 100% of the share capital of Unidom, a post-secondary education institution in the State of Bahia with governmental authorization to offer on-campus undergraduate degrees in medicine, health, and other courses.

 

The acquisition contributes with 300 operational medical school seats to Afya in Salvador. The authorization request for these 300 medical school seats was made to MEC before the Mais Médicos Law was enacted and MEC concluded its analysis and issued Ordinance 630/2020 ("Ordinance") in 2020 to authorize the operation considering 125 medical school seats. In 2021, as a result of a judicial order, MEC reviewed the Ordinance to authorize the 300 medical school seats initially requested by Unidompedro. Such decision was confirmed by a federal judge in the State of Bahia in 2023. Currently, Unidompedro has 300 medical school seats authorized, of which 125 are final and 175 are subject to a final conclusion of the aforementioned court proceedings.

 

The total consideration of R$660,000 was adjusted to R$620,236, net of the estimated Net Debt deducted from the down payment. The price and payment conditions are:

• R$340,773, net of the estimated Net Debt, paid in cash on July 1, 2024; and

• R$279,463, considering purchase consideration adjustments, is payable in up to ten annual installments, adjusted by the CDI rate, and it is conditioned upon the maintenance of the authorization of the 175 medical school seats in each of the prior year. The remaining payment balance is accelerated if a final and non-appealable conclusion of the aforementioned court proceedings, within the 10-year payment period, confirms the authorization for the 175 medical

 

F-12 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

school seats. In turn, if, within the same 10-year payment period, a final conclusion of the aforementioned court proceedings does not confirm the authorization for such 175 medical school seats, the remaining payment balance will no longer be due. Based on the current status of aforementioned court proceedings, as well as other court decisions in relation to medical seats approved by MEC under legal proceedings, Management has assessed that the likelihood of payment of such consideration is probable.

 

This acquisition was accounted for under IFRS 3 – Business Combinations.

 

Furthermore, if Unidom wins the bid processes in the Mais Médicos III Program, an additional payment of R$250 thousand per granted seat will be made. Such medical seats were not operating nor were approved as of date of acquisition. The probability of such payout cannot be reliably estimated and thus the contingent consideration was not measured at the acquisition date. Should the additional seats be approved, it will result in additional licenses, which will be measured accordingly if and when approved.

 

Transaction costs to date amount to R$2,547, which R$1,585 were expensed in the nine-month period ended September 30, 2024 and are included in general and administrative expenses in the consolidated statement of income.

 

The Company measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities.

 

At the acquisition date, the fair value of the trade receivables acquired is substantially the same as its carrying amount.

 

The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. Goodwill is allocated entirely to the Undergrad segment. The preliminary goodwill recognized is not expected to be deductible for income taxes purposes.

 

The valuation of the identifiable assets acquired and liabilities assumed in the business combination of Unidom is preliminary, and therefore items such as intangible assets may be adjusted when the valuations are finalized.

 

The Company did not recognize deferred taxes related to the business combination because the tax basis and the accounting basis, including fair value adjustments, were the same at the date of the business combination.

 

The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:

 

Intangible assets acquired Valuation technique
Licenses

With-and-without method

The with-and-without method consists of estimating the fair value of an asset by the difference between the value of this asset in two scenarios: a scenario considering the existence of the asset in question and another considering its non-existence.

Customer relationships

Multi-period excess earnings method

The method considers the present value of net cash flows expected to be generated by customer relationships, by excluding any cash flows related to contributory assets.

 

Unidom has contributed R$32,421 of revenue and R$16,396 of income before income taxes to the Company in 2024. If the acquisition had taken place at the beginning of the period, revenue and income before income taxes for the nine-month period ended September 30, 2024 would have been R$2,505,215 and R$531,249, respectively.

 

F-13 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

5Cash and cash equivalents

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Cash and bank deposits 5,594 11,746
Cash equivalents 831,282 541,284
  836,876 553,030

 

Cash equivalents correspond mainly to financial investments in Bank Certificates of Deposit (CDB) with highly rated financial institutions and investment funds managed by highly rated financial institutions.

 

As of September 30, 2024, the average interest on these investments is equivalent to 99.6% of the CDI rate (December 31, 2023: 100.8%). These funds are available for immediate use and have an insignificant risk of changes in value. Cash equivalents denominated in U.S. dollars totaled R$18,847 as of September 30, 2024 (December 31, 2023: R$23,173).

 

6Trade receivables

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Tuition fees 448,391 461,066
Educational content (i) 75,754 49,135
FIES 82,034 62,971
Educational credits (ii) 26,102 29,391
Mobile app subscription (iii) 16,231 29,091
Other 11,544 15,667
  660,056 647,321
(-) Allowance for expected credit losses (70,735) (61,398)
  589,321 585,923
Current 552,381 546,438
Non-current 36,940 39,485

 

(i) Related to trade receivables from sales of e-books and medical courses through Continuing Education’s digital platform.

(ii) Related to the financing programs offered by the Company’s subsidiaries to its students that existed prior to the acquisitions. The Company closed such programs to new enrolments and maintained only the agreements that were outstanding as of the acquisition date.

(iii) Related to trade receivables from mobile applications subscriptions for digital medical content.

 

As of September 30, 2024 and December 31, 2023, the aging of trade receivables was as follows:

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Neither past due nor impaired 330,127 323,614
Past due:    
1 to 30 days 105,100 73,563
31 to 90 days 110,496 109,908
91 to 180 days 50,897 85,193
More than 180 days 63,436 55,043
  660,056 647,321

 

F-14 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The changes in the allowance for expected credit losses for the nine-month periods ended September 30, 2024 and 2023, was as follows:

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Opening balance (61,398) (44,046)
Additions (41,589) (57,160)
Write-offs 32,252 38,376
Closing balance (70,735) (62,830)

 

7Related parties

 

The tables below summarize the balances and transactions with related parties:

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Assets    
Trade receivables (i) 936 693
Other assets (ii) - 285
  936 978
Current 936 792
Non-current - 186

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Other income (expenses)    
UEPC (i) 459 393
EMIVE Patrulha 24 Horas Ltda. (iii) 7 -
  466 393
     
Leases (iv)    
RVL Esteves Gestão Imobiliária S.A. 18,311 17,285
UNIVAÇO Patrimonial Ltda. 2,712 2,683
IESVAP Patrimonial Ltda. 3,914 3,872
  24,937 23,840

 

(i) Refers to sales of educational content from Medcel to UEPC.

(ii) Refers to expenses to be reimbursed by Bertelsmann.

(iii) Refers to amounts of expenses related to security services provided by a company of which one of Afya’s main shareholders has significant influence.

(iv) The carrying amounts of lease liabilities with related parties as of September 30, 2024 totaled R$224,483 (December 31, 2023: R$223,496).

 

Lease agreement with RVL Esteves Gestão Imobiliária S.A.

 

On June 14, 2024, RVL Esteves Gestão Imobiliária S.A. (“RVL”) entered into a lease agreement with DelRey, pursuant to which RVL agreed to lease to DelRey a property for the campus in the city of Jaboatão dos Guararapes, State of Pernambuco. The lease agreement is for a monthly amount payable equal to R$114, with a grace period of 12 months. The monthly amount payable should be adjusted by the inflation rate (IPCA) after 12 months. The lease agreement is for a term of 20 years.

 

Since July 1, 2024, the lease agreement with RVL Esteves Gestão Imobiliária S.A. of one of the two corporate headquarters floors, located in Nova Lima, State of Minas Gerais, expired and was not renewed.

 

F-15 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

Key management personnel compensation

 

Key management personnel compensation included in the Company’s unaudited interim condensed consolidated statement of income comprised the following:

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Short-term employee benefits 16,648 10,363
Share-based compensation plans 16,148 13,658
  32,796 24,021

 

Compensation of the Company’s key management includes short-term employee benefits comprised by salaries, labor and social obligations, and other ordinary short-term employee benefits. The amounts disclosed in the table above are the amounts recognized as an expense in selling, general and administrative expenses during the reporting period related to key management personnel. See further details on the share-based compensation plans in Note 14.

 

8Other assets

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Indemnification assets 80,671 81,855
Advances 19,392 39,890
Judicial deposits 15,741 14,187
Prepaid expenses 24,355 15,820
Other FIES credits 8,376 8,674
Dividends 1,668 1,668
Deferred tax assets - 3,233
Other assets 12,890 10,924
  163,093 176,251
Current 45,304 58,905
Non-current 117,789 117,346

 

9Investment in associate

 

The Company holds a 30% interest in UEPC, a medical school located in the Federal District that offers higher education and post-graduate courses, both in person and long-distance learning. The Company’s interest in UEPC is accounted for using the equity method. The tables below summarize the financial information of the Company’s investment in UEPC:

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Current assets 41,820 29,004
Non-current assets 116,307 120,289
Current liabilities (28,876) (28,842)
Non-current liabilities (88,643) (91,613)
Equity 40,608 28,838
Company’s share in equity - 30% 12,182 8,651
Goodwill 43,183 43,183
Carrying amount of the investment 55,365 51,834

 

F-16 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Revenue 117,084 111,730
Cost of services (44,677) (46,081)
Selling, general and administrative expenses (35,002) (34,840)
Net finance result (3,378) (4,272)
Income before income taxes 34,027 26,537
Income taxes expenses (1,606) (967)
Net income 32,421 25,570
Company’s share of income 9,726 7,671

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Opening balance 51,834 53,907
Share of income 9,726 7,671
Dividends received (6,195) (8,294)
Closing balance 55,365 53,284

 

There were no impairment indicatives of goodwill from the investment in associate for the nine-month period ended September 30, 2024.

 

F-17 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

10Property and equipment

 

  Building Machinery and equipment Lands Vehicles Furniture and fixtures IT equipment Library books Leasehold improvements Construction in progress Total
Cost                    
As of January 1, 2023 91,857 100,390 18,852 1,053 90,712 68,593 37,362 145,846 86,688 641,353
Additions 95 17,656 - 407 14,033 17,121 850 46 37,806 88,014
Business combination - 7,729 - - 4,384 734 1,328 10,741 65 24,981
Write-off (i) 241 (4,430) - (475) (3,002) (3,346) (7,788) (165) (7) (18,972)
Transfer 408 2,371 - - 23 78 - 75,415 (78,295) -
As of September 30, 2023 (unaudited) 92,601 123,716 18,852 985 106,150 83,180 31,752 231,883 46,257 735,376
                     
As of January 1, 2024 93,232 119,981 18,852 1,354 110,859 82,810 31,888 264,448 33,962 757,386
Additions 319 19,465 - 130 15,608 19,717 491 1,814 35,823 93,367
Business combination 2 2,528 - - 289 736 372 1,782 - 5,709
Write-off (i) - (1,946) - (42) (6,789) (501) - 1,294 - (7,984)
Transfer 4,932 (226) - - (806) 480 - 34,830 (39,210) -
As of September 30, 2024 (unaudited) 98,485 139,802 18,852 1,442 119,161 103,242 32,751 304.168 30,575 848,478
                     
Depreciation                    
As of January 1, 2023 (5,751) (20,630) - 288 (10,349) (21,837) (22,888) (18,099) - (99,266)
Depreciation (2,867) (11,278) - (247) (9,348) (9,375) (2,570) (19,386) - (55,071)
Write-off (i) (121) 4,138 - 241 2,573 3,252 7,601 79 - 17,763
As of September 30, 2023 (unaudited) (8,739) (27,770) - 282 (17,124) (27,960) (17,857) (37,406) - (136,574)
                     
As of January 1, 2024 (9,679) (28,843) - 198 (20,377) (26,872) (18,652) (44,476) - (148,701)
Depreciation (3,134) (12,992) - (285) (9,204) (11,310) (2,289) (27,252) - (66,466)
Write-off (i) - 1,487 - 42 4,441 579 - (673) - 5,876
Transfer (39) (74) - - 426 (166) - (147) - -
As of September 30, 2024 (unaudited) (12,852) (40,422) - (45) (24,714) (37,769) (20,941) (72,548) - (209,291)
                     
Net book value                    
As of September 30, 2024 (unaudited) 85,633 99,380 18,852 1,397 94,447 65,473 11,810 231,620 30,575 639,187
As of December 31, 2023 83,553 91,138 18,852 1,552 90,482 55,938 13,236 219,972 33,962 608,685

 

(i) Refers to items written-off as result of lack of expectation of future use, in connection with the Company’s physical inventory procedures.

 

The Company assesses at each reporting date, whether there is an indication that a property and equipment asset may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount. There were no impairment indicatives of property and equipment for the nine-month period ended September 30, 2024.

 

F-18 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

11Intangible assets

 

  Goodwill Licenses with indefinite useful life Trademark Customer relationships Software Education content Developed technology Educational platform Software in progress Other Total
                       
Cost                      
As of January 1, 2023 1,257,045 2,189,814 182,060 435,816 43,300 69,589 90,749 55,697 14,734 1,055 4,339,859
Additions - - - - 665 6,159 27,868 14,887 17,534 - 67,113
Business combination 69,267 586,264 - 142,451 62 - - - - - 798,044
Write-off (i) - - - - (2,235) - - (893) (50) - (3,178)
Remeasurement (ii) 2,556 - - - - - - - - - 2,556
Transfer - - - - 13,062 4,785 16 (3,058) (14,805) - -
As of September 30, 2023 (unaudited) 1,328,868 2,776,078 182,060 578,267 54,854 80,533 118,633 66,633 17,413 1,055 5,204,394
                       
As of January 1, 2024 1,334,699 2,776,077 182,060 578,267 71,150 84,201 128,477 74,892 12,134 1,055 5,243,012
Additions (iii) - 157,227 - - 1,412 9,315 11,585 23,004 20,856 - 223,399
Business combination 186,372 429,116 - 38,062 - - - - - - 653,550
Write-off (i) - - - - - (161) (117) - - - (278)
Transfer - - - - 15,095 1,041 - (97) (16,039) - -
As of September 30, 2024 (unaudited) 1,521,071 3,362,420 182,060 616,329 87,657 94,396 139,945 97,799 16,951 1,055 6,119,683
                       
                       
Amortization                      
As of January 1, 2023 - - (14,955) (212,363) (17,277) (26,562) (10,093) (17,039) - (79) (298,368)
Amortization - - (6,111) (67,619) (6,306) (11,138) (14,183) (4,565) - (79) (110,001)
Write-off (i) - - - - 1,997 - - 893 - - 2,890
As of September 30, 2023 (unaudited) - - (21,066) (279,982) (21,586) (37,700) (24,276) (20,711) - (158) (405,479)
                       
As of January 1, 2024 - - (26,038) (301,947) (24,094) (42,230) (31,603) (20,900) - (184) (446,996)
Amortization - - (11,225) (62,350) (11,997) (14,500) (15,821) (14,957) - (79) (130,929)
Write-off (i) - - - - - - 35 - - - 35
Transfer - - - - (727) - - 727 - - -
As of September 30, 2024 (unaudited) - - (37,263) (364,297) (36,818) (56,730) (47,389) (35,130) - (263) (577,890)
                       
Net book value                      
As of September 30, 2024 (unaudited) 1,521,071 3,362,420 144,797 252,032 50,839 37,666 92,556 62,669 16,951 792 5,541,793
As of December 31, 2023 1,334,699 2,776,077 156,022 276,320 47,056 41,971 96,874 53,992 12,134 871 4,796,016

 

(i) Refers to intangible assets written-off as result of lack of expectation of future use.

(ii) Goodwill: During the measurement period, results of operation differed from the foreseen, resulting in a remeasurement of the contingent consideration for the acquisitions of Além da Medicina, CardioPapers and Glic by R$4,773, R$5,082 and (R$7,299), respectively, totaling R$2,556 for the nine-month period ended September 30, 2023.

(iii) On January 24, 2024, MEC authorized the increase of 40 medical school seats of Faculdades Integradas Padrão (FIP Guanambi) located in the city of Guanambi, State of Bahia, which resulted in an additional payment of R$49,600. Additionally, on July 12, 2024, MEC authorized the increase of 80 medical school seats of UNIMA, which resulted in an additional payment of R$107,627.

 

F-19 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

Impairment testing of goodwill and intangible assets with indefinite lives

 

The Company performs its annual impairment test in December and when circumstances indicated that the carrying value may be impaired. The Company’s impairment test for goodwill and intangible assets with indefinite lives is based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the different cash-generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2023. There were no impairment indicatives of goodwill and intangible assets with indefinite lives for the nine-month period ended September 30, 2024.

 

Other intangible assets

 

For the nine-month period ended September 30, 2024 and for the year ended December 31, 2023 there were no indicatives that the Company’s intangible assets with finite useful lives might be impaired.

 

12Financial assets and financial liabilities

 

12.1Financial assets

 

  September 30, 2024 December 31, 2023
At amortized cost (unaudited)  
Trade receivables 589,321 585,923
Dividends receivable 1,668 1,668
  590,989 587,591
Current 554,049 548,106
Non-current 36,940 39,485

 

12.2Financial liabilities

 

  September 30, 2024 December 31, 2023
At amortized cost (unaudited)  
Trade payables 129,920 108,222
Loans and financing 2,145,270 1,800,775
Lease liabilities 974,780 874,569
Accounts payable to selling shareholders 278,422 530,915
  3,528,392 3,314,481
Current 422,549 642,872
Non-current 3,105,843 2,671,609

 

  September 30, 2024 December 31, 2023
At fair value (unaudited)  
Accounts payable to selling shareholders (earn-outs) 20,067 35,952
Accounts payable to selling shareholders (Unidom) 287,553 -
  307,620 35,952
Current 29,747 35,498
Non-current 277,873 454

 

F-20 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

12.2.1     Loans and financing

 

Financial institution Currency Interest rate Maturity September 30, 2024 December 31, 2023
        (unaudited)  
Itaú Unibanco S.A. Brazilian real CDI + 1.75% p.y. 2024 - 21,405
Itaú Unibanco S.A. Brazilian real CDI + 1.90% p.y. 2025 300,000 412,880
Softbank Brazilian real 6.5% p.y. 2026 828,430 825,957
FINEP Brazilian real TJLP p.y. 2027 8,948 11,193
Debentures Brazilian real CDI + 1.80% p.y. 2028 510,724 529,340
IFC Brazilian real CDI + 1.2%p.y. 2030 497,168 -
        2,145,270 1,800,775
Current       30,051 179,252
Non-current       2,115,219 1,621,523

 

On August 7, 2024, Afya Brazil entered into a loan agreement with International Finance Corporation ("IFC") to support its expansion program, through acquisitions. The financing is IFC’s first sustainability-linked loan based on social targets in the education sector. The pricing of IFC’s loan will be linked to Afya reaching performance target levels in selected social key performance indicators encompassing free medical consultations for the community and quality of education according to Brazil’s Ministry of Education criteria (“Sustainability KPIs”). According to the financing terms, IFC will loan up to R$500,000, which shall be repaid in seven equal semi-annual installments starting in April 2027. The interest rate is the Brazilian CDI rate plus 1.2%, and it may be reduced by 15 bps if the Sustainability KPIs are achieved.

 

12.2.2     Leases

 

The Company has lease contracts for properties. The lease contracts generally have maturities in the lease terms between five and 30 years. There are no sublease or variable payments in-substance lease agreements in the period.

 

The carrying amounts of right-of-use assets and lease liabilities as of September 30, 2024 and December 31, 2023 and the movements during the nine-month periods ended September 30, 2024 and 2023 are shown below:

 

 

September 30, 2024 (unaudited)

 

September 30, 2023 (unaudited)

  Right-of-use assets Lease liabilities   Right-of-use assets Lease liabilities
           
Opening balance 767,609 874,569   690,073 769,525
Additions 32,976 32,976   7,328 7,328
Remeasurement 70,443 70,443   56,766 56,766
Business combination 28,989 28,989   65,408 65,408
Depreciation expense (51,740) -   (47,106) -
Interest expense - 82,803   - 74,867
Payments of principal (i) - (30,218)   - (22,657)
Payments of interest (i) - (82,567)   - (78,001)
Write-off (ii) (1,944) (2,215)   (2,433) (3,507)
Closing balance 846,333 974,780   770,036 869,729
           
Balances as of September 30, 2024 (unaudited)   December 31, 2023
Current - 45,133   - 36,898
Non-current 846,333 929,647   767,609 837,671

 

(i) Payments of principal and interest from lease liabilities are included in cash flows from financing activities.

(ii) Refers to anticipated termination of real estate leasing contracts.

 

The Company recognized lease expense from short-term leases and low-value assets of R$5,450 for the nine-month period ended September 30, 2024 (R$7,688 for the nine-month period ended September 30, 2023).

 

F-21 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

12.2.3     Accounts payable to selling shareholders

 

  Interest rate September 30, 2024 December 31, 2023
    (unaudited)  
Accounts payable at amortized cost      
IPEMED CDI - 12,805
UniRedentor CDI - 27,155
UniSL CDI - 15,064
FCMPB CDI 68,215 63,168
Unigranrio CDI 88,189 156,235
DelRey Selic 122,018 256,488
       
Accounts payable at fair value      
Unidom CDI 287,553 -
Medical Harbour (earn-out) - - 3,000
Shosp (earn-out) - 454 454
Além da Medicina (earn-out) - 9,600 18,325
CardioPapers (earn-out) - 10,013 14,173
       
    586,042 566,867
Current   247,192 353,998
Non-current   338,850 212,869

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
     
Opening balance 566,867 528,678
Additions - Consideration to be transferred on business combinations 279,463 234,000
Payments of principal (i) (241,573) (148,535)
Payment of interest (i) (55,898) (33,503)
Interest 36,443 67,872
Remeasurement of earn-outs 740 2,556
Closing balance 586,042 651,068

 

(i) Payments of principal and interest from acquisition of subsidiaries are included in cash flows from investing activities.

 

12.3Fair values

 

The table below compares the carrying amounts and fair values of the Company’s financial instruments, other than those carrying amounts that are reasonable approximation of fair values:

 

 

September 30, 2024 (unaudited)

December 31, 2023

  Carrying amount Fair value Carrying amount Fair value
Financial liabilities        
Loans and financing 2,145,270 2,184,409 1,800,775 1,795,752
  2,145,270 2,184,409 1,800,775 1,795,752

 

The Company assessed that the fair values of trade receivables, other assets, trade payables, accounts payable to selling shareholders and other liabilities approximate their carrying amounts.

 

The financial instruments for which the fair value are disclosed are based on Level 2 fair value measurement hierarchy. There has been no change in fair value hierarchy from December 31, 2023 to September 30, 2024.

 

The fair value of interest-bearing loans and financing are determined by using the discounted cash flow (DCF) method using a discount rate that reflects the issuer’s borrowing rate as of the end of the reporting period. As of September 30, 2024, it was assessed that it is probable that the targets that trigger the contingent considerations payments recognized will be met. The fair value of the

 

F-22 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

contingent consideration determined at September 30, 2024 reflects the development, among other factors and the remeasurements charge have been recognized through profit or loss. The fair value is determined using a DCF method. The own non-performance risk at September 30, 2024 was assessed to be insignificant.

 

12.4Financial instruments risk management objectives and policies

 

The Company’s main financial liabilities comprise loans and financing, lease liabilities, accounts payable to selling shareholders and trade payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s main financial assets include trade receivables and cash and cash equivalents.

 

The Company is exposed to market risk, credit risk and liquidity risk. The Company monitors market, credit and liquidity risks in line with the objectives of capital management and counts on the support, monitoring and oversight of the Board of Directors in decisions related to capital management and its alignment with the objectives and risks. The Company’s policy is that no trading of derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees with policies for managing each of these risks, which are summarized below.

 

12.4.1     Market risk

 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company’s exposure to market risk is related to interest rate and foreign currency risk. The sensitivity analysis in the following sections relates to the position as of September 30, 2024.

 

a) Interest rate risk

 

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s cash equivalents, loans and financing and accounts payable to selling shareholders, with floating interest rates.

 

Sensitivity analysis

 

The table below demonstrates the sensitivity to a reasonably possible change in interest on cash equivalents, loans and financing and accounts payable to selling shareholders. With all variables held constant, the Company’s income before income taxes is affected through the impact on floating interest rates, as follows:

 

  September 30, 2024 Index Base rate
  (unaudited)    
Cash equivalents 812,435 CDI 86,170
Loans and financing (1,307,892) CDI (160,149)
Loans and financing (8,948) TJLP (618)
Accounts payable to selling shareholders (443,957) CDI (47,281)
Accounts payable to selling shareholders (122,018) SELIC (12,995)
Net exposure     (134,873)

 

  Increase in basis points
  +75 +150
Net effect on profit before tax (8,028) (16,056)

 

F-23 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

b) Foreign currency risk

 

Foreign currency risk is the risk that the fair value or future cash flows of exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates to cash and cash equivalents denominated in U.S. dollars in the amount of R$18,847 as of September 30, 2024 (December 31, 2023: R$23,173).

 

Sensitivity analysis

 

The table below demonstrates the sensitivity in the Company’s income before income taxes of a 10% change in the U.S. dollar exchange rate (R$5.4475 to U.S. dollar 1.00) as of September 30, 2024, with all other variables held constant.

 

  Exposure +10% -10%
       
Cash equivalents 18,847 1,885 (1,885)

 

12.4.2     Credit risk

 

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including cash and cash equivalents.

 

Customer credit risk is managed by the Company based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 6 for additional information on the Company’s trade receivables.

 

Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.

 

The carrying amounts of its financial assets are the Company’s maximum exposure to credit risk for the components of the statements of financial position on September 30, 2024 and December 31, 2023.

 

12.4.3     Liquidity risk

 

The Company’s Management has responsibility for monitoring liquidity risk. In order to achieve the Company’s objective, Management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.

 

The main requirements for financial resources used by the Company arise from the need to make payments for suppliers, operating expenses, labor and social obligations, loans and financing and accounts payable to selling shareholders.

 

F-24 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted amounts:

 

As of September 30, 2024 (unaudited) Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Trade payables 129,920 - - - 129,920
Loans and financing 174,112 1,743,650 629,381 155,400 2,702,543
Lease liabilities 151,300 287,796 279,063 1,335,775 2,053,934
Accounts payable to selling shareholders 256,598 134,406 95,925 349,833 836,762
  711,930 2,165,852 1,004,369 1,841,008 5,723,159
           

 

As of December 31, 2023 Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total
Trade payables 108,222 - - - 108,222
Loans and financing 298,981 1,383,255 568,326 - 2,250,562
Lease liabilities 137,735 268,724 255,456 1,261,213 1,923,128
Accounts payable to selling shareholders 387,693 231,478 - - 619,171
  932,631 1,883,457 823,782 1,261,213 4,901,083

 

12.5Changes in liabilities arising from financing activities

 

  January 1, 2024 Payments of principal Payments of interest Additions and remeasurements Interest Business combination Other September 30, 2024
                (unaudited)
Loans and financing (i) 1,800,775 (126,666) (156,897) 492,351 129,160 4,377 2,170 2,145,270
Lease liabilities (i) 874,569 (30,218) (82,567) 103,419 82,803 28,989 (2,215) 974,780
Dividends payable - (13,368) - 13,368 - - - -
  2,675,344 (170,252) (239,464) 609,138 211,963 33,366 (45) 3,120,050

 

  January 1, 2023 Payments of principal Payments of interest Additions and remeasurements Interest Business combination Other September 30, 2023
                (unaudited)
Loans and financing (i) 1,882,901 (12,216) (124,468) 5,288 154,180 - 2,614 1,908,299
Lease liabilities (i) 769,525 (22,657) (78,001) 64,094 74,867 65,408 (3,507) 869,729
Dividends payable - (15,914) - 15,914 - - - -
  2,652,426 (50,787) (202,469) 85,296 229,047 65,408 (893) 2,778,028

 

(i) Payments of principal and interest from loans and financing and lease liabilities are included in cash flows from financing activities.

 

13Capital management

 

For the purposes of the Company’s capital management, capital considers total equity. The primary objective of the Company’s capital management is to maximize shareholder value.

 

In order to achieve its overall objective, the Company’s capital management, among other things, aims to ensure that it meets financial covenants attached to the debentures and other loans and financing, including net debt ratio to adjusted EBITDA. Breaches in meeting the financial covenants would permit the bank to immediately call loans and financings. There have been no breaches of the financial covenants of any loans and financing in the current period.

 

No changes were made in the objectives, policies or processes for managing capital during the nine-month period ended September 30, 2024.

 

F-25 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

14Labor and social obligations

 

a) Variable compensation (bonuses)

 

The bonuses related to variable compensation of employees and management of R$22,629 and R$14,307 are recognized in cost of services and selling, general and administrative expenses in the statements of income for the nine-month periods ended September 30, 2024 and 2023, respectively.

 

b) Afya Limited share-based compensation plans

 

b.1) Stock options plan

 

The stock options plan was approved on August 30, 2019 and granted to senior executives and other employees of the Company from that date, with subsequent changes in the strike price, as approved, on July 29, 2020, July 8, 2022 and July 31, 2023. Such changes were assessed as modifications by the Company and were accounted in accordance with IFRS 2.

 

On July 31, 2023, the People and ESG Committee approved a change in the share-based compensation plan to retain talents and reinforce the compensation plan. All the holders of stock options granted before July 11, 2022, with strike price based on the IPO price in Brazilian Reais or above, were offered the possibility to exchange the stock options for a number of Restricted Stock Units (RSUs), resulting in a weighted average conversion ratio of 0.12 RSUs per stock option, with conversion ratios based on fair value of the original plan, at modification date, so that the total fair value of the modified award remained the same as the original plan.

 

As result of those modifications, the expense related to the share-based payment of the Company reflects the cost of the original award at grant date over the vesting period plus the incremental fair values of the repriced options at modification dates over the vesting period of the stock options.

 

During the nine-month period ended September 30, 2024 there were no stock options granted by the Company (September 30, 2023: 198,000 stock options granted).

 

The table below presents the number and movements in stock options for the nine-month periods ended September 30, 2024 and 2023:

 

 

Weighted average strike price

(in Brazilian Reais)

Number of stock options

September 30, 2024 September 30, 2023
    (unaudited) (unaudited)
Outstanding at January 1 64.33 1,696,064 3,729,287
Granted - - 198,000
Exercised 61.63 (98,010) (59,826)
Stock options exchanged to RSUs - - (1,751,599)
Forfeited 107.34 (25,845) (333,111)
Expired 62.15 (28,730) (244,282)
Outstanding at September 30 64.99 1,543,479 1,538,469
Exercisable 71.59 464,902 406,449

 

The share-based compensation expense recognized in selling, general and administrative expenses in the statements of income for the nine-month periods ended September 30, 2024 and 2023 was R$14,572 and R$13,522, respectively.

 

F-26 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

b.2) Restricted Stock Units (RSU) Program

 

On July 8, 2022, the Company approved the new Restricted Stock Units (RSU) program for employees. The participant's right to effectively receive ownership of the restricted shares will be conditioned on the participant's continuance as an employee or director in the business group from the grant date until vesting. The executives will be entitled to these shares in a proportion of 10%, 20%, 30%, 40% each year.

 

The Company accounts for the RSU plan as an equity-settled plan, except for the portion of labor and social securities obligations.

 

During the nine-month period ended September 30, 2024 there were no RSUs granted by the Company (September 30, 2023: 177,490 RSUs granted).

 

The table below presents the number and movements in restricted shares for the nine-month periods ended September 30, 2024 and 2023:

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Outstanding at January 1 854,431 447,224
Granted - 177,490
Stock options exchanged to RSUs - 215,797
Exercised (222,910) (44,725)
Forfeited (15,754) (21,894)
Outstanding at September 30 615,767 773,892

 

Total RSU expenses recognized in selling, general and administrative expenses in the consolidated statement of income for the nine-month periods ended September 30, 2024 and 2023 were R$11,727 and R$6,560, respectively. Labor and social obligations were R$7,177 and R$3,301 for the nine-month periods ended September 30, 2024 and 2023, respectively.

 

15Equity

 

a) Share capital

 

As of September 30, 2024 and December 31, 2023, the Company’s share capital was R$17 represented by 93,722,831 shares comprised by 49,920,068 class A common shares and 43,802,763 class B common shares as of September 30, 2024 and 47,920,068 class A common shares and 45,802,763 class B common shares as of December 31, 2023. As of September 30, 2024 and December 31, 2023, the Company’s authorized capital was US$50 thousand.

 

b) Dividends

 

In the nine-month period ended September 30, 2024, CCSI and IESVAP approved the payment of dividends of R$58,236, which R$44,868 was distributed to the Company and R$13,368 to non-controlling shareholders (September 30, 2023: R$53,291, which R$37,377 was distributed to the Company and R$15,914 to non-controlling shareholders).

 

c) Share repurchase program

 

On March 24, 2023, the Company’s board of directors approved the fourth share repurchase program. Afya may repurchase up to 2,000,000 of its outstanding Class A common shares in the open market, based on prevailing market prices, beginning on March 24, 2023, until the earlier of the completion of the repurchase or December 31, 2024, depending upon market conditions.

 

F-27 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

The following table illustrates the number and movements in treasury shares during the nine-month periods ended September 30, 2024 and 2023:

 

  September 30, 2024 (unaudited)   September 30, 2023 (unaudited)
  Number of shares

Average price

(in Brazilian Reais)

  Number of shares

Average price

(in Brazilian Reais)

Outstanding at January 1 3,773,478 79.28   3,786,285 80.54
Repurchased - -   216,339 57.17
Transferred under the share-based compensation plan (280,240) 79.28   (92,255) 79.28
Outstanding at September 30 3,493,238 79.28   3,910,369 79.28

 

16Earnings per share (EPS)

 

Basic EPS is calculated by dividing net income attributable to the equity holders of the Company by the weighted average number of common shares outstanding during the period.

 

Diluted EPS is calculated by dividing net income attributable to the equity holders of the parent by the weighted average number of common shares outstanding during the period plus the weighted average number of shares that would be issued on conversion of all potential shares with dilutive effects.

 

Diluted earnings per share are computed including stock options granted to key management using the treasury shares method when the effect is dilutive. The Company has the stock option and restricted share unit plans in the category of potentially dilutive shares.

 

Softbank’s series A perpetual convertible preferred shares are antidilutive for the three and nine-month periods ended September 30, 2024 and 2023 and are not included on diluted earnings per share.

 

The table below presents the basic and diluted earnings per share calculations:

 

  Three-month period ended   Nine-month period ended
  September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
  (unaudited) (unaudited)   (unaudited) (unaudited)
Numerator          
Net income attributable to equity holders of the parent 119,979 93,347   481,583 288,263
Denominator          
Weighted average number of outstanding shares 90,208,018 89,752,636   90,083,878 89,831,865
Effects of dilution from stock options and restricted share units 1,068,418 937,240   1,198,835 676,409
Weighted average number of outstanding shares adjusted for the effect of dilution 91,276,436 90,689,876   91,282,713 90,508,274
           
Basic earnings per share (R$) 1.33 1.04   5.35 3.21
Diluted earnings per share (R$) 1.31 1.03   5.28 3.18

 

F-28 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

17Revenue

 

  Three-month period ended   Nine-month period ended
  September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
  (unaudited) (unaudited)   (unaudited) (unaudited)
Tuition fees 1,040,956 890,562   3,008,529 2,619,698
Other 72,860 59,045   218,633 186,137
Deductions          
Discount and scholarships (80,420) (63,136)   (223,678) (175,203)
Early payment discounts (51,443) (44,761)   (151,494) (144,761)
Returns (9,122) (8,173)   (20,666) (21,444)
Taxes (44,761) (36,301)   (125,619) (106,857)
PROUNI (86,885) (73,757)   (250,391) (211,523)
  841,185 723,479   2,455,314 2,146,047
Timing of revenue recognition          
Tuition, digital content and app subscription fees - Transferred over time 828,865 715,456   2,419,316 2,108,636
Other - Transferred at a point in time 12,320 8,023   35,998 37,411

 

The Company’s revenue from contracts with customers are all in Brazil. The Company is not subject to the payment of the Social Integration Program tax (Programa de Integração Social, or PIS) and the Social Contribution on Revenue tax (Contribuição para o Financiamento da Seguridade Social, or COFINS) on the revenue from under graduation degrees under the PROUNI program.

 

The tables below present the statements of income for the Company’s operating segments for the nine-month periods ended September 30, 2024 and 2023.

 

  Undergrad Continuing education Medical practice solutions Elimination (inter-segment transactions) September 30, 2024
          (unaudited)
Types of services or goods 2,155,895 187,731 117,290 (5,602) 2,455,314
Tuition fees 2,142,582 122,391 - - 2,264,973
Other 13,313 65,340 117,290 (5,602) 190,341
           
Timing of revenue recognition 2,155,895 187,731 117,290 (5,602) 2,455,314
Transferred over time 2,142,582 170,391 111,945 (5,602) 2,419,316
Transferred at a point in time 13,313 17,340 5,345 - 35,998

 

  Undergrad Continuing education Medical practice solutions Elimination (inter-segment transactions) September 30, 2023
          (unaudited)
Types of services or goods 1,883,089 170,010 102,289 (9,341) 2,146,047
Tuition fees 1,869,963 107,994 - - 1,977,957
Other 13,126 62,016 102,289 (9,341) 168,090
           
Timing of revenue recognition 1,883,089 170,010 102,289 (9,341) 2,146,047
Transferred over time 1,869,963 152,114 95,900 (9,341) 2,108,636
Transferred at a point in time 13,126 17,896 6,389 - 37,411

 

F-29 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

18Costs and expenses by nature

 

  Three-month period ended   Nine-month period ended
  September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
  (unaudited) (unaudited)   (unaudited) (unaudited)
Payroll (301,705) (283,507)   (855,897) (813,423)
Hospital and medical agreements (24,404) (21,115)   (73,158) (62,561)
Depreciation and amortization (85,828) (73,908)   (249,135) (212,172)
Lease expenses (1,970) (3,044)   (5,450) (7,688)
Utilities (5,354) (4,689)   (15,600) (14,465)
Maintenance (34,747) (28,776)   (88,752) (77,398)
Share-based compensation (5,871) (6,684)   (26,299) (20,082)
Tax expenses (3,557) (4,543)   (9,516) (9,435)
Pedagogical services (30,243) (14,071)   (71,820) (46,065)
Sales and marketing (27,631) (15,279)   (62,287) (44,668)
Allowance for expected credit losses (11,571) (18,074)   (41,589) (57,160)
Travel expenses (6,935) (4,011)   (14,188) (10,805)
Consulting fees (9,490) (19,640)   (33,208) (52,128)
Other (54,804) (47,895)   (146,483) (131,894)
  (604,110) (545,236)   (1,693,382) (1,559,944)
Cost of services (324,083) (288,234)   (908,429) (820,136)
Selling, general and administrative expenses (280,027) (257,002)   (784,953) (739,808)
  (604,110) (545,236)   (1,693,382) (1,559,944)

 

19Finance result

 

  Three-month period ended   Nine-month period ended
  September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
  (unaudited) (unaudited)   (unaudited) (unaudited)
Income from financial investments 13,642 22,754   39,110 57,698
Interest received 13,945 10,619   34,979 25,760
Other 2,809 1,398   5,570 2,801
Finance income 30,396 34,771   79,659 86,259
           
Interest expense (64,065) (71,945)   (166,343) (224,349)
Interest expense on lease liabilities (29,033) (25,834)   (82,803) (74,867)
Financial discounts (10,667) (8,246)   (25,616) (22,124)
Bank fees (1,136) (1,663)   (3,693) (5,194)
Taxes on financial transactions (IOF) (350) (620)   (1,032) (2,131)
Other (24,989) (6,998)   (42,933) (24,907)
Finance expenses (130,240) (115,306)   (322,420) (353,572)
           
Net finance result (99,844) (80,535)   (242,761) (267,313)

 

F-30 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

20Income taxes

 

Income taxes are comprised of taxation over operations in Brazil, related to Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL). According to Brazilian tax legislation, income taxes and social contribution are assessed and paid by legal entity and not on a consolidated basis.

 

Reconciliation of income taxes expense

 

The table below presents the reconciliation of income tax expense for the nine-month periods ended September 30, 2024 and 2023:

 

  Three-month period ended   Nine-month period ended
  September 30, 2024 September 30, 2023   September 30, 2024 September 30, 2023
  (unaudited) (unaudited)   (unaudited) (unaudited)
Income before income taxes 136,574 110,366   521,029 336,826
Statutory income taxes rate 34% 34%   34% 34%
Income taxes at statutory rate (46,435) (37,524)   (177,150) (114,521)
Reconciliation adjustments:          
Tax effect on loss from entities not subject to taxation (7,633) (7,725)   (24,543) (23,243)
PROUNI - Fiscal incentive (i) 85,872 72,530   279,487 240,211
Unrecognized deferred taxes (44,039) (34,314)   (104,310) (125,555)
Recognized deferred taxes (3,234) -   (3,234) -
Presumed profit income tax regime effect (ii) 563 (2,017)   378 (5,434)
Permanent adjustments (917) (2,795)   (4,182) (8,173)
Other 3,391 (301)   7,166 3,419
Income taxes expense (12,432) (12,146)   (26,388) (33,296)
Effective rate 9.1% 11.0%   5.1% 9.9%

 

(i) The Company adhered to PROUNI, established by Law 11,096 / 2005, which is a federal program that exempts companies of paying income taxes and social contribution upon compliance with certain requirements required by said Law.

(ii) Brazilian tax law establishes that companies that generate gross revenues of up to R$78,000 in the prior fiscal year may calculate income taxes as a percentage of gross revenue, using the presumed profit tax regime. The effect of the presumed profit of certain subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries.

 

Deferred income taxes

 

As of September 30, 2024, the Company had accumulated unrecognized deferred income tax assets on temporary differences and tax losses in the amount of R$1,363,576 of tax-basis (December 31, 2023: R$1,211,909) which does not have any tax planning opportunities available that could support the recognition of these temporary differences as deferred tax assets. Accordingly, the Company did not recognize deferred tax assets over these amounts.

 

F-31 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

21Legal proceedings and contingencies

 

The provisions related to labor, civil and taxes proceedings whose likelihood of loss is assessed as probable are as follows:

 

  Labor Civil Taxes Total
         
Balances as of January 1, 2023 22,484 24,664 148,706 195,854
Additions 3,948 4,034 6,838 14,820
Reversals (536) (7,630) (68,592) (76,758)
Business combination 64 88 - 152
Balances as of September 30, 2023 (unaudited) 25,960 21,156 86,952 134,068
         
Balances as of January 1, 2024 22,721 21,300 60,340 104,361
Additions 9,953 6,320 18,787 35,060
Reversals (7,800) (2,347) (21,478) (31,625)
Business combination 721 481 6,044 7,246
Balances as of September 30, 2024 (unaudited) 25,595 25,754 63,693 115,042

 

The major labor proceedings to which the Company is a party were filed by former employees or outsourced service providers seeking enforcement of labor rights allegedly not provided by us. The judicial proceedings relates to employment bonds (judicial proceedings filed by former service providers), overtime, premiums for hazardous workplace conditions, statutory severance, fines for severance payment delays, and compensation for workplace-related accidents.

 

The civil claims to which the Company is a party generally relate to consumer claims, including those related to student complaints.

 

The tax claims to which the Company is party are mostly tax foreclosures filed by Brazilian federal and municipal tax authorities.

 

There are other civil, labor and taxes proceedings assessed by Management and its legal counsels as possible risk of loss, for which no provisions are recognized, as follows:

 

  September 30, 2024 December 31, 2023
  (unaudited)  
Labor 26,911 32,683
Civil 51,601 51,319
Taxes 17,395 5,669
  95,907 89,671

 

The Company has judicial deposits, related to taxes, civil and labor proceedings, recorded in other non-current assets in the amount of R$15,741 as of September 30, 2024 (December 31, 2023: R$14,187).

 

Under the terms of the Share Purchase and Sale Agreements ("Agreements") between the Company and the selling shareholders of the subsidiaries acquired, the Company assesses that the selling shareholders are exclusively responsible for any provisions (including labor, tax and civil), which are or will be the subject of a claim by any third party, arising from the act or fact occurred, by action or omission, prior to or on the closing dates of the acquisitions.

 

Considering that the provisions for legal proceedings recorded by the Company that result from causes arising from events occurring prior to the closing dates of the acquisitions, any liability for the amounts to be disbursed, in case of their effective materialization in loss, belongs exclusively to the selling shareholders. In this context, the Agreements state that the Company and its subsidiaries are indemnified and therefore exempt from any liability related to said contingent liabilities and, therefore, the provision amounts related to such contingencies are presented in the non-current liabilities and the correspondent amount of R$80,671 (December 31, 2023: R$81,855) is presented in non-current other assets.

 

F-32 

Afya Limited

Notes to the unaudited interim condensed consolidated financial statements

Expressed in thousands of Brazilian reais, unless otherwise stated

 

22Non-cash transactions

 

During the nine-month periods ended September 30, 2024 and 2023, the Company carried out non-cash transactions which are not reflected in the statements of cash flows. The main non-cash transactions are as follows:

 

  September 30, 2024 September 30, 2023
  (unaudited) (unaudited)
Additions and remeasurements of right-of-use assets and lease liabilities 103,419 64,094
Remeasurement of earn-out of Além da Medicina, CardioPapers and Glic - 2,556
Additions (reversals) of provision for legal proceedings with corresponding indemnification asset, net (1,184) -

 

 

***

 

 


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