Afya Limited (NASDAQ: NASDAQ:AFYA), a leading medical education group in Brazil, has reported a strong financial performance in the first quarter of 2024, with significant increases in net revenue, adjusted EBITDA, and adjusted net income.
The company's CEO, Virgilio Gibbon, highlighted the operational restructuring efforts and the recent acquisitions of Unidompedro and Faculdade Dom Luiz, which are expected to add 300 operational medical seats in Salvador, Bahia.
Afya also expanded its medical school seats capacity and student numbers, while reducing net debt. The company provided guidance for continued growth in the Undergrad segment and expects to maintain its guidance for net revenues for 2024.
Key Takeaways
- Net revenue increased by 13% to R$804 million.
- Adjusted EBITDA grew by almost 21% to R$398 million.
- Adjusted net income saw a 51% increase to R$251 million.
- Operational medical school seats capacity expanded to 3,152 seats.
- Number of medical school students increased by 8.6% to over 22,000.
- Acquisition of Unidompedro and Faculdade Dom Luiz for R$660 million.
- Net debt per adjusted EBITDA decreased from 1.6x to 1.2x.
- Company plans to integrate educational and Medical Practice Solutions across the medical journey.
Company Outlook
- Guidance for net revenues in 2024 is set at R$3.150 billion to R$3.250 billion.
- The company expects a 10% increase in Undergrad segment revenue.
- Organic growth in health science and other programs is expected to offset previous revenue decreases.
- Strong intake for medical and health programs is projected, with 13-15% growth in the Undergrad segment for H1 2024.
Bearish Highlights
- Some margin dilution is expected initially from the Unido acquisition.
- Postponement of revenue recognition for B2B services, impacting growth projections.
- Uncertainty regarding the incremental 175 seats from the acquisition.
Bullish Highlights
- Margins are anticipated to increase from 2025 onward.
- The company is confident in achieving its adjusted EBITDA guidance for the year.
- Stable competition environment and successful brand efforts in attracting leads.
Misses
- No specific guidance for gross margins was provided.
Q&A Highlights
- CEO Gibbon emphasized the completion of a restructuring process and integration of acquired companies.
- Focus on top-line growth and cost efficiency moving forward.
- The company has been able to pass on price increases above inflation since 2019.
Afya's strategic moves and operational restructuring are positioning the company for sustained growth in the competitive medical education market. The company's financial health and forward-looking plans reflect a strong commitment to integrating educational and medical practice solutions, which is expected to benefit both the company and its stakeholders in the long term.
InvestingPro Insights
Afya Limited's robust financial performance in the first quarter of 2024 is further underscored by compelling data and insights from InvestingPro. An impressive gross profit margin of 61.9% for the last twelve months as of Q1 2024 highlights the company's efficiency in generating revenue relative to the cost of goods sold. This is particularly noteworthy as the company navigates operational restructuring and acquisitions.
InvestingPro Tips suggest that Afya is trading at a low P/E ratio relative to near-term earnings growth, with an adjusted P/E ratio of 17.4. This suggests that the company's earnings are expected to grow at a faster rate than the market average, which could indicate a potentially undervalued stock. Additionally, analysts predict the company will be profitable this year, a sentiment supported by a strong free cash flow yield implied by the current valuation.
InvestingPro Data metrics reveal:
- Revenue Growth (Quarterly) for Q1 2024: 13.28%
- Operating Income Margin for the last twelve months as of Q1 2024: 28.25%
- 1 Year Price Total Return as of 2024: 58.04%
These metrics provide a snapshot of Afya's financial health and market performance. The revenue growth aligns with the company's reported increases in net revenue and adjusted EBITDA, while the operating income margin and 1-year price total return reflect the company's profitability and shareholder value over the past year.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available for Afya, which can be found at: https://www.investing.com/pro/AFYA. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With these resources, investors can make more informed decisions based on real-time data and expert analysis.
Full transcript - Afya Ltd (AFYA) Q1 2024:
Renata Couto: Good night, everyone. Thank you for joining us for Afya's First Quarter 2024 Conference Call. I'm here today with Afya's CEO, Virgilio Gibbon; and Luis Andre Blanco, our CFO. During today's presentation, our executives will make forward-looking statements. Forward-looking statements can be related to future events, future financial or operating performance, known and unknown risks, uncertainties and other factors that may cause Afya's actual results to differ materially from those contemplated by those 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 as well as any remaining impact from COVID-19. 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 them as predictions of future events, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, management may reference non-IFRS financial measures on this call. These measures are not intended to be considered in isolation 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. Now, let me turn the call over to Virgilio Gibbon, our CEO, starting with Slide number 3.
Virgilio Gibbon: Thank you, Renata, and thanks to everyone for joining us today for our inaugural conference call of 2024. To start off, we'd like to outline our operational restructuring effort in Continuing Education and Medical Practice Solutions segment, to enhance synergies between active content and technology for medical education and its specialization cost for physicians. Afya has restructured its corporate structure so that all progress and services related to medical education excluding Medcon the grad courses are now managed in the same structure. Moving to the next page. We can now observe our new business structure taking shape, comprise of our three segments: Undergrad programs, Continuing Education and Medical Practice Solutions. In the Undergrad segment, we have maintained the existing structure. However, notable changes have occurred in the Continued Education. And it is previously accounted for a content and technology from medical education, Medcel, Além da Medicina, CardioPapers and Medical Harbour, within Medical Practice Solutions are now accounted for in the Continuing Education segment. Simultaneously, the segment commonly known as Digital Services has been renamed to Medical Practice Solutions. These structural adjustments have already been implemented for the results presented in the first quarter 2024 onwards. Additionally, the comparative base from the previous year has been recalculated to account for these restructuring efforts. So moving now on to Page number 5. Let's start with our performance highlights. Once again, Afya has recorded another strong beginning of the year. First, net revenue increased 13%, reaching R$804 million, followed by an adjusted EBITDA growth of almost 21% year-over-year, reaching R$398 million, with a margin of 49.5%, 300 bps over the same period last year. Once again, assets recording another strong quarter, showing a solid organic growth with high profitability boosted by all three segments. The adjusted net income stood at R$251 million, represent an increase of 51% when compared to the same period of 2023. And our adjusted EPS scale to R$2.74, a jump of 55% over last year. We also reported a strong cash flow from operating activities of R$429 million, an increase of 22% year-over-year, leveraged by the solid operational results of the company, with an operating cash conversion of 110% and a solid cash position of R$611 million at the end of the quarter. Moving to our operational update of the quarter. We expanded our operational medical school seats capacity to 3,152 seats. Additionally, our number of medical school students has reached over 22,000 representing an 8.6% growth compared to the first quarter of the previous year. Lastly, our physician and medical student ecosystem reached 334,000 accounting for around 41% of all medical students and physicians in Brazil. In the next slide, we will talk about our solid business execution within our three business units. Starting with the Undergrad segment, we saw an important movement throughout the quarter, such as the higher tickets in medicine courses with more than 6% increase in tickets of medicine schools. The 40 seats expansion Guanambi Campus authorized in January of 2024 and gross margin expansion. Continuing Education was marked by an operational structure that comes with growth and margin expansion. Considering this new segmentation, we saw an increase in B2B students, while both net revenue from B2P and B2B increased by 11% and 30%, respectively, achieving a net revenue of R$65 million in the first quarter. In our Medical Practice Solutions segment, we ended the quarter with 15% increase in active payers aligning for our gross margin expansion. In Slide number 7, we are also excited to expand our offer in the Undergrad business with the signing of the acquisition of Unidompedro and Faculdade Dom Luiz. This acquisition will contribute to 300 operating medicals seats in action Salvador capital of Bahia and the fifth largest city in Brazil and population sites. Unidompedro will be active for medical school in Bahia and will serve as a strategic hub for all other medical campuses in the state, besides all the synergies that we can track from all Continuing Education campus in Salvador. We are affirming our strategy, Unidompedro is focused on medicine its projected net revenue for 2024 is R$110.5 million, with 88% coming from medicine course. By 2027, when the medical school reach full maturity, the projected net revenue is R$267 million with over 95% coming from medicine. Highlighting the actions, Unidompedro received a score of 4 out of 5 in both institution concept and course concept metrics, affirming the high quality of their medical course at the campus in question. The aggregate purchase price amounts to R$660 million. We also anticipate achieving an EV/EBITDA of 4.2x at maturity post synergies. We expect the closing of transaction to be on July 1, 2024. Now, I will turn the call over to Luis Andre Blanco, Afya's CFO to give more color on the financial and operational metrics. Thank you all.
Luis Andre Blanco: Thank you, Virgilio, and good evening, everyone. Starting with Slide number 9, for discussions of key operational metrics by business unit. Our number of medical students grew 9% over first quarter 2023, reaching 22,600 students due to the maturation of our medical seats and the seat increase in Guanambi authorized in January 2024. Therefore, with reaches 3,203 seats and expected to achieve over 23,000 Undergrad medical students at maturity. Our medical school net average ticket increasing by 6.4%, reaching more than R$90,000 in the first quarter of 2024. In addition, net revenues for the Undergrad programs saw over 13% increase, achieving R$705 million, R$87 million related to medicine. All this effort means one thing, our medical education business remains and will continue to be the cornerstone of our business, in the short and middle-terms delivering high predictable growth, combined with solid profitability and cash generation. On the next page, I will present our continued educational metrics. As Virgilio mentioned, we have probably present the new structure for the Continuing Education and Medical Practice Solutions. Strategically, we look into our Continuing Education in three different journeys. Starting from left to right with the residency journey, which encompass the products of [indiscernible] focus towards mentoring and net sale B2P. We saw an increase of 62% in active payers, obtaining around 15,000 students at the end of the period. Following the graduate journey, which includes the students from [indiscernible] and Afya Papers, it grew 12%, reaching more than 30,000 students. In other courses and B2B offerings, Afya reached 21,000 students, which represented an increase of 44%. Summarizing, our efforts made possible for Continuing Education of net revenue to reach R$65 million in the first quarter of 2024. Compared to R$58 million in the first quarter of 2023, a growth of over 12%. Moving to Slide number 11. I will discuss the Medical Practice Solutions operational metrics. On the first graph, you can see our total active players, which are the ones that generate revenues in B2P. With a continuous growth trends, we've reached 191,000 paying users, a 12% growth compared to the last year. As you can see in the second graph in line with the previous years, we achieved 263,000 monthly active users. Lastly, in our final graph represents the net revenue of our Medical Practice Solutions, which has expanded 9% compared to the same quarter of last year, reaching R$37 million. Breaking down the revenue within the B2P and B2B segments, we observed that R$32 million originated from B2P, while R$5 million come from B2B. It's important to mention that during the first quarter of 2024, some B2B invoices were postponed and are expected to occur in the next quarters. In the next slide, we are proud to present the impact of Afya on the medical community in Brazil. We ended in the first quarter of 2024 with more than 334,000 medical students and physicians in our ecosystem; experience our service and products, representing a 41% of market penetration. Moving forward, I would like to discuss our financial overview for the first quarter of 2024. Starting with the next slide, with great satisfaction, I'm pleased to present another robust quarterly results for Afya. Net revenue for the first quarter of 2024 reached R$804 million, marking a significant 13% increase over the same period of the prior year. This growth can primarily attributed to higher tickets in medicine courses at 6.4%. The maturation of the medical seats, the 40 seats expansions are in the Guanambi campus, the continuing education in taking performance as the Medical Practice Solutions execution. In first quarter 2024, adjusted EBITDA increased more than 20% to R$398 million, with an adjusted EBITDA margin of 49.5%, marking an increase of 300 basis points compared to the first quarter 2023. The adjusted EBITDA margin expansion is mainly due to gross margin expansion within the three segments, the end of UNIMA and Afya Jaboatão integration process in November 2023, the ramp-up of the four medical campuses that started operations in third quarter 2022, and operational restructuring efforts in Continuing Education and Medical Practice Solutions segments. Moving to the next slide. The cash flow from operation activities for the year increased 23%, reaching a total of R$429 million, driven by our strong operational performance. The operational cash flow conversion ratio stood at 110% for the first quarter 2024, slightly decreasing from the 112% in the first quarter 2023. Adjusted net income for the first quarter of 2024 amounted to R$251 million, an increase of 51% over the same period of 2023, mainly due to the enhancement of operational results, the reductions in the financial expenses due to the decrease in net debt and lower interest rates and lower effective tax rates. In terms of adjusted EPS, we achieved R$2.74 for the quarter, a remarkable 54% increase compared to the previous year. Our EPS was mainly positive influenced by the increase in our net income with an impact from the previous year shares reputation. And now, moving to my two last slides, I will discuss our cash and net debt position. I also give you more color on our cost of tax. On the next slide, you see a table with the breakdown of our gross tax and the total cost of tax, considering our main debt, the soft-based transactions, debentures, account payables to selling shareholders and other financial obligations. On the next page, we can look closely to the net debt variation. In the first quarter of 2024, our net debt reached R$1.577 billion, when compared to December 2023, after reduced its net debt by R$237 million. Even considering the seat going to be earn-out over R$49 million, we reduced our net debt per adjusted EBITDA from 1.6x in 2023, to 1.2x in the first quarter of 2024, considering the mid-point of the guidance for 2024. Considering the additional debt regarding only Unidompedro acquisition, we expect an update net debt per adjusted EBITDA of 1.6x. This ends our prepared remarks, strong performance, consistent growth and success in all segments. We are committed to provide an ecosystem that integrates educational and Medical Practice Solutions for the entire medical journey, enhancing the development updating effectiveness and productivity of health professionals. We are very proud of our business and what we have achieved so far and excited about what we plan for the future. I will now open the conference for the Q&A session. Thank you.
Operator: [Operator Instructions]. The first question comes from Lucca Marquezini from Itau. Lucca, you may now go.
Lucca Marquezini: Hey, good evening, everyone. Thank you for taking our questions. We have two questions from our side. The first one, the release mentioned that there was a gross margin expansion in all three segments. Can you please give more color on which of the segments most contributed to this expansion and the drivers behind this enhancement? And then the second question would be after the acquisition, you already surpassed the guidance of acquiring 200 seats per year. Should we expect another acquisition in new Undergrad courses this year or M&A should now be focused in other verticals? Thank you.
Luis Andre Blanco: Hi Lucca, it's Luis speaking. I'll start with your second question. Regarding M&A, we have this guidance from 200 seats per year that we give for 2000 -- we gave in 2022. So from these at this moment, we've made two business combinations, one that was [indiscernible] and this is the second one. So in three years, we made 640 seats. So -- and right now, after the approval of the grant [ph] will have achieved this guidance for 2024. Of course, we are always open to discuss the asset that has our profile with the right price. So we know that we have various laser point specific targets and we'll try to keep this risk, but it's always hard to match the size of the transactions with the targets that we have, okay?
Renata Couto: Yes. Regarding the gross margin, Lucca, we are going to disclose it to you guys our consolidated spreadsheet as soon as we finish the call. But all the segments, as we already said, had margin expansion. The Undergrad was around 1.5 points, Continuing Education a little less than 4 points, and the Digital Services a little bit higher than 5 points.
Virgilio Gibbon: And the rationale behind that, Lucca, I think the contribution from the Undergrad comes from first the maturation of our medical school campuses. Remember that we started this operation around second half of 2022/2023. So now we are in the third year of maturation. So the margin is going up and contributing to improve our margin. Also the integration of UNI that was faster than expected originally on our business plan, so helped a lot to improve our margins. And all the contribution coming from the other business units that not only in terms of growth but also improving margins on the Undergrad segment operating close -- sorry, the Graduate segment operating close to what we are operating now on the Undergrad. And also the Digital Service now flowing on only growth on the top-line but flowing positive results on the top of the bottom line. So that was the duration of all of this margin improvement comes from the three segments.
Renata Couto: Yes. If I could add a point not only in terms of cost but also in terms of our expenses, a reorganization that we did between the segments of -- on the content technology for medical education going to the Continuing Education, we could save a lot money. So it was something that we made that made sense in terms of operations and also improved our results, and we are expecting to boost our growth.
Virgilio Gibbon: Yes. Just for a little bit additional color on that Lucca, for Digital Services as an example, we were operating with different companies. So we have two commercial areas, two growth areas, two IT teams for development. So we have now fully integrated close related to the physician journey for the mission that they have. So now it's only one thing focus for the entire mission that we are prioritizing for that quarter for that screen. So it's a lot of synergies after the restructuring. The same applied for the Pillar 1 combined with Continuing Education that we had last year. So we have all the marketing commercial team working together and also the content creator, the critical development working together. So there was a lot of senior implements in the fourth quarter in 2023.
Lucca Marquezini: That's very clear, guys. Thank you.
Renata Couto: Of course. The next question will come from Mirela from Bank of America. Mirela, you may now go.
Mirela Oliveira: Good evening, everyone. I have a follow-up question on the gross margin one. Could you comment a bit also on what to expect from both the Continuing Education and the medical specialization margins going forward? And a second question on the guidance on last year's Investor Day, the company mentioned a long-term guidance for the Continuing Education revenues of around R$1.2 billion in 2028. And I was just wondering how should we think this guidance and the one for Digital Services also considering the new structure?
Luis Andre Blanco: Hi Mirela, Blanco speaking here. We don't have this opening of gross margins in terms of the guidance; we give the EBITDA guidance for the year. And we don't have changes in our view for the year of 2024 regarding the guidance that we provided when we release the results of 2023. So what we can expect for the year it's adjusted EBITDA between R$1.3 billion and R$1.4 billion for the year. We reaffirmed this guidance with these results.
Virgilio Gibbon: And Mirela, regarding the guidance of our Digital Services because of the restructuring, one important part of that guidance is Pillar 1 that now is combined and have a lot of synergy we Continuing Education. So the R$1.2 billion now is split between two segments, we will have to reorganize this guidance for the long-term, and we will come to the market at the right time to check how much of each segment will compound this R$1.2 million that would come from the Digital Services. But as soon as we get that, we will come to the market in more detail, okay?
Renata Couto: Of course. Our next question comes from Marcelo Santos from JPMorgan. Marcelo, you may now go.
Marcelo Santos: Thank you. Good evening, Virgilio, Luis, Renata, thanks for taking my questions. I have two as well. The first is regarding the growth on the Undergrad revenue. I think due to last call, if I remember correctly, you indicated that within your guidance, this component, the Undergrad should grow around 10% in the year. You delivered 13.5% in this quarter. So I just wanted to understand, is there some seasonal factor that you expect growth to be more in the first half? Or is this really coming ahead of your expectations? Just wanted to get a feel here in terms of timing or how are you going according to your expectations? And the second question is the B2B revenues that you mentioned. I think Luis mentioned that there was a postponement of recognition of some -- forgotten the name of some invoices, I think from the first quarter to the second quarter. If you had recognized everything at the right quarter, what would be a better idea of how this revenue growth is taking place like what would be a more organic measure for this? Thank you.
Virgilio Gibbon: Hi Marcelo, I got your first question about the idea of the revenues coming around 10%, 10% was mentioned it was regarding more volume than top-line. So when you take a look on our Table number 2 on our release, you can see that medical school Undergrad is moved around 15.5% and around 9% is volume and 6% coming from tuition. And the good news is that in terms of net revenue, we are also seeing organic growth coming from the health science and also for other programs that used to have always a decreasing revenues on this side. So it's not more hurting the top-line growth as we had in the past because of the restructuring, we are sharing our programs. Now we are more organic. So it's expected to be -- it's not seasonal as we have a very strong intake not only for medical feeling all the 100% of our seats. And we have a strong intake for health programs and ex-health during the first quarter. With respect to keeping a very good trend in the first half of 2024 around 13%, 15% coming from the Undergrad segment, okay? Luis will take the second question.
Luis Andre Blanco: Yes. And just to add, Marcelo, to the first one, despite what will have this performance of the first quarter, our expectations regarding the net revenues for 2024 remains the same that we provided in the guidance that can go for R$3.150 billion at the bottom to R$3.250 billion at the top part of the guidance regarding the net revenue. So when we did this color about how would performs per each segment, we just give a color of how in the big numbers, how we would perform between our three segments. So -- but our guidance is regarding always the consolidated figures that come from R$3.150 billion to R$3.250 billion for 2024. Having said that, coming to your second question regarding B2B, yes, we have some postponement on recognitions on the medical practice tools. And if we put that on this way, we would be around 20% to 30% growth regarding the same period of the prior year, okay?
Virgilio Gibbon: Just to add here, Marcelo, so in terms of guidance, seeing the overall results from top and bottom line in the first quarter. Of course, there is a positive bias when you compare to the one-year guidance that we released last quarter, but still show in the process. We have the second quarter intake, everything there is still uncertainty. So it's still soon to admit that we are going to change or not our guidance for 2024, okay?
Marcelo Santos: Perfect. Very clear. And so 20% to 30%, the minus 6% would become 20% to 30%. That's it Luis?
Luis Andre Blanco: Yes.
Renata Couto: Yes.
Marcelo Santos: Perfect. Very clear. Thank you very much.
Renata Couto: Thank you, Marcelo. [Operator Instructions]. The next question comes from Lucas Nagano from Morgan Stanley. Lucas, you may now go.
Lucas Nagano: Thank you and good evening to participate here. We have some questions related to the Unido acquisition, three to be precise. The first is how you're planning to fund the acquisition. Second is what is the expected impact on margin once you consolidate when you don't? I think also you mentioned that you expect this to close on July, right? And the third is, in practical terms, what is the likelihood that those incremental 175 seats are canceled? If you could comment a bit on the stage of this should this process? Thank you.
Luis Andre Blanco: Thanks. Hi Lucas, thank you for your three questions. I will take the three questions. Regarding the funds, we ended the first quarter with more than R$600 million in cash. So we have the funds to pay the down payments related to the acquisitions because we have the cash and we have the cash generation of the second quarter. If we find an opportunity that we find attractive, we would hire additional funding for that. Regarding margins, they -- we can expect a little bit of dilution on that. They don't operate margins that we can operate our Undergrad segment. So we can have these dilutions that will come in this year, but we can expect increasing margins from 2025 ahead, we're going to work to have a, very quick integrations on Unidompedro to have the integrated as fast as possible to our ecosystem. And regarding to the 175 seats, they are operating since the beginning 2021 since the first intake. So we have a very positive view regarding the continuation of the seats to be approval. And we put the payment schedule to be 10 years to protect us in a remote possibility to have these seats not being operating. So our view in the base case the seats we're going to keep operating.
Virgilio Gibbon: Just look to add here, Lucas, first on the second question about the margin impact and how we want to leverage operationally the new campus. Remember that it's our largest medical program, campus, 300 seats concentrated in one large city with a very high level of tuition. So the capacity that we'll have to fulfill all the seats available, the vacancy that we are seeing there in a very fast track, as soon as we get the operation closed and improved margins, I think taking what we had as an experience in Uni going to view and also UNIMA that we could leverage 30 percentage points in almost one year. I think we will do something very close to that and reach the same level what we are operating now in the Undergrad business in 2025. And the 175 seats, I think it's important to mention here that not we are operating the seats since the beginning. We have the approval, not only in the just but also for the Ministry of Education that recognize it. And all the trends that we are seeing from the Supreme Court is that everything that was approved, considering the current regulation, the Ministry of Education, it's not canceling, not only for this case here, but all the precedents that we are seeing in the market, it's quite positive on the direct. So it's very rare. It's completely remote, the chance that to be canceled. Even in a worst-case scenario that has happened, we have all the framework that we are paying the installments, protect ourselves in 10 years. And also, we will cancel all the payments at the right moment. So, that's the way that we construct the deal, okay?
Renata Couto: Yes. Just a reminder, the first one that they required for those seats was before my medical law. So it was before 2020. And the second reminder that in this worst-case scenario that Virgilio told to stop paying, we still have the positive effect of the students that are already enrolled for the next six years. So we also have the economic benefit without having to pay and increasing our IR.
Luis Andre Blanco:
.:
Lucas Nagano: Thank you. And also a quick follow-up on the Supreme Court debate. When do you expect them to resume the voting process?
Virgilio Gibbon: It's expected to happen now in May. Actually, the due date is tomorrow, but we don't know, they will release or not the voting by tomorrow.
Renata Couto: Yes, just a clarification. The due date for tomorrow is [indiscernible] timeframe to return with results.
Lucas Nagano: Perfect. Thank you.
Virgilio Gibbon: Okay.
Renata Couto: So the next question comes from Leandro Bastos from Citi. Leandro, you may now go.
Leandro Bastos: Yes. Thank you, guys. Two questions on our side. First one about kind of the rationalization of costs, the restructuring that you mentioned. I'm just wondering if you could comment how far advanced you think the company is in the process of rationalization? If you see additional levers for reducing applications and unlocking efficiencies or if we could expect basically what we saw during Q1 and basically the carry impact from these initiatives through the year? If you could, I don't know, provide some color on how should we think about this margin dynamic forward, I think would be helpful. That will be the first one. The other, if you could also talk about how you saw competition during this recent intake season in terms of candidates per seat. How was the strategy for pricing with of course, good volumes and kind of a pricing ahead of inflation? So if you just kind of can comment a little bit on how sort of the competitive environment. I think would be interesting to hear. That will be it, thank you so much.
Luis Andre Blanco: Thank you for your question, Leandro. I will start with the first one, and Virgilio will jump to the second. Regarding the expectations margins -- gross margins going ahead, we don't give a guidance for gross margins for the year. What we can expect is to achieve the guidance of adjusted EBITDA that we gave for the year. So that's our point. We have -- we are very constructive with that. We have been not only giving annual guidance, but achieving annual guidance before in the last years, and we are confident that during 2024, we're going to do the same. So I prefer to focus on the -- what the guidance that we provide the market, rather than give a guidance in specific gross margins going ahead.
Virgilio Gibbon: And just adding a color on that, Leandro, so we did a big restructuring process in the last quarter of 2023, we dismiss around 200 people because of the restructuring, we integrated all the companies acquired, mainly in the digital area. So in terms of COGS, I think we did -- we already completed the work. So now, it's much more related to growth and top line expansion than more cost efficiency than in the past. Another lever here was our corporate expenses that is -- now, we are getting some not synergy, but we are growing top line and our structure is already mature after the IPO, five years of IPO. So we are also getting synergies on G&A expenses on the overall. And that is considered on our expectation on the release guidance that we gave to the market on last quarter. About the competition, this intake, it's close what we saw for the last two years in terms of candidates per seat, I think we don't know why we kept so stable, the competition here, my true sense here that because all the efforts in terms of brand, the change that we did last semester, I think it starts taking off and helping us to attract more leads. And remember that we now have more than 300,000 physicians and medical students talking about Afya, using our solutions. So it's a huge army knowing what we are -- our company here is doing for their journey for their career. I think this is helping us to attract more leads and to fulfill all the seats that we are doing in the market with every semester, every year in a better way, attracting good students and a good level to complete our second system here. So the competition for us, it's quite the same that we saw during the -- actually, since 2020, 2021, the candidates per seat was around 6.4 candidates receipts, and we have something between five and eight during the last four years. And when we analyze also the smaller campuses in more remote areas, we also have a very good intake and we could attract and enroll very good cohort of students to our school. So there is no news on the competition side on our side. Remember that we also have a very good condition to pass inflation, a little bit above inflation to our price year-over-year since 2019.
Renata Couto: All right. Since we do not have any other questions, we are going to end the call. If you have any other questions, we are in the Investor Relations area, we are going to be happy to help you. Have a good night.
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