Afya Ltd (AFYA) Q1 2020 Earnings Call Transcript

Afya Ltd (NASDAQ: AFYA)
Q1 2020 Earnings Call
May 29, 2020, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Afya's first-quarter 2020 earnings conference call. [Operator instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Renata Couto, Afya's head of IR. You may begin.

Renata Couto -- Head of Investor Relations

Thank you, and good morning, everyone. Thank you for joining us for Afya's first-quarter 2020 conference call. With me on the call today is Afya's CEO, Virgilio Gibbon; Luis Andre Blanco, our CFO; and Julio Eduardo, our VP of Innovation and Continuing Medical Education. During today's presentation, our executives will make forward-looking statements.

Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainty and other factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, the statements related to our business and financial performance, expectations and guidance for future periods or expectations regarding our strategic product initiatives and the related benefits in our expectations regarding the market as well as the potential impact for COVID-19. These risks include those more fully described on our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof.

You should not rely on them as predictions of future events, and we disclaim any obligations to update any forward-looking statements, except as required by law. In addition, management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in the isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures in this presentation.

Let me now turn the call over to the Virgilio Gibbon, Afya's CEO.

Virgilio Gibbon -- Chief Executive Officer

Thank you, Renata, and thanks, everyone, for joining us today for Afya's first-quarter 2020 earnings conference call. First, let me say that I hope everyone is in good health and safe during this global crisis. Before I start, I would like to acknowledge and thank all front line workers who are facing this global crisis. We are fortunate that as a business, we have been able to help by providing free cost at this time to assist hospitals, medical schools, physicians and nurses to deal with the rapid spread of COVID-19.

I also want to thank our employees and professors who made it possible within one week to move 100% of on-site classes to our online platform. The feedback from students, professors and physicians could not be better. They are all very satisfied with the effectiveness of our online operations. While the environment continues to evolve quickly, our teams are managing our priorities and business very well.

Moving now to Page No. 5. I'm very pleased to report the strong first-quarter 2020 results, continue the positive trend of 2019. And also reflecting the successful execution of our strategic initiatives.

We are seeing the benefits from the synergies captured from the integration of the acquisitions completed over the past two years. And continue to deliver the combination of our strong and predictable growth with high profitability and healthy cash generation. Our balance sheet position is very strong with more than BRL 1.3 billion in cash. On the student front, the intake process for second half 2020 have already captured candidates to fulfill all seats available, ensuring 100% of occupancy for the falling semester.

A 22% growth in our medical student base over the first-quarter 2020, reaching 9,700 students, already including the UniSaoLucas acquisition concluded this month. In addition, we have seen a better collection when compared to the same period last year, showing an excellent cross for the second half renewal rate and cash generation. All in all, and consider the external scenario, a very positive dynamic for the rest of the year. I also would like to highlight that considering all acquisitions we have completed, our total medical seats per year reached 1,866 seats, which means 13,500 students at maturation, an 11% CAGR in the net student base in June 2020.

Moving to Slide No. 6. You can see our unique positioning in the medical community, our social responsibility, and therefore, we have played an important role in sharing knowledge with our institutions, divisions, students and patients through the initiatives below: Allow free temporary access of our digital platform, Medcel, being already accepted by more than 9,000 medical students at 32 public and private medical schools, which will be a great opportunity to expand our market share and potential growth; provide free content through online courses and Webinar Week, which has been a success attracting a large number of participants to our platform; donation of masks, gloves and other personal protection equipment to help departments and hospitals in 13 cities where we operate medical schools. Now with respect to actions we have undertaken for students, employees and professors.

We are currently operating our theoretical classes online for all students and reorganized the schedule of practical activities in order to avoid any significant impact on the academic calendar for the first semester of 2020. It's important to highlight that the in-hospital internships for fifth and sixth year students have already resumed and will not impact the calendar. Most of our corporate staff started to work from home and are keeping all our key activities up and running well. We are also providing a full package of social and health assistance to our employees and families to help them during the pandemic, including HR initiatives such as online psychological care, yoga classes, corporate training platform, free lectures and support for family professional placement and many others.

Moving now to Slide 7. We will discuss our revenue and intake process. Fortunately, our first-quarter 2020 financial results were not impacted by COVID-19. Given the timing, we have successfully concluded our intake process cycle for first half 2020, before the pandemic began to shut down the country.

We have already completed the enrolling process with 100% occupancy as expected. And as we look ahead, we are currently seeing a strong demand for new applications for falling semester that will allow us to fulfill 100% of our medical fees, maintaining our revenue growth resiliency and high predictability even under this uncertain time. We have kept our commitment to our professors, maintaining all salaries during the pandemic, maintain our supply contract and also offering a high-quality education to our students on our platform and practical activities for the fifth and sixth years. We are seeing a positive impact on the cash collection during this period, that the links generation by April 2020 is 400 bps below the same period last year, reflecting our process improvements implemented last semester.

Lastly, regarding revenue recognition. Take into consideration that the interruption of on-campus activities and that a significant portion of non-practical educational activities being temporarily offered through company's online platform. We are expecting that some practical classes will have to be replaced during the second half, postponing their revenue recognition proportionally. Those effects were already considered in our first half 2020 guidance, indicated by the net revenue guidance range, which already contemplated that certain amount of practical classes would be delivered in the second half.

Next, turning to Page No. 8. At a solid balance sheet and strong cash position put us in a healthy position with a competitive advantage to navigate these uncertain times. As you can see, we ended the quarter with BRL 1.3 billion in cash position.

This is essentially from the IPO and follow-on transactions. And with a limited debt, our cash flow is robust with an 81% conversion rate in the lower delinquency rate when compared to the same period last year. Last but not least, our cash flow keeps being strengthened by the synergy raised from M&A integration. We have been efficient in all integrations, leveraging our operational margins considerably.

Given the high predictability of our business model, I'm confident in our ability to generate meaningful cash flow, which combines the strength of our balance sheet with sustained financial stability regardless of the economic trend and enables us to continue executing our growth strategy. Moving next to our discussion of M&A in our integration process on Slide 9. We achieved our position as the leading medical education company in Brazil, partially through acquisitions. We have completed acquisitions over the past two years and added over 400 seats in less than one year, or approximately 40% of our three-year target of 1,000 seats.

Additionally, we currently have more than 500 seats covered under MoU contracts. M&A remains a key pillar of our growth strategy, and we continue to evaluate opportunities to deploy capital into strategic acquisitions across medical school seats as well as digital platforms that can add services and value to our students. Our financial strength and cash flow generation capability affords us flexibility, and we intend to remain opportunistic. Stepping back for a moment, we have outlined the stages that acquired companies go through before we start to see the synergies and margin contribution.

Immediately, we guarantee 100% of occupancy of all seats available. Then we begin to streamline staff and to increase tuition after the implementation of our new curriculum. After, we immigrate all transactions and administrative activities, like the shared services to extract G&A efficiency. Lastly, we implement Afya's careers plan to fully integrate in reaping the benefits from the acquired companies.

Importantly, the current operating environment has not slowed our integration process with recent acquisitions. We just finished integrated IPEMED, and we are moving with UNINOVAFAPI and Medcel even during the pandemic. Now on Page 10. You can see our successful acquisition track record and how we have been able to extract synergy fastly.

The revenue expansion of margin gains have been significant across all acquired companies. As integrated and being further scaled, we have been able to see value creation margin improvements higher and faster than we expected in all acquired institutions. Even considering the more recent acquisitions concluded in 2019, such as IPEC and FASA, we can see a strong growth and operational leverage in less than one year. This solid track record shows our capacity to deploy capital into strategic acquisitions, create great return to Afya shareholders.

Now I will turn the call over to Julio, that will show how the digital transformation accelerated by the COVID-19 pandemic is changing the education process and opening many opportunities for us.

Julio Eduardo de Angeli -- Vice President, Continuing Education & Innovation

Thank you, Virgilio. Moving next to our discussion of innovation and technology and how this is changing the education process in the next two slides. So starting on Slide 11. All of us are seeing a rapid shift in digital transformation strategies.

In an environment like this, the need for accessible solutions in all markets has become greater than ever, and we are proud that we are leading the way in the medical education segment. The current environment is leveraging our core digital competency with an efficient process to create large and scalable medical education materials, utilizing different formats in one single easy-to-use and sticky platform. Our cutting-edge platform can deliver a personalized learning experience for each student, including communication, learning, tutoring and assessment tools. As an additional feature, we have just now launched our proprietary synchronous class capability to the experience we provide, where our professors will be able to interact on a live environment with our students as an integrated piece of methodology.

On the content delivery side, we are proud to launch the second season of our instructional medical residency web series with 12 new episodes. We added another 50 clinical cases where 15 of our professors are acting and performing as well as 100 new video lessons covered in these cases. This is another important step of our entertainment strategy, delivering content in formats that are connected to quality of the new generation of students and innovating as it is needed in our industry. The proprietary software and content development and adaptive learning technology allows us to offer a personalized learning experience for the student no matter where they are in their learning curve or career.

This is critical for our solutions where we use the power of our data collection to help students to be more effective. Moving now to Slide 12. Afya's core strategy is to combine quality medical education with intensive use of technology. We are committed to providing innovative technology solutions that assist our students as they spend more time online to work and study in this environment and later on.

Even prior to the rise of COVID-19, we have been very intentional on strategic planning for enhancing our digital offerings. The pandemic proved the efficiency of our digital platform as more than 90% of our undergrad medical students engage online with a positive feedback and acceptance. Over 93% of our graduate students mentioned they would recommend the online classes and course to a friend. With respect to other students as shown on these charts, these added digital products, content and teachers, consistently delivered increasing customer count growth during the quarter.

Our monthly active users increased 17.5% from January to March to more than 16,000. At the bottom of the first chart, you can see the current consumption of our content with over 2.4 million learning objects used by our students during the quarter. Adding to that, we see the monthly content consumption increasing more than 26% as we scale our tutoring system. Engaging more students to our platform is key to future conversion to our other products and services Afya will be offering.

The strategy is to build and nurture the relationship, generating loyalty with students and other medical professionals. With the proven effectiveness of our digital platform and services, we have strengthened our position as the leading innovation and tech company in the Brazilian medical education segment. This shift in teaching and learning behavior is also giving us an opportunity to take further look at our long-term digital strategy. While no one knows how long the current business environment will persist, it is our expectation that some of the programs and our processes put in place, because of COVID-19, will continue over time.

As a result, we are actively assessing our current product offerings as well as expanding our view to potential acquisitions. Our strategy is to further build our share and drive long-term profitable growth. Now I'll turn the call over to Luis to discuss our financial results.

Luis Andre Blanco -- Chief Financial Officer

Thank you, Julio, and good morning, everyone. Before getting into the financial results, I'd like to add that it's a pleasure to be hosting my first call as Afya's CFO. As Virgilio said, it was certainly a very unique time that we are all living through. I'm particularly proud that we delivered a successful quarter that is tracking in line with our first half guidance.

We are particularly pleased with the execution in the first quarter to quickly move all the classes online, which, in turn, enabled us to report a good start of the year. Moving to Slide 14. My discussion will focus on the main and the most significant P&L items. There is additional info in the earnings press release that you can refer for more information.

As shown on this page, we've had a very good quarter across all key metrics. We also reported higher margins. Let me highlight a few. We started moving the medical seats and students, both of which saw a significant increase during the quarter.

With respect to the number of medical school seats, we added 470 seats year over year for a total of 1,684 by quarter end, a 32.9% increase over first-quarter 2019. Reflecting the seat maturation process, the number of students in the first-quarter 2020 was 7,956, an increase of 58.8% over the same period of the prior year. Subsequent to the quarter end 2020, we added another 182 seats with the acquisition of UniSaoLucas and with a potential upside of further 100 seats. As a reminder, considering the acquisition of UniSaoLucas, we have already made, our full potential as of today is 1,866 seats and 13,400 students, which leads us to 11% CAGR in student base, considering the period of 2019 until 2026.

Pro forma net revenue for the quarter was up 27.2% year over year to BRL 272 million. Excluding the acquisition of UniRedentor, which closed in the end of January 2020, pro forma net revenues grew by 20.1% year over year, reaching BRL 257 million. The increase was primarily driven by organic revenue growth, mainly due to maturation of medical school seats. The strong top line growth, combined with the cost efficiency and result of the synergies from acquisition was reflected in our pro forma adjusted EBITDA, increasing 36% to BRL 141 million and the margin expansion of 333 basis points.

Excluding the consolidation of UniRedentor, pro forma adjusted EBITDA increased 33.3% year over year to BRL 137.8 million and a margin increase of 530 basis points. Adjusted net income up 131.7%, reflecting the revenue contribution synergies captured and the margin expansion from consolidation of acquisitions. Our diluted earnings per share increased 54%, achieving BRL 1.09 per share. I would like to remind you all that impacts of COVID-19 affect Afya business, as detailed in our earnings release.

And as a result, in a typical year, the first quarter is normally the strongest in the terms of revenues, but not in terms of cash conversions, since Medcel revenue recognition mostly happens on the first and the fourth quarters. Moving on to Page 15 for discussions of key operating metrics by business unit. We delivered strong results in the first quarter as both business units continued performing very well. Growth in key operating metrics, as shown on this slide, is being driven by a combination of organic growth and acquisitions.

Our average monthly medical tuition fees after quarter end were at BRL 8,235, which was 8% above the same period in 2019. This reflects a combination of new students enrolled with a higher commission rates combined with the students graduating with the lower tuition. As shown in the middle chart, 77% of our combined tuition fees are derived from medical schools. The combination of a 47% increase in the number of students and an 8% increase in our average ticket, resulted in the combination of — our combined tuition fees up 59% when compared with the first-quarter 2019.

With respect to BU2, we had an almost 12,000 active paying students at the quarter end, an increase of 22% over the same period last year. We can see an increase of 29% and 22% in the number of students of prep course and CME for B2B and B2C, respectively. Moving on in a deeper analysis of our revenue and EBITDA on Slide 16. Our business model enable us to generate a higher predictable revenue growth.

However, as mentioned previously, acquisitions are a key part of our growth strategy. And as shown on this page, we have provided net revenue and adjusted EBITDA bridges from our historical first-quarter '19 revenue to the reported first-quarter 2020. For the quarter, net revenues increased 88% to BRL 272 million. Excluding the consolidation of UniRedentor, net revenue grew 78% in the quarter, with a contribution of BRL 84 million from acquisitions and BRL 28 million from organic growth, which is comprised of the maturation of the medical school seats and increase of average ticket.

On the right side of this page, we show the first-quarter 2020 adjusted EBITDA. During the period, adjusted EBITDA increased 88% year over year to BRL 141 million. Excluding the consolidation of UniRedentor, adjusted EBITDA grew 84.4% with BRL 47 million contributed from acquisitions and BRL 16 million from organic growth. Aside from strong revenue growth, our results are also benefiting from the synergies that are being realized from acquisitions as you already heard of Virgilio.

Moving on to discussion of the cash flow on the Slide 17. Cash is crucial in the current environment, and we have a very strong and healthy balance sheet that is strengthened even further by the follow-on offering we completed early this year. It is the strength of our balance sheet that will enable us to continue to grow our business and support future acquisitions. Cash and cash equivalents of BRL 1.3 billion at the quarter end was just BRL 960 million at the end of 2019, a 35% increase.

The significant increase in cash compared to the year-end 2019 reflects strong generation cash flow and the proceeds from February of 2020 follow-on offering. The majority of the funds is invested in low-risk Brazilian reals-denominated instruments. The total debt was BRL 487 million at the quarter end 2020, up from BRL 361 million at the end of 2019, with the increase related to the account payables to selling shareholders. This quarter debt is 47% crisp.

Cash flow generation remained strong in the first-quarter 2020, which resulted in a cash conversion rate of 80.7% compared to 82.7% in the first quarter of 2019. This was a slightly lower cash conversion rate versus first-quarter 2019, mainly due to seasonality in the beginning associated with Medcel business. As I said in the beginning, revenues from our prep courses are recognized mainly in the first and the fourth quarter of each year, but receivables are mostly stable during the years. In this sense, Medcel results negatively affect cash conversions in the first and the fourth quarters.

Turning next for discussions about guidance on Slide 18. As mentioned earlier in the presentation, our first-quarter results were trending in line with our first half 2020 guidance. As a result, we are reaffirming our guidance provided during our year-end conference call. As a reminder, the world is still advancing in a pandemic.

The economics are slowly opening up. And our guidance takes in accounts, the better information available at this point of time. Two key metrics from the first half 2020 are as follows: the first half 2020 net revenues between BRL 475 million and BRL 510 million. The first half adjusted EBITDA margin ranging between 45% and 46.5%.

Our guidance includes the impacts of the adoption of IFRS 16, includes UniRedentor starting February 1, 2020, and excludes any other acquisitions that may be concluded after the issuance of this guidance. I would point out the possibility that revenue recognition for some practical classes could be pushed to the second half of 2020, upon the resumption of the classes. Summing up, please turn to the next page, Slide 19. We operate in extraordinary times, times of great challenges, but also times in which we can see many key opportunities to pass.

We are very confident in the strengths, the resilience and the overall health of our company. We are navigating the currency uncertainty well. Our leadership position is creating even more demand for our medical seats. And as mentioned earlier, we are currently seeing demand of our available seats, ensuring we maintain our 100% occupancy.

The use of our digital platform is strengthening our brands and positioning, and we see opportunity to expand this platform both organically and through acquisitions. Given the nature of our business, coupled with the high demands for seats, we have a model that present us with a highly predictable organic growth, given the maturation of the seats with an expected CAGR of 11% in our student base from 2019 to 2026. We are maintaining our long-term strategic focus, of which M&A is a key component. We already have a solid pipeline, and we are on track in generating synergies from acquisitions completed over the past two years.

Integration is progressing even in the current environment. In turn, we anticipate further merger expansions. Lastly, as you has heard through this presentation, we have a strong balance sheet and generated a significant cash flow. These attributes, coupled with the actions we are taking now, enable us to manage through the situation today, while funding targets the strategic investments that will benefit us going forward.

This ends our prepared remarks. We are now ready to take your questions. Operator, please open the lines for questions.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] I show our first question comes from the line of Marcelo Santos from JP Morgan. Please go ahead.

Marcelo Santos -- J.P. Morgan -- Analyst

Hi. Good morning. Thanks for taking the question. I have two actually.

The first would be about the candidates that you already have for the intake of the next season. Could you just explain a bit more how does this work? I mean, what kind of commitment do they already have? Are there still candidates or there are some that are already enrolled? Because you might have candidates that cannot pay in the end. So how confident you are that you get 100% occupancy? Just could explore a little bit more on this. And the second, if you could discuss a bit the schedule for greenfield openings.

So you had two greenfields that were supposed to be opened in the first half. But given the COVID situation, this didn't happen as far as I understood. So could we still expect this to open in the second half of the year? Or is it more prudent to expect everything for 2021? These are the two questions.

Virgilio Gibbon -- Chief Executive Officer

Marcelo, this is Virgilio. I'll take your first question here about the candidates that we have and we understand there is enough to fulfill 100% of the seats. The ratio that we are seeing, the number of candidates applying for all seats in Brazil, when we have the comparison to the same semester, the last semester that we have, it's much more than we need to fulfill all new seats that we have to enroll for the following semester. So what we are doing, we, actually, right now have almost 80% of the enrollment already confirmed.

We are just calling the students to fulfill all the seats. We anticipate a lot of the process because of that using annual grade results from previous years. So that's the way that we are doing duration comparison to last years. And also anticipating the enrollment for the following semester.

About your second question, how we are opening the greenfields? We have two. There is a very final step to have the signature from the Ministry of Education. That's the last step that is required. And we think that the signature can happen.

We expect to have this by the end of the semester. But the truth is that the Ministry of Education — so everything has stopped right now because of the pandemic. And even if we have the beginning of the authorization to start our operation, we just expect to have the beginning of this operation in the second semester or maybe in the beginning of 2021. That's I think one of the downsides for the pandemic to start the new sites, OK?

Marcelo Santos -- J.P. Morgan -- Analyst

OK. Just a follow-up on the first. So when you say 80% has already been confirmed, does that mean they have already paid something or some kind of initial fee? What is confirmation entail?

Virgilio Gibbon -- Chief Executive Officer

Yes. As soon as they confirm the enrollment, they have to pay the first month tuition. We still have some seats to fulfill, but we have candidates in the basket to convert them and have 100% of occupancy in the second semester. Remembering that the second semester volume of new students is lower than in the first semester.

So the ratio is higher than the volume of candidates that we have to fulfill all the seats, it's better than the first semester.

Marcelo Santos -- J.P. Morgan -- Analyst

Great. Very clear. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Susana Salaru from Itau. Please go ahead.

Susana Salaru -- Itau BBA -- Analyst

Good morning. Our first question is related to the margin expansion of the quarter. If you could elaborate a bit more what were the main drivers behind the cost savings? And if you could also talk about what were the synergies that were unlocked from the acquisition. That will be our first question.

And the second question is related to the ticket where we saw that the net core tickets went up significantly. If you could just comment how was the trend of the healthcare and medical school trends for the ticket? And also for the other courses that you have. Thank you.

Virgilio Gibbon -- Chief Executive Officer

Hi, Susana, this is Virgilio. About the margin expansion, I think it's three main drivers that is driving all this efficiency that we are getting from our operation. First is the scale. We are seeing all this maturation in the all corporate activities, holding expenses that we are diluting time over time.

And that will be a strong trend as we still have the maturation till 2022. Second, as we are seeing on this acquired institutions, we're having a lot of synergies and faculty costs. We started implementing our curriculum, maximizing the number of students that study in groups per professor. So we minimized our rate per student, and also improving the quality of all those practical classes.

So this is 50% of the costs. So when we have some change on that as we implement the new curriculum, it's something that's very strong in terms of synergy and leverage our operations. And third, after integration, full integration and report all activities to our shared services, we have all the G&A efficiencies. We have a very well implemented process in across Afya.

So we when push all the transaction activities, the academic back office, the HR, payroll, supply chain, IT activities, we didn't change any FTE, full-time equivalent, on our debt cost operation. So this is the three main drivers. Remember in the top line, the first initiative is a big win for all institutions that we acquired to guarantee 100% of occupancy. Most of the institutions that we are flowing to our operation after a closing acquisition, they are not using 100%.

They are not maximizing the students. If they have some dropouts in the middle of the program, they are not replacing the new student in the beginning. So that was the main drivers for all those 500 bps expansion that we are seeing quarter-over-quarter. Luis will help me to explain the second question about the average ticket.

Luis Andre Blanco -- Chief Financial Officer

Susana, it's Luis speaking. About the ticket that we saw increase from this quarter regarding the quarter in the last year, the ticket dynamic is related to the maturation of our business. We had, in 2017, a ticket increase for the first year only. Since then, we have increase of the tickets because these students begin with a higher ticket, and the lower ticket of the students are being gradually.

So during the maturation, the ticket increase by itself. So that's why we are having an increase in our tickets. Virgilio, please.

Virgilio Gibbon -- Chief Executive Officer

Susana, just adding one point that is important. Besides all this maturation, when we changed our curriculum back in 2017, we have this recurring positive effect on the mix of our tuition. We also have this positive effect when we plug a new acquisition. Just a reminder, UniRedentor that we started operating back in February, this asset has the highest tuition fee, around BRL 10,000.

So also, you have this positive effect when we have more months and also maturing UniRedentor operation. So this is what we are doing as a strategy semester-over-semester. We are just changing prices related to inflation. The exception is when we have a new acquisition or we change the curriculum, we have something above inflation.

So as a guidance, we're still expecting one to two percentage points in the long-term view until the full maturation of all these institutions.

Susana Salaru -- Itau BBA -- Analyst

Can you? Just to clarify, you are referring to the med school ticket right? Are you referring to the consolidated overall tickets when you say this readjustment?

Virgilio Gibbon -- Chief Executive Officer

Medical. We are referring the medical school tuition.

Susana Salaru -- Itau BBA -- Analyst

Perfect. Thank you.

Operator

Thank you. [Operator instructions] I show our next question comes from the line of Thiago Bortoluci from Goldman Sachs. Please go ahead. OK.

Our next question comes from the line of Vinicius Ribeiro from UBS. Please go ahead.

Vinicius Ribeiro -- UBS -- Analyst

Hey, guys. Hope everyone is fine. So two questions on our side. The first on the Medcel platform that you guys mentioned and Julio gave us a little bit more detail.

Just a question here. Given that you guys are — the product is being pretty well received. What would you guys need for this platform to become a new revenue stream? Do you have any idea of what will be the economics for that for offering for other medical schools? Do you want to do that? And the second question is also related to Business Unit 2. Just to confirm here, if you are seeing some difference in terms of the demand dynamics part of Business Unit 2, both on Medcel and IPEMED?

Renata Couto -- Head of Investor Relations

Vinicius, can you just repeat your question?

Vinicius Ribeiro -- UBS -- Analyst

Yes. Sure. Both?

Renata Couto -- Head of Investor Relations

Yes, please.

Virgilio Gibbon -- Chief Executive Officer

A lot of lives.

Vinicius Ribeiro -- UBS -- Analyst

Yes. So the first question is on the Medcel platform, if you guys could elaborate a little bit on what would you need for this platform to become a new product, a new revenue stream by offering it to new, to other institutions? And if you guys have any idea of what will be the economic. Did you guys understood?

Renata Couto -- Head of Investor Relations

Yes. And the next one?

Vinicius Ribeiro -- UBS -- Analyst

Thanks. And the next one is just also on the Business Unit 2. Just if you're seeing any difference in terms of as far as demand goes, if the demand is so resilient as it is on the Business Unit 1?

Julio Eduardo de Angeli -- Vice President, Continuing Education & Innovation

OK. This is Julio. Hello, everyone. Hope everyone is safe out there as well.

So to the first question, at first — I mean we already have in place a team working on the B2B side of the business. So we already have a — it's small, but still I mean it's revenue coming for B2B. What we have today, what we're offering to the schools basically is the solution for the last year for the internship program. So what happened, especially now with all the situation is we offered the platform for the schools that they didn't have anything actually to offer to the students.

And we had 32. We imagined that our around 340 medical schools in the country. Out of those 32%, 40% of those are public schools. So we see the need due to the situation.

And the idea in terms of what needs to become a revenue stream, as you said, I mean we are charging these — actually, the current clients that we have on a subscription-based model. So the idea is to convert these schools, especially those ones that are private into customers. So we're working with them as we speak here. And as well, I mean, the other ones, the public ones, tricky to find a commercial agreement.

But we can obviously, work on the B2C side with those students. But remember, the way we see this is that, on the thesis of Afya, we want more of these students engaging in a platform. And as much — collecting the information, we can extract revenue from another institution. And further on, during their career, the idea is to keep offering other solutions in continued medical education, a gradual business.

So this is the idea. But the way it works is it's a subscription-based model today. And in terms of the second question on the demand, especially for Medcel, I mean, it's still interesting, very good demand. This year, specifically, there is the exam, the Revalida exam, which is the test that students that are studying medicine in other countries, they will have this test on October 11 this year.

So there's a significant amount of students that couldn't take that test since 2017. So there's a strong demand there. And again, I mean, for test prep, still, I mean, this business is growing in terms of market around 20% a year. For the graduate business, we still see the demand.

The only thing is that since we're selling this to doctors. So the situation now is that these doctors, of course, they are focused on COVID. Some of their offices, they are not working. So what we are seeing is that they're postponing a bit the decision.

But that's why when I said in my part of the presentation, we are reviewing the portfolio, especially working with more of the online content for the graduate business as well. We launched a couple of courses for free. And the last one, which is quite interesting, is one of our — it's a therapeutical update with the telemedicine. So we are offering this course for our graduate students, and we see a significant demand there.

And that will be tied to our product offers that we have today in the portfolio. So we're shifting more to the online, and you'll probably see a lot of progress on that front using, again, our technology.

Vinicius Ribeiro -- UBS -- Analyst

Very clear. Thank you.

Operator

I show our next question comes from the line of Irma Sgarz from Goldman Sachs. Please go ahead.

Irma Sgarz -- Goldman Sachs -- Analyst

Yes. Hi. Thank you for taking my question. First of all, thanks for the presentation and congrats on the results.

We have two quick questions. First is a follow-up from Susana. And I apologize if I missed part of it, we got temporarily disconnected from the call. But I just wanted to go back to a pricing question.

For new intakes, the freshmen that are coming in now, you just from what I understood, you're adjusting just by inflation for the medical students. And then I wanted to confirm. So I first wanted to confirm that. And for nonmedical students, what's the — is that also in line with inflation? Or what should we expect there? Again, it is about the intake? So the new class is not existing students.

And if you've generally, in the market, if you've seen, for medicine, we know that the demand dynamics are obviously absolutely different than from other courses. But have you just seen, given that people are going through different economic challenges, have you just seen as medical schools are preparing, on the private side, are preparing for the new intakes, have you seen more promotions or discounts? Or would you say this is not something that you've seen in the market so far?

Virgilio Gibbon -- Chief Executive Officer

OK. Irma, thanks for the question. First, the maturation on the average tuition for medical student, it's twofolds. We have changed the prices for new students in the beginning of the year close to inflation.

So our average ticket for new fresh is around BRL 8,000 per month. And as we have this change in tuition in the past, when we implemented the new curriculum back in 2017, 2018 for the new acquisitions, we have this positive maturation effect because when we acquired, the average tuition was BRL 5,000, BRL 6,000. We changed BRL 7,500, BRL 8,000. So we have the maturation of these students moving to the COVID scenario.

So that's why we will have this positive recurring effect until 2026 when you have the full maturation. Above the other programs, we are also changing close to inflation. So as we can expect, for modeling proposal, we are also seeing other program for undergrad varying close to inflation year over year. But we're seeing that — also on this progress, we are seeing a broad inflation is in big effect.

Because problem that doesn't make sense to offer in some regions after acquisition. We are closing this program, and we are not going to fight against any other player in distance learning. We are completely focused on health and other — medical and other health products. About the payment capacity of our students, one indicator that is much better than we expected previously is the cash collection.

When you compare month-by-month against 2019, we are three or four percentage points in all institutions better, but it's happening. We changed a lot on the collection process back in 2019 second semester. We implemented a lot of new procedures, new controls that helped a lot renewing all the students for the first semester of 2020. So this positive effect even consider the difficult — economic difficultly from the COVID-19, we are seeing a very positive low-hanging fruit that we have on this front.

What we are doing for the renewal is, on a case-by-case situation, we are offering financial help for this family. We are dividing into installments, six to 12 installments using a lot of credit cards. Remember, you then said a completely different profile from our medical students. But it's on a case-by-case situation, OK?

Irma Sgarz -- Goldman Sachs -- Analyst

And in the market overall, sort of from the competitive dynamics within medical schools in the private sector?

Virgilio Gibbon -- Chief Executive Officer

As announced on our release, we already have candidates to fulfill 100% of our seats. So the ratio, candidates per seat, is very healthy that we can definitely keep guaranteeing 100% of occupancy, even considering this external scenario. We have already completed, enrolled 70% of the student base for the new students already paid the July tuition.

Irma Sgarz -- Goldman Sachs -- Analyst

OK. Perfect. Thank you.

Operator

Thank you. And our last question comes from the line of Scott Piper from Itau. Please go ahead.

Scott Piper -- Itau BBA -- Analyst

Yes. Hi. Apologies if previously asked, but I was wondering if you could give us some color on the economics of future M&A prior to the COVID crisis. The price per student for acquisitions was starting to gravitate higher, given increased competition.

And I'm curious how you see that development, both now and going forward, given the crisis. And what you're — the dynamics of accretion for potential future acquisitions? And most importantly, how your appetite has changed because of the crisis for acquisitions going forward? Intuitively, you would think that the environment would be better for acquisitions, given your cash situation and probably more strain in the economy. But I was just wondering if you could elaborate on that.

Virgilio Gibbon -- Chief Executive Officer

OK, Scott. So our M&A pipeline, it's moving very, very fast, as we guided. We have already more than 500 seats that we analyzed under MoU contract. We didn't slow the pace that we analyze assets.

Actually, as a kind of the opposite, we are seeing much more opportunities coming to the table. I think small players, medical schools, they, again, concerned how they can continue isolated and keep confirming 100% of their enrollments. So it's a kind of opportunity that we have to be analyzed and trying to have a better negotiation in terms of price in the — for Afya. So we are not guiding any value per student that varies a lot when analyzing the different maturation of the institution.

In our case, analyzing our track record, the five cases that we are showing on our webcast, we have completely different valuations and all of them delivering incredible rate of return. As an example, we have a greenfield of IPEC that the number of the value per student is completely different from UNINOVAFAPI, that was an EBITDA multiple because they have a very large operation, made progress in the portfolio and a positive EBITDA. So the way that we analyze it on multiple EBITDA for more mature and complete institution. And when they have some maturation and also — it's almost a greenfield license that we are buying, that will be much more related to multiple per student — per seat, I'm sorry.

So just about our appetite, we are keeping the integration a very fast pace, even considering the isolation that we have in some cities. We have win a very well process. Of course, that to conclude and to close an acquisition, we have to take care that all this process. And also, we have to close and have all the accounting procedures, the external auditing to report this new acquisition.

So we are having some kind of auditor, a new auditor. We can acquire and close two or three acquisitions per quarter. So that's something that we are putting an order, much more concerned in our capacity to integrate and have the condition for have all the procedures, to have our balance sheet approved on a quarterly basis, considering that we have to operate in additions for one or two months already. But we are not slowing the pace.

That's I think is my main message here. Thank you.

Luis Andre Blanco -- Chief Financial Officer

Yes. Scott, it's Luis speaking. Right now, if I could add something, additional points on this view, that's very interesting to highlight that. In this crisis, we see opportunities in digital platforms to add more service in this moment.

What we saw on the pandemic, in this crisis was Medcel business, we saw very, very — a strength on that on digital transformation. So in this case, on these digital platforms, we are even speeding up these valuations, these transactions, these negotiations to put more the digital platforms in our portfolio.

Scott Piper -- Itau BBA -- Analyst

OK. Thank you.

Operator

I show no further questions in the queue. At this time, I'd like to turn the call over to Virgilio Gibbon, CEO, for closing remarks. Please go ahead.

Virgilio Gibbon -- Chief Executive Officer

So thank you. Thank you, all. To conclude my remarks, I would like to reinforce our business resilience, and the outstanding dedication of our team to deliver this great first-quarter results. We affirm our first half 2020 guidance, even under COVID-19 crises.

We are operating in an unusual time, times of great challenges and uncertainty, but also times that which can differentiate ourselves and see many key opportunities for Afya. Thank you for joining us today, and I look forward to meet you when all the situation is over. Keep safe. Bye-bye.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Renata Couto -- Head of Investor Relations

Virgilio Gibbon -- Chief Executive Officer

Julio Eduardo de Angeli -- Vice President, Continuing Education & Innovation

Luis Andre Blanco -- Chief Financial Officer

Marcelo Santos -- J.P. Morgan -- Analyst

Susana Salaru -- Itau BBA -- Analyst

Vinicius Ribeiro -- UBS -- Analyst

Irma Sgarz -- Goldman Sachs -- Analyst

Scott Piper -- Itau BBA -- Analyst

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