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Afya Ltd (NASDAQ:AFYA)
Q2 2020 Earnings Call
Aug 28, 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 second-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 now begin.

Renata Couto -- Head of Investor Relations

Thank you, and good morning, everyone. Thank you for joining us for Afya's second-quarter 2020 conference call. With me on the call today is 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 generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties 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, statements related to our business and financial performance, expectations and guidance for future periods regarding our strategic product initiatives and the related benefits and our expectations regarding the market, as well as the potential impact from COVID-19. These risks include those more fully described in our filings with 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 obligation to update any forward-looking statements, except as required by law. In addition, management may reference non-IFRS financial measures on this call. General 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 measures to the most directly comparable IFRS financial measures in this presentation.

Let me now turn the call over to Virgilio Gibbon, Afya's CEO, and starting with Slide 4.

Virgilio Gibbon -- Chief Executive Officer

Thank you, Renata, and thanks, everyone, for joining us today. As the COVID-19 crisis continues to have effects all over the world, we remain committed to the health and safety of our employees, students, teachers and the communities we operate. Before I get into a discussion of our second-quarter and first-half results, I want to take this opportunity to reflect on our first year as a public company. We were able to build and deliver some impressive results.

While we are currently dealing with the pandemic and resultant economic challenges, we are confident in the strength of our company as we continue to enhance and grow our business. We have achieved our position as the leading medical education company in Brazil, partially through acquisitions. Over the past year, we have completed six acquisitions and created a successful track record of integration of acquired companies, delivering cost efficiency and synergies. Last month, we acquired our first digital health tech company, PEBMED, adding digital assets to our service offering.

With respect to medical seats, we have added more than 700 in less than one year, 70% of our goal for adding 1,000 medical seats over a three-year period post-IPO. Taking into account the two most recent acquisitions, our medical seats now stand at 2,143 seats. On top of that, we still have more than 800 seats under MOU contracts. As you can see, over the past year and also doing the COVID-19 crisis, our financial results have been great, consistently exceeding our guidance, delivering strong top-line growth, improving profitability, generating free cash flow and maintaining a healthy financial position that creates a virtual cycle of capital allocation opportunities and cash generation.

Now on Page 5, I will show our financial highlights. We delivered another solid quarter with broad-based organic revenue growth, contributions from acquisitions, margin expansions and cash flow improvements, reflecting our excellent execution even during COVID-19. The executional excellence has enabled us to exceed our financial expectations for the second quarter and surpass our first-half 2020 guidance, position us for another great semester. During the first half, occupancy was at 100% during the quarter, and given the strong demand for medical seats, allowed us to maintain the same price strategy.

As a result, revenue increased 54% year over year. It's important to note that as we moved all class to our online platform in March, we are not able to offer some of the practical classes during the semester. This deferral has impacted our first-half net revenues by BRL 40 million, but will be fully recognized in the second half. Our team executed well in key areas of our business, particularly with integrated acquisitions, extracting synergies and scaling access operation.

In turn, we generated significant topline growth and margin expansion in the quarter and six-month period. We will still have synergies to capture as we move ahead with integration of UNINOVAFAPI, Medcel, UniRedentor and UniSaoLucas. We completed the first two integration immediately after the second quarter. And for the last two, it's expected by the first Q of 2021.

Lastly, our balance sheet is strong with over BRL 1 billion in cash and cash flow generation, with an 83% EBITDA to cash rate. Our financial strength and cash flow generation capabilities afford us flexibility to execute our expansion strategy and remain opportunistic, nurturing our M&A pipeline. Moving now to Page No. 6, we will discuss about PEBMED.

Although PEBMED was a 3Q event, and we had a conference call to discuss the acquisition, I want to take some time today to reinforce the importance of this acquisition. As a reminder, PEBMED provides tools and content for healthcare professionals through the WhiteBook and Nursebook apps and through the PEBMED news portal. It's also the market leader in clinical decision software and has an extremely popular app ranked in the top 10 Brazilian apps by consumer spend. The business model consists of both paid subscription and free content.

This was an important acquisition for us as it progresses our digital effort to improve the user experience and efficiency of both healthcare students and other healthcare professionals. Our strategy is to combine quality medical education with intensive use of technology, and PEBMED is a key component of it. With this acquisition, we enter into the digital health services segment and strengthen our BU2 product offering, which is also a relevant component of our growth strategy. On Slide No.

7, we will discuss a little bit more of our digital strategy. The pandemic proved that both individuals and healthcare professions were willing and able to adapt to a more digital world and caused us to accelerate the expansion of our digital business. We are committed to provide innovative technology solutions that assist our students as they spend more time online to work and study. Additionally, we see the opportunity to maintain a relationship with our postgrad students and through their entire careers.

Our increased product offerings is driving more users to our digital assets. During the quarter, our monthly active users increased 27.6% compared to the first quarter of this year. Stepping back and looking at the long-term opportunity, there was already a seasonal shift happening in the digital healthcare world even before COVID-19. We believe that this shift has been accelerating in the last several months and will continue post-pandemic.

Additionally, we believe that the shift, combined with our strong brand and the deep connection we have built with our students and alumni, position us to capitalize on the opportunities ahead. On next slide, we'll start the discussion about our recent acquisitions. As you all know, M&A is a key pillar of our growth strategy, and we are taking a disciplined approach to grow our portfolio. During this time of significant business disruption uncertainty, we are taking steps to strengthen our leading position.

Now where we see the opportunity, we accelerate our strategic plans. To that end, during the past week, we announced two strategic and accretive acquisitions. The first one was Faculdade de Ciências Médicas da Paraíba, a post-secondary education institution offering undergrad medical programs in the State of Paraíba. It's our first school in this state.

The second was Faculdade de Ensino Superior da Amazônia Reunida, or FESAR, a post-secondary education institution with authorization to offer on-campus, undergrad course in medicine in State of Pará, our second school in this state. Since those measures of Paraíba, adds 157 seats and is the second largest acquisition for us in terms of approved medical seats. We see the opportunity to increase our organic growth rate, primarily as we increased the number of seats at maturity at Ciências Médicas da Paraíba to 1,130, up from 850 currently. FESAR brings another 120 medical seats and currently has 227 medical students and a potential of 864 medical students at full maturity.

Combined, these two acquisitions take our medical seats up to 2,143 seats. Now on Page 9, we will see our integration track record. As I just mentioned, we have completed six acquisitions in the past year. And as indicated on both charts, we have a successful track record of integrating these acquisitions and capturing synergies.

In January, the margin expansion has been over 1,000 basis points in slightly less than a two-year period after acquisition. The current operating environment has not slowed our integration process with recent acquisitions, and we are moving ahead with the group you see listed in the box on the right-hand side of this slide. As we integrate acquired companies and gain further scale, we are able to see value creation and margin improvements, reflecting cost efficiency and synergies. Now on Page 10, we will talk about our future perspectives.

We are coming off of a very successful year as a public company, and 2020 is also a great start. We have a successful business model with highly predictable growth. We will continue to focus on five key areas: first, strategic M&A second, pushing further into our digital initiative; third, successfully integrate acquisitions; fourth, delivering sustainable and predictable growth; and five, maintaining a healthy balance sheet. Beginning with M&A, which has been and will continue to be a key component of our strategy, we have completed six acquisitions after IPO, both medical schools and digital.

Importantly, we have a solid pipeline that has been growing during this challenging period. As I mentioned earlier, we are working diligently to further enhance our digital capabilities. We will continue to invest in our strategy to add more digital assets and solution to support our medical students and other health professionals. While BU2 represents a small part of our overall sales to date, we see significant opportunity to grow this business.

Our solid balance sheet, coupled with strong cash flow generation, create a virtual cycle, providing the financial flexibility and competitive advantage to continue executing on our M&A strategy. And given the high predictability of our business model, I'm confident in our ability to generate meaningful cash flow, further strengthening our financial position. Overall, our consistent momentum is continuing, and we are pleased with our results in the first year as a public company. For the second half, we have already fulfilled 100% of the medical seats, and we are confident to achieve our second-half guidance, confirming the resiliency and the right predictability of Afya's business model.

I will now turn this call over to Luis for more color on our financial results and second-half 2020 guidance. Thank you.

Luis Andre Blanco -- Chief Financial Officer

Thank you, Virgilio. And good morning, everyone. I would like to stress what Virgilio just said, I'm particularly proud what we delivered a successful quarter and the first-half results that exceed our guidance. As already discussed, at the end of the first quarter, we were able to quickly move all of the classes online, which in turn enabled us to report a good first half.

Moving to Page 12. My discussion will focus on the main and most significant P&L items. There is additional inflow in the earnings press release that you can refer for further, more information. Our second-quarter earnings represent a solid result in view of the current global environment, and as you will hear over the course of my presentation, we had a very good quarter across all key metrics.

Let me highlight a few. Both medical seats and students saw significant increases during the quarter. With respect to the number of medical school seats, we added 414 seats year over year, for a total of 1,516 by quarter end, a 38% increase over second-quarter 2019. Reflecting the seating maturation process, the total number of students in the second-quarter 2020 was 9,097, an increase of 64% over the same period of the prior year.

And as you heard from Virgilio, subsequent quarter end, we added another 277 seats with the acquisitions of FCMPB and FESAR. Taking into account the acquisitions we have already made, our full potential as of today is 2,143 seats and more than 15,000 students, which lead us to a 13% organic CAGR in the student base, considering the period between 2019 and 2026. Net revenue for the quarter was up 48.8% year over year to BRL 274 million. Excluding the acquisition of UniRedentor and UniSaoLucas, pro forma net revenue grew by 18.8% year over year, reaching BRL 219 million.

The increase was primarily driven by organic revenue growth, mainly due to the maturation of medical school seats and an increase in average ticket. The strong top-line growth, combined with cost efficiency and resulting synergies from acquisition was reflected in adjusted EBITDA, increasing 73% to BRL 118 million and a margin expanding 780 basis points. Excluding the consolidation of Uniredentor and UniSaoLucas, pro forma adjusted EBITDA increased 44% year over year to BRL 98 million, and the margin increased 780 basis points to 44.8%. Adjusted net income was up 163%, reflecting the revenue contribution synergies capture and margin expansion from the consolidation of the acquisitions.

Earnings per share increased 183% from BRL 0.23 in the second-quarter 2019 to BRL 0.65 in the second-quarter 2020. Moving on to Page 13 for a discussion of key operating metrics by business unit. We delivered a solid growth across both business units, continuing performance very well. Growth is a key operating metrics, as shown on this slide, is being driven by combinations of organic growth and acquisitions.

Starting with BU1, our average monthly medical tuition fees at the semester end were BRL 8,157, which was 14% above the same period in 2019. This reflects a combination of new students enrolling with high attrition rates, combined with students graduating with lower tuition. As shown in the middle chart, 76% of our combined tuition fees are derived from medical schools. The combination of a 32% increase in the number of students and a 14% increase in average ticket results combined tuition fees up 50% when compared with the first-half 2019.

With respect to Q2, we had almost 16,000 active paid students at the quarter end, an increase of 47% over the same period last year. We can see an increase of 26% and 22% in the number of students of prep course and CME for B2B and B2C, respectively. Regarding medical specializations and others with UniRedentor, we saw an increase of 161% in the number of students. Moving on to a deeper analysis of revenue and EBITDA on Slide 14.

We are fortunate to have an experienced team that's proving once again that they can continue to successfully execute the complex work of integration acquisitions and capturing synergies. As shown on this page, we have provided net revenue and adjusted EBITDA bridges from our historical second-quarter 2019 revenue to a reported second-quarter 2020. For the first half, net revenue increased 69% to BRL 547 million. Excluding the consolidation of UniRedentor and UniSaoLucas, net revenue grew 47% in the first half to BRL 476 million, with a contribution of BRL 93 million coming from acquisitions and BRL 60 million coming from organic growth, which is comprised of the maturation of medical school seats and an increase in average ticket.

UniRedentor contributed revenue of BRL 40 million in the first half, while UniSaoLucas contribution was BRL 31 million. On the right side of the page, we show first-half 2020 adjusted EBITDA. During the period, adjusted EBITDA increased 82.7% year over year to BRL 259 million, with 360-basis-points expansion in margin and BRL 23 million contribution from UniRedentor and São Lucas. Excluding the consolidation of UniRedentor and São Lucas, adjusted EBITDA advanced 66.5%, with BRL 48 million contributed from prior acquisitions and BRL 46 million coming from organic growth.

The adjusted EBITDA margin, excluding these two companies, expanded 580 basis points. Moving next to a discussion of cash flow on Slide 15. Cash and cash equivalents of BRL 1.1 billion at the quarter end was up from BRL 960 million at the year-end 2019. The significant increase in cash compared to year-end 2019 reflects strong cash flow generation and the proceeds from the July 2019 IPO and the February 2020 follow-on offerings.

The majority of these funds is invested in low-risk Brazilian reais denominated instruments. The total debt was BRL 535 million at the quarter-end 2020, up from BRL 361 million at year-end 2019 related to acquisition payables. Cash flow generation remained strong in first-half 2020, increasing 81% to BRL 202 million, which results in a cash conversion ratio of 82.6%, compared to 85.4% in the first-half 2019. This was a slightly lower cash conversion ratio year over year and is mainly due to the consolidation of Medcel business and our students' renegotiations overdue monthly installments due COVID-19 crisis.

Turning next for a discussion about guidance on Slide 16. We are pleased with our second-quarter and first-half results, and our guidance for the first half of this year demonstrates that we are still in early stage of growth. As a reminder, the world is still in the middle of a pandemic. Economics are slowly opening up, and our guidance takes into account the best information available at this point of time.

Two key metrics for second-half 2020 guidance are the follow: second-half 2020 adjusted EBITDA margin ranging between 45.5% and 47%; our guidance includes the impact of the adoption of IFRS 16 and includes UniRedentor starting February 2020, São Lucas from May, PEBMED from late July and excludes any other acquisitions that may be concluded after the issuance of this guidance. And as we look ahead, we have a complete intake process for the upcoming semester, and given the strong demand we saw for seats, we have filled 100% of our medical seats, maintaining our revenue growth resilience and high predictably even under these uncertain times. Additionally, included in the revenue outlook is the revenue recognition for some medical classes that could not be held during the first half and were pushed out to the second half of 2020 upon the resumption of the classes. This amounts to BRL 40 million.

To sum up, we are pleased with the strong quarter and first-half results and the continued momentum in our business. We are confident the strategic investments we are making to advance our growth strategy will enable us to continue to deliver consistent revenue and profitability growth as we remain on track to achieve or exceed our fiscal 2020 financial targets. Afya is in strong financial position with high liquidity. We have a history of robust cash generation, a clearly defined margin growth strategy, and this team with a proven track record of delivering results and handling difficult times, and COVID-19 has not changed any of these factors.

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. We will now begin the question and answer session. [Operator instructions] And today's first question comes from Marcelo Santos of Banco JP Morgan. Please go ahead.

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

Hi. Good morning. Thanks for taking my questions. I have two.

The first question is regarding BU2. Could you please provide a road map of your plans for the next two years? How do you plan to monetize and integrate these assets? Whatever you could -- whatever light you could shed there would be very interesting for us. And the second question is regarding M&A. We have limited information, but with our information, it seems that the recent acquisitions have been a bit more expensive than the previous one.

Maybe that's just by quality, but they look more expensive. So the question is, are we seeing that the good assets are like we are getting to the end of the good assets or is competition heating up? We have been seeing other players also becoming more vocal on med schools when in the past they were not. So any comment there would also be very helpful. Thank you.

Julio de Angeli -- Vice President Innovation and Digital Services

Hi, Marcelo. This is Julio here. Hi, everyone. Thank you for participating in the call here.

So answering your first question in regards to the road map for BU2. So more and more BU2 is an extension, of course, of what we've been doing with our undergrad business, right? So we've been focusing a lot first on the digital part of integrating more and more our digital platform, so this is the first thing. So we are investing in the development of the integrated solution where we offer one single platform for all of our students. So just as an example, we are now launching, still this year, the app that integrates the digital experience in the graduate business, adding more services to our students on the graduate business.

So first thing is that we are providing this digital platform. And now, actually, with a WhiteBook, the app from PEBMED, the idea, again, 90,000 users -- paying users for that particular app, imagine the potential that we have to distribute and to market other courses that we have for continued medical education with more micro learning. So ideally, we want -- the road map is based on having our students -- and students and medical students using our platform so we can provide and sell and cross-sell products, educational products and now moving also to digital services. So this is, for the next two years, is to integrate the digital platform so that we can serve all of our students having one single experience on the digital platform.

So hopefully, I'm answering your questions, but I'll hand over to Luis for the second one.

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

Thank you, Julio.

Luis Andre Blanco -- Chief Financial Officer

Hi, Marcelo. This is Luis, taking your second question here about the M&A. Of course, that the pipeline, M&A and the competition, it's getting high. It's getting more vocal.

That's one of the cost to be a public company, for sure. But in our view here, there are more mature transactions. When we are acquiring more matured institutions, it will be completely related to EBITDA multiples. And we are doing very accretive transactions, considering that we are investing our capital, our cash in terms that we can extract synergies in a very short term, in four to five years, jumping revenues, jumping margins.

And also, it's not only a six-year duration program that we are taking into consideration here. We have a very long relationship as a goal. We are aiming at least a 20% of IRR for all of these opportunities. And in terms of multiples, after synergies, post-synergies, it will be around four to five times most of them.

So that's the way we are looking and keep looking these more traditional acquisitions.

Julio de Angeli -- Vice President Innovation and Digital Services

And Marcelo, just adding some points, what Luis just said, of course, we analyze each one of these acquisitions. Virgilio, in his speech, told that we have a pipeline with more 800 seats that we are analyzing case by case, always referring to it, evaluating it with IRR and EBITDA multiples in maturations. Each process is different. Each process, each acquisition is one of them that we announced in this last 10 days, one of them was a competitive process.

Of course, in this one, we face a little bit more pressure in price. There are another -- the other acquisition was a direct negotiation. So what you can expect from us is to keep our financial discipline in these acquisitions, always try to give the best return on our capital allocation.

Operator

Thank you. And our next question today comes from Mauricio Cepeda with Credit Suisse. Please go ahead.

Mauricio Cepeda -- Credit Suisse -- Analyst

Yes. Good morning, everyone. Thank you. Thank you for the time to answer the questions.

In fact, I just have one, and it will be a follow-up on one of my colleagues insisting a little bit on M&A. As the other groups are now much more vocal and possibly a little more in need of this kind of medical seat acquisition as the other higher education business are not doing well. And so far, we saw that you are paying progressively more for these targets. You were right, they are accretive so far in terms of low cost.

In a feedback methodology, a very simple one, we see that it takes some years to get investment back anyhow. But in a case where the competition gets tougher and your competitors start to overpay for the targets, what are your plans? Do you -- are you more willing to do a defensive move, not to let them win or do you privilege a little bit more the financial rationale of the transaction? Thank you.

Virgilio Gibbon -- Chief Executive Officer

Hi, Mauricio. This is Virgilio here. First, the type of assets that we are targeting, they have to be very concentrated in medical and health program, so above 60%, 70% of the revenues come in from this program. So I truly believe that we are 100% focused on these offerings, had some kind of differentials, not only because of the quality of our program, but we are also licensing our platform for the institution.

So there is a component of reputation here that we are getting close, so most of the other institution focus on medical school. Of course that if the price comes up to like a competition goes even more stronger and become a war. In our side, our strategic -- we already have an ecosystem, a distribution channel, very, very large. So it makes a lot of sense to start partnership, licensing our platform, capturing these students in the beginning of their career as a third-party students using our platform [Inaudible] years offering our portfolio.

We continue to serve and also now with health and digital services using the platform such as PEBMED. So that makes a lot of sense and a better use of capital allocation instead of getting a war. I'd like to see all of the other players as a potential partner that can use our platform, our system that [Inaudible] the time goes by and we are investing a lot on this platform. So having said that, we still see an opportunity to have a good, a great transaction in medical school and also now we are completely aligned and focused, looking for additional services in our big platform.

So that's how we're thinking here.

Mauricio Cepeda -- Credit Suisse -- Analyst

Very clear. Thank you.

Operator

Thank you. And our next question today comes from Irma Sgarz with Goldman Sachs. Please go ahead.

Irma Sgarz -- Goldman Sachs -- Analyst

Yes. Hi, good morning. Hope you're all doing well, and congratulations on the very strong results. The first one that we have here is related to the margins.

Virgilio Gibbon -- Chief Executive Officer

Hello? Do we have someone?

Irma Sgarz -- Goldman Sachs -- Analyst

Hello? Can you hear me? Hello?

Operator

Hello, this is the operator. The speaker locations, can you hear me speaking?

Virgilio Gibbon -- Chief Executive Officer

Yes. Irma, go ahead.

Irma Sgarz -- Goldman Sachs -- Analyst

You can hear me. OK, perfect. So back to -- I wanted to ask about margins. You had, obviously, very strong underlying margins in this last quarter, and they evolved very well.

If we think -- and obviously, we see the guidance for the back half of the year, but when we think a little bit beyond sort of for the next couple of years, again, understand that your guidance is restricted to the second half of the year, but could you just help us understand the average maturity of your legacy medical campuses and also the average maturity of the recent acquisitions that you're integrating, please, because it will be helpful to just think through how your margin can still progress from here? And then, second question we have is regarding the Mais Médicos project, if you have any update that you could share there, please? Thank you.

Virgilio Gibbon -- Chief Executive Officer

Hi, Irma, thanks for the question. In terms of margins, as we have many institutions that were recently acquired, we still have a lot of room for improvements, still have low-hanging fruits. I said in my speech, that we still have large institutions to have full integration and capturing more synergies and efficiency, such as UNINOVAFAPI, UniSaoLucas and UniRedentor. They are very large institutions, and we are not extracting, not even the 50% of the synergies that we are looking for these assets.

So we are aiming to have at least 5 percentage points for gross margins where we are operating this Business Unit 1, considering IFRS 16. So that's still opportunity for going for improvement in our efficiency on this side. On your second question about the Mais Médicos program, we still are waiting for the final conclusion, at least for two institutions. We are very close to have two, I expect this year to have the final authorization.

And the other five, I think it's more reasonable to expect for 2021. So two of them very close to have the final approval, the final signature of the Minister of Education. We have seen some of the cities of -- in the 28 cities from the last Mais Médicos process being already authorized, and I think we are very close to have the first ones starting.

Luis Andre Blanco -- Chief Financial Officer

And Irma, just adding some points in the first -- your first question, let me just give you an example that São Lucas and Redentor, as you can see in our press release, the consolidation of these two units that we bought on the first mature has reduced our consolidated margin. So, of course, we have different institutions, different percentage in these institutions between medicine, health and other programs. We have different maturation stage, so it's very difficult to put an average on that. But what you can see in our presentation that when we acquire the institution and use our playbook, doing the cost reductions in the first half, migrating these institutions to our shared services center, implementing our people plan and after it's implementing our full national curriculum, what we can see that we captured the efficiency along of this process.

So we are very confident in our playbook and very confident that we can extract the synergies in each one of these acquisitions.

Irma Sgarz -- Goldman Sachs -- Analyst

That's great. Thank you very much.

Operator

Thank you. And our next question today comes from Susana Salaru with Itaú. Please go ahead.

Susana Salaru -- Ita BBA -- Analyst

Hi, good morning, guys. We have two questions here. First, I just wanted to clarify the answer related to the partnerships that Afya -- that Virgilio mentioned that Afya had with several other potential projects. I'm sorry, we couldn't understand properly the answer.

You guys have -- you aim to have partnerships with the next targets or the potential targets in terms of acquisition or you have already some kind of MOU or some kind of nonbinding offer with some of the target offerers that you aim to much realize in the future? We didn't understand what was -- what is the kind of contract that you have with these potential targets that will facilitate your acquisitions relative to the other players in the market. That would be our first question. And then, our second question is related to PEBMED. We discussed a lot about PEBMED, potential upside and cross-sell with the medical seats, medical students.

We know that PEBMED also is used for other healthcare careers. So we were wondering if -- when we should also take into consideration the percentage of students that you have in healthcare and if you're going to leverage PEBMED cross-selling for those students as well or you're going to focus exclusively in med school students and in nursing? Thank you.

Virgilio Gibbon -- Chief Executive Officer

OK, Susana, I'll take your first question here, then Julio will help me on the second here. But just to separate, at this point, we have around 40 medical institution using our Persona platform to help them during the COVID-19 to keep running their learning process and all the semester for these students. Some of them, we have a B2B contract as a licensed learning, traditional learning system product to help them for more than one, two years, just it's not for free program. For an institution using, today, you have six of them paying SaaS module per user our platform.

Of course, that this relationship can be an opportunity for us to leverage M&A acquisition. And also when I said about 800 seats, this -- of this pipeline, it's under MOU contract, so we are doing our diligence. So the pipeline is getting bigger and it's very fertile. So it has something to do with this relationship that we have, but we have a road map, although the medical institution that makes sense for us in terms of target for M&A area.

Julio de Angeli -- Vice President Innovation and Digital Services

OK, Susana, Julio here. In regards to the strategy with PEBMED, if you see the numbers, of course, the numbers -- the revenues, they come from the doctors and medical students that are using specifically WhiteBook. Nursebook, if you consider the number of nurses and the number of technicians on nursing as well, I mean, it's a significant number, it's about 2 million people in the country. The penetration so far is about 60,000 users.

There's still room to grow, of course, but there's a -- it's a different audience, right? So we'll keep investing, but always thinking that the WhiteBook is the one, it's the application that we want to grow and consolidate because there is where we extract more value, specifically, again, on the journey of the doctor that we're focused on. But there is room to also invest in other -- in multi-professional careers, of course. And since doctors, they don't work alone -- and my point here is that we think about the point of care. That's where we are thinking.

And if the application and the software, everything that we are discussing makes sense for the point of care, then we will invest. We have a significant number of other students from different healthcare courses, but still the main focus is WhiteBook so far. Consolidate there, increase the market share that is already high, we have opportunities, if you see on the slide, opportunities to grow specifically for those doctors that are more than five years that they have already graduated to create more specialized and more personalized experience. But then again, Nursebook will keep growing.

We'll invest more to grow the base, and then that could be an opportunity to do without the healthcare careers as well.

Susana Salaru -- Ita BBA -- Analyst

Thank you, Julio. Very clear. Virgilio, just one clarification on your answer. You mentioned 800 seats under MOU, this is on top of -- it includes the four companies that you have already business relationship through the digital platform or these are the four companies that you have the business relationship with the additional potential targets over -- on top of this 800 seats that you have under MOU?

Virgilio Gibbon -- Chief Executive Officer

Susana, these 800 seats, they are out of this -- these institutions that we had, the B2B relationship, but some of them -- under MOU, some of them are in our pipeline. We are having conversations in the first stage, OK?

Susana Salaru -- Ita BBA -- Analyst

Perfect. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from Vinicius Ribeiro with UBS. Please go ahead.

Vinicius Ribeiro -- UBS -- Analyst

Yes, guys. Good afternoon, everyone. Thanks for taking a question. Yes, so just a very quick one -- two quick ones.

So first will be a color on the pricing on these intake processes. I just wanted to get a sense if you guys change your pricing points in some for entering students? And the second question is similar to one that was already asked about the BU2. Just like to understand how has been your -- kind of your approach for attracting students during this pandemic? And how should we kind of expect this to behave for the rest of the year, the same quarter? Thanks a lot, guys.

Julio de Angeli -- Vice President Innovation and Digital Services

Hi, Vinicius. About your first part of your question, pricing point, we did change our strategy during this first semester and also in the second semester. We are just changing related to inflation. Remember that we have is including migration on our average ticket because when we acquired institution [Inaudible].

So we have this recurring maturation of the [Inaudible] for the next four to five years that will allow to be at least 1 to 3 percentage points above institution. So our assets did change because of the COVID, of course that case by case situation with some credit to -- in terms of installment for this to renew the following semester, but will not impact our good balance sheet and cash flow generation. On the BU2, about what we are doing in terms of intake, the impact, of course, that physicians were hurt during --

Renata Couto -- Head of Investor Relations

You're breaking up. Can you guys hear us from here?

Vinicius Ribeiro -- UBS -- Analyst

Yes. It's breaking a little bit.

Julio de Angeli -- Vice President Innovation and Digital Services

I'll repeat here if you're listening well. If any issues, please give a -- just in terms of pricing, we did change our strategy. We are actually in the same dynamics that we are adjusting inflation semester over semester, so that's the way we're doing. And remember that we have this maturation effect on our tuition that we change our prices when we acquire an institution and amend our initial agreement.

So as we -- OK, OK. So let's remember we have this recurring effect of maturation on our tuition because change and come back 2034 situation, and we can move having this positive effect on price for next four, five years. On BU2, the intake process for our graduate students, we have in fact in the middle of the COVID-19 crisis, we were postponing the decision to enroll graduate program for following semester, for second semester. So what we are seeing is that demand is there.

The intake process goes to September and beginning of October to close all classes for our graduate programs, and we are taking a very good trend in terms of volume to starting classes in October. Also in the first semester, we saw 20%, 22% of growth on our BU2, and second semester for all grad courses, we are having the new -- the program started in September. So it is all starting before 2020 -- 2021, now in September, it goes until February, March of the next year. So that's too early to measure how would be the dynamic for the following semester.

Vinicius Ribeiro -- UBS -- Analyst

OK. Thanks, Virgilio. Thanks a lot for repeating it.

Operator

Thank you. And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Virgilio for any final remarks.

Virgilio Gibbon -- Chief Executive Officer

OK, thank you, all. I think we have some interruption during the call. Sorry for that. And this is the first half of 2020 and the first year as a public company has been unique for us here in Afya.

We navigate firmly and steadily even under this -- all this uncertainty, and we have to keep optimistic for the following semesters, the following years. So thank you all for the support during this first year as a public company, and I really hope to see you safe, all safe in the next quarters. Thank you, and bye-bye.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Renata Couto -- Head of Investor Relations

Virgilio Gibbon -- Chief Executive Officer

Luis Andre Blanco -- Chief Financial Officer

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

Julio de Angeli -- Vice President Innovation and Digital Services

Mauricio Cepeda -- Credit Suisse -- Analyst

Irma Sgarz -- Goldman Sachs -- Analyst

Susana Salaru -- Ita BBA -- Analyst

Vinicius Ribeiro -- UBS -- Analyst

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