Thank you for joining us for Afya's second quarter 2022 conference call. Today I am here with Afya's CEO, Virgílio Gibbon, and Luis André Blanco, our CFO. During this 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 these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to the business and financial performance, expectations and guidance for future periods, or expectations regarding the company's strategic product initiatives, its related benefits, and our expectations regarding the market, as well as the potential 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 of the date hereof. You should not rely on them as predictions for 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 the IFRS. This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures. Let me now turn the call over to Virgílio Gibbon, Afya's CEO, starting with slide number three.
Thank you, Ana, and thanks everyone for joining us today. Before starting, I would like to thank our IR team for the incredible work to prepare our second quarter release and to congratulate Renata Couto, our Head of IR, for the birth of her first daughter, Maria, this month. For us in Afya, this quarter results reinforce that our strategy has been successful, marked by the consistent growth of our operational and financial results.
Once again, we are proud to present the strong execution of our unique business model, combining high growth, profitability, flowing in all lines, and cash generation, proving its resilience. During this call, I will run through four main topics. Firstly, I will present our financial operational highlights of the quarter, demonstrating our strong performance in all business units. Secondly, I will reinforce our 2022 disclosed guidance with expectation of another round of growth results on second half.
Thirdly, I will highlight our business expansion, pointing out the opening of important new campuses and acquisitions. Last but not least, on our fourth topic, I will show how our commitment to everything we do is being well reflected through awards and public recognition. So moving now to page number four. Let us start with our quarter highlights. Adjusted net revenue increased 51% year-over-year, reached BRL 576.1 million, followed by an adjusted EBITDA growth of more than 37% year-over-year, reached BRL 220.2 million with a margin of 38.2%. One of the major highlights of the quarter is the net income growth, followed by a relevant jump on EPS. Net income reached BRL 106.1 million, a growth of more than 383% year-over-year, with an EPS of BRL 1.12, more than six times higher than last year.
Even considering higher net debt level and the market interest rate level nowadays, this result reaffirms Afya's great operational results, capital allocation disciplines on buybacks and M&A, and the efficient capital structure. We also report another great cash flow generation, ending the semester with BRL 450 million, 31% higher than last year. Moving now to the operational updates of the quarter. Our undergrad medical students reached more than 17,500, representing a 31% growth compared to the same period last year. Approved seats grew by almost 20% also during the same period. This result confirms our growth strategy that combines organic expansion with our capacity to acquire, consolidate, and integrate new seats into the company's operation. In this quarter, we can gladly see continued education taking off after the pandemic impacts on practical classes, presenting a strong revenue growth of more than 47% year-over-year.
We will further explore the continued case expansion in the slides ahead. We are happy to say that Afya reported great results on digital health services revenue, which ended the quarter with an increase of almost 50% year-over-year and more than 20% excluding acquisitions, reverting the trend observed in the first quarter. This result is the first glance of the great opportunity ahead in digital service, and is explained by the strong ramp- up on B2B engagements, reaching more than 37 contracts with more than 20 pharmaceutical industry companies, and the continuing ramp- up on B2P contracts. Our ecosystem reaches almost 265,000 active users, a growth of 13.6% year-over-year. This represents around 35% of the Brazilian physicians and medical students market. Moving to slide number five.
The conclusion of another medical students enrollment cycle, ensuring 100% of occupancy for the second half, added to the positive trend on continued education and the recovery of digital service on this quarter, enable us to reaffirm our guidance for the entire year of 2022. This first half result shows that Afya has achieved around 50% of adjusted net revenue and EBITDA median guidance, and it's moving fast to deliver another strong year of great operational performance. In the next slide, we'll talk about how our business expansion continues to skyrocket with relevant updates also in this quarter.
After the opening of seven new IPEMED campuses, all of them in relevant capitals in Brazil, we can gladly highlight the successful start of four new Mais Médicos campuses, along with Ji-Paraná Medical School, and the opening of our brand new Unigranrio campus, representing the new seeds for our highly unpredictable growth. Besides the significant accomplishments in undergrad and continuing education, it's important to point out another important achievement, the fulfillment of our six-pillar digital services strategy after our two last acquisitions, CardioPapers and Glic, both closed in May. These first half results, added to recent investments, reinforce Afya's strategy of combining organic and inorganic expansion with a strong capital allocation discipline that will boost our long-term growth combined with profitability and cash generation.
Now, moving to my last slide on this presentation, I will show how our commitment to everything we do is being well reflected through awards and public recognition. As a reflection of our great results and actions that are being shown to the market, we are proud to share that on the most recent Institutional Investor Award, an independent survey of evaluation and market perception of investor relations programs regarding the Latin America's equity team, we were very well placed and evaluated in several categories in the sector in which we operate, including best analyst day of our Afya Day, best IR program, best ESG program, among others. Another proud announcement is Afya's great results on 2022 Valor Inovação Brasil on the education segment. We jumped from fifth place to second place this year. Considering all companies in the country, we are now listed in the 78th position.
This result reflects Afya efforts to make innovation the central engine of a robust ecosystem that integrates the entire physician journey. You can find more information regarding these awards on the QR codes at the bottom of the slides. Now, I will turn the call over to Luis Blanco, Afya's CFO, to give more color on the financial and operational metrics. Thank you.
Thank you, Virgílio, and good evening, everyone. Moving to slide number nine to discuss the financial highlights of the second quarter. It is with great satisfaction that I presented another strong quarter results for Afya. Adjusted net revenue for the quarter was up 51% year-over-year to BRL 576 million, reflecting the maturation of medical seats, higher tickets in medicine courses, the continuing education recovery, the digital service rebounds, and the consolidations of acquisitions.
It is important to mention that this quarter, the company recovered BRL 22.1 million of the mandatory discounts on tuition fees previously granted by legal proceedings related to COVID-19. As in 2020 and 2021, excluded these mandatory discounts from adjusted net revenues. The recovery of these amounts is not counted for adjusted net revenues in 2022. For the six-month period, adjusted net revenue was BRL 1,144 million, an increase of 46% over the same period last year.
Adjusted EBITDA for this quarter increased 37% to BRL 220 million, while the adjusted EBITDA margin decreased 390 basis points to 38.2%. For the six-month period, adjusted EBITDA was BRL 491 million, an increase of 33.3% over the same period of the prior year, with an adjusted EBITDA margin decrease of 410 basis points in the same period. The adjusted EBITDA margin reduction is due to the digital segment, mostly in the performance of Medcel in the residency preparatory market, the expansion of the continuing education segment, which is still maturing the new campuses, and the increase in expenses in the holding and shared service level. Adjusted cash flow generation for the semester was more than 31% higher year-over-year, totaling BRL 450 million, resulting in a strong cash conversion ratio of 91%.
Adjusted net income for the second quarter of 2022 was BRL 119 million, an increase of 83% over the same period of the prior year. Net income results were positively affected by the increase in operational results and the reductions of financial expenses, mainly due to FX rate difference regarding the SoftBank transactions that affected us in the second quarter of 2021. Moving to slide number 11 for discussions of key operational metrics by business unit. Starting with the undergrad programs. Our number of medical students grew 31% year-over-year, reaching more than 17,500 students, with approved medical seats increased almost 20% year-over-year to 2,759 approved seats. Considering additional organic and inorganic seats expectations, we expect to achieve more than 32,000 undergrad medical students at maturity.
With our net average tickets increasing almost 9% year-over-year, we reached BRL 1,310 million of combined tuition fees, up from BRL 843 million from the prior year, an increase of 55%. Regarding revenue mix, 77% of these are derived from medical school students and 90% from health-related courses. On the next page, I will present our continuing education metrics. As said before, we saw another quarterly great recovery in our continuing education segment, which reported the strong intake process, increasing the number of students by 8% year-over-year. In the quarter, net revenues grew almost 50% when compared to the same period of the prior year. This recovery is due to the better performance of IPEMED, mainly related to the ramp-up of the new campuses and the interruption of the effects of the COVID-19 pandemic. Moving to slide number 13, I will discuss the digital service operational metrics.
On the first graph, you can see our total active payers, which are the ones that generate revenues in B2P. With a continuous growth trend so far, this quarter, we have reached 191,000 paying users. As you can see in the second graph, our ecosystem reaches almost 265,000 monthly active users, representing around 35% of all medical students and physicians in Brazil as Virgílio previously said. Finally, on our last graph, we can see our digital service net revenues, which increased more than 50% year-over-year and more than 20% excluding acquisitions. This organic growth is a combination of the start of the B2B engagements and the expansions of the active payers in the B2P, mainly in Whitebook and iClinic. In addition, since last quarter, we started to break down our digital service net revenues within B2P and B2B segments.
From the BRL 42 million of digital service net revenues in the second quarter, almost BRL 38 million came from B2P, and more than BRL 4 million came from B2B, since the B2B strategy is still in the beginning. Moving to my last two slides, I will discuss our cash and net debt positions, also giving more color on our cost of debt. Cash and cash equivalents at the end of the quarter were BRL 616 million. Net debt totaled BRL 1,483 million compared to a net debt of BRL 583 million in the same period in 2021. The increase year-over-year was mainly due to seven business combinations and less acquisitions executed during the last 12-month period. Payments related to the shares repurchase programs and investments activities, partially offset by our strong cash flow generation.
On the next slide, you can see a table with a breakdown of our gross debts and our average cost of debts considering our main sources of debts, SoftBank transactions, other loans and financings, and account payables to selling shareholders. Our capital structure remains solid with a conservative leverage positions and low cost of debt. This ends our prepared remarks. I will now open the conference for Q&A section. Thank you.
If you want to ask a question, please raise your hand. First question comes from Vinicius Figueiredo from Itaú BBA. Vinicius, go ahead please.
Good evening, everyone. Thanks for taking my question. You guys mentioned during this release that the EBITDA margin was affected by the performance of Medcel, but also the expansion of continuing education, especially the contribution of continuing education, the sales mix, the increase in holding expenses. Would it be possible for us to try to quantify how much each of those factors contributed to the reduction in margins? Also, if you could give us an update on the measures that the company has taken in Medcel to normalize the growth, it would be great. Thanks.
Hi, Vinicius. This is Virgílio. I can take your question here, and Blanco can add something after. I think that the impact on margin was split by 50% of each business unit, continuing education and digital services, related to Medcel impact. On continuing education, remember that we launched seven new campuses, so they are just starting their maturation. So we have few students for each campuses, so the gross margins are lower than we expect in the future. But, moving forward, we expect leveraging this operation and start getting important points of efficiency on the P&L, on the continuing education, for the next semesters. On the digital services, we still have the impact from Medcel, but combining all the offers, all the pillars that we have, we are seeing the second half a better gross profit, gross margin coming from digital services.
Moving forward, we expect Medcel to start launching the new products and also improving their results when compared to last year. After September, that is when we launch the new release, the new version of Medcel prep products, for the following year. We still have an impact on the second half, coming on the digital service in terms of margin because of Medcel. But I think we reached the bottom line, and now we start to leverage operation and all the other pillars will become even more relevant on the following quarters. So diluting this effect and also have the new collection effect that will be launched in September, improving margins moving forward.
Yeah. Vinicius, if I may add something in what Virgílio said. It is aligned with our expectations that we give on the guidance. When we issued the guidance, during the first quarter results, we have these views on that. So we are pretty much aligned with the guidance that we give for 2022.
Perfect. Very clear. Thanks, Virgílio. Thanks, Blanco.
Thank you, Vinicius. Our next question comes from Mauricio Cepeda from Credit Suisse. Mauricio, you may talk, please.
Hi, Virgílio. Hi, Blanco. Thank you for the space here to ask questions. I have my first question a little bit about profitability. We were talking in the previous quarters about the impact from the integration of the new operations. I would ask you if the new operations are still impacting profitability somehow. I would say the ones that were made, let's say one to two years ago, they are still impacting margins, and if the new digital business are also playing a certain role in the profitability. My second question is a little bit more related to the regulatory environments. We have seen there is a lot of debates around the authorization of medical courses. Some trying to discuss that legally, others trying to go to the courts to get mandates, et cetera. How do you position yourselves in this kind of situation?
How are you prepared to face distinct scenarios from now on, both the one that keeps the current regulatory framework from Mais Médicos or eventually another pathway that may change the authorization to something more, let's say, market triggered? Thank you.
Hi, Cepeda. I will take both questions here, and Blanco can help me. First, related to profitability. For the acquisitions that we concluded two years, three years ago, I think all the integration process and the synergy are very aligned on what we expected. Have in mind the two big acquisitions last year that was Unigranrio, and UnifipMoc, in Montes Claros city. All the integration process is better than expected. You can see that when we combine this acquisition on our total results, it is also helping to improve margins because the margin coming from these two assets is higher than digital services and continuing education. We extract a lot of value for these last acquisitions on BU One, that is our undergrad unit.
On digital, that was the, I think is the more relevant impact in terms of margins and related to acquisition because we conclude 11 acquisitions in the last two years, on the digital side. There is a lot of initiatives taking place right now in terms of reorganization, how we can extract value of cross-selling and also optimizing the team, the commercial team, the tech team, all the stack people related. This is
Under discussion right now, and we expect also on the digital to start improving revenues at the same speed and even faster than we are seeing right now, and helping us to dilute the G&A costs that are coming from these new acquired tech companies. This is the side on profitability. Related to your first question. On regulation to med courses, we are following the Mais Médicos here. We have a lot of investments under seven new campuses that we already launched six of them, and we truly support all the regulation behind opening a new medical school where, as a country, we need to place these new physicians. On our side here, of course, that I would like to have an opportunity to open a school in Belo Horizonte and São Paulo, that we don't have an undergrad proc.
But the truth behind that is that we really don't need such a professional physician under the cities. And the Mais Médicos program that we support and also all the association that is going to discuss this under court, we are supporting the Mais Médicos rule moving forward.
Thank you. That's perfect. Very clear. Thank you.
Thank you, Cepeda. Once again, if you want to now make a question, please raise your hand. Next question comes from Marcelo Santos from JP Morgan. Marcelo, you may talk please.
Hi, good evening. Virgílio, Luis, Ana, thank you for taking my questions. The first one would be regarding tickets. What's the outlook, especially for the tickets of the students that are coming in in the second half of the year? Are you being able to pass inflation? The second question is about the ramp-up of IPEMED Campus. Is that going according to plan? When do you think this operation will achieve maturity? Thank you.
I'm sorry, Marcelo. I didn't get your second question.
It's regarding the continued education, the IPEMED Campus that you have launched seven units, right? I just wanted to understand when this operation should reach maturity, and if it's progressing as you expected in the business plan. Thank you.
Hi, Marcelo. I'll start with the first one regarding the ticket. Normally, we don't have an increase in pricing in the second half. We have one or two units that we have that, this track spread. Generally, we don't have price increase in the second half. All the price increase is done in the beginning of the year. Okay, so you can expect to keep the same trend, not adding much increase in pricing in the beginning of the second half.
Yeah, just to add on that, Marcelo, what we have as a ticket effect for the second half is a maturation effect as we are graduating the last year students and also enrolling a new cohort of higher tickets. So the maturation effect is quite positive for the second half. Getting your second question about the IPEMED maturation. We launched these new campuses between the first half, actually it was in April, some of them, and most of them start on second half, so it is just beginning the operation. That is the first year. Remember, the duration of our graduate program specialization is between two to 2.5 years. So the full maturation, consider that we have, well, a linear intake process would be 2.5 years.
But having said that, what we are seeing is much more awareness of this new launching of IPEMED campuses, and the intake process being not only aligned what we expect in the business plan, but even higher for some cities that we are seeing a very positive acceptance of our offers, of our programs, and also for IPEMED brands over these 12 cities that we are operating right now.
Perfect. Thank you very much.
Thank you, Marcelo.
Thank you, Marcelo. Next question comes from Yan Cesquim from BTG Pactual. Yan, go ahead, please.
Good evening, everyone. Virgílio, Luis, Ana, good evening. Just a technical question here about the adjustments in the net revenues related to the mandatory discounts and tuition fees granted during the pandemic. Just wanted to know if this is a reversion of the discounts that passed in your results during 2020 and 2021 that maybe helped your results, or if this adjustment is just to show what revenues would be year-over-year if we still had these mandatory discounts in this quarter. That's it, guys. Thank you.
Hi, Yan. It's Blanco speaking. It's not just the adjustment itself. We accounted for this reverse of this discount. We invoice these BRL 22 million for our students as we've received the clear receipt from the judge regarding this process. As we did consider these adjustments of this discount during 2020 and 2021, where we had to invoice all the amount and give this mandatory discount, and we adjusted it for our adjusted net revenues proposed. As we are invoicing this amount of this reverse of these discounts, we exclude them from our adjusted net revenues. We not consider these additional invoices that we accounted in the second quarter. We are being very aligned what we did during 2020 and during 2021, excluding this additional invoicing that we've made in the second quarter in the adjusted net revenues.
If you see the accounted net revenues, you're going to see that accounted net revenue is the both of our adjusted net revenues.
Yeah. No, that is very clear. Are we going to see more of these adjustments in the following quarters, or this does all the adjustments?
Yeah
All the backward-looking adjustments?
Yeah. This is the major one that comes major from one state that we have this major part of the discounts. But we are going to do the same procedure as we got the clearance from the justice that we can reinvoice these previously granted discounts. So as we granted this clemency, we will invoice these mandatory discounts and charge our students again.
All right. Thank you very much, Luis.
Thank you, Yan. If you have no more questions, I will turn the Q&A again for Virgílio for his closing remarks.
Thank you. I think there is no more questions. Thank you, Ana. It was another half of great accomplishment, and I couldn't be more proud and optimistic of a new promised semester ahead. Thank you all for joining us today, and I hope to see you during our next investors meeting on the following earnings release. Thank you all and have a good night. Bye-bye.