Good evening, everyone. Thank you for joining us for Afya's third quarter 2021 conference call. With me on the call today is Afya's CEO, Virgílio Gibbon, and Luis André 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. It involves known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those contemplated by those forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, 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 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 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. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute of the 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 Virgílio Gibbon, Afya's CEO, starting with slide three.
Thank you, Renata, and thanks everyone for joining us. It's a great pleasure that I report once again a strong quarter for Afya. During this call, my presentation will run through four main topics. First, the highlights across financial and operating results with upgrades in both medical undergrad students and digital services. Second, the last results on our successful execution of acquire and integrating medical school and digital platforms, showing how far Afya has come on our product and services. Third, our deliveries and exciting opportunities ahead on the undergrad program and on digital services, growth driven by our main goal, a unique ecosystem for physicians in Brazil. Last but not least, the fourth topic, how our commitment to what we do is being well reflected through our awards and public recognition. Moving to slide number four, I will show our financial highlights.
Our adjusted net revenue increased 48% year-over-year, reaching BRL 463 million, followed by an adjusted EBITDA growth of 28%, reaching BRL 191 million with a margin of 41%. We also reported a cash position of BRL 1 billion and a record-adjusted operating cash flow generation of BRL 557 million for the nine-month period, 72% higher than last year. Moving now to the operational updates of the quarter. Our undergrad medical students reached 16,000, representing 67% growth compared to the same period last year. Operating seats grew by 56%, also in the same period. On the digital services highlight, our net revenue almost doubled year-over-year, and our ecosystem reached 247,000 monthly active users, which represents more than 30% of the Brazilian market of physicians. Digital services net revenue grew more than 96% year-over-year. Now moving to the next page, we'll talk about our business strategy.
M&A continues to be a strong growth driver in our strategy. On the left side of this slide, we can see our whole integration roadmap since the IPO, everything that is in progress and every project that is planned. For every one of them, we make a short and long-term balance into the inputs that can impact both profitability and engagement. On the appendix of this presentation, slide number 16, you can check the margin expansion of each acquisition separately, reflecting our great track record of evolution and synergy extraction in the integration process.
On the right side of slide five, you can then check how integration core selling strategy of our platforms like Medicinae, iClinic, MedPhone, Whitebook, and Medcel are being developed so we can consolidate our database into a single data lake in order to provide the unique ecosystem we have talked before, surrounded by our six-pillar strategy in the digital business. Moving to slide number six, we can see how Afya has great opportunities ahead with the number of seats getting higher each quarter. Our pipeline for acquisition is fertile, and we plan to acquire at least 200 seats per year starting 2022. The expansion of our offering in the undergrad business continues to grow strong with the closing of the acquisition of Unigranrio in August 2021 and the acquisition of Garanhuns Medical School this month in State of Pernambuco.
Both acquisitions provided 428 new authorized undergrad medical seats to Afya with the 2,731 seats so far. This represents almost 20,000 students as maturity, with a CAGR of 10% for 2020 to 2026. Also expect five more Mais Médicos units to start operating until the end of next year. The goals of our digital service are no lower. By the end of 2021, we expect to complete our digital ecosystem, fulfilling our portfolio with the most important services to physicians. Next year, we will boost our market penetration, consolidate our offerings to B2B clients, that will allow to leverage our physician network and unlock new revenue streams. Now, moving to my last slide of this presentation, I want to show how our commitment is being reflected and rated outside Afya. As we have been presenting in each quarter, our ESG agenda is getting more and more robust.
As we have embedded the theme in all we do, assume public positions that review our goals and plus new ones . Reimporting this agenda, along with the commitments we have already shown in this quarter, we also announced that the Sustainalytics, a leading ESG in corporate performance research firm, has rated Afya as a low-risk ESG risk rating company, placing it in the 10th percentile in the Sustainalytics database of over 13,500 organizations as of September 2021. We were considered as a company at low risk of experienced material financial impact from ESG factors due to our low exposure and good policies and applied practices. As a reflection of our great results and actions that are being shown to the market, I'm also glad to announce that we have won two important award this quarter.
First, the Valor 1000 Award as a best company on the education segment, a nd second, the Época Negócios 360° Award in two categories: as a best company in the education segment and sustainability in the education segment. In the overall ranking of 418 companies in Brazil, we are in 13th place. This proves that our mission remains strong to become the reference in the medical and healthcare education services, empowering students and physicians to transform their ambition into a rewarding lifelong experience. This continues to guide our strategy, and I am proud of what we have achieved so far, as well of what we are planning to do in the future. Now I will turn the call over to Luis Blanco, our CFO, to discuss the financial metrics. Please, Blanco, go ahead.
Thank you, Virgílio. Moving to slide nine to discuss the financial highlights of the third quarter 2021. It is with a lot of satisfaction that I present another strong quarter for Afya with consistent results. Since 2019, we have been seeing in all quarters a positive trend in our key metrics. Adjusted net revenue for the quarter was up 48% year-over-year to BRL 463 million, reflecting acquisitions, expansion on digital service, and organic growth. For the nine-month period, the increase was of 45%, totaling BRL 1.2 billion. It is important to mention that last week, the Brazilian Federal Court of Justice decided to consider unconstitutional any decision that apply linear discounts in monthly tuition fees for private universities with respect to the COVID-19 pandemic.
Therefore, starting this December, we shall not apply discounts in any monthly tuition fees that are related to the effects of the pandemic, including those applied in FCM PB. Adjusted EBITDA for the quarter was up 28% year-over-year to BRL 191 million. For the nine-month period, adjusted EBITDA was BRL 560 million, an increase of 37%. For both periods, adjusted EBITDA margin was slightly below the reported margin of last year, mainly due to, one, the consolidation of PEBMED, iClinic, MedPhone, Medicinae, Medical Harbour, Cliquefarma, Shosp, UNIFIPMoc, FIPGuanambi , and Unigranrio, that presented lower margins than the integrated companies. Two, lower performance from continuing educations, of which I will give more details in the next slides. Three, regarding the quarter results, BRL 14 million of deferred revenue that positively impacted the third quarter 2020 results.
Adjusted net income for the quarter was BRL 117 million, in line with the same period of the prior year, mainly due to the decrease in net financial results that was affected by higher debt positions and the increase in the average CDI in the period, partially offset by higher income from the financial investment. For the nine-month period, net income increase was in line with 2020, totaling BRL 342 million. Cash flow generation was record in nine-month periods, increasing 72% year-over-year to BRL 557 million, which has result in a cash conversion ratio of 114%, compared to 86% in the same period of 2020. On the right side of the screen, we can also see bullet points that summarize another financial highlights. For the nine-month period, organic growth on net revenues for undergrads was 11% compared to the last year.
We maintain the announced guidance for 2021, BRL 1. 720 billion- BRL 1. 760 billion for net revenues, and 42%-45% for adjusted EBITDA margin, which takes into account the successfully concluded acceptance of new medical students for the second half of 2021 and the consolidations of the digital companies and medical school acquisitions. Moving to slide 10 for a discussion of key metrics by business unit. Starting with the undergrad programs. Operating medical seats increased 56% year-over-year to 2,361 operating seats, reaching 16,000 students, reflecting medical seats inaugurations and acquisitions. In terms of total tuition fees for the nine-month period, we've reached BRL 1.400 b illion, up from BRL 883 million from the prior year, an increase of 58%. Talking about revenue mix, 77% of these are derived from medical school students.
The medical school average ticket for the nine-month period was BRL 8,700, a 7% growth compared to BRL 8,100 tickets from the prior year. On the next page, I will present the continuing education metrics. We saw a 37% decrease in continuing education net revenues from BRL 82 million to BRL 52 million. This decrease was mainly driven by a reduction in the student base that has two main reasons, p ractical programs that are not being offered since the first semester of 2020 due to pandemic, and physicians' decision to postpone admissions to specialization courses due to the COVID-19 pandemic. We expect a better performance next quarter due to October's intake process. Moving to slide 12, I will discuss the digital service operation metrics. On the first graph in the slide, you can see our active paying students per pillar. Those are the active payers that generate revenues.
Combining all active paying users in the quarter, we've reached a number of 155,000 paying users. Content and technology for medical education grew 52% year-over-year. Clinical management tools reported 16,000 payers, and clinical decision software base has almost 118,000 payers. These results reflected a strong increase of 91% in digital service net revenue since last year. The last graph on the page shows the monthly active users also per pillar. Once again, combining all users we've reached a number of almost 250,000 students and physicians all over Brazil. This number represents more than 30% of all medical students and physicians in Brazil, as Virgílio said before. And now, moving to my last slide, I will discuss our cash and net debt position. Cash and cash equivalents in the end of the quarter were BRL 1 billion, a position in line with 2020.
At quarter end, net debt totaling BRL 1.1 billion, compared with a net debt of BRL 167 million in the year end of 2020. This increase was mainly due to the closing of M&A transactions, partially offset by the free cash flow generation. This ends our prepared remarks. I will now open the conference for the Q&A section. Thank you.
If you want to ask a question, please raise your hand. Our first question comes from Marcelo Santos from JP Morgan. Marcelo, you may talk.
Thank you, Renata, and thanks for taking my question. I have two. The first, if you could please comment on the trends in candidates per seat, and if you think that, l et's suppose you gain more seats in the cities you already have because of the Mais Médicos expansion, d o you think you could deploy those seats without the need to reduce tickets? The second question is, what about your capacity to pass inflation to tickets in 2022? Thank you.
Hi, Marcelo. This is Virgílio. Thanks for your question. The first one, the candidates per seat. For this cycle that we concluded on the second half, we keep the same average as we had before the COVID, s o we saw a very high demand for candidates per seat. Even considering that we have some expansion on our Mais Médicos campuses, we are very confident to have the same demand and a good sustainable growth to mature all these additional seats on each campus. In terms of inflation, we are passing inflation to our price to 2022. Changed a little bit over inflation some campuses, and we are not seeing any disruption in terms of the trend and demand to guarantee 100% occupancy.
We just started our enrollment process for 2022, and we are seeing a very good result in terms of fulfilling the seats and the maturation of the new campuses that we still have on our operation.
Thank you, Virgílio. Just a quick follow-up. You think you can pass the IPCA at the level that it is now? It would be something feasible to see in the tickets? Thanks again.
Okay, Marcelo. Just remember that during 2020, 2021, our decision because we are in the middle of the peak of the pandemic situation, we decided to move something around 3%-4% last year. But for 2022, we expect to pass inflation to our price on medical school for 2022.
Thank you.
Great. Our next question comes from Vinicius Figueiredo from Itaú BBA. Vinicius, you may talk.
Good evening, everyone. Thanks for taking my questions. First, regarding the decision by STF on the discounts, just to clarify the effective impact of this decision is just that from December onwards you stopped applying those discounts, right? Or will you be allowed to charge it retroactively? Another question would be on the integration of recently acquired assets. If you could comment on what the company has been able to deliver in terms of synergies, and when should we expect those margins converting to the organic ones? Thanks.
Hi, Vinicius. It's Luis speaking. I'll start with your first questions. Regarding the STF decision on last Thursday. The STF, that they are unconstitutional. All the linear discounts that were applied by the judges in a linear way. What's the effect that we have just right now is that we will not apply the discounts, that it was 25% on the tuitions on FCM PB. Regarding the past, all the discounts that we gave since the beginning of this procedure, we are waiting for the final decisions of the STF to decide to charge, if it's possible, all the discount that was granted during 2021. So we are waiting for the final decisions, all the procedures to get these discounts being charged, and so we expect to do that next year.
Hi, Vinicius. Virgílio. I'll take the second question on integration. Our last two big acquisition that was UNIFIPMoc in Montes Claros City and Unigranrio, both of them, we could start our integration process before starting the classes on the second half. So we are operating both of them as a very high contribution margin, above 40%, above our expectation, even considering that Unigranrio just closed operation beginning of August. So it's a very good result in terms of synergy coming in a very short period of time.
Okay, thanks. Very clear.
Our next question comes from Maurício Cepeda from Credit Suisse. Maurício , you may talk.
Can you hear me now?
Yes.
Okay, yeah. A little bit of a confusion of mute and unmute here. Thank you for the time. Three questions from my side. The first about the margins. I understand that you are integrating new businesses and the new colleges have lower margins as well. But once all those integrations occur, and we remain with the digital business that they are growing a lot, congratulations on that, but with all those digital businesses, should we expect a new normal in terms of margins going forward because of the digital, not because of the integrations? My second question is about the health courses. We see that the health courses are a significant part of the business and the growth. It is lagging behind as in other courses here in Brazil. How do you expect this to get back to a normal growth situation?
The third one is about the undergrads that are nor medicine nor the health courses. How are you planning to tackle it, or if you see any opportunities to diversify the business or make any kind of partnership on this? Thank you.
Hi, Maurício . The first question about the margins is, we are seeing that you leverage our traditional medical education business after the acquisition at the same level that our legacy in one to three years. As we are ramping up digital services in a very fast way in terms of revenues, we believe that digital services on the long term can perform around 30% and 40%. Depending on how fast we can leverage our contribution margin on digital services, but today, excluding Medcel, it is a very low margins. They are ramping up both of health techs, all of these health techs. We are expecting to have, in the end, around 30%- 40% in contribution margin, considering all the six pillars combined. About the second question on the undergraduate health science. We saw a decrease of 4% of the student base.
This decrease is related to all the impact that we saw in COVID on the on-campus traditional programs. We will see better intake levels on the second half. We are seeing resuming growth on the student base on health on the second half. Other undergraduate programs will keep the same discipline here that every semester we are going to shut some programs that is not sustainable. If you analyze, we are concentrating much more our mix on health and medical education on the undergrad business. Today it is around 88% our total revenues coming from medical and health programs considering the undergrad business.
Very clear, Virgílio. Thank you.
You are welcome.
Okay. Just remember, if you have a question, just raise your hand. The next question comes from Yan Cesquim from BTG Pactual.
Hi, everyone. Can you hear me?
Yes, perfect.
Okay. Just two questions on our side. The first one is if you could give us more color on the M&A pipeline. How is the appetite for further inorganic moves, and should Afya continue focusing M&A pipeline and tech digital opportunities? The second one is if you could comment on organic results. We know that organic adjusted EBITDA decreased year-over-year, and I just wanted to understand what affected results, if there is anything aside from the continuing education affecting organic numbers. Just wondering if you could give us a little bit more color on that too. Okay? That's it. Thanks a lot.
Hi, it's Luis speaking. I'll take these two questions. First one regarding M&A. We didn't change our views on M&A. On the undergrads, we should expect something about 200 seats per year from 2022. In the digital service ecosystem, we can expect some movement, some inorganic movement to complete all the six- pillars strategy. We haven't changed. The focus continues to keep growing on undergrads in assets that has the medicine profile over 6% on the maturation. In the digital service, we want to complete the six-pillar strategy. Regarding the second question, our organic margins were affected by the undergrad. Sorry, the graduation performance that as you told us, was below than last year. Besides that, it's important to remember that the third quarter last year, we got the BRL 14 million revenues that were postponed from the second quarter because the delays on the practical classes.
Just remember, as we are under IFRS, we recognize the revenue when the service is rendered. From the second quarter last year to the third quarter last year, we got some postponement of the recognition of this revenue. This affected us last year in BRL 14 million. In this year, as we move on on the pandemic, the postponement of revenues was just BRL 1.7 million. So, we have this almost BRL 13 million affected on the third quarter itself, that is behind it. We compare third quarter 2021 and third quarter 2020.
Just one point to add here about the continuing education. If you remember that during the Covid times, we almost didn't deliver any classes then. We have a problem to enroll new students because all the practice classes for specialization in graduate programs was completely blocked. We couldn't deliver the services.
We resume all on-site classes for the graduate programs on October, and we also conclude our record intake this period right now that start the classes in October. We are resuming growth on the top line year-over-year on the fourth quarter. So instead of we have three quarters in a row that we were reducing and decreasing our revenues on continuing education year-over-year. But as expected, on the fourth quarter we have, we'll see a growth coming on this after all the Covid impacts. Just to add another point on M&A here. We concluded 588 seats through acquisition in 2021. There were three acquisitions. UNIFIPMoc , Unigranrio and Garanhuns, the recent one that we just announced. The pipeline keeps fertile.
We are not changing our strategy here and also focus to complete our ecosystem, the six pillars, and also to increase the penetration in some of them. So you keep seeing some movement the next quarters.
Yan, is it clear? An y follow-ups.
It is. Perfect. Thank you, guys.
You're welcome.
Our next question comes from Vinicius Ribeiro from UBS. Vinicius, you may talk. Remember, if you want to ask a question, please raise your hand.
Hi, everyone. Good afternoon. Thank you for taking our question. Two questions here. First about the inflation dynamics. We understand your pricing power on the top line. Could you just provide us some color on the cost side of things? How are wage negotiations with professors going on, and what's your view regarding further increases in margin for 2022, considering the organic operations, not necessarily the ramp-up of M&A? The second, a little follow-up on the continuing education. Are there any change in plans for 2022? Should we expect new launches, new discounts, or something like that? Or do you guys see that the backlog of physician decisions to take these courses, as Virgílio just mentioned, should be enough to maintain and/or resume the double-digit growth prospect there? Thanks.
Hi, Vinicius. I will start from the last question about the continuing education. We are expecting a two-digit growth on the top line in 2022. We saw this record intake. We enroll more than twice new students when compared to 2020 and also 2019. It is a very good volume of intakes. Just remember that we launched many new programs and also new campuses to run the graduate program in the most important cities of 12 states in Brazil. We are seeing a very good trend. Consider that we will be allowed to deliver all the on-campus and the practical classes for the specialization in graduate programs. On the inflation side, I think it is important to mention here that Afya took a decision during the pandemic to keep all the commitment with our professors, our teachers, keeping the same amount of hours.
We did not change any commitment that we have with our professors and delivering the entire content for our students. That was the reason that back in 2020, we have to postpone some practical classes, and we have this proportional postponing on our net revenues last year. On the other hand, we have a very good negotiations with the unions on 2021. Our internal inflation was much lower than considered by the national inflation index. This is very important. Also take into consideration that price adjustment is in the beginning of the year. We saw the inflation coming up during the year. We could not change the price, so we are adjusting price for the following semester.
Now, we can pass inflation for our price and also adjust a little bit ahead in some new campus, some new programs that we are implementing all these digital features that we are plugging into our ecosystem.
Thanks, Virgílio. It is very clear.
You are welcome, Vinicius.
Our next question comes from Cepeda from Credit Suisse. Cepeda, you may go on.
Hey, guys. It is me again. I just asked before. Sorry, I think there was a confusion in the line.
No problem.
It always happens.
Double personality here. Thank you.
Okay. I think that we don't have any more questions. Virgílio, any final remarks?
Thank you all once again for being here. It was another great quarter. I think we are beginning to have our normal life, at least in terms of operation, resuming our campus operation. Keeping in some areas, we still have some protocols that we have to follow and take the care that we still have to do it. But we are very confident keeping the same trend on our medical education, continuing education. We saw the fourth quarter coming in a very good trend. Not more decreasing revenues as now we can deliver our classes. For 2022, very confident that we'll see some results coming on the digital services regarded to B2B operations. That is our short-term goal in terms of not only complete our pillars, our offering, and also go-to-market strategy for the B2B. Thank you all. Hope to see you on the next quarter.