Afya Limited (AFYA) CEO Virgilio Deloy Capobianco Gibbon on Q1 2020 Results - Earnings Call Transcript
by SA Transcripts, https://seekingalpha.com/author/sa-transcriptsAfya Limited (NASDAQ:AFYA) Q1 2020 Earnings Conference Call May 29, 2020 11:00 AM ET
Company Participants
Renata Couto - Head of Investor Relations
Virgilio Deloy Capobianco Gibbon - Chief Executive Officer
Júlio Eduardo Razente de Angeli - Vice President of Continuing Education and Innovation
Luis André Blanco - Chief Financial Officer
Conference Call Participants
Marcelo Santos - J.P. Morgan
Susana Salaru - Itau BBA
Vinicius Ribeiro - UBS
Irma Sgarz - Goldman Sachs
Scott Piper - Itau Securities
Operator
Good morning, ladies and gentlemen, and welcome to Afya’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call will be recorded.
I would now like to introduce your host for today’s conference Renata Couto, Afya’s Head of IR. You may begin.
Renata Couto
Thank you and good Morning, everyone. Thank you for joining us for Afya’s first quarter 2020 conference call. With me on the call today is Afya’s CEO, Virgilio Gibbon; Luis André Blanco, our CFO; and Júlio de Angeli, our VP of Innovation and Continuing Medical Education.
During today’s presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risk, uncertainties and other factors that may cause our actual results to defer materially from those contemplated by these forward-looking statements.
Forward looking statements in this presentation includes, but are not limited to, 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 on 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 refer non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in the isolation or as a substitute for results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measures in this presentation.
Let me now turn the call over to Virgilio Gibbon, Afya’s CEO.
Virgilio Deloy Capobianco Gibbon
Thank you, Renata, and thanks everyone for joining us today for Afya’s first quarter 2020 earnings conference call. First, let me say that I hope everyone is in good health and safe during this global crisis.
Before we start, I would like to acknowledge and thank all frontline workers who are facing this global crisis. We are fortunate that, as a business, we have been able to help by providing free courses at this time to assist hospitals, medical schools, physicians and nurses to deal with the rapid spread of COVID-19.
I also want to thank our employees and professors who made it possible, within one week, to move 100% of on-site classes to our online platform. The feedback from students, professors and physicians could not be better. They are all very satisfied with the effectiveness of our online operation. While the environment continues to evolve quickly, our teams are managing our priorities and business very well.
Moving now to Page number 5. I am very pleased to report a strong first quarter 2020 results, continuing the positive trend of 2019, and also reflecting the successful execution of our strategic initiatives. We are seeing the benefits from the synergies captured from the integration of the acquisitions completed over the past 2 years, and continue to deliver the combination of our strong and predictable growth with high profitability and healthy cash generation.
Our balance sheet position is very strong with more than R$1.3 billion in cash. On the student front, the intake process for second half 2020 have already captured candidates to fulfill all seats available, ensuring 100% of occupancy for the following semester. A 22% growth in our medical student base over the first quarter 2020, reaching 9,700 students already including the UniSl São Lucas acquisition concluded this month.
In addition, we are seeing a better collection when compared to the same period last year, showing an excellent proxy for the second half renewal rates and cash generation. All in all, and considering the external scenario, a very positive dynamic for the rest of the year.
I also would like to highlight that considering all acquisitions we have completed, our total medical seats per year reached 1,866, what means 13,400 students at maturation, an 11% CAGR in the medical student base until 2026.
Moving to Slide number 6, we can see our unique positioning in the medical community, our social responsibility. And therefore, we have played an important role in sharing knowledge with other institutions, physicians, students and patients through the initiatives below: allowed free temporary access of our digital platform, MedCel, being already accessed by more than 9,000 medical students at 32 public and private medical schools, which will be a great opportunity to expand our market share and potential growth; provide free content through online courses and Webinar Week, which has been a success attracting a large number of participants to our platform; donation of masks, gloves and other Personal Protection Equipment to health departments and hospitals in 13 cities where we operate medical schools.
Now, with respect to actions we have undertaken for students, employees, and professors. We are currently operating our theoretical classes online for all students and reorganized the schedule of practical activities in order to avoid any significant impact on the academic calendar for the first semester of 2020.
It is important to highlight that the in-hospital internships for the 5th and 6th year students have already resumed and will not impact the calendar. Most of our corporate staff started to work from home and are keeping all activities up and running well. We are also providing a full package of social and health assistance to our employees and families, to help them during the pandemic, including: HR initiatives such as online psychological care, yoga classes, corporate training platform, free lectures, support for family professional replacement and many others.
Moving on to Slide 7, we will discuss our Revenue and Intake Process. Fortunately, our first quarter 2020 financial results were not impacted by COVID-19. Given the timing, we had successfully concluded our intake process cycle for first half 2020 before the pandemic basically shut down the country. We had already completed the enrollment process with 100% occupancy as expected.
And, as we look ahead, we are currently seeing a strong demand for new applications for following semester that will allow us to fulfill 100% of our medical seats, maintaining our revenue growth resilience and high predictability even under these uncertainty times.
We have kept our commitment to our professors, maintaining all salaries during the pandemic, maintained our suppliers’ contracts and also offering a high-quality education to our students through our platform and practical activities for the 5th and 6th year. We are seeing a positive impact on the cash collection during this period. The delinquency ratio by April 2020 is 400bps below the same period last year, reflecting our process improvements implemented last semester.
Lastly, regarding revenue recognition, taking into consideration the interruption of on-campus activities and that a significant portion of non-practical educational activities being temporarily offered through company’s online platform, we are expecting that some practical classes will have to be replaced during the second half, postponing the revenue recognition proportionally.
Those effects were already considered in our first half 2020 guidance, indicated by the net revenue guidance range, which already contemplated that certain amount of practical classes would be delivered in the second half.
Next, turning to Page number 8. Afya’s solid balance sheet and strong cash position put us in a healthy position with a competitive advantage to navigate these uncertain times. As you can see, we ended the quarter with R$1.3 billion in cash position, raised essentially from the IPO and follow-on transactions, and with a limited debt. Our cash flow is robust, with an 81% conversion rate and a lower delinquency rate, when compared to the same period last year.
Last but not least, our cash flow keeps being strengthened by the synergies raised from M&A integration. We have been efficient in all integrations, leveraging our operational margins considerably.
Given the high predictability of our business model, I am confident in our ability to generate meaningful cash flow, which combined with the strength of our balance sheet will sustain financial stability regardless of the economic trends and enable us to continue executing our growth strategy.
Moving next to our discussion of M&A and our integration process on Slide 9, we achieved our position as the leading medical education company in Brazil, partially through acquisitions. We have completed acquisitions over the past 2 years and added over 400 seats in less than one year, or approximately 40% of our 3-year target of 1,000 seats. Additionally, we currently have more than 500 seats covered under a MoU contracts.
M&A remains a key pillar of our growth strategy and we continue to evaluate opportunities to deploy capital into strategic acquisitions across medical school seats as well as digital platforms that can add services and value to our students. Our financial strength and cash flow generation capabilities afford us flexibility, and we intend to remain opportunistic.
Stepping back for a moment, we have outlined the stages that acquired companies go through before we start to see the synergies and margin contribution. Immediately, we guarantee 100% of occupancy of all seats available. Then, we begin to streamline discounts and to increase tuition after the implementation of our new curriculum.
After, we migrate all transactional and administrative activities to Afya’s Shared Services to extract G&A efficiencies. Lastly, we implement Afya’s career plan, to fully integrate and reaping the benefits from the acquired companies. Importantly, the current operating environment has not slowed our integration process with recent acquisitions. We just finished integrating IPEMED and are moving with Uninovafapi and MedCel, even during the pandemic.
Now, on Page 10, you can see our successful acquisition track-record and how we have been able to extract synergies fastly. The revenue expansion and margin gains have been significant across all acquired companies.
As we integrate it and gain further scale, we have been able to see value creation and margin improvement higher and faster than expected in all acquired institutions. Even considering the more recent acquisitions concluded in 2019, such as IPEC and FASA, we can see a strong growth and operational leverage in less than 1 year. This solid track record shows our capacity to deploy capital into strategic acquisitions creating great returns to Afya’s shareholders.
Now, I will turn the call over to Julio that will show how the digital transformation accelerated by the COVID-19 crisis is changing the education process and opening many opportunities for us.
Júlio Eduardo Razente de Angeli
Thank you Virgilio. Moving next to a discussion of innovation and technology, and how this is changing the education process, in the next 2 slides.
So, starting on Slide 11. Now, all of us are seeing a rapid shift in digital transformation strategies. In an environment like this, the need for accessible solutions in all markets has become greater than ever and we are proud that we are leading the way in the medical education segment.
The current environment is leveraging our core digital competency with an efficient process to create large and scalable medical educational materials, utilizing different formats, in one single easy-to-use and sticky platform. Our cutting-edge platform can deliver a personalized learning experience for each student, including communication, learning, tutoring and assessment tools.
As an additional feature, we have just now launched our proprietary synchronous class capability to the experience we provide where our professors will be able to interact on a live environment with our students as an integrated piece of a methodology.
On the content delivery side, we are proud to launch the second season of our instructional Medical Residency web-series. With 12 new episodes, we added another 50 clinical cases, where 15 of our professors are acting and performing, as well as 100 new video lessons covering these cases. This is another important step of our edutainment strategy, delivering content in formats that are connected to the reality of the new generation of students and innovating as it is needed in our industry.
The proprietary software and content development and adaptive learning technology allows us to offer a personalized learning experience for the student, no matter where they are in their learning curve or career. This is critical for our solutions where we use the power of our data collection to help students to be more effective.
Moving now to Slide 12, Afya’s core strategy is to combine quality medical education with intensive use of technology. We are committed to providing innovative technology solutions that assists our students as they spend more time online to work and study in this environment and later on.
Even prior to the rise of COVID-19, we have been very intentional on strategic planning for enhancing our digital offerings. The pandemic proved the efficiency of our digital platform as more than 90% of our undergrad medical students engaged online, with positive feedback and acceptance.
Over 93% of our graduate students mentioned they would recommend their online classes and course to a friend. With respect to other students and as shown on these charts, these added digital products, content and features consistently delivered increasing customer count growth during the quarter.
Our monthly active users increased 17.5% from January to March to more than 16,000. At the bottom of the first chart, you can see the current consumption of our content with over 2.4 million learning objects used by our students during the quarter.
Adding to that, we see the monthly content consumption increasing more than 26% as we scale our tutoring system. Engaging more students to our platform is key to future conversion to our other products and services Afya will be offering. The strategy is to build and nurture the relationship, generating loyalty with students and other medical professionals.
With the proven effectiveness of our digital platform and services, we have strengthened our position as the leading innovation- and tech-company in the Brazilian medical education segment.
This shift in teaching and learning behavior is also giving us an opportunity to take further look at our long-term digital strategy. While no one knows how long the current business environment will persist, it is our expectation that some of the programs and/or processes put in place because of COVID-19 will continue over time.
As a result, we are actively assessing our current product offerings as well as expanding our view to potential acquisitions. Our strategy is to further build our share and drive long-term profitable growth.
Now, I’ll turn the call over to Luis to discuss our financial results.
Luis André Blanco
Thank you, Júlio, and good morning, everyone. Before getting into the financial results, I would like to add that it is a pleasure to be hosting my first call as Afya’s CFO. As Virgilio said, it was certainly a very unique time that we are all living through.
I am particularly proud that we delivered a successful quarter that is tracking in line with our first half guidance. We are particularly pleased with the execution in the first quarter to quickly move all the classes online, which, in turn, enable us to report a good start to the year.
Moving to Slide 14, my discussion will focus on the main and most significant P&L items. There is additional info in the earnings press release that you can refer to for more information. As shown on this page, we had a very good quarter across all key metrics. We also reported high margins.
Let me highlight a few. Starting with the medical seats and students, both of which saw significant increases during the quarter. With respect to the number of medical school seats, we added 417 seats year-over-year for a total of 1,684 by quarter end, a 32.9% increase over first quarter 2019.
Reflecting the seat maturation process, the number of students in first quarter 2020 was 7,956, an increase of 58.8% over the same period of the prior year. Subsequent to quarter end 2020, we added another 182 seats with the acquisition of Universitário São Lucas, and with a potential upside of a further 100 seats. As a reminder, considering the acquisition of Universitário São Lucas we have already made, our full potential as of today is 1,866 seats and 13,400 students, which leads us to a 11% CAGR in student base, considering the period of 2019 until 2026.
Pro forma net revenue for the quarter was up 27.2% year-on-year to R$272 million. Excluding the acquisition of UniRedentor, which closed in the end of January 2020, pro forma net revenue grew by 20.1% year over year, reaching R$257 million. The increase was primarily driven by organic revenue growth, mainly due to maturation of medical school seats.
The strong top-line growth combined with cost efficiencies and resultant synergies from acquisitions was reflected in our pro forma adjusted EBITDA increasing 36% to R$141 million and the margin expansion of 333 basis points. Excluding the consolidation of UniRedentor, pro forma adjusted EBITDA increased 33.3% year-over-year to R$137.8 million and a margin increase of 530 basis points.
Adjusted net income up 131.7%, reflecting the revenue contribution, synergies captured and the margin expansion from consolidation of acquisitions. Our diluted earnings per share increased 54%, achieving R$1.09 per share.
I would like to remind you all that 2 types of seasonality affect Afya’s business, as detailed in our earnings release. And, as a result in a typical year, the first quarter is normally the strongest in the terms of revenue, but not in terms of cash conversions, since MedCel’s revenue recognition mostly happens on the first and the fourth quarters.
Moving on to Page 15 for a discussion of key operating metrics by business unit. We delivered strong results in the first quarter, as both business units continue performing very well. Growth in key operating metrics, as shown on this slide, is being driven by a combination of organic growth and acquisitions.
Our average monthly medical tuition fees at the quarter-end were R$8,235, which was 8% above the same period in 2019. This reflects a combination of new students enrolling with a higher tuition rate combined with the students graduating with a lower tuition.
As shown in the middle chart, 77% of our combined tuition fees are derived from medical schools. The combination of 48% increase in the number of students and an 8% increase in average ticket resulted in combined tuition fees up 58% when compared with first quarter 2019.
With respect to BU2, we had almost 12,000 active paying students at the quarter end, an increase of 22% over the same period last year. We can see an increase of 29% and 22% in the number of students of Prep Courses & CME for B2B and B2C, respectively.
Moving on to a deeper analysis of our revenue and EBITDA on Slide 16. Our business model enable us to generate a highly predictable revenue growth. However, as mentioned previously, acquisitions are a key part of our growth strategy. And as shown on this page, we have provided net revenue and adjusted EBITDA bridges from our historical first quarter 2019 revenue to the reported first quarter 2020.
For the quarter, net revenues increased 88% to R$272 million. Excluding the consolidation of UniRedentor, net revenue grew 78% in the quarter, with a contribution of R$84 million from acquisitions and R$28 million from organic growth, which is comprised of the maturation of the medical school seats and increase in average ticket.
On the right side of this page, we show the first quarter 2020 adjusted EBITDA. During the period adjusted EBITDA increased 88% year-over-year to R$141 million. Excluding the consolidation of UniRedentor, adjusted EBITDA grew 84.4%, with R$47 million contributed from acquisitions and R$16 million from organic growth. Aside from strong revenue growth, our results are also benefitting from synergies that are being realized from acquisitions as you already heard of Virgilio.
Moving on to a discussion of the cash flow on the Slide 17. Cash is crucial in the current environment and we have a very strong and healthy balance sheet that is strengthened even further by the follow-on offering we completed earlier this year. It is the strength of our balance sheet that will enable us to continue to grow the business and support future acquisitions.
Cash and cash equivalents of R$1.3 billion at quarter end was up from R$960 million at the end of 2019, a 35% increase. The significant increase in cash compared to the yearend 2019 reflects strong generation of cash flow and the proceeds from February 2020 follow-on offering. The majority of the funds is invested in low-risk Brazilian-real-denominated instruments.
The total debt was R$487 million at quarter end 2020, up from R$361 million at the end of 2019, with increase related to due to accounts payable to selling shareholders. This quarter debt is 47% current. Cash flow generation remained strong in the first quarter 2020, which resulted in a cash conversion ratio of 80.7%, compared to 82.7% in the first quarter 2019.
This was a slightly lower cash conversion rate versus first quarter 2019, mainly due to the seasonality in BU2 associated with MedCel business. As I said in the beginning, revenues from our Prep Courses are recognized mainly in the first and the fourth quarter of each year. But the receivables are mostly stable during the year.
In this sense, MedCel’s results negatively affect cash conversions in the first and the fourth quarters.
Turning next for a discussion about guidance on Slide 18. As mentioned earlier in the presentation, our first quarter results were trending in line with our first half 2020 guidance. As a result, we are re-affirming our guidance provided during our yearend conference call. As a reminder, the world is still amidst of a pandemic. Economies are slowly opening up. And our guidance takes into account the best information available at this point of time.
Two key metrics from the first half 2020 are as follows: the first half 2020 net revenues between R$475 million and R$510 million; The first half adjusted EBITDA margin ranging between 45% and 46.5%; our guidance includes the impact of the adoption of IFRS16, includes UniRedentor starting February 1, 2020, and excludes any other acquisition that may be concluded after the issuance of this guidance.
I would point out the possibility that revenue recognition for some practical classes could be pushed to the second half of 2020 upon the resumption of the classes.
Summing up, please turn to the next page, Slide 19. We are operating in a truly extraordinary times, times of great challenges, but also times in which we can see many key opportunities ahead. We are very confident in the strength, the resilience and the overall health of our company. We are navigating the current uncertainty well.
Our leadership position is creating even more demand for our medical seats. And, as mentioned earlier, we are currently seeing demand for available seats, ensuring we maintain 100% occupancy. The use of our digital platform is strengthening our brand and positioning, and we see the opportunity to expand this platform both organically and through acquisitions.
Given the nature of our business, coupled with the high demands for seats, we have a model that present us with a highly predictable organic growth, given the maturation of the seats, with an expected CAGR of 11% in our student base from 2019 to 2026.
We are maintaining our long-term strategic focus of which M&A is a key component. We already have a solid pipeline. And we are on track and generating synergies from the acquisitions completed over the past 2 years. Integration is progressing even in the current environment. In turn, we anticipate further margin expansions.
Lastly, as you have heard throughout this presentation, we have a strong balance sheet and generated significant cash flow. These attributes coupled with the actions we are taking now enable us to manage through the situation today, while funding targeted strategic investments that will benefit us going forward.
This ends our prepared remarks. We are now ready to take your questions. Operator, please open the lines for questions.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] I show our first question comes from the line of Marcelo Santos from J.P. Morgan. Please go ahead.
Marcelo Santos
Hi, good morning. Thanks for taking the question. I have 2 actually. The first would be about the candidates that you already have for the intake of the next season. Could you just explain a bit more how does this work? I mean, what kind of commitment do they already have? Are there still candidates or there are some that’s already enrolled?
And because you might have candidates that cannot pay in the end, so how confident you are that you get 100% occupancy? Just could you explore a little bit more on this? And the second, if you could discuss a bit the schedule for greenfield openings. So you have 2 greenfields that were supposed to be opened in the first half. But given the COVID situation, this didn’t happen as far as understood. So could we still expect this to open in the second half of the year or is it more prudent to expect everything for 2021? These are the 2 questions.
Virgilio Deloy Capobianco Gibbon
Hi, Marcelo. This is Virgilio. I think your first question here about the candidates that we have and we understand there is enough to fulfill 100% of the seats. The ratio that we are seeing, the number of candidates applying for all seats in Brazil, when we have the comparison to the same semester, the last semester that we have is much more than we need to fulfill, all new seats that we have to enroll for the following semester.
So what we are doing, we are actually right now have almost 80% of the enrollment already confirmed. We are just calling the students to fulfill all the seats. We anticipate a lot of the process. Because of that using annual grade results from previous years, so that’s the way that we are doing, analyzing duration, comparison to last years and also anticipating the enrollment for the following semester.
About your second question, how we are opening the greenfields, we have 2. There is a very final step to have the signature from the Ministry of Education. That’s the last step that is required. And we think that the signature can happen, we expect to have this by the end of this semester. But the truth is that the Ministry of Education, everything is stopped right now because of the pandemic.
And even if we have the beginning of this – the authorization to start our operation, we just expect to have the beginning of this operation, the second semester or maybe the beginning of 2021. That’s I think one of the downside for the pandemic to start this new – the new sites. Okay.
Marcelo Santos
Okay. Just to follow-up on the first, so when you say 80% has already been confirmed, that means they have already paid something or there is some kind of initial fee. What this confirmation entail?
Virgilio Deloy Capobianco Gibbon
The students confirm the enrollment they have to pay the first month’s tuition. We still have some seats to fulfill. But we have candidates in the basket to convert them and have 100% of occupancy in the second semester. Remembering, that the second semester volume of new students is lower than in the first semester, so the ratio is higher, the volume of candidates that we have to fulfill all the seats, it’s better than the first semester.
Marcelo Santos
Great, very clear. Thanks a lot.
Operator
Thank you. Our next question comes from the line of Susana Salaru from Itau. Please go ahead.
Susana Salaru
Hi, good morning, all, and thank you for taking our questions. Our first question is related to the margin expansion of the quarter. If you could elaborate a bit more what were the main drivers behind the cost savings and if you could also talk about what were the synergies that were unlocked from the acquisition? That will be our first question.
And the second question is related to the tickets. We saw that med school tickets went up significantly. If you could just comment how were the trend of the healthcare and medical school trends for the tickets. And also for the other courses that you have. Thank you.
Virgilio Deloy Capobianco Gibbon
Hi, Susana. This is Virgilio. About the margin expansion, I think it’s 3 main drivers that is driving all these efficiency that we are getting from operations. First is the scale. We are seeing all this maturation and all corporate activities, holding expenses we are diluting time over time. And then, we have a strong trend as we still have the maturation till 2026.
Second, as we are seeing on these acquired institutions, we are having a lot of synergies in faculty costs. We start implementing our curriculum, maximizing the number of students that study in groups per professors. So minimized our rates per student and also improving the quality of all these practical classes.
So this is 50% of the costs. So when we have some change on that, have implemented a new curriculum, it’s something that is very strong in terms of synergy and leverage our operations.
And third, after integration, full integration, when we pull all activities to our shared services, we have all the G&A efficiency. We have a very rare well implemented process in our – across Afya. So when we push all the transaction activities, academic back office, the HR, payroll, supply chain, IT activities, we didn’t change any FTE full-time equivalent on our back office operation. So these are the 3 main drivers.
Remember, in the top-line, the first initiative is a big win for all institution that we acquired to guarantee 100% of occupancy. Most of the institutions that we are plugging to our operation after closing acquisition, they are not using a 100%. We are not maximizing the students. If they have some drop-offs in the middle of the program, they are not replacing the student in the beginning.
So that was the main drivers for all this 500 bps expansion that we are seeing quarter-over-quarter. Luis will help me to expand the second question about the average tickets.
Luis André Blanco
Hi, Susana, it’s Luis speaking. About the tickets that we saw increase from this quarter everybody that – the quarter in the last year. But the ticket dynamic is related to the maturation of the – our business. We had in 2017 a ticket increase for the first year only. Since then, we have increased our tickets, because of the students begin with a higher ticket and the lower tickets of the students are being gradual.
So during the maturation the ticket increased by itself. So that’s why we are having an increase in our tickets.
Virgilio Deloy Capobianco Gibbon
Susana, just adding one point, really important, besides all these maturation, when we changed our curriculum back in 2017 and we have this recurring positive effect on the mix of our tuition, we also have this positive effect, when we plug a new acquisition. Just remind, UniRedentor that we started operating back in February, this asset has the highest tuition in Afya, around R$10,000.
So also, we will have this positive effect when we have more months and also maturing UniRedentor operation. So this is what we are doing as a strategy, semester over semester. We are just changing prices related to inflation. The exception is when we have a new acquisition or we change the curriculum, we have something above inflation.
So as a guidance, we are still expecting 1 to 3 percentage points in the long-term view, until the full maturation of all this institutions.
Susana Salaru
Could you just – just to clarify, you are referring to the med school tickets, right? Or are you referring to the consolidated overall tickets, when you say this readjustment?
Virgilio Deloy Capobianco Gibbon
Medical, we are referring the medical school tuition.
Susana Salaru
Perfect, perfect. Thank you.
Operator
Thank you. [Operator Instructions] I show our next question comes from the line of Thiago Bortoluci from Goldman Sachs. Please go ahead. If you have your phone on mute, please un-mute your line.
Okay. Our next question comes from the line of Vinicius Ribeiro from UBS. Please go ahead.
Vinicius Ribeiro
Yeah, hey guys. Good afternoon. Hope everyone is fine. So 2 questions on our side. The first on the MedCel platform that you guys mentioned and you gave us a little bit more of detail. Just a question here, given that you guys are the – the project seems pretty well received, what would you guys need for this platform to become a new revenue stream? Do you have any idea of what will be the economics for that for offering for other medical schools? Do you want to do that?
And the second question is also related to Business Unit 2. Just to confirm here, if you are seeing some difference in terms of demand dynamics for the Business Unit 2, both on MedCel and IPEMED? That’s it. Thanks, guys.
Renata Couto
Could you please repeat your question?
Vinicius Ribeiro
Yeah, sure. Both?
Renata Couto
Yes, please.
Virgilio Deloy Capobianco Gibbon
A lot of noise.
Vinicius Ribeiro
Yeah, sorry. So the first question is on the MedCel platform, if you guys could elaborate a little bit on what would you need for this platform to become a new product, a new revenue stream by offering it to new – to other institutions, and if you guys have any idea of what will be the economics? Did you guys understood?
Renata Couto
Yes and the next one?
Vinicius Ribeiro
And the next one is just also on the Business Unit 2. Just if you are seeing any difference in terms of – as far as demand goes, if the demand is so resilient as it is on the Business Unit 1.
Júlio Eduardo Razente de Angeli
Okay, hey, Vinicius. This is Júlio. And, hello, everyone, hope everyone is safe out there as well. So for the first question, first, I mean, we already have in place a team working on the B2B side of the business, so we already have a small, but still – I mean, its revenue coming for B2B. What we have today, what we are offering to the schools, basically, is the solution for the last year for the internship program.
So what happens, especially now with all the situation is we offered the platform for the schools that they didn’t have anything actually to offer to the students. And we had 32 – imagine that around 340 medical schools in the country, out of those 32, 40% of those are public schools. So we see the need due to the situation and the idea in terms of what needs to become a revenue stream as we said.
I mean, we are charging these – actually the current clients that we have on a subscription based model. Yeah, so the idea is to convert these schools, especially those ones that are private into customers. So we are working with them, but it’s – as we speak here. And as well, I mean, the other ones, the public ones, tricky to find a commercial agreement.
But we can obviously, work on a B2C side with those students. But remember, when – the way we see this is that on the thesis of Afya, we want more of these students engaging in a platform. And as much collecting the information, we can extract revenue from another institution. And further on, during their career, the idea is to keep offering other solutions in continuing medical education, in graduate business. So this is the idea. But the way it works is it’s a subscription based model today.
And in terms of the second question on the demand, especially for MedCel, I mean, still there are interesting very good demand. This year, specifically there is the exam, the Revalida, which is the test that students that are studying medicine in other countries, they will have this test on October 11 this year. So there is a significant amount of students that are – they couldn’t take the test since 2017. So this is – there is a strong demand there.
And again, I mean, for test prep, still, I mean, this business is growing in terms of market around 20% a year. For the graduate business, we still see the demand. The only thing is that, since we are selling this to doctors, so the situation now is that these doctors, of course, their focus is on COVID. Some of their office is – they’re not working. So what we are seeing is that they’re postponing a bit the decision.
But that’s why when I said on my part of the presentation, we are reviewing the portfolio, especially working with more of the online content for the graduate business as well, we launched a couple of courses for free. And the last one, which is quite interesting is one of – it’s therapeutical update on the – with the telemedicine, so we are offering this course for our graduate students and we see significant demand there.
And that will be tied to our product offers that we have today in the portfolio. So we’re shifting more to be online and then you’ll probably see a lot of progress on that front, using again our technology.
Vinicius Ribeiro
Very clear, Júlio. Thanks.
Operator
Thank you. I show our next question comes from the line of Irma Sgarz from Goldman Sachs. Please go ahead.
Irma Sgarz
Yes, hi. Thank you for taking my question. First of all, thanks to Virgilio and team for the presentation and congrats for the results. We have 2 quick questions. First, as a follow-up from Susana, and I apologize if I missed part of it. We got temporarily disconnected from the call. But I just wanted to go back to pricing question.
For new intakes, the freshmen that are coming in now, could you just – from what I understood, so you’re adjusting just by inflation for the medical students. And then, I wanted to confirm, so first wanted to confirm that and for non-medical students is that also in line with inflation or what should we expect there? Again, is this about the intakes, so the new classes, not existing students.
And if you’ve – generally, in the market, if you’ve seen, for medicine, we know that the demand dynamics are obviously absolutely different then from other courses, but have you just seen given that people are going through different economic challenges, have you just seen in – as medical schools are preparing on the private side, are preparing for the new intakes, have you seen more promotions or discounts or would you say that this is not something that you’ve seen in the market so far? Thank you.
Virgilio Deloy Capobianco Gibbon
Okay, Irma. Thanks for your question. First, the maturation, on the average for medical student, it is two-folds. We have changed the prices for new students in the beginning of the year close to inflation. So our average ticket for new fresh is around R$8,000 per month.
And as we have this changing tuition in the past, when we implemented new curriculum back in 2017, 2018 for the new acquisitions, we have this positive maturation effect, because when we acquired, the average tuition was R$5,000, R$6,000. We changed R$7,500, R$8,000. So we have the maturation of the students moving to the [position asset] [ph]. So that’s why we have this positive recurring effect till 2026, when you have the full maturation.
About the other programs, we have also changing close to inflation. So as we can expect, for modeling proposal, we are also seeing other program for undergrad varying close to inflation year-over-year. But we are seeing that also on these programs, we are seeing above inflation is the big effect, because programs that doesn’t make sense to offer in some regions after acquisition, we are closing these program and we are not going to fight against any other player or distance learning. We are completely focused on how other medical and other health programs.
About the payment capacity of our students, one indication that is much better than we expected previously used the cash collection. When you compare month by month, I guess, 2019, we are 3 or 4 percentage points in all institutions better. What is happening? We changed a lot of the collection process back in 2019 second semester. We present a lot of new procedure, new controls, that helped a lot, renewing all the students for the first semester 2020. So this positive effect – even consider the difficult, the economical difficulty for the COVID-19, we are seeing a very positive, the low-hanging fruit that we have on this front.
What we are doing for the renewal is in a case-by-case situation we are offering the financial aid for these families. We are dividing into installments, 6 to 12 installments, using a lot of credit cards. Remember, it is a completely different profile from our medical students. But it’s on a case-by-case situation. Okay.
Irma Sgarz
And, in the market overall, so from the competitive dynamics with the medical schools in the private sector?
Virgilio Deloy Capobianco Gibbon
We have announced on our release, we already have candidates who fulfill 100% of our seats, so it’s the ratio candidates per seat is very healthy that we can keep guarantee 100% of occupancy, even consider this extended scenario. We have already completed, enrolled 70% of this student base for the new student, already paid the July tuition.
Irma Sgarz
Perfect.
Virgilio Deloy Capobianco Gibbon
Okay.
Irma Sgarz
Perfect. Thank you.
Operator
Thank you. And our last question comes from the line of Scott Piper from Itau. Please go ahead.
Scott Piper
Yeah, hi. Apologies if previously asked, but I was wondering if you could give us some color on the economics of future M&A prior to the COVID crisis, the price per student for acquisitions was starting to gravitate higher, given increased competition. And I’m curious how you see that development both now and going forward given the crisis. And what you’re at – the dynamics of accretion for potential future acquisitions, and most importantly, how your appetite has changed because of the crisis for acquisitions going forward?
Intuitively, you would think that the environment would be better for acquisitions, given your cash situation and probably more strain in the economy. But I was just wondering if you could elaborate on that.
Virgilio Deloy Capobianco Gibbon
Okay, Scott. So our M&A pipeline, it’s moving very, very fast. As we guided, we have already more than 500 we analyzed under MoU contracts. We didn’t slow the pace that we analyze assets. Actually as a kind of the opposite, we are seeing much more opportunities coming to the table. I think it’s more clear to medical schools. They again concerned how they can continue isolated and keep confirming 100% of their enrollment. So that kind of opportunity that we have, we analyzed and trying to have a fair negotiation in terms of price in the – for Afya.
So we are not guiding any valuable student that varies when analyzing the different maturation of the institution. In our case, you analyzing our track record, the 5 cases that we are showing on our webcast, we have completed different valuations and all of them delivering incredible rate of return.
As an example, we have a greenfield of IPEC that the number of – the value per student is completely different from Uninovafapi that was EBITDA notable, because they have a very large operation, progress in the portfolio and a positive EBITDA. So the way that we analyze it on multiple EBITDA for more mature and complete institution, and when we have some maturation and also – it’s almost like greenfield license that we are applying that will be much more related to multiple per student.
Renata Couto
Per seat.
Virgilio Deloy Capobianco Gibbon
Per seat, I’m sorry. So just about our appetite, we are keeping the integration at very fast pace, even considering the isolation that we have in some cities. We are doing a very well process. Of course, that to conclude and to close an acquisition, we have to take care that all these process. And also we have to close and have the accounting, all the accounting procedures, there are external auditing to report this new acquisition.
So we are having some kind of audit, a new audit, so we can acquire and close 2 or 3 acquisitions per quarter. So that’s something that we are doing, an audit, much more concerned in our capacity to integrate and have the condition to have all the procedures to have our balance sheets approved on a quarterly basis, considering that we have to operate in addition for 1 or 2 months already.
But we are not slowing the pace. That’s I think is the main message here.
Scott Piper
Okay. Thank you.
Luis André Blanco
Yes, Scott. It’s Luis speaking. Right now, if I could add something – additional points to Virgilio. That’s very interesting to highlight that. In this crisis, we see opportunities in digital platforms to add more service in this moment. What we saw on the pipeline and in this crisis with MedCel business, we saw a very, very strength on that, on digital transformation. So in this case, in this digital platform, we are even speeding up this valuation, whether it is – transactions with negotiations to put more digital platforms in our portfolio.
Scott Piper
Okay, thank you.
Operator
Thank you. I show no further questions in the queue. At this time, I like to turn the call over to Virgilio Gibbon, CEO, for closing remarks. Please go ahead.
Virgilio Deloy Capobianco Gibbon
So, thank you. Thank you all. To conclude my remarks, I would like to reinforce our business resilience and the outstanding dedication of our team to deliver this great first quarter results. We affirm our first half 2020 guidance even under COVID-19 crisis.
We operate in unusual times, times of great challenges and uncertainty; but also times at which you can differentiate ourselves and see many key opportunities for Afya. Thank you for joining us today and I look forward to meet you when all the situation is over. Keep safe. Bye-bye.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.