Earnings Call Transcript - AFYA Q2 2021

Operator, Operator

Thank you for joining us for Afya's Second Quarter 2021 Conference Call. With me on the call today is Afya's CEO, Virgilio Gibbon, and Luis Andre Blanco, our CFO. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations and guidance for future periods 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 to IFRS. We have provided a reconciliation of these non-IFRS measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgilio Gibbon, Afya's CEO, starting with Slide 3.

Virgilio Gibbon, CEO

Thank you, Renata, and thanks, everyone, for joining us today. I'm pleased to report another great quarter for Afya. Today, I will present four main topics during the call. First, the strong results across financial and operating metrics that allowed us to reach the top of the first semester of 2021 guidance; second, our successful business strategy of acquiring and integrating medical schools and digital platforms, extracting synergies to create a unique ecosystem for physicians in Brazil; third, our deliveries and exciting opportunities ahead on the digital business; and fourth, our great accomplishments on the ESG side. Moving to Slide number 4. Starting with our top-line growth, adjusted net revenue increased 39% year-over-year, reaching R$382 million. Adjusted EBITDA increased 36% year-over-year reaching R$161 million with an adjusted EBITDA margin of 42%. We also reported a cash position of R$1.4 billion, reflecting the R$822 million transaction from SoftBank and our strong cash generation. Cash conversion reached 104%, 21 percentage points higher than last year due to the reduction in trade receivables that was mainly affected by the end of the grace period that was given to some students during the renewal process in 2020 in the middle of the pandemic; and second, the improvement of our collection process. Moving to the operational highlights, our undergrad medical student reached 13,400, representing a 47% growth compared to the same period last year. The average medical school ticket also increased more than 5% leveraging our organic growth. On the digital business, our ecosystem reached 232,000 monthly active users. This represents almost 40% of the Brazilian market of physicians and our clinical decision software pillar presented a strong role since the end of 2020 adding 18,000 users in the period. Now moving on the next page, let's discuss our business strategy. M&A is our main growth driver in our strategy. And on the left side of the page, I'd like to discuss our successful integration. For the acquisitions made in 2018 and 2019, we have a great track record on margin expansion. The five acquisitions made in this period presented an average margin growth of 16 percentage points in just two years, reflecting our synergy distractions in the integration process. For the two acquisitions made in 2020, Uniredentor and Uni São Lucas, we already saw a significant margin expansion comparing the full year of 2020 with the first semester of 2021. On average, those acquisitions presented an 11-percentage point growth on adjusted EBITDA margin. On the effects of this presentation on Slide number 18, you can check the margin expansion of each acquisition separately. We are also excited to expand our offering in the undergrad business with the closing of acquisition of UNIFIPMoc this quarter and UNIGRANRIO in August 2021. UNIGRANRIO is our largest acquisition, adding more than 300 seats to our operation and represents our interest in Rio de Janeiro City with the best quality private university in the state. This acquisition combined contributed 468 authorized medical seats to Afya reaching 2,611 seats. This translates into 19,000 students at maturity, representing a CAGR of 19.3% from 2020 to 2026. And we still have great opportunities ahead. Our pipeline for acquisition is fertile and we plan to acquire at least 200 seats per year starting in 2022. Moving to Slide number 6 to the digital business, as discussed on us as investors in ESG Day, we have many growth avenues to pursue in the digital business. The first one is to keep adding new products and services to fulfill the six pillars strategy of our business. We have already robust and market-leading products in the three of six pillars. Medcel, our residency prep course completed the content and technology for medical education pillar supported by PEBMED Portal and Medical Harbour solutions. WhiteBook, our market-leading clinical decision software integrated with Medphone, completed our second pillar. iClinic, the largest clinic management solution integrated with Medicinae and Shosp, also completed our practice management tools and electronic medical records skill. For the last three pillars telemedicine, digital prescription, doctor-patient relationship, we still don't have an anchored solution, but can anticipate that we expect to have great deals in the second semester. Our strategy here is to develop or acquire a market-leading solution to fulfill these pillars and create a unique digital offer to serve physicians throughout their careers among the six pillars. To accomplish this goal, we are already scaling standalone digital products through coordinated commercial efforts. We started consolidating our customer database into a single datalake. Launched the first MVPs from the integrations of Medcel, PEBMED, and iClinic. Tested MVP solutions with the pharmaceutical industry and initiated Afya’s digital brand awareness strategy. With my last slide on this presentation, I will discuss our main accomplishment in the ESG strategy. Early this year, we released our annual sustainability report, incorporating the Global Reporting Initiative, GRI methodology. Structural elements as determined by the International Integrated Reporting Council, or IIRC, accomplished the transparency to the way in which we allocate capital to generate value over the long term. I invite you all to download our sustainability report on our IR website, to check more details. Also, this semester, we created a new designation for the Compensation Committee, which was renamed Compensation and ESG Committee. And now has the responsibility to report and discuss ESG metrics and keep up with all the new projects involving environmental, social, and governance issues. Lastly, I’m also very proud to announce that we are one of the first Brazilian companies to publicly commit to gender equality. In 2021, we signed the UN Global Compact. Last week we assumed that voluntary commitment to have at least 50% of women in our management positions by 2030. We were also certified by Women on Board, an initiative that ensures that we have at least two women in our Board of Directors, positions already magnificently occupied by Vanessa Lopes and Shobhna Mohn. Now I will turn the call over to Luis Blanco, our CFO, to discuss the financial metrics. Thank you.

Luis Andre Blanco, CFO

Thank you, Virgilio. And good evening, everyone. Moving to Slide 9 to discuss the financial highlights of the second quarter, 2021, I'm pleased to present strong results once more. Since 2019, we saw a strong trend in all key metrics. Adjusted net revenue for the quarter was up 39% year-over-year to R$382 million, reflecting acquisitions and organic growth. Excluding the acquisitions, adjusted net revenue grew 9% year-over-year reaching R$299 million. Such increase was primarily driven by the maturations of medical school seats and an increase in the average ticket. Adjusted EBITDA for the quarter was up 36% year-over-year to R$161 million. Adjusted EBITDA margin was a little bit lower than the reported margin of last year, mainly due to: one, the consolidations of PEBMED, iClinic, Medphone, Medicinae, Medical Harbour, Cliquefarma, Shosp, UNIFIPMoc, and FIPGuanambi, which had 10% lower margins than the integrated companies; two, lower performance from the Continuing Education segment of which I will give more details in the next slides; three, partially offset by recently acquired companies that were consolidated with higher EBITDA margin at FCMPB and FESAR. Adjusted net income for the second quarter was R$65 million, a decrease of 27% over the same period of the prior year, mainly affected by: a) R$1.5 billion increase year-over-year gross debt, excluding the impact of IFRS 16, due to new debt contracts, acquisitions, and the SoftBank transaction; b) the depreciation of the Brazilian Reais against U.S. dollars in the period that affected our cash positions in U.S. dollars; and c) the FX rate difference between the signing of the SoftBank transaction and the internalization of the proceeds, which resulted in a R$29 million foreign exchange loss. Cash flow generation remained strong in the six-month period increasing 70% to R$343 million, which resulted in a cash conversion ratio of 104% compared to 83% in the same period of 2020. Moving to Slide 10 for a discussion of key metrics by business unit. Starting with the Undergrad Programs, operating medical seats increased 35% year-over-year to 2,053 operational seats. Medical students were up 47%, reaching the base of 13,390 students, reflecting medical seats maturations and acquisitions. Our average monthly medical tuition fees were up 5% compared to the second quarter of 2020, reaching R$8,598 excluding acquisitions. This reflects a combination of new students enrolling with a higher tuition rate combined with students graduating with a lower tuition rate. Talking about revenue mix, 80% of our combined tuition fees are derived from medical school, up from 73% in the same period of the prior year. In terms of total tuition fees for the first semester, we've reached R$831 million, up from R$556 million, an increase of 50% year-over-year. On the next page, I will represent the continuing education metrics. We saw a 33% decrease in continuing education net revenues. This decrease was driven by a 27% lower student base in the first semester of 2021. One reason was that practical problems were not being offered since the first semester of August 2020 due to the pandemic; and two, physicians' decision to postpone admissions to specialization courses due to the COVID-19 pandemic. We expect demand to pick-up in the next intake period that will happen in October. Moving to Slide number 12. I will discuss the digital service operation metrics. From the first graphic in this slide, you can see our active paying students per pillar. Those are the active payers that generate revenues. Active paying users reached 148,000. Excluding acquisitions Medcel active paying students alone grew 64% year-over-year reaching 19,000 students, mainly due to our successful marketing campaign at the end of 2020. Clinical management tools reported 14,000 payers and the clinical-decision software base has more than 115,000 payers. These results reflected a strong increase of 89% in digital service net revenue. The last graph on the page shows the monthly active users that reached 233,000 students and physicians all over Brazil, which is 32% higher than 2020. Moving to the next page, I will discuss in more detail the net revenue and EBITDA growth. We saw a 44% increase in adjusted net revenue year-over-year, of which 77% came from the consolidations of acquired companies. On the right side of the page, we show adjusted EBITDA growth for the first semester of 2021. During this period, adjusted EBITDA increased 42% year-over-year to R$368 million with a margin of 47%. Of this increase, 81% is coming from acquisitions and the other 19% is organic. Moving next to discuss cash and net debt position. Cash and cash equivalents at the end of the second quarter were R$1.4 billion, representing a 36% increase when compared to December 2020 position, mainly due to the closing of the SoftBank transaction totaling R$822 million. At quarter end, net debt totaled R$583 million compared with net debt of R$167 million at the end of 2020. This increase was mainly due to the M&A transaction. Considering only the acquisition of UNIGRANRIO that was closed in August this year, our pro forma net debt would reach almost R$1.3 billion. Moving to my last slide, I'll discuss our guidance for 2021. For the first half of 2021, we surpassed the midpoint of the adjusted net revenue guidance by 2% with an adjusted EBITDA margin of 47%, right in the middle range of the guidance. I'm also glad to issue a new guidance for the second semester of 2021. This guidance will not include any acquisition that may be concluded after the issuance of this guidance. 2021 adjusted net revenue between R$1.720 billion and R$1.760 billion representing a 44% growth year-over-year is considered the mid-range of the guidance. Adjusted EBITDA margin of 42% and 44%; this percentage includes the synergy that will be extracted from acquisitions and the negative impacts caused by the consolidation of UNIFIPMoc, FIPGuanambi, UNIGRANRIO, and the digital companies that will not be integrated this year and come with a lower EBITDA margin. These end our prepared remarks. I will now open the conference for Q&A session. Thank you.

Operator, Operator

The first question is from Marcelo Santos from J.P. Morgan. Marcelo, you may talk.

Marcelo Santos, Analyst

Hi, good afternoon. Good evening. I hope you can hear me. My first question is regarding the acquisition you incorporated this quarter, UNIFIPMoc. If you could please give us some idea of the profitability of this company, so that we could get a better understanding of how else you performed without it? That's the first question. And the second question is around the MVP on pharma. If you could provide a little bit more details on how that's going? What stage are you in now? And what are the lessons learned so far?

Luis Andre Blanco, CFO

Hi, Marcelo. It's Luis talking. About UNIFIPMoc, just remember all we just have one month in the consolidation. We closed the acquisition in the beginning of June. And the performance of these business combinations is aligned with our initial expectations that built our business plan on the acquisition. So, we don't have a major impact because it's just one month of the consolidation of UNIFIPMoc on this quarter.

Virgilio Gibbon, CEO

And just adding that Marcelo, UNIFIPMoc together with UNIGRANRIO for the second half, they operate around 20% to 25% of EBITDA margin. So, considering that the reason that we are guiding the range on the guidance that we released this quarter. Excluding these two acquisitions and also the digital platforms that we plugged into operation in the first half, our guidance would be around 3 percentage points above what we just released.

Júlio De Angeli, Analyst

Hi, Marcelo. Marcelo, this is Júlio here, and good evening everyone as well. To your question, regarding the MVP with the pharma industry, we've mentioned at the Afya Day that we are working on solutions. So, for the industry, testing the B2B projects here. There are four actually main drivers of solutions. One is media, which is basically what these companies – they in some way want to speak to doctors that are in our platform. The other one is the research center, which we provide actually a research team composed of the people that work on these specific projects for the companies. These are very specific projects for the industry. There is also education solutions, and then those are for other institutions – education institutions and this is what we've been doing for the past three to four years and recruiting services. So, the MVPs now we have actually a couple of projects on the media and research actually with some of the pharmaceutical industries here in Brazil. So, they're small, as we said, those are MVPs. And basically, at this point, we're initiating and building the B2B solutions. So small projects, but one on the media side, which is basically again exploring the inventory that we have with these 230,000 doctors in the ecosystem, and also one company doing research where we help them on the projects here and we established a relationship with them in that way. So those are the two that we have now.

Marcelo Santos, Analyst

Thanks a lot. Thanks for all the answers.

Operator, Operator

In continuation to Marcelo's question, I received the following question. Can you address how margins for UNIFIPMoc and UNIGRANRIO can get to and how long?

Luis Andre Blanco, CFO

Yes. What we see is that we can increase these margins to something about 45% after including rents with consolidated EBITDA with IFRS-16. We are talking about a 50% margin when we have the complete maturation of the medical seats and capture the synergy. The timeframe for that is something about two years. So, we can get these margins up to 50%, okay.

Operator, Operator

Great. Thank you, Luis. So, our next question is from Vitor Tomita from Goldman Sachs. Vitor, you can now ask.

Vitor Tomita, Analyst

Hello, good evening everyone. So, first question on our side would be if you could give us some more color on the perspectives for growth in digital services and continuing education going into the second half of the year. And our second question would be if you could give us also some more color on receivables dynamics now that the grace period for overdue payments is over. And on whether we should expect more improvement in receivables metrics in the second half of the year?

Virgilio Gibbon, CEO

Hi, Vitor. I will get to your first question here about the growth for the second half. For the digital business, our objective now we are aiming to complete the pillars, the six pillars that we have, focusing on telemedicine and also doctor-patient relationships and we are expecting to have growth on the pillars for the clinical decision and also on the prep digital content pillar. So, we are seeing the same top-line growth as we saw in the first half, on the second half for the digital BU. On the continuing medical education, we will see the same dynamics for the second quarter – on the third quarter. And for the fourth quarter, we will resume growth as we will have the enrollment completed for this last intake that is a very strong rhythm when you compare to the same period last year. The intakes for the continuing medical education were started in June and continue to October when the classes are started. So, the growth in continuing medical education is resuming the same dynamics that we had last year and also a reinforced operation after the COVID impact, we will see after October.

Luis Andre Blanco, CFO

And Vitor, it's Luis. I am taking your second question. Regarding the receivables, I just want you all to remember what was our strategy on the intake of the second half of 2020 at the time we were at the beginning of the COVID crisis, and we had these intakes, the second half intake, and we decided at that time to provide a great spirit for our students on when they do negotiations. This risk period ended in January of this year and we started to receive those amounts. Having said that, we are very proud of this strategy because this has proved to be a very successful strategy. We have this support for our students when they were most needed at that time, and we start receiving these amounts because of that we got generation cash flow in the first half being more than 100%. What we're going to see in the second half, it will be a more normalized generation of cash flow. It's not – I don't expect anything above 100% as we have seen in the first semester, because this – effect of this risk period, but we continue to see a very good trend on the collections on the undergrad segment.

Vitor Tomita, Analyst

Very clear. Thank you both.

Operator, Operator

Thank you, Vitor. So, our next question is Javier from Morgan Stanley. Javier?

Javier Martinez, Analyst

Now…

Operator, Operator

Can you hear us?

Javier Martinez, Analyst

Now, yes. Okay, sorry.

Operator, Operator

Okay.

Javier Martinez, Analyst

Okay, thank you guys. So, I wanted to ask you two questions also. The first one on the digital strategy. You mentioned that you have started already the brand awareness initiatives. And I think that you mentioned that you have done a marketing campaign around that. I was wondering if you can share with us a little bit how it worked, you know. Who did you target in the campaign? Was it a local campaign, was it regional, was it national? Was it about all Afya students or people who have been already in your school, so new targets or people who were not really related to you? And if you can give us some measure on the impact of the traction of the campaign, I am trying to understand how successful or how difficult it is to impact those potential targets. Probably also, what is the plan in the future? Are you going to continue, are you going to do something different? That will be my first question.

Júlio De Angeli, Analyst

Hi, Javier. Júlio here. So, in terms of the brand campaign that we've been – that we're starting actually, we did a campaign last year that impacted all the digital services this year, basically on the test prep business that impacted them number that we showed almost 20,000 students in the test prep business. What we've been doing now in terms of brand awareness for Afya, we're starting now the brand campaign for the B2B business, which is a little bit different. We have all of these brands like WhiteBook, like iClinic, Medcel—all of them, they have their own position. And for B2B we're starting to position our services as Afya services. So that's what we're starting out. We are very soon launching our website with our corporate solutions, including all of those four solutions that I mentioned to you. And the campaigns, they are basically focused in Brazil, so we're not doing anything outside. And the two main targets of the campaigns, one is basically the B2C campaigns, what we are doing more now this year—that we've seen traction. And we've seen a lot of synergies is that we're incorporating the offers, as we mentioned, its commercial efforts that they've been impacting the growth of the digital services. We tie offers that are bundle offers that we've been offering. And the campaigns, especially now that we initiate the cycle with Medcel, for example, that starts the new cycle for the 2022 campaign, we are going to incorporate more of the digital services, especially WhiteBook in all of our B2C campaigns for the test prep. So that's one of the focuses. So, those are the two main ideas and the two main drivers now of the brand awareness campaigns that we've been doing.

Javier Martinez, Analyst

Júlio, with the traction of those campaigns is working as expected?

Júlio De Angeli, Analyst

Yes. Yes, we see – that's where we see the synergies, Javier. It is working as expected. The businesses they've been growing as we expected. We see more of, as an example, WhiteBook is being used for more than 75% of the students in Brazil last year, medical students that graduated last year that they used WhiteBook. Now, of course, we are offering a specific target for Medcel for test prep. So, the reputation of that business helping the other one. And it is growing as expected.

Javier Martinez, Analyst

Okay. So, you see yourself gaining market share in those preparatory examinations.

Júlio De Angeli, Analyst

Yes. Yes, we see that we've been growing ahead of the market. Yes.

Javier Martinez, Analyst

Thank you, Júlio. And I have another question for me is, I know that the intake is not that relevant for you guys, particularly obviously on the medical students. No, but on the other students, if you could share with us how things are moving now, given that we are running the third quarter intake now?

Júlio De Angeli, Analyst

So, Javier is this…

Virgilio Gibbon, CEO

This is Virgilio here. Just adding on the first question, the opportunities of cross-selling are huge. And the penetration on the prep course, as Júlio said, increased a lot. Our market share grew above – the growth was above the market and reached almost 50% growth on the number of students taking our prep course. So, it's a very strong and showing the opportunities on cross-selling, using all the monthly active users that we have in our ecosystem. And the second question about the intake on other programs here, we are seeing growth resuming everywhere. So, all the goals that we saw and established for the intake on other health programs and also on other programs we are reaching the goals and we are enrolling much ahead of what we expected. But this is not something important on our results, but we will see a very good intake and also renew for the second half as on-campus operation is resuming and becoming normal as we are passing through the second half.

Javier Martinez, Analyst

Thank you, Virgilio. Thank you very much.

Virgilio Gibbon, CEO

Okay.

Operator, Operator

So, our next question is from Mauricio Cepeda from Credit Suisse. Cepeda, you may go.

Mauricio Cepeda, Analyst

Hello, can you hear me now?

Operator, Operator

Yes, now we can.

Mauricio Cepeda, Analyst

Okay. Thank you. Thank you for the time for the questions. So, getting to the guidance, we understand that okay, there will be an impact of these integrations of those new acquisitions, the medical schools’ acquisitions, because they have lower EBITDA margin. But we understand also there is the digital businesses that are being simultaneously incorporated into the results. And therefore, it also is contributing to decreasing the EBITDA margin. So, my question would be how much lower is the margin in this Digital Services versus the Medical Education operation? And if you foresee that the scale gains going forward will help, and how much it could help in leveraging this margin? And my second question, I will get back to a point that was raised by one of our colleagues, the MVP for pharma. You mentioned research, are you specifically referring to CRO, so clinical research itself, or are you helping the pharma in some way? So, thank you.

Luis Andre Blanco, CFO

Hi, Cepeda, it’s Luis speaking. Thank you for the question. I'll get your first one. The digital margins first of all, it's very important to highlight that our goal in the short-to-medium term in this segment is not about profitability, but rather to increase the penetration of our service within the markets, the physicians, and the medical students. Having said that, we want to increase these penetrations. And in the short-term as we had mentioned before we have to fulfill our offer, digital offer. Fulfilling the pillars of Telemedicine and patient engagement is a priority. What we can – what we have in our actual digital service, we have different profiles of profitability of them. We have more businesses like PEBMED and iClinic that generate EBITDA margin and we have other businesses like iClinic that are burning margins and operating in the negative side. So, there are different stages of maturation within even the existing business. Going forward, to see how these markets – how these margins will behave in a more long-term, what we see that the digital business as a whole, with the six pillars fulfilled will have margins that are below the ones we have in the undergrad business. And that's very important to share this view. Those we are gaining scale, of course, because we don't have bricks and mortars. But the digital business itself, we're going to have a margin that should be lower than the undergrad business. So have a kind of mix of margins in our digital business as of today. But our goal in the short and medium term is to grow the business, increase penetration, and gain a scale for having the physicians and the students using our digital solutions.

Operator, Operator

Just to make it clear Cepeda when Virgilio said that we could have three percentage points above our EBITDA margin guidance, we already included the digital company that we acquired in the first semester. Okay. And Júlio, can you help with the second question?

Júlio De Angeli, Analyst

Sure, sure. Hey, Mauricio. Thanks for the question. The research project that we have in place now is it's related to a product. So, it's a dermatology – it's related to dermatology. It's a company that produces drugs and is related to that specific specialty. And they want to understand better what doctors think about that product. So, it's very, as I mentioned the initial stages of this. But we can – and this is what we want to know. We want to start small trying to connect basically the company – they do have the need of understanding better how these products that they launch, they are being offered by the physician and how he sees if the patient is using it well. So, it's basically talking to the audience and also creating this relationship with us. So…

Mauricio Cepeda, Analyst

No. I see, so it's much more towards market research, it offers better than clinical research, right?

Virgilio Gibbon, CEO

Yes. Yes, exactly. And I know we didn't get that point and I'd say, it's again, the industry sometimes they need a quick response from activities that they've been doing. So, they see the potential with us here because we can with the relationship that we have with these doctors, we actually, we present them the research as Afya. And then we see that the – since we have the relationship already, they see that the benefits that we also mentioned from those projects that we're going to share when – where it is possible or no. So, the response rate is pretty decent on those projects or the industry they see a lot of value on this.

Operator, Operator

The next question is for Vinicius Ribeiro from UBS. Vinicius, you may go ahead.

Vinicius Ribeiro, Analyst

Hey guys, good afternoon, everyone. Thanks for taking our questions. So, two from our end here. So, number one, considering the steep increase in inflation in Brazil and the high starting point for your tuitions, do you guys plan to change anything when it comes to pricing strategies, especially for new students? Well, I guess what we're trying to understand here is that do you guys foresee any kind of issues when it comes to new students or evasion as a result of high inflation? And the second point here is that we saw about a 5% quarter-over-quarter increase on paying users for iClinic and WhiteBook. So could you guys elaborate on your expectations and give us some idea on the premium conversion when it compares to the trend prior to the acquisition? That'll be from us, thanks.

Virgilio Gibbon, CEO

Hi, Vinicius, good question on inflation. We expect to pass at least inflation for the renewal for the 2022 first semester. Another thing is we are embedding all of these digital services into our practical and labs with our students, and also including the WhiteBook solutions for our students in the fifth and sixth years, which adds a lot of value for those students that are aiming for the clinical part, and also looking for the residency opportunities after they concluded their program. So, we have an opportunity to change our price above inflation, embedding all these differentials and new functionalities into our learning process. So that's what we expect in terms of the Undergrad medical school. Júlio, can you and Luis address the second question?

Júlio De Angeli, Analyst

Sure. Let me yes, Vinicius, on the – so the premium business, it's only WhiteBook that has a premium business, right? So, since the product has a very decent penetration today so that we've been converting more of the free to paid students and users recently. So, there's a lot of focus on that rather than acquiring more users in the market. So – and that conversion is growing in it, and the business is pretty steady growing very well. On iClinic where we have a free trial that conversion from free trial to paid user has also been working well when we cross-sell a lot to with doctors that are in the same actually profile. So, we've been doing efforts with Peman, for example. So – and in both ways, it's been working quite well, those audiences. Actually, we are using now iClinic in our facilities where we have the graduate business, and we've been promoting with these doctors and we see a lot of potential, and that's been – that typical conversion has been more successful. So, we see better, but businesses are growing steadily and in a way that we were expecting, as I mentioned before.

Luis Andre Blanco, CFO

Hi, Vinicius, if I could add something here on what Júlio said? We keep going, we have on the WhiteBook, we have a kind of seasonality. It's very strong. The sales of WhiteBook in the fourth quarter have a floral campaign driven from Black Friday, and they have these traditions on doing strong marketing campaigns on that period. But having said that, we still have the expectations to grow more than 30%. These two businesses are going forward. We see opportunity to increase penetrations of these products on the students and the physicians.

Vinicius Ribeiro, Analyst

Great. Thanks. Thanks a lot, guys for the answers.

Operator, Operator

Our next question is from an analyst at BTG Pactual. Please go ahead.

Unidentified Analyst, Analyst

Good evening, everyone. Can you hear me, right?

Operator, Operator

Yes.

Unidentified Analyst, Analyst

Alright. So, I just have one question on my side, on the organic figures. Looking at EBITDA ex-acquisitions, we see that it has grown only 3% year-over-year in the second quarter, while margins decreased 240 bps year-over-year. So, I understand that when we see the consolidated results, it makes sense to us that acquisitions may boost these margin pressures. But could you give us more color on these specific organic figures? And why it has grown so little? And what is behind these margin pressure in this quarter and what we should expect from now on? That's it on my side.

Luis Andre Blanco, CFO

Yes. It's Luis speaking. The major detractor on EBITDA margins on this quarter was the continuing medical education. We have this pushback on revenues that affected our results as a whole. That's why we have these prospecting margins excluding acquisitions. This is the major factor that pushed back the consolidated figures for our EBITDA in this quarter.

Operator, Operator

Yes. If I may add a point here; what we see for continued education, as Júlio said, is demand will pick up with the new intake cycle that we will start in October – new classes in October. And we have, I would say, the worst seasonality in the second quarter since we have graduated students from the first to second quarter, and we couldn't finish and start a new class in the second quarter. So, if we could say with the same level that we were in the first quarter of 2021, in terms of net revenue, you wouldn't see this level of decreasing margins. So, it's something that it should reduce the pandemic. We are really hopeful that in the second semester, starting in October, we will initiate these new classes. We will start new students in the new capital that we opened and that you guys don't see any facts like that in expectations figures.

Virgilio Gibbon, CEO

Hi, this is Virgilio. Just adding an important point here, if you take a look at our consolidated financial statement, we open our different business units, and we can check how we are leveraging our gross margin Undergrad business in the same period last year – over the same period last year. And we can check the continued education is hurting the overall margin because of the COVID pandemic impact, where we could not enroll the students in the second half and also the first half of this year. So that was the impact on the top line and also the total student base.

Unidentified Analyst, Analyst

Thank you, guys. It's pretty clear. Thank you.

Virgilio Gibbon, CEO

Okay.

Operator, Operator

So, we don't have any other questions. I want to make available if you guys need to ask anything else or any point of the Investor Relations area, it’s available. And I would like to thank you all for participating tonight. Good evening.