Earnings Call Transcript - AFYA Q2 2020

Operator, Operator

Good morning, ladies and gentlemen. Welcome to Afya’s Second Quarter 2020 Earnings Conference Call. 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, Head of IR

Thank you, and good morning, everyone. Thank you for joining us for Afya’s second quarter 2020 conference call. With me on the call today is Afya’s CEO, Virgilio Gibbon; and Luis 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 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, the statements related to our business and financial performance, expectations and guidance for future periods regarding our strategic product initiatives, and the related benefits and our expectations regarding the market as well as the potential impact for COVID-19. These risks include those more fully described on 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 obligations 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 for results prepared in accordance with IFRS. We have provided a reconciliation of these non-IFRS measures to the most directly comparable IFRS financial measures in this presentation. Let me now turn the call over to Virgilio Gibbon, Afya’s CEO, starting with Slide 4.

Virgilio Gibbon, CEO

Thank you, Renata. And thanks everyone for joining us today. As the COVID-19 crisis continues to have effects all over the world, we remain committed to the health and safety of our employees, students, teachers, and the communities we operate in. Before I get into a discussion of our second quarter and first half results, I want to take this opportunity to reflect on our first year as a public company. We were able to build and deliver some results. While we are currently dealing with the pandemic and resulting economic challenges, we are confident in the strength of our company as we continue to enhance and grow our business. We have achieved or positioned ourselves as the leading medical education company in Brazil, partially through acquisitions. Over the past year, we have completed six acquisitions and created a successful track record of integration of acquired companies, delivering cost efficiency and synergies. Last month, we acquired our first digital health tech company, PEBMED, adding digital assets to our service offering. With respect to medical seats, we have added more than 700 in less than a year, 70% of our goal for adding 1,000 medical seats over a three-year period post IPO. Taking into account the two most recent acquisitions, our medical seats now stand at 2,143 seats. On top of that, we still have more than 800 seats to be analyzed under MoU contracts. As you can see over the past year and also during the COVID-19 crisis, our financial results have been great, consistently exceeding our guidance, delivering strong top-line growth, improving profitability, generating free cash flow, and maintaining a healthy financial position that creates a virtuous cycle of capital allocation opportunities and cash generation. Now, on Page 5, I will show our financial highlights. We delivered another solid quarter with broad-based organic revenue growth, contributions from acquisitions, margin expansions, and cash flow improvements, reflecting our excellent execution even during COVID-19. This executional excellence has enabled us to exceed our financial expectations for the second quarter and surpass our first half 2020 guidance, positioning us for another great semester. During the first half, occupancy was at 100% during the quarter, and given this strong demand for medical seats, we were able to maintain the same pricing strategy. As a result, revenue increased 54% year-over-year. It’s important to note that as we moved all classes to our online platform in March, we were not able to offer some practical classes during the semester. This deferral has impacted our first half net revenues by R$14 million, but we will fully recognize that in the second half. Our team executed well in key areas of our business, particularly with great acquisitions, extracting synergies, and scaling Afya’s operation. In turn, we generated significant top-line growth and margin expansion in the quarter and six-month period. We still have synergies to capture as we move ahead with the integration of Uni Novafapi, Medcel, UniRedentor, and Uni São Lucas. We completed the first two integrations immediately after the second quarter, and for the last two, we expect to complete them by Q1 of 2021. Lastly, our balance sheet is strong with over R$1 billion in cash and cash flow generation with an 83% EBITDA to cash rate. Our financial strength and cash flow generation capabilities afford us flexibility to execute our expansion strategy and remain opportunistic, nurturing our M&A pipeline. Moving now to Page Number 6, we will discuss PEBMED. Although PEBMED was a 3Q event and we had a conference call to discuss the acquisition, I want to take some time today to reinforce the importance of this acquisition. As a reminder, PEBMED provides tools and content for healthcare professionals through the WhiteBook and Nursebook apps and through the PEBMED news portal. It’s also the market leader in clinical decision software and has an extremely popular app ranking among the top 10 Brazilian apps by consumer spend. The business consists of both paid subscriptions and free content. This was an important acquisition for us as it progresses our digital effort to improve the user experience and efficiency of both healthcare students and other healthcare professionals. Our strategy is to combine quality medical education with intensive use of technology, and PEBMED is a key component of it. With this acquisition, we enter into the digital health services segment and strengthen our BU2 product offering, which is also a relevant component of our growth strategy. On Slide number 7, we will discuss a little bit more about our digital strategy. The pandemic proved that both individuals and healthcare professionals were willing and able to adapt to a more digital world, and it caused us to accelerate the expansion of our digital business. We are committed to providing innovative technology solutions that assist our students as they spend more time online to work and study. Additionally, we see the opportunity to maintain a relationship with our post-graduate students throughout their entire careers. Our increased product offerings are driving more users to our digital assets. During the quarter, our monthly active users increased 27.6% compared to the first quarter of this year. Stepping back and looking at the long-term opportunity, a seasonal shift already occurred in the digital healthcare world even before COVID-19. We believe that this shift has been accelerating in the last several months and will continue post-pandemic. Additionally, we believe that the shift, combined with our strong brand and the deep connection we have built with our students and alumni, positions us to capitalize on the opportunities ahead. On the next slide, we’ll start to discuss our recent acquisitions. As you all know, M&A is a key pillar of our growth strategy, and we are taking a disciplined approach to grow our portfolio. During this time of significant business disruption and uncertainty, we are taking steps to strengthen our leading position. Now where we see the opportunity, we accelerate our strategic plans. To that end, during the past week, we announced two strategic and accretive acquisitions. The first one was Faculdade de Ciências Médicas da Paraíba, a post-secondary education institution offering accredited medical programs in the state of Paraíba. It’s our first school in this state. The second was Faculdade de Ensino Superior da Amazônia Reunida, or FESAR, a post-secondary education institution authorized to offer on-campus undergraduate courses in medicine in the state of Pará, our second school in this state. Seeing these measures in Paraíba adds 157 seats and is the second largest acquisition for us in terms of approved medical seats. We see the opportunity to increase our organic growth rate, primarily as we increased the number of seats at maturity at Ciências Médicas da Paraíba to 1,130, up from 850 currently. FESAR brings another 120 medical seats and currently has 227 medical students, with a potential of 864 students at full maturity. Combined, these two acquisitions take our medical seats up to 2,143 seats. Now on Page 9, we will see our integration track record. As I just mentioned, we have completed six acquisitions in the past year. And as indicated on both charts, we have a successful track record of integrating these acquisitions and capturing synergies. In January, the margin expansion has been over 1,000 basis points in slightly less than a two-year period after acquisition. The current operating environment has not slowed our integration process with recent acquisitions, and we are moving ahead with the group you see listed in the box on the right-hand side of this slide. As we integrate acquired companies and gain further scale, we are able to see value creation and margin improvements, reflecting cost efficiencies and synergies. Now on Page 10, we will talk about our future perspectives. We are coming off of a very successful year as a public company, and 2020 is also off to a great start. We have a successful business model with highly predictable growth. We will continue to focus on five key areas: first, strategic M&A; second, pushing further into our digital initiative; third, successfully integrating acquisitions; fourth, delivering sustainable and predictable growth; and fifth, maintaining a healthy balance sheet. Beginning with M&A, which has been and will continue to be a key component of our strategy, we have completed six acquisitions after our IPO, both medical schools and digital. Importantly, we have a solid pipeline that has been growing during this challenging period. As I mentioned earlier, we are working diligently to further enhance our digital capabilities. We will continue to invest in our strategy to add more digital assets and solutions to support our medical students and other health professionals. While BU2 represents a small part of our overall sales to date, we see significant opportunity to grow this business. Our solid balance sheet, coupled with strong cash flow generation, creates a virtuous cycle, providing the financial flexibility and competitive advantage to continue executing on our M&A strategy. Given the high predictability of our business model, I’m confident in our ability to generate meaningful cash flow, further strengthening our financial position. Overall, our consistent momentum is continuing, and we are pleased with our results in the first year as a public company. For the second half, we have already filled 100% of the medical seats, and we are confident in achieving our second half guidance, confirming the resiliency and predictability of Afya’s business model. I will now turn this call over to Luis for more clarity on our financial results and second half 2020 guidance. Thank you.

Luis André Blanco, CFO

Thank you, Virgilio, and good morning, everyone. I would like to stress what Virgilio just said: I’m particularly proud of what we delivered—a successful quarter and first half results that exceeded our guidance. As already discussed, at the end of the first quarter, we were able to quickly move all of the classes online, which in turn enabled us to report a good first half. Moving to Page 12, my discussion will focus on the main and most significant P&L items. There is additional inflow in the earnings press release that you can refer to for further information. Our second quarter earnings represent a solid result in view of the current global environment, and as you will hear over the course of my presentation, we had a very good quarter across all key metrics. Let me highlight a few. Both medical seats and students saw significant increases during the quarter. With respect to the number of medical school seats, we added 414 seats year-over-year, for a total of 1,516 by the quarter end, a 38% increase over the second quarter of 2019. Reflecting the seating maturation process, the total number of students in the second quarter of 2020 was 9,097, an increase of 64% over the same period of the prior year. As you heard from Virgilio, subsequent to the quarter end, we added another 277 seats with the acquisitions of FCMPB and FESAR. Taking into account the acquisitions we have already made, our full potential as of today is 2,143 seats and more than 15,000 students, which leads us to a 13% organic CAGR in the student base, considering the period between 2019 and 2026. Net revenue for the quarter was up 48.8% year-over-year to R$274 million. Excluding the acquisitions of UniRedentor and UniSãoLucas, pro forma net revenue grew by 18.8% year-over-year, reaching R$219 million. The increase was primarily driven by organic revenue growth, mainly due to the maturation of medical school seats and an increase in average ticket. The strong top-line growth, combined with cost efficiency and resulting synergies from acquisition, was reflected in adjusted EBITDA, increasing 73% to R$180 million and a margin expanding 780 basis points. Excluding the consolidation of UniRedentor and UniSãoLucas, pro forma adjusted EBITDA increased 44% year-over-year to R$98 million, and the margin increased 780 basis points to 44.8%. Adjusted net income was up 163%, reflecting the revenue contribution, synergies captured, and margin expansion from the consolidation of acquisitions. Earnings per share increased 183% from R$0.23 in the second quarter of 2019 to R$0.65 in the second quarter of 2020. Moving on to Page 13 for a discussion of key operating metrics by business unit. We delivered solid growth across both business units, continuing performance very well. Growth is a key operating metric, as shown on this slide, and is being driven by a combination of organic growth and acquisitions. Starting with BU1, our average monthly medical tuition fees at the semester end were R$8,157, which was 14% above the same period in 2019. This reflects a combination of new students enrolling with higher tuition rates combined with the students graduating with lower tuition. As shown in the middle chart, 76% of our combined tuition fees are derived from medical schools. The combination of a 32% increase in the number of students and a 14% increase in average ticket results combined tuition fees up 50% when compared with the first half of 2019. With respect to BU2, we had almost 16,000 active paying students at the quarter end, an increase of 47% over the same period last year. We can see an increase of 26% and 22% in the number of students in prep courses and CME for B2B and B2C, respectively. Regarding Medical Specialization & Others with UniRedentor, we saw an increase of 161% in the number of students. Moving on to a deeper analysis of revenue and EBITDA on Slide 14. We are fortunate to have an experienced team that’s proving once again that they can continue to successfully execute the complex work of integrating acquisitions and capturing synergies. As shown on this page, we have provided net revenue and adjusted EBITDA bridges from our historical second-quarter 2019 revenue to the reported second-quarter 2020. For the first half, net revenue increased 69% to R$547 million. Excluding the consolidation of UniRedentor and São Lucas, net revenue grew 47% in the first half to R$476 million, with a contribution of R$93 million coming from acquisitions and R$60 million coming from organic growth, which is comprised of the maturation of medical school seats and an increase in average ticket. UniRedentor contributed revenue of R$14 million in the first half, while Uni São Lucas’ contribution was R$31 million. On the right side of the page, we show the first half 2020 adjusted EBITDA. During the period, adjusted EBITDA increased 82.7% year-over-year to R$259 million with a 360 basis point expansion in margin and a R$23 million contribution from UniRedentor and São Lucas. Excluding the consolidation of UniRedentor and São Lucas, adjusted EBITDA advanced 66.5% with R$48 million contributed from prior acquisitions and R$46 million coming from organic growth. The adjusted EBITDA margin, excluding these two companies expanded by 580 basis points. Moving next to a discussion of cash flow on Slide 15. Cash and cash equivalents of R$1.1 billion at the quarter end was up from R$960 million at year-end 2019. The significant increase in cash compared to year-end 2019 reflects strong cash flow generation and the proceeds from the July 2019 IPO and the February 2020 follow-on offerings. The majority of these funds are invested in low-risk Brazilian real-denominated instruments. The total debt was R$535 million at the quarter end 2020, up from R$361 million at year-end 2019, related to acquisition payables. Cash flow generation remained strong in the first half of 2020, increasing 81% to R$202 million, which results in a cash conversion ratio of 82.6% compared to 85.4% in the first half of 2019. This was a slightly lower cash conversion ratio year-over-year and is mainly due to the consolidation of the Medcel business and our students’ renegotiation of overdue monthly installments due to the COVID-19 crisis. Turning next to a discussion about guidance on Slide 16. We are pleased with our second quarter and first half results, and our guidance for the first half of this year demonstrates that we are still in the early stages of growth. As a reminder, the world is still in the middle of a pandemic. Economies are slowly opening up, and our guidance takes into account the best information available at this point in time. Two key metrics for second half 2020 guidance are as follows: second half 2020 adjusted EBITDA margin ranging between 45.5% and 47%. Our guidance includes the impact of the adoption of IFRS 16 and includes UniRedentor starting February 2020, São Lucas from May, PEBMED from late July, and excludes any other acquisitions that may conclude after the issuance of this guidance. As we look ahead, we have a complete intake process for the upcoming semester, and given the strong demand we saw for seats, we have filled 100% of our medical seats, maintaining our revenue growth resilience and high predictability, even under these uncertain times. Additionally, included in the revenue outlook is the revenue recognition for some practical classes that could not be held during the first half and were pushed out to the second half of 2020 upon the reception of the classes. This amounts to R$14 million. To sum up, we are pleased with the strong quarter and first half results and the continued momentum in our business. We’re confident that the strategic investments we are making to advance our growth strategy will enable us to continue to deliver consistent revenue and profitability growth as we remain on track to achieve or exceed our fiscal 2020 financial targets. Afya is in a strong financial position with high liquidity. We have a history of robust cash generation that clearly defines margin growth strategy, and this team has a proven track record of delivering results and handling difficult times. And COVID-19 has not changed any of these factors. This ends our prepared remarks. We are now ready to take your questions.

Operator, Operator

And today’s first question comes from Marcelo Santos of Banco JPMorgan. Please go ahead.

Marcelo Santos, Analyst

Hi. Good morning. Thanks for taking my questions. I have two. The first question is regarding BU2. Could you please provide a roadmap of your plans for the next two years? How do you plan to monetize and integrate these assets? Whatever light you could share would be very interesting for us? And the second question is regarding M&A. We have limited information, but with our information, it seems that the recent acquisitions have been a bit more expensive than the previous ones. Maybe that’s just by the quality, but they look more expensive. So the question is, are we seeing the good assets are like – are we getting to the end of the good assets or is competition heating up. We have been seeing other players also becoming more vocal on med schools. In the past, they were not. So any comment there would also be very helpful. Thank you.

Julio Eduardo, CRO

Hi, Marcelo. This is Julio here. Hi, everyone. Thank you for participating in the call here. So answering your first question regarding the roadmap for BU2. So more and more BU2 is an extension, of course, of what we’ve been doing with our undergraduate business, right? So we’ve been focusing a lot first on the digital part of integrating more and more our digital platforms. So this is the first thing. So we are investing in the development of the integrated solution where we offer one single platform for all of our students. So just as an example, we are now launching the app that integrates the digital experiences in the graduate business, adding more services to our students in the graduate business. So first thing is that we are providing this digital platform and now actually with Whitebook, the app from PEBMED, the idea is again to have paying users for that particular app. Imagine the potential that we have to distribute and to market other courses that we have for continuous medical education with more micro-learning. So ideally, we want – the roadmap is based on having our students and medical students using our platform so we can provide and sell and cross-sell products, educational products, and now we’re also moving to digital services. So this is – for the next two years, we plan to integrate the digital platform so that we can serve all of our students, providing one single experience on the digital platform. So, hopefully, I’ve answered your questions, but I’ll hand over to Luis for the second one.

Luis André Blanco, CFO

Hi, Marcelo. This is Luis to take your second question here about the M&A. Of course, the M&A pipeline and competition are getting high, and it’s becoming more vocal. That’s one of the costs of being a public company for sure. But in our view, the more mature transactions we are acquiring are more focused on EBITDA multiples. We are doing very accretive transactions considering that we are investing our capital—our cash that you can extract synergies in a very short term, jumping revenue, jumping margins, and also it’s not only a six-year duration program that we are taking into consideration here. We aim for at least a 20% IRR for all of these opportunities. In terms of multiples, after synergies, will be around 4x to 5x for most of them. So that’s the way we are looking and keep looking for more traditional acquisitions.

Julio Eduardo, CRO

And Marcelo, just adding some points to what Luis just said. Of course, we analyze each one of these acquisitions. Virgilio, in his speech, indicated that we have a pipeline with more than 800 seats that we are analyzing case by case, always evaluating with IRR and EBITDA multiples in maturation. Each process is different. Each acquisition is different. One of them that we announced in the last 10 days was a competitive process. Of course, in this one, we faced a little bit more pressure in price. The other acquisition was a direct negotiation. So what you can expect from us is to keep our financial discipline in these acquisitions, always trying to give the best return on our capital allocation.

Operator, Operator

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

Mauricio Cepeda, Analyst

Yes. Good morning, everyone. Thank you for this time to answer my question. In fact, I just had one and it will be a follow-up on my colleagues insisting a little bit on M&A. As other groups are now much more vocal and possibly really in more need of this kind of medical seat acquisition as the other higher education businesses are not doing well. And so far, we saw that you are paying progressively more for these targets. And you are right; they are accretive so far in terms of lower costs. In a feedback methodology, it’s a very simple one, we see that it takes some years to get the investment back anyhow. But in a case where the competition gets tougher and your competitors start to overpay for the targets, what are your plans? Are you more willing to do a defensive move, not to let them win or do you privilege a little bit more the financial rationale of the transaction? Thank you.

Virgilio Gibbon, CEO

Hi, Mauricio, this is Virgilio here. First, the type of assets that we are targeting have to be very concentrated in medical and health programs, above 60% to 70% of the revenues coming from these programs. So I truly believe that we are 100% focused on these offerings, having some kind of differential—not only because of the quality of our program, but we are also licensing our platform for the institution. So there is a component of reputation here that we are developing, close to most other institutions focused on medical schools. Of course, if the price goes up, if competition grows even stronger and turns into a war, on our side, our strategy is that we already have an ecosystem distribution channel that is very large. So it makes a lot of sense to start partnerships by licensing our platform, capturing these students at the beginning of their careers. We see all other players as potential partners that can use our platform, and having said that, we still see an opportunity to have good transactions in medical schools, and now we are completely aligned and focused on additional services with our PEBMED platform. So that’s how we’re thinking.

Mauricio Cepeda, Analyst

Very clear, thank you.

Operator, Operator

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

Irma Sgarz, Analyst

Yes, hi, good morning. I hope you all are doing well. And congratulations on the very strong results. And thanks for taking our question. The first one that we have here is related to the margins.

Virgilio Gibbon, CEO

Hello.

Irma Sgarz, Analyst

Hello, can you hear me? Hello.

Operator, Operator

Hello, this is the operator. Can you hear me?

Virgilio Gibbon, CEO

Yes, Irma, go ahead.

Irma Sgarz, Analyst

Okay, thank you. So back to – I wanted to ask about margins. You had obviously very strong underlying margins in this last quarter, and they evolved very well. If we think – and obviously, we see the guidance for the back half of the year, but when we think a little bit beyond for the next couple of years – again, understanding that your guidance is restricted to the second half of the year, but could you just help us understand the average maturity of your legacy medical campuses and also the average maturity of the recent acquisitions that you’re integrating, please, because it will be helpful to think through how your margin can still progress from here? And then the second question we have is regarding the mice medical projects. If you have any update that you could share there, please. Thank you.

Virgilio Gibbon, CEO

Hi, Irma, thanks for the question. In terms of margins, as we have many institutions that were recently acquired, we still have a lot of room for improvements and still have low-hanging fruits. I said in my speech that we still have large institutions to fully integrate and capture more synergies and efficiency such as Uni Novafapi, Uni São Lucas, and UniRedentor. They are very large institutions, and we are not extracting even 50% of the synergies we are aiming for these assets. So we are aiming to have at least five percentage points for gross margins where we are operating this Business Unit 1, considering IFRS 16. So there’s still opportunity and room for improvement in our efficiency on this side. On your second question about the mice medicals program, we are still waiting for the final conclusion for at least two institutions. We are very close to having two; I expect this year to have the final authorization. The other five, it’s more reasonable to expect in 2021. So two of them are very close to having the final approval, the final signature from the Minister of Education. We are seeing some of series in the 28 series from the last mile medical process being already authorized, and I think we are very close to having the first ones starting.

Julio Eduardo, CRO

And Irma, just adding some points to your first question, let me just give you an example of São Lucas and UniRedentor. As you can see now in our press release, the consolidation of these two units we bought on the first merger has reduced our consolidated margin. So, of course, we have different institutions, different percentages in these institutions between medicine, health, and other programs. We have a different maturation stage, so it’s very difficult to put an average on that. But what you can see in our presentation is that when we acquire an institution and use our playbook, doing the cost reductions in the first half, migrating these institutions to our group set of center, implementing our people plan, and after it’s implementing our full national curriculum, we can track this efficiency along this process. So we are very confident in our playbook, and then very confident that we can capture the synergies in each one of these acquisitions.

Irma Sgarz, Analyst

That’s great. Thank you very much.

Operator, Operator

And our next question today comes from Susana Salaru with Itau. Please go ahead.

Susana Salaru, Analyst

Hi, good morning, guys. We have two questions here. First, I just wanted to clarify the answer related to the partnerships that Afya – that Virgilio mentioned that Afya had with several other potential projects. I’m sorry, we couldn’t understand properly the answer. You guys have a – do you aim to have partnerships with the next targets or the potential targets in terms of acquisition or do you already have some kind of MOU or some kind of non-binding offer with some of the target products that you aim to monetize in the future? We didn’t understand what was – what is the kind of contract that you have with these potential targets that will facilitate your acquisitions relative to the other players in the market. That would be our first question. And then our second question is related to PEBMED. We discussed a lot about PEBMED potential upside and cross-sell with the medical seats by school students, sorry. We know that PEBMED is also used for other healthcare careers. So we were wondering if – when we should also take into consideration the percentage of students that you have in health care and if you’re going to leverage PEBMED cross-selling for those students as well or if you’re going to focus exclusively in certainly medical students and in nursing? Thank you.

Virgilio Gibbon, CEO

Okay. Susana, I’ll take your first question here, then Julio can help me on the second here. But just to separate, at this point, we have around 40 medical institutions using our personal platform to help them during the COVID-19 to keep running their learning process for all these students. Some of them, we have a B2B contract as a licensed learning, traditional learning system products to help them for more than one to two years, and it’s not a free program. For an institution using today, you have six of them paying our SaaS module per user for our platform. Of course, this relationship can be an opportunity for us to leverage M&A acquisition. Also, when I said about 800 seats of this pipeline, they are under MOU contracts. We are conducting our due diligence, so the pipeline is getting bigger and it’s a very fertile area. So it has something to do with this relationship that we have, but we have a roadmap for all medical institutions that make sense for us in terms of target for M&A.

Julio Eduardo, CRO

Okay. Susana, Julio here. In regards to the strategy with PEBMED, if you see the numbers, of course, the revenues, they come from the doctors and medical students that are using specifically WhiteBook. Nursebook, if you consider the number of nurses and the number of technicians on nursing as well, I mean, it’s a significant number—it’s about 2 million people in the country. The penetration so far is about 60,000 users. There’s still room to grow, of course, but it’s a different audience, right? So we’ll keep investing, but always thinking that the WhiteBook is the one; it’s the application that we want to grow and consolidate because there is where we extract more value specifically on the journey of the doctor that we’re focused on. However, there is room to also invest in other multi-professional careers, of course. And since doctors don’t work alone, my point here is that we think about the point of care. That’s where we are thinking. And if the application and the software, everything we’re discussing makes sense for the point of care, then we will invest.

Susana Salaru, Analyst

Thank you, Julio. Very clear. Virgilio, just one clarification on your answer. You mentioned 800 seats under MOU; does this include the four companies that you have already a business relationship through the digital platform, or these four companies that you have the business relationship will be additional potential targets on top of these 800 seats that you have under MOU?

Virgilio Gibbon, CEO

Susana, these 800 seats are separate from the institutions that we had the B2B relationship with, but some of them—under MOU, some of them are in our pipeline. We are having initial conversations.

Operator, Operator

Our next question comes from Vinicius Ribeiro with UBS. Please go ahead.

Vinicius Ribeiro, Analyst

Yes, guys, good afternoon everyone. Thanks for taking my question. So just very quick one, two quick ones. First will be a color on the pricing on this intake processes. I just wanted to get a sense if you guys changed your pricing point in terms for entering students? And the second question is similar to one that was already asked about BU2. Just like to understand how your approach has been for attracting students during this pandemic? And how should we expect this to behave for the rest of the year? Thanks a lot, guys.

Julio Eduardo, CRO

Hi, Vinicius. About your first part of your question regarding price point, we did change our strategy during this first semester and also in the second semester. We are just adjusting related to inflation. Remember that we have to account for the migration of our average ticket because when we acquired institutions. So that change, because of COVID, of course, is case-by-case with some credit in terms of installments for renewals for the following semester, but it will not impact our good balance sheet and cash flow generation. Regarding BU2, about what we are doing in terms of the impact that physicians were hurt during the pandemic, we were performing – due to the season, we enrolled graduate programs for the following semester for the second semester. So what we are seeing is that the demand is there; it takes for us to go through September and the beginning of October to close the graduate program. We are getting very good enrollments, and in terms of volume, we are set to start classes in October. Also, in the first semester, we saw 20% to 22% growth in our BU2, and in the second semester, we started the new program in September. So it’s too early to predict how the dynamics will be for the following semester.

Vinicius Ribeiro, Analyst

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

Operator, Operator

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

Virgilio Gibbon, CEO

Okay, thank you all. I think we had some interruption in the call. Sorry for that. This first half of 2020 and the first year as a public company has been unique for us here in Afya. We navigated firmly and steadily even under all this uncertainty, and we remain optimistic for the following semesters and the following years. Thank you all for the support during this first year as a public company, and I really hope to see you all safe in the next quarters. Thank you, and bye-bye.

Operator, Operator

Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.