The Adjusted EBITDA Margin expansion is primarily attributable to: (a) gross margin expansion in the Undergrad Segment; (b) completion of UNIMA and FCM Jaboatão integration process in November 2023; (c) the ramp-up of the four Mais Médicos campuses that started operation in 3Q22; (d) operational restructuring efforts in Continuing Education and Medical Practice Solutions segments; and (e) More efficiency in Selling, General and Administrative expenses.

 
 Table 7: Reconciliation between Adjusted EBITDA and Net Income 
 
 (in thousands     Three months period ended        Nine months period ended 
 of R$)                  September 30,                   September 30, 
                  ----------------------------  -------------------------------- 
                   2024      2023      % Chg      2024       2023       % Chg 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Net income       124,142   98,220     26.4%     494,641   303,530      63.0% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Net financial 
  result          99,844    80,535     24.0%     242,761   267,313      -9.2% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Income taxes 
  expense         12,432    12,146     2.4%      26,388     33,296     -20.7% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Depreciation 
  and 
  amortization    85,828    73,908     16.1%     249,135   212,172      17.4% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Interest 
  received (1)    13,945    10,619     31.3%     34,979     25,760      35.8% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Income share 
  associate       (2,526)   (615)     310.7%     (9,726)   (7,671)      26.8% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Share-based 
  compensation     5,871    6,684     -12.2%     26,299     20,082      31.0% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Non-recurring 
  expenses:        8,413   (3,104)     n.a.      25,151     22,284      12.9% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - Integration 
   of new 
   companies 
   (2)             6,444    7,769     -17.1%     17,722     19,951     -11.2% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - M&A advisory 
   and due 
   diligence 
   (3)             1,220     703       73.5%      2,803     12,377     -77.4% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - Expansion 
   projects (4)     198     2,007     -90.1%      2,568     2,536       1.3% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - 
   Restructuring 
   expenses (5)     551     3,722     -85.2%      2,058     5,673      -63.7% 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - Mandatory 
   Discounts in 
   Tuition Fees 
   (6)               -      (493)      n.a.         -      (1,441)      n.a. 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
  - Gain on tax 
   amnesty (7)       -     (16,812)    n.a.         -      (16,812)     n.a. 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 Adjusted EBITDA  347,949  278,393     25.0%    1,089,628  876,766      24.3% 
 Adjusted EBITDA 
  Margin           41.4%    38.5%     290 bps     44.4%     40.9%      350 bps 
 ---------------  -------  --------  ---------  ---------  --------  ----------- 
 (1) Represents the interest received on late payments of monthly tuition fees. 
 (2) Consists of expenses related to the integration of newly acquired 
  companies. 
 (3) Consists of expenses related to professional and consultant fees in 
  connection with due diligence services for our M&A transactions. 
 (4) Consists of expenses related to professional and consultant fees in 
  connection with the opening of new campuses. 
 (5) Consists of expenses related to the employee redundancies in connection 
  with the organizational restructuring of our acquired companies. 
 (6) Consists of mandatory discounts in tuition fees granted by state decrees, 
  individual/collective legal proceedings and public civil proceedings due to 
  COVID 19 on site classes restriction and excludes any recovery of these 
  discounts that were invoiced based on the Supreme Court decision. 
 (7) On August 10, 2023, Unigranrio entered into a tax amnesty program on 
  interest and penalties to settle a tax proceeding in respect to ISS (city tax 
  on services) with the municipality of Rio de Janeiro, which result in a 
  payment of R$14,819 to settle the claim. The selling shareholders of 
  Unigranrio agreed to pay R$5,438 regarding this matter. The Company had a 
  provision of R$53,302 and an indemnification asset from the selling 
  shareholders of R$20,000 (in light of the indemnification clauses as defined 
  at acquisition of Unigranrio), in respect to such tax proceeding. The 
  difference between the provision, indemnification asset and the actual paid 
  amount was recorded as Other income (expenses), net on the consolidated 
  statement of income and comprehensive income. 
 

Adjusted Net Income

Net Income for the three-month period ended September 30, 2024 was R$124.1 million, an increase of 26.4% over the same period of the prior year. Adjusted Net Income was R$165.4 million, which resulted in an increase of 28.8% over the same period from the previous year. For the nine-month period, Afya achieved a Net Income of R$494.6 million, 63.0% higher than the same period of 2023, and an Adjusted Net Income of R$626.7 million which was 46.9% higher than the previous period. This performance was mainly due to: (a) enhancement of operational results; (b) lower effective tax rates than last year; and (c) lower interest rates.

Adjusted EPS reached R$6.81 per share for the nine-month period ended September 30, 2024, an increase of 48.7% YoY, reflecting the increase in Net Income and capital allocation discipline.

 
Table 8: Adjusted Net Income 
-------------------------------------------------------------------------- 
(in thousands     Three months period ended     Nine months period ended 
of R$)                  September 30,                 September 30, 
                 ----------------------------  --------------------------- 
                  2024     2023         % Chg   2024     2023        % Chg 
---------------  -------  -------   ---------  -------  -------   -------- 
Net income       124,142   98,220       26.4%  494,641  303,530      63.0% 
---------------  -------  -------   ---------  -------  -------   -------- 
Amortization of 
 customer 
 relationships 
 and trademark 
 (1)              26,946   26,593        1.3%   80,592   80,779      -0.2% 
---------------  -------  -------   ---------  -------  -------   -------- 
Share-based 
 compensation      5,871    6,684      -12.2%   26,299   20,082      31.0% 
---------------  -------  -------   ---------  -------  -------   -------- 
Non-recurring 
 expenses:         8,413   (3,104)       n.a.   25,151   22,284      12.9% 
---------------  -------  -------   ---------  -------  -------   -------- 
 - Integration 
  of new 
  companies 
  (2)              6,444    7,769      -17.1%   17,722   19,951     -11.2% 
---------------  -------  -------   ---------  -------  -------   -------- 
 - M&A advisory 
  and due 
  diligence 
  (3)              1,220      703       73.5%    2,803   12,377     -77.4% 
---------------  -------  -------   ---------  -------  -------   -------- 
 - Expansion 
  projects (4)       198    2,007      -90.1%    2,568    2,536       1.3% 
---------------  -------  -------   ---------  -------  -------   -------- 
 - 
  Restructuring 
  expenses (5)       551    3,722      -85.2%    2,058    5,673     -63.7% 
---------------  -------  -------   ---------  -------  -------   -------- 
 - Mandatory 
  Discounts in 
  Tuition Fees 
  (6)                  -     (493)       n.a.     -      (1,441)      n.a. 
---------------  -------  -------   ---------  -------  -------   -------- 
 - Gain on tax 
  amnesty (7)          -  (16,812)       n.a.     -     (16,812)      n.a. 
---------------  -------  -------   ---------  -------  -------   -------- 
Adjusted Net 
 Income          165,372  128,393       28.8%  626,683  426,675      46.9% 
---------------  -------  -------   ---------  -------  -------   -------- 
Basic earnings 
 per share - in 
 R$ (8)             1.33     1.04       27.9%     5.35     3.21      66.6% 
---------------  -------  -------   ---------  -------  -------   -------- 
Adjusted 
 earnings per 
 share - in R$ 
 (9)                1.79     1.38       29.9%     6.81     4.58      48.7% 
---------------  -------  -------   ---------  -------  -------   -------- 
(1) Consists of amortization of customer relationships and trademark 
recorded under business combinations. 
(2) Consists of expenses related to the integration of newly acquired 
companies. 
(3) Consists of expenses related to professional and consultant fees in 
connection with due diligence services for our M&A transactions. 
(4) Consists of expenses related to professional and consultant fees in 
connection with the opening of new campuses. 
(5) Consists of expenses related to the employee redundancies in 
connection with the organizational restructuring of our acquired 
companies. 
(6) Consists of mandatory discounts in tuition fees granted by state 
decrees, individual/collective legal proceedings and public civil 
proceedings due to COVID 19 on site classes restriction and excludes any 
recovery of these discounts that were invoiced based on the Supreme Court 
decision. 
(7) On August 10, 2023, Unigranrio entered into a tax amnesty program on 
interest and penalties to settle a tax proceeding in respect to ISS (city 

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