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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone. Thank you for joining us for Afya's Fourth Quarter and Full Year 2020 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 expectation 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 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 results 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 and starting with Slide 4.
Thank you, Renata, and thanks, everyone, for joining us today. I am extremely proud that Afya has over-delivered outstanding results since the IPO. Our performance reflects our superior strategy, great execution, commitment of our team members and the resilience of our business model, especially during a year of a worldwide pandemic. Since 2017, our net revenue has grown almost 6 times and our guidance for first half 2021 is higher than 2019’s full year’s net revenue. We are not only growing fast, our adjusted EBITDA has grown almost 8 times and increased 13 percentage points in margin in the same period. And there is more. Afya generated operating cash of R$391 million in 2020, 9 times higher than 2017’s, and reaffirming our tripod of strong growth with high profitability and cash generation, reinforcing, once again, our firepower to continue consolidating medical seats, even after achieving the 1,000 seats guided in the IPO.
Besides all this incredible growth and profitability figures, we have been creating the largest medical ecosystem in Brazil with more than 200,000 physicians and medical students using one of our products. We also have more than 430 partnerships with hospital and clinics in Brazil. Afya's focus continues to be providing lifelong learning experience for physicians, and to help doctors to transform Brazil's healthcare.
Now let's take a deeper look in 2020 achievements on page number 5. During the year, we successfully executed our strategy to continue to be the market leader of medical school seats in Brazil. As we have completed nine acquisitions since we became public, adding 851 medical seats in less than two years, or approximately 85% of our three-year target shared during our IPO.
Importantly, we have a solid track record of integrating acquired companies and delivering cost efficiencies and synergies that can be seen in the margin expansion we are delivering. These acquisitions set us up to deliver continued strong results in the months and years to come. Our medical education business remains, and will continue to be, the cornerstone of our business in the short and mid-term. We have become extremely efficient at operating medical schools and we continue to see opportunities in this area.
In the beginning of the year, we had to adapt with the agility needed to stay focused on providing the high-quality educational experience that our students had come to expect from us while at the same time executing on our long-term strategic plan due to the pandemic outbreak. We are fortunate that, as a business, we are able to help using our campuses as vaccination locations and by providing free course at this time to assist hospitals, medical schools, physicians and nurses to face these difficult times.
The COVID-19 pandemic intensified some behavior shifts. It has caused the acceleration of our long-term plan and started to unfold our digital services strategy. As evidenced by the pandemic, the medical community and patients have embraced a digital component to healthcare. We discussed in the past that digital assets were appealing to us so that we can add more services to medical students and professionals, and maximize our product offering. So we furthered our digital strategy with the acquisition of PEBMED, iClinic, MedPhone and Medical Harbour. These acquisitions enable us to deepen our relationship with our students as well as put our brand in front of many new doctors, nurses and other medical personnel and students, enhancing our competitive position and our capabilities.
We remain having a peer-leading capital structure, providing ability to adapt to the dynamic environment we operate in and maintain our focus on generating value. Given our strong free cash flow and liquidity, we remain committed to our long-term capital priorities, with a balanced approach to invest in the business and return strong cash to our shareholders, all while keeping our students, faculty members and employees safe and managing through this volatile environment.
Our quality and execution was also rewarded this year. Afya was ranked as the winner in the education sector in the Época Negócios 360 survey and also won the Golden Tombstone in the Equity category. This award is evaluated by IBEF São Paulo and recognizes equity operations aspects such as complexity of the transaction, innovation, price and others.
To close this first part, we will start to report ESG metrics in this earning release. Afya's engagement on this theme is generating incredible impact on society, what makes our team very proud, even more committed to our values and strategy.
On the next page, I will present the recent acquisition that we just concluded this week. Medical Harbour develops solution for medical imaging, radiology, teleradiology and medical education for the health community. Their solution is divided in two segments: Medical Imaging and Health Education.
On the medical imaging business, the product, Athena DICOM Viewer is a powerful diagnostic tool designed to attend physicians, health professionals, clinics and hospitals. It's certified by ANVISA Brazilian Health Agency and it has over 24,000 downloads across 180 countries. The other medical imaging product is MH PACS Cloud, a high performance teleradiology cloud infrastructure that allows remote diagnostics and sharing medical images to any location in the world, anywhere, anytime. Both products operate as a SaaS model.
In education health solutions, they have Athena Hub platform for health education with a real vitro cadaver, human and animal anatomy models and analysis of real exams using photorealistic rendering. Athena Hub is a complete solution allowing teachers and students to access content remotely without losing the quality of teaching the health ed.
Today, Athena Hub is used by more than 50 universities in multiple health programs, also in a SaaS model business. With these products, Medical Harbour will enhance our content technology for medical education pillar, allowing us to strengthen our presence in universities, hospital and clinics and to integrate this solution to our platform providing better service to our physicians and students. I invite you all to get more details of those acquisitions and the presentations available in our IR website.
Moving to the next page, we will discuss our main highlights of 2020. Starting from our top-line, 2020 adjusted net revenue increased 61% year-over-year, reaching R$1.2 billion, mostly due to the maturation of our medical school seats and consolidation of acquired companies. Our medical student base was up 67% during this period. In 2020, we managed to combine high top-line growth with profitability mainly due to the operational leverage and successful integration of acquired companies. On average, we gained more than 10 percentage points EBITDA margin of integrated acquisitions year-over-year.
Adjusted EBITDA was up 69% with 220 basis point margin expansion during this year. Adjusted net income was up 72%. At the end of the fourth quarter, we had approximately R$1 billion in cash on our balance sheet, and the cash conversion for 2020 reached 76%. In the fourth quarter, we also announced the acquisition of UNIFIPMoc, bringing our medical seats base in 160 seats, and the authorization to operate 2 Mais Médicos campuses, adding 100 seats to our operating base. We expect to have the final approval of antitrust, and close this deal in the second quarter.
Moving to the next slide, we will detail how Afya's continued medical education and digital offering is serving the entire medical journey. Our long-term objective is to be the one-stop shop for physicians in Brazil. And we have already managed to achieve physicians in all stages of their career. Starting with Afya medical campuses, we impact medical students since their first glance with medicine, offering first-class technology-based education. After they graduate and become a generalist position, they have 2 alternatives to continue their career. First is the medical residents, a competitive path due to the lack of residents program supply in Brazil. Medcel’s platform help these students to prepare for residents test with a total digitalized study plan to maximize the approval rates and individual roles. The second path is the specialization programs in which they have theoretical practical class of more than 60 different specialists offered by Internet.
On the digital health services, we are building a tremendous offering based on our 6 strategic pillars: medical education content technology, clinical decision tool, clinical management tool, telemedicine, electronic prescription and doctor-patient relationship. With Medical Harbour acquisition, we enhanced the medical education content and technology pillar by offering better solution to students, physicians and universities to have imaging studies and diagnostics through Athena Hub and Athena DICOM product.
In terms of clinical decision tool, we brought together PEBMED and MedPhone, the 2 leading players on this segment, helping more than 200,000 medical health professionals to take daily accurate decisions, minimizing medical errors and medical inflation. For clinical management tools and telemeds that aim more experienced physicians, we have iClinic and Medicinae, ready to help physicians to manage their clinics and all financial process between patients and health insurance funds.
Last, we are not only serving more than 200,000 doctors with products to enhance their presence. But we are also offering tools that can connect them to patients with AgendarConsulta, allowing us to create a huge ecosystem for healthcare in Brazil. We still have many opportunities to grow the digital services as we are still integrating strength and synergies between these healthtech acquisitions, cross-selling their products and locking in their clients. Our M&A pipeline remains very strong and will help us to strengthen even more our ecosystem and improve our penetration on each strategic pillar.
Moving to next page, we will discuss our guidance achievements and the guidance for first half of 2020. I'm extremely proud to announce that we achieved the guidance for the second half 2020 besides all the uncertainties in the pandemic environment. In terms of adjusted net revenue, we delivered R$642 million, R$2 million above the top of the guidance, a great achievement for the semester and for closing 2020. Our adjusted EBITDA margin was also achieved 45.9% on a guidance of 45.5% to 47%. We are also issuing the guidance for the first half of 2021. The expected net revenue is between R$740 million to R$780 million, representing a growth of up to 43% year-over-year, and adjusted EBITDA margin between 46% to 48%. That represents a growth up to 45% year-over-year in adjusted EBITDA. All these figures does not include any acquisition that can be concluding during the first half of this year.
I will now turn the call over to Luis that -- who’ll detail our financial results. Thank you.
Thank you, Virgilio, and good morning, everyone. Moving to next page to discuss the financial highlights of 2020. I'm very proud that we are able to continue to grow with great profitability and cash generation this year. I will now pass through the highlights of our financial results of 2020. Both medical seats and students saw a significant increase this year.
Operating medical seats increased 55% year-over-year, to 1,893 operating seats. Medical students was up 67%, reaching the base of 11,030 students, reflecting medical seats maturation and acquisitions. Adjusted net revenue for the year was up 61% year-on-year to R$1.2 billion, reflecting acquisitions, medical school maturation and ticket increase due to the maturation of readjustments.
Excluding the acquisition of UniRedentor, São Lucas, PEBMED, Ciências Médicas and FESAR, the net revenue grew by 20% year-over-year, reaching R$956 million. The increase was primarily driven by organic revenue growth mainly due to the maturation of medical school seats and an increase in the average ticket.
We also had a great profitability growth coming from the cost efficiency and synergy extracted from acquisitions. Adjusted EBITDA was up almost 70% reaching R$563 million with adjusted EBITDA margin expanding 220 bps. Excluding the acquisitions that I mentioned before, the adjusted EBITDA was up 40% reaching R$467 million. Adjusted net income was up 71% year-over-year, reaching R$388 million. Our EPS had a great increase of 55% reaching R$3.15 per share.
Moving on to the next page for discussions of key operating metrics by business unit, starting with BU1. Our average monthly medical tuition fees increased 9% compared to 2019, reaching R$7,975, excluding acquisitions. This reflects a combination of new students enrolling with a higher tuition rates combined with the students that are graduating with a lower tuition. Talking about the revenue mix, 74% of our combined tuition fees are derived from medical school, up from 69% in the same period of the prior year. In terms of total tuition fees, we reached R$1.2 billion, up from R$794 million, an increase of 53% year-over-year.
With respect to BU2, we had almost 125,000 active paying users at the quarter end, which includes 170,000 coming from WhiteBook. Excluding WhiteBook, we saw a 40% increase in active paying students. In the specialization business, we saw an increase of 163% year-over-year mainly due to the consolidation of UniRedentor.
Now turning to the next page. I'll discuss our digital student base and student engagement. In the first graph of the page, we can see the evolution of monthly active users in our platforms. We saw a decrease in Medcel monthly active users in the second semester due to the consumption of the COVID-19 free courses in the platform. There are still some students with the course active, but many of them had already finished the course. Monthly active users of WhiteBook reached 163,000, 1.5% lower than the third quarter 2020.
On the chart on the right, you can see the trend in our current consumption. Content that users are consuming, including podcasts, learning assessment tools as well instructive medical webinars. We saw a 24% increase from the first quarter 2020. That means that our students are more engaged with the assets that we are providing to them.
Moving to the next slide, I'll discuss in more details the net revenue and EBITDA growth. We saw a 61% increase in net revenues year-over-year, of which 55% of the increase is coming from the consolidation of 2020 acquired companies. On the right side of the page, we show the 2020 adjusted EBITDA. During the period, adjusted EBITDA increased 69% year-over-year to R$563 million with 220 basis points expansion in margin. 42% of the increase is coming from 2020 acquisitions. The other 58% is coming from synergy extracted from acquired companies that we integrated in our shared service, increase on medical seats occupation to 100% and implementation of the career plan integrated curriculum.
Moving next to a discussion of cash flow. Cash and cash equivalents of R$1 billion at the quarter end were 11% higher than at 2019, reflecting the strong cash flow generations that we had in the year and the proceeds that comes from our follow-on process. The majority of these funds is invested in low-risk Brazilian reais denominated instruments.
Total net debt was R$166 million at quarter end 2020, up from R$583 million net cash into 2019. Cash flow generation remained strong, increasing 27% to R$391 million, which resulted in a cash conversion ratio of 76% compared to 100% in the same period of 2019. This decrease in cash conversion rate year-over-year is mainly due to the consolidation of Medcel business and our students' renegotiations of overdue installments due to the COVID crisis.
I will turn the call back to Virgilio so he can present our ESG program that we will start to report this quarter.
Thank you, Luis. Moving now to the last slide on this presentation. Education and health pillars for Afya business are also crucial issues for people’s well-being and socio-economic development. This characteristic, inherent to the company, makes our operations distributed throughout the country revert to positive impacts for local communities. We operate in regions that have lack of physicians. The healthcare system is in need of investment and the population does not have access to quality health services.
With our regional presence, we manage to attract medical and health professionals to remote regions to make investment in the local healthcare system besides providing free consultation for low-income population. The first step to consolidate Afya as a sustainable company was to sign the UN Global Compact, a program developed by the UN to engage companies in the adoption of social and environmental policies. We are also concerned in our human resource policies with social inclusion, employees’ well-being, gender equality and people development. More than half of our employees are women. 55% of our management positions belong to women. And in our Board of Directors, we have 2 women out of 11 men. More than that, we guarantee at least 3% of disable employees in Afya.
In the environmental scenario, we are running a project to install solar panels in all of our campuses. All the energy used will be generated by our own facilities. We currently have 4 campuses running their own solar panel and additional 8 are in the middle of the implementation. ESG commitment is part of our strategy and permeates our core values. We have been advancing year after year on the theme, and from now on, ESG metrics will be disclosed in the company's quarterly results.
I will now open the conference for the Q&A session. Thank you, all.
[Operator Instructions] The first question is from Marcelo Santos from JPMorgan.
I actually have -- I wanted to focus a bit on the Business Unit 2. I wanted to focus on Business Unit 2. The first question would be, if you could please discuss a bit the initiatives to accelerate penetration of the services of digital services in BU2 now that you are putting together an ecosystem. What do you intend to do during this year to accelerate that? And the second, on Slide 8, where you discuss the strategic positioning. There seems to be still a big gap on the column 4, healthcare ecosystem. So you have AgendarConsulta. But that's the only thing. What are your plans to attack the healthcare ecosystem? If you -- do you have anything on the shelf that you're planning to deploy?
Julio, can you take this one?
Sure. Hey, Marcelo, and hi, everyone. Hope everyone is doing fine there with good health. And so to address your questions, Marcelo. Yes, we have several initiatives actually to accelerate what we've been doing with the digital services. But the main one is that we are actually building one single data lake of information that we can use to perform better with the different services. So that said, all of this information that we are collecting with all the digital services, we can, of course, use to adjust all of this business together and accelerate them. So some initiatives on the commercial side, we've been doing already. So we are creating a pack of services with the benefits for everyone that is using the digital services. So if you're a doctor and using iClinic, if you're using WhiteBook, if you're using other services that we've been offering or Medcel or even our graduate programs, there are several discounts and offers specifically for all of them. So in general, these are the 2 main pillars. So one is how to use better our database to accelerate the use of this -- of digital services on one side, and we will use that as one single data lake to help every other business and also on the commercial side, also doing several activities to perform better.
So to the second question, can you just repeat that, please, Marcelo?
Sure. On Slide 8, where you have that slide showing strategic position, competitive advantages. They are like 4 filers, 1, 2, 3, 4 on top. And the 4 is healthcare ecosystem. In there, you have AgendarConsulta, but there is still a big void. So do you plan to do more in that pillar of healthcare ecosystem and patients? And what are your main ideas here?
Okay. Thank you. So in terms of the strategy, we are focusing on empowering the doctors with our services, right? So this is the main idea with the digital services, with the pillars that we have. We have 6 pillars today that we focus as data. So one is the content and technology for medical education, we have clinical decision support, electronic medical records and clinic management, telemedicine, digital prescription and patient engagement. All of those services, they help doctors to perform better. So the strategy is pretty much to reach the most number of doctors and empower them with our services. So today, as we stated, close to 200,000 doctors are using some of our services. At the end, when -- in the pillar, for example, that the patient engagement and where there is AgendarConsulta.com as a service, that's where we get to the patient, right? So this is a different game. It's a different story. But we truly believe that our position as an educational company focused on helping doctors and physicians to perform better, we will get to the point where we will be having a marketplace that patients will be able to schedule their consultations and then circle back to the ecosystem.
So we are not there yet. But the focus is, as I mentioned, on the pillars that we are planning to add services once again, empowering the doctors.
Okay, Marcelo, it's Louis speaking, if I could add some points here on what Julio just said, in these 6 pillars, we have different kind of maturation of services in each 1 of these pillars. Three of them, the content and technology for medical education, the clinical decision software, the practice management and electronic medical records, we have 3 of them, these 3 of them being more mature. So what we can see on these 3 pillars, that we made some bolt-on acquisitions to fulfill this kind of service that we've made. This is the case of Medicinae. When we bring the financial skills of management, the receivables of the physicians to aggregate inside of iClinic is that the case of Medical Harbour that we announced yesterday, that brings us the image solutions for medical classes for -- to address that. So in these 3 pillars, as they are more mature, we're going to see specific adding of specific service on that.
On telemedicine and digital prescriptions, we are kind of in the middle of the way. We see opportunities on making more acquisitions on that to fulfill this kind of service that we want to provide inside of these pillars. And as you mentioned, the doctor-patient's relationship, we are just in the beginning of the journey. We have just AgendarConsulta on that. We see that the importance to bring demand for all this physician community that we want. So in this pillar, you're going to see a movement that will be more robust or strategic. We are -- of course, we are evaluating the healthtechs that are providing this kind of service, but we want to fulfill the 6 pillars with service and these last 3 dimensions. They are less mature, so you can expect acquisitions to be more relevant on these three.
Now we have Thiago Bortoluci from Goldman Sachs.
Thanks, Renata. Thanks for taking our questions. We have 2. You mentioned the ongoing commercial efforts within the space. I would just like to better understand in the short-term within which apps you think are the clearest opportunities in terms of bundling and cross-sell. And in this sense, how are you planning to approach the marketing of Medical Harbour? This is the first question. And also moving to the traditional campus operations, could you please give us an update on the status of the Mais Médicos 2 campuses that are yet to be launched? And also, if there is anything else mapped on your M&A pipeline? That's the question.
Hey, Thiago, thank you for the questions. In terms of the commercial efforts and what we've been doing in bundling the services, the first one, we're actually -- the idea is not to put apps together. So the services that we offer, let's say, WhiteBook today and also iClinic, they run separate today. What we've been -- what we are doing is doing -- we're creating this bundle of offers. So that's a very clear one. We've been doing this already. And it's working in terms of that cross-sell. We have 110 -- close to 110,000 subscribers for WhiteBook, and iClinic has been growing. Although there are differences between the audiences, but there's an opportunity there in terms of working with these databases and putting these services together. Medicinae, for example, which is the recent acquisition, this is a service that it's -- it was in the pipeline actually for iClinic and we will add that to the iClinic offer. So that's something that we will integrate. It's very recent acquisition, but we will integrate that as a service to be provided for physicians within the iClinic product.
And for Medical Harbour, your last question is, we are going to use it in our own curriculum on our undergrad business, that's pretty important. It's something that we were looking for a solution for that purpose. And on the B2C side, for other businesses as Medcel or it's something that we are going to also, I mean it's part of the product roadmap here to add more of that digital imaging services. And in iClinic and WhiteBook as well, we are going to embed more and more the educational content, which is something that we've been doing already. iClinic offers educational content. WhiteBook, when you're doing as a physician, diagnosis, we are starting to add more of educational content there. And then we use -- we're going to use the Medical Harbour there. And of course, I mean, on the B2B side, since there are more than 50 clients on B2B for Medical Harbour, the idea is to keep that growing and expand that as a service that we offer to the corporate market especially on education institutions.
Hey, Thiago. This is Virgilio. I'll take your second question about Mais Médicos campuses. We started the 2 first Mais Médicos last year. We have 100% of occupancy on this first cohort seats maturation. We are ready with 2 additional campuses waiting for the final go ahead from the Minister of Education. So we're waiting for the last visiting. We're expecting to have the final authorization by the end of the first half. And the last 3 of the total 7 that we have, we expect for the second half of this year.
About M&A, we have mapped on our M&A pipeline 4,000 seats that we are analyzing. And 500 of them, we’re having a very close conversation and can be something released to the market during this first and second half of this year.
So next question is from Caio Moscardini from Morgan Stanley from Morgan Stanley.
So I have 2 questions. The first 1 related to the guidance. If you are considering any negative impact from potential mandatory discounts on the guidance? And if so, what level of mandatory discounts are you expecting? And the second question is related to the EBITDA margin. That deteriorated during the fourth quarter. You mentioned one of the reasons being a change in the methodology of allowance for doubtful accounts in the fourth quarter of 2019.
And I would like to better understand that if you can please explain what has changed? And if we should expect any delinquency methodology change once the pandemic situation normalizes? Those would be the questions.
Hi, Caio, it's Louis speaking. Thank you for 2 questions. The first one, regarding the postponement of the revenue recognitions, as everyone knows, in Brazil, we have a critical situation in the COVID. So some of our campuses with this increase of the COVID case were shut down for practical classes again at the beginning of this year. But how we can see that, that we are very comfortable that if any impacts that should occur in our revenues in the semester, if we need to postpone this revenue recognition, this revenue recognition postponement is inside of our guidance. So we are very confident to deliver this guidance that we provided for the first half of 2021.
Regarding the change on provisions, on bad debt provisions, we've made the change in our methodology on the fourth quarter of 2019. We've made this change to improve the methodology and this change on the methodologies, made that in the fourth quarter of 2019, the PDA was exactly low. So as it was just a control movement. That's why when we compare this loss that we have on the fourth quarter of 2020, in the fourth quarter '19 we have this increase, not because of the increase in 2020, but in 2019 was exactly low this figure, this change of the methodology. So we don't expect this gap should change in ‘21. Because all of 2020, we keep provisioning our receivables in the same way, okay?
If I add just something here, Caio, on the first part about the guidance and the expectation, net revenues. Luis talked about some postponing risk. And you also asked about the discounts. This semester, we have the decision from the Supreme Court that every law that will establish something about the discount has to be decided on the federal level, it's not on the state level. So the risk is much lower right now. What we are having in the entire higher education sector is passing through, is some student by student decision when they go to the court, and they have some temporary victory, establish some discounts for that one but will be marginal. And this is also considered in our range for our top-line in this first half. Okay?
And about the EBITDA margin, if I may add here some also, the impact on margin, it’s not only because of the PDA levels, that's because of the different methodology for the 2019. But also, we are combining many acquisitions with different maturity in some of these assets, they are still operating at a lower margin than our average for the more mature campuses. So we still have synergy to track from that. And also, we annualized our corporate expenses after IPO that was -- that increased a lot during 2019. So we had 12 months of all corporate, new people that we hired after IPO, that also increased our G&A expenses through 2020, but we are not expecting this additional step for 2021 and forward. Okay?
Next question is from Vinicius Ribeiro from UBS.
So 2 questions on our end here. Just one on M&As, on the medical education M&As, to be more specific. Can you guys give us some color of what has been happening in this landscape as a whole? So we have seen in the market some sort of deceleration in those M&As announcements. So could we attribute that to longer diligences or more complex negotiations or some kind of pressure when it comes to valuation? So just to get a sense here, what should we expect going forward? I know that Virgilio has already answered something similar in the first question.
My second question would be on the guidance. So just if you guys could help us here with something. You guys have been delivering several M&As in the healthtech business unit. And as far as I understand, although those apps will be maintained operating as independent APIs, you probably need some kind of integration between them, and that obviously entails some kind of investment in developers and technology folks. But just to understand, if we didn't have this effect, could you guys give us a sense of how much would your margins increase for the first half of '21? Or is there -- or are you guys allocating part of these investments on CapEx?
Hi, Vinicius, I'll take the first question about the M&A for medical education here. We are not seeing this slow pace of acquisitions. Actually, we are waiting for approval for UNIFIPMoc. It was our last announcement on that. That's a antitrust process. We have an operation in Montes Claros City. So still have some weeks to go, but expect to have the closing by May. So -- and our pipeline is just a question of maturation and final negotiation for some step for us some opportunities. But we are not seeing, at least on our side here that we are not being sold. The rhythm of the new announcement is slower than we had in 2020.
Okay. Yes. And adding to that, Vinicius, the graduation part of the business is very important for us. We want to keep the acquisitions. Even further, the 1,000 seat goals that we've promised to the market, we delivered till now 851 seats, and we're pretty sure that we're going to surpass this goal this year, okay? So -- and after each, we're going to keep evaluating opportunities and doing M&A on this side. The graduation business is still important for --most part of our business is still very important for us.
And about the guidance, we did not open these. We just don't open -- don't give more colors on the guidance between the different segments. But what I can tell you that these operations that we are bringing into is Afya digital, have different stages of maturations of their business. For instance, speaking the 2 largest ones, the PEBMED business is a business that has escalated for a good size. We have almost 110 users that pays for PEBMED every month. So they are paying users. In the other side, we have iClinic with something about 13,000 paying users. So of course, when we put this kind of size of the business, what we have on PEBMED, it generate cash by itself. On the other side, the iClinic is just on the beginning of the journey, and they are -- and we have burning cash on that.
Regarding the questions about CapEx and OpEx, we evaluate the projects, and we have put the investments that can be translated to CapEx as a CapEx. So we are doing that on all the digital business, but we keep the consistency on having this allocation between CapEx and OpEx in a right way. Of course, when we are escalating this kind of business, we have to put more money on this CapEx to develop the product itself to increase the experience that our physicians have with these products.
[Operator Instructions]. Last question is from Luca from Bradesco.
Okay. So my first question is regarding the Business Unit 1, but for the courses that are not medicine related. How has been the intake cycle so far, considering the postpone and F&A and the difficult cycle that has been for the peers -- the company's peers. And other than that, looking at the Business Unit 2, if you could comment a little bit on the further monetization of the digital services. If you look at PEBMED, for example, you had a growing active subscriber base, although the monthly active users, at least in the quarter, has been declining.
So if you could comment a little bit on that as well?
Hi, Luca, about your question of BU1 of other programs, we just closed the first half intake. These other programs are different from health programs. It's around 5% of our undergrad net revenues. And we beat our goals for this half.
In terms of intake and renewal, what we can say is that our student base will be flat year-over-year considering other health and other programs ex medicine. So it was a strong challenge here. The intake was 1% to 3% below last year, but the renewal rates was a little bit better, so we could keep our ex medicine student base flat year-over-year. That was a very good result considering the external scenario. The second question. Julio, would you like to take from there?
Yes. No, sure. Talking first, let me answer your first question and then talk about the monetization, Luca. Actually, we have a significant base of free paid -- free subscribers, and we focus more on converting those free to pay. So rather than adding a lot of new people to the business. So that's one of the reasons. And to the monetization of digital services, the idea now, again, just coming to the point that I mentioned previously is adding more and more of these doctors to the platforms. We've been seeing on the B2B side a lot of traction on how to integrate and give access in some way to industries like the pharmaceutical industry, where we can create content. Imagine on the strategy, we have the PEBMED portal. We have the services as well. So we have a significant number of physicians within our ecosystem. And it is very important. I mean we see a combination of activities that we can do in terms of producing content or allowing access to these industries to our ecosystem to participate actually and help us to produce more and more content that it's updated, that it's engaging and then helps, again, physicians to become better physicians in the future. So we will move to explore the B2B effort in the future. But for now, again, we are monetizing through the physician, right? But the activities on the B2B front, they started. We've seen traction, and that's where we're going to put some more efforts in the near future. But still the products -- and we are starting to create a portfolio that could help industries on the sector to work with us, and this is on the pipeline.
And Luca, if I may add a point to reinforce -- the points what we see that the -- our goals in the short-term is penetration. We want to increase penetration of our Afya digital solutions within all these 200,000 students and physicians that we have in our base. We want to increase this penetration of all the solutions that we have and the solutions that we're going to have with the execution of these 6 pillars strategy. And then when we increase this penetration in the short-term, after it, we're going to move in the next space to explore opportunities within all the other players on the healthcare scope. So what you can expect in the short-term for meaning 2011 is the increase of penetration these products, okay?
Luca, if I may add a point also here is that this -- the higher part, the largest part of revenue from the TAM that’s related to the market about the segment is R$21 billion, the size of the half of digital segment and R$14 billion related to B2B. So this year, you're going to start to see better products, more features, more physicians using it, but you're only going to see this segment to become a bigger part of the business when we go ahead and increase our B2B projects, okay? It would be climb.
And just to finish, starting on first Q, we are going to release results opening more -- a little bit more of Afya digital. So we are going to not be talking more about BU1, BU2, we are going to say about undergrad, educom and then Afya digital. So you guys have a better feeling on where we are going, okay?
So Marcelo, you're next.
I just wanted to ask a bit about the question that Vinicius made about the margin on the guidance. So the margin on the guidance is 46% to 48%. And last year, you had 47.4%. So at the midpoint, it assumes a small decline on the margin. Could you just please explain what are the main factors helping and hurting margins that would result in a small decline, please?
Yes. What we have from -- Marcelo, we have -- as we are growing 50% year-over-year, we have the different mix of institutions that we have and different mix of healthtechs that we’ve made. So we have institutions as São Lucas and UniRedentor that were acquired during 2020 that has lower margins than our portfolio. In this healthtech scope, we have iClinic that has negative EBITDA. So as we are growing, we are comparing different mix of institutions. Even we are talking about just 1 year between these two periods.
Marcelo, so it's a question of combination of asset in different maturation periods. So UniRedentor and São Lucas, that's -- they are very large assets, many other health programs besides medical undergrad program. So we still have a lot of space there to extract synergies and efficiency to push the contribution margin of our more mature campus average. So that's the reason.
[Operator Instructions]. Before I finish, I would like to invite you all firsthand to our Afya Day event that we're going to host on May 6 on 9 a.m. Eastern Time. We are going to discuss a lot about our strategy, our digital strategy, the strategy behind also our core businesses, the undergrad business. We are also going to have an ESG cap chapter, so you guys can know what we have been doing. I see that we don't have other questions. So I want to thank you all to participate. If you have any other questions, please you all know where to reach me. I am available. Okay, have a nice day.
Thank you all.
Bye-bye, guys.
Thank you, everyone. Bye.