Afya Ltd (AFYA) 2025 Q3 法說會逐字稿

Thank you for joining us for Afya's conference call. I'm here today with Afya's CEO, Virgilio Gibbon, and our CFO, Luis Andre Blanco. During today's presentation, our executives will make forward-looking statements. Forward-looking statements can be related to future events, future financial or operating performance, known and unknown risks, uncertainties, and other factors that may cause Afya's 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 the business and financial performance, expectations and guidance for future periods or expectations regarding the company's strategic product initiatives, its related benefits.

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. These measures are not intended to be considered in isolation or as a substitute of the results prepared in accordance with IFRS.

This presentation has reconciled these non-IFRS financial measures to the most directly comparable IFRS financial measures. Now, let me turn the call over to Virgilio Gibbon, Afya's CEO.

Thank you, Renata, and thanks everyone for joining us today for our third quarter and nine months conference call. This quarter reflects more than financial performance, it demonstrates how our strategy continues to position Afya for sustainable growth, transforming medical education across Brazil. We concluded our 13th semester after the IPO delivering strong growth, profitability and cash generation and keeping 100% of occupancy in all our medical programs in Brazil. Our results highlight the strength of our ecosystem, while advancing initiatives that will shape the future of medical education and medical practices. Today, I will cover key strategic developments and operational highlights that drove these results. Then, Luis Blanco will provide a detailed review of our operational and financial performance.

Starting with slide number 3, let's begin with our main performance highlights and strategic priorities for the quarter. Our Revenue for the nine-month period grew over 13% year-over-year, reaching BRL2.784 billion, followed by an adjusted EBITDA growth of almost 19% year-over-year, reaching BRL1.292 billion. Adjusted EBITDA margin for the same period reached 46.4%, an increase of 200 bps over last year. We also reported a new record cash flow from operating activities, ended the nine-month period with BRL1.292 billion, 11% higher than last year, with a cash conversion of 101.5%.

Net Income followed the same positive trend as the last quarter and reached BRL593 million, a growth of 20% year-over-year, with a basic EPS reaching BRL6.40, 20% higher than last year, reflecting stronger operational performance. Turning to our operational updates, in this quarter, we maintained our leadership position in the medical education, supported by 3,653 approved medical seats, and 3,753 seats as of today after the approval of 100 medical seats in Afya Braganca. Our number of undergraduate medical students has reached more than 25,000 students, representing a 6% growth compared to the same period last year. Furthermore, our medical school's net average ticket excluding acquisitions increased over 3% in the nine-month period. In the Continuing Education segment, we continue to see solid results, presenting a revenue growth of 11% year-over-year reaching BRL208 million.

For Medical Practice Solution, we ended the quarter with an increase in revenue of over 9% year-over-year, reaching BRL128 million in the nine-month period. Finally, our ecosystem reached 304,000 active users, reflecting strong engagement and broad adoption among physicians and medical students across Brazil.

Moving on to slide number 4. We will talk about our solid business execution within our three business units. Starting with the Undergraduate segment, we saw important movements throughout the quarter such as an impressive gross margin expansion, and the successful beginning of FUNIC operations, acquired in May of 2025.

In addition, we are pleased to share that we received the authorization for an expansion of 100 medical school seats in Afya Braganca, bringing our total approved seats to 3,753 seats. The Continuing Education segment was marked by an increase in graduate journey students, sustained by another round of organic expansion in our medical graduate campuses, with five new operating units in 2025, and a strong gross margin expansion. In this nine-month period, we saw a significant increase in B2B revenues, with 65% over the last period. Lastly, in our Medical Practice Solutions segment, once again, we ended the quarter with a growth in the clinical management active payers. In addition, we also saw an increase in B2P Business to Physician revenues, led by an 11% growth compared to the same period of the prior year.

This results reinforce the opportunity ahead in Medical Practice Solutions, which continues to deliver increasingly solutions for medical practicing. In the next slide, I want to share how our ESG initiatives continue to create long-term value and strengthen Afya's commitment to sustainable growth. Over the nine-month period, we delivered 700,000 free healthcare consultations, including more than 500,000 of them medical consultations. These achievements exceeded the targets set for 2025 and reflect our strong partnership with IFC through the sustainability-linked loan, as well as our public commitment to the United Nations Sustainable Development Goal number 3. I also want to reinforce the creation of Instituto Afya, which represents a new chapter in our journey.

This initiative strengthens our focus on sustainability and social impact, with a clear commitment to advancing research, science, and technology for the benefit of society, playing a strategic role in addressing non-communicable chronic conditions. Finally, Afya's leadership in ESG was recognized by Valor Economico through the Valor 1000 Award, which evaluates companies based on financial performance and ESG practices. Afya was honored as the top performer in the education sector in Brazil for the fourth time in a row.

And now, I will be turning the call over to Luis Blanco, Afya's CFO, to provide more insight into the financial and operational metrics. Thank you.

Thank you, Virgilio, and good evening, everyone. Starting with slide number 7 for a discussion of key operational metrics by business unit, starting with the undergraduate programs. Our number of medical students grew 6% year-over-year, reaching more than 25,000 students, while approved medical seats increased by almost 2% in the third quarter of 2025. Considering the expansion of 100 seats in Afya Braganca approved last week, the expansion in approved medical seats would be over 4% as of today. Our medical school net average ticket, excluding acquisitions, increased by 3.4% for the nine months, reaching BRL9,141.

We have also achieved BRL2.459 billion in revenue, up from BRL2.156 billion from the prior year, an increase of over 14% due to higher tickets in medicine courses, the maturation of medical school seats and the acquisition of FUNIC. Regarding the revenue mix, 86% was derived from medical school students and 94% from health-related courses. On the next page, I will present our Continuing Education metrics. We approach Continuing Education through three main journeys. Starting with the Residency Journey, we saw a 36% decrease, reaching 9,969 students by the end of the period.

In the Graduate Journey, student numbers grew by 26%, reaching 9,180 students. Lastly, our other course and B2B offerings increased by 5% over the same nine-month period of the prior year. Overall, due to an increase in the average ticket per student, the Continuing Education revenue reached BRL208 million in the nine-month period of 2025, up from BRL188 million, reflecting a growth of almost 11% over the same period of the prior year. This includes a 7% increase in B2P revenue and a staggering 65% increase in B2B revenue.

Moving to slide number 9, I will discuss the Medical Practice Solutions operational metrics. The first graph shows our total active payers, which are the ones that generate revenues in business to physician. The number of paying users reached 195,000, a 2% decrease over the same quarter last year. The second graph highlights our monthly active users, which accounts for 228,000, lower than the 249,000 recorded over the same period of the prior year. Lastly, the third graph shows revenue from our Medical Practice Solutions segment, which grew over 9% year-over-year, reaching BRL128 million. This growth was primarily driven by an expansion in active payers in clinical management and a more favorable product mix. Of this total, BRL114 million was generated by B2P, representing an 11% increase, while B2B contributed BRL14 million, a 2.5% decrease in the nine-month period.

On the next slide, we also present Afya Ecosystem. We are pleased to highlight Afya's substantial contributions to the healthcare community in Brazil. By the end of the third quarter of 2025, our ecosystem encompassed 304,000 physicians and medical students using our services and products.

Moving forward to slide number 11, I want to discuss our financial overview for the third quarter of 2025. Starting with the next slide. With great satisfaction, I am pleased to present another strong quarterly performance for Afya. Revenue for the third quarter of 2025 reached BRL929 million, representing a 10% increase compared to the same period last year. Revenue totaled BRL2.784 billion for the nine-month period, up 13% year-over-year. For the third quarter 2025, adjusted EBITDA rose by 15%, reaching BRL399 million, with an adjusted EBITDA margin of 43%, an expansion of 160 basis points compared to third quarter of 2024.

For the nine-month period, adjusted EBITDA amounted to BRL1.292 billion, an increase of 19% over the prior year, with an adjusted EBITDA margin of 46.4%, representing a 200-basis-point increase over the same period. The increase in adjusted EBITDA margin was mainly driven by higher gross margins in the Undergraduate and Continuing Education segments, restructuring initiatives within Continuing Education and Medical Practice Solutions, and improved efficiency in selling, general, and administrative expenses.

Moving to slide 13. The year's cash flow from operating activities rose by 11%, reaching BRL1.292 billion, reflecting a strong operational performance. The operating cash conversion ratio was 101.5% in the nine-month period of 2025. Net income for the third quarter of 2025 came in at BRL159 million, marking an increase of 28% over the same period of 2024. For the nine-month period ending in September, net income totaled BRL593 million, up 20% year-over-year. This growth reflects stronger operational performance, combined with the recognition of deferred tax assets, partially offset by the additional taxation provisions related to the OECD's Pillar Two global minimum tax effects. Afya's basic EPS for this quarter reached BRL1.71, a 29% increase compared to the same quarter of 2024, with BRL6.40 per share for the nine-month period of 2025, representing a 20% growth. And now, moving to my last three slides, I will discuss our cash and net debt position, also giving more color on our cost of debts.

On the next slide, we will discuss our gross debt. This slide presents a table detailing our gross debt composition at the end of third quarter 2025 and total cost of debt, covering our primary obligations, the Softbank transaction, debentures, other financial liabilities, the IFC financing and accounts payable to selling shareholders.

Moving on to slide 15, I'm pleased to announce that we have strengthened our financial position through liability management. In October, we issued commercial notes, totaling BRL1.5 billion. The use of proceeds was the early redemption of Afya's first issuance of debentures and the repurchase of the 150,000 Series A preferred shares held by SoftBank.

We present a comparison between our actual position as of the end of the third quarter of 2025 and the pro forma gross debt after the liability management. We have extended the gross debt duration to 3.2 years while maintaining a low cost of debt at 106% of the CDI even after the repurchase of the preferred shares held by SoftBank. These actions strengthen our financial flexibility to support long-term value creation for shareholders. On my last slide, we can look closely at the net debt variation. As of the end of third quarter of 2025, net debt stood at BRL1.342 billion, a reduction of BRL473 million compared to the end of 2024.

This reduction was achieved even considering the acquisition of FUNIC, and the return to shareholders reflected by the dividends and shares repurchase. Afya's net debt excluding the effect of IFRS 16 divided by the midpoint of the 2025 adjusted EBITDA guidance was only 0.8 times. Afya's capital structure remains solid, with a conservative leveraging position and a low cost of debt. This concludes our prepared remarks. We're proud of the strong performance we've delivered this quarter.

Our focus on improving the medical journey through an integrated education system and Medical Practice Solutions remains strong. Helping students become doctors, supporting ongoing medical learning, and making physicians more accurate and efficient. Looking ahead, we're excited about the opportunities in front of us and confidence in our ability to keep creating value for the entire ecosystem.

I will now open the conference for the Q&A session, thank you.

(Event Instructions) Lucca Marquezini, Itau.

The first question is regarding the effective tax rate. So can you please provide more color on the company's current understanding on the tax rate discussion, and also what do you believe to be an adequate assumption for this line going forward.

And then the second one will be regarding capital allocation. So considering this was another quarter of solid cash generation, what should we expect for the company's capital allocation strategy going forward? Should we expect a higher dividend payment or even a greater M&A activity in upcoming years? That's our questions.

Lucca, it's Blanco speaking. I'll take the two questions. First, regarding taxations. We ended the nine-month period with effective tax rate of 9.7% that was greater than the 5.1% that we got from last year. The main reason for this increase is the provision that we are making for the Pillar Two taxations that was implemented in Brazil during 2025.

And this provision, these taxations will be disbursed in July of 2026. So we are provisioning with these taxations during 2025. The effect of these minimal taxations was a little bit reduced by the provision of deferred tax asset that we recognized during the year.

Moving ahead for -- 2026 ahead, we would expect that the effective tax rate should be converted to the minimum taxation of 15%, that's the taxation of the Pillar Two. So if we do not gain the Pillar Two taxations nor by the injections that we are discussing or through a change in the current legislation regarding the Pillar Two, we would expect that 2026 -- from 2026 front, I would say that effective tax rates would converge to 15%. To your second question regarding capital allocation, what we did during this October, we did a big liability management raising new debt regarding the commercial notes that were issued to the market. And with the use of proceeds of it, we did the prepayment of the debentures, and we repurchased the preferred shares from SoftBank that would be early redemption on April 2026. So with that we increased our durations and keep the cash in place to do the capital allocation itself.

So we have in our hands the possibility of doing an M&A or even increasing the buyback or even to pay dividends all the alternatives that we have on our hands, we will have the best choice to evaluate the scenario in the next couple of months to take the better decisions to increase value to our shareholders.

Yes. One point that I would like to highlight is that when we anticipated the payment of SoftBank's transaction, we had a financial gain. We negotiated with them to have a financial gain that will be proportionally to the difference of the rate -- the interest rate that we would have between this period and the due date of the contract.

Eduardo Resende, UBS.

I have two on my side. So first, a double-click on the capital allocation. You highlighted your initiatives for shareholder remuneration. But looking at the effects of the new tax reform and impact for foreign players and investors, I just would like to understand if possible other strategies are being evaluated on this front. So this is the first question.

And second, if you could provide any color on 2026 intake cycle with overall trends observed in the latest entrance exam that you applied in the end of this semester. Any color on this front would be very helpful.

Eduardo, Virgilio here. So about capital allocation, as Blanco mentioned on the previous question here, so we're analyzing, so sort of on the M&A front, good opportunities on medical assets, medical school assets in some regions. So still aiming to have around 200 seats per year as our guidance in terms of capital allocation. So regarding distributing that to shareholders, so we'll keep combining the best option between buyback programs as the one that we just launched, that is the biggest one that we launched on our recent history here and also paying dividends even considering the 10% additional cost. So we'll be combining two of them, taking the best consideration, the market price of our shares.

And all the availability of cash that we have on that. Regarding intake for 2026, it's still very early. We are collecting all the candidates. The only thing that we can anticipate is that, well, the tuition that we are aiming to 2026 is around 5% to 5.2% over 2025. So that's the only information from that.

Lucas Nagano, Morgan Stanley.

We have two questions. And the first is a follow-up on the ticket adjustment you mentioned, which is if we should see any mix effect next year or if average ticket should converge to the 5% growth you just mentioned? Because this year, I think there was possibly some effects related to FIES. That's the first question.

And the second question is a more conceptual one. In the last Afya Day, we discussed a lot about the supply side, about competition and Afya's strategy to offset those pressures. And the question is from the demand side, are you seeing any change even if it's marginal in how the applicants perceive the attractiveness of the medical career, if it should be affected both for the sector as a whole or for the worst players?

Lucas, so the first question about ticket. So between 5% and 5.2% across the board is in terms of gross tuition. So it's still early in the process to check how the effect considering the FIES. But what we are aiming here is to keep stable around 17%, 18%, the penetration of FIES on our medical student base. So it's too early to check how the portfolio and the combination of them compared to 2025.

But now we just can say that we will be around 5%, okay? Regarding competition, so the number of candidates that we are seeing in terms of demand is very close to the -- what we are having to last year. So we are not seeing any substantial difference from city to city. So in terms of average, we are very close to the same figures that we had last year at the same time, okay? Just in terms of candidates.

Marcelo Santos, J.P. Morgan.

I have two as well. The first question is about the gross margins on Medical Practice Solutions, there was a nice sequential increase. So I just wanted to get your comments there. And the second question is on the clinical decision software, this is the second quarter of sequential loss of subscribers. Just wanted to also get some color on these trend.

Marcelo, the first is the increase of 2% in terms of margins in the segment. That was related to the cost management that we do within the products. Nothing specific to highlight on that. That's -- it's an ongoing initiative that we have here to gain efficiency.

Yes. Just remember, just adding on the first question here, Marcelo. Remember that we launched many new campuses and new sites that we are offering Continuing Education. So we are getting to the second and the third intake process, so it's a kind of dilution of the fixed cost and gain more synergy, the campus that we launched over the last 18 months, okay? On the second one -- and I think just to clarify, your question was about the clinical decision solution, the reduction of users that we have in the second semester in a row. Is that right?

Yes, that's correct, Virgilio.

Yes. So the clinical decision, the Whitebook solution, we changed our price at the end of last year strongly. So the decision on that was in terms of elasticity study at that moment. And we didn't change the combination about freemium users and also premium users with a much higher price. So the result of that was positive in terms of revenues, but we lost freemium users at that moment in the beginning of their career or last year of medical programs.

So what we are doing right now to resume growth on the audience is reviewing the combination of features that we are offering through the freemium version and also premium version. So this is something that we want to resume the penetration on that, not only benefit in the short term, the revenues on Whitebook. I think the most important in terms of penetration, iClinic on the other side, it's the most important data for all monetization on B2B. It's accelerating and having much more penetration than also we were expecting because we have also to compete other medical records and to substitute clinic by clinic is something that it's not in a short and an easy way. So on our two most important digital solutions, one, we need to resume penetration, that is Whitebook.

We launched a lot of features, as you may have seen on our Afya Day using, adopting AI to change this and also embedding this on our premium version. On the other side, iClinic also embedding with AI features, we are ramping up and accelerating penetration over clinics in the country, okay?

Perfect. Just on the first question, I was asking about the margin increase of Medical Practice Solution, not the Continuing Education. And what I'm saying is that you went from 66% in the second quarter to 73%. So it's a sequential increase of 7 points, which was more on this one. I think you gave me the answer on the Continuing Education, if I'm not mistaken.

Yes. But Marcelo, I would say that, yes, we are increasing the -- almost 7 points regarding the second quarter of 2025. But if you compare with the third quarter of 2024, it's 2% below -- the 2% that I mentioned. So I would say that we have the kind of seasonality on that and this down of this 2% that was mentioned in the 12-month comparison, it's nothing to highlight on that. It's regarding the second quarter, it's something about seasonality, okay?

Mirela Oliveira, Bank of America.

I have two questions here. The first one is on the recently acquired units. If you guys could comment a bit on the expected time frame for the ramp-up of FUNIC? And how long do you expect margins to be at company's run rate?

And the second one is on the consolidated EBITDA margin. So the company has delivered a significant margin expansion in the past nine months, paving the way for reaching the top of the guidance. So just wondering here if you could comment a bit on if you see room for further margin expansion ahead and what would be the main levers for it? That will be it from my side.

Mirela, I'll take the two questions. So first of all, FUNIC it's our first year operating over there. So it's just 60 seats, so it's just in the beginning of the maturation. We just implemented -- launched the first class starting on August. So the first year, you have low margins because of all the implementations of the faculty and just the fact that we have just one class over there. So what we see that FUNIC it's based in Contagem. Contagem it's in the great Belo Horizonte area.

And then we're going to -- as the maturation comes, we're going to reflect the increase of margins according to the increase of the maturation, the increases of the number of students. So it's according to our business plan, the acquisitions. It's a question of timing of [gearing] operational leverage regarding FUNIC.

Just to add one point here, Mirela, is that just so based on our track record managing all the greenfield, the new Mais Medicos II campuses, we can reach a very high margin after two to three years with these campuses maturation. And considering that we didn't start the internship phase in the 5th and the 6th year. So in terms of margin, we can scale rapidly the margin close to 50%, 60% the contribution margin. But remember that on 5th and the 6th year, that will converge to overall margin because we start the internship.

And regarding the EBITDA margin increase, I would say that we are not doing that in this year. But in the last two years, we have been increasing significantly the margins of it. So it was a question of working with the three segments to gain efficiencies in the undergrad. Remember that in the beginning of 2024, we made the changes in the digital and the Continuing Education. We moved all the educational digital assets from the formerly digital segments to the Continuing Education and the Continuing Education we started to offer a hybrid offer on that.

And on top of that, we've implemented in the end of 2023, our zero-cost budgeting that helps a lot in SG&A expenses. So for the last -- I would say, for the last two years, we've been capturing a lot of this margin expansion.

Next question comes from Renan Prata from --

Super brief here. I just wanted to try to get a sense on the Continuing Education segment, the numbers of students on the Residency Journey, I think it dropped over 30%. So I'm just trying to understand if this is a [ponto] effect or it's something that we should expect to continue going forward?

Renan, yes, it's a onetime effect here because we decided to join the offer of Mentoria and also the residence prep product. So last year, we used to count twice. So the student that was applying for Mentoria and also applying for residence prep, they subscribed for both products count twice.

Now the offer, we are combining Mentoria into residence prep, so it's a joint product here. The most of them now are buying this program together. So the effect on -- the number of users, the number of subscribers is lower, but the effect on revenues is not on the same level. So it's a onetime effect. And just adding on that, because of this change, we are seeing a much more higher growth on the intake cycle that now we are in the top seasonality of the residency because of this new combination that we started last year, okay?

So we don't have any other questions. If you still have a question or want anything clear, you can contact the Investor Relations team, and we'll be happy to help you. So thank you for having us this night and see you next time.