Afya - Earnings Call - Q3 2025
November 12, 2025
Transcript
Speaker 4
Thank you for joining us for Afya's Conference Call. I'm here today with Afya 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 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 and 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 CEO.
Speaker 5
Thank you, Renata, and thanks, everyone, for joining us today for our third quarter and nine-month 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 of 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 practice. 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 three, 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 BRL 2,784 million, followed by an adjusted EBITDA growth of almost 19% year over year, reaching BRL 1,292 million. Adjusted EBITDA margin for the same period reached 46.4%, an increase of 200 basis points over last year. We also reported a new record cash flow from operating activities, ended the nine-month period with BRL 1,292 million, 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 BRL 593 million, a growth of 20% year over year, with a basic EPS reaching BRL 6.40, 20% higher than last year, reflecting stronger operational performance.
Turning to our operational updates, in this quarter, we maintain 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 AFA Bragança. Our number of undergraduate medical students has reached more than 25,000 students, representing 6% growth compared to the same period last year. Furthermore, our medical school's net average ticket, excluding acquisition, 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 BRL 208 million. For medical practice solutions, we ended the quarter with an increase in revenue of over 9% year over year, reaching BRL 128 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 four, we'll talk about our solid business execution within our three business units. Starting with the undergrad segment, we saw important movements throughout the quarter, such as an impressive gross margin expansion and the successful beginning of FUNIC operation, acquired in May of 2025. In addition, we are pleased to share that we received the authorization of expansion of 100 medical seats in AFA Bragança, 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 solution segment, once again, we ended the quarter with a growth in the clinical management 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. These results reinforce the opportunity ahead in medical practice solution, which continues to deliver increasing solutions for medical practice. 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 target 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 three.
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 Econômico through the Valor 1000 Award, which evaluates companies based on financial performance and ESG practices. Afya was honored as the top-performing education sector in Brazil for the fourth time in a row. And now, I'll be turning the call over to Luis Blanco, Afya CFO, to provide more insight into the financial and operational metrics. Thank you.
Speaker 1
Thank you, Virgilio, and good evening, everyone. Starting with slide number seven for discussions 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 expansions of 100 seats in Afya Bragança approved last week, the expansions in approved medical seats would be over 4% as of today. Our medical school net average tickets, excluding acquisitions, increased by 3.4% for the nine months, reaching BRL 9,141. We have also achieved BRL 2,459 million in revenue, up from BRL 2,156 million from the prior year, an increase of over 14% due to higher tickets in medicine courses, the maturations of medical school seats, and acquisitions of FUNIC.
Regarding the revenue mix, 86% was derived from medical school students and 94% from health-related courses. On the next page, I'll 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 periods of the prior year. Overall, due to an increase in the average tickets per students, the continuing education revenue reached BRL 208 million in the nine-month periods of 2025, up from BRL 188 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 nine, I will discuss the medical practice solution's operational metrics. The first graph shows our total active payers, which are the ones that generate revenues in the business to physician. The number of paying users reached 195,000, a 2% decrease over the same period of last year. The second graph highlights our monthly active users, which accounts for 228,000, lower than the 249,000 records over the same period of the prior year. Lastly, the third graph shows revenue from our medical practice solutions segments, which grew over 9% year over year, reaching BRL 128 million. This growth was primarily driven by expansions in active payers in clinical management and a more favorable product mix. Of this total, BRL 114 million was generated by B2P, representing an 11% increase, while B2B contributed BRL 14 million, a 2.5% decrease in the nine-month period.
On the next slide, we also present Afya Ecosystem. We are pleased to highlight that Afya's substantial contributions to the healthcare community in Brazil. By the end of the third quarter of 2025, our ecosystem encompasses 304,000 physicians and medical students using our service 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'm pleased to present another strong quarterly performance for Afya. Revenue for the third quarter of 2025 reached BRL 929 million, representing a 10% increase compared to the same period of the last year. Revenue totaled BRL 2,784 million for the nine-month period, up 13% year over year.
For the third quarter of 2025, adjusted EBITDA rose by 15%, reaching BRL 399 million, with an adjusted EBITDA margin of 43% and expansions of 160 basis points compared to the third quarter of 2024. For the nine-month period, adjusted EBITDA amounted to BRL 1,292 million, an increase of 19% over the prior year, with an adjusted EBITDA margin of 46.4%, representing a 200 basis points 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, restricted 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 BRL 1,292 million, reflecting a strong operational performance. The operational cash conversion ratio was 101.5% in the nine-month period of 2025.
Net income for the third quarter of 2025 came at BRL 159 million, marking an increase of 28% over the same period of 2024. For the nine-month period ending in September, net income totaled BRL 593 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 OCDE Pillar 2 Global Minimum Tax Effects. AFA-based EPS for this quarter reached BRL 1.71, a 29% increase compared to the same quarter of 2024, with BRL 6.40 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. I'll also give you more color on our cost of debt. On the next slide, we will discuss our gross debt.
This slide presents a table detailing our gross debt compositions at the end of the third quarter of 2025 and the total cost of debt, covering our primary obligations, the SoftBank transactions, the debt entries, 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 positions through liability management. In October, we issued commercial notes totaling BRL 1.5 billion. The use of proceeds was the early redemptions of Afya's first issuance of debentures and the repurchase of the BRL 150,000 Series A preferred shares held by SoftBank. We present a comparison between our actual positions 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 durations 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 creations for our shareholders. On my last slide, we can look closely at the net debt variation. As of the end of the third quarter of 2025, net debt stood at BRL 1,342 million, a reduction of BRL 473 million compared to the end of 2024. This reduction was achieved even considering the acquisitions of FUNIC and the return to the shareholders reflected by 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 at 0.8 times. Afya's capital structure remained solid with conservative leverage positions and a low cost of debt.
This concludes our prepared remarks. We are 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 are excited about the opportunities in front of us and confident in our ability to keep creating value for the entire ecosystem. I will now open the conference for the Q&A session. Thank you.
Speaker 4
For those who wish to ask a question, please use the raise hand feature and we will call on participation. The first question comes from Lucca Marquezini from Italy.
Speaker 1
Good evening, everyone, and thank you for taking our questions. 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. Thank you.
Speaker 3
Andre Blanco speaking. I'll take the two questions. First, regarding taxation. We ended up the nine-month period with an 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 2 taxation that was implemented in Brazil during 2025, and this provision, these taxations will be in force in July of 2026, so we are provisioning with these taxations during 2025. The effect of these minimum taxations was a little bit reduced by the provision of the deferred tax asset that we recognized during the year. Moving ahead for 2026 ahead, we would expect that the effective tax rates should be converged to the minimum taxation of 15%. That's the taxation of the Pillar 2.
So if we do not gain the Pillar 2 taxation, nor by the exceptions that we are discussing, or to a change in the current legislation regarding the Pillar 2, we would expect that from 2026, I would say that effective tax rates would converge to 15%. To your second question regarding capital allocations, what we did during this October, we did a big liability management, raising a new debt regarding the commercial notes that were issued to the markets. 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 kept 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.
Speaker 4
Yeah. 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 proportional to the difference of the rate, the interest rate that we would have between this period and the due date of the contract.
Speaker 1
That's very clear. Thank you.
Speaker 4
Of course. So our next question comes from Eduardo Rezende from UBS.
Speaker 0
Good evening, Virgílio Gibbon, Renata. Thanks for taking my question. 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 impacts 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 the 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. Thank you.
Speaker 3
Hi, Eduardo, Virgilio here. So about capital allocation, as Blanco mentioned on the previous question here. So we're analyzing, so still on the M&A front, good opportunities on medical assets and 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. It's 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 Afya. 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%-5.2% over 2025. So that's the only information from now.
Speaker 0
Perfect. Thank you.
Speaker 4
Of course. Next question comes from Luca Daloy from Morgan Stanley. Luca, as you may now know.
Speaker 1
Hi, good evening, Virgílio Gibbon, Renata. Thanks for the space here. We have two questions. The first is a follow-up on the ticket readjustment you mentioned, which is if we should see any mixed effect next year or if every 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 the Afya 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? Thank you.
Speaker 3
Hi, Lucca. 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 still early to check how the portfolio and the combination of them compared to 2025. But now we just can say that it will be around 5%. Okay. Regarding competition, so the number of candidates that we are seeing in terms of demand is very close to what we are having 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.
Speaker 1
Perfect. That's very clear. Thank you.
Speaker 4
Okay. Thanks, Manuel. Next question comes from Marcelo Santos from J.P. Morgan.
Speaker 2
Hi, good evening. Thanks for taking my question. 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 trends. Thank you very much.
Speaker 3
Hi, Marcelo. The first one, the first is the increase of 2% in terms of margins in the segments. That was related to the cost management that we do within the products. Nothing specific to highlight on that. It's an ongoing initiative that we have here to gain efficiency. Yeah, just remember, just adding on the first question here, Marcelo, remember that we launched many new campuses, many 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 of the campus that we launched over the last 18 months. Okay. On the second one, I think just to clarify, your question was about the clinical decision solution, the reduction of users that we are having the second semester in enrollment. Is that right?
Speaker 1
Yeah, that's correct, Virgilio.
Speaker 3
Yeah. So the Clinical Decision, the Whitebook solution, we changed our prices 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 premium users and also premium users with a much higher price. So the result of that was positive in terms of revenues, but we lost premium 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 premium 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, well, it's not in a short and an easy way. So on our two most important digital solutions, one, we need to resume penetration. There is white book. We are launching a lot of features, as you may see 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.
Speaker 1
Perfect. Just on the first question, I was asking about the margin increase of medical practice solutions, not the continuing education, and what I'm saying is that it 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.
Speaker 3
Yes. But Marcelo, I would say that yes, we are increasing these 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 had a 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. Regarding the second quarter, it's something about seasonality. Okay.
Speaker 1
All right. Thanks a lot.
Speaker 4
Thank you, Marcel. Next question comes from Mirella Oliveira from Wake Up America.
Speaker 6
Good evening, Blanco, Virgilio, Renata. Thank you for taking my question. I have two questions here. The first one, it's on the recently acquired units. If you guys could comment a bit on the expected timeframe for the ramp-up of UNIMA and how long do you expect margins to be at company's run rate. The second one is on the consolidated EBITDA margins. The company has delivered a significant margin expansion in the past nine months, paving the way for reaching the top of the guidance. 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 would be it from my side.
Speaker 3
I'll take the two questions. First of all, UNIMA, it's our first year operating over there, so just 60 seats, 60 seats. So it's just in the beginning of the maturations. We just implemented, launched the first class starting in 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 for UNIMA, it's based on location. Location, 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 the students. So it's according to our business plan, the acquisitions. It's a question of timing of getting operational leverage regarding UNIMA. Regarding the.
Just add one point here, Mirela. It's that just based on our track record managing all the greenfield, the new medical school campuses, we can reach a very high margin after two to three years with these campuses' maturation, and considering that, well, we didn't start the internship phase in the fifth and the sixth year, so in terms of margin, we can scale rapidly the margin close to 50%-60%, the contribution margin, but remembering that on the fifth and the sixth year, that will converge to overall margin because we start the internship. Yeah, and regarding the EBITDA margin increase, I would say that we're not doing that in this year, but in the last two years, we are being 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 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 these margin expansion.
Speaker 6
That's super clear. Thank you.
Speaker 4
Thank you. Next question comes from Renata from.
Speaker 7
Sorry, I wasn't on mute. Thank you for taking my question. 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 just trying to understand if this is a one-off effect or is something that we should expect to continue going forward. Thank you.
Speaker 3
Hi, Renata. Yes, it's a one-time effect here because we decided to join the offer of mentoring and also the residency prep program. So last year, we used to count twice. So the student that was applying for mentoring and also applying for residency prep, they were subscribed for both products, count twice. Now, the offer we are combining mentoring into residency prep. So it's a joint product here. And 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 one-time effect. And just adding on that, because of this change, we are seeing a much more higher growth on the intake cycle.
That's now we are in the top seasonality of the residency because of this new combination that we started last year. Okay.
Speaker 7
Super clear. Thank you.
Speaker 4
So we don't have any other questions. If you still have a question or want anything cleared, you can contact the investor relations team, and we'll be happy to help you. So thank you for having us tonight, and see you next time.