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    Afya Ltd (AFYA)

    Q2 2024 Earnings Summary

    Reported on Feb 25, 2025 (Before Market Open)
    Pre-Earnings Price$17.63Last close (Aug 13, 2024)
    Post-Earnings Price$17.78Open (Aug 14, 2024)
    Price Change
    $0.15(+0.85%)

    What went well

    • Afya has raised its 2024 guidance due to better-than-expected performance across all three segments—Undergrad Programs, Continued Education, and Medical Practice Solutions—highlighting robust growth and operational efficiency.
    • The Medical Practice Solutions segment is expected to grow by around 20% this year with a positive EBITDA margin of approximately 20%, reflecting successful restructuring and improved profitability.
    • The successful integration of recent acquisitions like Unidom is proceeding ahead of schedule, with expected EBITDA multiples of 4.2x post-maturation, indicating strong M&A execution and synergy realization that contribute to growth and margin expansion.

    What went wrong

    • Increased competition due to regulatory changes may impact Afya's market share. The Supreme Court decision lifting injunctions could lead to approvals of more medical schools, potentially adding an estimated 9,000 to 10,000 additional medical seats to the market, which may intensify competition and affect pricing power.
    • Contracting B2B revenues in continued education may impact overall growth. The company acknowledged that B2B revenues in this segment are "not core" and are expected to be "more than flat", with no guided growth, suggesting potential stagnation in this area.
    • Competitive pressures in the prep course business may challenge future performance. The company had difficulties in this segment in the past, and while the competitive environment was not relevant in the second quarter due to seasonality, it may become a concern in the upcoming sales cycle starting in the fourth quarter.

    Q&A Summary

    1. Margin Outlook
      Q: What are triggers to reach top of margin guidance?
      A: Management aims to reach the guidance range, with execution above expectations in all three segments. In Medical Practice Solutions, after restructuring, they're delivering positive EBITDA, growing around 20%, with an EBITDA margin of approximately 20%, up from near zero last year. ,

    2. Guidance Revision
      Q: Which segments led to guidance revision?
      A: Better-than-expected results came from integrating UNIMA and FITS Jaboatão, improved margins from new medical operations launched in 2022, better SG&A due to zero-budget projects, and contributions from the Unidom acquisition and additional seats from UNIMA. ,

    3. M&A Pipeline Expansion
      Q: Has M&A pipeline changed with new approvals?
      A: With new institutions being approved, the pipeline has grown, offering more targets. Management is confident in acquiring around 200 seats per year, maintaining discipline to choose the right targets at the right price.

    4. Unidom Acquisition Synergies
      Q: What are expected synergies from Unidom integration?
      A: Unidom's integration will bring synergies similar to past transactions, including top-line growth, capacity fulfillment, revisiting scholarships and discounts, implementing the national curriculum, and centralizing back-office operations. The acquisition is expected to reach an EBITDA multiple of 4.2x when matured, with figures incorporated into the guidance.

    5. Cost of Debt Outlook
      Q: What to expect about cost of debt?
      A: The cost of debt is expected to remain below the Brazilian 100% CDI rate until the SoftBank transaction matures in 2026.

    6. Regulation and Approvals Impact
      Q: Are recent approvals affecting competition or strategy?
      A: Management is not seeing changes in competition following Supreme Court decisions. They had a positive intake cycle with approvals aligned with expectations. They are not competing in regions with injunctions.

    7. Medical Practice Solutions Growth
      Q: What drove revenue acceleration in Medical Practice Solutions?
      A: Growth accelerated due to B2B revenues, especially marketing campaigns for the pharmaceutical industry, leading to over 20% revenue growth in the segment. ,

    8. Competitive Environment in Prep Courses
      Q: How has competition in prep courses evolved?
      A: The second and third quarters are not significant due to seasonality; sales are concentrated in the first and fourth quarters. They are seeing strong enrollment growth, with over 30% more students than last year.

    9. B2B Revenue in Continued Education
      Q: Why is B2B revenue contracting in continued education?
      A: B2B revenue in continued education is not core and was leveraged during the pandemic. They are not guiding any growth in this area but will continue to offer it to clients.

    10. Medical Practice Solutions Strategy
      Q: Has strategy in Medical Practice Solutions changed?
      A: The simplification was internal; they didn't redesign the offering but streamlined the internal structure for delivery, improving efficiency in costs and expenses.

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