Q3 2024 Earnings Summary
- Afya is experiencing significantly higher demand, with almost 50% of all seats already fulfilled across all campuses, compared to 40% at the same time last year, indicating strong enrollment trends.
- Afya plans to increase tuition fees by an average of 5.1% for 2025, maintaining the ability to pass at least inflation to their average tuition price across all institutions, which supports revenue growth.
- The M&A environment is favorable, with an increased number of targets and the potential to acquire at lower multiples per seat compared to previous transactions, enhancing growth opportunities while maintaining financial discipline.
- Decrease in monthly active users on digital services: The company experienced a 4% decline in monthly active users in its Medical Practice Solutions segment this quarter, accelerating from the second quarter. This decrease is attributed to the transition from the PEBMED Portal to the new Portal Afya. While the company mentions that they are seeing good results from the new portal, the decline may indicate challenges in user adoption and engagement.
- Deceleration in net revenue growth in Continuing Education segment: There was a deceleration in net revenue growth in the Continuing Education segment this quarter. The company attributes this slowdown to seasonality and a high number of student graduations, leading to a flat performance. Uncertainty remains about when growth will normalize, which could impact overall revenue projections for this segment.
- Potential financial leverage concerns due to ongoing M&A and debt obligations: Although the company has reduced its net debt to adjusted EBITDA ratio, it continues to engage in acquisitions, aiming for 200 seats per year and investing in new units like Mais Medicos. Additionally, there is uncertainty regarding the upcoming SoftBank debt redemption, and how the company plans to manage this obligation—whether through refinancing or using operating cash flow—which could affect capital allocation and financial flexibility.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Revenue | FY 2024 | BRL 3.225 billion to BRL 3.325 billion | no current guidance | no current guidance |
Adjusted EBITDA | FY 2024 | BRL 1.375 billion to BRL 1.75 billion | no current guidance | no current guidance |
Capital Expenditures (CapEx) | FY 2024 | BRL 220 million to BRL 260 million | no current guidance | no current guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Enrollment Demand and Seat Fulfillment | Q4, Q1 and Q2 calls consistently highlighted strong enrollment demand, with mentions of 100% occupancy, stable candidates‑to‑seat ratios (around 6 candidates per seat) and growing student numbers. | Q3 call reported much higher demand with a 10‑percentage point year‑over‑year improvement and 50% of seats filled early, alongside increased approved seats and enrollment growth. | Consistently strong with an increased emphasis on higher demand and faster seat fulfillment in Q3. |
Tuition Fee Increases | Q1, Q2 and Q4 discussions repeatedly underscored tuition fee hikes (ranging from 6.4% to over 8%) as a key revenue driver for medical programs and undergrad segments, contributing significantly to revenue growth. | Q3 highlighted a 5.1% tuition increase for 2025 along with a 4.8% rise in the medical school net average ticket, reinforcing the pricing strategy despite competitive pressures. | Consistent bull theme—the pricing strategy remains stable with ongoing revenue support, reflecting a steady positive sentiment. |
M&A Activity and Acquisition Integration | Q1, Q2 and Q4 calls discussed active M&A activity, integration of acquisitions (like Unidompedro, UNIMA, and others), synergies, and short‑term margin dilution risks; the emphasis was on disciplined acquisition strategy and achieving operational efficiencies. | Q3 continued the focus by noting that recent judicial outcomes have increased the pipeline of acquisition targets, with improved integration of deals such as Unidom and expectations for margin expansion over time, albeit acknowledging some margin dilution risks. | Sustained focus with slight upbeat optimism on deal valuations (lower multiples) and integration synergies, despite ongoing concerns about short‑term margin dilution. |
Digital Services Performance | Q1 and Q2 calls highlighted robust B2B growth, increased net revenue, and gains in paying user numbers, while Q4 evidenced strong digital performance through higher revenues and significant user engagement metrics. | Q3 reported a 4% decline in monthly active users attributed to the portal transition (from PEBMED to Afya Portal) but noted an increase in paying users due to changes in data collection, signaling an adjustment in user behavior rather than an overall performance drop. | Shift in sentiment: Previously robust engagement is now coupled with temporary declines in user activity due to transition challenges, though conversion improvements temper the downside. |
Regulatory Changes and Competitive Pressures | In Q2 and Q4, regulatory issues (e.g. judicial decisions, the Mais Médicos auction, proposal caps) and competitive pressures were discussed in relation to new seat approvals and market dynamics. | In Q3, there was less explicit discussion of regulatory or competitive pressures; however, regulatory approvals were noted as favorably impacting the M&A environment, suggesting an indirect influence. | Less emphasized in Q3: While previously a prominent topic, regulatory and competitive challenges now play a less central role, with their impact mostly seen through enhanced M&A opportunities. |
Financial Leverage and Debt Redemption | Q1, Q2 and Q4 calls mentioned the company’s low cost of debt, stable to decreasing net debt ratios, and refinancing strategies without singling out specific concerns about SoftBank obligations. | Q3 introduced explicit concerns regarding SoftBank obligations (option for early redemption starting May 2026) and discussed managing these risks through refinancing or operating cash flow, marking it as an emerging area of focus. | Emerging new concern: Financial leverage remains steady overall but SoftBank-related debt redemption has become more prominent as a risk factor in Q3. |
Margin Expansion and Operational Efficiency | Q1, Q2 and Q4 calls consistently noted margin expansions across segments (driven by integration synergies, SG&A improvements, and initiatives such as the zero‑budget project in Q4) as central to driving operational performance improvement. | Q3 focused on restructuring and integration processes that supported margin expansion, though references to specific projects like the zero‑budget initiative were no longer highlighted, with an emphasis instead on consolidation and operational efficiencies. | Consistent bull theme: Sustained focus on operational efficiency with continued margin improvement, though messaging has shifted from spotlighting specific projects to a broader restructuring narrative. |
Prep Course Business Competitive Pressures | Q2 mentioned that competitive pressures in the prep course business were not seasonal (with sales concentrated in Q1 and Q4), and Q4 noted improved performance (e.g. Medcel outperforming after two years). | Q3 did not mention the prep course business competitive pressures at all. | Topic no longer mentioned: The prep course competitive pressures have dropped out of focus, implying that they are currently less significant or a lower priority in discussions. |
Judicial Process Impacts on Acquisitions | Q1 and Q2 discussed judicial impacts by detailing processes around Unidompedro’s seat approvals and the broad influence on acquisition pipelines, while Q4 briefly mentioned the Mais Médicos 3 process and pending votes affecting the environment. | Q3 noted that outcomes from judicial processes (injunctions) have actually increased the number of acquisition targets, creating a “sellers’ market” effect, though the overall emphasis on judicial challenges has softened. | Decreased emphasis: Judicial process impacts are less of a head‑lining risk now, with the focus shifting toward leveraging these outcomes to expand the M&A pipeline rather than as a major downside risk. |
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M&A Strategy and Targets
Q: How will M&A unfold, and which regions will you prioritize?
A: Management sees an expanded pipeline of acquisition targets due to new authorizations entering the market following Supreme Court approvals. They focus on institutions highly concentrated in medicine, aiming for next deals at lower multiples per seat compared to recent transactions like Unidom. They are not focused on specific regions but on achieving good IRR on each deal. -
Financial Leverage and Dividend Policy
Q: What is your target for financial leverage, and will dividends increase?
A: The company reduced net debt to adjusted EBITDA from 1.6x at end of 2023 to 1.3x currently, despite acquisitions like Unidom. They leverage to do business combinations, then extract synergies to reduce leverage before the next deal. They are discussing internally the possibility of distributing dividends but have no policy changes yet. Regarding the SoftBank debt, they can easily refinance or repay it with operating cash flow (generated almost BRL 1.2 billion in 9 months), so it's too early to decide on capital allocation changes. -
Margin Expansion Outlook
Q: Can margins expand further after restructuring efforts?
A: Restructuring in Continuing Education and Digital segments has brought operational efficiencies. They unified product management structures, reducing costs and expenses. From 2025 onward, margin expansion will come from operational leverage as the business units grow. However, overall margins may be impacted by mix, as Undergrad grows slower than Continuing Education and Digital services. -
Tuition Increases and Competitive Environment
Q: How are tuition increases and competitive dynamics affecting you?
A: They maintain the strategy of passing at least inflation to average tuition, projecting a 5.1% increase for 2025. The number of candidates is much higher than last year, with enrollments about 10 percentage points above last year at the same time. They have more than 30 campuses, pricing differently based on demand, and are committed to keeping average tuition increases at least at inflation. -
Unidom Acquisition Performance
Q: How is the Unidom margin ramp-up progressing?
A: The Unidom acquisition is performing better than expected. They increased medical students from 850 to over 1,150 in two months. Occupancy rose from 60% to 80% since closing on July 1st. They expect further margin expansion by reaching 100% occupancy and integrating systems during 2025. -
Decline in Monthly Active Users
Q: Why did digital services' monthly active users decline 4%?
A: The decrease is due to the launch of Portal Afya replacing Portal PEBMED, causing a temporary drop in active users. They are now seeing great results from the new portal as part of their brand strategy. Collecting more user data has increased the number of paying users despite lower active users. -
Continuing Education Segment Deceleration
Q: Why did Continuing Education revenue growth decelerate, and outlook?
A: The deceleration is due to seasonal intake patterns; Q2 and Q3 are low quarters. A large cohort graduated this semester, impacting revenues. They see good trends with five new campuses launching, expecting improvements in 2025 after flat revenue in Q4.