Afya Ltd. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Performance Achievements: Net revenue grew 16% to R$936 million, adjusted EBITDA increased almost 24% to R$492 million with a record margin of 52.5%, cash flow from operating activities was R$470 million, net income rose 23% to R$257 million, and EPS was R$2.79, a 23% increase year-over-year.
• Operational Updates: Closed Funic acquisition adding 60 medical seats, Undergrad segment saw gross margin expansion from Unidom consolidation and medical campus ramp-up, Continuing Education segment had gross margin expansion from operational restructuring, and Medical Practice Solution segment grew from B2B contract ramp-up and active payer expansion.
• Recognitions: Moody’s upgraded national scale credit rating to AAA.br with stable outlook, achieved IFC-defined targets for 2024, and received first ESG rating from MSCI (BBB) with strong performance in data privacy and security.
• Academic Performance: ENADE and CPC results from INEP showcased outstanding academic performance across Afya’s medical schools, reinforcing commitment to academic excellence.

Segment Performance

• Undergrad Segment: Net revenue increased by over 17% to R$827 million, accounting for 86% of total net revenue. Number of medical students grew 15% to almost 26,000 students, approved medical seats rose 12% to 3,593, and net average ticket for medical school increased by 4% to R$9,240.
• Continuing Education Segment: Net revenue increased almost 9% year-over-year to R$71 million, driven by growth in graduate journey students and operational restructuring contributing to gross margin expansion.
• Medical Practice Solution Segment: Net revenue expanded by 14% compared to the same quarter last year, reaching R$42 million, fueled by ramp-up of B2B contracts and growth in active payers.

Guidance

• Maintained the guidance provided in March 2025. Any upward/downward revision would be determined after the second semester intake, depending on the completion of the intake process and other factors.

Risks

• Pillar Two Tax Legislation: Uncertainty regarding the impact of the OECD Pillar Two minimum taxation law, including complex calculations and potential constitutional challenges.
• Softbank Convertible Debt: Risk associated with Softbank’s early redemption right in May 2026 and provisions made for potential premium payment if exercised.

Question and Answer

Q: Could you share details on what drove the strong EBITDA margin performance and if there's room for upward revision of guidance for the year?

A: The margin expansion was due to gross margin expansion in Undergrad and Continuing Education segments, ramp-up of medical campuses, operational restructuring, and efficiency in SG&A. Guidance for 2025 would only be revised after the second semester intake.

Q: How is the intake process for medical courses?

A: The intake process was healthy with around seven to eight candidates per seat, strong brand recognition supporting the intake, and a healthy renewal rate for health and non-health programs.

Q: Any comments on the Undergrad medical school average ticket growth and competitive landscape?

A: Average ticket grew 4% year-over-year, with some impact from FIES retention, but expecting further growth close to inflation as the brand and campus operations stabilize.

Q: Thoughts on the decrease in monthly active users in Medical Practice Solution and B2B seasonality?

A: Decrease in monthly active users was due to transition from PEBMED portal to Afya portal, with pushback expected to subside. B2B business has seasonality with fourth quarter typically more active than first quarter, but overall B2B contracts grew 30% in 2024.

Q: Insights on Pillar Two tax and Softbank convertible debt?

A: Pillar Two introduced minimum taxation with complex calculations, provisions made for potential payment due in 2026. Softbank’s early redemption right in 2026 is being monitored, with provisions made for potential premium payment if exercised.