Afya Limited Q2 FY2025 earnings call

• Operational updates: Completed FUNIC acquisition adding 60 medical seats, undergrad medical students near 26,000 (14% growth Y/Y), medical school net average ticket (excluding UNIDOM) up 3% Y/Y, Continuing Education revenue up 8%, Medical Practice Solutions revenue up over 9%, ecosystem had 302,000 active users. - Financial performance: First half of 2025 saw 15% revenue growth to BRL 1,856 million, adjusted EBITDA up 20% to BRL 893 million (margin 48.1%), basic EPS climbed to BRL 4.69. - Share repurchase: Plan to repurchase up to 4 million Class A shares by Dec 31, 2026 through open market or private deals.

Undergraduate segment: Revenue grew over 16%, totaling BRL 1,642 million, with 86% of this revenue from medicine programs and 94% from health-related courses. Continuing Education segment: Revenue increased almost 8% year-over-year, reaching BRL 138 million. Medical Practice Solutions segment: Revenue grew over 9% year-over-year, reaching BRL 84 million. Ecosystem reached 302,000 active users.

• Reaffirmed on track to meet full year 2025 guidance, supported by disciplined execution and strong business fundamentals. - First half of 2025 had 15% revenue growth and 20% adjusted EBITDA growth, confident in creating value going forward.

• Risks related to new tax legislation implementing OECD Pillar Two rules, which may impact results. - Market competition in medical seat intake and continuing education could pose challenges.

Q: Our question regards the main leverages here for profitability expansion in the quarter. So you mentioned that one of the levers was improved efficiency in SG&A expenses. If you could provide just more color on each of the segments these efficiencies are focused on? And then going forward, if you expect any further dilution in SG&A expenses?

A: Blanco spoke about centralizations in shared service and Continuing Education/Medical Solutions segments. Virgilio added about operational leverage from 4 Mais Medicos campuses maturing and UNIDOM integration improving margins.

Q: The first one is on the guidance, more specifically on the EBITDA guidance and taking into consideration what you just mentioned about some more efficiency and more leverage. So if we annualize the first half EBITDA, we reached to roughly BRL 1.8 billion, right, for the year, which is slightly above the top of the guidance range. So given that there wasn't any guidance revision here, should we expect the EBITDA for the second half to be slightly below the first half? Or you guys just prefer to be a little bit more conservative here? And then my second question is on tax rate, okay? So if we consider the -- not only the second quarter but also the first half figures, we see an effective tax rate close to 9%, right, which is below the 15% tax rate proposed under the global minimum tax of the OECD. So it will be great if you guys could share some more color on what should we expect for the second half of this year related to the tax rate here.

A: Virgilio said prefer to keep conservative due to seasonality in Continuing Education. Blanco mentioned working on 2 fronts regarding tax rate, questioning in justice level and presenting to representatives about PROUNI impact.

Q: could you please comment a bit on the competitive outlook for the second half intake? How did that go? How did you see competition, whatever you could add there? And the second question would be a bit about medical tickets. So could you discuss a bit? I mean, it grew 3.3%, if I'm not mistaken. And it's a bit below inflation. What are the effects that drive this maybe mix, maybe ramp up?

A: Virgilio said competition on second half intake was higher, reduced candidates ratio from 7% to 5%, but had good enrollments. Regarding medical tickets, net effect below inflation due to 27% discount from FIES.

Q: I imagine the company is seeking to challenge the tax charge here through legal or like the administrative means. My question is, if you guys could like elaborate on that opportunity, if you guys see like a more likelihood or more likely scenario through administrative efforts or through legal process.

A: Blanco spoke about 2 fronts, questioning in justice level and presenting to representatives about PROUNI impact on Pillar Two taxations.

Q: Are we seeing that because we have seen some transactions that are being performed in Brazil by your competitors that seem to be cheaper than what we saw in the past. So are you seeing the sellers being pressured somehow? Can you take advantage of this new environment? And how did this wave that you did -- or how this wave of seats have changed the environment during the diligence process? And the second question is about a little bit this buyback program. We understand that 4 million shares is a significant portion of your free [ flow ] and then some -- several times your daily traded volume. So how are you considering this trade-off between the return to shareholders versus the stock liquidity?

A: Blanco said on M&A, looking for right opportunities at right price, location and reputation important. On buyback, sees it as capital allocation opportunity to return value to shareholders while increasing EPS.

Q: Just a very quick question here. I think the colleagues cover on my point. But it caught my attention that the residents journey dropped significantly year-over-year. And I just want to know if there is like any meaningful trend on the market or this is just a [ centrality ] on this quarter. And lastly, you guys comment on the release about the ENAMED exams. So I just wanted to hear your thoughts regarding these new exams. I mean -- is there any additional CapEx that you envisage to put Afya to benefit from these new standards? Or I don't know, just want to hear your thoughts on this new exams.

A: Virgilio said residency journey had low cycle in 2024, seasonality at play, and ENAMED has marginal CapEx required as assets in place can leverage existing learning curriculum.