Afya Limited ($AFYA)

Thank you for joining us for Afya's conference call. I'm here today with Afya's 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 Afya's 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, its related events. 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 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's CEO.

Thank you, Renata, and welcome to our first conference call of 2026. It's with much satisfaction that Afya starts another year of great operational and financial performance. This quarterly results shows the high predictability of our business and success execution of our strategy, that once again combines growth with cash generation, Afya's 3 pillars business model. In this presentation, I will cover key strategic topics, including our performance highlights, successful business execution across our 3 segments. And finally, Luis Blanco will provide an in-depth look at our financial and operational performance. Now turning to Page #3. Let's begin by highlighting our performance achievements. Initially, our revenues increased by 8%, reaching BRL 1.013 billion accompanied by a growth in adjusted EBITDA of 4% year-over-year, reaching BRL 511 million with a margin of 50.5%. We also reported a free cash flow of BRL 376 million, reflecting 3% increase compared to the previous year, boosted by the solid operational results of the company, with a cash conversion of 92.5% and a solid cash position of BRL 1.3 billion at the end of the first quarter. With this consistent momentum, our net income reached BRL 262 million, marking a 2% growth year-over-year with an EPS of BRL 2.88, a 3% increase compared to the previous year. This growth reflects strong operational performance, partially offset by and a provision related to the OECD Pillar 2 global minimum tax. Moving to our operational updates, we have now 3,768 operating medical school seats with an increase of over 6% year-over-year. Additionally, our number of undergrad medical students has reached over 26,000 students, representing over 2% growth compared to the first quarter of 2025. Furthermore, we increased the net average ticket of medical school by almost 5% year-over-year, reaching BRL 9,634. In addition, we continue to observe improving performance in continued education and medical practice solutions segments. In continued education, revenue increased 11% year-over-year, purely organically, reaching BRL 79 million. In medical practice solutions, we saw a 4% growth in revenue compared to the first quarter of 2025, reaching over BRL 43 million. Lastly, our ecosystem has 304,000 active users, exemplifies substantial penetration among physicians and medical students in the country. Moving to Slide #4, we will discuss our performance across our 3 business segments. We start with the undergrad segment. We observed important movements throughout the quarter, such as higher tickets in medicine course with almost 5% increase year-over-year, above 2025 inflation. This growth was accompanied by a stable gross margin across the segment of 69%. In addition, we expanded our health science student base by 5,000 students compared to the first quarter of 2025. The continued education segment delivered record on B2B revenue of $74 million in the first quarter of 2026, supported by a record student base of 57,000 students and reflecting the continued strength of our product offering and engagement across the segment. The medical practice solutions segment delivered solid performance in the first quarter of 2026, supported by an increase of 6,000 clinical management active payers compared with the first quarter of 2025. And B2B revenue grew by 17%, reflecting the continued progress of our product offering and commercial initiatives across the segment. I will now turn the call over to Luis Blanco, Afya's CFO, to provide further insight into the financial operational metrics. Thank you.

Thank you, Virgilio, and good evening, everyone. Starting with Slide #6 for discussions of key operational metrics by business unit. Starting with the undergraduate products. Our medical student base grew by 2% compared with the first quarter of 2025, reaching 26,000 students, while operating medical school seats increased by over 6% year-over-year to 3,768. Our medical school net average ticket increased by 5%, reaching BRL 9,634 in the first quarter of 2026. In addition, revenue for the undergraduate segment saw an 8% increase, achieving BRL 892 million, 86% of which is related to medicine and 94% from health-related courses. On the next page, I will present our continuing educational metrics. We approach continuing education through 3 main journeys, starting with the residency journey, which encompass products focused on the residency preparation. We saw a 20% decrease, reaching 9,744 students by the end of the period. In the graduate journey focused on specializations test and preparations and graduate courses in medicine, students grew by 15%, reaching 9,855 students. Lastly, our other costs in B2B offerings increased an impressive 41% over the same 3-month period of the prior year. Continuing educational revenue rose to BRL 79 million in the 3-month period of 2026, up from BRL 71 million in the 3-month period of 2025, reflecting a growth of 11%. This includes a 13% increase in B2B revenue and 14% decline in B2B. Moving to Slide #8, I'll discuss the Medical Practice Solutions operational metrics. The first graph shows our total active payers, which are the ones that generate revenues in the business of physician. The number of active payers declined to 201,000, a 1% decline over the same quarter last year. The second graph highlights our month active users, which account for 221,000, a reduction of 10% compared to the same period of the prior year. Lastly, in our final graph represents revenue of our Medical Practice Solutions segment, which has expanded by over 4% compared to the same quarter of the last year, reaching BRL 43 million. Of this total, BRL 38 million was generated by B2B, showing an increase of 3%, while B2B contributed to BRL 5 million, 17% increase over the same quarter last year. In the next slide, we presented our Afya Ecosystem. We are pleased to highlight Afya's substantial contributions to the Brazilian health care community. By the end of the first quarter of 2026, our ecosystem encompassed 304,000 physicians and medical students using our service and products. Moving forward to Page 10, I want to discuss our financial overview for the first quarter of 2026, starting with the next slide. With great satisfaction, I present another strong quarterly performance for Afya. Revenue for the first quarter of 2026 reached BRL 1,013 million, representing an 8% increase compared to the same quarter of last year. The quarter revenue increase has mainly due to higher tickets in medicine courses, the increase in nonmedical under-graduated students, the acquisition of FUNIC and abatement of the continuing educational segment. In the first quarter of 2026, adjusted EBITDA rose by 4%, reaching BRL 511 million with an adjusted EBITDA margin of 50.5%, a reduction of 200 basis points compared to the first quarter of 2025. The reductions in adjusted EBITDA margin was primarily driven by higher costs and expenses in continuing educational and medical practice solutions segments, mainly reflecting a lower gross margin compared with the first quarter of 2025 and higher payroll, sales and marketing expenses associated with the ongoing investment cycle in both segments. Moving to the next slide. The first quarter cash flow from operating activities rose by 0.6%, reaching BRL 473 million. The operating cash flow conversions ratio was 92.5%. Net income for the first quarter of 2026 totaled BRL 262 million, representing a 2% increase from the same period of 2025. This growth reflects a stronger operational performance, partially offset by an additional taxation provisions related to OCD Pillar 2 global minimum taxation. Despite a lower adjusted EBITDA margin driven by higher expenses in continued education and Medical Practice Solutions, net income growth was sustained, supported by the disciplined execution and the consistency of our business model. Regarding EPS, we achieved BRL 2.88 per share in the 3-month period, representing a 3% increase year-over-year. And now moving to my 2 last slides. I will discuss our cash and net debt position, also giving more color on our cost of debt. This slide presents a table detailing our gross debt compositions at the end of the first quarter of 2026 and the total cost of debt covering our primarily obligations. Afya capital structure remains solid with a conservative leverage position and the low cost of debt. Afya net debt, excluding IFRS 16 divided by the midpoint of the 2026 adjusted EBITDA guidance was 0.7x. Our financial discipline was also independently recognized. On May 5th, Moody's reaffirmed Afya credit rating at AAA with a stable outlook, reflecting our consistent revenue growth, above industry average margins, solid cash generation and robust liquidity, while also recognizing our strong competitive position and disciplined approach to liability management and capital allocation. On the next page, we can look closely at the net debt variation. As of the end of the first quarter of 2026, our net debt has reduced to BRL 1,151 million when compared to the end of 2025, a reduction of BRL 218 million, even considering the repurchase of BRL 70 million in treasury in the first quarter, reflecting our strong operational performance and capital allocation discipline. This concludes our prepared remarks. We are pleased with the progress achieved during the quarter and with the consistency of our execution across the business segments. Our commitment to advance to the medical journey through an integrated ecosystem of education and Medical Practice Solutions remains unchanged, supporting students through their path to became physicians, promoting continued medical learning and enhancing physician decision-making and productivity. Looking ahead, we remain focused on our -- executing our strategy with discipline and capturing the opportunities ahead. I will now open the conference for the Q&A session. Thank you.

[Operator Instructions] So the first question comes from Lucca Marquezini from Itau.

Two questions from our side. So the first one would be the release mentioned that the intake cycle was successful and the company implemented a 4.6% price increase. So can you please comment on the competitive environment for this intake cycle and whether it got any worse when compared to the other intake cycles in previous years? So that is the first question. And the second one, the release also mentions that one of the drivers for net revenue growth was the performance of nonmedical undergraduate students. Can you please comment on the strategy on this side and whether this has changed compared to the last years as well, please?

Hi, Lucca, this is Virgilio. So the first half intake was a very strong intake when we compare to last year, we saw the same level of candidates perceived. On our side here, we are seeing that the recognition of our brand and also the internal process that now we are having an intake and enrollment process fully centralized that we are calling the national intake process. So that is also helping us to keep us with 100% of equipment. So it was a very healthy intake cycle. And besides that, we also start -- already started our second half intakes very beginning and the number of leads, it's also better than the same period last year. In terms of the share of our undergrad revenues, we are seeing a very good trend on other health programs, because of Afya's brand is very well connected to the health sector. The last 2 years, we're also opening some health programs, completing the portfolio for all of our campuses. So we are seeing a very strong intake when we compare year-over-year and almost a 20% growth -- organically growth coming from other undergrad programs on the health sector. So this is a strategy for Afya. We are not only offering medicine on our program, but also increasing the health undergrad programs as a portfolio and strategic portfolio for our ecosystem. And why is that? When we have a campus in a small city, just the physician, just the undergrad, that's the program for medicine does not solve the issue on the region. And being -- also offering other health program attached to Afya's brand connected to our medicine infrastructure on that campus makes a lot of sense. It's a very low additional CapEx, strong brand recognition and very strong intake that we are seeing and good momentum. Okay?

Of course. The second question comes from Eduardo Resende from UBS.

And two on my side as well. So first, could you provide an update on the ENAMED [indiscernible]? So if you could provide an update on the impacts that are expected and the initiatives you are executing to foster student performance in the upcoming exam would be very helpful? And the second question is regarding the M&A environment in medical school. So if you could please provide some color on the market environment for new deals in medical school. I mean what in your view has been the main constraint for new deals? Is it still on valuation or maybe some asymmetries involving ENAMED as well? So anything you can share with us in this front would be very helpful.

I'll take the ENAMED here question and Blanco will help on the M&A side. So regarding our action plan for ENAMED, we are doing a very strong initiative here. First of all, it's how to increase the engagement of all students that will be applying for ENAMED now in September in the second half this year. We are also conducting almost 30 mockup tests of all students that will be applying for ENAMED and doing action plan for every 2 weeks, we have measuring the results based on the new model, because the ENAMED is completely new model when we compare for the previous one based on the old [ NIG ]. So having said that, we are seeing that our student is much more engaged, fully committed to have a much better result. And also, we are adapting our curriculum also to fulfill the type of question, the type of evaluation that is being considering in the ENAMED. So our expectation that will be a much better result for our students now in September. So regards the M&A, I'll pass here to Blanco.

Just to add a point on the ENAMED question, if I may. A reminder that all the results, the impacting results on the second semester is already considered in the guidance that we provided in the beginning of the year and it's minimum, it's not material. So Blanco?

It's Blanco speaking. Regarding the M&A environment, first, it's very important to highlight that we keep our capital allocation discipline, just focused on M&A that concentrated in medicine and that generates a good return on capital. Just as a reminder, we have as a target institution that has more than 60%, 6-0, of the revenue coming for the medicine programs. And we look for targets for deals that generates an IRR above 20% on leverage, nominal kind of internal rate of returns. Having said that, we still keeping our 200 seats per year growth and we look deals that have this profile that I just mentioned. Sometimes we don't get the right profile. Sometimes we didn't reach a price that make the return on the capitals that we seek. And then we do not pursue a deal just for the growth itself. So we pursue deals that have the exact profile and the exact type of return and we keep a very discipline on this.

Eduardo, is it clear? I think that you're on mute. Okay. So moving to the next question, Mirela from Bank of America Merrill Lynch.

I have a question on the Medical Practice Solutions and the investments on this front. So you mentioned in the previous quarter that you plan to invest more heavily on this line. And we see that this quarter, the number of total payers continue to decline, especially on the WhiteBook front. I understand here that there's a timing component to see the results of these investments. So I was just wondering if you guys could give us more color on the expected timing to see some recovery on these lines. And also if you could provide more color on the initiatives that you see as a solution, especially on the WhiteBook front?

Mirela, your voice burst a bit. Can you please repeat your questions?

Can you hear me well now?

Yes, we can.

Okay. So my question is on the Medical Practice Solutions and the investments on this line of business. You mentioned in the previous quarter that you plan to invest more heavily on the Medical Practice Solutions. And we see that in this quarter, the number of payers continue to decline. I understand here that there is a timing component to see some recovery there, especially on the WhiteBook. So I just wanted more color on the timing that you expect to see recovery on these lines, especially on the WhiteBook? And also if you could give us more color on the initiatives they are being done on the WhiteBook to face the competition from AI and the more competitive market on the segment?

Now it was very clear, your question. So regard the investments, we are already investing more on the NPS here of our products, not only individually product by product, but also integrating them and creating like a network effect, having our physicians not only more engaged, but also generating more insights and information inside within our platform. So we're still seeing a reduction on payers on WhiteBook. On the other hand, we are growing and growing faster on iClinic that is more engaged physician to our base and also generating much more data on a daily routine on our basis. We are also tracking the physicians that are leaving our base. They are more young physicians that are not using the platform on a daily routine. We are seeing much more using on the daily routine for more mature and senior physicians that are adopting iClinic, also leveraging the number of prescriptions that is being made through our platform. We just reached more than 2 million prescription level per month [indiscernible] that's also very important, most of them coming through iClinic. That's why it's so important to leverage the number of clinics and physicians adopting iClinic. In terms of investment, what we are doing, first of all, AI it's one of the issues and also an opportunity here. We are launching a lot of features, new features AI-based. So the solution is becoming AI first in terms of WhiteBook and also considering the social network effect, because we are embedding prescription within WhiteBook. We are also integrating WhiteBook with our updates and continued medical education solutions and also within iClinic. So all of this in a very middle term is to have what we are calling here Afya One platform where a physician doesn't make sense if they are signing for one solution and another. He is like a membership of the entire platform. So this is what we are building here. So in terms of cost and investments that we are doing in this first semester, one is CapEx related to all of this innovation, integration and creating this beautiful platform. And second is improving our sales team most for B2B that we are now already seeing an important growth year-over-year and that's what we believe that's the greatest opportunity in the mid and long term for the [ MP ] segment.

And Mirela, Blanco speaking, just adding 2 more things in what Virgilio just mentioned. Regarding the investment itself, if you notice our CapEx, it is most concentrated on this quarter in intangible assets rather than property and equipment. You can see this change of mix if you compare year-over-year. And another point regarding specific about WhiteBook, what we are pursuing this year regarding all these investments is to increase the audience within WhiteBook. WhiteBook, when you compare with the public LLMs, most of them are provided for free. So we are focused this year on the WhiteBook on the -- what we call the audience side. So the impact on active payers and then on the revenues, you won't see a big impact on WhiteBook this year, but from 2027 ahead. So this year, these investments were focused on audience on WhiteBook.

[Operator Instructions] So the next question comes from [ Victoria ] from JPMorgan.

I have one on my side. Just on the sales and marketing expenses in this quarter. So we saw a year-over-year increase. And I just want to touch base to see why we saw this increase? And if you could please give more color on this line going forward.

So it's 2 main reasons here. First of all, we anticipate the volume of intakes for the first half because of the ENAMED, so we spend a little bit more on the undergrad and also on health programs, you saw the results. We also have a very strong intake as we also have a bigger offer portfolio in the first half when you compare to the -- to last year. And second, also for the SPM, where we are improving our sales process sales team here. We are also putting more market effort on SPM and also [ Intercom ] to strengthen our position. That -- this is -- no, it's not a recurring base, but onetime based on this first semester, most of them from the undergrad and also for this launching of this new approach of many solutions that is being more integrated and how we are offering this new dynamic and products to our physician ecosystem, okay?

And Victoria, it's very important that this increase in sales and marketing expenses are under this program and it is embedded on our guidance for the year, okay?

So since we don't have any more questions, we are going to end the call. If you still have a question and please contact the Investor Relations team. We'll be happy to help you. Have a good evening.