Afya Limited (AFYA) Earnings Call Transcript & Summary

Those statements concern the business and financial performance, our expectations and guidance for future periods, or what we expect from the company's strategic product initiatives and the benefits tied to them. Among these risks are the ones described in greater detail in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation rest on information available to us as of the date hereof. You should not treat them as predictions of future events, and we disclaim any obligation to update any forward-looking statement except as required by law; beyond that, management may reference non-IFRS measures on this call. Those measures are not meant to be considered in isolation or as a substitute for the results prepared in accordance with IFRS. This presentation reconciles these non-IFRS financial measures to the most directly comparable IFRS financial measures. Now, let me hand the call over to Virgílio Gibbon, Afya's CEO.

Thanks, Renata, and I appreciate everyone joining today's call as we go over what we delivered in Q3 and the first nine months of 2026. The story this quarter isn't just about the financial figures — it demonstrates how our strategy continues to set Afya up for durable growth while we reshape medical education across Brazil. We remain focused on delivering recognized quality in physician training, backed by meaningful accreditations and honors such as SAEME, DOCEEME, and the MSCI rating, and every one of our medical programs in Brazil still runs at full capacity, at 100%. In my remarks today, I'll cover the main strategic moves and the operational achievements that underpin these results. Luis Blanco is going to walk you through how we performed operationally and financially in detail. Let's begin with the key highlights and strategic priorities for the quarter. Revenue in the third quarter increased 6% compared with a year earlier, hitting BRL 985 million, while Adjusted EBITDA climbed 9% to BRL 434 million. Our Adjusted EBITDA margin was 44%, representing an expansion of 100 basis points relative to the same period last year. Across the first nine months of 2026, revenue was up almost 7% year-over-year, totaling BRL 2 billion 970 million, and Adjusted EBITDA rose almost 5% to BRL 1.3 billion, with an Adjusted EBITDA margin of 45.5%. Net income came in at BRL 634 million, a 7% rise compared with a year earlier, while basic EPS increased 9% to BRL 6.98 — a figure that mirrors the effect of the company's share repurchase program. Operational cash conversion was also robust at 99.5%, and free cash flow to equity for the nine months of 2026 totaled BRL 629 million, of which BRL 206 million was produced during third quarter 2026. Those outcomes demonstrate how strongly we generate cash, how consistently we execute, and our ongoing dedication to building long-term value for shareholders. Turning to operational developments: during this quarter we maintained our leading position in medical education, underpinned by 3,785 operating medical seats, which represents growth of more than 5% versus the prior year. Beyond that, undergraduate medical enrollment exceeded 26,000 students, marking 3% growth versus the equivalent period a year earlier. Net average tickets for medical school also climbed 4% year-over-year, hitting BRL 9,466. Revenue from Continuing Education rose 1% compared with last year, totaling BRL 209 million, while Medical Practice Solutions posted revenue matching the prior-year period at more than BRL 128 million. The slower growth you're seeing stems from the investment plan we outlined earlier, which is designed to grow the user base in those two segments. This quarter, Continuing Education students are already up 10% versus the same quarter last year. In Medical Practice Solutions, paying users and MaU are both up 3% from the prior quarter. Our ecosystem now has 300,000 users, which shows we keep making meaningful inroads with physicians and medical students nationwide. Turning to slide number four, we'll go over the highlights from our three business segments and our corporate achievements. Beginning with the undergraduate portion of our medicine course, medical school net average tickets rose 4% versus a year earlier. We also keep delivering solid momentum in growing the student base for our health science course. Average health science students rose 18% compared with the prior year, which reflects greater diversification across our health-related undergrad portfolio. Beyond that, on September 18th we obtained authorization for 17 additional medical seats at Afya Cruzeiro do Sul. That approval strengthens our organic growth runway and backs our capacity to expand with predictability. The Continuing Education segment was again notable for robust growth in our total student base, which grew 10% across the nine months of 2026. B2P revenue in that segment rose 4% versus the same period a year ago. Within Medical Practice Solutions, we delivered a 20% rise in clinical management active payers over nine months. B2B revenue also increased 4% year-over-year. Finally, returning capital to shareholders stayed a key priority. Our disciplined capital allocation framework keeps generating sustainable value for shareholders. At the corporate level, helped by strong cash generation, we returned BRL 459 million to shareholders via dividends and share repurchases across the nine months of 2026. Wrapping up the corporate side, we're happy to share that we've received an AA MSCI ESG Rating — the top rating for any company in Latin American education — and we've likewise earned ESG leader status in the diversified consumer servicing industry. That result reflects how solid our business model and ecosystem are, and it establishes the groundwork for further growth and for opening the company's next chapter. At this point I'll pass the call to Afya's CFO, Luis Blanco, who will give more detail on the financial operation metrics. Thank you.

Thanks, Virgílio, and good evening to all of you. Let's move to the next slide, where we'll go over the main operational metrics for each business unit. We'll begin with undergraduate programs: our medical student count rose 3% versus the first nine months of 2025, surpassing 26,000 students, and operating medical school seats were up 5% year-over-year, hitting 3,785. Net average ticket for our medical school rose 4%, to BRL 9,466 across the nine months of 2026. Along with health science and our other undergraduate programs, revenue in the undergraduate segments climbed more than 7%, to BRL 2,642 million in total. That revenue breaks down with the medical program contributing 85% and health-related courses accounting for 93%, highlighting both our strategic emphasis and our industry leadership. Turning to the next page, I'll take you through the metrics for our Continuing Education segment. We organize Continuing Education into three primary journeys. The first is the residency journey, which covers products designed for residency preparation. At period end, its student count reached 9,595, a 4% decline year-over-year but a 4% gain quarter-over-quarter, reflecting the seasonal pattern of this product. Within the graduate journey, which centers on specialization test preparation and graduate medical education, total students grew 2% to 9,386, driven by continued demand for advanced medical training programs. And wrapping up, the rest of our B2P and B2B portfolio also continued to grow: overall student numbers rose 17% compared with a year earlier, reaching 36,345. In Continuing Education, revenue for the nine months of 2026 totaled BRL 209 million, against BRL 208 million for the same span of 2025 — an increase of 1%. B2P revenue drove that result, climbing more than 4% year-over-year to BRL 195 million and representing 93% of Continuing Education revenue. B2B revenue, for its part, reached BRL 14 million. Moving to the next slide, I'll walk through the operational metrics for Medical Practice Solutions. Active payers overall increased 2% year-over-year to approximately 206,000, while active payers in clinical management rose 20% to 52,000, reflecting Afya iClinic's ongoing market penetration. During the month, active users totaled 219,000, which represents a 4% decrease compared with the prior year. Revenue from Medical Practice Solutions reached BRL 128 million across the nine months of 2026, essentially matching the figure for the corresponding period last year; turning to the next slide, we present the Afya ecosystem. We are proud of the significant difference Afya continues to make throughout Brazil's healthcare ecosystem. As of the end of the third quarter of 2026, over 300,000 users were actively using our products and services, reflecting our strong relevance and reach in medical education and medical solutions. Next, I would like to walk through our financial overview for the third quarter and the nine months of 2026. I'm pleased to report that Afya delivered another strong quarter, reflecting both the durability of our business model and our continued focus on growing sustainably while running efficiently. For the third quarter of 2026, revenue reached BRL 985 million, a 6% gain versus the same quarter last year. For the nine months of 2026, revenue amounted to BRL 2,970 million, which is 7% above the year-ago period. Adjusted EBITDA for the third quarter of 2026 was BRL 434 million, 9% above the prior year. Over the nine-month period, Adjusted EBITDA totaled BRL 1,352 million, a 5% year-over-year increase. Adjusted EBITDA margin stood at 44% in the quarter and 45.5% for the nine-month period. For the quarter, the main factor behind margin improvement was stronger gross margins in the undergraduate segments, while gross margin contraction in the Continuing Education and Medical Practice Solutions segments partially offset that, which is connected to the investment cycle still underway in both of those segments, as well as increased sales and marketing expenses. Turning to the next page, operating activities generated cash flow of BRL 1,333 million during the nine-month period of 2026, compared with BRL 1,291 million in the same period a year earlier, representing 3% growth. Cash conversion remained strong at 99.5%, essentially in line with the prior year. Q3 2026 net income reached BRL 171 million, a 7% gain versus the equivalent quarter a year earlier. Across the first nine months of 2026, net income came to BRL 634 million, which is 7% higher year-over-year. Earnings per share climbed to BRL 1.88 in Q3 2026, 10% above the BRL 1.71 posted in the same period last year — an increase that outpaces the rise in net income and mirrors how our buyback program has been executed. For the nine-month stretch, earnings per share amounted to BRL 6.98, 9% above the BRL 6.40 recorded in the first nine months of 2025. Taken together, these figures demonstrate Afya's capacity to continue producing robust cash flow while also achieving steady improvement in profitability and returns for shareholders. Now, on my final two slides, I'll go over the makeup of our gross debt along with its cost, and then our net debt reconciliation. Those slides lay out the details of our gross debt position as of September 2026, including the maturity schedule and the average cost of that debt. Afya keeps a strong capital structure and a conservative leverage profile. On September 30 of 2026, gross debt stood at BRL 2.5 billion, versus BRL 2.3 billion on September 2025. Additionally, during this period our average debt tenor lengthened, moving from 1.9 years to 3.7 years, which pushed out our maturity schedule. For 2026, the average cost of debt stands at 15.2% annually, which works out to roughly 106% of the CDI for the period; turning to the next page, we can examine the change in net debt in detail. Our net debt position remains supported by strong cash flow from operating activities, which came to BRL 1,333 million in the period and goes a long way toward covering taxes, investments, leases, and interest expenses. Net debt as of September 2026 stood at BRL 1.2 billion. Free cash flow to equity came to BRL 629 million for the first nine months of 2026, and that figure includes BRL 206 million produced during the third quarter. Worth noting is that Afya paid Pillar Two taxes for the first time at the end of July 2026. Thanks to that strong cash generation, we returned BRL 459 million to shareholders through dividends and share repurchases over the nine-month period, while also reducing net debt by BRL 170 million. If you take Afya's net debt, excluding IFRS 16, and divide it by the midpoint of the 2026 Adjusted EBITDA guidance, the result is 0.7x; that concludes our prepared remarks. The nine months of 2026 demonstrate that what we've consistently shown holds true: a resilient company, a dedicated team, and a strategy delivering results. We remain firmly dedicated to supporting physicians' journeys through our integrated ecosystem, and we trust in our capacity to generate lasting value over the long term for shareholders, students, and healthcare professionals throughout Brazil. Our ecosystems' strengths and the durability of our business model allow us to continue expanding and strengthen our capacity to meet our goals. I'll now begin the Q&A portion of the conference. Thank you.

If anyone would like to ask a question, please raise your hand. The first question is from Livia at JP Morgan.

Hello, Virgílio, Blanco, and Renata. Thanks for the chance to ask questions. I have two questions here. The first concerns the medical segment. Could you update us on the competitive environment, particularly regarding intake in the first half of next year? I realize it is a bit early at this point, but some color would be great. If you could also comment briefly on how you see ticket dynamics next year. For the second one, we would like to understand better the elements behind the gross margin expansion in the undergrad segment. Thank you.

Hi, Livia; this is Virgílio. Thank you for asking. Like you mentioned, it's quite early in the process to make a call or to say how intake will look for the 2027 first semester. On ticket, we raised gross tuition by 5.7% for next year. We're at the very beginning, so we're somewhat optimistic given what we achieved in the second semester of 2026. That covers competition and the trend for 2027. On the undergrad gross margin, this quarter showed very strong results coming from undergrad. We're 100 basis points above the same quarter last year, and that basically also comes from undergrad. The gross margin expanded. Most of them are very strong results as well on medical, but also on health programs, where we keep seeing very high growth in other health programs across our campuses, which dilutes fixed costs and also improves the number of students per class, while also combining more health-related disciplines between programs, which helps us minimize faculty cost. I think that's the overall reason behind a better gross margin this third quarter.

Perfect. Very clear. Thank you.

Next question comes from Flavio from Bank of America.

Good evening, everyone, and thanks for taking my questions. There are two I'd like to ask. My first concerns ENAMED. I wanted to know whether you've had access yet to any preliminary results or insights from this year's exam. From what you've seen so far, do you anticipate needing to raise investments or costs to better prepare your students for the ENAMED exams in the years ahead? My second question is about Continuing Education. We've been told that growth in the student base isn't translating into revenue growth that's proportional. I believe you've already noted a mix shift toward shorter-duration courses with lower tickets. What I'd like to ask is when we should expect monetization of this growing student base to evolve, or when revenues per student should stabilize. Also, if you want to keep going with continuing education, could you explain what's happening with B2B revenues, which have been rising 30% year-over-year? Thank you.

Hi, Flavio. So really there are four questions here that I noted down at least. The first one concerns the preliminary ENAMED results. We still don't have any information from the Ministry of Education. All we have comes from our own internal assessment, since we got our students' answers back, we correct them, and we estimate how our students' average compares with the previous ENAMED exam, and we came in almost 20 percentage points above. That was a really strong result. In fact, on a simple average it was 18 percentage points. Also, when we normalize, taking into account our distribution and our student base, we're likewise seeing far better proficiency rates across every campus. But it remains preliminary. We aren't comparing our students with the full student base in Brazil. We can't treat this as a settled consideration. Second, on costs. As you saw, we raised our margins and improved gross margins, so no additional cost came from ENAMED. We're doing 100% of it internally. We now have all the features, now that we have the information. We run at least 11 mocks per campus, and we did plenty of homework for this new step of this new ENAMED, but the result is expected to be released in December at least. Your third question concerns Continuing Education, where we're seeing growth in students, but revenue isn't arriving in the same proportion. Yes, the student base is growing faster; we're seeing a more critical picture in terms of conversion, with price-sensitive physicians enrolling in long duration programs. The mix effect here is that many more students are applying for short duration programs, more tied to procedures, new technicals for certain specialties. The consequence of that direction is that revenue doesn't follow, because tuition is much lower. So that explains Continuing Education. When we will see same-store sales in some, perhaps not in 2026, but in 2028, we're aiming to go north in one single digit. That's what we're targeting for Continuing Education 2027. On B2B revenues, we have a mix effect here; we're seeing strong growth in the traditional pharma-related contract, but a reduction on the other side, in the other types of B2B contracts, also related to providers and other kinds of institution. We're seeing things a bit more flat this year in 2026, but sales volume is coming in a little bit higher, so we expect better results for 2027. The fourth quarter will actually follow the same trend we're seeing for the entire year. Okay? I think I captured all four questions, not two.

If I could just add a point here, Virgílio, following up with Flávio on the B2B side at Educon, the year-over-year decline we're seeing is tied more to the test prep market, which shifted considerably over the course of the year, Flávio, because of ENAMED. That dynamic altered a great deal across these years, and we view it as an opportunity in the years ahead to recover it with this market, with this new ENAMED phase that we're going to have, the three-phase test, one for the second year, the fourth year, and the final test in the sixth year. I think that's an opportunity to recover these B2B signs from Educon.

Yeah, when it comes to B2B in SPM, is that the one where we're seeing sales go up?

Okay. All right. Thank you a lot.