Afya Ltd Q4 2025 earnings call

Thank you for joining us for our Afya conference call. I'm here today with Afya CEO, Virgilio Gibbon, and our CFO, Luis André 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, the 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 benefits. 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 of 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 thanks everyone for joining us today for our final conference call of 2025. The last quarter reflects more than financial performance. It demonstrates how our strategy continues to position Afya for sustainable growth as it continues to transform medical education across Brazil. We've achieved our seventh consecutive year of meeting or exceeding guidance since second half of 2018. This track record reinforce the strength of our business model, the quality of our execution, and the commitment of our teams. Today, I will cover key strategic developments and operational highlights that drove these results. Luis Blanco will provide a detailed review of our operation and financial performance. Starting with slide number 3, let's highlight our performance achievements in 2025.

Our revenue for the 12-month period grew 12% year-over-year, reached BRL 3,697,000,000 followed by adjusted EBITDA growth of over 50% year-over-year, reaching BRL 1,680,000,000. Adjusted EBITDA margin for the same period reached 45.4%, an increase of 130 basis points over last year. We also reported a solid cash flow from operating activities, ending the 12-month period with BRL 1,548,000,000 over 6% higher than last year, with a cash conversion of 93.7%.

Net income followed the same positive trend as the last quarter and reached BRL 768.4 million, a growth of 18% year-over-year, with a basic EPS reaching BRL 8.32, 19% higher than last year, reflecting strong operational performance. This achievement underscores our disciplined capital allocation on buyback programs, M&A, and an efficient capital structure. Turning to our operational updates, we maintain our leadership position in medical education, supported by 3,755 approved medical seats. Our number of undergrad medical student has reached more than 25,000 students, represent a 5% growth compared to the same period last year. Furthermore, our medical schools net average strictly excluding acquisition increased by 3% in the 12-month period.

In the continuing education segment, we continue to see solid results, presenting a revenue growth of 11% year-over-year, reaching BRL 284 million. For medical practice solutions, we ended the year with an increase in revenue of 6% year-over-year, reaching BRL 171 million in the 12th-month period. Finally, our ecosystem reached 301,000 active users, reflecting strong engagement and broad adoption among physicians and medical students across Brazil. In the next slide, starting with the undergrad segment, we delivered a record gross margin of 63.9%, reflecting the strength of our academic model and solid operational discipline. On the expansion front, we continue to advance through inorganic and organic initiatives. We concluded the acquisition of 60 medical seats in Afya Contagem, strengthening our footprint in another strategic region close to Belo Horizonte.

In addition, we secured the authorization of 102 additional medical seats, with Bragança receiving authorization of 100 additional medical seats on November 7th, 2025, and Afya Pato Branco receiving two additional medical seats on December 18th, of 2025. These approvals reinforce our organic growth runway and support our ability to expand with predictability. In continuing education, gross margin expanded 363 basis points, and we ended the period with over 10,000 graduate journey students. B2B revenue growth was 48% during the period, supporting our performance in the segment. In medical practice solutions, we continue to scale our platform and expand engagement.

We reached 196,000 payers in medical practice solutions, reflecting the growth of our active user base and expansion of our solution in daily medical practice. In addition, physicians made over 16.9 million prescriptions using our solutions, reinforcing the increasing usage of our ecosystem in clinical routines and decision-making. At the corporate level, we deliver a gross margin record of 64.5% and an EPS record of BRL 8.32, further demonstrate the structural strength and scalability of our earnings model. Net cash flow from operating activities reached BRL 1.5 billion, highlighting the consistency and robustness of our cash generation. We closed the period with leverage of 0.8x, calculated as net debt, excluding the effect of IFRS 16 divided by the adjusted EBITDA.

This combination of strong profitability, substantial cash generation, and conservative leverage profile provide us with significant financial flexibility and position us well to fund growth while increasing shareholder returns. Moving to next slide, we will detail our shareholder return decision and how it reflects our discipline and consistent approach to capital allocation. Supported by Afya's strong cash generation and disciplined financial management, we are announcing a cash dividend of BRL 307.4 million, equivalent to a dividend per share of BRL 3.45, representing 40% of our 2025 net income, payable on April 6, 2026 to shareholders of record as of March 25, of 2026. This decision reflects our capital allocation framework, which prioritizes sustainable cash generation, continuing investment in organic and inorganic growth, disciplined liability management, and consistent capital returns to our shareholders.

Since 2021, our net income and cash generation have consistently expanded, and this operational performance has been accompanied by a clear and disciplined commitment to shareholder returns. Over this period, we had funded our acquisition while also executing share repurchase programs across multiple years. More recently, we added cash dividends as an additional component of our shareholder remuneration. This balanced capital allocation strategy allows us to simultaneously fund growth, strengthen our financial position, and return value to our shareholders. Moving to next slide, we will outline our strategic focus to unlock long-term growth. The next phase of our strategic focus on strengthening Afya's position across the entire physician lifecycle, expanding our audience, deepening engagement, and reinforcing the long-term monetization potentials of the ecosystem. As we evolve, each interaction contributes to a more connected experience and expands the value we can generate across the system.

To achieve this, we are advancing a set of strategic priorities to guide the development of the ecosystem as a whole. We are strengthening and differentiating our core products to ensure they remain aligned with the needs of physicians as they progress across specialties and career stages. We are investing technology, data, and growth capabilities to enhance the scale and intelligence of our platform. We are also broadening our physician audience and deepening the integration of our solution across both B2P and B2B channels, ensuring that ecosystem becomes increasingly relevant throughout the medical journey. We are scaling our B2P healthcare industry offerings, which benefit directly from the insights produced by engagement and clinical behavior across the ecosystem. These priorities reinforce one another, supporting a unified platform that increase frequency, relevance, and quality of interactions.

Importantly, by making the ecosystem stronger and more integrated, we can sustain a structurally low customer acquisition cost for undergrad students, maintaining our competitive advantage and preserving efficient growth even in a more challenging environment. As the physician audience grows and interacts more actively with our content, services, and professional tools, the platform becomes richer and more dynamic. Higher engagement deepens the data layer, strengthens our ability to refine products, personalize experience, and improve outcomes for users. The combination of scale, engagement, and insights creates network effects that enhance the long-term value of the ecosystem, supporting a more predictable and diversified monetization model. Executing this strategy requires incremental investment in continuing education and medical practice solutions, aligned with initiatives to expand technological capabilities, enhance product development, and strengthen commercial reach.

These investments are fundamental to supporting a seamless physician experience, improving integration across learning practice environments, and reinforcing the structural foundation necessary to scale monetization over time. In essence, by strengthening the ecosystem across physician lifecycle, we expand audience reach, deepen data-driven engagement, and reinforce the structural elements that support long-term monetization. These investments enhance the integration and relevance of our platform, sustaining efficient acquisition economics, and solidifying Afya's ability to capture durable value across the ecosystem. Turning to next slide, we translate this strategy into financial outcomes and present the 2025 results alongside our 2026 guidance. Afya's 2025 revenue was 5x higher than in 2019, the year of our IPO, reaching BRL 3.697 billion, in line with our announced 2025 midpoint guidance.

Furthermore, 2025 adjusted EBITDA was BRL 1.68 billion, followed by an adjusted EBITDA margin of 45.4%, surpassing our adjusted EBITDA mid guidance of BRL 1.67 billion. These outstanding results reflects after consistent growth and operational excellence. This consistency, combined with another strong intake cycle, provides a solid basis for our 2026 guidance. Revenue is expected to range between BRL 3.95 billion and BRL 4.1 billion, while adjusted EBITDA is anticipated to be between BRL 1.7 billion and BRL 1.8 billion, excluding any acquisition that may be concluded after the issuance of the guidance. Once again, we are guiding for another strong year, demonstrating Afya's resilience and ability to keep delivering solid results with high predictability.

Thank you, Virgilio, and good evening, everyone. Starting with slide number 9 for discussions of key operational metrics by business unit. Starting with the undergraduate programs. Our number of medical students grew 5% year-over-year, reaching more than 25,000 students. While approved medical seats increased by 5% in the fourth quarter of 2025. Our medical school net average ticket, excluding acquisitions, increased by 3% for the 12 months, reaching BRL 9,060.

We have also achieved BRL 2,789,000,000 in revenue, up from BRL 2,478,000,000 from the prior year, an increase of 13% due to higher tickets in medicine courses, the maturations of medical school seats, the beginning of the operations of FUNIC, and the full-year results consolidations of UNIT Alagoas that was acquired in July 2024. Regarding the revenue mix, 86% was derived from medical school students and 94% from health-related courses. On the next page, I will present our continuing education metrics. We approach continuing education through three main journeys. Starting with the residency journey, we saw contractions in the student base after 2024, but the most recent quarters already show a clearer recovery.

In the current quarter, the number of the residency journey students is 21% lower than 2024, but over 30% higher than it was in the third quarter of 2025, indicating that the portfolio is rebuilding. In the graduate journey, we continue to see a consistent and healthy growth. Since 2024, the student base has expanded every quarter, and the current quarter is 20% higher than it was in 2024 and over 11% higher than in the third quarter of 2025, confirming the strength of its growth trend.

Overall, due to a higher participation of the graduate journey products, the continuing education revenue reached BRL 284 million in the 12-month period of 2025, up from BRL 255 million, reflecting a growth of over 11% over the same period of the prior year. This includes a 9% increase in the B2P revenue and a robust 48% increase in B2B revenue. Moving to slide 11, I will discuss the medical practice solutions operational metrics. The first chart shows our total active payers, which generate revenue in the business to physicians, the B2P. The number of paying users reached 196,000, in line with the same period of the prior year.

The second graph highlights our monthly active users, which are 220,000. Down from the 238,000 in the same period of the prior year. Lastly, the third graph shows revenues from our medical practice solutions, which grew 6% year-over-year, reaching BRL 171 million. This growth was primarily driven by a more favored product mix and an increase in the average ticket. On the next slide, we also present Afya ecosystem. We are pleased to highlight that Afya's substantial contributions to the Brazilian healthcare community. By the end of the fourth quarter of 2025, our ecosystem encompassed 301,000 physicians and medical students using our service and products. Moving forward to page 13, I want to discuss our financial overview for the fourth quarter of 2025.

Starting with the next slide. I'm pleased to report another strong quarter for Afya. Revenue for the fourth quarter of 2025 reached BRL 913 million, representing an 8% increase compared to the same period last year. Revenue totaled BRL 3,697,000,000 for the 12-month period, up 12% year-over-year. For the fourth quarter, adjusted EBITDA rose by 6%, reaching BRL 389 million, with an adjusted EBITDA margin of 42.6%. A decrease of 50 basis points compared to the fourth quarter of 2024.

For the 12-month period, adjusted EBITDA amounted to BRL 1,680,000,000 an increase of 15% over the prior year, with an adjusted EBITDA margin of 45.4%, representing a 130 basis points increase over the same period. The increase in the adjusted EBITDA margin was mainly driven by higher gross margins in the undergraduate and continuing educational segments, restructuring initiatives within the continuing educational and medical practice solutions, improved efficiency in selling general and administrative expenses. Moving to slide 15. The year's cash flow from operating activities rose by 6%, reaching BRL 1,548,000,000 reflecting a strong operational performance. The operating cash flow conversion ratio was 93.7% in the 12-month period of 2025.

Net income for the fourth quarter of 2025 came in at BRL 175 million, marking an increase of 14% over the same period in 2024. For the 12-month period ending in December 2025, net income totaling BRL 768 million, up 18% year-over-year. This growth reflects a stronger operational performance combined with the recognition of deferred tax assets partially offset by the additional taxation related to the OECD Pillar Two global minimum tax effects. Afya basic EPS for the quarter reaches BRL 1.91, a 15% increase compared to the same quarter in 2024, with BRL 8.32 per share for the 12-month period of 2025, representing a 19% growth.

This earnings performance is complemented by a dividend yield equivalent to 4.76%, reinforcing our earnings growth and strong cash generation is driving attractive cash returns to shareholders. Now moving to my last three slides, I'll discuss our cash and net debt position, also providing additional detail on our cost of debt. This slide presents a table detailing our gross debt composition at the end of the fourth quarter of 2025 and the total cost of debt covering our primary obligations.

The issuance of BRL 1,500,000,000 in debentures on October 2025, together with the repurchase and cancellations of the perpetual convertible held by SoftBank and the repayments of the first issuance of debentures and other loans and financing, demonstrate Afya's disciplined approach to liability management, resulting in an average debt maturity extended to 3.6 years and the lowest cost of the debt in the educational sector. Turning to the next slide. As of the end of the fourth quarter of 2025, net debt reaches BRL 1,369,000,000 a reduction of BRL 445 million from the end of 2024.

This reduction was achieved even after considering the acquisitions of FUNIC and the return to the shareholders reflected in dividends and the share repurchase program. Afya net debt, excluding the effects of the IFRS 16 divided by the 2025 adjusted EBITDA was only 0.8x. Afya capital structure remains solid with a conservative leverage positions and a low cost of debt. Now moving to my last slide. We highlight how our earnings growth has consistently translated into cash generation for shareholders over the last few years. First, looking at earnings. Our basic earnings per share increased from BRL 2.39 in 2021 to BRL 8.32 in 2025, representing a CAGR of 37% over the period.

These evolutions reflect sustainable margins and discipline execution across our business, reinforce the quality and the resilience of our earnings profile. In parallel, free cash flow also expanded. It grew from BRL 349 million in 2021 to BRL 1,056,000,000 in 2025, an increase of BRL 707 million and a CAGR of 32%. This shows that we are not only growing earnings but also efficiently converting them into cash. For the full year 2025, our results translated into a free cash flow yield of 13.3%. These combinations of earnings growth, strong cash flow generations, and an attractive free cash flow yield support our ability to continuing investing in our inorganic growth while also returning capital to shareholders in line with our disciplined capital allocation strategy.