Afya's Q3 2025 Earnings Call: Contradictions Emerge on Tax Rates, M&A Strategy, and FUNIC Margin Projections

Date of Call: November 12, 2025

Financials Results

• Revenue: BRL 929M for Q3 2025, up 10% YOY; BRL 2,784M for 9 months, up 13% YOY
• EPS: BRL 1.71 for Q3 2025, up 29% YOY; BRL 6.40 for 9 months, up 20% YOY

Guidance:

• Tuition (gross) for 2026 guided ~5.0%–5.2% increase.
• Expect effective tax rate to converge to ~15% from 2026 due to Pillar Two provisioning.
• Target ~200 approved medical seats per year via M&A and organic expansion.
• Capital allocation flexibility: may pursue M&A, buybacks, and/or dividends after recent liability management.
• Net debt excl. IFRS16 / midpoint 2025 adjusted EBITDA ~0.8x.

Business Commentary:

* Revenue and Profitability Growth: - Afya Limited reported revenue of BRL 2,784 million for the 9-month period, with an over 13% year-over-year growth. - The company's adjusted EBITDA reached BRL 1,292 million, reflecting an almost 19% year-over-year increase. - Growth was driven by strong performance across business segments, including undergraduate and continuing education.

• Ecosystem Expansion and Engagement:

• Afya's ecosystem reached 304,000 active users, reflecting strong engagement and broad adoption among physicians and medical students across Brazil.

• The increase in continuing education revenue to BRL 208 million in the 9-month period was an 11% year-over-year increase.

• This expansion was due to increased adoption of Afya's services and the integration of new campuses and offerings.

• Capital Allocation and Debt Management:

• Afya strengthened its financial position by issuing BRL 1.5 billion in commercial notes, enabling the prepayment of debentures and the repurchase of SoftBank shares.
• The company's net debt was BRL 1,342 million, a reduction of BRL 473 million compared to the end of 2024.

• This strategic move enhances financial flexibility and positions Afya for long-term value creation.

• ESG Initiatives and Sustainability:

• Afya exceeded its targets for 2025, delivering 700,000 free healthcare consultations, including 500,000 medical consultations.
• Recognized by Valor Economico for consistent top performance in the education sector based on financial performance and ESG practices.
• These achievements are part of Afya's commitment to sustainability and social impact, supported by partnerships and strategic initiatives.

Sentiment Analysis:

Overall Tone: Positive

• Management reported Q3 revenue BRL 929M (+10% YOY), 9-month revenue BRL 2,784M (+13% YOY); adjusted EBITDA for Q3 BRL 399M (+15%) with a 43% margin (+160 bps); 9-month adjusted EBITDA margin 46.4% (+200 bps); net income for 9 months BRL 593M (+20%); record operating cash flow BRL 1,292M (+11%), cash conversion 101.5%.

Q&A:

• Question from Lucca Marquezini (Itaú Corretora de Valores S.A., Research Division): Please provide color on the company's current understanding of the effective tax rate and what an adequate assumption is going forward; and capital allocation—should we expect higher dividends or greater M&A activity going forward?
  Response: Expect effective tax rate to converge toward ~15% from 2026 due to Pillar Two provisioning; company completed liability management and has flexibility to pursue M&A, buybacks, or dividends depending on evaluation of market and cash availability.

• Question from Eduardo Rezaji (UBS): Are other capital‑allocation strategies being evaluated in light of the new tax reform affecting foreign investors, and any color on the 2026 intake cycle and entrance‑exam trends?
  Response: Company is targeting ~200 new approved seats per year via M&A/organic moves and will mix buybacks and dividends as appropriate; 2026 tuition guidance is roughly +5%–5.2% and intake signals are still early.

• Question from Lucas Nagano (Morgan Stanley, Research Division): Should we expect any mix effects next year on average ticket or will it converge to the 5% growth mentioned; and from the demand side, are you seeing any change in applicant interest in medicine?
  Response: Gross tuition growth targeted at ~5%–5.2%; FIES penetration expected around 17%–18%; applicant demand is broadly stable versus last year with no material city‑level changes observed.

• Question from Marcelo Santos (JPMorgan Chase & Co, Research Division): Can you comment on the sequential gross‑margin increase in Medical Practice Solutions and on the sequential loss of subscribers for the clinical decision software?
  Response: Margin uplift in Medical Practice Solutions reflects ongoing product cost management and seasonality/dilution benefits from new campuses; Whitebook lost freemium users after a late‑2024 price change—revenues rose but management is revising the freemium/premium feature mix and adding AI, while iClinic adoption is accelerating.

• Question from Mirela Rodrigues de Oliveira (BofA Securities, Research Division): What is the expected ramp‑up timeframe for newly acquired FUNIC and how long until its margins reach company run‑rate; and is there room for further consolidated EBITDA margin expansion?
  Response: FUN I C (60 seats) is early stage with low first‑year margins; margins should scale materially as the campus matures over 2–3 years (contribution margin can approach ~50%–60%), and prior margin expansion was driven by restructurings and zero‑cost budgeting—further near‑term upside is limited but operational levers remain.

• Question from Renan Prata (Citigroup Inc. Exchange Research): The Residency Journey student count dropped ~36%—is this a one‑time effect or a lasting trend?
  Response: This is a one‑time effect from combining mentorship and residency‑prep into a single bundled product (previously double‑counted), reducing subscriber counts but not proportionally reducing revenues.

Contradiction Point 1

Tax Rate Expectations

It involves differing expectations regarding the company's effective tax rate, which is crucial for financial planning and investor expectations.

What is the company's current understanding of the tax rate discussion and the appropriate forward-looking assumption for this line item? - Lucca Marquezini(Itaú Corretora de Valores S.A.)

2025Q3: We ended the 9-month period with an effective tax rate of 9.7%, mainly due to provisions for the Pillar Two taxations. Going forward, we expect the effective tax rate to converge to the minimum taxation of 15% by 2026. - Luis Andre Blanco(CFO)

Given efficiency and leverage factors, will Q2 EBITDA be slightly below Q1? Can you clarify Q2 tax rate expectations? - Flavio Yoshida(BofA Securities)

2025Q2: Tax rate impact is gradually moving towards 15% due to the minimum tax rate under Pillar Two. Adoption effects are contributing to adjustments in tax rates. - Virgilio Deloy Capobianco Gibbon(CEO)

Contradiction Point 2

M&A Environment and Strategy

It involves differing approaches to M&A opportunities, which can significantly impact growth and market positioning.

Are there other shareholder remuneration strategies under consideration given the new tax reform's impact on foreign investors? Can you share insights on the 2026 intake cycle and trends in recent entrance exams? - Unknown Analyst(UBS)

2025Q3: We are analyzing potential M&A opportunities for medical school assets to maintain our guidance of acquiring 200 seats per year. - Virgilio Deloy Gibbon(CEO)

What is the current M&A environment and can Afya capitalize on any opportunities? How does the buyback program balance shareholder returns and stock liquidity? - Mauricio I Cepeda(Morgan Stanley)

2025Q2: M&A opportunities are evaluated based on brand, reputation, and location. Afya is well-positioned to benefit from the market conditions. - Luis Andre Carpintero Blanco(CFO)

Contradiction Point 3

FUNIC Margin Expansion Potential

It involves differing expectations regarding the financial performance of an acquired unit, impacting investor expectations for future growth and profitability.

Can you comment on the expected ramp-up time for FUNIC and the margin expansion potential for acquired units? Is there room for further margin expansion ahead? - Mirela Rodrigues de Oliveira(BofA Securities, Research Division)

2025Q3: FUNIC in its first year has low margins due to new operations, but we expect margins to improve with maturation. We anticipate achieving margins of 50%-60% after 2-3 years. - Luis Andre Blanco(CFO)

What drove the strong EBITDA margin performance? Is there potential to revise this year’s guidance upward? Are there challenges in the intake process due to the expanded seat offerings? - Flavio Yoshida(Bank of America)

2025Q1: We expect margins to expand to the mid-70s within the next 3 years as we benefit from the ramp-up of Mais Médicos and efficiency improvements. - Luis Andre Blanco(CFO)

Contradiction Point 4

Dividend Policy and Capital Allocation

It involves changes in the communicated stance on dividend policy and capital allocation strategy, which are crucial for shareholder expectations and investment decisions.

Are other shareholder remuneration strategies being evaluated due to the new tax reform's impact on foreign investors? - Unknown Analyst(UBS)

2025Q3: We are analyzing potential M&A opportunities for medical school assets to maintain our guidance of acquiring 200 seats per year. We will combine buyback programs and dividends for shareholder remuneration, considering market conditions and cash availability. - Virgilio Deloy Gibbon(CEO)

Will the company's dividend levels remain sustainable under its capital allocation strategy? - Andre Salles(UBS)

2024Q4: Regarding dividends, we established these dividends for this year. We did not establish a formal policy for going ahead. But our capital allocation mind didn't change. We want to keep our capturing our organic and inorganic opportunity. - Luis Andre Blanco(CFO)

Contradiction Point 5

M&A Pipeline and Growth Strategy

It highlights a shift in the company's approach to M&A, potentially impacting long-term growth and shareholder expectations.

Can you discuss the expected timeline for FUNIC's ramp-up and the potential for margin expansion in acquired units? - Marcelo Santos(JPMorgan Chase & Co)

2025Q3: We will continue to deliver the inorganic growth as expected on our guidance for the long-term guidance. - Virgilio Deloy Gibbon(CEO)

With the company now distributing dividends, how will this affect the M&A pipeline? - Flavio Yoshida(Bank of America Merrill Lynch)

2024Q4: We are seeing many institutions that because of the injections, they also don't have a good condition to start its operation. But we have been very selective in terms of assets, the quality and also the region where we are going to apply and allocate our capital to apply at least 200 seats. - Luis Andre Blanco(CFO)