Afya Limited Class A Common Shares 2026 Q2 Earnings Call

Thank you for joining us for our conference call. I am here today with our CEO, Virgilio Gibbon, and our CFO, Luis 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 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 welcome to our second quarter and first half conference call for 2026 results. Starting with slide number 3. Once again, we delivered a solid performance closing the first half of 2026 with revenue growth of 7% year-over-year. Revenue reached BRL 1,985 million. Adjusted EBITDA reached BRL 918 million, growing 3% year-over-year with an adjusted EBITDA margin of 46.2%, a contraction of 190 basis points compared to the same period last year. This margin decrease primarily reflects the lower gross profit contribution from continuing education, driven by our higher sales and marketing expenses associated with the investment cycle outlined at the beginning of the year across continuing education and medical practice solutions. Net income reached BRL 463 million, a 7% increase year-over-year.

Basic EPS climbed to BRL 5.10, representing a 9% increase over the previous year, reflecting our capital allocation strategy. Operating cash conversion remains strong at 87.8%, rather in line with the prior year. Turning now to Free Cash Flow to Equity, we delivered BRL 423 million in the first half of 2026. These results reflect the strength of our cash generation, disciplined execution, and our continued commitment to create long-term shareholder value. Moving now to our operational updates. We have 3,768 operating medical seats, with an increase of over 6% year-over-year. Furthermore, our number of undergraduate medical students grew to more than 26,000 students, representing 3% growth compared to the first half of last year. Additionally, we increased the net average fees of medical school by almost 4% year-over-year, reaching BRL 9,443.

In continued education, we had an increase almost 5% over last year, reaching 144 million BRL. In Medical Practice Solution, we saw 2% growth in revenue compared to the first half of 2025, reaching 85 million BRL. Our ecosystem now accounts for 295,000 users, reflecting continued meaningful penetration among physicians and medical students across the country. Moving to slide number four, we'll discuss the highlights across our three business segments. The first half of 2026 was marked by favorable pricing trends in medicine course, where tickets rose by nearly 4% year over year. In addition, we continue to deliver strong student-based growth momentum in health science course. Compared to the previous years, health science course delivered 13% growth, reflecting the diversification of our health-related undergrad portfolio.

The continued education segment was once again marked by strong growth in our total student base, which expanded 23% in the first half of 2026, driven by higher intake in short-term programs, which carry a lower average ticket per student. B2B revenue for the segment grew 8% compared to the same period of prior year. The Medical Practice Solution segment delivered a 20% increase in clinical management active payers in the first half of this year. In addition, B2B revenue for the first half grew 5% year over year. Lastly, shareholder returns remain a key priority. Our disciplined capital allocation framework continues to create sustainable value for shareholders. At the corporate level, supported by strong cash generation, we returned 448 million BRL to our shareholders through dividends and share repurchase in the first half of 2026, representing 106% of our Free Cash Flow to Equity.

This reflects our disciplined approach to capital allocation. When acquisition opportunities do not meet our return criteria, we return capital to shareholders. The strength of our cash generation gives us the flexibility to pursue acquisitions when attractive and to consistently return capital.

I will return the call over to Luis Blanco, Afya's CFO, to provide further insight into the financial and operational metrics. Thank you all. Thank you, Virgilio, and good evening, everyone.

Starting with slide number six for discussions of key operational metrics by business unit. Starting with the undergraduate programs. Our medical students base grew by 3% compared with the first half of 2025, reaching over 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 4%, reaching 9,443 BRL in the first half of 2026. As a result, revenue for the undergraduate segment grew over 7%, totaling 1,762 million BRL. It's worth mentioning that 85% of this revenue comes from medical programs and 93% from health-related courses, reinforcing our strategic focus and leadership in the sector.

On the next page, I will present our continuing education metrics. We approach continuing education through three main journeys. Starting with the residency journey, which encompass products focused on the residency preparations, the student base remained stable year-over-year, reaching 9,244 students at the end of the period. In the graduate journey, which focused on the specialization test preparations and graduated medical education, the total number of students increased by 13%, reaching 10,213 students, supported by the continued demands for advanced medical training programs. Lastly, other B2P and B2B offerings continued to grow strongly with the total students increasing 35% year-over-year to 36,780 students, demonstrating the continued expansions of our broader continuing education portfolio. Continuing education revenue increased to BRL 144 million in the six-month period of 2026, compared to BRL 138 million in the same period of 2025, representing growth of 5%.

This performance was primarily driven by B2P revenue, which increased 8% year-over-year to BRL 135 million, representing 94% of the continuing education revenue. Meanwhile, the B2B revenue totaling BRL 9 million declining 25% year-over-year. Moving to the next slide, I will discuss the medical practice solutions operational metrics. The total active payers remaining broadly stable year-over-year at approximately 201,000, with clinical management active payers growing 20% to more than 50,000, reflecting the continued penetration on Afya iClinic. Monthly active users reached 212,000 during the period, an 8% year-over-year decrease. Despite the stability in total active payers, medical practice solutions revenue increased 2% year-over-year to BRL 85 million in the first half of 2026. On the next slide, we present Afya Ecosystem. We are proud of the meaningful impact Afya continues to make across Brazil healthcare ecosystem.

By the end of the second quarter of 2026, 295,000 users were actively engaging with our service and products, reflecting our solid relevance and reach in medical, educational, and medical solutions. Moving forward to page 10, I want to discuss our financial overview for the second quarter and the first half of 2026. I'm pleased to present another solid set of results for Afya, reflecting the resilience of our business model and our continued focus on sustainability growth and operational efficiency. Revenue for the second quarter of 2026 reached BRL 972 million, representing a 6% increase compared to the same period of the prior year. For the first half of 2026, revenue totaling BRL 1,985 million, 7% year-over-year increase. Adjusted EBITDA reached BRL 470 million in the second quarter of 2026, an increase of 1% compared to the prior year.

For the first half of the year, adjusted EBITDA totaling BRL 918 million, growing 3% year-over-year. Adjusted EBITDA margin reached 41.8% in the quarter and 46.2% in the six-month year. While margins were below those reported in the comparable periods last year, reflecting the combinations of continuing investments to support growth initiatives and the investment cycle across continuing educational and medical practice solutions, profitability remained healthy. On the next page, cash flow from operating activities reached BRL 806 million in the first half of 2026, compared to BRL 783 million in the same period of the prior year, representing a growth of 3%. Cash conversions remaining strong at 87.8%, broadly stable compared to the prior year. Net income for the second quarter of 2026 totaling BRL 201 million, an increase of 14% compared to the same period of the prior year.

For the first half of 2026, net income reached BRL 463 million, growing 7% year-over-year. Earnings per share increased to BRL 2.22 in the second quarter of 2026, up 17% from BRL 1.90 in the prior year, higher than the net income increase, reflecting the execution of our buyback program. For the six-month periods, earnings per share reached BRL 5.10, up 9% from the BRL 4.69 in the first half of 2025. Overall, these results reflect our ability to continue to generate solid cash flow while delivering consistent growth in profitability and shareholder returns. Now moving to my last three slides, I will go over our gross debt positions and cost of debt, our net debt reconciliation, and close with our shareholder return.