Q1 2026 Afya Ltd Earnings Call
Ana: Welcome to 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 products 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.
Speaker #1: At this conference call, and here today with us is Theo Virgílio de Bom, and our CFO, Luis André Blanco. During today's presentation, our executives will make forward-looking statements.
Speaker #1: Forward-looking statements can be related to future events, future financial or operating performance, no and on no risks, uncertainties, and other factors that may cause assets rational results to deform materially from those contemplated by these forward-looking statements.
Speaker #1: Forward-looking statements in this presentation include but that 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.
Speaker #1: These risks include those more fully described in our findings of the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as the date hereof.
Speaker #1: 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.
Ana: 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 Gibon, Afya's CEO.
Speaker #1: In addition, management may reference no 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.
Speaker #1: This presentation has reconciled these no IFRS financial measures to the most directly comparable IFRS financial measures. Now, let me turn the call over to Virgílio de Bom, our CEO.
Speaker #2: Thank you, Renata, and welcome to our first conference call of 2026. It's with much satisfaction that AFI starts another year's Great Operational and Financial Performance.
Virgilio Gibbon: Thank you, Ana. Welcome to our first conference call of 2026. It's with much satisfaction that Afya starts another year great operational and financial performance. These quarterly results show the high predictability of our business and success execution of our strategy that once again combines growth with cash generation, Afya three pillars business model. In this presentation, I will cover key strategic topics, including our performance and highlights, successful business execution across our three 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 million, accompanied by a growth in adjusted EBITDA of 4% year-over-year, reaching BRL 511 million with a margin of 50.5%.
Speaker #2: This quarterly result showed a high predictability of our business and successful execution of our strategy, that once again combines growth with cash generation. After three pillars: business model.
Speaker #2: In this presentation, I will cover key strategic topics, including our performance in highlights, successful business execution across our three segments, and finally, Luis Blanco will provide an in-depth look at our financial and operational performance.
Speaker #2: Now, turning to page number three, let's begin by highlighting our performance achievements. Initially, our revenues increased by 8%, reaching $1,013 million accompanied by a growth in adjusted bid of 4% year over year, reaching $511 million with a margin of 50.5%.
Speaker #2: We also reported a free cash flow of $376 million reflecting 3% increase compared to the previous year, boosted by the solid operational results of the company.
Virgilio Gibbon: 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 Q1. 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 stronger operational performance, partially offset by a provision related to the OECD Pillar Two 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.
Speaker #2: With a cash conversion of 92.5% and a solid cash position of $1.3 billion at the end of the first quarter. With this consistent momentum, our net income reached $262 million marking a 2% growth year over year with an EPS of 2.88.
Speaker #2: A 3% increase compared to the previous year. This growth reflects stronger operational performance partially offset by an approvision related to the OECD Pillar 2 global minimum tax.
Speaker #2: 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.
Virgilio Gibbon: Additionally, our number of undergrad medical students has reached over 26,000 students, representing over 2% growth compared to Q1 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 the continuing education and medical practice solution segments. In continuing 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 Q1 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 number 4, we will discuss our performance across our three business segments.
Speaker #2: Representing over 2% growth compared to the first quarter of 2025. Furthermore, we increased the net average peak of medical school by almost 5% year over year, reaching 9,634.
Speaker #2: In addition, we continue to observe improving performance in the continuing education and medical practice solution segments. In continuing education, revenue increased 11% year over year, purely organically, reaching $79 million.
Speaker #2: In medical practice solutions, we saw a 4% growth in revenue, compared to the first quarter of 2025, reaching over $43 million. Lastly, our ecosystem has 304,000 active users exemplifying substantial penetration among physicians and medical students in the country.
Speaker #2: Moving to slide number four, we will discuss our performance across our three business segments. We start with the undergrad segment. We observed important movements throughout the quarter.
Virgilio Gibbon: We start with the undergrad segment. We observed important movements throughout the quarter, such as higher tickets in the 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 Q1 2025. The continuing education segment delivered record on B2B revenue of BRL 74 million in Q1 2026, supported by a record student base of 57,000 students and reflecting the continuous strength of our product offering and engagement across the segment.
Speaker #2: 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%.
Speaker #2: In addition, we expanded our health science student base by 5,000 students compared with the first quarter of 2025. To continue education segment delivered record on B2P revenue.
Speaker #2: Of $74 million in the first quarter of 2026, supported by a record student base of 57,000 students and reflecting the continuous strength of our product offering and engagement across the segment.
Speaker #2: The medical practice solution 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.
Virgilio Gibbon: The medical practice solution segment delivered solid performance in Q1 2026, supported by an increase of 6,000 clinical management active payers compared with Q1 2025. 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 CFO, to provide further insight into the financial operational metrics. Thank you.
Speaker #2: 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, AFI's CFO, to provide further insight into the financial operational metrics.
Speaker #2: Thank you.
Speaker #3: Thank you, Virgílio. And good evening, everyone. Starting with slide number six for discussions of key operational metrics by business unit. Starting with the undergraduate programs.
Ana: 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 products.
Speaker #3: 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.
Luis Andre Blanco: Our medical student base grew by 2% compared with Q1 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 tickets increased by 5%, reaching BRL 9,634 in Q1 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'll 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.
Speaker #3: Our medical school net average tickets increased by 5%, reaching 9,634. In the first quarter of 2026. In addition, revenue for the undergraduate segment saw an 8% increase achieving $892 million.
Speaker #3: 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 three main journeys.
Speaker #3: Starting with the residency journey, which encompassed products focused on the residency preparation. We saw a 20% decrease reaching 9,744 students by the end of the period.
Luis Andre Blanco: We saw a 20% increase, reaching 9,744 students by the end of the period. In the graduate journey focused on specialization tests, preparations, and graduate courses in medicine, students grew by 15%, reaching 9,855 students. Lastly, our other course B2B offerings increased an impressive 41% over the same three-month period of the prior year. Continuing educational revenue rose to BRL 79 million in the three-month period of 2026, up from BRL 71 million in the three-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 number 8, I'll discuss the medical prep solutions operational metrics. The first graph shows our total active payers, which are the ones that generate revenues in the business-to-physician.
Speaker #3: In the graduate journey, focused on specialization tests and preparations and graduate courses in medicine, students grew by 15%, reaching 9,855 students. Lastly, our other course in B2B offerings increased an impressive 41% over the same three-month period of the prior year.
Speaker #3: Continuing educational revenue rose to $79 million, in the three-month period of 2026, up from $71 million in the three-month period of 2025, reflecting a growth of 11%.
Speaker #3: This includes a 13% increase in B2P revenue and 14% decline in B2B. Moving to slide number eight, I'll discuss the medical practice solutions operational metrics.
Speaker #3: The first graph shows our total active payers, which are the ones that generate revenues in the business of physicians. The number of active payers declined to 201,000, up 1% decline over the same quarter last year.
Luis Andre Blanco: The number of active payers declined to 201,000, a 1% decline over the same quarter last year. The second graph highlights our most 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 solution segments, 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%. B2B contributed to BRL 5 million, 17% increase over the same quarter last year. In the next slide, we presented our Afya ecosystem. We're pleased to highlight Afya's substantial contributions to the Brazilian healthcare community.
Speaker #3: The second graph highlights our most active users, which account for 221,000, a reduction of 10% compared to the same period of the prior year.
Speaker #3: Lastly, in our final graph, we present revenue of our medical practice solution segments, which has expanded by over 4% compared to the same quarter of the last year, reaching $43 million.
Speaker #3: Of this total, 38 million was generated by B2P, showing an increase of 3%, while B2B contributed to $5 million. 17% increase over the same quarter last year.
Speaker #3: In the next slide, we presented our AFIA ecosystem. We are pleased to highlight AFIA's substantial contributions to the Brazilian healthcare community. By the end of the first quarter of 2026, our ecosystem encompassed 304,000 physicians and medical students, using our service and products.
Luis Andre Blanco: By the end of Q1 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 Q1 2026, starting with the next slide. With great satisfaction, I present another strong quarterly performance for Afya. Revenue for Q1 2026 reached BRL 1,013 million, representing an 8% increase compared to the same quarter of last year. The quarter revenue increase was mainly due to higher tickets in med-medicine courses, the increase in non-medical undergraduate students, the acquisitions of FUNIC, and advancements of the continuing educational segment.
Speaker #3: 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 AFIA.
Speaker #3: Revenue for the first quarter of 2026 reached $1,013 million. Representing an 8% increase compared to the same quarter of last year. The quarter revenue increase has mainly been due to higher tickets in medicine courses, the increase in non-medical undergraduate students, the acquisition of unique and advancement of the continuing educational segment.
Speaker #3: In the first quarter of 2026, adjusted data rose by 4%, reaching $511 million. With an adjusted data margin of 50.5%, a reduction of 200 basis points compared to the first quarter of 2025.
Luis Andre Blanco: In Q1 2026, adjusted EBITDA rose by 4%, reaching BRL 511 million with an adjusted EBITDA margins of 50.5%, a reduction of 200 basis points compared to Q1 2025. The reductions in adjusted EBITDA margin was primarily driven by higher costs and expenses in continuing educational and medical practice solution segments, mainly reflecting a lower gross margin compared with Q1 2025 and higher payroll, sales, and marketing expenses associated with the ongoing investment cycle in both segments. Moving to the next slide. The Q1 cash flow from operating activities rose by 0.6%, reaching BRL 473 million. The operating cash flow conversion ratio was 92.5%.
Speaker #3: The reduction in adjusted data margin was primarily driven by higher costs and expenses in continuing educational and medical practice solution 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.
Speaker #3: Moving to the next slide, the first quarter cash flow from operating activities rose by 0.6%, reaching $473 million. The operating cash flow conversion ratio was 92.5%, net income for the first quarter of 2026 totally $262 million.
Luis Andre Blanco: Net income for Q1 2026 totaled BRL 262 million, representing a 2% increase from the same period of 2025. This growth reflects a stronger operation performance, partially offset by additional taxation provisions related to OECD Pillar Two 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. Moving to my 2 last slides, I will discuss our cash and net debt position, also giving more color on our cost of debt.
Speaker #3: Representing a 2% increase from the same period of 2025. This growth reflects a stronger operation performance, partially offset by an additional taxation provisions related to OCDE Pillar 2 global minimum taxation.
Speaker #3: Despite a lower adjusted data margin driven by higher expenses in continuing educations and medical practice solutions, net income growth was sustained supported by the disciplinary execution and the consistency of our business model.
Speaker #3: Regarding EPS, we achieved $2.88 per share in the three-month period, representing a 3% increase year over year. And now, moving to my two last slides.
Speaker #3: I will discuss our cash and net deposition. Also, giving more color on our cost of tax. These slides present a table detailing our gross net positions at the end of the first quarter of 2026 and the total cost of debt covering our primarily obligations.
Luis Andre Blanco: This slide presents a table detailing our gross debt compositions at the end of Q1 2026, and the total cost of debt covering our primarily obligations. Afya capital structure remains solid, with a conservative leverage positions and the low cost of debt. Afya net debt, excluding IFRS 16, divided by the midpoint of the 2026 adjusted EBITDA guidance was 0.7 times. Our financial discipline was also independently recognized. On 5 May, 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.
Speaker #3: AFIA capture structure remains solid, with a conservative leverage positions and the low cost of debt. AFIA net debt excluding IFRS 16 divided by the midpoint of the 2026 adjusted bid guidance was 0.7 times.
Speaker #3: Our financial discipline was also independently recognized. On May 5th, moods reaffirmed AFIA credit rating at AAA, with a stable outlook reflecting our consistent revenue growth above industry average margins, solid cash generation, and robust liquidity.
Speaker #3: While also recognizing our strong competitive position and discipline approach to liability management and capital allocation. On the next page, we can look closely at the net debt variation.
Speaker #3: As of the end of the first quarter of 2026, our net debt has reduced to $1,151 million. When compared to the end of 2025, a reduction of $218 million.
Luis Andre Blanco: As of the end of Q1 2026, our net debt has reduced to BRL 1,151 million when compared to the end of 2025. A reduction of BRL 280 million. Even considering the repurchase of BRL 70 million in treasury in Q1, 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 executions across the business segments. Our commitment to advancing to the medical journey through an integrated ecosystem of educational and medical practice solutions remains unchanged, supporting students through their path to become physicians, promoting continual medical learning, and enhancing physician decision-making and productivity.
Speaker #3: Even considering the record chase of $70 million in treasury in the first quarter. Reflecting our strong operation performance and capital allocation discipline. This concludes our prepared remarks.
Speaker #3: We are pleased with the progress achieved during the quarter and with the consistency of our executions across the business segments. Our commitment to advance it to the medical journey through an integrated ecosystem of educational and medical practice solutions remains unchanged.
Speaker #3: Supporting students through their path to become physicians, promoting continuing 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.
Luis Andre Blanco: 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.
Speaker #3: I will now open the conference for the Q&A section. Thank you.
Speaker #1: So if you would like to ask a question, we want you to confirm if your name is in your Zoom account is correct. If not, please exit the call and enter again with the link that I sent on the chat.
Renata: If you would like to ask a question, we want you to confirm if your name in your Zoom account is correct. If not, please exit the call and enter again with the link that I sent on the chat. The first question comes from Lucca Marquezini from Itaú. Lucca, you may now go.
Speaker #1: So the first question comes from Luca Marchesini from Itaú. Luca, you may now go.
Speaker #3: Good evening, everyone. Thank you for taking our questions. Two questions from our side. So the first one would be the release mentions that didn't take cycle was successful and that the company implemented a 4.6 price increase.
Lucca Marquezini: Good evening, everyone, and thank you for taking our questions. Two questions from our side. The first one will be, the release mentions that the intake cycle was successful and that the company implemented a 4.6% price increase. Can you please comment on the competitive environment for this intake cycle and on whether it got any worse when comparing to the other intake cycles in previous years? That is the first question. The second one, the release also mentions that one of the drivers for net revenue growth was the performance of non-medical undergraduate students. Can you please comment on the strategy on this side and on whether this has changed compared to the last years as well, please? Thank you.
Speaker #3: So can you please comment on the comparative environment for this intake cycle and on whether it got any worse when compared to the other.
Speaker #3: 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 non-medical undergraduate students.
Speaker #3: Can you please comment on the strategy on this side and on whether this has changed compared to the last years as well, please? Thank you.
Speaker #4: Hi, Luca. 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 per seat on our side here.
Luis Andre Blanco: Hi, Lucca. This is Virgilio. The H1 intake was a very strong intake when we compare to last year. We saw the same level of candidates per seat. 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. That is also helping us to keep us 100% occupied. It was a very healthy intake cycle. Besides that, we also already started our H2 intake. Very beginning in the number of leads, it's also better than the same period last year.
Speaker #4: 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.
Speaker #4: So that was also helping us to keep us 100% of equipment. So it was a very healthy intake cycle. And besides that, we also start already started our second half intake.
Speaker #4: It's very beginning and the number of leads is 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.
Virgilio Gibbon: 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. We are seeing a very strong intake when we compare year over year, and almost a 20% growth, organically growth coming from other program, undergrad programs on the health sector. 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 here. Why is that?
Speaker #4: Because of AFIA's brand, it's very well connected to the health sector. The last two years, we also opened some health programs completing the portfolio for all of our campuses.
Speaker #4: 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.
Speaker #4: So this is a strategy for AFIA. 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 here.
Speaker #4: And why is that? When we have a campus in a small city, just the physician, just the undergrad, just the program for medicine does not solve the issue on the region.
Virgilio Gibbon: A campus in a small city, just the physician, just the undergrad, just the program for medicine does not solve the issue on the region. Being also offering other health program attached to Afya 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 a good momentum. Okay?
Speaker #4: And being also offering other health program attached to AFIA's brand connected to our medicine infrastructure, on that campus makes a lot of sense. It's a very low additional capex.
Speaker #4: Strong brand recognition and very strong intake that we are seeing and a good momentum. Okay?
Speaker #3: Very clear. Thank you.
Lucca Marquezini: Very clear. Thank you.
Speaker #1: Of course. The second question comes from Eduardo Rezende from UBS.
Renata: Of course. The second question comes from Eduardo Rezende from UBS.
Speaker #5: Good evening, everyone. So thanks for taking my question. And two on my side as well. So first, could you provide an up-to-date on the Inamed topics?
Eduardo Rezende: Good evening, everyone. Thanks for taking my question, and 2 on my side as well. First, could you provide an update on the Enamed tops? 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. The second question is regarding the M&A environment in medical school. 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? Anything you can share with us in this front would be very helpful. Thank you.
Speaker #5: So if you could provide an up-to-date on the impacts that are expected and the initiatives you are executing to foster student performance in the upcoming exam.
Speaker #5: It 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 marketing environment for new deals in medical school, I mean, what's in your view has been the main constraint for new deals?
Speaker #5: Is it still on valuation or maybe some asymmetries involving Inamed as well? So anything you can share with us in this front would be very helpful.
Speaker #5: Thank you.
Speaker #4: Hi, Eduardo. I'll take the Inamed here question and Blanco will help me with the M&A side. So regarding our action plan toward Inamed, 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 Inamed now in September in the second half this year.
Virgilio Gibbon: Hi, Eduardo. I'll take the Enamed here question, and Blanco will help on the M&A side. Regarding our action plan toward 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 H2 this year. We are also conducting almost 30 mock-up tests of all students that will be applying for Enamed and doing action plan for every two weeks. We have measuring the results based on the new model, because the Enamed is completely a new model when we compare for the previous one based on the old ANASEM. Having said that, we are seeing that our student is much more engaged, fully committed to have a much better result.
Speaker #4: We are also conducting almost 30 mock-up tests of all students that will be applying for Inamed. And doing actual plan for every two weeks, we have measuring the results based on the new model because the Inamed is completely new model when we compare for the previous one based on the old Enagi.
Speaker #4: 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 Inamed.
Virgilio Gibbon: Also we are adapting our curriculum also to fulfill the type of question, the type of evaluation that is being considering in the Enamed. Our expectation that will be a much better result for our students now in September. Regards the M&A, I'll pass here to Blanco.
Speaker #4: So our expectation that will be a much better result for our students now in September. So regarding the M&A, I'll pass here to Blanco.
Speaker #1: Just to add a point on the Inamed 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.
Renata: 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 minimal, it's not material. Blanco?
Speaker #1: And it's minimal. It's not material. So, Blanco?
Speaker #5: Hi, Eduardo. It's Blanco speaking. Regarding the M&A environment, first, it's very important to highlight that we keep our capital allocation of discipline just focused on M&A that are concentrated in medicine.
Luis Andre Blanco: Hi, Eduardo. It's Blanco speaking. Regarding the M&A environment, first, it's very important to highlight that we keep our capital allocation of discipline, just focused on M&A that are concentrated in medicine, and that generates a good return on capital. Just as a reminder, we have as a target institutions that has more than 60% of the revenue coming for the medicine programs. We look for targets for deals that generates an IRR above 20%, unleveraged, nominal, kind of internal rate of returns. Having said that, we still keeping our 200 seats per year growth. We look deals that have this profile that I just mentioned.
Speaker #5: And that's generates a good return on capital. Just as a reminder, we have as a target institutions that have more than 60% of the revenue coming for the medicine programs.
Speaker #5: And we look for targets for deals that generates an IRR above 20% unleveraged nominal kind of internal rate of returns. Having said that, we still keeping our 200 seats per year growth.
Speaker #5: 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 makes the return on the capital that we seek.
Luis Andre Blanco: 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 purse a deal just for the growth itself. We purse deals that have the exact profile and the exact type of return. And we keep a very discipline on this.
Speaker #5: 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.
Speaker #5: And we keep a very disciplined on this.
Speaker #1: Eduardo, is it clear? I think that you are on mute. Okay. So moving to the next question. Mirela from Bank of America, Maryland.
Renata: Eduardo, is it clear?
Eduardo Rezende: Yes.
Renata: I think that you're on mute. Okay. Moving to the next question. Mirela from Bank of America Merrill Lynch.
Speaker #6: Good evening, Blanco Virgília Renata, the RR team. I have a question on the medical practice solutions. In the investments on this front, so you mentioned in the previous quarter that you plan to invest more heavily on this line.
Mirela: Good evening. Blanco, Virgilio, Renata, IR team. I have a question on the medical practice solutions and the investments on this front. 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 continued to decline, especially on the Whitebook front. I understand here that there's a timing component to see the results of this investment, so I was just wondering if you guys could give us more color on the expected timing to see some recovery on these lines. If you could provide more color on the initiatives that you see as a solution, especially on the Whitebook front.
Speaker #6: And we see that this quarter, the number of total payers continued to decline. Especially on the whitebook front. I understand here that there's a timing component to see the results of these investments.
Speaker #6: So I was just wondering if you guys could give us more color on the expected timing to see some recovery on this lines and also if you could provide more color on the initiatives that you see as a solution, especially on the whitebook front.
Speaker #1: Hi, Mirela. Your voice buzzed a bit. Can you please repeat your question?
Speaker #6: Hi. Can you hear me well now?
Renata: Hi, Mirella. Your voice buzzed a bit. Can you please repeat your question?
Speaker #1: Now we can.
Speaker #6: Okay. So my question is on the medical practice solutions. In 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.
Mirela: Hi, can you hear me well now?
Renata: Now we can.
Mirela: Yeah. Okay. 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, we see that in this quarter, the number of payers continued to decline. I understand here that there is a timing component to see some recovery there, especially on the Whitebook. I just wanted more color on the timing that you expect to see recovery on those lines, especially on the Whitebook. Also if you could give us more color on the initiatives that are being done on the Whitebook to face the competition from AI and, you know, the more competitive market on the segment.
Speaker #6: And we see that in this quarter, the number of payers continued to decline. I understand here that there's a timing component to see some recovery there.
Speaker #6: Especially on the whitebook. So I just wanted more color on the timing that you expect to see recovery on this lines especially on the whitebook.
Speaker #6: And also, if you could give us more color on the initiatives that are being done on the whitebook to face the competition from AI and the more competitive market on the segment.
Speaker #5: Hi, Mirela. Now was very clear. Your question. So regarding the investments, we are already investing more on the MPS here of our products. Not only individually product by product, but also integrating them and creating a network effect having our physician not only more engaged, but also generating more insights and information inside within our platform.
Virgilio Gibbon: Hi, Mirella. No, no, was very clear, your question. Regard the investments, we are already investing more on the MPS here of our products. Not only individually product by product, but also integrating them and creating like a network effect, having our physician not only more engaged, but also generating more insights and information inside within our platform. We still see a reduction on payers on Whitebook. On the other hand, we are growing and growing faster on iClinic. There 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.
Speaker #5: So we still are seeing a reduction on payers on whitebook on the other hand, we are growing and growing faster on my clinic. There is more engaged physician to our base and also generating much more data on a daily routine on our basis.
Speaker #5: 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.
Speaker #5: We are seeing much more using on their 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.
Virgilio Gibbon: They are more young physicians that are not using the platform on a daily routine. We are seeing much more using on their daily routine for more mature and senior physicians that are adopting Afya iClinic, also leveraging the number of prescriptions that is being made into our platform. We just reached more than 2 million prescription level per month in Afya. That's also very important, most of them coming through Afya iClinic. That's why it's so important to leverage the number of clinics and physicians adopting Afya iClinic. In terms of investment, what we are doing, first of all, AI, it's one of the issues and also an opportunity here.
Speaker #5: We just reached more than 2 million prescriptions level per month in Africa. 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.
Speaker #5: 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.
Speaker #5: 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 continue medical education solutions.
Virgilio Gibbon: We are launching a lot of features, new features, AI-based, so the solution is becoming AI first in terms of Afya Whitebook, and also considering the social network effect, because we are embedding prescription within Afya Whitebook. We are also integrating Afya Whitebook with our updates and continuum medical education solutions, and also within Afya iClinic. All of this in a very middle term is to have what we are calling here Afya One platform, where a physician, it doesn't make sense if they are signing for one solution and another. He is like a membership of the entire platform. This is what we are building here.
Speaker #5: And also within iClinic. So all of these in a very mid-term is to have what we are calling here AFIA One platform where a physician doesn't make sense if they are signing for one solution and another.
Speaker #5: 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 this first semester, one is CAPEX related to all of these innovation integration and creating this beautiful platform.
Speaker #5: And second, it's 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 middle and long term for the MPS segment.
Virgilio Gibbon: In terms of cost and investments that we are doing this first semester, one is CapEx related to all of this innovation, integration, and creating this beautiful platform. Second is improving our sales team, most for B2B, that we are now already seeing an important growth year-over-year. That's what we believe that's the greatest opportunity in the mid and long term for the MPS segment.
Speaker #5: And Mirela, Blanco speaking, just adding two more things in what Virgília just mentioned regarding the investment itself. If you notice, our CAPEX, it's most concentrated on this quarter in tangible assets rather than property and equipment.
Luis Andre Blanco: Mirella, Blanco speaking, just adding two more things in what Virgilio just mentioned. Regarding the investment itself, if you notice our CapEx, it's 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. 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's LLMs, most of them are provided for free. We are focused this year on Whitebook on what we call the audience side.
Speaker #5: You can see this change of mix if you compare year over year. And another point regarding specifically specific about whitebook, what we are pursuing this year regarding all these investments, is to increase the audience within whitebook.
Speaker #5: 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 what we call the audience side.
Speaker #5: So the impacts on active payers and then on the revenues, you won't see a big impact on whitebook this year, but from 2027 ahead.
Speaker #5: So this year, these investments were focused on audience on the whitebook.
Luis Andre Blanco: 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. This year, these investments were focused on audience, on Whitebook. Perfect. That, that's super clear. Thank you.
Speaker #6: Perfect. That's super clear. Thank you.
Speaker #1: Thank you. So just a reminder, if you want to ask a question, please raise your hand and just confirm that your name is correct in the Zoom.
Speaker #1: We can see that we have two questions here. One, we can see the correct name and the other one, it doesn't have the correct name.
Speaker #1: So please if it's yours, just leave and click the link that we sent on the chat. So the next question comes from Vitalia from JP Morgan.
Renata: Thank you. Just a reminder, if you wanna ask a question, please raise your hand and just confirm that your name is correct in the Zoom tool. We can see that we have two questions here. One, we can see the correct name, and the other one, it doesn't have the correct name. Please, if it's yours, just leave and click in the link that we sent on the chat. The next question comes from Vitoria from JP Morgan. Vitoria, you may now go.
Speaker #1: Vitalia, you may now go.
Speaker #6: Good evening, Virgília Blanco Renata. Thank you for taking my question. I have one on my side. Just on the sales and marketing expenses in this quarter.
Speaker #6: So we saw an year over year increase. And I just want to touch bases to see why we saw this increase. And if you could please give more color on this line going forward.
Vitoria: Good evening, Virgilio, Blanco, Renata. Thank you for taking my question. I have one on my side just on the sales and marketing expenses in this quarter. We saw a year-over-year increase, and I just want to touch bases to see why we saw this increase. If you could please give more color on this line going forward. Thank you.
Speaker #6: Thank you.
Speaker #7: Hi, Vitalia. So it's two main reasons here. First of all, we anticipate the volume of intakes for the first half because of the NMEDs.
Speaker #7: So we spend a little bit more on the undergrad. And also on health programs you saw that the results we also have a very strong intake as we are also have a bigger offer portfolio in the first half when you compare to the last year.
Virgilio Gibbon: Vitoria. Hi, Vitoria. It's two main reasons here. First of all, we anticipate the volume of intakes for H1 because of the Enamed. We spend a little bit more on the, 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 H1 when you compare to last year. 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 Educom to strengthen our position on that.
Speaker #7: 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 EDUCOM to strengthen our position on that.
Speaker #7: This is not a recurring base, but one time 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.
Speaker #7: Okay?
Speaker #5: And Vitalia, it's very important that this increase in sales and marketing expenses are under this program and is embedded on our guidance for the year.
Virgilio Gibbon: This is, it's not a recurring base, but one time based on this first semester, most of them from the undergrad and also for this launching of this new approach of many solution that is being more integrated and how we are offering this new dynamic and products to our physician ecosystem. Okay?
Speaker #5: Okay?
Speaker #6: Perfect. Thank you so much.
Speaker #1: 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.
Luis Andre Blanco: Vitoria, 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.
Vitoria: Perfect. Thank you so much.
Renata: 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.
