Afya(AFYA) - 2025 Q1 - Quarterly Report

Unaudited Interim Condensed Consolidated Financial Statements This section presents Afya's financial position, income, equity changes, and cash flows for the interim period Unaudited Interim Condensed Consolidated Statements of Financial Position As of March 31, 2025, Afya's total assets increased to R$9.11 billion from R$8.83 billion at year-end 2024, driven by a rise in cash and cash equivalents. Total liabilities also grew to R$4.67 billion, primarily due to an increase in current liabilities, including loans and dividends payable. Consequently, total equity rose to R$4.44 billion Consolidated Statement of Financial Position (in thousands of BRL) | Account | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | 1,881,216 | 1,589,784 | | Total Non-current Assets | 7,230,658 | 7,239,755 | | Total Assets | 9,111,874 | 8,829,539 | | Total Current Liabilities | 1,322,967 | 1,140,195 | | Total Non-current Liabilities | 3,347,492 | 3,378,761 | | Total Liabilities | 4,670,459 | 4,518,956 | | Total Equity | 4,441,415 | 4,310,583 | | Total Liabilities and Equity | 9,111,874 | 8,829,539 | Unaudited Interim Condensed Consolidated Statements of Income and Comprehensive Income For the three months ended March 31, 2025, Afya reported a 16.4% year-over-year increase in revenue to R$936.4 million. Net income grew by 23.4% to R$257.0 million, resulting in a diluted earnings per share of R$2.76, up from R$2.22 in the same period of 2024 Consolidated Statement of Income (in thousands of BRL, except EPS) | Account | March 31, 2025 (unaudited) | March 31, 2024 (unaudited) | | :--- | :--- | :--- | | Revenue | 936,360 | 804,239 | | Gross Profit | 653,721 | 534,735 | | Operating Income | 372,527 | 289,358 | | Net Income | 257,036 | 208,299 | | Basic EPS | 2.79 | 2.26 | | Diluted EPS | 2.76 | 2.22 | Unaudited Interim Condensed Consolidated Statements of Changes in Equity Total equity increased from R$4.31 billion at the start of 2025 to R$4.44 billion by March 31, 2025. The growth was primarily driven by a net income of R$257.0 million, partially offset by dividends declared amounting to R$134.8 million - Total equity increased by R$130.8 million in Q1 2025, reaching R$4.44 billion[6] - Key changes in equity for Q1 2025 include net income of R$257.0 million, share-based compensation of R$7.0 million, and dividends declared of R$134.8 million[6] Unaudited Interim Condensed Consolidated Statements of Cash Flows For the first quarter of 2025, the company generated R$463.9 million in net cash from operating activities, a significant increase from R$417.9 million in Q1 2024. Cash used in investing activities decreased to R$130.3 million, while cash used in financing activities was R$89.2 million. This resulted in a net increase in cash and cash equivalents of R$243.9 million, raising the ending balance to R$1.15 billion Consolidated Statement of Cash Flows (in thousands of BRL) | Activity | March 31, 2025 (unaudited) | March 31, 2024 (unaudited) | | :--- | :--- | :--- | | Net cash flows from operating activities | 463,850 | 417,860 | | Net cash flows used in investing activities | (130,312) | (260,998) | | Net cash flows used in financing activities | (89,189) | (99,005) | | Net increase in cash and cash equivalents | 243,873 | 58,047 | | Cash and cash equivalents at end of period | 1,154,888 | 611,077 | Notes to the Unaudited Interim Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the interim consolidated financial statements Note 1: Corporate Information Afya Limited is a Cayman Islands-incorporated holding company listed on Nasdaq (AFYA), with Bertelsmann SE & Co. KGaA as its ultimate parent. It is the largest medical education group in Brazil by number of medical school seats. The company has been actively expanding its capacity, adding medical school seats through regulatory approvals and acquisitions, such as Unidom in 2024. As of March 31, 2025, Afya had 3,593 operating medical school seats - Afya is the largest educational group by number of medical school seats in Brazil, operating in 19 states[11] - In Q1 2024, MEC authorized an increase of 40 medical school seats for FIP Guanambi[12] - On July 1, 2024, Afya acquired Unidom, adding 300 operational medical school seats, though 175 of these are subject to a final court decision[14][15] - As of March 31, 2025, the company had 3,593 operating medical school seats[17] Note 2: Material Accounting Policies The unaudited interim financial statements are prepared in accordance with IAS 34 on a historical cost basis. The functional and presentation currency is the Brazilian real (R$). The statements consolidate all subsidiaries where Afya has control. Accounting policies are consistent with the 2024 annual financial statements, with no significant impact from new standards adopted in 2025 - The financial statements are prepared in accordance with IAS 34 Interim Financial Reporting[18] - The company's functional and presentation currency is the Brazilian real (R$)[19][20] - The accounting policies are consistent with those from the annual financial statements for the year ended December 31, 2024[30] Note 3: Segment Information Afya operates in three reportable segments: Undergraduate, Continuing Education, and Medical Practice Solutions. The Undergraduate segment is the largest, contributing R$827.4 million in revenue for Q1 2025. The Continuing Education and Medical Practice Solutions segments generated R$69.9 million and R$39.1 million in external revenue, respectively. Seasonality primarily affects Continuing Education, with revenues concentrated in the first and last quarters - The company has three reportable segments: Undergraduate, Continuing education, and Medical practice solutions[32] Revenue by Segment (Q1 2025 vs Q1 2024, in thousands of BRL) | Segment | Q1 2025 External Revenue | Q1 2024 External Revenue | | :--- | :--- | :--- | | Undergraduate | 827,372 | 704,519 | | Continuing education | 69,855 | 63,999 | | Medical practice solutions | 39,133 | 35,721 | | Total | 936,360 | 804,239 | - Continuing education revenue from e-books is concentrated in the first and last quarters of the year[40] Note 11: Financial Instruments and Risk Management This note details the company's financial assets and liabilities, including loans, leases, and payables to selling shareholders. It also outlines the management of market risk (interest rate and foreign currency), credit risk, and liquidity risk. The company uses sensitivity analysis to monitor risks and maintains reserves to manage liquidity. The fair value of most financial instruments is determined using Level 2 inputs Loans and Financing As of March 31, 2025, total loans and financing stood at R$2.21 billion, a slight increase from R$2.20 billion at year-end 2024. Major credit lines include facilities from Softbank, IFC, and debentures, with interest rates primarily tied to the CDI rate Loans and Financing Breakdown (in thousands of BRL) | Financial Institution | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Banco Itaú Unibanco S.A. | 320,237 | 309,496 | | FINEP | 7,474 | 8,209 | | Softbank | 850,051 | 845,492 | | Debentures | 512,565 | 526,946 | | IFC | 522,347 | 505,018 | | Total | 2,212,674 | 2,195,161 | Accounts Payable to Selling Shareholders Total accounts payable to selling shareholders decreased to R$466.3 million as of March 31, 2025, from R$530.8 million at year-end 2024. The reduction was mainly due to principal payments of R$65.2 million during the quarter. A significant portion relates to the Unidom acquisition, which is measured at fair value - The balance of accounts payable to selling shareholders decreased from R$530.8 million to R$466.3 million in Q1 2025, primarily due to principal payments of R$65.2 million[68][69] - The company deems it probable that targets for contingent consideration payments, including those for Unidom's 175 medical school seats, will be met[69] Financial Instruments Risk Management The company is exposed to market risk (interest rate and currency), credit risk, and liquidity risk. Interest rate risk arises from floating-rate debt and cash equivalents. Foreign currency risk is minimal, related to small U.S. dollar cash holdings. Credit risk is managed through monitoring customer receivables and investing only with approved counterparties. Liquidity risk is managed by monitoring cash flows and maintaining credit facilities - The company is exposed to market risk (interest rate, foreign currency), credit risk, and liquidity risk[74] - A sensitivity analysis shows that a 150 basis point increase in interest rates would decrease pre-tax profit by R$10.0 million[78] - Foreign currency risk is limited to U.S. dollar cash holdings of R$9.1 million as of March 31, 2025[79] Note 12: Capital Management The company's primary capital management objective is to maximize shareholder value while ensuring compliance with financial covenants on its loans, such as the net debt to adjusted EBITDA ratio. The company reported no breaches of these covenants during the period - The main objective of capital management is to maximize shareholder value and meet financial covenants[89] - There were no breaches of financial covenants for any loans and financing in the current period[90] Note 14: Equity As of March 31, 2025, Afya's share capital was R$17, represented by 93.7 million shares. During the quarter, the Board of Directors approved the company's first dividend distribution of R$129.8 million. The company also holds 3.4 million treasury shares - On March 12, 2025, the Board approved a dividend distribution of R$129,784 thousand, representing 20% of the 2024 consolidated net income[101] - As of March 31, 2025, the company held 3,427,738 treasury shares[102] Note 15: Earnings Per Share (EPS) For Q1 2025, basic EPS was R$2.79 and diluted EPS was R$2.76. The calculation for diluted EPS includes the potential dilutive effects of stock options, RSUs, and Softbank's convertible preferred shares EPS Calculation (Q1 2025 vs Q1 2024) | Metric | March 31, 2025 (unaudited) | March 31, 2024 (unaudited) | | :--- | :--- | :--- | | Basic EPS (R$) | 2.79 | 2.26 | | Diluted EPS (R$) | 2.76 | 2.22 | Note 16: Revenue Total revenue for Q1 2025 was R$936.4 million, up from R$804.2 million in Q1 2024. The majority of revenue (R$914.4 million) is recognized over time, primarily from tuition, digital content, and app subscriptions. The Undergraduate segment remains the primary revenue driver Revenue Breakdown (in thousands of BRL) | Category | March 31, 2025 (unaudited) | March 31, 2024 (unaudited) | | :--- | :--- | :--- | | Tuition fees | 1,165,751 | 980,975 | | Deductions (Discounts, Taxes, etc.) | (233,682) | (176,736) | | Other | 81,483 | 72,679 | | Total Revenue | 936,360 | 804,239 | - Revenue recognized over time (tuition, subscriptions) was R$914.4 million, while revenue recognized at a point in time was R$22.0 million in Q1 2025[106] Note 19: Income Taxes The company's income tax expense for Q1 2025 was R$24.8 million, resulting in an effective tax rate of 8.8%. This rate is influenced by tax incentives from the PROUNI program. A new law implementing the OECD's Pillar Two global minimum tax became effective in 2025, resulting in an additional tax expense of R$23.2 million for the quarter. The company is legally challenging the enforceability of this new tax - A new law implementing the OECD's Pillar Two global minimum tax in Brazil became effective January 1, 2025, introducing a minimum effective taxation of 15%[112][113] - The additional income tax expense from the Pillar Two rule was R$23.2 million for Q1 2025[116] - The company filed a writ of mandamus on March 28, 2025, to challenge the enforceability of the new additional CSLL (Pillar Two tax)[115] - The effective tax rate for Q1 2025 was 8.8%, compared to 5.0% in Q1 2024[119] Note 20: Legal Proceedings and Contingencies As of March 31, 2025, the company had provisions for probable losses from legal proceedings totaling R$115.6 million, primarily related to labor, civil, and tax claims. An additional R$112.7 million in claims were assessed as having a possible risk of loss. The company holds an indemnification asset of R$77.0 million to cover liabilities from pre-acquisition events of its subsidiaries Provision for Legal Proceedings (Probable Loss, in thousands of BRL) | Type | March 31, 2025 | January 1, 2025 | | :--- | :--- | :--- | | Labor | 34,515 | 31,455 | | Civil | 24,958 | 25,140 | | Taxes | 56,126 | 56,926 | | Total | 115,599 | 113,521 | - Contingencies with a possible risk of loss amounted to R$112.7 million as of March 31, 2025[125] - The company has a corresponding indemnification asset of R$77.0 million related to contingent liabilities from acquired subsidiaries, for which the selling shareholders are responsible[127] Note 22: Subsequent Event On May 7, 2025, after the reporting period, Afya acquired 100% of Faculdade Masterclass Ltda. (FUNIC) for an aggregate purchase price of R$100 million. This acquisition adds 60 medical school seats in Contagem, Minas Gerais, with operations expected to start in the second half of 2025. The deal also includes a contingent payment for up to 60 additional seats if approved by MEC - On May 7, 2025, Afya acquired FUNIC, a pre-operational medical school, for R$100 million[130][131] - The acquisition adds 60 medical school seats, with operations expected to begin in H2 2025[130] - The agreement includes a contingent consideration for up to 60 additional medical school seats if approved by MEC within 36 months[132]