Afya (AFYA) Q3 2025: EBITDA Margin Jumps 200bps as Medical Ecosystem Expansion Accelerates
Afya’s Q3 2025 marked a decisive advance in both profitability and operational scale, anchored by robust margin expansion and medical seat growth. Segment execution delivered across undergraduate, continuing education, and medical practice solutions, while liability management and capital allocation flexibility position the company for further M&A or shareholder returns. Guidance signals continued pricing power and stable demand for medical education in Brazil, with margin levers still in play.
Summary
- Margin Expansion Outpaces Revenue Growth: Strong cost discipline and segment mix drove notable EBITDA margin gains.
- Medical Seat Pipeline Strengthens: Approved seat additions and new campus ramp-ups reinforce long-term student base growth.
- Capital Flexibility Sets Up Strategic Optionality: Debt restructuring and buyback authorization create room for M&A or increased dividends.
Performance Analysis
Afya delivered a quarter of broad-based financial strength, with revenue up double digits and adjusted EBITDA climbing even faster, reflecting operating leverage—the ability to grow profit faster than sales as fixed costs are absorbed across a larger base. Margin expansion was material, with the nine-month adjusted EBITDA margin up 200 basis points to 46.4%, and Q3 margin up 160 basis points year-over-year. Cash flow from operations set a new record, and net income growth outpaced revenue, aided by both operational performance and deferred tax asset recognition.
Segment results were robust. Undergraduate medical education, the company’s core, accounted for 86% of revenue and saw both seat and ticket price increases, with student count up 6% and average ticket up 3.4%. Continuing education delivered 11% revenue growth, driven by a 26% rise in graduate journey students and a 65% surge in B2B revenue, despite a one-off student count drop in the residency journey due to product consolidation. Medical practice solutions saw revenue rise over 9%, with B2P (business-to-physician) growing 11% even as active payers and monthly users dipped, highlighting a mix shift to higher-value clients.
- Gross Margin Expansion: Undergraduate and continuing education segments benefited from fixed cost dilution and operational synergies from new campus launches.
- Cash Conversion Remains Strong: Operating cash conversion reached 101.5%, supporting further capital deployment flexibility.
- Medical Practice Solutions Mix Shift: Despite a drop in active users, revenue rose due to product mix and price increases in digital solutions.
Cost discipline, product mix, and asset ramp-up all contributed to the margin outperformance, setting a higher baseline for future profitability.
Executive Commentary
"This quarter reflects more than financial performance. It demonstrates how our strategy continues to position AFIA for sustainable growth, transforming medical education across Brazil."
Virginia Gibon, CEO
"We have extended the gross debt durations to 3.2 years, while maintaining a low cost of debt at 106% of the CDI, even after the record chase of the preferred shares held by SoftBank. These actions strengthen our financial flexibility to support long-term value creations for our shareholders."
Luis André Blanc, CFO
Strategic Positioning
1. Medical Education Scale and Pricing Power
Afya’s core undergraduate medical business remains a defensive growth engine, with seat approvals and new campus launches extending its leadership. The company secured approval for 100 new seats in África Bragança, lifting total seats to 3,753. Tuition pricing discipline is visible, with a planned 5–5.2% tuition increase for 2026, and FIES (government student loan) penetration holding steady at 17–18%, supporting revenue predictability and mix stability.
2. Diversification Through Continuing Education and Digital Solutions
Continued education and digital solutions are gaining operational leverage, with the former benefiting from hybrid model expansion and B2B revenue acceleration. The digital clinical decision tool Whitebook saw a user drop after a price hike, but revenue per user rose, and new AI features are being deployed to restore audience growth. iClinic, the clinical management platform, is ramping up B2B penetration, suggesting a path to higher-margin, recurring revenue streams.
3. Capital Allocation Optionality and Liability Management
Afya’s recent liability management—raising commercial loans and repurchasing SoftBank’s preferred shares— extended debt duration and preserved cash flexibility. With net debt/EBITDA at 0.8x and a low cost of debt, the company is positioned to pursue M&A, buybacks, or dividends as market conditions warrant. Management is actively evaluating medical school M&A, targeting approximately 200 new seats per year, while balancing shareholder returns via buybacks and dividends, even after accounting for Brazil’s new 10% tax on dividends to foreign holders.
Key Considerations
Afya’s Q3 2025 results reinforce its position as Brazil’s leading medical education platform, but the quarter also surfaced several strategic levers and watchpoints for investors:
Key Considerations:
- Medical Seat Expansion Pipeline: Seat approvals and campus ramp-ups are critical to sustaining growth, but execution risk remains as new campuses mature.
- Product Mix and Digital Monetization: The shift toward higher-priced digital and B2B offerings can offset user churn, but restoring user growth in Whitebook will be key to long-term digital scale.
- Margin Leverage from Cost Control: Margin gains have come from both revenue growth and cost discipline, especially in SG&A, but further expansion may require incremental operational efficiencies or higher-value product mix.
- Capital Deployment Flexibility: Liability management and cash flow strength give Afya optionality, but disciplined capital allocation will be tested as M&A and shareholder return opportunities arise.
Risks
Key risks include new tax regulation exposure, with Brazil’s implementation of the OECD Pillar 2 global minimum tax expected to raise Afya’s effective tax rate to 15% in 2026, up from the current 9.7%. Regulatory and competitive pressures in medical education could also impact seat approvals and pricing. Digital product user churn poses a risk to future growth in high-margin digital segments, and new campus ramp-up carries execution risk for both margin and occupancy.
Forward Outlook
For Q4 2025, Afya signaled:
- Tuition increases for 2026 in the 5–5.2% range, supporting revenue visibility.
- Stable demand for medical careers, with entrance exam applicant numbers tracking similar to last year.
For full-year 2025, management maintained a focus on:
- Margin expansion through continued cost discipline and operational leverage.
- Capital allocation flexibility, with M&A, buybacks, and dividends all under consideration as market conditions evolve.
Management highlighted a steady intake cycle, with no signs of demand softening or competitive pressure on applicant numbers, and expects the effective tax rate to rise to 15% in 2026 if no legislative change occurs.
Takeaways
Afya’s Q3 2025 results demonstrate a business model with strong pricing power, operational leverage, and a robust capital structure, but also a need to sustain digital user growth and manage regulatory headwinds.
- Margin Expansion Is Durable: Segment mix, cost control, and new campus ramp-up are driving sustainable profitability improvements.
- Growth Hinges on Seat Approvals and Digital Penetration: Maintaining leadership in medical education and restoring digital user growth are key to long-term upside.
- Capital Allocation Will Be a Key Differentiator: Management’s flexibility to deploy capital into M&A or shareholder returns will shape value creation as the regulatory and macro landscape evolves.
Conclusion
Afya’s Q3 2025 confirms its status as Brazil’s premier medical education platform, combining steady revenue growth, margin expansion, and capital flexibility. The company’s ability to execute on seat expansion, digital monetization, and disciplined capital deployment will determine its trajectory as regulatory and competitive dynamics shift.
Industry Read-Through
Afya’s margin expansion and capital allocation agility highlight the advantages of scale and integrated offerings in the Brazilian education sector. The tuition pricing environment remains firm, with no signs of demand softening for medical careers, suggesting resilience for premium education providers. The digital segment’s user churn after price hikes is a cautionary signal for education technology peers: monetization efforts must be balanced with user retention and product innovation. Regulatory changes, especially on tax, will be a sector-wide headwind as Brazil implements global minimum tax accords. Operators with diversified revenue streams, operational leverage, and capital flexibility are best positioned to navigate the evolving landscape.