Morning and thank you for holding. Welcome to Cruzeiro do Sul Educacional's conference call today discussing the earnings release of the third quarter of 2024. If you need simultaneous translation, this tool is available on the platform. Simply click the interpretation button at the bottom of the screen and select the language you prefer, Portuguese or English. For those listening to the conference call in English, there is also the option to click and mute original audio. We inform that this conference is being recorded and will be available on the company's IR website at ri.cruzeirodosuleducacional.com.br, where you will also find the complete set of materials for our earnings release. You can also download the presentation on the chat icon, also available in English. During the company's presentation, all participants will have their microphones disabled. After that, we will begin the question-and-answer session.
To ask a question, click on the Q&A icon at the bottom of your screen and write your question to join the queue. When announced, there will be a request to enable your microphone on your screen so you can enable your microphone and ask your question. Please ask all of your questions at that time. Note that the information in this presentation and statements that may be made during this conference call relating to Cruzeiro do Sul Educacional's business prospects, projections, and operational and financial targets are based on the company's management's beliefs and assumptions, as well as on currently available information. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events and hence depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, industry conditions, and other operating factors may affect the future performance of Cruzeiro do Sul Educacional and lead to results that differ materially from those expressed in such forward-looking statements. Here with us today, we have Mr. Fabio Fossen, CEO, Felipe Negrão, CFO, and Luis Felipe Bresaola, Investor Relations Officer. I would like to turn the floor to Mr. Fabio Fossen, who will begin the presentation. Please, Mr. Fabio, you may proceed.
Good morning, everyone. This is Fabio Fossen, CEO of Cruzeiro do Sul Educacional. Thank you all for participating in our Q3 2024 earnings call. We ended the third quarter of 2024 with the highest free cash generation in the company's history, reaching BRL 199 million, a growth of approximately 56% versus last year.
The strong cash generation mainly reflects the 27.5% expansion of EBITDA ex IFRS 16, the positive evolution of working capital, and the lower need for CapEx in the period. In addition, we achieved the highest net income in a quarter since the IPO, reaching BRL 64 million in adjusted net earnings with a net margin of approximately 10%, approximately 4 percentage points up versus the third quarter of 2023. The approximate 88% increase in adjusted net earnings is mainly due to the 2.7 percentage point growth in the quarter's EBITDA margin. Comprised of approximately 0.8 percentage points of gross margin, an improvement of 0.7 percentage points of PDA, and an improvement of 1.6 basis points in labor costs, and a practically stable financial result when compared to the same period of last year.
The positive evolution of the results reflects the initiatives to place the student at the center of our decisions and to facilitate their academic journey from admission to graduation, which result in better intake rates, renewal, and financial management. With that, we achieved a 7.2% growth in its undergraduate on-campus student base and 16.4% in digital compared to last year. This base growth, coupled with our pricing strategy, resulted in a healthy net revenue increase of 10.6% versus the third quarter of 2023.
From an operational and structural point of view, it is worth highlighting the growth in the offer of medical courses. Which expanded by 334 seats since June of 2024, through the acquisition of FAPI in the metropolitan region of Curitiba with 154 seats and MEC's authorization of 180 new seats. 60 at CEUNSP in September of 2024 in the region of Itu, State of São Paulo. 60 at FSG in Caxias do Sul, Rio Grande do Sul in October of 2024. 60 seats at Cesuca in Cachoeirinha in the region of Porto Alegre, Rio Grande do Sul in November of 2024, reaching the milestone of 1,019 seats in our portfolio.
The authorization of all courses with a MEC score of five and in institutions recognized in the regions contributes to the attractiveness of these new courses, as well as to the expansion of our business in such an attractive segment as medicine. In addition, the company has five requests in the administrative analysis phase at MEC and CNE. It is worth noting that all of our current courses and the requests under analysis are in regions and cities with high purchasing power and with relevant populational flow, which puts us in a more protected position in relation to possible price pressures in the future. We ended the first nine months of 2024 with record net earnings since the IPO. We posted a 12% increase in net revenue, driven by the 9% growth in the total student base.
Adjusted EBITDA grew 14%, with a margin of 31.7%, representing an expansion of 0.4 percentage points compared to the same period of last year. Net earnings reached BRL 154 million, up 65%, with a net margin of 8.1%, plus 2.6 percentage points when compared to the nine months of 2023. Pre-operating cash generation in the nine months of 2024 was BRL 407 million, an increase of 66% compared to the nine months of 2023. In addition, we continue with a healthy and comfortable leverage, even after the acquisition and relevant dividends payout we had over the last 12 months. The financial leverage indicator, measured by the net debt over EBITDA ex IFRS 16 ratio, reached 1.4x , close to the 1.3x in the third quarter of 2023.
Even after the payment of the acquisition of FAPI in the amount of BRL 158 million, and the payment of dividends in the amount of BRL 120 million in the last 12 months. Note that 59% of the debts mature as of 2026, and the current cash balance is sufficient to cover all payments maturing in 2024 and 2025, demonstrating the company's sound financial position. Finally, I would like to highlight our journey since 2021, when we had the change to the current management and governance group, Cruzeiro do Sul Educacional, in the third quarter. Highlight the consistency and relevance of the results we have been delivering.
Since the beginning of the implementation of the company's new strategy defined in the second half of 2022, which resulted in the creation of business units by education vertical on-campus, health, and digital education, we have shown continuous, consistent, and relevant growth in our student base in all three education verticals. We ended the third quarter of 2024 with a growth of 24% in the on-campus undergraduate base and 65% in digital compared to the third quarter of 2021. This was organic, not including any acquisition. In on-campus learning, we had a significant progress in the level of retention and re-enrollment, which remained at the high level of 91% of the eligible base in the third quarter of 2024, up 2.8 percentage points versus the third quarter of 2021. In digital, we reached the milestone of 78% of students re-enrolled, the highest level since the IPO.
The 1.8 percentage point increase in the re-enrollment KPI compared to the third quarter of 2021, and the 0.5 percentage point versus the third quarter of 2023, combined to the 48% increase in intake compared to the third quarter of 2021, were important factors for the 65% expansion in student base. Additionally, in the third quarter of 2024, we reached 25% of digital student base enrolled in higher value-added product in our hybrid model.
With the new strategy, we gained focus from the company's senior leadership and a more pragmatic allocation of human and financial capital to deliver, since the third quarter of 2021, growth of 43% in net revenue, a gain of 2.3 percentage points in growth margin, 61% increase in adjusted EBITDA with a gain of almost four percentage points in margin, resulting in a growth of 360% in net earnings with a gain of 6.8 percentage points of margin. The focus of investments in technology to optimize costs and expenses made in the last 18 months has also shown that we were able to grow the business in the comparison of the nine months of 2024 and 2023, while containing the relative advance of costs and expenses with personnel and PDA.
Our discipline in technology investments based on concrete results and in M&A, demonstrated in the acquisition of FAPI, will continue to guide our decisions going forward, especially in an environment of upward interest rate trends. I will now turn the floor to Felipe Negrão, who will provide more details on our financial performance. Thank you.
Thank you, Fossen. In the next slide, I will talk about the operational performance of the on-campus courses. We posted a growth of 7.2% in student base, reaching a total of 165,000 students. This is the result of high retention rates. The re-enrollment rate remained at 91% of the eligible base, contributing significantly to the expansion of our student base. We also bring the ticket data, which grew 2.3% in the third quarter of 2024 compared to the same period of the previous year. In the nine months, growth was 1.4%.
These results reflect the new pricing strategy and the increase in the share of health students in the base. On the next slide, we see the operational data for digital undergrad courses, which reached 360,000 students, which represents a growth of 9.3% compared to the same period of last year. This growth was driven by two main factors, the 0.5 percentage point increase in re-enrollment rate compared to the previous year, and the 6.6% increase in the intake of new students compared to the third quarter of 2023. The average ticket for the quarter was down 1.6% when compared to the same period of last year. This variation is directly related to a more aggressive pricing plan in student intake for the hybrid format, with the objective of leveraging this product share in the digital format student mix.
As a result of this strategy, in the third quarter of 2024, 25% of digital student base was enrolled in higher value-added products, representing an expansion of 2.9 percentage points compared to the third quarter of 2023. In the nine months of 2024, the average ticket was up by 3.6% compared to the same period of last year, reflecting the evolution of the re-enrollment indicator. Going into the financial details, I will comment on net revenue in the quarter, which reached BRL 625 million, up 11% versus the third quarter of 2023 as a result of the larger consolidated student base. In the on-campus segment, revenue grew 9%, while on health courses it increased 13%. In digital, we had a revenue expansion of 12%, reaching BRL 204 million as a result of the larger student base.
In the nine months, revenue reached BRL 1.9 billion, 12% higher than in the same period of last year. In the next slide, we show the gross margin in the quarter, reaching 49.9%, an 83 basis points increase versus the third quarter of 2023. The expansion in gross margin in the period is mainly explained by the gain in operating leverage, combined with the efficient management of the company's main cost lines. Year to date, we had a margin expansion of 1.4 percentage point. The increase in margin in the period reflects operating leverage as a result of revenue maximization initiatives, as well as efficiency gains. On the next page, we present the adjusted EBITDA for the third quarter of 2024, which was of BRL 216 million, up 21% versus the same period last year.
Adjusted EBITDA margins stood at 34.6%, an expansion of 2.8 percentage points versus the third quarter of 2023. The increase in the quarter's margin is mainly due to the reduction in the provision for doubtful accounts in the labor lines. The reduction in PDA in the period is the result of the new collection management model with the implementation of policies, meritocracy in the management of collection offices, combined with the new collection technology platform, fully operational since April of 2024. SG&A gains come mainly from the labor line, which adds to the execution of the company's digital transformation project started in the third quarter of 2023. In the nine months, we achieved an EBITDA of BRL 604 million with a margin of 31.7%.
Moving on, we show the company's costs and expenses as a percentage of net revenue, excluding non-recurring effects, which grew 2.9 percentage points in the third quarter of 2024 and 0.6 percentage points in the nine months of 2024. Since the third quarter of last year, the company has been focusing on technology projects on two fronts, providing a better experience to our students and seeking operational efficiency gains with the automation of processes. The maturation of these projects is already beginning to reflect in efficiency gains on several fronts, as we see in the graph on the right side of the slide. Moving on to the next slide, we show the evolution of the company's adjusted net earnings, which reached BRL 64 million , 89% higher than in the third quarter of 2023.
The increase in net earnings is the result of the evolution of EBITDA in the period added to a practically stable financial result when compared to the same period of last year, reflecting the drop in interest rates in this period. In the nine months of 2024, adjusted net earnings amounted to BRL 169 million , an increase of 75% versus the same period of last year. In the next slide, we demonstrate the average days of receivables in the third quarter of 2024, which was of 35 days. A reduction when compared to the same period of 2023, as a reflection of the constant improvements in the new collection management model, the implementation of collection policies, and the management of collection offices, and the new collection technology platform, as well as improvements in the provision criterion.
On the next page, we present the investments made by the company in the third quarter of 2024, which reached approximately BRL 38 million , down 32% versus the third quarter of 2023. In the nine months, investments were up BRL 107 million , a reduction of 23%. Moving on to the next slide, we see the progress of free cash generation, which reached BRL 199 million compared to BRL 128 million last year. The strong cash flow generation is mainly due to the improvement in EBITDA, working capital, and the reduction in CapEx in the period. In the nine months of 2024, we reached BRL 407 million , a growth of 66% versus last year. Finally, on the last slide, we present BRL 781 million of net debt, excluding lease liabilities, with a financial leverage of 1.4x , practically stable versus the 1.3x in third Q 2023.
Net debt was mainly impacted by the disbursement of cash to pay for the acquisition of FAPI in the amount of BRL 158 million and the payment of BRL 120 million in dividends, which BRL 60 million were in December of 2023 and BRL 60 million in September of 2024. I conclude my comments here and turn the floor to the operator to start the question and answer session. Thank you very much.
We are now starting the questions- and- answer session. Beginning with our first question, Yan Cesquim, BTG Pactual. Yan, we're enabling your audio. Please go ahead.
Good morning, Fabio, Felipe, Bresa. My question is about the DL regulation. Last week, we had the release of some of the proposals of the regulatory definition of the long-distance learning. We saw the regulation of hybrid courses, the restriction in offers of different brands per hub, the workload or the hour load for distance learning courses. How do you assess the risks of these changes to the company's strategies? What are the initiatives you're taking to mitigate those risks? That's it. Thank you.
Good morning. Thank you for your question. We've been following closely all of the regulatory discussion on distance learning. We hear proposals coming from one side, the others. Things are not quite final, what's actually going to be implemented or not.
We're getting prepared to comply with whatever regulation comes forward. The topic of last week, those issues that came up with one of the articles that said it was the problem of us having two different courses, two different certifiers in the same hub, is not a problem for us because this overlap is very small here. At the end, we were already in a process of optimizing all of this even before this new understanding of the Ministry of Education come of what to do in distance learning. This is an additional cost in all of our product portfolio, our courses, and our seven certifiers. It doesn't make sense to maintain all of that for all seven. We were going towards a cost reduction process, reducing the number of certifiers, optimizing certifiers per hub.
We only put it on hold because MEC put a hold on the opening of new hubs, and we are waiting to see how to position ourselves according to the regulation that is set forth. Of course, if a lot changes, or if not a lot changes, we're going to actually reduce operating costs. As for the smaller load of hours in DL compared to on-campus, we will comply with the determination, but it's kind of a step back because students are already organized and used to. We already have the hour grid to share all of that. I don't know whether this is going to bring a great improvement to the quality of education that MEC wants to look at, and they're correct in doing so. But for us, it's not one of the drivers to improve quality of education, actually.
The other regulations in terms of restriction of hub, size of hubs, and so on, I have heard a lot of different formats being discussed in recent months, a lot of opinions, and we are prepared to reorganize with that. I do not see any major issue. I maintain my view that any restrictions that come for regulators compared to today's status quo, the bigger groups will be able to adapt a lot faster and a lot better than the smaller players in the market. Maybe there will be a reduction in total number of enrollment in higher education because this will increase costs, and this cost will be passed through to the cost of the courses, and maybe this will leave out some future students from higher education.
But in the balance of things, the large groups tend to suffer in the adaptation in the short term, but they trend to resume growth quickly. Of course, it is concerning. We are keeping a close eye, but I do not see it as a disaster to this segment.
That is very clear. Thank you.
Next question, Mirela Oliveira, Bank of America. Mirela, your audio is enabled. Please go ahead.
Good morning, Fabio, Felipe, the IR team. I have two questions. The first about the pricing strategy for the hybrid courses. We understand that at this time, initially, it is a more aggressive strategy, but I would like to understand a little bit of the quality of the students coming to the student base and how they are behaving in terms of default, re-enrollment, if you can talk about this? The second question about the SG&A improvements, if you still see opportunities or how much you expect to capture in improvements, especially in PDA and personnel costs?
Thank you, Mirela. In terms of the pricing, we have a pricing model where we look more at maximizing revenue rather than specifically the ticket. We do not see the quality of students in the hybrid model getting worse over time. Deep down, we see our total student base with an improvement this quarter in terms of default. The hybrid model has been one of the drivers. Normally, we have hybrid and a lot of the students are close to the centers or the hubs of our institutions, our educational institutions. So we end up using the laboratory, all of the infrastructure that is there in our buildings.
That is one of our strategies for intake and to expand the portfolio of the hybrid courses. So the quality of the students are not a concern to us at this time. We do not see any indication that it would be getting worse because we are being more aggressive in intake strategies.
Good morning, Mirela. This is Felipe. About SG&A, I will break it down into three main points. Personnel or labor. SG&A in general, I think that is the first point, tends to grow not as revenue, but there should be still a slightly higher increase, higher than inflation. In personnel, I think we still have the opportunity to reduce it. Of course, these are people who have a lower salary, so it is not going to be a huge impact in those numbers. Basically, due to the automation processes that we have. So there is still a lot of processes in development.
OPEX tends to increase a little bit more because we reduce CapEx. The projects are getting into operation, and then we do not have as much CapEx, and we have savings in CapEx, but spend a little bit more on OPEX. PDA, there is still improvement to come. We have been working a lot last year, this year. The collection side, today we already have a 100% automated model with a management meritocracy.
We replace firms allocating portfolio to those who perform better. We have been working this year, we started working on the credit side. Not that we have a policy or a credit analysis of our students, but we have some point. We had a little bit of our own financing that we stopped offering this year, and there are some other initiatives that we are working to see whether or not we can improve the quality of entries. On the medium to the long term, we will be able to see an improvement in PDA due to these initiatives.
Excellent. Thank you.
The question and answer session is now over. I will turn the floor to Mr. Fabio Fossen for his closing remarks. Mr. Fossen, please, you may go ahead.
I would like to thank you all for your presence. This is an important moment, as I mentioned in my own opening remarks.
We are closing a third year of the new management and the new governance for our company. Since 2022, the end of 2022, we started implementing a set of strategic actions to guide our work, and it has been proving positive with consistent growth levels and constant relevant growth over time. Especially now, we are including all of those seats in medicine. It is a 50% increase in medical course seats. That is important.
It would be very relevant to anyone, and for us, it is very relevant. What is important in medical courses, we have an understanding that we are very resilient to any pressure in terms of offers in medical courses that may come in the future. We are very well-positioned with our educational institutions in large cities. We gained with CEUNSP in Itu, that is close to Campinas, Sorocaba, São Paulo. We also have it in Caxias do Sul, in Cachoeirinha.
That is the metropolitan region of Porto Alegre. All of our other schools that we are working on are located in regions with a significant high purchasing power and populational dynamics flow. It is not like we are lost in a difficult-to-access corner of the country. That is both for professors to teachers, the cost of taking professors to the corners lost in the middle of the country, it is a very high cost. If there are not doctors there, can you imagine professors of medicine? We are actually positioned in good places with an availability of professionals to seek from USP, Unicamp, and other renowned schools that we can contract. We see that our courses are valuable, and they continue to be valuable irrespective of the size of our competition that may come, what is outlined in the definitions of the Ministry of Education.
Even Programa Mais Médicos 3 at small cities or small towns located in the middle of Brazil that have a different governmental policy. For us, we are a lot more resilient to these shocks in offer and supply. That will continue to bring results to us next year and going forward. In other terms, we maintain our vision in the retention of students. Our main goal is for students to get in and spend four or five years with us. This is something we know. The students that are retained have a lot more value than entering intake students in terms of financial returns.
We've been working for two years that we've been talking about in our calls that we're working on that with mechanisms and tools, improving the quality of education, all of this major process to improve the company's profitability as well as our evaluation at MEC. I don't drop in relative terms. Of course, everybody dropped a little bit with the pandemic, but we don't drop in major terms. This is good work that will bring results even next year and going forward. Thank you all very much. Have a great day.
Cruzeiro do Sul Educacional's earnings conference call for the third quarter of 2024 is now over. The investor relations department remains available to ask any other questions you may have. Thank you very much for your participating, and have a great day.