Good afternoon, everyone, and thank you for waiting. Welcome to the video conference to discuss the results for the first quarter of 2023 of Cruzeiro do Sul Educacional. I would like to point out that if you need simultaneous translation, there is a tool available in the platform. To access this tool, just click interpretation through the icon with the globe in the lower part of your screen and choose the language of your choice, Portuguese or English. For those of you listening to the video conference in English, you have the option to mute your original audio by clicking Mute Original Audio. We would like to inform you that this video conference is being recorded and it will be available at the company's IR website at ri.cruzeirodosuleducacional.com.br where the entire material of this earnings release call is also available.
During the company's presentation, all participants will have their microphones disabled. After that, we will initiate the Q and A session. To ask questions, click on the Q&A button in the bottom part of your screen and write down your question. Once your name is announced, a pop-up will appear on the screen indicating that you have to activate your mic. We then suggest that you activate your mic to ask questions. We suggest that all your questions are asked at once. We would also like to inform you that the information posted in this presentation and any forward-looking statement that might be made during this conference call related to business outlook, projections, and financial and operating goals of Cruzeiro do Sul Educacional are based on beliefs and assumptions of the company's management, as well as information currently available.
Forward-looking statements are no guarantee of performance as they involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that might or may not occur. Investors must understand that such general economic industry conditions and other operating factors may lead to results that differ substantially from those expressed in such forward-looking statements. Here with us today are Mr. Fabio Fossen, Director President, Felipe Coragem Negrão, CFO, and Luis Felipe Bresaola, Investor Relations Officer. Now, I would like to turn the floor to Mr. Fabio Fossen, who will begin the presentation. You may proceed, sir.
Hello. Good afternoon, everyone. Here is Fabio Fossen, CEO of the company. We ended the first quarter of 2023 with good news on the operating side. At the end of the quarter, we reported a 10.9% growth in our On-Campus student base and a 21.3% growth in Digital.
Through May 8th, Digital grew its intake by 27% with a virtually flat ticket for freshman students. Despite the competitive scenario at 100% digital, the hybrid courses continue to perform well and contribute to the expansion in the segment's ticket, driving the strategy of growing into regions where we do not have an on-campus presence. The growth of 267 partner hubs, approximately growing 21% versus Q1 2022, also contributed to this expansion. In On-Campus, we chose to end intake on April 15th. We grew about 8% in the like for like for the third consecutive semester, passing on tickets to freshmen. The recurrent transfer of tickets to newcomers is an important revenue recomposition component in the segment, which has struggled with demand during the pandemic period and is part of our strategy to grow in the On-Campus segment while adding quality and profitability.
In the medical courses, our 685 vacancies were totally filled up besides the additional 20% for ProUni and FIES students. The location in cosmopolitan cities has been an important ally to keep the ticket in an increasingly competitive market. Healthcare courses continue to be an important growth driver for the company, and we remain focused on executing our strategy to grow beyond undergraduate. Our efforts to change processes and the [Non-English content] or All for the Re-enrollment program were important levers for the growth of the student base. In On-Campus, we improved re-enrollment by about 3 percentage points, and in Digital, about 2 percentage points versus Q1 2022, reaching re-enrollment levels higher than those that we had before the pandemic. On the academic side, we highlight the results of the last evaluation cycle of 2021 of the General Index of Courses, IGC.
We lead the ranking of listed companies in the sector. We continue as IGC, weighted by the number of enrollments at 8% above the average of listed companies. This is an important milestone in line with our DNA of delivering quality education. Now moving to the financial results for Q1 2023. Net operating revenue was BRL 532 million, up 12.3% in line with the 14.6% growth in the number of students. Gross profit of BRL 248 million, up 5% with a gross margin of 46.7%, reflecting the challenges of the collective bargaining agreement of that category and the maturation of the healthcare courses. Adjusted EBITDA was BRL 163 million with a margin of 30.7%, which is an improvement of 52 basis points versus Q1 2022, reflecting better provision for doubtful accounts, about 156 basis points, which is an improvement when compared to the previous year.
Net income totaled BRL 12 million, up from BRL 3.5 million in Q1 2022. The operating cash generation and managerial amounted to BRL 166 million, 32% higher than the first quarter of 2022. We ended the first Q 2023 with net debt ex leasing liabilities of BRL 576 million, down 2% versus the end of 2022. I would like to thank you very much and now turn the floor to Felipe Negrão, our CFO, to provide the highlights of our financial performance.
Thank you, Fabio. Moving on to slide eight, represent the operating performance results for On-Campus undergraduate courses, which at the end of the first quarter, had 150,000 students, up 11% year-on-year as a result of an 11% increase in intake over Q1 2022, and a 3 percentage points improvement in the re-enrollment.
We also present ticket data based on the net revenue divided by the number of students at the end of each period, where there was a 2% year-on-year drop impacted by the mix of units having an increase in the student base in lower ticket units, and a decrease in higher ticket units as well as by the graduation of pre-pandemic students who paid higher monthly fees. On slide nine, we show the evolution of the total On-Campus student base, which in the quarter grew 17% versus the opening balance. This next slide presents the operating data of the digital undergraduate program, which posted a 21% year-on-year growth in the quarter, reflecting a 40% increase in intake and a 2 percentage points improvement in the re-enrollment KPI.
In addition, we showed a stability in the Digital undergraduate ticket thanks to the expansion of the hybrid student base, which helps mitigate the impacts of the more competitive environment in 100% online courses. Now going to slide 10. Here, we show the consolidated Digital student base data, which grew 17% year-on-year. In addition to the stronger intake in the period, the continuity of the expansion project of the hubs also contributed to the growth of the base. Going into the financial details of the quarter now on slide 12, I would like to comment on the net revenue for the quarter, which reached BRL 532 million, growing 12% versus the first quarter of 2022 as a result of the larger consolidated student base. In the On-Campus courses, the h ealthcare courses grew 10.9%, and the penetration of these courses increased by one percentage point, reaching 68% of the On-Campus revenue.
In Digital, we increased revenue by 20.2%, reaching BRL 158.6 million, as a result of the larger student base and the continued increase in the number of hubs. On slide 13, we show our gross margin for the quarter, which stood at 46.7%, 3.1 percentage points lower than in the first quarter of 2022, impacted in part by the increase in personnel costs, which was driven by the faculty collective bargaining agreement retroactive to March 2022, and a 3.6% salary adjustment in February 2023, as well as an increase in the number of tutors due to the growth in healthcare courses. Moreover, the cost line was impacted by higher hub transfers as a result of the expansion of revenues from Digital and the student base in third-party hubs.
The other costs line was impacted by the resumption of on-campus activities, such as an increase in the number of cleaning and security service providers. On the next page, we present the adjusted EBITDA numbers that in the quarter stood at BRL 163.4 million, 14.3% higher when compared to the first quarter of 2022, resulting in a margin of 30.7% growing 0.5 p ercentage points in relation to the same period of the past year. The improvement in the allowance for low losses, 3.5% of the revenue versus 5.1% in Q1 2022, as well as better control of admin expenses and increase in revenues from the rental of event venues mitigated the impact of lower gross margins in the period. Moving now to slide 15, we show the evolution of net income.
Net income in the quarter was BRL 12.1 million, 3.5x higher than in the first quarter of 2022, which was BRL 3.5 million, reflecting EBITDA improvement despite the increase in interest rates and inflationary indexes by which the debt in these contracts are financially backed. On the next slide, we show the evolution in accounts receivable, which stood at 41 days in the quarter, flat versus last year, and one day lower when compared to the fourth quarter of 2022, a period corresponding to the end of the school semester. Now going to slide 17, we show the investments made by the company in the first Q of 2023, which amounted to approximately BRL 28 million, mostly driven by the resumption of investment projects in infrastructure and technology, focused mainly in improving the student experience.
This next slide details our operating cash generation for the quarter, which was BRL 166 million, up 32% versus Q1 of 2022. Finally, on slide 19, we show net debt excluding lease liabilities, which reached BRL 576 million, 1 x our adjusted EBITDA for the last 12 months, reflecting our sound cash position. I now conclude my remarks and turn the floor over to the operator to start the Q and A session. Thank you.
We will now start the Q and A session. As a reminder, for questions, please click on the Q&A icon in the bottom of the screen. Write your question to enter the queue. Once your name is announced, a pop-up will appear and ask you to turn on your mic. That is when you have to activate your mic and ask your question. We are due to ask all your questions at once.
Our first question comes from Lucas Nagano, sell-side analyst from Morgan Stanley. Lucas, you may proceed.
I think it was these costs whether you stated to a reduction of expenses. I would like you to comment a bit about the initiatives that led you to greater efficiencies. Thank you.
Lucas, thank you for your question. Here is Fabio Fossen. Regarding the costs you mentioned, there is a difference in comparison in the past. If you look in the third and fourth quarters, there was a cost that in fact, they were additional provisions because we were expecting a union collective bargaining to occur at different levels. At the end of the day, there was a court decision that is still being debated, especially here in São Paulo.
This comparison between the first quarter of last year and the first quarter of this year, it is a bit more complicated because there was no readjustment in that given moment. In the fourth quarter last year, there was also an important adjustment in the cost line, but this relates to provisions and not necessarily increases caused by collective bargaining agreements. We do expect a better cost efficiency as the actions that we are undertaking start to mature. If you only compare first quarter 2022 with first quarter 2023, last year, we started with On-Campus later than this year. All of the costs with the on-campus activities like cleaning and security had impacted us earlier. We have now to start balancing all the costs.
Lucas, this is Felipe. Speaking about SG&A, I think there are three important points.
The first point has to do with our management model. We are giving more accountability to managers in terms of managing their expenses. All of the expenses are quite visible, and with that, we hope to get some efficiency gains. The second point is a tougher negotiation with our vendors. We have been able to get significant gains in this regard. The third aspect is our investment in technology. This is a process that has started last year in several areas of the company, and this technological transformation will still go on until the end of next year, and this will generate further efficiencies.
Perfect, Felipe and Fabio. Thank you very much.
Thank you, Lucas, for your question. Our next question comes from Yan Cesquim, sell-side analyst from BTG Pactual. Yan, you may proceed.
Good afternoon, President Fabio and Felipe. I have two questions.
My first question is regarding some more details about your first question on G&A. We see that there has been a G&A improvement. There was also an improvement with allowance for the losses. I would just like to understand how much of this improvement is more seasonal, and how much of that you believe will be recurring. In your earnings release, you mentioned that provision for doubtful accounts reflects in part, the re-enrollments and also your program called [Non-English content] . I would just like to understand a little bit more on this recurrency aspect. My second point, we see that the segment is evolving well in long-distance learning, in terms of retention, et cetera.
I would just like to get some more light in terms of your expansion plan when we look at the short and mid-range, and whether you have any magic number or something very specific about growing your hubs? How much more expansion do you anticipate, and what is your outlook in terms of volume growth going forward?
Good afternoon. This is Felipe. I will answer your first question, and then Fabio will answer the second question. G&A, I think this involves three important lines. We will talk about admin expenses and it's not a very seasonal expense. We've been working diligently in these three fronts and accountability, expenses. We are making further improvements to get more gains of efficiencies. The second part has to do with efficiencies, especially on the procurement side. Certainly, there will always be opportunities. These are perennial things for us.
The third aspect is technology. We already ramped up some initiatives, but we are still in the middle of a process, and the process that will give us further gain opportunities going forward. Advertising and marketing, especially what we're doing, this is seasonal. It depends on re-enrollment. There is one part that is less seasonable and the other part is more seasonable. But I think you can see that once you compare quarter on quarter, and this is mostly related to the enrollments. ALL is also very seasonal and recurrent. This is important that we make clear that everything in ALL is recurrent. But there is some seasonality. Whenever I refer to the first quarter, I have a lot of re-enrollment. So at the end, the [Non-English content] is something that we are putting a lot of efforts to improve re-enrollment, and we've been very successful.
That's why ALL improved. In the second quarter, we usually see a reduction, which is seasonal. In the third quarter, it improves again. In the fourth quarter, it goes back again. It deteriorates a little bit, but this is a seasonal effect of this allowance for loan losses. In addition to that, we had a very positive impact from the program [Non-English content] . We also have other collection initiatives, which are quite important, that will help us to control this ALL. We know that even though the macro landscape is not favorable, despite that, the company is posting gains. Now Fabio can talk about long-distance learning.
When we talk about our expansion plans, we do have an expansion plan for the hubs. This plan started to be put in motion at the end of last year, and it's becoming more mature right now.
We are adding more than 200 hubs. We changed our past strategy. We changed the organizational structure with the introduction of business units, and this is putting a better focus in every hour, in every unit. On Campus, we have a VP in charge of on-campus, hybrid, and distance learning. We have a better internal alignment, and with that, we are making more progress. We also changed our strategy to grow hubs. We are very much aware that it's not the amount of hubs that matter, but we are trying to find good business partners that could be with us for the long journey. We are very aware of all the demands. We are now moving forward with that hub model.
We tested some models, and we are concluding some beta tests, especially regarding on-campus and laboratory hubs, to be able to establish a balance between the activities and operational costs. Certainly, we see a very positive trend going forward. We will certainly grow in terms of hubs, and we will try to be present in locations where we are not yet physically present. Through other partners, we can compete in other courses where long-distance learning was not yet very much present. This is one major area for expansion.
Perfect. Really, thank you. Thank you very much for your answers. It's very clear.
Thank you, Yan, for your question. I would like to remind you that for questions, please click on the Q&A icon in the lower part of the screen. Write down your question just to enter the queue.
Our next question, it's a follow-up question from Lucas Nagano, sell-side analyst from Morgan Stanley. Lucas, your microphone is on. Proceed, please.
I have a question about a different topic, and that's about your pricing dynamic, both for On Campus and long distance. Could you give me some color about the variation of the ticket without that variation of the mix and without the medical courses, whether you were able to transfer the cost to the freshman students. In long-distance learning, the market remains very competitive, but some peers reported having a more seasonable environment in comparison. I would just like to hear your opinion about that, and whether you think that price aggressiveness will continue.
Lucas, On Campus, as I said, here we have the effects of the mix of the units.
We grew in all units, but the units that traditionally posted lower tickets, be it due to location or due to the existing mix of courses, they grew far beyond expected, which is a good news per se. But when we look at the general ticket of the company, there is something there because of the mix. In some units, there was a growth of 18% in the student base, just to give you an idea of the differences when you look at the average. This probably doesn't give you a lot of visibility in terms of the average ticket for you guys that are looking with an outside eye. The last class before the pandemic graduated last year. This year, the first class is graduating now. There was a cohort change. But when I look within the units, there are situations of growth.
Most of the tickets are growing, and this also involves a mix of healthcare and non-healthcare, depending on the unit. We are looking very carefully at this topic. This is something that we do every week. We evaluate the performance of the tickets. I do not see that as a problem when I look ahead for On-Campus. In terms of long-distance learning, we see more seasonality, even though this is a more competitive environment when compared to On-Campus. I hope that this rationality still remains in the market. We are transferring to veterans, both On Campus and long distance. We are transferring figures above inflation, and the freshman students are coming in pretty much competing with everyone. Even on campus, freshman tuition is higher than that of last year.
This indicates that for those that are coming in now, we may have good surprises vis-à-vis those that are graduating now because of the pandemic. If you look at the future quarters, in the future, we should see an improvement trend compared to what we saw in the first quarter.
Very clear, Fabio. Thank you very much.
Thank you, Lucas, for your question. As a reminder, if you have questions, please click in the Q&A icon in the bottom of the screen and write down your question to enter the queue. The Q and A session is now concluded. I would like to turn the floor back to Mr. Fabio Fossen for his final remarks. You may proceed, sir. You may proceed with your final remarks.
First of all, I would like to thank you all for joining us today in our earnings release call.
We showed a very relevant quarter for the company. This quarter has been built throughout last year in changes in our strategic plan and all of the strategic decisions that we made, especially the organizational changes that were performed to give higher accountability to our business units. All of that has been a very important leverage factor that maybe those of you that are outside of the company cannot see that as being so relevant, which has been for us. Felipe mentioned higher accountability, more transparency in terms of cost management, and all of that has helped us to run the business every day. Even though looking at the macro landscape, you might have an idea of how things will evolve. But within the company, things are moving well. Investments in our digital evolution are very conscious, and they seek better results.
We were able to increase internal efficiency, and this is also focused on the digital transformation of the company. We will continue to invest in this area because this will lead to further improvements in productivity. I think one of you asked a question about costs, and this follows a dynamics for the state of São Paulo. We are very confident in terms of where we are leading the company towards the future, especially in terms of our strategies. Thank you so much, and I wish you a good day.
The first quarter earnings results of Cruzeiro do Sul Educacional is now concluded. The IR department is also available to answer your future questions. Thank you very much, and have a very good afternoon.