Good morning, ladies and gentlemen. Welcome to our web conference to discuss the financial report related to the third quarter of 2024. This web conference is being recorded, and the replay can be watched on the website of the company, sereducacional.com. This presentation is also going to be available for download. I'd like to inform that all the participants are going to be only watching this presentation, and then later we are going to have a Q&A session where further instructions are going to be given. Before we start, I would like to reinforce that the declarations given today have as a base the beliefs and the knowledge of the administration of Ser Educacional and the information about the market today. These declarations may involve risks and uncertainties, as they have to do with future events, and it has a connection to the macroeconomic events.
Investors, analysts, and journalists should know that events related to the economy and macroeconomy, and the segment, the industry, and other factors, political factors, may influence the results, becoming different from what we are going to declare today. We have with us today Mr. Jânyo Diniz, CEO, João Aguiar, CFO, and Rodrigo Alves, IRO. I'd like to invite now Mr. Jânyo Diniz, our CEO. He's going to start our conference. Mr. Jânyo, please, the floor is yours.
Good morning, everyone, and thank you very much for joining our event to present the third quarter's results. Let's go to slide four, where we present the highlights of the quarter. As you can see, we had another quarter of positive results, which we believe marks the beginning of a new phase for Ser Educacional.
This transition represents the completion of our operational optimization project, with its main stages and activities concluded and the start of a new cycle of revenue and profitability growth. This new cycle results from ongoing initiatives to generate new revenue sources supported by recently optimized structure prepared for growth, resulting from the repositioning of our portfolio of courses and regional brands, new medical courses, and the launch of the Ser Solidarity Program. As a result, this quarter, we saw growth in enrollment in higher and digital education, an increase in the growth rate of the net revenue, with gains in operating margins, and a return to positive adjusted net income reversing for the first time, a trend that had been in place since the first quarter of 2022.
Another positive factor for the quarter was the improvement in operational cash flow, generating a new round of reductions in our financial leverage ratio and nominal net debt. As we can see in slide five, our quarterly results, considering 12-month periods, have shown solid and continuous improvement since we started our optimization project, with adjusted EBITDA margin growing by more than 4 percentage points, a significant increase in the adjusted net margin of 16 percentage points, and a 12-month Net Debt to EBITDA reduction to below 1.8 x. This positions Ser Educacional as one of the least leveraged companies in the market, as we intend to continue improving this indicator, as we believe it is the best way to generate returns for the shareholders in the current high-interest rate environment.
In slide six, we have an update on our expansion of medical courses seats, which, after the ADC 81 ruling, began to be approved either by MEC regulation or by judicial decision, although we're still pending final judgment. The chart shows that for the 2025 first quarter, we expect to operate with 1,000 total annual seats and an increase of 96 compared to 2024 first quarter. Please note that we will not use the additional seats we received until a decision by MEC position is obtained. Since our last earnings close event, where we presented 81 annual operating seats, the news is that the regulation was issued for 60 seats in São Luís do Maranhão. With this, we are entering 2025 with a significant increase in the number of medical seats, which will be an important pillar for revenue generation in the coming years, as we gradually fill these seats.
Before I conclude the quarterly highlights, let's move to slide seven to detail the Ser Solidarity Program, which we successfully implemented in August of this year in higher education, representing 57% of student enrollment in this mode of offering. The program offers an installment plan for the initial month of the course as a way to encourage students to enroll, while also allowing us to phase out the reduced price that we previously offered. The installment plan applies to the difference between the minimum payment of BRL 129 for enrollment for the first to the third month of registration and the remaining balance, which is the difference between this annual amount and the actual contract tuition fee spread over the duration of the course.
As a result, we are recognizing the full tuition revenue, and for provisioning purposes, for potential losses, plus present value adjustment, we start with around 50% of the 12 million in gross revenue generated by the program, 6 million impacted our quarterly results. This is an important step toward balancing our average ticket between even and odd quarters and increasing revenue generation in higher education, while still encouraging students to enroll through attractive commercial offers. Moving to slide nine, we present the operational results for the period, with the main highlight being the growth of undergraduate enrollment in higher education, which increased by 11.2%, and in digital education, which grew by 6.2%. This is a significant achievement, especially given a relatively strong comparison base from the last year when we also performed well.
The strong student enrollment growth, combined with positive re-enrollment performance, allows us to significantly expand our regulated education student base with a 9% increase in higher education, as shown in the charts on slide 10. Moving to slide 11, we show our average ticket, which also had solid performance this quarter due to the reduction of commercial discounts for enrollment, increased participation of medical students, and the implementation of the Ser Solidarity Program, as previously mentioned. In slide 12, we show the distribution of a student base by area of knowledge, with another quarter of increased participation in health-related courses. Health courses now account for 64% of the total higher education base and 44% of the total student base.
This was a strategic move over recent years, particularly through the reorganization of our course portfolio, where we leverage our differentiated lab and clinical infrastructure to expand our offerings in this area of expertise, creating a beneficial environment for increasing our average ticket, as these courses have a structurally higher price profile. These were my initial remarks, and now I'll hand over to João Aguiar to discuss the financial results.
Thank you, Jânyo, and hello to everyone presenting our results event. Please go to slide 14, where we present a summary of our financial results of the period. In line with Jânyo's comments, we experienced solid revenue growth, primarily due to the organic growth achieved during the period of a combined effect of increased student base and strong average ticket pass-through.
This was the main factor driving revenue growth, supported by two other smaller impacting events this quarter, which will become more relevant next year, the new medical course seats offered this semester and the implementation of Ser Solidarity. Our operating financial margins showed solid improvement due to the positive impact of increased revenue and benefits generated by operational optimization and plan implemented over the past two years, such as property divestment, reorganization of course offerings and brands, and a series of administrative optimizations, which we plan to continue. The combined effect of revenue growth and cost structure improvement led to an increase of the adjusted EBITDA margin by 3.6 percentage points and reversed the loss, recording the third quarter of 2023 to an adjusted net margin of 3.5% this quarter.
In slide 15, we present a waterfall chart that illustrates what I mentioned earlier, that our organic growth contributed over BRL 15 million to the quarterly results, representing 58% of our adjusted EBITDA. The increase, meanwhile, in new initiatives, such as new medical seats, contributed only R$5 million to our operating results, and Ser Solidarity added BRL 6 million. We consider this information positive because it not only demonstrates that we had positive results this quarter, but also indicates that we have new avenues for generating results that are still developing for the coming quarters. The new medical seats we continue to accumulate, and Ser Solidarity Program will only be fully implemented in 2025. In slide 16, we present the results by segment and mode of offering.
As you can see, since this is an odd number quarter, the results from our medical programs had a large share, followed by distance learning, EAD, and higher education, both of which continue to improve margins as we execute our optimization plan. Our new business segment saw high investment this quarter, primarily due to the continuing education ecosystem. However, looking at the year-to-date figures, you can see that this segment is already on trend towards reducing negative results, gradually moving toward a position of financial autonomy in the coming years. In slide 17, we present our average collection period, which remained stable this quarter compared to the last eight, six years.
We consider this a positive trend, especially since re-enrollments were strong this semester, and our PDD, adapted for accounts provision, has decreased the percent of net revenue from 10.7% in the third quarter of 2023 to 9.7% this quarter. On slide 18, we present our operational cash revenue range, which was very positive this quarter due to improvement on-time payment by our students, along with the receipt of the second tranche of the sale of the loan portfolio, totaling BRL 12.9 million and higher fees received during this period. As a result, we had an adjusted EBITDA to cash conversion rate of 91% or 54% post-CapEx, a very healthy rate that reflects the actions we are taking to improve the quality of operations, not only from an operational standpoint, but also financially, and enhancing cash generation.
Consequently, our debt level continues to decline, as does our financial leverage ratio, which we consider well addressed. We are generating sufficient cash flow to organically reduce our debt through our operation, which will allow us to adjust our capital structure to navigate the period of high interest rates in Brazil. To conclude our remarks on this quarter results before handing it over to Jânyo for closing comments, we have the CapEx slide. Our CapEx showed the increase compared to the same period last year, mainly because this quarter we completed projects related to property returns as part of the optimization plan and made improvements in units with existing medical programs, especially in polyclinics that were completed this quarter.
Thank you, João.
To wrap up our presentation before we open for Q&A, I believe that this quarter results reflect the consolidation of our operational optimization plan and set the stage for a new cycle of growth for the company, with a young student base relatively concentrated in two strong years of enrollment, indicating a growth trend in the coming years, which better compliance rates within a leaner, more dynamic structure. In this cycle, we will have new avenues of generating results, such as the recent increase in our medical course seats and the successful implementation of Ser Solidarity, along with a greater maturity of our new business adapted to our ecosystem. In this regard, we are making consistent progress towards 2024 goals, as described in this slide, showing solid improvements in cash generation, reduction on the debt ratios, and which are more robust operationally to grow with more adequate profitability indicators.
Going forward, we are increasingly focused on enhancing our unique value proposition for students, which consists of providing quality education for higher demand courses offered in prime locations with quality infrastructure throughout brands recognized by society and the job market at competitive prices aligned with the market. As a result, we will continue working to present each quarter a company increasingly optimized in operational and financial terms, with an ever-improving experience with our continued education system, evolving and contributing more decisively to the success of our students and, consequently, our faculty, employees, and shareholders.
These were my initial remarks, and we are now open for a Q&A session. We're going to start our Q&A sessions for investors and analysts. If you want to make any questions, please raise your hand. If your question was answered, please, you can click on lower your hand. Our first question comes from Lucas Nagano.
Good morning, Jânyo, João, Rodrigo. Thank you for the space here for Q&A. We have two questions. First, I'd like to ask a few points about Ser Solidarity. How do you do the commerce? It's an option where the student chooses it, or that's by definition applied on the month the student is coming. How do you account for this provision of 33%? And if the students start paying these installments, how is the marginal impact of evasion having an increment of the revenue? The second question is about the medicine courses approved by judicial term. We consider that eventually they need the MEC recognition for the students to be able to act on their professional. What are the steps being committed now to reach that?
Lucas, I'm going to answer the first question of your.
And then I give after to Aguiar to answer it, and Jânyo to answer later about the judicial issues. Ser Solidarity, it substitutes discounts on enrollment. The students don't have the enrollment discount. They can opt for paying without discount or do the installment system. This is the model we were working with. The difference that we had great results, the program in practice, especially because the capitation of new students, the program would not be an issue in the process of capitation itself. Believing that Ser Solidarity could be in this transition, didn't have no pushback on this point. And Aguiar is going to answer about. Thank you. The students don't have the option to choose or not Ser Solidarity. In the enrollment of the student, that's the only option. They only can opt for the installment or not.
When you start doing this PDD in this step, we take it as a base, our cred, EduCred. The credit you're going to issue last year, which was a higher risk installment because of the financing aspect of that with credit, this credit was doing, and we opt to keep the same level, maybe a little bit higher. The loss, when we saw our portfolio of credit provided, we had a higher portfolio at the credit, and we have this history of absolute. Being a product is going to be becoming on the bills, normally with the monthly rate that starts on the when they start with Ser Solidarity. I believe that's the PDD going to be much smaller at the initial percentage that we put here.
But the history, we want to be conservative, using the information we have already as similar data we had according to it. And I got to evasion, thinking that the students, they start with us. Do I go sign the same bill, monthly bill that is paid by the students? Understanding that it's not going to impact the indicators of evasion more than the perspective, the financial perspective that we face in Brazil now. So we have a very positive expectation for that.
Lucas, and to medicine, if the impact of judicial question, the courses start with a judicial decision where the students are covered by any eventual future problem. Our lawyers, they believe that we have the right. Understanding what's happening here? Do you guys hear me? It's back now. The main internet is not doing well. As we're saying, our lawyers believe that we have the right.
The decision is being very positive for us, the judicial decision. We have the solicitation. We have the administration of resources into judicial moving forward. I think we think the return is going to be positive.
Thank you.
Thank you. Our next question comes from Lucca Marquezini from Itaú BBA. Lucas, you can speak. I believe he's having some issues. Let's go to the next question. Lívia Mezzabarba from JP Morgan. Please, Lívia, the floor is yours.
Good morning, everybody. John, João, Rodrigo. I have two questions. First, I would like to know an update on the competitive environment of EAD and distance learning, and what to expect in 2024, the margin dynamics. The second question is that you mentioned in the release that the situation of the financial education of the students improved on the distance education.
Which were the impact that you could see in that perspective? And what do you think is going to happen on the segment in 2025 if you want to apply Ser Solidarity to distance education?
Thank you. Lívia, thank you for your question. I want to talk about the competitive environment on distance education. The capitation is going to start now. So in the beginning of the steps, in this moment, it's still too early to say how this is going to behave as the process of enrollment of 2024, finishing October. We start the process now, and we are going through the Black Friday. Our process of capitation is always with the same period of the previous year, to understand that. The competition is active as it has been in the last years. It's a very competitive enrollment, but the capitation of this first enrollment has been very good.
Lívia, thank you for your question. Let's do an update on this comment on the financial situation of the students. At the end of last year, we had some internal decision where we want to qualify our revenue and qualify our receivables. At the beginning of the year, we start operating with more restrictive policies for discount or financial negotiation when there is default by students on the receivables. With the higher policy, we had very successful and the long-term default students as well. We changed the default policies for those long-term default students, and we could see improvement. When we go to look at the base, we see our discount margin, but we see the increase now. We see a punctuality of the payments. What we thought at the base, students that pay better, they interact better with the faculty, they study better, they're more committed to study.
This has impacted our revenue. Even reducing the discounts and increasing the revenue, the average revenue ticket, we have a better performance on the payment levels of these students. This shows in our on-site students, also distance, long-distance students, showing the journey of the students in the digital platform of education. On EAD, Ser Solidarity, we don't have this perspective of the first bills of the faculty. We have just here an installment plan. There's no discount on the first bills. Ser Educacional doesn't apply to hybrid education.
Thank you very much. Very clear.
Our next questions come from Hernan Latorre.
Good morning, everybody. Thank you for enabling me to question. First question. When the PDD, you talk that excluding Ser Solidarity, PDD has a nominal reduction of 6%, getting to very close to the net revenue.
Again, excluding this PDD of Ser Solidarity, if this is going to be the new level, that's the first question, and second question, I would like to know, as the new business are improving the EBITDA, the negative EBITDA, I would like to understand if there is a perspective of break-even, or if we can wait for that in 2025, or this should be a long-term tendency. These are my questions.
Thank you, Hernan. Thank you for your question. I'm going to answer the first. I'm going to initiate the rest. PDD, as we said since last year, we were reestablishing this level of PDD. There's above what we are practicing on the previous periods. We did an adjustment of our calculus adjustment, the same term.
At the time of this proposal, we had recovery time on PDD, what had a great impact in our operation with a lower PDD. Following with that, we established new parameters, new standards, indicators of default. We could see that the PDD would be in a level of 8.99%-9.2% of the net revenue. This standard for us is healthy for our students' base and our revenue base. With all these improvements that we're doing, as I answered to Lívia, on the qualification of the revenue and qualification of the collecting of those bills, those receivables, this PDD, and obviously, the implement of the revenue from medicine is a lower PDD on hybrid education. We can have here a percentage, lower % of PDD along long term. But today, considering the operation it is, I think we are close to 9% of the net revenue.
It's very fair, makes sense on the addition of our business plan. Commenting on the new business, the idea is accrual of PDD. We have inside the new business, lots of investments on what we understand that education, distance to have a lower margin. We understand that there's still a level of burning cash, the balance. But in the next two years, we want to reduce this necessity, have a positive result on this period. But this new business, they should develop according to the market, the market as a whole. And that's what we are going to see if this investment on education for the future brings more results.
Clear. Thank you.
Next question comes from Lucca Marquezini from Itaú BBA.
Good morning, everybody. Do you guys hear me? Thank you.
I had a problem with the audio, but I would like to ask you a question on this line. This improvement on this PDD question, this standard of costs of HR is going to be the recurring level of costs. We see this implementation of our academic model. This brings the reduction of the costs of HR and the costs of the classrooms. That has this big difference on the improvement of our operational indicators, so Ubíqua stays, have this final plan of implementation, this period where the costs over the next 25 years, over the next five years, is going to have a big impact. And it's going to stay here, this PDCA running on our academic model. According to that, when you see the costs, average costs, every company goes to that, and we're still going through this period where we are related to this cost.
We have to fit this according to these parameters that we are analyzing and are improving now.
Thank you.
I have a question from Thiago Quintella from Itaú BBA. And the question is exploring the possibilities of growth, inorganic growth, and M&As.
Thank you, Thiago, for your question. I think our focus now is to implement reduction of our leverage level, generating cash flow. And generating cash flow and the leverage level generates to us a better position or rentability. This cycle is going to be complete. This is our focus after this reduction of leverage, of debt. We're going to pay dividends. A health company should pay dividends, recurring dividends payment, and it doesn't interfere on the level of leverage short term. This is our focus now and not really on mergers and acquisitions. We always attend to that, but that's not our focus now.
We are focusing on running our business and reduce our debt.
If you want to make a question, please raise your hand. Just waiting for when we collect more questions. Having no more questions, we close our session. I would like to give the floor now to Mr. Jânyo Diniz to conclude and present the final conclusion from the company.
Thank you, everybody, for joining our earnings presentation. Our Investor Relations department is available to assist you with further clarifications. The web conference is concluded. Thank you very much.