Morning, everybody. Welcome to the web conference from Ser Educacional. We're publishing the results on the first quarter 2024. This web conference is being recorded, and you can watch it again on the website of the company on ri.sereducacional.com. The presentation is also available for download. We inform that all the participants are only watching the presentation now, and later, we're going to have a Q&A session, where we're going to give more instructions. Before we start, please, I would like to reinforce the information we have here, the beliefs we have in the administration for the future and the information that we have now about the company. These declarations can involve risks and uncertainty that future events depends on circumstances that may or not occur.
Investors and analysts and journalists should take into account that the macroeconomy plays a big role and can change the results in more or less than we expect, and we are talking here today. We are present in this conference, Jânyo Diniz, CEO, João Aguiar, CFO, and Rodrigo Alves, Director of Investor Relations. Now, I would like to give the floor to Jânyo Diniz, who's going to start our presentation. Please, Jânyo, you can start.
Good morning, everybody. Thank you very much for attending another results presentation event. Let's please go straight to slide 4, where we will discuss the highlights of the first quarter of 2024.
As you can see, the material we have published, the results for the first quarter of 2024, confirming numbers, all the operations turnaround work we have been discussing and detailing over the past quarters. We also had a solid season of enrollment in hybrid learning with double-digit growth. Despite the decrease in enrollment volume in digital learning, we were able to more than offset this result with solid tech growth, which reinforced the success of our brand, optimizing strategic course portfolio repositioning. And more importantly, when we analyze the financial results, it reinforce that our operation optimization thesis and focus on profitability are proven to be correct.
Similar to the fourth quarter in 2023, we gained, so we again saw improvement in virtually all of our indicators this quarter with new round of solid revenue growth, a 25% increase in the EBITDA, increasing operating margin, reducing gross and net debt, and cash generation. Overall, it was a solid quarter from start to finish, which in our view, sets the stage for what we believe will be a very positive year based on the strong start we are presenting. Moving on to slide 5, which we have been repeating for some time now, demonstrates that we are nearing the final stretch of our turnaround execution. This first quarter, we have already begun to notice more evident signs that a new stage of cost reduction is proving successful.
We still have the last stage of property returns and lease renegotiations to be completed by the end of the semester, which will generate a third wave of cost and expense reductions in the company. We also have some automation projects delivering in our CSA and CRA, which not only provide us with improvements in cost and expense, expense structure, but also brings substantial improvements in studying experience and satisfaction. On slide six, we present the key indicators that influence the results on our turnaround plan execution. Note that the significant reduction in rental, personnel, and marketing indicate indices as a percentage of net revenue, bringing our company to a new level of competitiveness and cash generation capacity.
The best part is that we still have a new wave of operational improvements to execute, so we have a cost reduction to be recognized in our results that will only be fully noticed from the second semester onwards. Therefore, we are still in the midst of a very promising cycle of results improvement. Let's now move on to slide 8 to talk a bit about students' enrollment for the quarter, which, as you saw, was quite positive in hybrid learning, with a 10% growth compared to last year. Even with a significant delay in the FIES, students' enrollment schedule, due to implementation of the Social FIES, the schedule for this year, February, March, was pushed to April and May, ensuring it was a solid enrollment for the second quarter of this year, which will further drive the results of hybrid learning.
In digital learning, we continue with our strategy focused on increasing the average ticket and maintaining the high level of profitability we have in the segment. We are increasingly dedicated to maintaining centers with high commercial potential, locating cities with a large student base, expanding the student base of healthcare courses in our course mix. In this sense, as we move away from business model purely focused on volume and focused on profitability, it is natural for enrollment volume to decrease slightly, as long as it's more than compensated by an increase in average ticket and margin expansion, which is our case. On slide 9, we will show exactly that. Our average ticket for in-person learning remains quite solid, with the strong presence of healthcare course in our mix, allowing us to present a slight growth, even with the 10% enrollment growth, which-...
Would usually put pressure on the average to fall due to the commercial discounts recognizing entirely in all quarters. In digital learning, we have exactly the effect of tick growth at the expense of volume increase that I mentioned earlier. And now moving on to slide 10, where we see how these movements reflect in the student base, which despite the small decline recorded at the end of the quarter, an important mix change as the hybrid learning student base increase in share and total student base, allowing us to continue growing net revenue this quarter. To conclude my initial comments, we present on slide 11 the student base by area of knowledge, showing the successful implementation of our strategy to increase the participation of healthcare courses in our student base.
This demonstrates that we are not only focusing on increasing the occupancy of our business, but also maximize the average ticket of our course. These were my initial comments, and now I will pass it over to João Aguiar, our CFO, to make his remarks on the results.
Thank you, Jânyo. Let's please move on to slide 13, where we present the summary of the results. As Jânyo said, similar to the fourth quarter, this first quarter of 2024 also shows improvements in our results across the board. We had solid growth in hybrid learning students base, widespread growth in net revenue in a quarter that is generally more subdued in revenue generation, due to our more conservative accounting practice, which recognize enrollment discounts entirely.
We also have not yet recognized FIES on enrollment due to delay in the calendar, which will be recognized in our results starting in April this year. However, revenue is recognized for the full semester. Furthermore, the success in executing our operational optimization plan so far has provided us with solid improvement in operational and international results, which are 25% growth in our adjusted EBITDA and 3 percentage point increase in our adjusted EBITDA margin. As a result, we have practically reversed the adjusted loss reported last year, ending the quarter with adjusted loss of BRL 2.8 million, and as a result of BRL 5.0 million excluding IFRS 16. We had, therefore, a quarter of very solid results, which still do not reflect the third wave of operational adjustment to be finalized to the end of the semester.
Moving on to slide 14, we can see that the digital learning and medical courses continue to generate solid and consistent results. The best news of the quarter was the strong improvement in hybrid learning and new business results, both showing consistent gains in operating margins. These improvements demonstrate the effects of all the adjustments we had made in the company over the past 18 months. It's worth noting that the hybrid learning is the largest revenue generator for the company, and the improvement in the operational margins of this mode will be relevant in enhancing our cash generation capacity and continuing to improve net results for our shareholders. On slide 15, we present our average receivable collection period, which again showed improvement compared to the previous quarter.
The ex-FIES average collection period is now the main driver of improvement, with a reduction of three days compared to the same period last year. The overall average collection period, which includes FIES receivables, showed a more modest improvement in only one day due to the delay in FIES payment schedule that we had observed last year. The improvement in average collection period is happening thanks to the improvement in our students' payment punctuality, coupled with a strict policy we have implemented of agreement installments. This policy aligns with our objectives to prioritize the quality of revenue generation over the focus on the quantity of students. Furthermore, we are in a cycle of increasing PCLD, as I mentioned in previous results, presentation events, which also contributed to the reduction of the average receivable collection period.
On slide 16, we present our operational cash flow generation, which had a good recurring performance. Note that in first quarter of 2023, cash generation was favored by BRL 369 million, due to the sale of the Educred portfolio to Pravaler, which the last year performance had an extraordinary benefit for a net payment of BRL 65 million on FIES. This payment is usually made in December of the previous years, but this year was paid in January. Excluding these two effects, net operational cash flow generation increased by approximately 200% compared to the two periods, due to the reduction on interest payment, volume substantial increase in revenue, conversion to cash.
This once again demonstrates the success of the operational optimization strategy we are implementing, which will recently benefit us in the coming quarter in achieving our goals of reducing financial debt and increasing profitability to our shareholders. Slide. As we can see on slide 17, this process is already underway. Note that in the quarter, we repaid approximately BRL 100 million in debt, which, thanks to the solid cash generation of the quarter, allowed us to organically reduce net debt by about 32%. This is a very important debt movement for us, which materialize in 2024. Thanks. On slide 18, we show our CapEx, which increased by 27% compared to the same period last year, mainly due to ongoing works for the reorganization of our real estate portfolio this semester.
These works are expected to be completed by July, so we may have slightly higher capacity here at the beginning of the fiscal year, which will be reduced from the second semester onwards, as we will not have as many significant ongoing projects. As of, with one of the best interest in the sector, 5% of CapEx net revenue. These were my comments on the result, and now we head back to Jânyo to make your remarks.
Sorry, I was muted. Thank you, João. Moving on to slide 20, we will remind ourselves of our goals for 2024. We remain committed to our operational optimization plan. As you could see from the quarterly results, it's being successful, executed with great dedication by our executive team. We now need to finalize this project by delivering our last wave of property returns and lease renegotiations to optimize our company in terms of property occupancy, and increase the average ticket by the expansion of healthcare courses in the total student base. With this completed, we will focus on further increasing our operational efficiency, especially converting EBITDA into cash to increase cash generation.
We need to be assertively and mitigating the impact of financial results on our overall performance. We are in a phase of fine-tuning in our operations to have students with better ability to pay tuition FIES, having a more sustainable and higher quality operation. This is crucial work, and we are dedicating ourselves to move forward. We are dedicating considerable time and effort to build the relationship with the students. The Q1 2024 results show we are on the right path. We have not only had a solid improvement in our recurring operational cash generation, but we could reduce our net debt, thanks to the improvement in our cash generation. Within our objectives for the year, we have been dedicating our, to our better offerings. We are developing better connections on our sales channels, investing to enhance the student experience, and creating a more versatile ecosystem for lifelong learning.
It will take time to translate into tangible results, and this will be relevant for the company when time comes. We are approaching the final stretch of a lengthy turnaround process that is proving to be very positive, and the results for the coming quarters will be relevant for our evolution in the immediate, mid to long term. We would like to express our solidarity with the Rio Grande do Sul that have been having that flood. All of our units are points to receive donations that we will send for our friends in the South. They have been suffering so much. Until yesterday, we had 40 tons of food raised, and more medicine and water. We salute the people from the South, and we hope God can end this tragedy. Thank you, thank you. Now I am waiting for your questions and answers.
Now we are going to have our Q&A session for investors and analysts. If you wish to ask a question, press the button reaction and raise your hand. If your answer was responded, you can leave the line. Mr. Lucca Marquezini, Itaú BBA, you can ask your question.
Good morning, everyone. Thank you. About the competitive scenario, you were talking about the commercial policy for the company for the quarter. It was to decrease discount, and this impacted taking new students in the average ticket. Where you are working now, do you feel a similar movement from the competitors? Are they more aggressive, or you are the only ones that are reducing discounts?
Lucca, thank you for the question. As we said before, when we publicized our results, this is a positive scenario, especially for the in-person teaching.
We are going to take up the average ticket again, and there is a matter also of student profile, and this is being done right. We reduced the marketing campaigns, but the intake of the students are better. In-person students, it's more difficult to observe because we need more time. The discounts for students comes in the beginning of the quarter. In online students, we wish to improve the average ticket, not only improving our mix. And we have an average ticket that have been increasing, and it has been increasing despite the reduction of the volume of marketing investment. And this mid to long term proves that our brands can have a great intake of students, and we tend to have a better average ticket of our students. And it will be better yet.
Having a reduction in the ticket would only regenerate a positive result in the margins, if the intake volume would be much larger than the percentage of overall tickets, and in general, this has not been going on.
Okay, thank you. Thank you so much.
Our next question comes from Mr. Lucas Nagano from Morgan Stanley. Your mic is on.
Good morning, Jânyo, João, Rodrigo. Thank you for the space. Two questions. First is about the optimization plan. The plan hasn't presented an integral improvement, but you have a second round in this semester. But as for cost, how much have you captured on, this thing on real estate? Is it relevant? The second, about PDD. How long do you see this higher number of having, real estate being returned? Thank you.
Lucas, I will answer the first one, and my friend will say about the second one. The second round is relevant. It's a substantial return of real estate in some cities in the Northeast. There's another round going on in the North area, and we still need to finish this round in this last delivery on some units that we have up in the North.
Are you listening to me?
Are you listening? Yes, I listen. I think Rodrigo lost his connection. He's back.
Yes, I'm back. The original plan was to have a BRL 40 million synergy per year. In this last round of deliveries of returning real estate. There is a change of culture being planted in the company.
Up to the pandemic, the company was dedicated to the lower income market with cheaper resources, and this has been changing gradually, with more healthcare courses that has an average ticket—a higher average ticket. This real estate phase will be concluded in July, and there will be new waves with lower size, and we will tune in this culture of courses, and we will have more profitability, and we will remove courses with a lower demand. The discussion will be tied in the way the buildings are occupied. So profitability of a unit needs a fine-tuning according to the quality of the building occupation, according to the course occupying that building. Thank you for the question.
There are some effects to have a higher PDD on this level of adjustment that we have been doing over the four last quarters. The first one is about the renegotiated titles that happened after the pandemic. In this period after the pandemic, we had great efforts to be able to work with the student base, so that students could pay the courses at that time. The students after the pandemic are renegotiating these titles and this calibrated PDD for this in this default, this remaining default. In a way, there is this way of the digital learning that we have today compared to two years ago. This is a more sensitive product, sensitive to price, and they have more evasion. So this also happens compared to online teaching.
Credit impacted these dynamics as well, and all the discussion done around FIES, the scholarship program. This happened from now back to 18 months. When this flow is being adjusted, we have this PDD effort, this higher PDD effort over the last four quarters. When we look ahead, all this plays to improve revenue, improve the average ticket, the quality of the paying student as well. We have been working hard to gain these students back and to work with the default students, the ones that are in debt with us for half a year, a year. The tendency is to have an improved process regarding PDD.
We will be able to see an improvement already in the second part of the year, when PDD presents an improvement in the second part of the year, but we are not going to see the levels we saw in the past. We have a different reality today than we had four years ago, but the trend is to have an improvement in the second part of the year, lowering the percentage of PDD regarding the revenue. It was so clear. Thank you so much.
Our next question come from Mr. Marcelo Santos with JP Morgan. Go ahead.
Good morning, Jânyo, Aguiar, Rodrigo. Thank you for the presentation and for the opportunity to ask questions. I have two questions as well. First of all, you had a good intake in the in-person, but it could be better.
I would like to know your views on the impact of FIES, social FIES in these dynamics. These changes in FIES, will they have any, a relevant impact on this? And the second question, the minimum number of students being present in the university, how do you imagine the impact of these?
Thank you so much. FIES is occupying about 60% of the spot. It represents 5%-6% of our intake process. If it was successful, it would change to about 9%-10% tops in our intake process. This would be the maximized amount on the FIES for an operation of our size, and they have 27.5% PDD, as the company's PDD is around 8%-9% of the revenue. 27.5%, we are losing too much.
They wouldn't be able to occupy spaces in the classrooms because it wouldn't generate result. Optimizing FIES concepts for us, they would have the concept of margin students. When this margin is covered, we will have more students in the classrooms, even with a higher PDD, this would be compensated because it would pay all the fixed cost, costs. This minimum presence in the online students this year, Secretary had a presentation, we were there, and she talked about it. People discuss it a lot on what we could do, but we haven't decided anything, especially the courses that form teachers, especially pedagogy, we would have 50% of students present. They maximize this in the past to prevent that the online courses would be transformed into present in-person ones. Laws still need to evolve. Nothing is concrete now.
There's a discussion in the Education Ministry about being present in the courses. We see that legislation needs to be done.
If every player would follow this legislation, we wouldn't discuss about it. So we will have a big discussion. Nothing is concrete. For us, we would change this meaningfully. Let us try to improve inspection and to improve the quality of the courses, especially the licentiate and pedagogy ones. But concrete, other than the publication was done, that they could demand 50% of the time being present in the courses, nothing was solved now. The main discussion is the profile and quality of the courses being offered, but nothing concrete so far.
Thank you, Jânyo and Rodrigo. Very clear.
Our next question comes from Mrs. Mirela Oliveira, from Bank of America. Your microphone is open.
Good morning, Rodrigo, Jânyo, and João Aguiar. My question is to the strategy, cleaning the base, bringing more premium students. There's a movement that we see being done by your competitors as well. How long do you see to see the effects on this base? When should we understand this new base? And the second question is, following the next question, on the legal aspect on E, on EAD, there is a frame for the discussion for that. Does the education ministry has a frame for the discussion?
Understand that this project to implement more students on medicine, health care, we have few semesters to conclude that. We on the on-site students who have a different participation, more than 60% of students are on healthcare students.
Online students is a little bit different because we receive some students from other courses. This changes a little bit. Internet courses are going to be more complete in this way. We want to occupy our sites, our buildings. What we can say is that we still need two years to see this transition on our have more premium students change. It's a long process because you have to see the seasonality. This we talk about 4.5 years season and internet courses, three years. Next year this season the pandemic students that we got during the pandemic years, they are going to be leaving our student base. That is going to be very important for us to understand and see how it's going to be our average ticket.
The enrollment on 2023 and 2024, we had a very substantial growth on the ticket price, and the most pressure on the ticket today is on the students we got on the pandemic, and to the discounts we gave on that time. I thought I was able to answer your question. I hope I was able to help you.
And when you talk about the legal aspect on internet courses, we don't know when this is going to happen, the discussion, but we know, we understand that the discussion on the internet courses, it's a very deep conversation in Brazil, and this is going to have a impact on the offering of courses that are given through internet.
So when we have those changes in the legal frame, it's very important to understand which impact is going to have in the interior of Brazil, which has a very wide range of courses that are not offered on those sites. And this was the Secretary of Education did a presentation showing how deep those internet courses can go on the countryside of Brazil, on those sites for internet students. The majority of them, they are worried about... main concern is that the participation of those students on the countryside, where on-site courses would not reach. This change can happen, but this cannot bring reduction of the benefits of those courses on the countryside of Brazil. Mainly, the majority of these courses, we're talking about education and pedagogy courses.
We have a deep discussion on the Ministry of Education. They're discussing a lot on healthcare students, law, psychology, if we can keep that on EAD, and how long this is going to get, and the courses of healthcare, and the discussion about pedagogy and how this framework is going to be. It's not easy to do, and it's being deeply discussed. We know the main concern is on the quality of the courses, how they are offered, and the Ministry of Education is working based on that. As we said, we don't know how long this is going to take for us to make a decision or to see how this is going to be, this new framework.
Thank you very much. Very clear.
Our next question comes from Mr. Renan Prata from Citi. Mr. Renan, your microphone is open.
Good morning, everybody. Now I do have some follow-ups from previous questions. When we talk about the optimization of infrastructure, as you said, BRL 40 million, it's only about this last year, that was should be delivered now on, on July, or the whole work that was done before? That's the first detailing I would like to have. And second, when you talk about discounts, you said that you made, you put effort in reducing the discounts. I would like to know if this is going to happen the next semesters or quarters, or if this was just this, on the beginning of the year. These are my questions. Thank you.
The BRL 40 million, it's the whole sum. It's on the beginning of the project. Half of that we did last year, delivering June and December, new sites.
What we saw in the first quarter here on a bigger margin, we didn't have a bigger revenue growth because of discounts we gave the beginning of the year for new enrollment, because we have a very big enrollment. So the pressure they taken on short term, but this increase on the margin of 3 points on this first quarter, this reflects this plan we executed, minus the PDD.
Let's give an example. If we see the line put in line of PDD, we had a margin even bigger. The last part of this plan has impact, but it's very significant on the delivery, and we're going to see this on the results on the third quarter and beyond.
To complement this answer, when we talk about BRL 40 million, it is just we got this on the first wave, and on this third wave, we're going to see how we can see the result of this BRL 40 million. They are going to be the part of the results on 2024. They're going to be part of the results now until 2023, 2024. But when you talk about the discounts, as you said, we are doing this big effort, putting this effort to recovering our receivables beyond a year. When we change this base, this base that has default. This share of these people on default, we had classified on the contract and not considering the discounts we gave on the enrollment. The discounts were not given in the enrollment.
Sometimes, they are not on the revenue, but we can see them on the PDD along the line. But we see this PDD increasing, so we can say 30%-40% that make possible for receivables from the students. Some students are not more in the institution, and they're not paying. We're putting effort in working with these default students, and these values to recover as much as possible. We have this policy on discount, on the values that we have open, considering the liquid PDD for us to bring the most, the biggest revenue possible. So we're going to see as well this year a very big base on these discounts, on the enrollment and on the defaults.
To finish this base on 2024, we start that on the middle of 2023, and we until the middle of second semester or the end of the year, we're going to see this. In 2025, this will be resolved. It depends how successful we're going to be on these activities that are very recent. Judicializing the defaults, and these are the tools we are using now. We're going to improve this process, and we're going to see a shortage of these discounts.
Thank you very much. Thank you for your answer.
A reminder to make questions, just click on the Raise Hand. Please wait when we collect the questions. Again, to make questions, please raise your hand. Let's wait until we collect more questions.
The Q&A session is resumed. Let's give the word to Jânyo Diniz to make the final considerations about the company.
I'd like to thank everybody for being here, to be part of this presentation. Our Department of Relationship with Investors can answer any questions you might have on the next days. I would like to invite you to be part of this big movement Ser Educacional is doing to help the victims of the flood in Rio Grande do Sul. If you see in the... We have 6 million of students helping a lot. We collecting clothes, homes, medicine, and all these things we're going to send to Rio Grande do Sul to distribute that later.
If you want to donate any money on social, social networks, on Ser Educacional, we are showing the bank number, the Pix number, where you can donate, and we can buy clothes, water, medicine. And again, I'd like to invite everybody to pray for all of those who are suffering with these floods. Have a good day. Have a good weekend. We hope for you guys to get in touch with our Investor Relations Department. Thank you.
The web conference from Ser Educacional is concluded. Thank you very much for your participation, and have a great day.