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Good afternoon, ladies and gentlemen. Welcome to Ser Educacional's video conference to discuss the results for the third quarter of 2023. This video conference is being recorded and the video replay can be accessed on the company's website: ri.sereducacional.com. The presentation is also available for download. Please be advised that all participants will only be watching the video conference during the presentation, after which we will begin the Q&A session, when further instructions will be provided. Before moving forward, I would like to emphasize that the statements are based on the beliefs and assumptions of Ser Educacional's management and the current information available to the company. These statements may involve risks and uncertainties, since they relate to future events and therefore depend on circumstances that may or may not occur.
Investors, analysts and journalists should take into account that events related to the macroeconomic environment, the segment and other factors could cause results to differ materially from those expected in the respective forward-looking statements. Here in this video conference, we have Jânyo Diniz, CEO, João Aguiar, CFO, and Rodrigo Alves, Investor Relations Director. I would now like to give the floor to Jânyo Diniz, the company's CEO, who will begin the presentation. Please, Jânyo Diniz, go ahead.
Good afternoon, everyone. Thank you very much for being here in the third quarter of 2023 results conference. Please turn to slide four. As you can see from the quarterly results presented this year, Ser Educacional is in the midst of an operational leveraging cycle, collecting the rewards of the success of the strategy defined at the end of last year, aiming to prioritize operations optimization.
We had another positive intake session this winter, both in the hybrid education segment and in digital education, which, combined with a consistent re-enrollment season, gave us solid growth in our student base and in revenues. Our real estate optimization initiatives have also generated results. This movement and the improvement in enrollment brought about by the maturing of Ubíqua, our academic model that has proven to be a market differentiator each season, has led to another quarter of gains in operating margins that will have positive effects on the rest of the year. With this, we can say that 2023 was a good operational and financial year, and that it will be crucial to create the necessary foundations to keep improving our performance. Now in slide five, we have a timeline of our strategic initiatives we have executed, and they are rescheduled to take place in the short term.
We carried out an extensive repositioning of our course portfolio, focusing our activities on hybrid teaching to offer health and engineering courses. In the digital market, we were able to complete the integration with UNIFAEL to improve the offer of our digital courses. We also increased the regional presence of our main brands: UNINASSAU, UNAMA, UniNorte, UNG and UNIFAEL, unifying some local brands, and that helped us to increase the return on our marketing investments. In the same period, we optimized our leased real estate, a long-term project that took place, and it was completed in the second quarter with the return of properties in several important cities as Manaus, Recife and Salvador. This was unprecedented in the Brazilian market. Thanks to the innovation, we are an increasingly common and accessible alternative in the market. With this, we could improve our operating cash generation and debt reduction.
Our commitment is to maintain our focus on teaching quality and increase our operating margins. Our focus is to complete our automation projects and review processes in our Student Relations Center and shared services. We started this project at the beginning of this year, and we hope it will bear fruit from next year on. Here on slide six, we can see more clearly the positive impact of these initiatives, with a nominal reduction in the cost of rent that generated a nominal reduction of 5%, which helped in the gain of more than almost four percentage points in gross cash margin, adjusted for the impact of rents and non-recurring effects. We also saw a three percentage point reduction in commercial expenses as a percentage of net revenue.
The positive thing about this is that they haven't had the full impact on our results yet, because we are in a quarter with low seasonal results due to the funding discounts and because we are still halfway through the execution of our operational readjustment plan. Teaching quality indicators are also showing positive results. We can see this on slide seven. According to the information on the Exame Nacional de Desempenho dos Estudantes, recently published by INEP, our higher education institutions show progress in the cycle of 2022. We went from 63% of the courses evaluated in 2018 cycle, with grades between three and five, to 65% of the courses with grades between three and five in 2022. The highlight is that between the two periods, there was an increase of almost 30% in the number of courses evaluated, even though most of the additional courses refer to digital education courses.
This shows that our students in this segment are graduating with teaching quality very close to hybrid teaching. That shows the solidity of our Ubíqua academic model, and a differentiator in the quality of our digital teaching. Now, in slide nine, we can see the quarter's uptake results. You can see the graph, and we had a double-digit growth in aggregate uptake and the individual analysis of hybrid and digital education. In hybrid education, this success is due to the repositioning of the course portfolio and the focus of commercial efforts on the group's more relevant brands, that were supported by a benign market scenario, with rationality of supply and the willingness of students to resume their long-term academic goals.
In digital education, the biggest success factor was the successful integration of UNIFAEL, especially with the unification of systems, trainings, and investments in the centers, so that they could better offer our value proposition to students. Also a complete portfolio of courses. This is very positive and is associated with the solid uptake we had in the first half of the year, which consolidated a renewal of the student base that will help us to grow and be resilient. In slide 10, we show the result of the student base in the quarter that grew substantially, both in hybrid and digital education, because of the combined effect of positive uptake and a solid re-enrollment season. In slide 11, we can see the average ticket. Despite having fallen compared to last year in hybrid education, we have to take into account the seasonality factor.
As I mentioned before, it shows the recognition of the uptake discounts in the quarter. It's also worth noting that we had a double-digit growth in uptake this year compared to a double-digit drop between the third quarter of 2022 and 2021. That generated a stronger effect specifically in this quarter. Now we have a solid revenue-generating student base and an average ticket that we will recover from Q4 2022 onwards. This integration with UNIFAEL and the investments of health and engineering, as I mentioned before, allow us to offer courses with a higher average ticket. Before I hand over to João Aguiar, on slide 12, we have the evolution of our student base by subject area. In line with our strategy, we continue to grow our student base in health courses. They now represent 41% of the total student base, compared to 39% in the third quarter of 2022.
This is really important to improve the average revenue for course and classrooms, and recover our operating leverage and profitability. I now hand over to João Aguiar, our CFO, to give comments on financial results. Thank you.
Thank you, Jânyo Diniz. Hello, everyone, and thank you for taking part in our event. Let's go to slide 14, please, to present the summary of the third quarter of 2023. As you can see in the table, in line with Jânyo Diniz comments, we had a solid growth in net revenue, which was driven mainly by the consistent growth in the student base this quarter, due to the success of the uptake and re-enrollment season in the period. This increase in net revenue was not only higher because of the seasonal effect we have at Ser Educacional. We recognize the commercial discounts to encourage student uptake in the quarter, which will benefit us in Q4, allowing us to expand the average ticket again.
Our cash growth margin increased by 1.6 percentage points, mainly because there was an improvement in uptake during the quarter due to the increase in the hybrid school student base. Our adjusted EBITDA margin also increased by 2.1 percentage points. It only failed to show a more significant result due to the increase in the provision for doubtful debts, in line with what has been happening since last quarter. This effect on provision for debts is due to the fact that we still have securities on our balance sheets that have reached the two-year deadline for write-off. These allowances are from the period of the pandemic and were more challenging to recover, which is why we need to recompose this base. As an effect, this led us to a cycle of higher provisioning this year, which I believe should normalize over the course of 2024.
Financial results also showed a slight improvement, but we're still impacted by a still high cost of capital, which hardly reflected the recent reductions in the Selic rate. As a result, the adjusted net income improved compared to the third quarter of 2023, which means that we are on the right track to revert the loss generated last year, giving the company the possibility of presenting adjusted net income again this year. On slide 15, we analyze the results by educational segment. As you can see, hybrid courses have significantly increased the share of revenues, especially as a result of the increase in the student base. As for digital education, we also saw significant progress due to the solid uptake season we had with a healthy average ticket, and as a result, the segment had a good share of the results.
Medical courses continue to be solid cash generators, and this was accentuated in this quarter due to the seasonality of revenue that occurs in hybrid education in non-numbered quarters, especially when there is a substantial growth in uptake, as has happened now. On slide 16, we present the average collection period. As you can see, there was an improvement in this indicator, both in consolidated terms and in the government's funding average collection period. This was because at the beginning of the year, we managed to complete the sale of part of the Educred's portfolio to Pravaler in an unprecedented transaction in the Brazilian market.
The improvement was also due to the success of the re-enrollment season, and lastly, an increase in the provision for the allowance of low and lease losses, partially offset by the longer average payment period for Fies, since the flow of payments this year is low in the last year. On slide 17, you can see in more detail the evolution of our operating cash generation, with pre-CapEx showing an increase of 20.8% compared to last year and post-CapEx also practically doubling compared to last year. This improvement in operating cash generation is also due to the effect of the sale of the Educred portfolio, which also benefited from a slight improvement in net operating cash generation in this quarter. On slide 18, we have a comparison of our gross and net debt with the fourth quarter 2022 results.
And as you can see, with the success of our operational execution during the year, as commented by Jânyo Diniz, we were able to significantly reduce our debt and get closer to our goal for the year of achieving net debt over adjusted EBITDA close to two times in order to achieve an even better result in 2024. As a result, we hope to continue to gradually improve our results with the aim of seeing Ser Educacional return to being a company with a solid track record of profitability and returns to its shareholders in the medium term. To conclude my comments on the results, we have slide 19, where we present the accumulated CapEx for the year. As you can see, it is showing a reduction compared to last year because during this period, we made investments in preparing our institutions to receive visits for medical accreditation.
These occurred mostly this year, and we had to make investments to recover part of what could not be done during the pandemic lockdowns. I believe that our CapEx ratio is adequate for our needs in terms of percentage of net revenue, and we are comfortable with this level of investment for the coming years. Those were my comments, and now I'll hand the floor back to Jânyo Diniz to make his final remarks before we open up to the Q&A.
Thank you, João Aguiar. Please go to slide 21, where we summarize our next steps for the year, which were defined in November last year. We want to remain focused on regaining our operating leverage. We will continue simplifying our portfolio of brands and focus on offering courses with greater profitability and generating more and more omni-channel and back-office integration to achieve our goals.
We also maintain our investments in developing our continuing education ecosystem, as we believe this will be the next wave in the higher education sector. We want to be ready to be a relevant player in this segment in the coming years. This will ensure that we succeed in our goal of reducing our financial debt and consequently generating and increase our cash generation for shareholders and focusing on the organic and healthy growth of our operations. Finally, I'd like to point out that on August 11th, we celebrated 20 years of Ser Educacional. As the company CEO, I'm proud to have been part of the story from the very beginning when we couldn't even dream of becoming the company we are today. A dream of Professor Janguiê Diniz that has been transformed into reality, and thanks to a very competent team it has been created over all these years.
We have gone through an incredible trajectory in the Brazilian market, which I am very proud to be part of. Our team is motivated today, as it was in the beginning, and we have made many changes to our operations since the pandemic that are taking us to a new level of excellence. And we are ready for a new cycle of operational growth and profitability that will be very important and interesting to follow. I thank you all for the time we've spent together, and I hope we can celebrate the achievements to come in the same way.
Thank you. Now we're going to start our Q&A section for investors and analysts. If you want to ask any questions, please click to raise your hands. If your question will be answered, you can leave the queue by lowering your hand.
Our first question comes from Mr. Marcelo Santos from JP Morgan. Marcelo Santos, your mic is open.
Hello, everyone. Thank you so much for the opportunity. First of all, I want to ask about the public consultant of the government, because they are talking about making restrictions from some health courses. Since this is really relevant in your portfolio, I want to know how you see it. What is your perspective? Then I have another question. When we see the ticket in medicine, it looks like it dropped from the first semester to the second one, at least based on what we saw. Can you talk about the trends that you see for medicine courses? Thank you.
Hello, Marcelo Santos. I will start first with your first question. We think that medicine has an increase. With this, MEC, the local industry, is looking into the quality metrics. In this journey, they could see the results of the previous exam.
In Brazil now, they are looking more and more into this revision of the online medicine courses. What we think is that the regulation for online courses is not a problem. It has a solid base, and if it is good executed, and if it is aligned to what they discussed on the foundations, then it should not generate a problem or a lack of quality. What may be happening is that it needs to be controlled on a larger scale, especially if we think about the capacity of expanding the bolts and the capacity of offerings, especially if we talk about health. We can have different partnerships, and they need to follow the rules. So there may be some cases on the market that may not be following the regulation, but our perspective is a positive one.
If we think about online courses, we think that the change in the regulations in 2017 was positive, and I do not think we are going to be impacted by a change on the rules if we think about health courses, because there is a demand. If it is not for online courses, it is going to be for in-person courses. So the idea is to be strong on both options so that we can make our company not be affected by changes on the regulation, because the regulation is going to change. Just to add to what he said and aligned to what Rodrigo Alves said before. Even though there is an impact, we have a possibility to adapt ourselves in both modalities. So we think that the regulations should be more rigid for the exams.
When we talk about the exams and the grades that the students have, Ser Educacional is having good results, even compared to some of the best courses in Brazil, both for hybrid and online. We had good results. If there is a change in the regulation, we are not going to have a negative impact. It's going to help us to have a better product and help the students. We are not afraid of those changes. They may happen, but if that's the case, as Rodrigo Alves said before, the health industry is really strong, and we have different in-person units. If we have changes, we are going to have this transfer for the units that we have. We have a really important number of health students. This is why we feel calm with both scenarios.
If the scenario stays the same, or if there's a more significant change in legislation. Thank you, Marcelo Santos.
There was an actual fall in our average ticket for medicine here in the third quarter due to three factors. The first one was mostly regarding a captation of government-funded students here. The second factor was an increase in the number of positions which we're still following, and vacancies in the universities, which have a higher average ticket than in other units. We also looked at another aspect, was a punctuality of the students who use this punctuality discount. These three situations together, they have resulted in a reduction of the average ticket for the medicine course. But that will be stabilized as we finish the semester with a lower reduction than what was observed. Yeah, for the third quarter. Yeah, from the second to the third quarter.
Of course, it's a very high ticket, but as Jânyo Diniz has mentioned here, this is a point that we see so many of the students who are studying long distance, that they are in places where we have a campus. We will have the capacity of offering physical courses for these students, in-person courses. Yes, there would be a huge possibility for growth with these new areas here. Most of the health course, they were offered in their own units, and the units and the labs were present in our in-person universities. For the health course, they mostly have their own units.
Yes, that's very useful information. Thank you very much.
Our next question comes from Mr. Luca Marchesini from Itaú BBA. The mic is your Mr. Luca Marchesini. Mic is yours.
Good afternoon. Thank you for getting our question here. Questions regarding this marketing expenses.
We saw a great downfall here regarding your liquid income. Is that the new level of investments of the company, or was it an atypical decrease? What is the logic behind this level of investment in marketing, and what is the strategy?
Luca Marchesini, thank you so much for the question. I believe this is a question that comes from our last event here. We understand that these will be the new levels. We have done a reevaluation of the communication model we used to have, especially with the long-distance courses, and during the pandemic, we had to increase our courses with marketing and communication. This reevaluation and reassessment allowed us to change how we understood our limits for marketing expenses per regions. This is an ongoing analysis, and communication regarding these topics will continue depending on the economic landscape of each one of the spots.
We have also had a large reevaluation and reassessment of our communication channels in general, and how our commercial structure will be affected by that. This allowed us to maintain and reassess all these levels of investment.
Thank you very much, Jânyo Diniz.
Next question comes from Mr. Lucas Nagano from Morgan Stanley. Mr. Lucas Nagano, the mic is yours.
Good afternoon, João Aguiar, Jânyo Diniz, Rodrigo Alves. Two questions from our side. One is about the price dynamics. I have heard a few mixed effects here about the negative ticket, long-distance courses. I would like to understand how would that behave and how it will normalize, and what was the policy to repass the price to consumers, and how you are going to be inserted in this new competitive scenario. Second question is about PDD.
We would like to understand how is that increase a recurring one or not, and what was that impact in terms of the lowering of titles in 2021. Just so I could understand what is new and recurring here.
Thank you, Lucas Nagano, for your questions. The issue about the price. As Jânyo Diniz has mentioned here, we have worked a lot together with marketing, but what we have identified in terms of price is that in addition to the odd quarters, when we have that issue about recognizing the discounts that we give to the quarter, it is more effective in the odd ones, in the first and the third one, and it makes us reduce the costs of hybrid courses. When you look at the hybrid course along the semester, the inflation is mostly what affects those tickets.
The idea is that those tickets start reflecting the adjustments in the tickets due to inflation, with punctual adjustments in a few units where we need to understand how are those prices behaving, what is the current demand for those courses, how are those positions being filled in those units. We are doing associated work in order to optimize our pricing strategy. Regarding long-distance learning, we have been trying to understand the whole long-distance learning dynamics, mostly regarding those courses that are uniquely online or some of those that have a certain percentage of practical classes, those that have a certain percentage of lab classes. We can modulate it little by little, this healthcare courses mix that is getting stronger now with long-distance learning. We can actually keep track of how that works in hybrid learning. I believe those are the biggest things connected to price right now.
Regarding PDD, during the pandemic, I believe the whole market as a whole, we had to flexibilize our policy for discounts and negotiation. During this flexibilization, we started doing more deals at the time because we noticed a lot of delays happening during the pandemic and in the first two years of the pandemic. We saw a huge pressure in the first year due to renegotiations because people were actually late with their payments, and some maintenance in the year of 2021, which carried over a little bit of that context. When these titles get to 2023, they become old already, and we may have increased our level of recovery. Those titles from the pandemic, they brought a higher complicator when we tried to recover them. This ended up affecting PDD a little bit.
By the movement we have seen and looking to the future, we realize that we will have a final movement, maybe in the fourth quarter, maybe not aggressive as we've had in the second or the third one, but also at a higher level, as I understand it. It will be reduced since the first quarter of 2024. As these occurrences regarding the titles and tickets from the pandemic that have been renegotiated in 2021, they actually leave our base.
That was a very complete answer. Thank you very much.
Next question is from Mirela Oliveira, Bank of America. Mirela Oliveira, go ahead.
Good afternoon, and thank you for the opportunity of asking questions. I just wanted to ask a question about the regulation. I think that your position is clear, but can you talk about MEC's position? I don't know if you can explain more about this, how the regulation is going to be, and how you see this discussion.
Hello, Mirela Oliveira. I think that MEC was really transparent on their perspective of the next steps on the regulation. The trend that we see in medicine, it looks like MEC is really aligned with the ministry, and of course, they need to start voting. But the ministry and all the movements that we see are aligned with the report, and that's reasonable for us. On medicine courses, there's an interest on the Mais Médicos report. They've been talking about changing the deadlines. It was clear that what they needed to register all the proposals was something that made them hurry to make all the proposals before the deadline. Then talking about long distance courses, we see that there's a demand, which is more clear right now.
I think that now we can see the trend in the market and Fies and all the negotiations were really important for the sector. They needed to understand how their position and how the government funding is going to be right now. Now they're focused on education. They need to see some regulations that haven't been modified for a while. But this was something expected with the change on the government.
Thank you.
Next question is from Renan Prata from Citi. Renan Prata, go ahead.
Good morning, everyone. Thank you for asking the questions. Actually, this is a first question about new businesses. We see that it is still negative, but I wanted to understand how you see it and how you expect to see these in the next months or quarters. When do you expect to have a break-even or how you see it? Thank you.
New businesses are a long-term project. We understand that higher education is going to be with continued education, and there are organic adjustments we've been doing in the previous two years. This is always more difficult because some scenarios become real and some don't, and you need to act accordingly so that you make sure that the long-term is not only a long-term goal, but that you can create a roadmap to make it happen. From June, we started to make some adjustments on the operations so that we can improve our margin from this year. We don't expect to go back to operations 100% that fast because they are a long-term plan.
But we understand that our current cash burn is really high. The idea is to see the assets that are more promising and that could make us grow more and invest on that. Then on the rest, that are not that interesting after the pandemic, we are doing some adjustments. The idea is to reduce the gap as soon as we can, and from the fourth quarter, we are going to follow the roadmap that we created, and in 2024 or 2025, we could have a break even on those operations.
Well, thank you.
Remember that if you want to make a question, you can raise your hand. Please wait while we see the questions. If you want to ask something, you just need to raise your hand. Please wait. Just reminding you, to ask a question, just click on Raise Your Hand. Wait a little bit while we collect new questions. The Q&A section is now adjourned. We would like to give the floor to Mr. Jânyo Diniz to make his final considerations of the company.
I would like to thank everyone for participating in another conference of results here of Ser Educacional, and we'd like to offer our areas here of investment assistance to your disposal if you have any other requests. Have a good afternoon.
The video conference of Ser Educacional is now adjourned. We thank you all for your participation and wish you an excellent afternoon.