[Non-English content]. Good morning, everyone. Be welcome in this results report for Ser Educacional of Q1 2022. Here we have Jânyo Diniz as the CEO, João Aguiar, CFO, and Rodrigo Alves, IRO. We are going to begin our results presentation. I would like to inform you this event is being recorded and this presentation will be available for you after the recording. We have simultaneous interpretation, and at the bottom of your screens, you can see the globe. You can click on the globe and choose the language you would like to listen to. If you are listening to the presentation in English, you can mute the original audio by clicking on the button. We will have a Q&A session. Please send your questions in the Q&A button at the bottom of your screens.
Your names will be broadcasted so that you ask it live. A pop-up requesting you to enable your microphone will be there. If you do not want to talk, our operator can read your questions. We would like to make clear that any forward-looking statement made on this conference call related to the business prospects of Ser Educacional, they are beliefs and premises of the company's management and also based on the available information. These are predictions and estimations, and they are regarding to future events. These circumstances may occur or not. Investors need to understand that these factors may affect our future development, and our results may be different than the ones expressed here. I will now hand over it to Jânyo Diniz, CEO of the Ser Educacional. Mr. Jânyo Diniz, please continue.
Hello, everyone. Thank you for joining our 1Q22 Results Webinar.
A positive period for our company, especially from an operational point of view, which allowed us to have solid growth in the student base and cash generation quarterly. We will provide context today and provide clarifications. This year's highlights, the growth in enrollment of blended. We surpassed 330,000 enrolled students. The growth in enrollment of blended learning students by 27%, combined with the 14% decrease in the dropout rate, they are comparable to 2018 levels and helped us to grow the student base. The digital education student base organic growth is a relevant segment in our results, especially due to the addition of 87,000 students from FAEL, an acquisition announced in May 2021 and concluded last January. As a significant result of the student base growth, we had another quarter of consistent growth in net revenue.
In these years, we have been working to balance the organic growth with acquisitions and the maintenance of a solid capital structure that generates consistent and above-market average return to our shareholders. At the same time, we gained scale and remained very competitive. The financial results for the quarter had seasonal effects. We will detail it later because of organic growth and a more conservative way of recognizing revenues. These factors combined show positive effects even in the short term, as can be seen in the solid operating cash generation in the quarter, which shows sound business enrollment of a quality student base. This is also reflected in the reduction of the average term of regular students ticket, gradually returning to pre-pandemic levels. We had two important launches this year. The first, b.Uni, our fintech, which focus on the higher education market.
Peixe 30, a very interesting professional social network. With these initiatives, our continuing education system will be even better, allowing us to generate revenues and maximize the use of our educational assets, allowing us to be present in their careers even when they are not with us. Slide five, we detail digital learning becoming a business not only relevant, but also jumping to almost 25% of revenue, with healthy operating margins, maximizing the use of our educational assets and made us a more resilient player and more prepared to move forward with the initiatives. With a strong digital education system, we will generate more opportunities to be explored in this digital environment. Slide six, there are details of the launch of b.Uni. It will be important for our ecosystem. We will be closer to our students and have flexibility to offer financial service to the market.
We started operations on a test basis with few marketing initiatives and features in the app. Now it is available for QR codes and links that are in the presentation. We surpassed the 10,000 customers mark. The second semester, we intend to accelerate the availability of services to start the growth of the customer base, offering debit and credit cards, payroll loans for employee, and cash back for students using our fintech. Slide seven, we have the launch of Peixe 30, and the link for you to download is in the presentation. This is a social network focused on the new generation of professionals with visibility and opportunity, both for users and companies free of charge. People can introduce themselves to the market by recording videos of up to 30 seconds. With this, we have the user's behavioral profile using the DISC methodology.
That is soft skills and automatically generating their CV in the web or PDF format. Peixe 30 will be the newest alternative to monetize educational assets, generating new source of income and relationship with the students. It will be available for us to help understand the demands of the market. On slide 8, we have done through the evolution of a continuing education system and a unique platform that we could have gains in scale and allow those to maximize the use of our educational assets. Also our leading company to take advantage of the positive transformation that Brazilian continuing education is going through. Now I hand it over to João Aguiar, our CFO, and he will detail the results of the quarter.
Thank you, Jânyo Diniz. Hello, everyone. Thank you for coming.
Now in slide 10, we present the enrollment of students in the quarter, and this is very important due to the recovery of blended learning. We needed to transfer the inflation rates to freshman veteran students. Because of acquisition of FAEL, we had a growth in digital learning. So source funding fell by around 25%, especially in the courses with higher average ticket, especially in the health area. Slide 11, we have a 44% growth in our student base this year. Ex FAEL, we grew 13%, demonstrating that we are managing to combine organic growth and generating an important student base so that we can spread our costs. Slide 12, we show that we are strengthening our mix of courses, implementing our presence in the blended learning in the healthcare segment, and now they represent 6% of our student base.
This segment of courses provides us with an average ticket as they are courses that require practical classes and have fewer market participants. The healthcare segment is also being included in the digital education segment, as I mentioned before. On slide 14, we presented details on the commercial dynamics that we have been doing for a few years, associating the methodology for revenue recognition, impacting the average ticket, especially hybrid learning. To better demonstrate it, we prepared graphs to show the difference between the average ticket calculated between odd and even quarter. First, discounts on late tuition fees that were renegotiated with veteran students. The second, it comes from new enrollments that are carried out with promotional values on the ticket. In both cases, these discounts are fully recognized in the quarter in which the contract is signed, reducing the average ticket in odd-numbered quarters.
In these scenarios, positive factors in the period, we had the improvement on the dropout rate, which dropped from almost 17%- 14%, generating a greater seasonal impact on the average ticket, reducing the revenue recognized precisely for the discounts that we have historically made in this nature with a higher volume of students. On the other hand, as these discounts are recognized in the first quarter, they can be diluted throughout the year, especially in the even quarters. We have been repassing the inflation rates for new students. On slide 15, we show the average ticket effects in the hybrid graduation. The drop in the average ticket results from the combined effect of immediate recognition on discounts for new students and re-enrollment of veterans. The average ticket for digital education remained practically stable, even with the FAEL combination, which has a lower average ticket.
This was precisely because we chose to consolidate our operations and avoid entering into the sharpest price reduction that we have seen, especially in the sub-segment of 100% online course. On slide 16, we have a summary of the results and note the effect of the average ticket. We see the consolidation of FAEL base, having a consistent growth in the net revenue. In terms of EBITDA, it's important to highlight that reduction in the average ticket associating with Q1 2021 being the last quarter we were experiencing restrictive measures imposed to combat the pandemic. In terms of adjusted net income, this quarter, the margins were more compressed because of indebtedness. This should also be diluted because of the effects I mentioned, but also because we will use our cash generation for operations and synergies for financial leveraging.
Slide 17, our results by segment are shown, highlighting the growth of digital education because of FAEL acquisition. We included a column for new business that include companies recently acquired, including two veterinary hospitals, in addition to pre-operations that we will open this year in 2023. These initiatives are part of what we said earlier. We are not only in a different period in terms of the basis for comparison with 1Q 2021, but we are also gradually resuming our expansion process. In this quarter, these new streams that we segregated in the results in the new business and pre-operation units consumed around BRL 4 million of adjusted EBITDA, representing a conscious expansions movement to generate returns in the medium term. Slide 18, we see representation of three main segments that generate results. Medical courses are leading the share of adjusted EBITDA with blending learning.
Also, we have the increase in the share of digital education as a result of the organic growth of the student base and the integration of FAEL. Ser Educacional has a resilient platform that meets the objectives of maximizing the use of our educational assets and allowing us to be ready in different segments, creating a complete ecosystem that is improving. On slide 19, we show how IFRS 16 has an accounting impact on our results and a view of adjusted EBITDA without the cost of rents. We can compare the same basis if you wish. On slide 20, we show our average term of accounts receivable, which showed an improvement in this quarter, reflecting the reduction in the evasion and the dropout rate. As you can see, we are back to pre-pandemic levels.
Slide 21, we present operating cash generation, which grew by more than 20% compared to last year. We have a different starting basis and accounting profit loss between the two periods, and the company has a solid generation and conversion of adjusted EBITDA into cash. Slide 22, we have CapEx, which is the line that we said in this call, that we are gradually resuming investment in new units and expanding our ecosystem. As a result, our growth in investments went to 4.1% of net revenue in the quarter. Slide 23, we have accounting debt. We are temporarily, slightly above twofold net debt EBITDA due to seasonal effects that are an effect that we really estimated. Our focus for 2022 will be to start a leveraging process, as we understand that a sector like our sector has a tax shield, which is very low.
We have a first quarter of important results with effects that we hope can be understood, and in our view, we will have a consistent evolution throughout the year. These are the quarter results, and I turn it over to Jânyo Diniz for closing remarks.
Thank you, João Aguiar. Moving on to the last slide of our presentation, we have our goal and vision for 2022, which in summary is based on four pillars. One, we are dedicated to working in integrating FAEL, making our digital education relevant in the market, and we will have a national reach. This acquisition will allow us to generate new avenues of growth and increasingly well-structured omni-channel network. Number two, the return of growth of hybrid learning showing results, and this is a reality. We will have a larger student base capable of passing on an average ticket.
Also the generation of synergy from recent acquisitions. Last but not least, the maintenance of our financial soundness, which we will consider an important pillar and a hallmark of our management that historically has always focused on cash generation and a healthy debt profile.
These are our opening remarks. Now let's have the Q&A session done.
So now let's have the Q&A session. One at a time, ask the questions and wait for the answers. Please send your questions in the Q&A button on your screens. Your names will be announced so that you ask the questions live. A pop-up for you to enable your microphones will be shown. If you do not want to speak on the microphone, send the question for us to say the question for you on your behalf. So we have Vitor Tomita for Goldman Sachs. Vitor Tomita, go ahead.
You can ask your question.
Good morning, everyone. Thank you for answering our questions. First question, could you talk more about the FAEL and the Edtech integration? Second, could you please provide further details on this competition for tickets when you are at the end of the intake of students and the online distance organically intake of students, as you talked about online digital and in-person learning, they are in a competition. Thank you.
Vitor Tomita, let me answer your questions, then we will complement them. FAEL and Edtech integration is going as expected. FAEL started with us on January 14, and a part of the intake of students had already began. Even this way, they could offer Ser Educacional's content because the classes would start in February, and they were already prepared. We started having synergies and they adjusted the bit that was already prepared.
With the Edtech, we had already provided integration with them. Now we are on a second part, which is working, being focused between them and in the ecosystem as well, so that we have better offers done in concurrence and that we have initial synergies. Because with Edtech, as they are small companies, we need to have the offerings done, integrated, and combined to create new products. On the competition point of view with online education, in Ser Educacional, historically, we have about 80% of student base intake done through the units themselves, and 50% of digital online student intake is done by the campi. This is something important because I'd say the greatest point in the student intake is in the 100% online learning.
If we compare the intake of students with the online intake in engineering and medical students, this last one, this is the greatest number of people wanting to study. In FAEL, the growth of intake is due to the introduction of this type of course. We decided not to participate in this increase of tickets. This was something positive because LTV/ CAC on 100% online course is variable, and we need to address this matter further because of the cash generation of this activity. I understand that our participation in the online student is a combination of factors, FAEL integration, and increase of the offer of different courses and a marginal participation in the 100% online education market. This is due because of price versus CAC. Let me complement something on the operational point of view.
In this first moment, the approval that happened in January is due to change of processes, and we cannot do anything until it's approved. When the approved was done, we adjusted the content in FAEL and increased the portfolio of courses being offered in FAEL. We also need to use the student intake model from FAEL, and they have a strong student intake in their campi. This model has been migrating, and there's a combination of both models. In FAEL, the intake model, we use the technologies, the internet, directly in the back office, and we are bringing this to the group, strengthening the campi directly. This mode is being implemented stronger now.
Okay. Super clear. Thank you so much.
Next question is from Carlos Herrera, sell-side analyst, Condor Insider. He says: hi, everyone. I have some questions.
One, regardless from the acquisitions, do you see any difficulties to have new students onboarded? Do you see pressure from the competition? In adding plans, does it happen because of the acquisition, or you see also a deterioration in the financial condition of the students? Three, for 2022, the company will only focus on having synergy and reduce the leverage, or you will keep looking for new acquisitions?
The first question, we didn't have any difficulty in growing organically, especially in hybrid learning, blended learning. This 27% was mainly organic. In the online education, there is additional pressure. In our market it's interesting, which is the health and engineering courses. We had a better mix of courses, and the average ticket is well in this sector. Regarding inadimplency, we are in a better cycle. There's a better provisioning because of the increase in the dropout rates in 2021.
The dropout rates started decreasing because of cash generation and reduction of the average period of receiving the tickets. The third, synergies to reduce leverage. We understand that the way to go is to focus on the acquisitions done. We need to have a very well-done integration, and naturally, this will generate synergies and cash flow. This doesn't mean we are not having more acquisitions, but acquisitions are not our focus now. This is a process that had already happened, and now the acquisitions will be specific.
Okay. Next question is from Pedro Caravina. He's from Credit Suisse. Pedro, you can ask your question now. Pedro, it's your turn. You can ask your question, please. It seems Pedro is having problem with his audio. I'll read his question. Hi, everyone. Congrats on the results. Two questions.
One, if you can comment on the dynamic of the competition when the sector is improving, and which measures you have been taking to increase the student intake levels, both online and hybrid models. Do we need to provide more discounts, better financings? Second, what can we expect for the 2022 ticket for the students? I appreciate if you could read my question. Okay? Thank you.
Hi, Pedro Caravina. Thank you for your questions. We believe the industry has been on a stronger cycle to reduce the average tickets, especially in the hybrid learning. This year, we kept the discount levels as the same as the previous semesters. We passed 90% for the students.
Maybe we will have a little less than 9%, because there are some students that still have debt with us, and this effect is recognized in the trimester ticket, and this has been diluted throughout the year. We do not see additional pressure in the hybrid learning. On the digital learning, as I said, on the health and engineering courses, we believe the market competition is stable, but the pressure in the competition of 100% online, this is higher. But the market is behaving as we expected, and the ticket behavior is following as expected as well. The difference between the average ticket between veteran students and new student for the odd quarters is a-[Non-English content]
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Next question. I will enable your audio, Marcelo Santos, so that you can ask your question. Go ahead.
Thank you for answering my questions. Only one question. There were many seasonal effects, as you said, and this made the reading of margin evolution harder. What could you talk about the evolution for 2022? Could we keep 2021 levels or get closer to them?
Thank you, Marcelo Santos, for your question. We can't talk about future margins because we have a policy of no disclosure of guidance. But in order to tell you about our strategy, what have we been doing in operational point of view?
We see a hybrid learning in the market, and with this, the company can leverage operations that has been diluted during the COVID pandemic because our camp had less people there. We also expanded operationally gradually. We acquired ed techs, we created some questions, and we have been opening 10 units this year. We want to have Ser Educacional to be a more complete company, and we want to migrate from a market that had in-person learning, and we are migrating to a market that combines the offer of our in-person courses, and they had been digitalized. We are offering there on an omni-channel platform. By doing so, we can maximize our educational assets. All the structures and all content digitized will be offered by many channels simultaneously.
And we will create new competitive advantages by recognizing our brand, especially in health and engineering, because this market recognition will help us be differentiated in the market and be less dependent of the competition. Also with this scenario, create new sources to generate revenues. This is why we have services of education. It can be the fintech or patient authority and other tools in the marketplace. The trend is that all over the years, the company will gain margin because we are scaling the operations. Now we have short-term investments, and this is what I can tell you so far.
Remembering that to make questions, you should use the Q&A button on the bottom of the screen. Your name is going to be announced, and if you do not want to speak out your question, you can ask for us to read your question. Continuing, our next question is from Luca Marchesini, sell-side analyst from Itaú. Luca Marchesini, use your audio. You can go.
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Thank you for the important ask.
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Luca Marchesini, that's true. We have two components here on the dropout rate of students in digital system. We had a change of system last year, where we took the student of the base after the dropout rate, if they were not paying the fees, or they were not coming to classes. What we have here on the not even semesters, we have the opportunity to reassign in the course. These temporal changes is going to show that on the fourth quarter, the dropout rate was bigger than the third quarter. Why this happens? The students come in on the not even semesters, and if they did not adapt, if they got in the course by any motive that they are not very sure.
We have this dropout rate, and then we have solutions to change this revenue connected to these students on the digital system we have here, because the digital platform sees this dropout rate in a faster way than the normal system. When we think about the discounts we have been doing here on the renegotiation of the debts, we see this is going to get better in a bigger way. The dropout rate on the digital system is just like this time-to-time problem. FAEL has a smaller dropout rate in Ser Educacional, and that's very important to know.
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Thank you, Rodrigo Alves.
Continuing. Next question from Pedro Lima, analyst from BTG Pactual. Pedro Lima, you can ask your question. Please, start.
Good morning, everybody. My question goes more on the PDD. We have a bigger rate this quarter and we would like to understand what you guys expect for the rest of PDD and what you guys are doing for that? what kind of strategy for that? and what kind of guidance you guys are expecting for a healthy revenue on PDD. We have the center 7.5% what do you guys expect?
Thank you, Pedro Lima. Thank you for your question. PDD has a big factor. When we think about the IFRS 9, when we have this period, as we had the pandemic period, our intake, we have to stretch it.
And we have to think about how can we recover this revenue. The PDD that we have now, the first quarter, is very seasonal because we are recognizing the effects of the pandemic period, and we are also remembering the return we had on the second quarter last year, where we see that the intake raised a little bit. And looking at this data, we see that there is improvement and a recover on the intake, and the PDD still is hurting us when we see this semester where we negotiate the debts of the students. So we expect that this PDD is going to stay on the historic levels of Ser Educacional, even in this pandemic time.
Thank you, João Aguiar. If you don't have any more questions, we finish our session of Q&A. We would like to give the floor to Mr. Jânyo Diniz to finish this presentation.
Thank you everybody for being here with us on the results panel, and we would like to see you guys soon. Thank you very much.
This conference on the second quarter of Ser Educacional is finished. The Department of Relations with Investors will be open for any questions. Please get in touch. Thank you everybody for being here. Have a good day.