[Non-English content]. Good morning everyone, and thank you for waiting. Be welcome to the conference to announce the results of Ser Educacional on the third quarter 2021. Let me inform you that this conference is being recorded, and we will make it available on the company's website, where we can see this presentation also. If you need interpretation, we have these two available in the globe icon at the bottom, where you can read interpretation. When you select it, you can choose the language. It can be English or Portuguese, and you can also mute the original audio by clicking on mute original audio. For our Q&A session, please send your questions in the Q&A icon in the toolbar on your screen. You will ask the question live when the moment is due. We highlight the information in this presentation.
What is being said in the conference with our financial goals and et cetera, they are beliefs and assumptions of the company administration, and also information that is available now. Future considerations, they are only predictions. They depend on the circumstances that can happen or not. Investors may understand that general economic conditions, market conditions, and other operational factors can change the economic outcome of Ser Educacional. It can be different for the future considerations done today. Now I hand it over for the company so that they can start the presentation. Jânyo Diniz says-
Good morning and thank you so much to join our event to announce the results of the Q3 2021. It was an important trimester in a long-term strategy and shows the market of higher education is recovering gradually from the pandemic.
Ser Educacional is benefiting from its competitive advantages with strong brands, as well as medicine courses and many courses in the hybrid education. We can speed up investment in intake of students and creating new courses and segments, improving rapidly our continued education ecosystem. We could have record student intake. As result of this positive intake season associated to acquiring UNIFASB, UNIFACIMED, UNESC and Ursula, we could grow our net revenue in 20% and our adjusted EBITDA in 24%, which I consider relevant because we have been expanding organically. At the same time, we consolidate these acquisitions, and we are positioned to grow back in the post-pandemic period. Regarding investments, we have the new GoKursos platform that had defined the business plan, and we are starting its ramp up.
There's potential to be explored in our new marketplace, and we have been expanding our course base that are our own and are available in more than 6,000 courses, and we are enhancing it, enhancing our base partners. We have been expanding our commercial expenses, and we are open to partnership campus, and we could have fruit in this resumption in the market. We have done two acquisitions. The first one is CDMV/DOK, which is a brownfield model for the grad school and the veterinary hospital. We will have our ecosystem strengthened, and we can have theory content that can be digitalized, and the vet hospitals will have a better reputation in our market. Lastly, we have Prova Fácil. We have acquired this brand to enter in the test management segment and Knowledge Management segment as well. This is a market with high potential.
We are trying to certificate professionals of the Prova Fácil, and it's an exponent in this segment. On slide six, there is the result of the intake of the quarter, and there are some comments. First is the Ubíqua implementation success, which is our learning methodology. We have important differentials in the market as learning by competencies, modern content, intuitive platform, and implementation of Notável Mestre and the tutors, among other innovations. Ubíqua has real differentials that have been creating important arguments for our commercial team to attract students for their attributes. We reduce our argumentation based in price. Pricing has also been another important factor because the intake was strong and we could reduce the discounts offered. We could start our intake one month earlier than 2020. We could have a volume of student base adequate.
In the digital learning, we saw the consolidation of the strategy that we implemented mid last year. We could reposition the teaching, the digital education with content portfolio which is broad and modern. As a consequence of this intake and good indexes of re-enrollment, we could grow our student base in 32%. Now our digital students doubled compared to Q3 2020. This was because of a positive intake we had during the first and second quarter s 2021. On slide eight, we have our student base and we are more and more relevant to the health segment and engineering as well for the hybrid education.
Together they represent 70% of our student base, showing that Ser Educacional is speeding up the new era of hybrid higher education with their campus offering courses that need practical lessons and doesn't need to be worried with student transition in hybrid and digital learning. We have our omni channel offer concept because these units offer hybrid courses and 100% online courses as well. We also need to notice that our student base who come from PSE, they are not relevant anymore. They are only 6% of our total student base and 12% of our hybrid base. Now our student base of digital education is growing meaningfully, and they represent more than 40% of our total student base when we integrate FAEL. Last we have the average ticket analysis that has been important data because we have been stabilizing the prices with strong growth of intake.
This shows that with the current pricing, demand is being stimulated and this will help us not only to grow our student base, but will be able to see an increase of the occupation rate of our units. This is fundamental to resume our growth in the operational margins after a long period that we had challenge to have our buildings full of students. Now, I hand it over to João Aguiar.
João says-
Thank you, Jânyo. Thank you for joining our event, everyone. We present a summary of the results on slide 9. We have a highlight in the quarter and the growth of our student base net revenue in 20%. Our revenue has also grew 6% and our digital education is back in our organic growth and our company can combine organic growth and acquisitions.
Our gross margin is as we expected because we resumed our present in-person activities. It is the end of the deadline of discount that we got with rent negotiating during the pandemic. 1.6% dropped and we are in higher levels than 60%, it is very healthy. Our adjusted EBITDA also presented a healthy growth of 24%, and we have a small margin growth. With this record intake, we could have margins that are more pressured because of the intake discounts that are offered during enrollment season. Our EBITDA adjusted margin had a slow improvement and sound result because the margins supported our cost and investments in expansion and creation of new activities. The adjusted net profit reverted a slight loss that we had in this same period last year. The improved result reflects the revenue growth and maintenance of operational base.
We improved the margin less because of the financial expenses increased, because we have now with a net debt near our one time adjusted EBITDA versus net cash a year ago. Another factor that impacted was our cash generation. But we have our natural consequence because we granted a bit more in the negotiations to make sure our evaded students paid their debt. On slides 10 and 11, we have the analysis of the result in a segmented way. Most of them are medical schools, so EBITDA margin is rapidly growing.
Growing as we expected, and we still have one year to one year and a half for its maturation. In the hybrid education, we have a reduction of margins because of the student base is more compressed because of the second wave of pandemic that we have an impact of intake in the first semester. On digital education, we have been trying a sound operation and financial growth. Fulfilling important strategy objective with digital simulation, which is also to do a better balance the earning of results between these segments of higher education. In this way, we have a company that is not only consistent and with results above the market average, but also quite resilient since our results are well-distributed among the most important segments of higher education.
On slide 12, we have the analysis of earnings excluding the effect of IFRS, which shows that there is an impact of around BRL 7 million of our earnings during the adoption of this practice. On the slide 13, we have the evolution of our average collection period, where we also have a good news to present since the first time since the beginning of the pandemic. We had a general reduction in the average collection period compared to the previous quarter. This was due to the work we carried out to re-enroll our students, trying to take advantage of the reduction of the impact of the pandemic on the daily lives of students, associated with a specific work to recover tuition or areas for students who had already dropped out.
As a result, we had a significant improvement in the evasion indicator as well as a reduction in the average team of account receivable, as you can see on the slide. On slide 14, we are showing excellent and consistent cash flow generated this year, showing a good recovery compared to the last year in both pre and post CapEx analysis. It is worth remembering that this year we paid BRL 28 million in taxes related to the Go Shop fine, and that if we adjust cash generation for the year by this factor, we will have one of the best EBITDA to cash conversions in recent years, comparable only to the years when FAEL was within business. Moving to the. They need the most of our help. We have here the recuperation of credit, knowing the base of students was very important, recovering the cycle.
On slide 15, we have the analysis of CapEx. As you can see, we have gradually resumed investments with a 55% increase in CapEx compared to the third Q. But the capital allocation profile is different from previous years. As you can see, we are now investing more in content creation and IT at the expense of campus renovations and buildings. This is an important process because we are investing in expanding the portfolio of courses and students' digital experience now as a way to build our continuing education ecosystem to ensure that we have the structure and offering necessary for this strategy to work. On slide 16, we have our indebtedness profile, which, due to investment of more than BRL 500 million in acquisitions of seven companies that we made in the past 12 months, changed from neutral to the leverage of around one time net debt adjust EBITDA.
When we complete the acquisition of FAEL, we will make investment of BRL 280 million, increasing source indebtedness level to less than two times net debt. That is levels that are still adequate or comfortable for some more moves, as we are quite confident that we will have a process consistent growth and cash generation. We believe that our focus of maintaining financial strength is fundamental to maintaining our solid profitability ratios, even in such a volatile market period as we are currently experiencing. Those were the comments, and now I give the floor back to Jânyo so that he can make final remarks.
Thank you, Aguiar. Moving to slide 18. We have summary goals for 2021 in our mission to build our continuing education ecosystem, generating profitable growth and solid diversification of activities in higher education. This was important year in this regard. We reinforce our base of vacancies in medicine with acquisition of UNIFASB, UNESC, and UNIFACIMED.
We will have a consolidation of FAEL that will take us to cover the entire national territory with more than 1,000 digital education centers. FAEL will reinforce our presence in the segment teaching of offers via hubs with solid potential to generate synergies, not only with course and expenses, but also in revenue due to the complementary that we will have Ser's health engineering course offered at FAEL and first contribution to its expertise in managing partner centers. In 2022, our goals with this recent acquisition will be to make them accelerate their synergy gains processes and help us build an increasing well-defined and balanced portfolio of activities in segments of digital education and medicine.
Another important objective for next year will be the resumption of the opening of hybrid units, which have been changing a lot in recent years. They are smaller units focused on having their presence in shopping centers and focused on offering hybrid premium and digital courses, creating a true omni-channel environment. We will expand our service to the population, taking advantage of CDMV/DOK, explicitly to expand this model of veterinary hospitals, taking advantage of the other 20 veterinary courses that we have spread across the country.
We will also create a new model of density clinics. With these initiatives, we will continue to create new competitive advantages for our healthcare course, increasing the reputation of our brands and enabling us to offer on-site and online extension possibility courses, reinforcing our concept ecosystem. Last but not least, Ser Educacional will continue with its disciplined approach to operational management courses, expense, and financial leverage, focusing on generating strong returns with growth for our stakeholders.
Thank you very much, and we are at your disposal for any questions. We are going to start now the Q&A session. We ask that you make questions at a time. Let's remember that for asking, you use the Q&A button on the bottom of your screen. Your name is going to be announced, and then there will be a solicitation for you to activate your microphone. Let's start with our first question. From Vitor Tomita, Analyst sell-side . We are going to start your audio now that you can make your question, please.
Good morning, everybody. We have two questions here. F irst, you guys can tell a little bit about reduction of the digital evasion of students and even with the growth of students. I would like to know as well, if you guys could share with us about the profile about EdTech and acquisitions of, and the types of new functionalities that you guys believe will bring more value to Ser.
Vitor, here's Rodrigo. I think evasion of the digital has two explanations. First, mathematical, the base growth a lot. Then when you calculate everything, it looks like that the number growth, but the number is smaller. We have to see also operational alterations we made on this period on the experience of the student, trying to make that the student can focus better on the platform.
So we have the introduction of a new concept, the tutor of experience that helps the student to navigate on this environment, not stopping in academic questions. It's more or less like a coach that can start and grow the feeling of being part of the system as you have on the hybrid system. We change also the content that helps the student stay motivated and studying longer times. We realized as well that helps a lot this elevation, is the concept of the payment. On the courses that go two years, the students don't need to do anything than put their credit card there to have the billing of the season. The system cut the student, if the student doesn't pay more than two months, this reduces this accumulated evasion. Last but not least, we have to remember the way we are selling these courses with these students.
Students, they can do longer courses when we manage that on the selling of the course. Short courses helps also make this integration. When we look the evasion on digital course happens on the third to the fourth semester, then looks like there is the same type of evasion like short courses. This way, we can prevent this evasion on longer courses because some students don't have enough discipline to follow the students on the digital way. Talking about EdTech, there's a very big universe. There is lots of things we are looking at now, and some of them, we are very surprised because we're finding solutions we never thought about. The concept we are buying now is to bring things to the team that we're not able to make possible in the short term. In this way, we can grow our base in this way.
EdTech is the same. We could not believe that they were doing what's possible. So they were able to show to us what they're able to do, and liking that, we made the acquisition. When you talk about EdTech, we have to bring as well things to us that we're not able to produce. Today we understand that for Ser Educacional to develop, we have to create this ecosystem idea, more integrated system.
As my colleague here was talking about evasion, first we made some changes on the operational model, on the portfolio of courses we offer. When you look at the operational model, we may talk about the Tutor Guardian, is a person who has contacted the student.
Then we create a different relationship with the student on the courses, the way we make the course, and then reducing also the duration of the course is associated to the new profile of the professional in the market. We want to have faster courses to put the person able to work in the market. Then we have to, as my colleague also said, the model of paying the course through the credit card. Our institution was the first institution to use PIX as a model of payment. All of that is helping to reduce the student's evasion. We have very satisfactory results with these changes we have been making.
Thank you very much. Our next question is asked by Ian Seskin for BTG Bank. Ian, you are going to ask your question now. Go ahead.
Hi, everyone, Jânyo, Aguiar, Rodrigo. Can you hear me? Can you hear me?
Yes, we can hear you. Go ahead.
Ian says-
Two questions. First one with regards to PDD. There's relevant material regarding PDD on re-enrollment indexes. Can we consider this improving as a recurring result of the company as we have now an improvement on vaccination and pandemic situation in the country? The next one is a follow-up from the previous question, which is about pipeline and organic, non-organic investment. You talk about this inorganic pipeline, talking about EdTech, but I would like to focus on veterinary medicine and medicines. I'd like to understand what's your views on that. Can you see inorganic possibilities in order to expand these segments? Or would we like to talk about a growth environment? Organic growth, I mean, with more veterinary hospitals. Thank you so much.
João says-
Thank you, Ian. The first question, when we talk about the reduction and our better re-enrollment tech levels and our re-enrollment, we have an improvement in the PDD. As we faced a critical period in the pandemic, now we are having more students coming back, and as the pandemic is dropping, the pandemic levels are dropping.
These students, as they are coming to our camp again, we are having more success. We are having a better student intake, and the tickets are being paid also. In the pandemic, many students didn't cancel the will of studying with us, but they only suspended that. Now we are having these students back, and we are able to ask them to pay their old tickets. We still worry with the macroeconomics, but we expect an improvement because of the internal efforts that we have been doing, and we are having more students with us.
Jânyo says-
Thank you so much for the question. I think you asked about M&A pipeline, veterinary medicine, and medicine. We still have many possibilities of acquisition in this field. We would like to have a broad ecosystem of continued education and not only an education marketplace or to be dependent of in-person courses. We still have possibilities to acquire some EdTech that will complement this education ecosystem that we'll have with GoKursos and also the existing products, so that we can meet all the demands.
Some of these alternatives may be materialized. Regarding veterinary medicine, we have many courses. We have three hospitals in place. We have GoVet in Guarulhos, three units in Rio de Janeiro, and we have other units that have veterinarian medicine. We will have some acquisitions. It's possible to have some acquisitions and in cities where our courses are relevant, so that people can perceive new projects.
With the graduate courses, open courses, specialization courses that are related to these products. In medicine, we may have new pipelines, but our focus is to diversify our products with our continued education system. We cannot be dependent on hybrid education or digital one, but we need an ecosystem of education with many products that are tied to our core business, which is higher education.
Ian says-
Perfect, you both. Thank you so much.
Our next question, [Pedro Leandro], analyst in Citi. Leandro, I hand it over to you. Leandro says,
Hi, everyone. Thank you so much. There are two questions on my side. The first one is about competitive environment. I would like to know your views in this last cycle and maybe have a projection for the next year. In this competitive dynamics, this is my first question. The second is about this recent improvement of inflation rates. Are we going to have an impact because of the inflation in next year's intake? And about our costs, are we going to have challenges for a specific line of business? Are you paying attention to that? These are my questions. Thank you.
Jânyo says-
I'll start with the complement if they wish. As incredible as it may seem, we had a smaller growth. We could see a reduction on the discounts because the intake is more than we expected. The intake will be favorable. We have started this process with responding well. We could do it in advance compared to the last year.
The first and second semesters intake of last year, they extended a bit. In 2021, the intake process finished as we expected. The 2022 intake process is ongoing, and we'll have a good response. As an effective risk, we see that with the growth of inflation, we will have an increase on the unemployment level in Brazil. But this is a risk for the market as a whole, not only higher education industry. When we see the future, we have a possibility to have an average ticket improved. This is a post-pandemic result.
João Aguiar says-
Leandro, when we look at the inflation rates that we estimate for next year in the macroeconomic environment, we are worried of course. When we look at our main courses, some of them are linked to the inflation rates. However, we are aware of what we can do next year considering our synergies that we are going on with the accomplished acquisitions, with our relationship with our vendors, because they are impacted on the expense and costs. And our educational matrix also, they leverage improvements and cost efficiency. We are worried, and we need to have a daily monitoring of the situation. We have an environment that we can keep our characteristics, which is to be strict and reach the best conditions, giving the students return on our can be. And we had recent acquisitions, so this inflation pressure would be a bit smaller in our results impact.
Leandro says-
Okay, thank you so much.
Our next question is Carlos Herrera. He is sell-side analyst of Condor Insider. Please, Carlos, go ahead. Carlos, are you there? Now let us go to our next question as Carlos is not here. Marcelo Santos, sell-side analyst of JP Morgan. Please, Marcelo, go ahead
Marcelo says-
Hi, everyone. Thank you for calling me. First, I would like to talk about the online education ticket. The ticket improved a bit. Are we going to see expansions of this ticket? The second question is about big advancements in hybrid education. In the current units, are you going to have smaller campuses? Are you going to have smaller campuses or not? These are my questions.
Rodrigo says-
Regarding the tickets in the digital education as a whole, we observed that the dynamics of this segment tends to change. Many people in this market, many of them were successful, and many of them saw this is not a simple market as they thought in the beginning. We believe that a consolidation of the digital and 100% online education will happen. They will consolidate, and on the other side, we will implement the health courses and engineering courses, especially in FAEL. We will have a more structured campus in one side that can work with all the campus. The campus, I mean, FAEL in other places. This will improve our ticket in these kinds of courses that we cannot sell them without this structure. Bearing that in mind, I will tell you are right. One part of the pricing pressure tends to diminish.
And this higher education industry, with some players leaving the market that cannot keep up with the current pricing, specifically in the specialization course, in the grad school course. These are the industries that suffered with the online use. So depending on the evolution of course makes for engineering health areas, this changed a bit. With regards to the rented spaces, I think we got to a level where the volume of buildings that are not rented anymore is they stopped. I think now they will have more students in the buildings because we will have an increased student volume next year. This will make us to have a higher occupation of these buildings, and also because of the students that come from the clinics. This also helps we having more students in our buildings and having an increased margin.
Because we had an expressive number of students in the latest years. This semester, we could stabilize it, and we did not have an increase of this number because the first semester was very difficult. Our starting point was complex to have students in our buildings again. We will not have lots of adjustments in building occupation. If we are successful in the summer intake of our student base, we are thinking having building occupation in levels that we had before in buildings that we did not have many students there.
Jânyo says-
Some units that we started in 2008 that we reduced the numbers of building, these units are performing well now. They are occupying bigger spaces. We need to see the result of the institutions in units that are consolidating, the ones that are starting now. We need to see how the intake will proceed from now on. We imagine that some units need space. Other ones, they are resuming their intake process, and we are keeping some classrooms and the level of occupation.
Marcelo said-
Thank you so much, Jânyo.
Our next question is Maurício Cepeda, sell-side analyst. Please, Maurício, go ahead.
Hello, Jânyo and Rodrigo. This is Maurício Cepeda. Thank you for the space. I would like to ask something that was talked already before. It's about the perspectives. When you guys did this diversification of the veterinary hospitals and with a different strategy, I would like to know how is this working, and if you guys are going to create a different unit with different buildings, how do you guys see that? Thank you.
Maurício, that's a very good point. We are step by step differentiating the company in three blocks. One is what we call the 3L Digital. It's going to have all the digital assets. We are creating areas first, and then to consolidate that as an enterprise that is going to be dedicated to operate those clinics and veterinary hospitals. We have already a team working on this process, and in few weeks, we're going to approve the budget for these areas.
The third point, the third enterprise, is a hybrid operation where we have medicine inside and parts also in the clinic, and then we have the hybrid system there. These operations and the hybrid model and the clinic operational, they have to work in a symbiotic way, the way we use the labs and the higher education. With the evolution of those business, we're going to report that in a more separated way so that people can see the evolution of this data.
That was the reason why we started using the EBITDA in the medicine course, in a separate way. With the clinics, they have the size and a more specific and relevant size. We are going to segregate their data. The second question, what do we expect from the hybrid system here? The colleague already asked that, if you can explore a little bit more the question, it is okay. We talked a little bit about it before, and we expect that the hybrid system is going to recover with the gathering of new students here, and we think that we are going to have better levels than 2019. With the going back to normal life, we see a growth in our intake of students. In this global way of this ecosystem we offer for our students, they are going to see a variety of products.
We have here already the GoKursos and inside our institutions and our partners, we are putting our products to sell on this ecosystem. Coming from the FAEL, we are growing new possibilities and also the possibility to bring engineering courses and medicine to Brazil as a whole. This offering of hybrid products, we see it as a very important step on the retaking of the market. In this pandemic, we have some setbacks, but still, we were able to sustain some growth. In the system, we have some new courses, bringing with them new products that we were not able to offer in the past.
Thank you, Jânyo.
Thank you, everybody. The next question is from Carlos Herrera , sell-side from Condor Insider .
There are two questions. You guys can deliver a view how it is going to be the fourth quarter, and how are you guys arriving 2022? What are the risks and opportunities for the company?
Carlos, thank you for the questions. The fourth quarter is going to be very interesting as the third. The big difference is we are going to see a dilution of the medium ticket when we see that we are gathering new students. The other point is, in comparing to the third, is because the ticket in the third semester, we were able to maintain with the record gathering of new students, even with the discounts we gave to get more students. We were giving some BRL 99 discount for two or three months. There was a big weight on the ticket, but with the growth of the number of students, we could dilute those costs. We see here the reduction of the cost of marketing that is going to impact more on the fourth quarter.
On the other side, the costs with our workers is going to have also a good impact on these costs because we are not going to have these costs now. For 2022, we see few opportunities that we would like to talk here. First is the hybrid system growing also because of the pandemic. Even if last year we have some impact on the gathering of new students. We do not see a third wave happening next year, and just that is going to help a lot the gathering of new students. In our sector, we can see some behavior that is year by year, and if we see a different gathering of students from one year to the next, and with the coming back of the normal life during the pandemic, we can see some positive consequences on the growth of students numbers.
Here, another important point for 2022 is the consolidation of FAEL. It was a very important acquisition, and we are going to see any week now the approval from CADE, and we see it in a very positive way. That is going to be very soon, the approval from the CADE, and we see the approval happening even already this year. This is going to help us to consolidate base of digital education, helping to consolidate also the last acquisitions we had, and helping the synergy between our producers, our portfolio of courses to integrate between them, and offering a broader offering to the students.
We see a big recovery for 2022, and development like that, next summer is going to be the first summer after two years without impact from the pandemic. Helping us to recuperate results and showing that the work we have been doing is doing a very good symbiosis between the investment and organic growth. We want to grow with acquisition and in organic way.
Remembering, to make questions, please send them through the Q&A button at the bottom of your screen. Your names are going to be announced, and you are going to be invited to open your mic. With no further questions, we are going to finish this session now. We would like to give the floor for the final considerations.
Thank you, everybody, who have been here with us during our results report, and we are available for any questions you guys want to send us. The conference about the third quarter of 2021 is finishing. The department of investment relationships is going to be open for questions and for any issue. Thank you very much. Have a good day.