Good morning. Welcome to Ser Educacional conference call to discuss the company's results for the first quarter 2020. With me today are Jânyo Diniz, Chief Executive Officer, João Aguiar, Chief Financial Officer, and Rodrigo Alves, Investor Relations Officer. We would like to inform you that this event is being recorded and that all participants will be in listen-only mode during the company's presentation. After the presentation, we will start the question and answer session for analysts and shareholders when further instructions will be provided. Should any participant need assistance during the call, please press star then zero to reach an operator. This event will also be broadcast live audio and slides via the internet at ir.sereducacional.com. You can also access the webcast audio and slides through tablets and smartphones equipped with the iOS or Android systems.
The replay of this event will be available soon after its conclusion for a period of one week. Before proceeding, we would like to make clear that forward-looking statements may be made during this conference call relating to the business prospect of Ser Educacional as well as to its operating and financial forecasts and targets. Forward-looking statements are not guarantees of future performance. They involve risk, uncertainty, and assumption because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions in the industry and other operating factors may also affect the future performance of Ser Educacional and could lead to results that differ materially from those expressed in these forward-looking statements. I would now like to turn the call over to Mr. Jânyo Diniz, Chief Executive Officer, who will begin the presentation. You may begin, Mr. Jânyo.
Hello, everyone, and thank you for participating in our conference call, and I hope you and your families are healthy. This time, we are going to start by talking about the planning we have developed to face the impact of COVID-19. Our initial message for you who follow us is that we believe that periods of crisis like the one we are facing will end up distinguishing the leading companies in their segments. It will separate firms that can help from the ones that will need help. We, as leaders of our companies, we know we now have the opportunity to test the strengths of our corporate culture that we have been working on shaping over time. I believe that Ser Educacional has a solid cultural base and is able to help society.
We know that crises always pass, and this one will pass, but the recognition of companies that support the society remains. This is very important, especially for those that work in education to manage to balance social support with strategic operation and financial fundamentals. It was in this spirit that we devised our plan to respond to the COVID-19 challenge in two stages. The first, dedicated to paralyzing our face-to-face class by mid-March, a period when many people were not aware of the risks of pandemic, which led us to spend a lot of effort in communicating with our stakeholders. At the same time, we transferred our students to the remote school system through Ser digital classrooms, which is based on Microsoft Teams.
We had the advantage of having an agreement with this company for many years, and our students are allowed to own up to five licenses free of charge, what helped our IT staff members to migrate our students to attend to synchronous video classes. To close this first stage, we also focused on the safety of our team and communities in which we are part of, and in this sense, we managed to put more than 90% of our corporate team on a home office or vacation regime, as well as start monitoring cases of COVID-19 among our workers, and as possible for our students and suppliers. We managed to reinforce our cash positions, raising BRL 300 million to make sure that the company will probably have enough resources to go through this crisis.
We created a program of installments of short-term tuitions for students who demonstrate they lost income or job, as well as extended the enrollment process in order to mitigate the academic impact for these students and for our results. We also started to seek on essential expenses and cost owns. Therefore, reducing CapEx, OpEx, as well as initiating the adoption of MP 936 to protect the job of our employees, especially those whose activity is essentially face to face. We have made a comprehensive plan to raise awareness and support to communities, hospitals, and health professionals, combining a series of activities that will take place through the period of the pandemic as well as for the recovery phase. The second stage was more dedicated to the impact following the implementation of the Ser digital classroom.
Now we are dedicating ourselves to the format and execution of the resumption of classes, something that will certainly require special care on our side, and we are working on a detailed plan for this. We have changed some of our operating activities that will be important for improving results over the next quarters, such as the formation of classes in the second half, optimization of classes and the structure as a whole, and of course, we hope to resume our business plan with the launch of new course and entering continuing education, which we will detail later. Moving on to slide five, we show a little bit about Ser digital classroom, which is being used to keep teachers in contact with students, maintaining study routines for theoretical classes.
As you can see in the graph in the lower left corner of this slide, the participation rates of students are higher and in line with our traditional face-to-face classes. The grade given by class leaders in weekly surveys that we are conducting is also quite satisfactory. On slides six to nine, we present a summary of the initiatives to try to mitigate the impacts of the crisis in the cities where we operate. We started with the communication efforts on the change from classrooms classes to remote school regime, motivational videos, health and prevention tips, but especially awareness of the risks that our society runs. We were able to quickly transfer our face-to-face congress to the online modality, transforming these events into two interactive lives that kept our academic activity in their normal course. The lives of conference teachers and engineers had, in that period, over 500,000 views.
We created and participated in musical lives that helped to raise donations for different sectors of society, as well as helped to reinforce our brand in distance learning, which had improved performance from these events associated to this other initiative. Our teachers and students produced hand sanitizers, masks, and they are even in the development and production of respirators. We also lead specific campaigns for donations to hospitals. We support for the purchase of food, hygiene and cleaning materials, safety, and food for health professionals, as well as we support a very interesting APP that allows the population to be served by telepresence in the fight against COVID-19. On slide 10, we summarize our solid financial situation, which is fully prepared to make our company go through the difficult period that we are going through. Note that we have a proposition form of cash of BRL 482 million.
That represents about 30% of net revenue of the last 12 months, and we have a comfortable schedule for payment of our financial indebtedness. We are therefore a solid financial position to allow our company follow our mission, and at the same time, provide the consistent results to our shareholders as it did throughout our history, even in challenging periods in our economy in recent years. Moving on to slide 12, where we will talk about the results for the quarter. As we announced in the disclosure of the last quarter, the intake students was affected by the measure adopted to mitigate the impacts of COVID-19 as mid-March, making our performance in terms of growth in the student base and the average ticket that was going in line with our budgets to be impacted.
Even so, we managed to grow our total student base due to the acquisition of UniNorte that we consolidated in November last year, and the distance learning that continued to grow at a strong pace. On slide 13, we analyzed how our students base was by segment and average ticket. It is worth noting that our healthcare students base remains solid and represents 51% of our total base. It is important to highlight that the enrollment of students was affected in this final stretch of the quarter due to the lockdown in cities which we operate due to COVID-19, which generated some particular effects in our student base and the average ticket that we will highlight.
First, as there we have been experiencing a change in the profile of students who started to become mostly out-of-pocket, the enrollment of these new students in the first months occurs at promotional price of BRL 49.90 or BRL 99.90, depending on the region, which is already pressing the average ticket over the last years. This increasing over time as we increase the share of our out-of-pocket students. Second, this effect associated with the delay of enrollments generated great impact on the average ticket in this quarter, precisely because there are students with higher average ticket could not enroll as expected. Third, there was an additional effect generated by the postponement of enrollment of veterans, FIES, of approximately 2,500 students. It ended up generating an additional impact of the average ticket of the quarter, which when normalized, will generate accumulated revenue for the semesters since these students are enrolled.
These are my initial comments. Now I would like to give the floor to João Aguiar, our CFO, to talk about the financial results.
Thank you, Jânyo. Hello everyone, and once again, thank you for attending our event. On slide 14, we have a summary of the results for the quarter, which had as main impact the net revenue recognition that was below expectations due to the effects of the COVID-19. It is important to highlight that as the crisis impacted the two last weeks of the quarter, our efforts to mitigate the impact of the lockdown through costs and expenses reductions did not reflect yet in our results, but on the other hand, impacted revenue recognition and the formation of classes, preventing us from the ongoing forecasted cost dilution. This made the impact of the revenue reduction to be fully reflected in the EBITDA and net income, since costs and expenses line behavior was quite generally flat as expected.
Therefore, we also expected to have a good revenue generation, given the positive intake and re-enrollment pace we were having. On the other hand, for the second quarter, we expect a reduction in our costs and expenses structure since we started this optimization work by mid-March, reducing these expenses to the minimum necessary to maintain our operations and jobs, as already mentioned by Jânyo. On slide 15, we have the breakdown of results between on-campus new units, UniNorte, and distance learning. Again, we noted that our distance learning presented very favorable pace, both in terms of improving its participation and results and EBITDA margin growth, now reaching levels even above our consolidated results, as highlighted in the charts on the right.
UniNorte, on the other hand, which despite all the problems with COVID-19, presented a positive result, reflecting once again the synergy gain generated by the restructuring we are carrying out after the acquisition. Moving on to slide 16, we have an analysis of our net receivable days, which followed the same trend observed as of the first quarter 2019, when we changed the provisioning format and we understand that this average term around 90 days for regular students best reflects the actual payment cycle of our student base. The chart below show how strong our out-of-pocket student base is growing and becoming significantly more important. Regarding the net receivable days from FIES, it is worth mentioning that the federal government continued with a longer payment cycle, something that also started to occur in the second quarter of 2019.
On slide 17, we present our CapEx, which, in line with that observed in the last quarters, has been reduced since the investments we have made in fixed assets are already prepared and part of them have been transformed into OpEx as they are related to the project Ser Digital. As this was one of the company's cash generation preservation initiatives, I believe that this year we will see an even more significant reduction in CapEx, destined for activities that cannot be interrupted, such as preparing laboratories for courses that are entering the phase of practical classes, for example.
On slide 18, we have a more detailed view of the financial health of our balance sheet, which, as Jânyo said, is prepared to go through this more acute period of the crisis and now with a very solid cash position since we have raised significant resources to go through this challenging period in a healthy way. These were my comments on the results, and I give the floor back to Jânyo so that he can make these final remarks.
Thank you, Aguiar. Let's please go to slide 20 for an update on the next steps and provide a sequence to what we talked about in the last earning call. We started this year a project to create a new lever dedicated to value generation to increase our presence in the distance learning and in continuing education. We understand that both are broadly complementary to the activities we already have and provide capacity to create new source of revenue with potential higher operating margins and within this planning, we decide to prioritize in 2020 the expansion of our course portfolio. As you can see on slide 21, we are focusing on some initiatives that aim to maximize our investments in the distance learning platform.
The first is that the launch of GoKursos , which functions as a distance learning marketplace that aims to offer continuing education course with a new brand that can even be offered by third parties in a white label format. In this model, we will have partnership with other companies in order to increase the amount of content as well as to bring recognized brands to be offered to the public. The second is the launch of the UNINABUCO Digital brand to launch a new line of undergrad course in different formats compared to those practices by the market in general. We are preparing a new package that will also be launched on a large scale in the second half. The third is a new model of supply at the UNINASSAU distance learn graduate students who have a range quite broad course and offer formats.
The fourth initiative will be our face-to-face graduation with a 40% distance learning workloads following the new rules published by the MEC earlier this year. I believe that this new modality will be relevant to increase the penetration capacity of higher education in Brazil, especially because of this crisis that is leading people to have less resistance to the use of distance learning tools. With these initiatives, we will believe important steps in the development of the company, especially because we are modernizing our increasingly offer trend through and distribution capacity with the head turned to the transformations that higher education is going. On slide 22, we detail GoKursos a little more, which has very interesting features, such as breaking the barrier of students' entrance between regulated education or not.
Beginning of class, if you need to wait for class formation, and especially the ability to offer via partners, as is the case with our first partnership with iG, that we are testing as a beta version. We believe that it will go into production starting next month. On slide 23, we present the first operational partnership of this new distance learning offer format, which is our commercial agreement for the distributions of Barça Innovation Open University course, exclusively partner of Barça in Brazil. This is our first partnership within the new strategy of entry into continuing education, and it demonstrates how we can leverage our operational structure to quickly offer new course to the market.
These are premium course in the field of sports from a well-known brand in our field. I believe this will be the first of many partnerships that will fit our initiatives in continuing education. To conclude, we highlight on slide 24 our value generation levers. With this for the solid development of our distance learning, and which we will have a totally new line of course and brands to be offered to the market. We are very involved in this since we believe that this center will even be more valued by the market from now on. Our entry in the continuing education segment is just beginning, but with a portfolio of new course, new ways of distributing content in different segments, from the most economical and short to the longest and premium.
We also have the integration of UniNorte, which is generating representative synergies and is helping us a lot this year. We will still have opportunity for ongoing acquisitions as we kept the due diligence process in progress during this period, awaiting a definition of the scenario and if these negotiations are still going on. Interesting, we will have this more advanced process. We also believe that the new opportunity will appear as we are realizing that many players in this sector will not have the competitive advantage of financial strength that we have today. Those are my initial comments, and we can now start the Q&A section.
Thank you. We will now begin the question- and- answer session for investor and analyst. If you have a question, please press star then one on your telephone. If your question is answered during the session, you may remove it from the line by pressing star then two. The questions will be answered in the order they are received. We ask that you use your handset when asking a question in order to maintain excellent sound quality. Please stand by while we collect the questions. Our first question is from Marcelo Santos from JP Morgan. Go ahead.
Hi. Good afternoon. Thanks for taking my question. The first question is if you could provide a little bit more detail on the UNINABUCO Digital new undergrad course that you mentioned. What are the main changes that you're bringing to the market? The second, if you could provide some color on the trends in April and May, especially regarding collections, but also what other things you are seeing in those months, if possible.
Hi, Marcelo. Well, what we are doing now with UNINABUCO Digital, the main difference between the other course we have is that they have a reduced time of duration of the course. For example, a course that has two years in the UNINASSAU distance learning project will have only 18 months in the UNINABUCO. The second is that the students has a different, not just a different price, but a different way to pay the course. It is already available at uninabuco.digital. You can go there and see what we are doing as we offer our course. We are offering at the first moment two and two different course, but we're preparing more to launch in the next semester.
Hi, Marcelo. João Aguiar speaking. Well, we are experiencing a low to moderate delay increase so far, which is important because it shows that we have a very registered student base with a very good credit profile. At this moment, we need to see how that works for the rest of the semester.
Okay. Thank you. Thanks a lot.
Okay.
Our next question is from Susana Salaru from Itaú. Go ahead.
Hi. Good morning, guys. Thank you for taking our questions. We have two questions. The first one is regarding the GoKursos, the marketplace. If you could elaborate a bit more how it's going to be the revenue sharing between Ser and the other companies that will participate in the market share. How are going to be the mechanics? That will be our first question. Second question, on the cost-cutting initiative. I mentioned during the initial remarks, you said that we have a mismatch between revenues and cost, and the cost cutting will actually be seen in the next quarters. If you could just elaborate a bit more, which line should expect to improve going forward, and at what degree we should expect these lines to improve? That's actually for Aguiar, the second question. Thank you.
Hi, Susana. This is Rodrigo speaking. About GoKursos, unfortunately, we cannot tell you the revenue share. Obviously, it is something that is brand new and something that we are just starting. They are usually working as content providers, and we are working on the distribution side on those, when we are distributing the content. On the other hand, when we have the marketplace working as a white label, it is the opposite. We are providing the content and the platform, and the partners are only the distributors of these products. We are still in the first operation, the first agreement signed. When we have a broader base of partners in this project, we believe that we can provide some more detail. What I believe is that those first contracts we are signing, they also have significant changes going forward with the next contract.
So maybe it is not even the right time now to provide more detail on that. I will send the floor to Aguiar to answer on the cost side.
Well, Susana, at this time we are renegotiating with the suppliers. We are understanding how kind of activities we need to diminish in our units. It is quite early to say how it will be the whole structure of cost and expenses at this time. But we are really going deep in all of the expenses we have and costs we have to understand what kind of cuts we need to do at this moment.
Just to provide a little bit more detail on the mismatch. The point is, when we have had the news about the coronavirus, all suppliers and rents and all cost structure was already set because the coronavirus struck the results as of the second half of March. So the whole quarter, in terms of payments and cost, et cetera, they were already gone. So all payments were already gone because usually suppliers are paid in the first half of March. What we wanted to say is that in the second quarter, what is likely to happen is all the efforts we have done will start taking effect. Therefore, all the reductions in marketing, all the reductions in non-essential contracts, in the day-to-day basis and so on. Even the adoption of the labor, [Non-English content] is also going to benefit us over time.
There will be a third stage that will happen probably in the second half, that will be more related to the adjustments we will do, focusing on reoptimizing the content. So what is happening to our results now is that basically we had set the classrooms expecting a certain level of enrollment, and this was not finalized because of the coronavirus impact. But when you change the semester, go to the next semester, this can be helpful, and we can reoptimize the structure.
Thank you, Rodrigo. Thank you, Aguiar. Very clear.
Our next question is from [Thiago Buenaviste], from Goldman Sachs. Go ahead.
Hey, guys. Good afternoon, everyone, and thanks for taking our question. Our first one is regarding prices. You mentioned in the press release a more competitive overall environment, and your peer was very vocal about the situation in the state of São Paulo. I would like to understand a bit more, how are you seeing the market trending in terms of competition and prices, and how sensitive or not the students are to higher discounts? If you think it is just a matter of finding the right price for them to take the decision and enroll, or is this more related to confidence, then probably volume will be postponed to the future? This is the first one.
The second question is regarding provisions. Just to understand if you are or planning to finance the students during this moment, and under this new provisioning methodology, how should we think about PDD over the next quarters? Thank you very much.
Hi, Thiago. This is Rodrigo here. The line is CC cell, so I will try to answer this, and when they join us, they can help you with the answer. But in terms of pricing, what we saw in this first semester was the aggressive market that we are relatively used to over the last two years. Obviously, every year, the market is getting a little bit more aggressive. But in our view, the market taking out one or two more tougher players in different regions. The market was relatively similar in terms of veracity and discounts as we could see. What happened to our average ticket is much more related to the lack of re-enrollment, especially considering that we are in an odd quarter. When we enroll the new student in the odd quarter, they take the promotional price, so they do not contribute much to average ticket.
But when you do not re-enroll the students that are in your base, this impacts more our average ticket. The other question related to financing students. We understand that it is time to help students, and we created a financing line to students that can prove to us that they have lost a job or they had some sort of income loss. This will be a short-term financing between three to nine installments. We are working still with the total volumes that we will offer, but we had positive news in terms of collection. As we had positive collections from March to May, slightly obviously below to what we were used to, we can take the advantage of having these positive collections to help a little bit more those students who are suffering more. This will probably allow us to increase a little bit the students per class rate.
In terms of provisioning, what we are doing as of now, and this can change obviously, because we do not know the extension of the crisis yet. But as of now, we are not taking different approach to provisioning. But again, things can change in a week during this crisis. We do not even know today when the classes will resume in face-to-face basis.
Okay, Rodrigo. Thank you very much.
Again, if you want to ask a question, please press star then one. Our next question is from Susana Salaru from Itaú. Go ahead.
Good morning. Thank you for taking this follow-up question. Rodrigo, if you could elaborate a bit more. If I'm not mistaken, you mentioned that July and May, your collections improved year-over-year. I just want to make sure if that's the case. If that's the case, at the bottom, the last data continues to have the same trend as July or May, or you have seen some change in the trend?
Sorry. Good point. Susana, just to make it clear. in March, we had an impact in collections that improved in April and May. However, we are collecting less in a year-over-year basis. On the other hand, maybe we were too conservative. We were expecting this to be worse than is actually happening. Collections-
Okay.
are occurring, I would say, in a normal pace considering the student base we have enrolled today. But it's below in a year-over-year base.
Okay. Perfect. Thank you very much for clarifying that, Rodrigo.
Oh, thank you for this question. Very important.
Again, if you have a question, please press star then one. Please stand by. Once again, we collect the questions. At this time, we have no more questions, so I want to thank you. This concludes the question- and- answer session for investor and analyst. I would now like to pass the call to Mr. Jânyo Diniz for final considerations. Mr. Jânyo, you may proceed.
Thank you all for participating in our disclosure of results, and our investor relations team is available to help you with further information. Have a good afternoon and stay healthy.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.