Good morning. Welcome to Ser Educacional conference call to discuss the company's results for the second quarter of 2018. 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 all participants will be in listen-only mode during the company's presentation. After the presentation, we will start the Q&A session for analysts and shareholders when further instructions will be provided. Should any participant need assistance during the call, please press star zero to reach the operator. The 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. A 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 business prospects 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 risks, uncertainties, and assumptions 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 conference over to Mr. Jânyo Diniz, Chief Executive Officer, who will begin the presentation. You may begin, Mr. Jânyo.
Good morning, and thank you for attending once again our earnings conference call. It is time to talk about the results for the second quarter of 2018. Let us go straight to slide three where we find the main highlights of the period. I believe that the main evolution of this quarter was to present a company with a cost and expense structure much more in accordance to our history and the student base we will have in 2018 on, in period.
Therefore, despite the hiccups that occurred at the beginning of the year with a delay in the operation of the FIES systems during the first half, and an economy that did not go as expected, we are also showing improvement in several key indicators: total student base, net revenue, adjusted EBITDA, and even in terms of non-adjusted net income, which by nature includes the non-recurring effects which presented themselves in this quarter. That came with the result and connection plan we started in March when we realized that we would not have student base goals within the budget. So we acted quickly to readjust the company to this reality, which is something that has a lot to do with our DNA.
It is our practice to evaluate our scenarios frequently, and when we find ourselves moving away from our targets, we dynamically seek to make changes we need to maximize efficiency in order to keep our focus on our long-term goals. Which is based on creating an educational enterprise with national coverage, dominant in the North and Northeast regions, and relevant in the other regions of Brazil. Operating at rates of return that are consistent with the company's history. Offering quality educations recognized by the labor market and the society. Speaking of recognition, in this quarter, we also had relevant developments. UNINASSAU obtained an institutional Concept V, the maximum grade in the Ministry of Education in the accreditation process of our university center in the city. A relevant mark, being the only university center of the state to reach such a record.
Out of the 202 existing university centers in Brazil, only 12 were reaccredited at the maximum concept. From those, two belong to Ser Educacional: UNIVERITAS Rio and UNINASSAU Recife . Besides, we had Fortaleza and Salvador accredited with Concept of V . That shows that our teaching pattern has relevant quality, and I believe that with this long-term maintenance, it will bring important benefits to our students and to the recognitions of our brands. Brands were also featured in this quarter. UNINASSAU was recognized by O Estado de S. Paulo , in partnership with Troiano Branding, as the most recognized higher education brand in the Northeast region. It is an important external recognition that confirms what our surveys generally show, that our brand in the Northeast is increasingly strong and recognized by the market and positively understood in the states of the region, which will certainly be a factor collaborating with our development.
From the point of view of organic growth, we had some highlights as well. First, the transformation of UNAMA Santarém and UNINASSAU Salvador into university centers, which will bring us municipal autonomy to open new course and units in the cities. An important move to be even more relevant in these markets in the future. Second, we had two more accreditations of on-campus units. Now in the cities of Betim in the State of Minas Gerais, Itabuna, State of Bahia, and Caxias do Sul in Rio Grande do Sul. These units will enter into the backlog of accreditations that should be opened as of 2019. With this, we are completing 40 of the 45 accreditations that we programmed to open as of our IPO.
To conclude this slide, we have two important financial highlights. The first is that we have already executed 31% of the stock buyback plan announced in April 2018, resulting in an investment of about BRL 30 million in this quarter. We will continue with the program open, and we are doing the report dates whenever the regulatory windows allows us. The second financial highlight was completed on August 2nd, when we received BRL 137 million, referring to the last installment of the debt created with the federal government pursuant to Portaria Normativa nº 23 of 2015. This is a successful closing of a difficult deal, and that will now be important to keep our company capitalized for new investments. Turning now to slide four, we present the status of the implementation of the 2018 Action Plan, which we announced in the first quarter results call.
To summarize for all those present, the plan was to adjust costs and expenses compared to the 2018 budget by about BRL 80 million. This plan was executed in three different phases. The first one consisted in readjusting our structure to the current student base, optimizing staff, renting costs, reducing the volume of market investments, and adjusting the pace of new unit and course accreditations. The second was a fine-tuning based on our internal version performance benchmarks, where we made some specific adjustments. This also includes the unification of brands in the Northeast, Northeastern capitals, where we only operate under the UNINASSAU branch, with the exception of the Metropolitan Region of Recife, which is a market that bears two brands in parallel.
The third phase, which is the final stage of implementation, is about the realignment of new units to be opened between the years 2019 and 2020. I believe we will open about five units next year, and we will resume our opening of 10 units per year by 2020. To close this planning, we are still waiting for some accreditation to be concluded in this year, including the first rank created by the Ministry of Education at the end of last year for university autonomy at the state level. With this, we can consider this phase of adjustment of the structure almost complete, and from now on, we will return to focus on our growth plan, with the main difference being that we will be more dedicated to calibrating the pace of growth investments to our business without losing our entrepreneurial DNA and focus on market penetration.
In addition to the 2018 Action Plan, this year we also start the project with a long-term vision, the Ser Digital project, as well as with the period in slide five. This is the partnership we have made with Accenture, one of the most renowned consultants worldwide in the field of digital transformations of companies, with the aim of making the digital transformation of the Ser Educacional group, not only in the offer of distance learning products with state-of-the-art technology, but moreover, a transformation in the company's corporate culture in order to offer a unique experience to students, teachers, and workers. It is about integrating and adapting our existing digital culture, better integrating our objectives, using the existing new technologies, and enabling us to also participate in the creation of educational and business management technologies of the future.
As such, we make our company even more efficient with improving educational quality while optimizing operational costs by generating a true digital transformation, where the students with learning in a distant learning center located away from the major cities will have an educational experience as positive as the students studying in on-campus teaching in the big two state capitals. With this project, we are even remodeling our corporate environment, creating a climate and a culture even more prone to generate innovations. We are conducting more than 50 initiatives with the objective to making a differentiated educational environment in the market. The project will take us two years, and we have finished the first phase, which was map and diagnosing the company.
It was an intense work that involved our employees in a very deep way, and we will start from the next quarter to inform the results of this work and its main initiatives. Moving on to slide six, we have the final figures of 2018 from student intake process. We managed to close the semester with enrollment of graduate students for distance learning and on-campus about 4% higher compared to 2017. With the distance learning, our biggest highlight, growing around 170%. In the on-campus segment of regular students, there was a decrease of approximately 12%, mainly due to the enrollment of grad students in the first half of 2018. Almost 90% lower than in the same period of 2017, falling from 9,000 students to about 1.1 thousand students in the first semesters.
Which ended up overshadowing the positive results we had in attracting out-of-home students, which in turn grew by 5.7% in the same period. It is worth noting that in both distance learning and on-campus segment, healthcare course continued to be the highlights, which has helped in improving the composition of our average. The average duration of the course. We believe we are maintaining a healthy student base once again this year. On slide seven, we have the evolution stats of our student base compared to the same period of the previous year. Our on-campus undergraduation base was reduced by about 2% in the comparison between the two periods due to the low enrollment of FIES students this year. This impact was offset by the good development of distance learning, both in undergraduate and postgraduate segments.
Note that the total number of students ended up growing almost 3% this semester, causing the company to continue to grow its student base as it has done every year since its inception. These are my preliminary remarks, and I would like to pass the floor to our CFO, João Aguiar, so that he can make his comments on the results of this quarter.
Thank you, Jânyo. Hello, everyone, and thanks for participating in our results event. Going to slide eight, we have our summary of the results of the quarter, which shows that on adjusted basis, despite the extremely challenging effects, our company structure of costs and expenses is already corresponding with its current student base, mainly due to the success of implementing the 2018 Action Plan, which we detailed in the presentation of the first quarter results and was also commented by Jânyo today.
From the revenue point of view, we obtained an adequate average ticket for the enrollment process we had this year, with dropouts showing its first signs of improvement and the average ticket as a whole relatively well-preserved compared to the inflation. We also had an improvement in our gross cash profit, which can be explained mainly by the impact of the reduction in rental contracts, which were renegotiated both in value in the unit themselves and in the amount of rented properties itself. As for our adjusted EBITDA, we achieved margins close to what we had in the same period of last year due to three factors. First, the optimization of the G&A, especially on an administrative sheet, since we have compared our structure to existing students.
Second, marketing, which was improved due to the reduction of institutional campaigns as the quarter is not a typical quarter for the enrollment season, and we have reduced our institutional marketing. Finally, because of the brand unification in the capitals of the Northeast, except for Recife. Third, expenses with new accreditations. This impact is mainly seen in the third-party service accounts and other expenses, also because of the implementation of the action plan for this year. This result was partially compensated by the bad debt, which increased again in this quarter, but was already lower than the fourth quarter of 2017 and the first quarter of 2018. This is a consequence of a persistent economic scenario in lower CP for a long period, but we are already increasing the provisions more effectively, reflecting this higher default.
This year, we also had the implementation of IFRS 9, which tends to reduce the volatility of provisions by adopting a methodology where we recognize a percentage of the past due account receivables for each month according to our historical defaults. What differs from previous methodology of provisioning 100% of the past due account receivables when reaching a delay of over 108 days. However, as higher default levels are recurring for some time and have stabilized somewhat at this high level, we have not yet seen a significant difference in accounting between the two methodologies. Let's switch to slide eight, nine. We have the breakdown of our results by segment. We can see that our older units have recovered and are closing this semester with an EBITDA margin above 30%.
This recovery was possible because the 2018 Action Plan allowed us to reduce shared corporate expenses as well as the reduction of rentals, which impact mostly these units. An additional aspect for the quarter was the reduced marketing expenses, given that we reduced our marketing efforts. It has positively impacted the results in new units and distance learning in terms of EBITDA. Even in the terms of cash gross margin this quarter. It's worth noting that if we consider distance learning graduation and post-graduation, we are reaching almost 18,000 students, which has taken us closer to the breakeven of EBITDA. In this sense, what the table shows is that in the semester, the organic growth effort is consuming about 6 percentage points of our margin. In the quarter, the amount was already much lower in the range of 4 percentage points.
A much more adequate level under the point of view of balance growth, investment in the future of the company, and current profitability. Moving to slide 10, we have the average receivables term, which was seasonally high compared to the fourth quarter. Both in the year-over-year analysis, there is a clear reduction in the average term. The average claim of FIES fell year on year, mainly due to the receipt of the second installment of Portaria Normativa nº 23, which was paid in the third quarter of 2018. Regarding the out-of-pocket average claim, the improvement is mainly due to the higher sequential provisioning of bad debt we have been doing since fourth quarter of 2017.
I believe they are at adequate levels of coverage with the average claim quite adherent to our conservative concession points of student payment facilities, which are basically agreements and a rather low volume of student credit itself. On slide 11, we have the analysis of operating cash generation for the first half of the year that is somewhat more complex to analyze due to the two exceptional effects that appeared this year. The first was the anticipation of the FIES cash flow referring to the fourth quarter of 2017 that was paid within the quarter itself, and therefore did not impact the first quarter 2018 cash generation.
The second was a period accounting effect due to the adoption of IFRS 9, when we recognized an amount of about BRL 26 million of bad debt in the current assets as of December 31st, 2017, against the shareholders' equity, which generated this non-cash effect in the operational cash generation. When we eliminate these two effects, the net reduction in operating cash generation was approximately BRL 24 million. That is an even lower amount than the adjusted EBITDA decrease itself when compared to the same periods. On slide 11 still, we have the analysis of our operating cash generation already pro forma with the receipt of the portion of FIES that was paid in July, as I mentioned previously.
Note that our cash generation remains robust, and if we think of accumulating the year, we are also generating a similar operating cash flow to last year, even with a lower EBITDA and margin, which shows that the company continues to behave firmly well in terms of operating cash generation. On the right side, we have the final cash flow position for the quarter, which closed at BRL 815 million. But since we received more than BRL 200 million between July and August due to the last installment of Portaria Normativa nº 23 and the portion referring to the first half, I can affirm that the company currently has approximately BRL 1 billion in cash, which means that up to the market close yesterday, we currently have about 40% of our market value in cash. Going to slide 12, we detail our indebtedness.
There really is no big change compared to the last quarter. The highlight is the maintenance of our credit rating with Fitch Ratings, which reaffirmed our AA- note with a stable outlook last July. Turning to slide 14, shows that we are actually slowing CapEx down a bit in this year due to the two factors. The first is the conclusion of Fortaleza construction, which is coming into operation in the second quarter. Also, we concluded some reforms in Recife with the objective of renew our main campus, which proved to be very useful since it certainly helped us to achieve the maximum mark in the institutional reaccreditation process.
And in general, as we choose to reduce the pace of expansion, in defense, we are integrating to a CapEx in that year more for the 8% of net revenue compared to the approximately 9% of net revenue in the same period of 2017, which will certainly benefit our cash generation for the year. These were my comments, and I give the floor back to Jânyo to complete and open for the question and answers.
Thank you, Aguiar. Let's go to slide 13 for our considerations before the Q&A. I believe we are on the right track of being a solid company in the coming years, with a proven growth strategy based on relevant growth, opening new units and expanding the base of courses we teach.
We have increasingly focused on courses that are in greater demand in the labor market, such as healthcare courses, especially those of pharmacy and nutrition and nursing. Some other segments such as gastronomy, especially on the offer to tourist cities, and depending on the region, engineering is still strong in the market. This market movement has been useful for us since we have a strong base of eight university centers, two university and several colleges with a wide range of courses offered, which guarantees us with flexibility to attend to these segments. In distance learning, we are also growing, and we have been able to open up to 200 distance learning centers so far, and we maintain this opening rate of around 100 centers per year.
I believe we have a good chance of reaching the EBITDA we are keeping this segment next year, and we finally have the distance learning as a cash generation business for our company, helping us with gain in capital achievement scale. In the field of acquisitions, we are still in negotiation with Unigranrio, as we have kept the market informed, and we still cannot say whether the transaction will be closed or not. We are still in the stage of due diligence, and therefore we have very little information to share with you. In addition, we are seeing a very strong movement in the second half of the year in the direction of market consolidations. I can say that I did not see so many companies in the process of selling in the market since 2013 and 2014.
I think it is very positive for us to have a good range of opportunities to make good use of the unleveraged capital surplus that we have. And finally, we have the final phase of the 2018 Action Plan that besides certain, the change that already is showing results, also means the change of posture as a way of adapting to the new reality of the market, maintaining our identity as a growth company and skill to face new challenges. Until the beginning of this year, we were making the investments in an accelerated way. And after implementing this plan, we will continue to make the investments, but certainly with a more cautious attitude, with a more accurate evaluation of each step.
I believe that with this adjustment, we have made the necessary corrections and believe that the company has the right structure between revenues and expense to generate sustainable growth, keeping us prepared to accelerate organic growth as the economy allows and explore growth opportunity by strategic acquisitions. These are my comments on the results of the quarter, and I am available for the question and answer session now. Thank you.
Thank you. We will now begin the question and answer session for investors and analysts. If you have a question, please press star 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 the handset when asking the question in order to maintain excellent sound quality. Please stand by while we collect the questions. Thank you. That concludes the question and answer session for investors and analysts. I would like to pass the word to Mr. Jânyo Diniz for final considerations. Mr. Jânyo, you may proceed.
Thank you very much for attending our conference call, and if you have any further questions, please contact our IR team. Thank you, and we will see you on our next conference call.
Thank you, sir. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.