Good morning. Welcome to Ser Educacional conference call to discuss the company's results for the first 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 a 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 ri.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 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 cause it to differ materially from those expressed in these forward-looking statements. I would now like to turn the conference call 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 our conference call to discuss the results of the first quarter of 2018, which as you are probably following us, our results are reflecting our efforts to execute a new cycle of organic growth start in 2017, aimed at new campus units, expansion of our network of distance learning, as well as pursuing accretive acquisitions. This process is being executed in a market environment that is proving to be quite challenging. At the beginning of this year, and later on this presentation, we will discuss this topic in detail as well as what we are doing to adapt our company to this reality as fast as possible and also respecting our long-term convictions as we have always done.
Among the positive highlights of this beginning of the year, we have obtained three new accreditations for on-campus education in the cities of Patos in the state of Paraíba, Imperatriz in Maranhão state, and Campinas in the state of São Paulo. We have now reached 37 of the 45 total accreditations we are working on. The main positive highlight of the year was the development of our distance education network. Through a portfolio of regional brands, we managed to grow its student base by 106% in the comparison between Q1 2018 and Q1 2017, with the enrollment of students in this segment showing a growth of 155%.
In the same period, considering the total base of undergraduate and graduate students, we have already reached the mark of 18,000 students. We have successfully succeeded going from 15 operational- 190 operational distance learning centers, which we consider very relevant for the future success of our operations in this new segment. Turning to slide four, we will talk about the results of our last intake process as at the end of the first quarter, which as we discussed in the last conference call, despite starting very well and in line with what we were reaching until the third week of February, due to the delay in the schedule of government programs that are in sequence with enrollment for public universities according to the deadlines of Enem and SiSU and of ProUni and FIES.
It is worth noting that this delay also affected the intake of regular students because in those regions, FIES up to this year was historically prevalent. It is part of the culture of the students of the cities to wait for the definition of these social programs to finally enroll considering the out-of-pocket options. With the delay in the enrollment schedule, we believe that the marks improving regular students has temporarily shrunk. Because they are competitive marks, there has been a reduction of price to attract students that we choose not to follow through. In line with these perceptions, marks where FIES was no longer so relevant since 2015, especially in the South and Southeast regions, but the level of competition is also higher. We have achieved positive performance as we observe in our operation in Araraquara and even in Rio de Janeiro.
A similar effect also occurred in the cities of the interior of the Northeast, which in this case in general suffered less than capitals of the state. Because the FIES is slightly relevant, these marks do not have the same level of competition. As a result, we had a drop in general enrollment in on-campus higher education of around 15% in comparison with the same period of the previous quarter. On the other hand, growth of 2.5% in ex-FIES intake in the period. It is also worth mentioning that the reduction in our intake must be analyzed in a context in which we had good enrollment growth in the last two consecutive years, which therefore makes the comparison base stronger. In distance learning, as I said at the beginning of the presentation, we believe that the intake result was quite in line with what was expected.
It is also worth noting that both the distance learning and on-campus intake had a good mix of course, with health scores continuing to gain space in our portfolio, collaborating with the development of average ticket. In slide five, we have some graphs showing how our student base was as the intake was for first quarter. The total student base had a small growth of almost 2% compared to the first quarter of 2017. The increase was mainly due to the growth in the distance learning undergraduate student base, which increased by 107%, partially offset by 3.2% fall in the number of students attending the undergraduate degree in the same period, due to the drop in new enrollments in this segment.
Also, we had a slightly better enrollment in that year, but increase of the graduation in the same base of comparison by approximately 15% and the drop in the base of technical course and the on-campus postgraduate degree. We can also note that the accumulated intake up to May 4 presents a slight improvement, with the general intake rising by 3.7% year-over-year, with improvements in both on-campus and distance learning segments. These were my initial comments, and now I give the floor to João Aguiar to comment on the financial results for the quarter.
Thank you, Jânyo . Good morning, and thank you for participating in our conference call. Before the actual results, I would like to remind you that the results presented this year are the introduction of two new accounting criteria.
The first of all was IFRS 15, which changed the recognition of the amount of students' tuition revenue, which was made at the amount charged based on the maturity of the third day of each month, and not more than the fifth day of each month as it was recognized until last year. Therefore, as from first quarter 2018, our gross revenue now has a higher volume of revenues and our net revenue starts to recognize what, until last year, was contained in the line we call interest on tuition, which was booked in our financial income. That said, in order to give comparability to the results, we are publishing our first quarter 2017 with the net revenues adjusted by the interest on tuition, reclassifying these revenues from the financial result line in the amount of BRL 3.3 million .
Another change since that year was the introduction of IFRS 9 that changes our accounting practice for the provision for doubtful accounts, PDA. Until last year, we accounted for 100% of the uncollected tuitions and agreements after 108 days. As of this quarter, the PDA recognized the expected losses during the receivable cycle based on the portfolio's history of non-recoverability. This change did not have a significant impact on the results of the quarter, and the restated provision balance in the asset was made as a contra entry to the shareholders' equity according to the new rule in the amount of BRL 26 million with no impact in the cash and on the income statements of the company. Starting now for the analysis of the first quarter results.
Due to the drop in enrollment in a scenario that proved adverse, as detailed by Jânyo, we ended up failing to dilute our structure of costs and expenses created mainly during the second semester last year, which caused our margin to contract in comparison with the first quarter of 2017. Similar to the one observed in the fourth quarter, since we only started to reduce our operating expense structure from the last week of March to the beginning of April. We had a slight revenue growth in the quarter driven by the growth of the total student base and a sustainable average ticket of both on-campus and distance learning, thanks to the continuous improvement of our course mix and a re-enrollment process that was satisfactory this quarter, which supported the transfer of the average ticket to the general student base.
The gross margin ended up contracting by 3 percentage points, mainly due to the increasing rental lines and concessionaires due to the organic expansion process that we are carrying out in the company. In the EBITDA margin, we had the most significant impact due to the discretionary increase in our administrative and operational structure in order to support the expansion of the base of on-campus units and also for the distance learning group. In addition to the lease extension, we also had significant investments in marketing this quarter, a movement already in line with that observed in the fourth quarter of last year. Finally, the PDA, which fell in comparison with the fourth quarter in 2017 but increased in comparison with the first quarter in 2017, was one of the offenders for our margin for the quarter.
On the other hand, our adjusted net income, which was also impacted by the contraction of margins in the year-over-year analysis, had a minor impact in relation to the fourth quarter due to the improvement in the net financial results, mainly due to the lower volume of financial expenses and discounts granted. Turning to slide seven, we set up a chart that reflects how our advanced growth has been relevant in the overall contraction of our operating margin. Note that when we exclude the new units and the distance learning from our adjusted EBITDA margin, this increases of almost 7 percentage points in the margin, which shows that our legacy operations are still performing well and reinforces the idea of reordering the opening of new units.
In addition, it is worth noting that our distance learning is beginning to contribute to the gross margin result, having improved year by year 1 percentage point, and has already reached the fixed cost and G&A, except for needing to start gaining scale. Now on slide eight, we have analyzed our aging of accounts receivable and net average term in this quarter observing the IFRS 9 as I mentioned it before. We can note that our FIES average receivables term rose slightly compared to the fourth quarter 2017 due to the seasonality of FIES receivables, but as the government has paid the PN 23 debt, the average term has greatly improved. Looking at ex-FIES average receivables term, we made a provision this quarter in a smaller amount than the fourth quarter of 2017, but still in BRL 15.6 million due to the default observed in 2017.
Now we have a better and average maturity of 60 days in the ex-FIES. On slide nine, we present our operational cash generation and evolution of our cash position. During this quarter, we made a pro forma analysis of the cash flow generation since there was an improvement in the FIES payment by the government at the end of the year because they paid the portion due for December within the same month, as we had commented in our last call of results, generating a positive effect to the cash generation of that quarter.
As a result, we put the cash generations between the quarters in the same basis of comparisons by adjusting the flow of payment. We can see that our operating cash net generation remains strong with a reduction of less than 10%, a much less substantial drop than the fall in our adjusted EBITDA, demonstrating that we continue to be a very healthy company and addressing this respect. On slide 10, we present the evolution of our indebtedness, which as you can see, does not have large movement in the quarter. We are well capitalized to continue investing in future acquisitions as well as the recent share buyback plan approved in April, enabled by our board of directors. On slide 11, we represent our CapEx for the quarter.
Investments are still within the program, investing about 8% of net revenue and will certainly be adopted by the action plan that we are developing to stay close to the same level. Now, I would like to turn the floor back over to Jânyo , who will discuss our 2018 action plan.
Thanks, Aguiar. Please let's go to slide 13, where we have a brief diagnosis of the main factors that have impacted our recent performance and subsidized the action plan that we elaborated collectively as of the last week of March. First, it is important to highlight our long-term growth plan since IPO, which broadly predicts from 2016- 2017 to open about 10 new units per year by 2020, and in distance learning to expand our base of distance learning centers from 15 to about 400 centers since the last center has been cleared.
The fact is that in the last 18 months, we have been successfully able to open more units than we had originally planned, totaling 29 units in addition. The new distance learning regulation, in particular, has had a very positive outcome, and we are now able to reach the desired number of distance learning centers. In this sense, based on the positive enrollment trends observed in the last two years, a positive economic scenario for 2018, and anticipating a stable regulatory environment for governmental programs, we chose to accelerate our growth plan during the second half of last year. As the scenario has not materialized, we are owed to refocus our original plan, adjusting our cost structure back to our high-efficiency operational DNA, and thereby keeping the company prepared to adjust to the pace for the current market conditions.
On slide 14, we made a roadmap to implement our action plan for 2018 that is being executed in three phases that are occurring in parallel. In phase one, we did what I'm calling tuning the tall grass. Basically, had a structure prepared to receive a larger student base than we actually ended up enrolling in the first quarter. Therefore, we optimized our administrative structure in Recife during the end of March and during April. We also start to implement operational improvement opportunities, such as the reduction in the number of rented properties in cities such as Recife, João Pessoa, Natal, Maceió, and São Paulo. We begin to work as it is expected to be finalized in June. We're analyzing each unit and cost to identify opportunities for cost optimization in detail. We are analyzing where we can optimize our physical structure.
At this stage, we will readjust our structure of teachers and fine-tune the administration. With this, we hope to maximize our existing regular performance and execute all this without prejudice to the academic quality offered to our students. In principle three, we are working on reordering the newly acquired units. We have changed our strategy for Northeast capital a little bit. I believe that it does not make sense at this moment to operate with two different brands in this city, except for Recife and its metropolitan region. We are also reordering our schedule for the opening of units with planned openings for this year and for the coming years, especially those located in the southern regions where our brands are less well-known. We are also revisiting some market reviews that we did earlier to improve our performance when we are effectively in those markets.
Turning to slide 15, we detail the opportunities identified for improving our current results and what has been implemented to date. In the part of cost optimization, we identified about BRL 80 million in our original budget for 2018, which has an expectation of increase of student base and consequently also of net revenue. In G&A payroll, this captures mostly executive labor and the portion referring to teacher shortfall during the second and third quarters. In rent, we are returning real estate that were mostly leased next to the company also controlled by our majority shareholders, who also agreed to do so without termination costs since we wait for the student base to resume its growth, for after that, we are thinking of renting these properties again. This reduction in the number of rented properties also reduced ancillary costs such as 24-hour security, internet links, concessionaires, et cetera.
In accreditation, this is the reduction of the volume of new accreditation of units and costs planned for the year. This is due to two factors. The first is that in fact, we have many new unit accreditations relevant to explore, and the second is that the new regulation that gives autonomy to universities reduces this need naturally. In marketing, our goal for the budget is to reduce our expense from the 7.5% of net revenue in 2017 to approximately 6%. This should not have an impact on our commercial performance since the unification of the brands, the reduction in the number of new units launched, and the fact that we have already launched our original brands. We do not need to continue investing in 2018 in the same way that we were investing last year.
On the right side of the slide, we put together a chart that clearly shows that [inaudible] included 14 new units between 2016 and 2017. In the center of 2018, when we were able to start operating three more units, Arapiraca in the state of Alagoas, Marabá in the state of Pará, and Belo Horizonte in the state of Minas Gerais, defined in this year's action plan. We also decided to unify the Faculdade Joaquim Nabuco of Maceió and João Pessoa accreditations, which in fact already had enrolling students, transferring these students to UNINASSAU from the same cities and UNG of São Paulo that we choose to discontinue this unit to open later when university autonomy for [inaudible] is fully operational. Turning to slide 16, we created a map summarizing what was planned for 37 accreditations obtained in the last three years.
It is worth noting that we have already opened 17 of these 37 accreditations, 14 of them only in the last 12 months. Of this total, only four are unifying these operations already existing in the same city, and 16 we will reorder to open in the next two to three years. We also have at least eight new accreditations materialized from the plan of 45 new units. From the point of view of the future growth plan, the new rules of university autonomy as well as future accreditations that we will put to work in the coming years will certainly help us get the future our growth plan. Finally, before opening for questions and answers, we go to slide 17, where I would like to reaffirm that the group Ser Educacional has relevant leverage to generate sustainable growth of our revenue base.
With operating margins that we believe are close to what we have observed in recent years. These are four pillars of margin generation that we believe will bring results from now on. First, the maturation of recently opened units, which when compared to our legacy operations that are consuming EBITDA margin and should begin to contribute with our results. Second, the optimization of the existing structure that I mentioned is already quite adjusted from day two and should help us to grow operating margins again as of the second half of this year. Third, our distance learning operations already contributing with our gross margin and already in approximately 18,000 students this year, if we consider our postgraduate degree in distance learning. We are therefore in this segment working at the right pace so that this new business segment can contribute to our results.
First, we have a relevant accreditation structure for new units, of course, that has reached a very good number of new accreditations to be explored in the coming year. In this sense, we no longer need to continue investing so much in this segment, and this less lever will also be important in this recovery plan. We believe that while we have had challenging results at the beginning of our operational expansion plans, we are taking the necessary steps to first ensure that our operating margins are sustainable in line with our track record and keep our company positioned for the growth plan that we believe a lot that can be executed. That result noting that the growth rate needs to be calibrated according to the market conditions. These were my initial comments, and now I am available for questions and answers.
Ladies and gentlemen, thank you. We will now begin the question and answer session for investors and analysts. If you have a question, please press star and then one on your telephones. If your question is answered during the session, you may remove it from the line by pressing star and two. The questions will be answered in the order in which 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. Once again, if you would like to ask a question, please press star and then one. Please stand by once again while we collect the questions. Ladies and gentlemen, at this time, in showing no questions, that will conclude our question and answer session for investors and analysts.
I'd like to pass the word to Mr. Jânyo Diniz for final considerations. Mr. Jânyo, you may proceed.
Thank you all for having attended our conference call for the results of the first quarter of 2018. If you need any further information, please contact us through our investor relations department. Thank you all and have a great day.