Good morning, everyone, and thank you for standing by. Welcome to the Vitru Brasil's Q1 2024 earnings conference call. I'd like to highlight that for those who need simultaneous translation, we have this tool available on the platform. To access it, simply click on the "Interpretation" button by the globe icon at the bottom of the screen. Choose your preferred language, either Portuguese or English. For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on "Mute Original Audio." We would like to inform you that this video conference is being recorded and will be made available on the company's IR website, investors.vitru.com.br, where the complete material of our results disclosure is available. It's also possible to download the presentation through the chat icon, including the English version.
During the company's presentation, all participants will have their microphones muted. Following that, we'll start the Q&A session. In order to ask questions, click on the Q&A icon at the bottom of your screen and type a question to enter the queue. When announced, a request to activate your microphone will appear on the screen, and then you should activate your microphone to ask your questions live. We kindly ask you to ask all your questions at once. We emphasize that the information contained in this presentation and any statements that may be made during this video conference regarding the business outlook, projections, and operational and financial goals of Vitru Brasil constitute beliefs and assumptions of the company's management, as well as information currently available. Future considerations are not a guarantee of performance.
They involve risks, uncertainties, and assumptions as they relate to future events, and therefore they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operational factors may affect the future performance of Vitru Brasil and lead to results that materially differ from those expressed in such future considerations. Today we have the presence of the company's executives, William Matos, CEO of Vitru, and Maria Carolina, Head of Investor Relations and her team. I will now give the floor to Mr. William Matos.
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Good morning, everyone. Welcome. I hope everyone is okay. It's a pleasure to be here together to present Vitru's first quarter results for 2024. I am William Matos, CEO of Vitru. Temporarily, I'm also serving as CFO. I'm joined by Maria Carolina, our Head of Investor Relations, and Luiz Felipe and Vitor Augusto, our analysts. We also have here Paul, our VP of Investor Relations. The results presentations that you're also going to see here are available on our IR website, along with the quarterly results release. We're going to begin on slide 4 with the highlights of this quarter that was a very important quarter. We delivered solid results. Proudly like to begin by highlighting that recently Vitru was recognized by two of the most important outlets in the U.S. as one of the top five edtechs in the world.
Time magazine, in partnership with Statista, that's a leader on data markets evaluations, they disclosed the ranking considering all the top edtechs in the world, and Vitru was on the fifth place. This recognition no doubt reinforces our focus on delivering quality digital education. It's another important to highlight that we finished our first quarter with almost 940,000 students, a record for our company, which shows the strength of our brands and justifies our expectation for a very good year. This number was brought by the strong growth of our continuing education area. It's a great movement that we've been making to build loyalty in our students' space. I have to highlight, emphasize, that this growth was not only greater than that because Vitru, alongside this integration and best practices between Uniasselvi and UniCesumar, has unified some criteria for student activation.
I'm going to talk a little about there shortly. Another highlight that's very important here is the advance in this listing process from NASDAQ to B3 on April 19th. The shareholders approved in the general meeting the merger of Vitru Limited by Vitru Brasil and then initiated the period where shareholders must express their choice to receive shares on B3 or some temporary ADRs of Vitru Brasil through the election form. We have to remind you that the period for submitting the form ends on May 21st. Following this slide, we can see that our differentiated strategy and positioning have led to a new expansion of the average ticket of the distance learning graduation in this quarter, and this time by 3.4% compared to the first quarter of 2023. The percentage was very close to the inflation variation in the period.
This number is for sure a validation of our strategy, that is, to always have competitive prices but keeping the superior quality of the products. Regarding the financial highlights, we can mention a 13.5% increase in accelerated net revenue. This increase was based on the strong expansion of our continuing education and medicine, and nearly a 10% increase in revenue for graduation in the quarter. It's important to notice that all this growth in the first quarter of 2023 was purely organic. Down below, you can see the adjusted EBITDA for this quarter that has a modest growth of 1% and a margin decrease to 33.9%, which is still higher than the average in the sector.
As we'll see shortly, this margin decrease was part of a strategy to advance the enrollment of students for the year, and the EBITDA margin for 2024 is expected to be slightly higher than the margin for the year 2023. It's important to highlight that we expected this number. It doesn't worry us. It's part of our strategy this year, and it's likely that it's going to decrease along the following quarters, and it's not going to repeat the same amount. Finally, based on our model called Asset Light and our scale, and all the quality of our operations, we've had a high cash conversion with a strong growth in cash flow this quarter. Those numbers are solid proof of the efficiency of our business model and the efficiency of our management model.
Now moving on to number six, I'd like to start by providing some more details about the harmonization of criteria for student activation this year. As we announced previously in our latest disclosure, and as a part of the process of exchanging best practices between our two brands, we made some adjustments in Uniasselvi in early 2024 to align the criteria for student activation for the purpose of recognition in the student base with the standards that we used at UniCesumar. In the short term, as you can observe, it means a lower nominal growth in 2024 compared to 2023, both in the student base and also the net revenue.
But we understand that this harmonization is paramount, essential for us to have a strategic view of the business, and from that on, we're going to be able to plan our growth in a sustainable way, in a very precise way. And this movement is also proof of the trust and the confidence that the investors can have in our management. Therefore, as you can observe on the slide, the impacts of this harmonization are approximately 94,000 fewer students on March 31st, 2024, about 11% of the graduation from business graduation, and approximately BRL 18 million less in net revenue for the first quarter of 2024, which totals about 3.5%. Besides that, it's important to highlight that this harmonization has no impact on our cash flow.
To repeat that just to be clear, it has no impact on our cash flow. And it's because this invoice is generated for non-engaged students.
We're not paid, and later they turn into allowance for doubtful accounts, ADA, or PCLD, over the 12 months following the invoice issuance. So it's going to have a positive effect for Vitru, which will be the reduction of this provision for doubtful accounts throughout 2024 and 2025, as well as better retention rates for students. And of course, this is something that cheers us up. And another aspect of this harmonization, last bullet point, is that we're going to have a positive tax effect, a slight reduction in the payment of ISS, that is, tax on services, for these invoices for non-engaged students, which were not paid. So moving on to slide seven, we show that our enrollment in long-distance graduations grew by 10% this quarter. It's important to highlight that because we had already grown very strongly in the years of 2023 and 2022.
Additionally, we can also see that the growth of the consolidated enrollment in long-distance graduation of Vitru over the last three years was 21% per year. Those numbers reflect our competence, our leadership in long-distance graduation. In the graph on the right, we also show the breakdown of the enrollment this quarter between engaged students, who are recognizing enrollment and in the student phase, and non-engaged, who are no longer starting this quarter, recognized. So you can see that approximately 25% of the enrollment this quarter was from non-engaged students. Moving on to the next slide, we show the continuous growth of Vitru's student base. As you can observe, in this quarter, it increased by 6%. When we look only to long-distance graduation, the growth was 5.6%, remembering that we are the largest distance learning company in the country.
Therefore, we have a very high comparison base and a strong historical growth. This growth is now supported by much more engaged students, and we are confident in the advantages of the way we have walked, the path we have treaded. So from the first quarter of 2024, the non-engaged students at Uniasselvi, meaning those students who signed a contract with Uniasselvi but did not take any exams and did not pay any monthly payment, they are no longer included in the student base. As you could see, it clearly has an effect on the total size of the base. It now reflects much more engagement.
Again, for you to have a good perspective on the solid results, in our previous criteria, we would have 94,000 more students, which would mean a growth of approximately 17% in this snapshot of the long-distance graduation student base in March 2024 compared to 2023. In other words, it would be like 11 points more. To explain that a little bit better, I can tell you that I am very, very excited about that, and I've been using a metaphor. It's just like a racing driver at Formula 1. The best squad in the later years that is ahead has been investing a lot in the best mechanics, but it feels that the car is not delivering the best performance. And now we could see that the right wing in front had a different angulation. It was simple to solve, to fix, and it brought a great result.
So as Vitru, we have been investing a lot, and we've been putting all the effort on the quality of our products and courses. And that low engagement was not making sense, and the ADA was not making sense. So with all those adjustments and observing the trends of some numbers, it doesn't take us from the first place, out of the first place. And we are very excited with the results that we are seeing ahead. So now to move on, I'd like to give the floor to Carolina, our Head of Investor Relations that's going to talk about the following information. Moving on to slide 9, we show the growth of the long-distance graduation base in every region of Brazil.
Considering the new criteria of student activation, looking at the map of Brazil and the graph of students by region on the right side of this slide, the continuous progress in the Southeast region of the country is very evident. We are already present in all states for a long time, but more recently, we have accelerated the penetration of our brands in the state of São Paulo. Besides that, it's important to remember that the Southeast region has a denser population concentration and many opportunities for expansion of both brands. Therefore, the number of centers in this region is going to continue to gain relevance. Slide number 10, we can see the national presence. In the table on the left, it's visible how the brands complement each other directly.
Vitru has nearly 1,500 centers distributed across more than 1,400 municipalities, in line with our synergy plan, what we call cross-expansion. We reached the milestone of 717 cities offering both brands. It's almost 70 cities more than 2023. On slide 11, we demonstrate some of the quality metrics from our students' perspective. Our focus is on delivering quality digital education, and it's evidenced by the ratings that users give to our apps. We have the highest rating apps among the listed players. It's worth remembering that our apps are appropriate for the criteria and constitute an important part of our learning journey. So we are committed to deliver an excellent experience to our students. On the right side, we also highlight the evaluations from the Brazilian website to strive to resolve all the issues reported by our students in the best possible way.
Therefore, our reputation is above the average for the other listed players. So now I give the floor back to my colleague William to move on on the presentation. So moving on to slide number 12, we move on to the average ticket data. You can see that there was an evolution, a growth, an average growth in the house of 4% the last three years, already considering Vitru as a whole, that Uniasselvi was UniCesumar. Therefore, this variation, very close to inflation, confirms how different our products are and our positioning as a quality player in digital education. It's important to note that the average ticket increased even with a slight change in total enrollment this quarter, the decrease in representation of premium courses that are like healthcare courses and engineering courses, which, as you know, have a higher ticket price.
We had an increase in the weight of the technology courses, which have a lower ticket price, as we demonstrate on the right side of the slide. Moving on to slide number 13, we follow with the main financial indicators for the quarter highlight. As you can see, as we saw earlier, we had an expansion of approximately 14% in net revenue and 1% in adjusted EBITDA. It's important to highlight the increase of 2.8 percentage points in this quarter for the gross margin, collecting the benefits of integration and the savings in scale we had in the company. On the following slide, it's interesting to see that this quarter, the main paths for growth in revenue were medicine and continuing education. The business of continuing education increased its net revenue by 46%, which was quite impressive and demonstrates the great potential for digital lifelong learning in Brazil.
We believed it was a very assertive movement that we have made this year based on the niches of growth that we could observe, especially with the assumption of being like the vanguard in this big market. We can look at our medicine operations, which we could see a 30% increase in revenue for 1Q 2024 due to a combination of maturation of new vacancies and an increase in the average ticket. The revenue of those segments will be discussed in more detail shortly. In this regard, on slide 15, we see that the proportion of those businesses within Vitru's overall portfolio is increasing the first quarter of 2024 compared to the first quarter of 2023. In other words, you can observe that the continuing education business has increased its representation from 5%-6% of Vitru's total, while our operations in medicine have risen from 13%-15%.
On the other hand, the share of long-distance graduation decreased from 72%- 70% of total revenue, especially as we are already considering, it's important to say that, the new criteria for student activation, as I explained before. And moving on to slide 16, we see the 10% growth in net revenue of long-distance graduation, EAD. Additionally, in the graphs on the right side of this slide, we can see the historical growth of this EAD market in Brazil, long-distance education in Brazil, and the continuous expansion of our market share within this market, according to INEP, Brazilian Institute. And we strongly believe that the long-distance graduation sector in Brazil has a long period of growth, a long room for growth in the coming years, and quality EAD is the solution for the penetration gap in higher education in Brazil, college education in Brazil.
So moving on to slide 17, we demonstrate the evolution of net revenue from the medicine course in Q1 2023-2024 compared to Q1 2023, showing a 30% increase. Important to remember that this increase is a combination of the maturation of medicine vacancies and the evolution of the average ticket price. It's worth noting that our medicine college is the largest in the southern region of the country, located in a city that often ranks among the best cities to live in in Brazil. This is combined with the high quality of our institution and the service provided to our student. We have the fifth best medicine course among private institutions in Brazil. That's how we can explain our average ticket price that is above the national average. Besides that, in recent months, the institution, UniCesumar, has improved the filling of those vacant spots.
It contributed to the great result for this great performance of the segment. Moving on to slide 18, the graph on the left, as you can see, shows a slight recovery in the presential education face-to-face segment. It was explained by the context of the end of the pandemic, but it shows a consistent evolution of long-distance compared to the face-to-face segment. We believe that this is the reality of the education sector. Of course, in the digital economy, students will see quality long-distance education, more accessible, connected to the reality it might be for financial, cultural, or logistical reasons. The slight recovery of the face-to-face segment does not make us believe that it's going to be strong in the future. On the right side, we demonstrate a strong expansion of revenue from the continuing education segment, as I mentioned before. It grew by 46%.
This good performance is directly associated with our strategy of diversification and complementarity throughout the journey of our students. Moving on to the next slide, number 19, we'll show you some more data regarding this potential room for growth that Vitru believes so much. As you can see, there is a very interesting opportunity in this segment that is still not so well explored by high-scale players. This is the continuing education segments. We consider technical courses, vocational courses, and post-graduate programs. As you can see on the left, according to the latest census data in Brazil, 1.2 million students graduate per year. They're a potential target for post-graduate courses. In addition to, of course, the stock of professionals that were already graduated and are looking for new training.
When we look at high school, the numbers are also significant, with 7.7 million students per year, young students over 16 years old. Considering the socioeconomic characteristics of our country, these young individuals are about to enter the job market and find in technical and vocational courses a gateway to their first job. Besides that, in addition, the new regulation of technical education, institutions apply to have new vacancies authorized by the federal government. Few listed players, meaning those with national presence, and a few players looked into this market, and Vitru, through the brands Uniasselvi and UniCesumar, obtained almost 43% of the regulated vacancies. On slide 20, we show the evolution of EBITDA between periods, and from slide 21 onwards, we'll begin explaining the costs and expenses.
So as you can see on slide 21, the left chart illustrates the 2.2-point reduction in service costs proportionally to a percentage of net revenue. As you know, this gain in gross margin reflects both gains in scale and the recent impacts of integrating Uniasselvi into Vitru's group. However, I'd like to tell you in advance that throughout 2024, we will see a slight increase in Vitru's direct costs. That is a natural consequence of implementing many healthcare courses over the past few years. And this process of maturation of those courses elevates some certain costs, such as a greater need for preceptors and internship fields for hospitals and stuff. And in relation to general and administrative expenses, Vitru has maintained a very lean structure with G&A representing only 6.4% of net revenue this quarter, one of the lowest in the sector.
Moving to slide number 22, on the left you see the expenses in marketing and sales that increased approximately 5 percentage points on net revenue this quarter. This increase was due to the company's strategies of anticipating enrollment with a healthy average ticket, along with the positioning strategy in areas with greater demand, complexity, and greater competition, as we said before, the state of São Paulo in which we are focusing our efforts now. It's important to say that for the year, we anticipate that the marketing and sales expenses as a percentage of net revenue will remain very close or maybe slightly higher than the expenses that were reported in 2020. On the right side, the right chart, we can show that the PCLD, ADA in English, is slightly higher in Q1 2024, reflecting the strong enrollment of 2023.
However, it's worth noting that there is a downward trend expected throughout 2024 and 2025 due to the harmonization of student activation criteria, as we explained at the beginning of this presentation. So let me have some water here. Carol, please. On slide 23, we have two important messages to highlight. The first one is the strong cash generation of the company. So the cash conversion reached 104.6% this quarter compared to first. It's the exchange of best practice and implementation of credit evaluation system in the third quarter of. The second message illustrated in the graph on the right is that in addition to the evolutions of results that William has explained so far, net profit is in line with the cost expectation of the company's investments in line with accounting standards, with an effect of approximately BRL 25 million on financial expenses. Extraordinarily this quarter.
It's worth mentioning that we expect financial expenses to start increasing from the third quarter if the economic scenario remains stable. It also reflects a lower recognition of the first tax in this period. It's important to state that our CapEx is relatively low and reached only 4.3% of revenue this quarter. It's an increase of 0.2 percentage points versus what we expected in Q1 2023. On slide 24, we have perspective of our debt and leverage. This quarter, we had a strong operating cash generation. The net debt was slightly stable. It is explained in the update of the expectation of the effective cost of the debentures, as I mentioned on this last slide. In relation to the covenant of that debt over adjusted EBITDA, our leverage is way below the covenant. During this year, we're going to lower this leverage.
Now I give the floor back to William. Thank you, Carol. Finally, on slide 25, we'd like to tell the market our guidance for net revenue and adjusted margin. For 2024, we estimate net revenue between BRL 2,150,000,000 and BRL 2,250,000,000, which will lead us to a growth between 10%-15% regarding 2023. Besides that, our EBITDA margin in 2024 shall be between 36.5%-37.5%. At this moment, it's important to highlight that this result considers our great growth that has been fantastic in the last three years. Our strategy moves on with focus on the quality of our services, but keeping the financial discipline, that's very important. In other words, this guidance reflects what we have already expected, that in percentage terms, our results will grow in some more reasonable rates since we achieved that size, a relevant size. With that, we finish our presentation.
Now, before I give the floor back to the host, I'd like to thank you all for all the trust and confidence. We have been putting all the effort to deliver the best results. We are very confident that we're going to have a great year for Vitru and that all the adjustments are for making this company better and all the strategies are based on this premise of surpassing our own records and improving our own quality. Now, I give the floor back to the host for us to open the Q&A session. Thank you very much.
Now we begin the Q&A session. I'd like to remind you that to ask questions, you should click on the Q&A icon at the bottom of your screen and type your question in order to enter the line, the queue.
When your name is announced, a request to activate your microphone will appear on your screen. Then you should activate your microphone to ask your questions live. We kindly ask you to ask all your questions at once. Our first question comes from Lucas from Morgan Stanley. Lucas, we're going to open your audio so that you can ask your question live. Please, go ahead.
Good morning, William. Carol, thanks for the opportunity. We have two questions. The first is regarding the margin on the first quarter. You said that the year is going to be better, and you said that there's probably a cost pressure. My question is about the drivers that you're seeing to compensate that. Two things that caught my attention are the increase in marketing. Is it an advancement in the costs or a new level?
Or when PDD is going to reflect on this new harmonization practice? The second question is about regulation. Do you have any update on the changes to the rules in some courses that have some different discussions, as nursing, for instance? Thank you. Thank you, Lucas, for your question. So regarding the first question, in reality, we are very, very calm as we see the drives to talk about our expectation for the full year. Despite we have mentioned the slides, reduction in gross margin due to some costs as healthcare courses, as I said. But the marketing investment, as I said, was a cost in advance that we have predicted for our strategy. So some costs are going to be reduced throughout the year to guarantee the delivery of the margin guidance.
This new model of harmonization, as we said, might cause some increase in this PDD for 2024. It's going to help our margin to be aligned with the guidance that we put. Regarding regulation, our new regulations for education, Vitru is very, very calm due to some hybrid models that we have in our courses. As a nature of the courses, we have been paying attention to all those movements. As we have said before, everything that is related to quality, we understand that it's something that's going to be positive. It's going to have a positive impact on the segment. Regarding new courses and changes in DCN for new areas, we have not seen any issues in the National Educational Council. We are very close to them, and we are also looking for understanding all the necessary movements.
It's important to remember that every and any change in DCN regulations, the institutions have two years to implement the changes proposed. We are going to study them very carefully to understand. But as I said, we have a hybrid model as a nature at Uniasselvi and Uniasselvi. And we are very relaxed about these new regulations because they are exclusive for the teaching courses, the essential courses. And we have a good percentage of face-to-face segment in our methodologies. But we're going to study this market to adjust for the future changes. Thank you, William. It was very, very clear. Thank you.
Our next question comes from Pedro Oliveira, buy-side analyst. Pedro, we are now opening your audio so that you can ask your question live. Please go ahead. Can you hear me? Yes.
We'd like to have an update regarding the B3 listing process and how it's going to impact the equity of the company. Do you have any initiative to increase the equity of the share? Thanks for your question, Pedro. About the listing process itself, we approved on the 19th, the resulting corporation that justifies this exchange of shares on B3. So this arrival at B3 is predicted to happen in the week of June 10th. So in the documents that we released, we explained how the election form works, the investors will choose if they're going to receive the shares or the ADRs. So we have talked with brokers, and this process is going to end on June 10th. To arrive at B3 is going to enter the radar of a larger number of investors, like pension funds and individuals that not necessarily invest abroad.
But a big liquidity movement has to be thought in the future, talking to high management and the investors have to talk and analyze the market timing. Then we'd move our pointer of liquidity to a new level. But my schedule, as a relations head of the company, is busy with local investors. So we really believe in this migration. Thank you a lot.
I'd like to remind you that to ask questions, you should click on the Q&A icon at the bottom of your screen and type your question to enter the line.
Without further questions, I'd like to thank the presence of everyone. And I have to emphasize that our starting point in each decision is excellence, and our biggest target is being the leader at this market and impact positively the life of our students.
Again, thank you for your trust, and we can see that we are on the right path. I wish a great day to everybody. The Q&A session: The Vitru Brasil's Q1 2024 earnings call.