Good morning, everyone, and thank you for waiting. Welcome to the Vitru Limited third quarter 2023 financial results conference call. All participants will be in a listen-only mode during the company's presentation. After the company's remarks, there will be a question and answer session. At the time, further restrictions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. As a reminder, this conference is being recorded, and the audio file will be available after the event is concluded. Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of the company's management and on information currently available to the company. They involve risks and uncertainties because they relate to Vitru events, and therefore depend on circumstances that may or may not occur.
With us here today, we have Nicolas Burridge, the company's CFO. Now, I will turn the conference over to Mr. Burridge. You may begin your presentation.
Hello. Good morning, everyone. I guess that she's confused. My name is Carlos Freitas. I'm the CFO of Vitru, as you know, and I'm pleased here to present the results of our third quarter 2023 numbers. Here with me are Wil liam Matos, our co-CEO, plus Daniel de Souza, Luiz Felipe da Silva, and Victor Augusto Montesanti from our IR team. A slide presentation will be part of today's call, which is also available in our IR site at investors.vitru.com.br. So I trust you all have, are looking of such presentation. Before I begin, as usual, I'd like to make note that as detailed in slide two of the presentation, Safe Harbor is in effect for this call. So now I invite you to go to page four of the presentation.
So here, we show a few operational highlights of the quarter, which once again, was quite strong. So first, as you have seen, the most recent INEP census that was released in October confirmed Vitru as the top player in digital education in Brazil. And that's very important because in this business, scale matters. Scale matters a lot to both generate value for our students through quality and to generate value for our shareholders. We had, in September, more than 860,000 students, with a 16% increase in digital education undergraduate students versus September of last year.
We also signed the agreement for a new debentures issuance for BRL 500 million, which will be closed by the end of this month, and extend the average debt duration and lower our financing costs as a whole. Finally, every ticket increased substantially this quarter, around 13%, both at UNIASSELVI and UniCesumar, confirming our pricing discipline and the product differentiation. On page five, we have the main financial indicators for this quarter. So net revenue in digital education, undergraduate segment, up by 20% this quarter, with the overall consolidated net revenue up by 22%, more or less, in the quarter. Another solid quarter in terms of growth.
For adjusted EBITDA here on the right, we had an increase of more than 29% in the quarter, with a margin reaching 38.1% in the quarter, versus 35.8% of margin last in last year, in the third quarter of last year. This is a result of a lot of things, especially our operational leverage. From a adjusted cash flow perspective, this, I guess it was the highlight of the quarter. It increased by 76% in the quarter, with a very solid cash flow conversion of 169%. I'm going to explain this a bit later on the reasons for this substantial increase.
And for adjustment of income, we had a decrease of around 41% in the quarter, reaching BRL 38.6 million, due to two one-off events that I'm also going to explain a bit later. So now on page six, this is the slide that I like the most, to be honest, in this presentation, as it summarizes what we have achieved since the IPO three years ago. We are basically over-delivering on our promises, on a consistent basis.
So here you can see, for example, that we increased our digital education basis by 230% since the picture prior to the IPO, the overall revenue by more than 300%, with margins increasing from 25% to now around 37%, and cash flow increasing even further by 650%, comparing 2019 to the last twelve months. So this is a, I'd say, a consistent delivery and improvements overall throughout the years. On page seven, here is a summary of our student base. So as I said, about 860,000 students in total.
of which 23,000 students in on-campus operations, and 780,000 students in undergraduate students, meaning that 57,000 students, more or less, in the graduation digital education business. So our total digital education student profile is 97% of the overall base. And this is a historical important growth. We have been growing year after year after year, and not only within UNIASSELVI, which is here in yellow, but also within UniCesumar and in the- in dark blue, the Vitru, as you know today, comparing last year with this year. So as I said before, 16% of growth in the student base between September last year and September of this year. If we, for example, enlarge a little bit to see the growth in the last two years, is almost 20% per year.
Because as you remember, last year, the overall intake of UniCesumar last year increased by more than 50%. So the comparison bar is quite high, but even that, even with that, we increased by 16% our overall student base in digital education this quarter. If you see, for example, now on page eight, where this growth is coming from, it's coming basically through the maturation of our hubs. Here on the right, you can see the cohorts of the hubs. That's a slide that I always show to show that there is a consistent and quite known pattern of growth and maturation in all the cohorts of hubs. And the overall maturation index is now at around 43%.
So this is basically the ratio between the current student bases divided by the potential base within the same hubs. So it's kind of a same-store sales. So we can more than double the student base with the hubs that we have today. And this is, as you know, this is a growth with limited risk of execution. Going forward on page nine, the growth throughout Brazil. Here on the left, you see that we even in our say incumbent region, the south region of Brazil, we grew by 8% year-on-year. A strong growth throughout the country, especially in the southeast, which is, again, the region in which we are growing the most.
Today, our group represents the region in which we have more than one-third of our hubs in the southeastern region. On Page 29, this is the footprint of the geographical footprint of our hubs. We reached 2,400 hubs this quarter. As you know, this is a quite complementary footprint when you see the profiles of UNIASSELVI and UniCesumar. And today we are present in more or less 1,400 cities.
Half of them have only one brand, one of our two brands, which means there is an important potential for medium and long-term growth through the opening of a second hub in those cities, in which we already have a local partner who understands the local environment and now can grow with the second brand. Page 11, another illustration of our delivery. This is the ratings of our apps. It's important because today in digital education, the app is the most important way through which the student studies. So everybody has a cell phone in Brazil, or almost everybody has a cell phone in Brazil, but not everybody has a computer.
So to have a user-friendly app, to have an app in which you can study, you can listen to a podcast, you can have a simulator, you can see a video, while you are commuting to work, while you are having lunch at work. This is a very important way to deliver high-quality education. And our apps are rated the number one and number two in the country in high education. On Page 12, a very important slide in which we show details of the intake and every ticket for each of the brands in the digital education undergrad segment during the quarter, compared to the third quarter of last year. So for intake.
Intake this quarter was 35% higher than the intake in the third quarter of last year, especially due to the performance of UniCesumar. This year, we worked in the repositioning of UniCesumar, and we were able to achieve a more balanced split between the first and the second semesters. We had identified this untapped opportunity to increase the intake result of UniCesumar in the second intake cycle of the year. And besides, we are always searching for the ideal balance, ideal equilibrium, among intake, every ticket, and dropout ratios. In some moments, it's better to accelerate growth at the expense of tickets. In some moments, it is reverse. So, in this quarter, this led to stronger growth within UniCesumar than UNIASSELVI.
So in the case of UNIASSELVI, intake grew by 6% this quarter versus last year, which is still a strong performance, considering the quite high comparison basis, knowing that the intake of UNIASSELVI grew 115% between the third quarter of 2019 and the third quarter of 2022, which is equivalent to an annual growth rate of nearly 30%. So it's very high comparison basis. For tickets, in the case of UNIASSELVI, the average ticket grew again above inflation in the last 12 months. This is mostly due to our price discipline, our market intelligence, and the tools and procedures that we have in place to set prices, as you all know, and we have been showing in the last years.
When we see the evolution of the average intake, sorry, average ticket of UNIASSELVI in the last four years, the CAGR of this increase is 5.9%. So roughly 6%, which is very similar to the annual inflation rate in Brazil over the last four years. So UNIASSELVI, over four years, has been growing tickets more or less in line with inflation. In the case of UniCesumar, we have noticed a clear improvement in the pricing throughout this year, and especially in the second semester of this year. We can see here additional signs of the first results of the implementation of best practices between the two brands. These changes had to do, for example, with several improvements, including in the commercial approach to attract new students.
Regarding, for example, higher or lower discounts in the first tuitions, in the annual increase and the tuition of senior students, that is above inflation, and also a more granular and intense use of data in our decision-making process. Moving to Page 13, the big financial numbers. So revenue, as I said, growing 22% in the quarter, but 64%, if you see the full year. As you know, we closed the combination with UniCesumar in May of last year. Gross profit also increased a lot, 38% in the quarter and 79% in the full year, which means an increase in gross profit, in gross margin. And now we have a gross margin of around 66%.
And adjusted EBITDA also growing and reaching a margin of around 38%. On Page 14. Sorry, by the way, on Page 13, just, it's important just to bear in mind that this is a cyclical business, so margins fluctuate throughout the year. So for the fourth quarter of this year, you should expect a slightly lower EBITDA margin, as we saw last year, by the way, but still important growth versus last year for the full year. Now, on Page 14, the net revenue composition. So our growth of 22% in net revenue came not only from the expansion, the expansion of digital education, but also from on-campus, for medical, and from continuing education.
So today, we kept more or less the breakdown that we had last year, around 70% in the undergraduate digital education, plus 60% in continuing education, which is also digital, plus around 12-13% of medical and around 12% in on-campus ex-medical. Now, on Page 15, more details on the digital education, undergraduate. Again, growing by 52% in the full year number, showing the differentiation aspects of our academic model. And here on the right part of the slide, the results of the last ENADE census. So we kept growing last year. So again, we had a market share that was at 26%, when you add UniCesumar and UNIASSELVI, which is two times the market share that we had five years before.
So over the last years, we have not only been able to grow within a growing segment, which is digital learning, but also to gain and to double our market share. So it is again another a confirmation of our differentiation when we talk about delivery of digital education. And finally, here on the bottom right part of the slide, you see the overall evolution of the private education sector. So last year we had 7.3-7.4 million people studying digital higher education in Brazil. More or less 56% in digital education, 44% in on-campus. But when you see the newcomers, I mean, the new students that enrolled for the first time in 2022, this ratio is about 70% digital education and 30% on-campus.
So the trend is clear, so the demand is clear, so the market is going for digital education, and that's the way that we are closing, slow but steadily, we're closing the penetration gap in digital higher education in Brazil. On Page 16, our medical footprint. As you know, it is the fifth best medical course in Brazil. It's still maturing a little bit in Maringá, a little bit also in Corumbá. It's a very solid business with an average ticket of more than BRL 11,000 per month, increasing above inflation, given the quality of our medical business. On Page 17, the on-campus, ex-medical, and continued education businesses. So for on-campus, there was an important contribution of UniCesumar to the overall numbers of Vitru....
Given the resilience and the high quality of the on-campus courses of UniCesumar, particularly the health-related courses. Again, as I said, throughout this year, this is the first full year after the pandemic, so there is a kind of rebound in the on-campus after a few years of pressure given the pandemic. So we saw a substantial increase in intake within the on-campus business of UniCesumar, with rising tickets, including in the intake. Regarding continuing education on the right, also a strong growth in this segment, which comprises not only our graduate digital courses, but also a growing and booming business of technical courses and preparatory courses for the first job. So this segment is our smallest, but is the one that is presenting the fastest growth.
This is a very promising area, and we do believe that we can offer complementary products to our students in a lifelong learning approach. On Page 18, the quarterly evolution of EBITDA coming from 35.8% to now 38.1%, and 19, the full year growth in EBITDA from 34.7%- 38.3%. Now I'm going to go through more details in the next Pages. So on Page 20, we see here cost of service on the left, still around 30% of our net revenues, which is a confirmation of our operational leverage and the effects of synergies and cross-presentation of best practice between both brands.
We have evolved quite well in the integration between the former Vitru and UniCesumar, and it is reflected here in our gross profits and gross margins. For G&A, on the right, we kept a relatively low G&A expenses, as a percentage of net revenue, of around 6%, of our net revenue, conforming a lean structure, and the integration of UniCesumar into Vitru. Now, on Page 21, for selling expenses first. There was an increase in the quarterly expenses, as a percentage of net revenue, mainly due to the strong growth presented in the quarter, in terms of intake, because most of the selling expenses is aimed at attracting new students.
So anyway, if we look at the area numbers, there was a slight reduction in such expenses as a percentage of net revenue in the period. So overall reduction in the customer acquisition cost. For PDA, on the right, after a few quarters in which we had noticed a slight increase in delinquency, this quarter was very positive for us in terms of cash collection. Let's see in next months, how this evolves, whether this is an improvement that's here to stay or just a technical rebound after a few tough quarters. As you know, the reflection in the PDA curve is not immediate, so we had a relatively stable PDA level this quarter, as a percentage of net revenue.
So for the full year, we are at 12%, more or less, of net revenue. Usually, the fourth quarter will have a higher PDA level, so we do expect for the full year of 2023, a level of around 14%, which is the same level that we had last year. And I'm going to talk more about cash collection in the next page. So on Page 22. First, adjust net income on the left. This was impacted this quarter by two non-cash and one-off events. First, we had a provision on deferred tax assets of around BRL 52 million. Just to illustrate what it means.
We have all our debt at the level of Vitru Brasil, which is the holding company of Vitru here in Brazil, the holding of UNIASSELVI and UniCesumar. We have certain operations in Vitru Brasil, but most of the operations, most of the undergraduate and regulated operations are in the companies below Vitru Brasil. So as we have the effects of that and the taxable, the tax shield of the interest that we generate year after year, we have been producing a deferred tax asset, which is normal. And we have to make an evaluation for the recoverability of this type of asset.
So here we have to present this quarter, a non-cash, provision of this asset in the quarter, which is here—I mean, from a tax perspective, we do, we don't lose this tax asset, but you cannot recognize it, fully in our balance sheet. That's it. So the tax asset is there. We are going to use it, in the future, but in this type of study, for the recoverability of this asset, you must look only at the first 10 years of recoverability. So we had to kind of make a provision for the long-term use of this asset. But anyway, as I said, the tax asset is there. It is not only recognized in our balance sheet. The second effect was, again, a one-off, write-off of certain non-core assets.
This quarter, we concluded the first inventory exercise within UniCesumar after the acquisition. So with this full-fledged inventory exercise, we had a BRL 34 million write-off of these non-core assets, which again is a non-cash event and a one-off. Anyway, there was an increase in the reais numbers despite our current leverage of around 60% when you see the full year of this year. For cash flow on the right, this was our strongest quarter in terms of cash generation, and at the end, cash is king. So I like to emphasize that. We are truly committed to a sustainable and strong cash flow generation, not only to keep reducing our leverage through organic growth, so this, the leverage is coming through organic growth, as we've been doing.
But also as a way to generate, as I said, value both to our shareholders and our clients. So our scale and capacity to generate cash allow us to maintain our quality standards. For the performance in cash flow this quarter was due not only to the increase in EBITDA, but mainly a substantial improvement in different lines of our working capital in the quarter. For example, we have now in September our lowest level ever in days of receivables, which stood at 61 days. If you take our net revenue, for example, accumulated in the last 12 months, I mean, between October 2022 and September 2023, and compare this to the net revenue that we accumulated in the previous quarter, I mean, between July 2022 and June 2023, there was an increase of roughly 5%.
I mean, 5% in a quarter, which is more or less 20% per year, which is what we've been growing. But there was a decrease in the short-term accounts receivables position between June and September of this year. So we increased our net revenue in 5% in three months, and we decreased our short-term accounts receivable by around 6% when you see September versus June. So this decrease is a result of several initiatives, including those implemented at UNIASSELVI after the exchange of best practices with UniCesumar. Besides, there was also an improvement in accounts payables, mainly due to the implementation this year at UniCesumar of the corporate purchasing policies that have been in place within UNIASSELVI four years.
So again, just to give some numbers to that, this policy starts to be implemented in the beginning of this year. So the compliance to our purchasing policies within UniCesumar was at 35% of all our purchases in the first quarter of this year, just after the integration of the area. But now, in the third quarter, it is at 88% of all purchases of UniCesumar. So now we have more extended terms of, for payments and which reflected as well in the overall working capital generation. And finally, it's important just to highlight that this is cash flow from operations, which means it is before CapEx.
Our CapEx in the first nine months of this year amounted to 5.9% of net revenue, which is similar to the level of last year, and that's what we should expect for this year, around 6% of revenue and going down next year. Finally, on Page 23, this is a new slide to highlight the details and evolution of our net debt. Net debt in September 2023 was at BRL 1.874 billion on the ex-IFRS 16 basis, I mean, without leases, which is the way banks look at it and how our covenants are measured and defined. This is a reduction of more than BRL 100 million in the quarter versus the position of June, and this even after the partial execution of our share buyback program, which is still ongoing.
So with that, our net debt over adjusted EBITDA ratio declined to 3.1 in September, versus 3.3 in June. As a reminder, our covenants are here on the upper right part of the slide. So now EBITDA ratio 4.5, end of the year, 4x , going down to 3x by December 2024. And we expect our net debt adjusted EBITDA ratio to be around EBITDA ratio 3 by the end of this year and going down to maybe EBITDA ratio 2 or slightly higher than EBITDA ratio 2 by the end of next year, given the growth of our adjusted EBITDA and our strong cash flow generation. And finally, the chart in the bottom part of the page illustrates the expected amortization profile of our debt after the conclusion of the issuance of our new debentures.
So you can see here an extended duration. The cost of the debenture will be lower than our current cost of debt, so this will be a lower cost at a longer maturity. So that was it from me. And so before I pass back to the operator, just to tell you that the migration to B3 is addressing well according to our schedule. This process will be concluded maybe February or March of next year, so in the first quarter of next year. There are works with SEC, with the CVM, with B3. So everything advancing quite well.
And by the way, that's why we had to delay in a few days, the release of our third quarter 2023 numbers, because we were preparing new filings at SEC, and those two votes had to convey. That was it from my side. Now, I'd like to open for questions. Operator?
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the question queue, please press star two. Our first question comes from Lucas Nagano from Morgan Stanley.
Hello, good morning. Thanks for taking our questions. I have two questions. The first one is related to the price increase at UniCesumar . From what I understand, you not only reposition the prices of freshmen, but also older students who were admitted last year. How much was this increase, and did that lead to any friction in the new renewal rates? And should we expect this level of price increase for UniCesumar going forward? And the second question is related to the public consultation on the proposal that restricts the offer of some healthcare distance learning courses. We wanted to understand how you're positioning and preparing for this, and how do you assess the likelihood that it becomes approved? Thank you.
Thank you, Lucas. So for the first question about tickets of UniCesumar. Indeed, this increase of 13%-14% that we had this quarter was the result of several things. In the case of UniCesumar, as you said correctly, we had the annual increase of tickets for seniors, which was above inflation, which was about 9%, in fact, throughout this year. Second, we had also a repositioning of intake tickets. So we are always trying to adjust and ensure that to the local economic environment, to the best practice. What we are seeing today, throughout this year, in fact, is a more, I'd say, rational environment.
I guess that all the big players are concentrating most of the demand increase in this e-learning, and everybody now I guess understands that we are in a healthier environment in terms of prices. There was also changes in the mix between discounts. As I said before, the way that you offer a higher or lower discount in the first tuition, for example. So these adjustments were made throughout this year at UniCesumar, and now we start to see the effects. Also knowing that the prices of last year were lower. So last year, the prices only a slight increase above inflation, but the price of UniCesumar decreased.
So the comparison bar is lower in the case of UniCesumar. But anyway, even with a strong performance of intake of Unicesumar, we were able to grow overall tickets at about 13%-14%. Regarding the regulatory discussions, a very important issue, a very important question, and thanks for that. I mean, we do not believe in radical changes, especially knowing the positive impact that digital learning has brought and is bringing to millions of Brazilians in terms of higher income and a more educated population as a whole. And there is still a huge untapped potential to keep growing in digital education, given that now in Brazil, only around 20% of adults have a post-secondary degree.
So, digital learning is taking opportunity and growth to regions in Brazil in which the presence of on-campus courses is limited or even non-existent. Just to give you some numbers, around 70% of the distance learning students live in cities with a IDH index lower than 0.7. And 75% of the cities with a IDH index lower than 0.7 have only a distance learning courses. So the gap in the penetration of post-secondary education in Brazil, which is historically low in the country, is slowly but steadily being fulfilled through digital education. And just another example. A lot has been said about the high percentage of teachers that receive their undergraduate degree through distance learning.
Indeed, it was through distance learning that basic school teachers received their degree throughout the country. Before the expansion of distance learning, those teachers were giving classes with no formal education. In fact, the hybrid courses of UNIASSELVI, when they were created, more than 15 years ago by the Tafner family there in Blumenau, the purpose was to teachers.... So the founding family of UNIASSELVI wanted to create a hybrid model, a hybrid course, aimed at giving pedagogy courses. And they thought that the best way to do it was through a hybrid model. So what we do believe is that there will be a stricter focus on quality, which is good, and the need for more hybridism in several courses.
In this scenario, we, as Vitru, would be quite well positioned. So the changes in regulation may even benefit us. So for us, the higher the bar, the better. So quality and hybridism. Regarding quality, we have today a very solid IDD, which is much more important than the ENADE. ENADE is absolute, IDD is relative. So the IDD takes into account the reality of your students. So Vitru has a very much higher IDD than the average in the country. And regarding hybridism, as you know, our hubs are usually larger and better structured than most of the hubs of our peers, sorry. So if there is an increased obligation of hybrid courses, we will be well prepared.
Very clear, Carlos. Thank you.
Thank you, Lucas.
Our next question comes from Mirela Oliveira with Bank of America.
Good morning, Carlos, and everyone. Just a quick follow-up on the regulation question. Could you guys comment a little bit on the ENADE results and how you think this could impact in the case of a potential stricter regulation?
No, as I said, the ENADE is one of the indexes that we have in the ministry. We have the CI, the IGC, the CPC, the ENADE, the IDD. So, again, ENADE takes into account the absolute comparison. So, that's why... Which is normal. The ENADE of on-campus courses is usually higher than the ENADE of digital education students, because the profile is different. The social and economic profile, the reality is different. That's why we do believe that the other ratios, such as IDD, which provides the real impact that the university is bringing to the students, is a better way to use. But we are quite active in discussions about it.
Let us see what comes, but we do believe that there will be a stricter focus on quality, with more control, with more a need for hybrid courses. So at the end, again, we are quite well prepared for that.
Thank you, Carlos.
Thank you, Mirela.
Ladies and gentlemen, as a reminder, if you would like to pose a question, please press Star key followed by the one key on your touchtone phone now. We have a question from the web. Lucas Marchesini, Itaú BBA. Regarding the decrease in PDA expenses as a % of new revenue, was this a result of initiatives implemented by the company, or was this a reflection of an improvement in the macro scenario? Can you please provide some color on the initiatives to improve the PDA? Thanks.
Great, Luca. Thanks for the question. Indeed, I mean, this quarter, sorry. This quarter, we believe that the results were a consequence of both what we improved in collection in the country and also a slight improvement in the overall macro environment. I mean, we are seeing the results of other peers and the results of banks, for example, in Brazil, and everybody stating that the overall macroeconomy scenario this quarter seems to start to be improving. Let's see how it evolves, but it is the trend now is more positive than what it was six months ago. But also, we had initiatives that we implemented in the company. For example, just to show two of them.
We have today a new credit score in which we provide a credit rate for our students in terms of, for example, the capacity that he or she has to renegotiate with us. So for example, if someone is not paying their tuitions in the renewal of the enrollment, you have either to pay your debt or to refinance your debt with us. So you can pay, let's say, 30% upfront, and then the remaining in three or four installments, for example. So we today, this year, we implemented a new credit score mechanism through which we give better conditions to certain students and worse conditions to other students that have a worse credit score.
So this is, this has been proven quite well in terms of collection. And this is a new way to evaluate credit score throughout the company. But also we have, within UNIASSELVI, some changes throughout this year, which much more, say, use of data for collection and to prevent the delinquency as well. Some tools that have been using at UniCesumar for a few years, and now this year, UNIASSELVI starts to use as well. So there was a sum of best practice, plus some new tools that we developed as the new credit score, plus the improvement in the overall macro environment.
And just to finish on the credit score, we are also advancing on the use of AI throughout Vitru. AI to support the tutors, for example, in the dealing with the students. AI for to give more, a more expedite support for students. And also, we are now looking to use AI as well in credit, in cash collection. So this is not yet finished. This is something that we are started to work with some studies. But there is a clear potential here to use AI as well, to improve even further, the credit score calculations, for example, for every specific person.
Thanks. Questions via webcast not answered in this conference will be answered later by the IR department. This concludes today's question and answer session. I would like to invite Mr. Carlos Freitas to proceed with his closing statements. Please go ahead, sir.
Thank you, Peter. So, thank you all for your continued support for Vitru. We have been delivering quite nice numbers. But anyway, if you have more doubts, we are fully available to solve them. Thank you and good morning.
That does conclude Vitru's audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.