Good evening, everyone. Thank you for waiting, welcome to Vitru's second quarter 2023 earnings conference call. We advise you that the video conference is being recorded and will be available on Vitru's Investors Relations website, where the complete material of our earning call can be found. You can also download the presentation from the chat icon. During the company's presentation, all participants will have their microphones disabled. We will start a Q&A session, and at this point, you'll be able to use your microphone. To ask questions, click on the Q&A icon at the bottom of your screen to join the queue. If you prefer to write a question, please follow the same steps and you will be joining the queue as well.
When your name is announced, a request to activate your microphone will appear on the screen, and then you must activate your microphone to ask questions. It is recommended that you do all questions at once. We emphasize that the information contained in this presentation, in any statements that may be made during your calls regarding Vitru's business prospects, projections, and operation and financial goals, constitute the beliefs and assumptions of the company's management, as well as information currently available. Forward considerations are not performance guarantees. They involve risks, uncertainties, and assumptions, and they refer to future events, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect Vitru's future performance and lead to results that differ materially and those expressed in such forward-looking statements.
Today, we have the presence of the company's executives, William Matos, Vitru's co-CEO, Carlos Freitas, Vitru's CFO and IRO, and Maria Carolina, Investor Relations. I will give the floor to Mr. Carlos Freitas. You may begin.
Thank you, Porter. Good afternoon, everyone, thanks for joining us again. It's a real pleasure to be here with you all again for the release of our second quarter 2023 results. As said, here with me, I have William Matos, our Co-CEO, Maria Carolina Goncalves, the Head of our IR department, and also Raquel Sovaski, Daniel De Souza, and Luis Felipe da Silva from our IR team. The slide presentation in front of you will be part of today's webcast. It is also available in our IR site at investors.vitru.com.br. Before we begin, as usual, I'd like to make sure that, as detailed in slide two, that you know, that safe harbor is in place for this call. Now I invite you to go to page four. Which is here.
Here we show a few key operational highlights of the quarter. The first is that this is the first anniversary of our, of the closing of our business combination with UniCesumar, that we closed in May of last year. As we know it, we have been following the company. We have been advancing a lot in the integration process of both Vitru and UniCesumar. We reached, in June of this year, near 920,000 students, 97% of them in digital education, with a 17% increase in the first intake cycle of this year, the first half of this year.
The average ticket increased about 3%, 3.2% in the first half of this year, which is more a better indicator for the full academic cycle, the semester number, confirming our approach to pricing, our price discipline, and our product differentiation. On slide five, we have the main financial indicators for this quarter. Net revenue from our core business, which is, as you know, digital education undergraduates, was up at 58% in the quarter, with the overall net revenue increasing almost 70% in the second quarter of this year. The adjusted EBITDA increased by 73% from more than the increase in revenue, which means that our margins increased, and this time to 38.8% in the second quarter, compared to 38% in the second quarter of last year.
Adjusted cash flow from operations also increasing even further, 119% increase quarter on quarter, with a forward cash flow conversion from operations of 86.7%. Finally, the adjusted net income was up almost 100% as well, reaching BRL 123 million in the quarter, despite our current debt. On page six, this is a new slide that summarizes how we position ourselves and what we have achieved since the 2020 IPO. We have always said to you that we are the only player, only little player, in Brazil with true focus on digital education. We are now the largest player in digital education in Brazil.
With not only our focus on what is growing the most, in the higher education sector in Brazil, but also the largest player in, in this sector. Here are some indicators that show our performance of the Vitru now compared to the Vitru pre-IPO. I know that most of you know the number, but it's also interesting to highlight what we have been able to grow in the last three years, both in terms of revenues, of financial indicators, and also operational indicators. Revenue up by 290%. EBITDA, we were a company with BRL 117 million EBITDA before the IPO. Now we, we reached BRL 650 million in the last 12 months.
Yeah, the, the number of students also increased a lot. Hubs, cash flow from operations, 500% increase over the last two years. This is just to illustrate what we have been able to grow in the last years. On page seven, the, the numbers of our digital education undergraduate segment students reaching 837,000 students. A 13% growth year-on-year, at- and almost 900,000 in digital education as a whole, including our graduate segment. This is an important growth. We are reaching the number of 1 million students, which we're probably gonna reach next year.
We had this 13% growth in student base in June of 2023, compared to June of 2022, which we believe is a remarkable achievement, knowing that we had a very high comparable basis of last year, and the fact that this is the first full year, of the fourth real year, after the pandemic. I mean, it is no surprise that the digital education segment grew a lot in the last two years, and we agree- and we grew even more. So we gained market share within this growing sector. Just to illustrate, just to remember, that last year, our intake growth was particularly strong. We grew the intake of 26% of UNIASSELVI, and 54% in the case of UniCesumar.
That's why here in, in the bottom right part of this slide, we show here as well, the, the, the, the CAGR, the annual growth in the last two years. A 21% CAGR between June 2021 and June 2023. On page eight, some indicators of our growth. Our maturation index, around 48%, so we have the capacity of more than doubling the size of student base with our current hub base. The cohorts of hubs keep growing over time. As we have always said, this is a important growth driver for revenues with limited execution risk. The following page, on page nine, we have the breakdown of our student base per region in Brazil.
13% overall in the last 12 months, with important growth in the southeast, of 21%, Also in the northeast and the Center-West of the country. Now we have almost 200,000 students in the southeast of the country, which represent already more than the biggest region in terms of hubs for us. Around almost 800 hubs that we have only in the southeast. Which, by the way, is highlighted on the next slide. Just to summarize, growth of hubs, 18% year-over-year, growth in student base, 21% year-over-year, this is an important growth driver.
This was something that was asked about a lot during the IPO, our capacity to grow, to execute growth in the Southeast, and we are showing that we can do it. Page 11. The breakdown of our hub footprint, which as you know, is quite complementary between UniCesumar and UNIASSELVI. We keep growing. We keep opening hubs throughout the country. Not opening hubs for the sake of opening hubs. The size of a company is not measured by the size of hubs or the amount of hubs, but we open hubs when we do feel that there is a demand in that given area or city.
We keep opening, opening hubs because we do believe that there is space to be occupied in the country. Why do we grow more? Because of our focus on technology and a differentiated customer experience. Again, this is a slide that we show every quarter, just to highlight that, which is public information, which is comparable. We have our apps rated 4.8 out of 5, so a very nice rating. This is very important because the cell phone is the most used means to reach our students. Our students, they are, everybody has a cell phone or more than one. Not everybody has a computer. In our case, people commute, people study with a cell phone, people listen to videos, et cetera.
Having a very nice and tech-oriented app is a way to reach these students and a indicator that of our focus on technology. On page 13, in this slide, we show details of the intake and average tickets for each of our brands in the digital education undergrad segments during the first semester of this year, which, as I said, better reflect the academic cycles. Regarding intake, the intake growth in the first half of this year, was around 17%. Which is very close to the intake growth that we showed already in the first quarter of this year. Again, a strong performance, especially considering our quite high comparison basis of last year.
Regarding the, the, the current intake cycle that we are still going through, we are halfway in the process. What we are seeing so far, and what we expect for the rest of the cycle, is a similar intake growth throughout the 2nd semester of this year. Regarding tickets, in the case of UNIASSELVI, a strong growth in every ticket, growing above inflation, 8.5% year-on-year. This is mostly due to our pricing discipline, our marketing intelligence, and the tools and procedures that we have been developing over the last years, as we, as we have showed to you since our IPO. In the case of UniCesumar, there was a slight decrease in tickets, especially given the carrying effect that I explained in the last quarter.
The carrying effect of the substantial volume of new students that were enrolled throughout last year, and now are seniors, and, and they have replaced seniors in the, the last year, which had higher tickets. These- those new students, they entered last year at lower tickets, so there is this carrying effect. But what is important to, to highlight is that anyway, we are seeing-- we saw already the first signs of the new pricing approach that started to be implemented in UniCesumar in the first and second cycle of this year. And we are seeing that intake tickets for UniCesumar are growing, or grew, in fact, in the first half, a little bit above inflation.
In a nutshell, the consolidated average ticket, it grew a little bit below inflation, 3.2%. Going forward for the year, we're probably gonna see a similar growth, either equal to inflation or slightly below inflation, on average. On page 14, some key financial indicators, comparing the quarter and the semester. Strong growth in net revenue, in gross profit, in margins, in adjusted EBITDA. Very strong performance this quarter and this semester.
By the way, it is important to bear in mind that this is a cyclical business, and that traditionally, we in the second quarter of the year, is our strongest quarter in the year, both in terms of revenue and in terms of EBITDA margin. This is because in the second in the second quarter of each year, we have the full impact of the intake cycle of the first quarter, which is the strongest intake quarter in the year, as you know, but we don't have the marketing expenses for this growth. The marketing expenses are expensive mostly in the first quarter of each year. Also, we still don't have most of the dropouts of the new students.
It's usually the strongest quarter every year, the 2nd quarter. Going into more details on page 15, the net revenue composition in the quarter, growing almost 70%, as I said before, led by the growth in digital education, undergraduate, but also in the medical business. Here in the right part, you can see the breakdown of this revenue. Today, in the 2nd quarter of this year, we have around almost 80% of our net revenue coming from digital education, either undergraduate or the continued education business, plus 13% coming from a very resilient medical business. It is another way to illustrate our competitive advantage and our differentiation.
On page 16, the digital education undergraduate revenue, growing 58% and 76% in the semester, growing a lot, and with a very important opportunity regarding the mix of students. You can see here, in the right part of the slide, the breakdown today and the breakdown in June of last year, of our student base. We grew a little bit, but what we are growing, the weight of premium courses, namely health courses, and the engineering courses, which went from 25% to 28%. This is important because those health courses especially, they are mostly new. For example, nursing, in the case of both brands, some health courses that were not offered in the UniCesumar brand are now being offered.
Going forward, we do believe that there is important potential of increasing the relative weight of premium courses, and to sustain tickets over time as well, especially because, as I said, health courses, some of them have just started to be offered, and also in the medium term, not this year, but in the medium term, we do expect other courses to be allowed to be offered in these locations, such as psychology and law. Page 17, our medical business, just to remember, to, to highlight that, a very high quality business, the fifth best private medical school in Brazil, with high scale, Maringá being the largest medical campus in the south of Brazil, which means high margins and high leverage, operational leverage.
Net revenue in this business, offered only through the UniCesumar brand, reached BRL 67 million in the quarter. Tickets today are around BRL 11,000 per month, increasing above inflation, and the seats are still maturing. We expect promising results from our medical segment this year. Page 18. On the left part of the slide, the on-campus ex-medical business, there are important contributions for of UniCesumar to the overall numbers, given the resilience and the high quality of especially the health-related on-campus courses of UniCesumar. Which just, as a refresh, those courses represent more than half of the overall on-campus business of UniCesumar ex-medicine, ex-medical.
It means high ticket, it means resilience, and again, we are growing intake and tickets in this segment as well. Intake, for example, growing around 20% in UniCesumar compared to last year. For continuing education, on the right part of the slide, also a strong growth in this segment, which comprise not only our graduates courses, but also a growing business of technical courses and preparatory courses for the first job. This is a promising area, and we do believe that we can offer complementary products to our students. We have the tools and the intelligence to do so in a lifelong learning approach. Again, margins growing page 19 from 38% to 38.8% in the quarter.
On a semester basis, growing from 33.8 to 38.4 in the first half of this year. On page 21, you can see that the biggest contributor of this increase in margins is our operational leverage. Cost of service as a percentage of net revenue going down, both on a quarter or a half year basis. This is due to synergies, this is due to operational leverage and economies of scale as we grow the business. G&A on expenses, in the right part of the slide, now, represented 5% only of net revenue in the second quarter of this year.
Which, just to show, to illustrate, that we are a quite lean company, and which means more agility, which means more flexibility, and also as a consequence of the integration process with, with, UniCesumar. Page 22, selling expenses and PDA. For selling expenses, a slight increase in the quarterly expenses as a percentage of net revenue, but an important reduction in the semester numbers. The main reason for that is that we closed, as I said, the business combination, in mid-May of last year, when the first intake cycle of UniCesumar was already over. In the second quarter of this year, we had the full consolidation of the overall- of the whole quarter.
On a normalized basis, the quarterly expenses as a percentage of net revenue, would have been more or less flat, at, at around, 12% of net revenue. For PDA, on the right, PDA, was the reverse. It was higher in the second quarter of this year compared to second quarter of last year, but flat on a semester basis. Anyway, this reflects our growth profile and the strong weight of new students in our overall student base. As, as I said, going forward, we do expect the yearly PDA of this year to be more or less close to the number that we had last year. Finally, on page 23, net income and cash flow.
A very strong growth in net income, driven, of course, by the business combination with UniCesumar, with a higher margin, reaching 22% this year, the adjusted net, net income, margin of the company, and this despite our leverage. For cash flow, on the right part of, of the slide, we have an important increase as well in cash flow from operations, reaching BRL 160 million in this second quarter with 86% cash conversion. Important to highlight that this is cash flow from operations, which means that it's before CapEx.
Our, our CapEx in the first half of this year was 5.6% of net revenue or BRL 54 million, which means that if you take it out from the first half of this year, we had more or less BRL 230 million in cash flow from operations after CapEx. This strong cash flow generation also reflected in the reduction in our net debt. Net debt in June of 2023 was a bit lower than BRL 2 billion on an ex-IFRS 16 basis. I mean, without leases in, as a liability.
Our adjusted EBITDA, as I showed in the, in, in the fifth slide, I guess, in the last 12 months, was BRL 654 million, and around BRL 600 million, when we have the ex-IFRS 16 basis, so having included the leasing expenses. BRL 2 billion net debt, BRL 600 million adjusted EBITDA. 3.3, the, the ratio of net debt over adjusted EBITDA, ex-IFRS 16, which is way below our covenants. Our covenant was 4.5 for the June of this year. This number of 3.3 was much higher in the beginning of this year because we didn't have the full impact of UniCesumar.
This number, we believe that it shall reach 3, around 3 by the end of the year, as we generate more cash flow, and we do generate more cash flow than we accrue interest, so our net debt decreases over time, and as we grow, EBITDA as well. That was it. Now I'd like to open for questions. Thank you.
We will now begin the Q&A session. Remember that to ask questions, you must click on the Q&A icon at the bottom of your screen to join the queue. If you prefer to write your question, please follow the same steps, and you'll be joining the queue as well. Upon being announced, a request to activate your microphone will appear on the screen, and then you must activate your microphone to ask questions. We kindly request that all questions be asked at once. Let's go to our first question. It will come from Pedro Caravina, sell-side analyst from Credit Suisse. Pedro, we will open your microphone so that you can ask your question. Please proceed.
Hello, Carlos. Thank you for taking my question. I got two on my side. First, I would like to hear your thoughts on the recent decision of the Brazilian Supreme Court on prioritizing new medicine courses through Mais Médicos. We believe this may represent an opportunity for larger groups, and I would like to hear on Vitru's, what is the strategy for Vitru's, thinking that UniCesumar's solid medical business is performing very well? Is there an opportunity for trying to expand its, its, its seats base, or should we expect a prioritization on distance learning and maybe thinking on selling the, the medical business? If you could comment, comment on that.
Also, going through the release, you mentioned that there is a challenging macro scenario, and even so, UNIASSELVI has been able to, to pass through tickets on a sustainable level above inflation and doing it pretty well. Now that the semester is over, I would like to understand better, where did the demand for, for new students came from? Are larger groups gaining share from smaller ones? Is it, the, the sector is, is expanding? Because looking at other, other, other educational groups, results, we, we saw a very strong first semester in terms of student base, which wasn't expected by, by the end of 2022. If you could provide us more color on that, I would be grateful. Thank you.
Hi, Pedro. Thanks for, for your questions. Regarding the medical business in Mais Médicos, we do believe that this decision helps to minimize uncertainty and risks in the sector, which is always good. We do believe as well that the opening of new medical courses should follow the Mais Médicos legislation o- and the ministry legislations to, to, to maintain a-a-and, and to, and to, and to, to have a minimum standards and high-- in, of quality as well in the industry. For UniCesumar, I mean, we have a very strong medical business with two camps, especially the one in, of Maringá, a very nice brand in the area, in the state of Paraná, but especially in, in the, in the area of, of Maringá.
We will analyze, maybe there is an opportunity to increase the some medical seats here and there, using the strength of the UniCesumar brand, in the surrounding area of Maringá, for example, in the overall state of Paraná. This will be analyzed on a case-by-case basis. This, this is not our, our core business, but it is a relevant business of the company, so we will analyze in due time. Regarding your second point, for demand, where is demand coming from?
I mean, it was always our belief, and our speech, by the way, that digital education was not a temporary session, that digital education is here to stay, and that there is a clear trend in the preference of the clients, of the students, of going more and more to this way of studying, to a digital education approach, especially in the case of UniCesumar and UNIASSELVI, that we have a nice quality. To us, it is no surprise that the segment is growing.
It's growing even, I mean, overall, the segment is growing less than what we grew during the pandemic, of course, because it was a different environment, different approach, a different context. It's growing, as we said, that it was going to grow. We said that we believed that the sector would grow overall this year, less than what we grew in the last two years, but it was still going to be a double-digit growth in the sector, and in our case as well. We are delivering what we said.
It is an important segment for growth, and today, we don't have a very, let's say, clear picture of whether the big groups are gaining market share from the small ones, but it probably is the case. That's what we saw in the last census from the Ministry of Education. The new one will be released in a few weeks. We hope so, and we're probably gonna see the same, that the strong players, stronger players, will probably gain market share because it is a business of scale. For you to offer high-quality education and make money, you do have to have scale. Otherwise, either you don't have... you don't provide good quality education or you don't make money.
It is a business of scale, and we do believe that demand is coming from the overall growth of the sector, but also, the, the big groups are probably going gaining market share as well from small groups.
That's very clear, Carlos. Thank you and congratulations on the results.
Thanks, Pedro.
We remind you that to ask questions, you must click on the Q&A icon at the bottom of the screen and write your questions to join the queue. We now have a question coming from Fred Mendes, sell-side analyst, from BOFA. We're going to open your microphone so that you can ask the question. Please proceed, Fred.
Hello, good evening, everyone. I have, I have basically one question here. I'm just wondering, I mean, one of the players, also a large player on distance learning, it's been very aggressive in terms of increasing prices, right, for the segment. You're seeing an above 15% increase for him, and then I think that's kind of setting the pace to the sector as well. So just wondering if you're already seeing this impact kind of benefiting the competitive landscape, if there is something you can also take advantage of it, if something that you believe it is sustainable. Anyways, how this, let's say, more aggressive on the positive side, move towards the ticket on the distance learning, how this is-- how this is evolving the competition in this segment? Thank you very much.
Thank you, Fred, for the question. I mean, this, this was and this remains a very competitive environment. It is true that in the last, I would say, 12 months, we perceive a more, let's say, rational approach of, for the lack of a better word, to prices. I mean, I don't believe that it is sustainable to grow tickets 15% per year forever.
We do believe, and that's what we always said, that, going forward, we shall have a growth in tickets, more or less in line with inflation, in some periods above inflation, as we have this year, for example, in UNIASSELVI, in some periods below inflation, as we have now for, for UniCesumar, but growing slightly above inflation, in the intake cycle. It, it, it depends, but I think it's reasonable to assume that, in the next, in the, in the medium term, tickets in the sector shall grow in line with inflation. We, we, we don't see any more a very irrational competition as we saw in, in some periods, but it is still a very competitive environment.
Each player has to, to differentiate itself from, from the others, and try to, to, to offer a better product for the client.
Perfect. thank you, Carlos. very clear. and if I may, If I may do a follow-up?
Sure.
On the, on the provisions front, when should we expect some type of normalization on this line? Anyways, if there is, if 2024, or we can see even earlier. Thank you.
Yeah, I mean, for this year, we, to be frank, as I said, we do expect that the PDA for this year shall be more or less the same level of last year. This is linked to our growth profile. The fact that we grow a lot, the fact that we are, sorry, we're increasing tickets as well in both brands in the intake cycle. At the end, it leads to higher PDA 'cause as you know, most of the PDA and most of dropout, by the way, is concentrated in freshmen and new students. I mean, for this year, I don't expect a improvement on that.
It should be more of the same level as, as, as we had so far in, in the last year as well. But going forward, for 2024, we'll have two effects. One effect, which is that we will see clearly a reduction in the overall weight of new students in our overall student base. So the... I would say, the, the weighted average PDA will go down naturally for next year. Also, which is also important, as said by, by Pedro before, the macroeconomic environment, as we start to see now interest rates going down, let's see to which number. But it is a fact that we serve the low to middle class in Brazil, which have been affected by the current economic environment.
As interest rates go down, and activity picks up, we shall see, we shall feel a improvement in, in the line next year.
Perfect. Very, very clear, Carlos. Thank you.
Thanks, Fred.
The next question received comes from Lucas Dai Nagano, sell-side analyst from Morgan Stanley. We will open your microphone so that you can ask your question, Lucas. You may proceed.
Hi, good evening, Carlos. Thanks for taking our questions. We have two questions. The first one is related to margin synergies. It has been improving significantly last year, partly because of the consolidation with UniCesumar, but partly because of the, the synergies as well. But now the, the comparable basis is, is getting tougher and, and the expansion is, is decelerating. Do you still see room to, to keep expanding margins through the rest of the year? And is there any further efficiency to, to capture on the, the cost savings front? And the second question is related to AI. We know that education is one of the sectors that could be mostly disrupted by generative AI.
Can you comment on, on what opportunities and risks you see on the, on the current business model, and how you plan to position the company? Thanks.
Great. Thanks, Lucas. Regarding margins, you're fully right. Part of the margins is due to the incorporation of UniCesumar, which had already higher margin before, but also part is due to synergies. We increase the loss with the margins, so reaching 38.8% now, this quarter. We still have a higher margin this year than what we had last year. I mean, as we consolidate UniCesumar, as we advance more in the integration, we had a smaller impact of synergies. In a nutshell, we can still increase margins a little bit, but not as much as we increased so far, in the last quarters.
Anyway, I think it is with a this level of margin that we have today, I think it is quite, quite good shape. So we, we are quite happy with these margins as well. For AI, I mean, th- this is a, a very important, I'd say, this will be a very important thing for us. We, we do believe that we, being the largest digital education provider in Brazil with 900,000 students, a- and, and the only little player focused o- o- on, on that, we will be a leading actor in the AI use for education in Brazil. That's for sure. For example, w- we, we are already working with 2 proof of concepts, so 2 PoCs. One with Microsoft and one with Google, for example.
I cannot comment much more than that. We do believe that AI can help, perhaps, our tutors, the tutors of UNIASSELVI, which provide the human touch for the student experience, for the learning experience. The tutors can be helped with AI in their approach. Anyway, it is gonna be much more an opportunity in our case than a threat.
Very clear, Carlos. Thank you.
Thank you, Lucas.
The Q&A session is closed. Now we would like to turn the floor over to the company's closing remark.
Thank you all for your continued trust, and by following up on, on Vitru. Anyway, if you have more doubts or questions, our IR team remains open for questions. Thank you and good night.
The video conference of results referring to Vitru's second quarter, 2023 is closed. The investor relations department is available to answer other questions and concerns. Thanks so much to all the participants, and have a good evening.