Ladies and gentlemen, thank you for standing by, and welcome to the Vitru Limited Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker for today, Carlos Freitas. You may begin.
Thank you, Gloria. Good afternoon, everyone. Thanks for joining us. It's a real pleasure to be here with you all for our first call as a public company after the full year results. Hope all are doing well and are healthy in this strange time. A slide presentation has been made available for us for today's webcast. This is available, as you know, in our Investor Relations webpage, which is investors.vitru.com.br. I trust you all have this presentation in front of you. Of course, before we begin, I'd like to make note that as depicted on page two of the presentation, Safe Harbor is in effect for this call. Now, I invite you all to go to page four of the presentation. This page briefly summarizes what 2020 was for us and what 2021 will be for us.
First, last year, which despite all the challenges that we all have faced and are facing today still, this was a tremendous year for us here at Vitru, full of accomplishments, including, of course, our IPO in the U.S. six months ago. Last year, we continued our growth journey in several fronts of the business. First, growth in the numbers of students, sales, EBITDA, net profit, and margin. Second, growth in quality. For example, with the new versions of our content platform and our apps, which is available to all our students. Quality as well confirmed by the latest results of the IGC indicator as released by the Ministry of Education in October of last year. This IGC is, again, the highest among all listed players in Brazil. That's a sophistication of our quality standards here at Vitru.
Third, growth in the satisfaction of our own employees, as measured by the most recent survey of Great Place To Work that we conducted here last year, in which we reached our highest grade ever. All of these issues will be discussed in more detail throughout my presentation for you today. Looking forward to this year, we are very excited about 2021. First, we will deliver again an important organic growth in our numbers. As you know, the strong growth we have delivered so far has been purely on organic basis. This growth will come again this year from the maturation of our hubs, the opening of new ones as we have done so far throughout the country, and also our constant focus on operational efficiency and leverage.
We are truly convinced that we can also create value for shareholders through M&A and this deployment of our digital expertise, and we have the balance sheet to do so. All of these issues, I will be discussing with you a bit later today. Now moving to page five, please. Let me reinforce some of the highlights for this quarter and for the full year. As I mentioned, we launched this new brand version of our Gioconda digital platform, and also an enhanced version of our app, which is called Lilium, improving even more the user experience. We started two new businesses, both still as pilot projects. First, a partnership with Smart Fit and Midtempo Cursos, both of them with a lot of potential. We reached last year a very important milestone. We have now more than 300,000 students in digital education. That is a huge achievement.
Financial performance was also very strong. Net revenue in our core digital education undergraduate segment increased by 26% in 2020 and 33% in the fourth quarter of last year compared to the fourth quarter of 2019. The consolidated adjusted EBITDA grew by 25% last year versus 2019, with the adjusted EBITDA margin reaching 28.2% last year, an increase of 2.7 points versus 2019 and 100 basis points above our guidance that we provided in November of last year. Adjusted net income up 70% last year compared to 2019. Now let me explain better about each of these points for you, starting on page six. Here on page six, the very core of our digital delivery for our clients. We are always looking to improve this academic experience for our students with digital solutions, which became even more important now with the pandemic.
We are very, very proud of the new versions launched last year of our Gioconda digital platform and the Lilium app. For example, the Gioconda platform, which is here on the left quarter of the slide, now has some adaptive learning tools through which the student has a much more customized student experience and a much more, I would say, a personalized experience for him or her. The Leo App here on the right provides a full mobile and user-friendly access to our students, which is more and more important in a mobile-oriented country such as Brazil, as you know. All the academic content is available there at our mobile app. It has as well an integrated support through WhatsApp, and last year we changed as well the apps. Now the internet access is paid by us.
The students have no additional cost to exploit the full capacity of the new Leo App. Now on page seven, to go a bit deeper about this partnership with Smart Fit. Those partnerships, they are also very instrumental in the growth that we deliver and expansion of our offerings. This is just the first partnership with Smart Fit that we signed and released to you in January of this year. This is clearly a very good partner for us. For those living abroad and who do not know it, Smart Fit is the largest company of gym centers in Latin America. They have around 865 fitness clubs, of which slightly more than 500 in Brazil, with a solid brand and fast growth in the last years, just like Vitru Brazil. We are now offering a graduate course in fitness for their employees.
And in fact, we launched a new course model with them open for the general public, in which we provide the digital and, of course, the academic experience for students. Smart Fit provides the gym facility, the gym centers for the practical classes. Again, this is so far just a pilot project, and we have nothing to report. But the potential here is clear, particularly because health and wellness is a field that is increasingly more important to consumers, especially now after the pandemic. More partnerships will come, and we hope we can announce more of them soon. Finally, as I briefly mentioned, we launched new technical courses, which are also part of our strategy to expand the offerings, and we will come back to that later on this year as we have more numbers to show to you.
Now, moving to page eight, which provides a glimpse of the growth of our student base. We have almost 310,000 students. 97% of them are enrolled in digital education courses. And if you focus on the students base in digital education and the graduate, which again is our main business by far, you can see that we have had a CAGR of 32% in the last five years, since 2016, and we have maintained this level of growth last year. As we have also disclosed in the release of our third quarter of last year, our intake in the second semester of last year was 40% higher than the intake in same period of last year. In the first semester of last year, the intake growth was 30%. So a substantial improvement and growth here as well in the intake side.
These numbers confirm the effectiveness and the competitive advantages of our academic model. As we have been saying and trying to highlight since the IPO, we do have a different product. And the market dynamics was also very interesting last year, as you all know. On one hand, the current economic crisis did of course affect the willingness of some of our prospects to enroll in our courses. That's clear. On the other hand, with our hybrid model, we do offer a compelling and high-quality alternative for those people, for those prospects who need the support and the sense of belonging offered in on-campus courses, but they can't pay high and expensive tuitions. And we do offer in our hybrid model this sense of belonging, this handholding support with tutors, and this experience of going to university.
This fact, together with the cultural changes brought by the pandemic, about working from home, buying from home, studying from home, of course, this represents a huge market opportunity for us going forward. On page nine, we show the increase in our digital education student base throughout Brazil. Last year, we expanded substantially in the whole country, well above the market growth rate. That's important to highlight. And this is a market that has been expanding a lot in the last four or five years. And in our opinion, will expand even further now in a post-COVID scenario. So within this growing and appealing market, we have been growing faster than the competition. Our growth was, last year, especially important in the southeast region of the country, where we had been historically, I'd say shy, but where we have been expanding a lot in the last two years.
This is a huge and a very competitive market, of course, but where our hybrid and tutor-based different academic model can attract a lot of students and it proved itself as the best learning option. Once we enter a new region, once we enter a new city, we quickly grow, and we quickly attract new students to our hybrid and tutor-centered model. Here on the right part of the slide, we can see as well the evolution in the number of our hubs in the last five years. We have been opening on average slightly more than 150 hubs per year, mostly with partners, which is our business model. 88% of these hubs were opened after the change in regulations that took place in 2017, so they are still not mature. Those are what we call the expansion hubs.
We shall maintain a substantial growth in the student base in our digital education undergraduate segment at our more than 630 expansion hubs as they mature over time, which is better illustrated on page 10. Here, this is a chart that I like a lot because it shows the, I'd say, the compelling strength of our model and the consistent growth of our cohorts. This is by far, by the way, the most important driver for our organic growth, the maturation of our expansion hubs. These expansion hubs, which we split by cohort here in the chart on the right, they are still ramping up. This growth pattern is very, I'd say, consistent over time. They are maturing over time. They shall reach maturity after seven or eight years of operations. None of them are mature, none of these expansion hubs are mature.
To reflect this growth potential, we created this theoretical maturation index, which is basically the number of students currently enrolled in these hubs, divided by the future number of students in the same hubs once they reach maturity. This index is currently at around 30%, which means there is a huge potential, and those hubs have the capacity to increase their base threefold in the next years. Of course, just a slight reminder, it's important to highlight that this index takes into account all expansion hubs. It can, in fact, even decrease from month to month as we open new hubs.
For example, if we take only the 2018 cohort, just to compare apples to apples, the maturation index of these hubs in this cohort increased from 36% in December of 2019, to 50% in December of 2020, as they went from 44,000 to 55,000 people over the last year. Finally, just to remind you all, this is growth with limited execution risk because all these hubs are already open. We have already found the partners and hired and contracted the partner, the tutor. The UNIASSELVI brand is already there, working in our favor. There is already a, I'd say, virtuous cycle working in our favor there. This is growth with limited execution risk. Now on page 11, you can see more details on the tuition and net revenues for our digital education undergraduate segment.
There was a substantial growth in both the annual and especially the quarterly figures for the fourth quarter of last year. This was due to a combination of, first, strong intake, as I mentioned already, and the maturation of hubs with controlled dropout and a slight increase in average ticket, as we can see now on the next page 12. Here on page 12, on the left part, we highlight that the increase in intake and expansion in our student base did not come at the expense of average ticket. Our ticket was, this quarter or this half of the year, in fact, increased by 3.5% versus the second half of 2019, which meant an increase close to the IPCA variation, more or less over this period. This was despite the sizable number of new students.
As you remember, as you know, we have a modular academic approach through which a new student, he or she can join us throughout the semester, throughout the first semester of lessons. Most of them do not provide a full semester of revenues. So it confirmed the strength of our brand and what we have been saying to you. We have a different market positioning, and we offer a different product. It is important to highlight here as well that there is a substantial seasonality in the dynamics of the average ticket throughout the year. So please only compare year-on-year numbers. Never compare quarter on quarter or the first half of the year with the second half of the year. The dynamics throughout the year is different. Now, on the center part of the slide, you can see here the contribution of healthcare and engineering increasing.
The increase in tickets was also supported by our mix of courses. Now we have a higher participation of healthcare courses such as nutrition, pharmacy, and biomedicine, for example, and engineering, slightly but steadily growing as well. So this provides a nice prospect for our ticket as well. Finally, you can see on the right part of the slide that our retention rate was even slightly better than what we saw last year or in 2019, in fact, despite the effects of COVID, which affected the retention rate in the first half of last year. Here, I think it's important to highlight that we improved our retention rate slightly, even growing a lot our intake figures. As you know, the dropout and PDD, by the way, is much higher among new students than among seniors.
So we not only grew a lot the new students base, but also improved the retention and tickets. Moving on to page 13. As you remember, in November, we provided you with our guidance for the full year of last year. This was exceptional because we were in the first release after the IPO, so we provided the guidance on net revenue and adjusted EBITDA margin for the full year. As you can see, our final net revenue for 2020 was at the very high end of the range, which is BRL 519 million. Regarding the adjusted EBITDA margin, we exceeded, as I mentioned before, by 100 basis points, the range, and reached 28.2% last year. So we are delivering, and we will keep delivering the expansion in revenue and margins that you all expect from us.
Now on page 14, you can see the growth in our business in every financial perspective. First, growth in net revenue led again by expansion in distance education undergraduate, as we have just discussed. Second, an important increase in gross margin and gross profits. This led by gains of scale by a constant focus on personal cost efficiency and increased digitalization. Third, expansion in our adjusted EBITDA margin, which explains better in a few minutes. First, let's talk about revenue on page 15. We provide this bridge with the main variations in net revenue between 2019 and 2020, and fourth quarter 2019 and fourth quarter of 2020. If you focus now on the yearly numbers, you can see that growth in net revenue was, again, driven by the expansion in distance education undergraduate.
This growth was diluted, if I may call it, by reductions in both continuing education and on-campus segments, as detailed on next page 16. On page 16, if you focus first on the continuing education, we had an 11% growth in the gross revenue of graduate courses last year. So there was a slight growth of 11%. This is a business that suffered more than the undergraduate segment, the effects of the pandemic. Especially because the host workload and those hosts used to be an important piece in the sales machine of our graduate courses. But we recently made some changes in the marketing and in taking processes here. So now we present, we had today a very positive rise. So we should expect a nice growth already in the numbers of the first quarter of this year.
There was another factor that explains the decrease in the performance of the continuing education as a whole, which is here, the yellow part of the chart. In 2019, we had a very high bar, especially in the first half of 2019. We benefited from some post-gradian contracts, which importantly is called the mixed offerings, which basically disappeared last year with the pandemic. Now they are starting to come back. So that was a matter of high compression base in 2019, and now we expect to deliver more numbers on that in 2021. Regarding our legacy on-campus segment, it has been declining over time, as you know. We have been saying, and that's in line with our view for the whole post-primary education sector. It's much more concentrated on courses not offered through distance education, such as law, nursery, and psychology, for example.
We do believe that its relevance for us will reduce over time, which means that the weighted average growth, the consolidated growth going forward stands to increase as this business stands to be less and less relevant over time. On page 17, we provide the bridge with the main variations in the EBITDA for both the quarter and the full year numbers. I believe here we have three main highlights. First, the continuous increase in our operational leverage and expansion of our growth margin and net margins. As you can see, the cost of services and the G&A as well were virtually flat over of the year on an annual basis, and they reduced to roughly 44% of net revenues in 2020, meaning at 34.7% for cost of service plus 9.2% for G&A. Selling expense as well, another highlight. It increased slightly to 16% of net revenue.
As a reminder, most of these expenses are related to the intake process, especially and basically for distance education undergraduate segment, which means that they are incurred to attract the students. The stronger the intake, the higher the selling expense. What matters more here is the CAC or the customer acquisition cost. I will come back to this a bit later. Finally, G&A. It also increased a little bit in 2020 to 14.8% of net revenue. Here we have a combination of new students and the current situation of the country. We will shed more light on all of these issues in the next slides. Page 18, we come back to the gains brought by operational leverage.
First, cost of services, as reported in our adjusted EBITDA calculation, reduced slightly on a yearly basis from BRL 182 to BRL 180.4, reflecting gains of scale, optimization of personal costs, and the increased digitalization throughout the segments. As a percentage of net revenues, as you can see here, there was an important reduction from 39.5% to 34.5% of net revenues last year. G&A expenses, again, as reported in our adjusted EBITDA calculation, increased by only 11% last year. It means that as a percentage of net revenue, G&A expenses were slightly smaller than in 2019, and they shall keep reducing over time as a percentage of net revenue, of course, with our gains of scale and dilution of these fixed costs. This performance illustrates our constant focus on maintaining a lean admin structure and to support our digital and agile strategic orientation with efficiency in mind.
Now, going to the selling and PDD expense on page 19. First, selling expenses are on the left part of the chart. Last year, there was an increase in selling expenses of roughly 1% of net revenue from 14.9% to 16%. Two reasons for that. First, last year, we were, and we are still today, at the peak of this ratio between intake and finish. Second, the hubs play an important role in the selling process. They were closed, so we had to rely a bit more on digital media last year. This will be the case as well this year. However, if you look at the CAC, as I mentioned before, there was an increase in efficiency.
When we take these annual selling expenses and divide them by the yearly intake of digital education undergraduate segments, you can see, and that is now released, that the duration was slightly smaller in 2020 than the previous year. Regarding PDD on the right, as explained to you in the last call, we adapted. We changed a little bit in the fourth quarter of 2019. Our PDD policy, we had a more strict PDD policy in 2019 as a preparation for the IPO, and that is why the PDD curve in 2019 had this strange profile. At the end, what matters more here is the yearly PDD as a percentage of net revenue, which went from 12.6% in 2019 to 14.8% last year. There were three reasons for this increase.
The first one, the higher percentage of newcomers in our base, AFX and FOR, which explain as well the increase in selling expenses. Second, that's a bit technical, the average aging in our accounts receivable was in December of last year, slightly older than in the previous year, which means that in 2020, we already recognized a bit more of these PDD losses in our P&L than what we had done in 2019, which is good. Which means an expected lower recognition in 2021. Third, of course, the economic crisis that we are also facing, and this affects the capacity of payment of our clients. So in this context, I do believe that this slight increase in PDD was justifiable. Now, moving to page 20. You can see that there was a substantial expansion of our adjusted net income in 2020, which increased by 70%.
The main driver for it was the expansion of the business as a whole and the expansion of 25% in the EBITDA number last year. We also had the positive effects of a higher recognition of deferred tax assets, which will have a positive cash flow impact this year in 2021 and in next years. And also have some asset gains last year just after the IPO. On the right, we have the cash flow from operations, which improved substantially last year, increasing 44% to BRL 142 million last year. Once again, this increase is driven by the outstanding performance of our digital education undergrad business. That's, of course, backed by our continued discipline in receivables management. With that, our adjusted cash flow conversion from operations reached 88% last year, coming from 75% in 2019.
This financial position enabled us to support our growth plans, which are in the next two slides. So on page 21, the organic growth. Again, so far, all our growth has been purely organic. This has been accomplished and will be accomplished next year through the ramp-up of current hubs, as I mentioned already, by adding new hubs. As a reminder, we have the regulatory capacity to open 500 hubs per year. We also expand by providing new courses as they are allowed in digital education, and especially law, one day, but also psychology and nursing. This shall come soon. As I mentioned before, by adding technical courses. Finally, by going further with continuing education and graduate courses, which increases the lifetime value of our students at a marginal cash cost.
Finally, to close on page 22, let's talk a little bit about inorganic growth opportunities, which means M&A. As you remember, the net proceeds for our IPO, slightly less than $100 million, will be used basically for M&A. So we have today several active discussions with potential targets in these three pillars that we defined before the IPO. Investment in edtech to bring new features for our services, complementary products to enhance our portfolio, and of course, when it makes sense and when we can create value, consolidation. We do hope, and we will announce to you soon our first M&A. With that, this ends the first part of this meeting, and we are now ready to take your questions. Operator, please open lines for questions.
Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that is star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Thiago Bortoluci with Goldman Sachs. Your line is open.
Yes. Hi, Carlos and team. Thanks for taking our question. Moving to the forward, one question that we are currently getting here on our broad retail coverage is the financial health of the franchisees. In this sense, I would like to hear from you guys an update on the accelerated rebate curve, especially if you have been able to apply the higher fees as per original plan, and if so far you saw any changes in terms of churn, regarding the owners of the hubs. That is the question. Thank you very much.
Thank you for the question. No, there was no change in churn, no change in the satisfaction level of our partners. Our churn is quite small. It is around 3% every year. It did not change in the last month. The partners, they make money with us. That is very important, and we always try to make them make money with us. That is why we create this, I would say, declining curve so that they are incentivized as well to expand with us, and to look for the gains of scale. That is what they have been doing, and we have been opening, again, more than 150 hubs, most of them with partners. In fact, in our most recent opening of hubs that we are doing in the beginning of this year, more than 90% of them are with partners.
If you remember that historically, our number was around 84% with partners. Now, already this year, the hubs that we are opening in the fourth quarter of this year, more than 90% are with partners from 2021. In fact, the whole year. Just to show and to prove that they are happy with us, and they are making money with us.
That's clear, Carlos. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Javier Martinez with Morgan Stanley. Your line is open.
Thank you. Hi, Carlos. One of the key debates we had with investors, during the IPO and after the IPO was about prices. The capacity to keep the good historical performance of prices. That was quite impressive. And once again, you are increasing prices, and above our expectation. It may be quite impressive, given that the weight of newcomers is increasing. So maybe you mentioned that part of that is mix. But if you could give us a little bit more color, how much of that is mix, how much of that is like for like prices, and if you expect those dynamics to continue, going forward?
Hi, Javier. Thank you for the question. Prices, it's a mix of several things. First, it's a mix of when the students or the newcomer join us, as I explained before. There is a matter of what is the one-way ticket that this guy will pay in the beginning of the second semester, for example. It is also a matter of mix, of course, and a matter of the annual adjustments that we make on tuition on a yearly basis. So far, we have been able first to, in this, I'll say in this basket, I'll say, to have a nice performance. The mix contribution here, last year was not that important, because it is still growing. The engineering and health cohort are new, so in terms of base, they're still growing. So going forward, they will be a more important contributor.
But like frankly, in 2020, there was not that much contribution from that. In 2020, I think the contribution was first the discipline in the ticket per newcomer, and we are quite disciplined on that. And this is, I think, one very important thing that we do to try to maintain the balance between growth and ticket. The second important thing that was especially important last year, and this year will be different, is the profile of the intake. This quarter is different from what we have been seeing, and that's not new for everybody. For last year, we had a very soft start in the beginning of the year. And for this year, the profile has changed a little bit. So it's a bit more delayed for the intake. We have now a strong intake.
So far, we have grown intake in high teens, high teens until today, until the 31st March. And all that before M&A. M&A, of course, for us is, in principle, not that relevant, but in fact, it is. It is because it is when people are looking to switch options. So we have seen already in the last two days a very important increase in interest and in new enrollments. So last year, the curve was very normal, very strong in the beginning of the year, in January, for example, which helped in the early ticket. And finally, it's also very important, throughout the course, we increase the price for seniors at Vitru Educação. We did this this year as well, as we have been doing in the last years.
And this is a very important sustaining factor for the early ticket, because the price of the seniors are very important to sustain the overall ticket. So going forward, I think the only thing that will change, or the most relevant thing that will change, in fact, this year or this intake cycle, is the curve, is the profile of newcomers, which is more back-ended. So in terms of revenue recognition, this quarter, we will already see this change. But the numbers are good. As I mentioned already, we are already in high teens, increased year-over-year so far, if you take the same period up to 31st March of last year versus this year. And remember that last year, with the pandemic, the intake cycle was very poor in July, for example.
We are confident that we will still deliver a nice growth ahead of us for the intake.
Carlos, if I may follow with another one. Obviously, your retention rate was good and improved. At this point, it is still probably a little early, but maybe talking about the seniors. You mentioned about the seniors. You already have some information on the re-enrollment. How is that moving? Is next year, is 2021 going to be another good year in retention rates?
So far, the re-enrollment is good. It is as expected, which means slightly smaller than what we had last year. That is the clear difference between the pre-pandemic and post-pandemic reality. It is a good number so far, but it is slightly smaller than what we had last year.
Sounds good. Thank you, Carlos.
No problem.
Thank you. As a reminder, ladies and gentlemen, that is star one to ask the question. I am showing no further questions in the queue. I will turn the call back over to you, Carlos.
Thank you, Operator. I would like to wrap up now on page 23, please, with the key takeaways from our call. We had a very solid quarter and a very solid year, which positions us quite well for future growth. As you know, we are based on the disruptive student-centric model, a hybrid model, which emphasizes flexibility. It combines the flexibility with affordability, with, as I mentioned before, the sense of belonging and the handholding and the support from a tutor. This is proving to be an efficient and a consistent way to go over time. We delivered these growth prospects as discussed with you during that period, and we remain focused on this long-term shareholder value creation by keep expanding top line and bottom line, and margins, of course. Enrollments and student base are increasing, as I mentioned before.
We do believe that we can further build on this momentum to keep expanding and keep maturing the hubs, which is an important way to grow with the numbers. All that together with M&A expansion that I mentioned already to you, and we hope to announce to you soon our fourth deal. We are, in a nutshell, very excited about the future, and we believe we are on the right path for our growth. With that, I leave you. Thank you very much for your interest about our company. Look forward to meeting with you all. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.