Well, good morning, everyone. Welcome to the teleconference of Estácio to the discussion of the results of the fourth quarter 2018. My name is Rogério Tostes, and I am the Director of Investor Relations. Our presentation will be done by the CEO, Eduardo Parente, and the CFO, Gustavo Zeno. I would like to thank you for the participation of everyone here, the board of directors, and we will be available for the Q&A. The audio and the slides of the presentation will be transmitted in the investor relations website, www.estacio.br.ri. Before giving the word to the CEO, I inform that this teleconference is being translated simultaneously into English. Therefore, keeping up with the best corporate governance and avoiding asymmetry of information to our shareholders is a responsibility during the teleconference. To ask a question, press asterisk after we conclude the presentation with information that will be available.
Should you need any assistance during the teleconference, please press asterisk zero to request help. The audio conference might contain predictions for the future, which are subjected to risks and uncertainty and can vary according to the expectation, and they might not be fulfilled and substantially might vary. These predictions are simply an opinion, and the company is not obliged to update them on the information. Now, the word to Mr. Eduardo Parente, the CEO of Estácio.
Well, thank you, Tostes. Thank you everyone that is here today participating in this teleconference. I am going to go to slide three. Well, these are the perceptions of the first 100 days. I think that the biggest impression of this moment is that there is, in fact, as you know the market very well, there is a big need for our services.
It is a big social need for the education of the country, and we have very big indicators for that. Estácio is very well-positioned in this market. As you can see up ahead, we have the quality indicators. They are seen here in the slide, and it is what I have seen in the unit, in the classrooms when I visit the universities. Well, we have a strong standard, a very centralized structure, very robust. And the student body and the professors are very motivated. And with labs that, well, they are unique and standard of the art. So we have a strong quality here for social education. The other issue that we are going to talk about, a lot of people talk about digital and all of those things, and it was born digital. Here in Brazil, we use a lot of the cell phone really.
Almost 70% of the people work 8- 10 hours a day. Then you have public transportation, and our student is going to do the course wherever they want, distance learning. Therefore, they can have classrooms in an environment that is almost, well, going to the on-campus, it is basically in the past. And that allows us for a strong flexibility in the services provided. The growth that you can see up ahead here in the slide. And as for the moment, everybody knows that we have a good expectation for the economy and the team. The team has a big depth, in education, where our professors have 15, 20 years in pedagogy. And they are very much aligned with a strong, solid curriculum. Now, taking a look up ahead. As you can see, we spent a lot of time in Estácio talking about efficiency.
It's something that we want to keep, efficiency. To maintain or to capture different things that we haven't captured yet, that we started the inception of a process that started last year. We want to strengthen the core business. We deliver academic content, and this helps, and we have the experience of the student or the customer. The customer has experience with the Wi-Fi or the payment options that are relatively cheap, and it's relatively quick, and we will try to make this easier for the student so that the student can be the great communicator of quality. Other issues. The payment processes, and we need to work with the digital in what is very interesting and what it adds value on the short term, as we've seen. This efficiency issue that I'm mentioning is our brand.
It's one of our core brands, and we will see it more and more. When we see up ahead, we have to think about growth. The distance learning is obvious. A very strong growth there. More eclectical, more courses leveraging this base with a uniform content. The healthcare, we are the biggest one here in Brazil. We are going to grow here, and obviously, we will do this through M&A, and we will do this as it is interesting, and it adds value to the stakeholders, of course. We have here a robustness and an operational and cash flow robustness that allows for this, but we believe, and we have these tools, and we will continue to work with this with the stakeholders to grow here. I'm going to slide number four, please. Let's see the highlights.
For the fourth quarter of 2018, I think that a highlight is, the student body here is very stable. The FIES is a great point here in this. Basically, student loans allows for the growth of this. Also, the issue of the average ticket growth. We have both distance learning and on-campus growing, which generated a result of an EBITDA of 32%, 31.9% in the slides. And we got to a level that is very healthy, and we want to keep this up ahead. But I think that the greatest highlight on this page, it's here to the right. When we see a cash flow that is very good, 74%. We would've gone even higher, and this shows the robustness of our business. The result that we are bringing through a robust generation of cash flow is key. Slide number five.
Let's take a look at the student body as a whole. On the left, the maintenance of it, and here is the loss of FIES, the student loan program. You can see here in the slide and the next page, but we could grow the student body, the student numbers here, outside of the FIES, the student loan program. And we do not see the return of the numbers of the FIES student loans, but we can grow in the other basis. On the right of the page, I think that it really grows a lot, is that we see a lot of opportunities for penetration in the different regions of the country. As I mentioned, we have M&A, mergers and acquisitions, and we are growing strong in distance learning. Page six in the on-campus.
On the left, we have the big loss of the student loans, FIES student loans, but we are not crying over this. You can see a strong growth in the medicine course. It is a growth of 8.5%, as you can see. We also have a lot to grow. We have another three campus that are going to be launched. On the right, the big leap that we have in this growth, growing 20% in the offerings in the period of one year from 2017 to 2018, 1,730 to 2,077. It is a very relevant number for the average ticket. We are growing. If you see the loss of the student body, the numbers of students, it was a loss of 8% in the FIES, but we have to highlight that we have new courses.
We are bringing added value that still has a period of maturity, for maturing, of four years. Again, we have the loss of FIES, the student loans program, but we have compensated for this loss, and we have a perspective of growth, strong growth, and this is very important. Let us go to slide seven, please. Now, let us look at EAD or distance learning. The expansion of the poles. Poles is the input. Actually, the truth is the expansion of this. Once we have on the left a growth of almost three times the number of cities that we are present here in the distance learning. Last year, we doubled the numbers basically. As you can see, that growth is not from until January 1st. We are growing a lot.
What you can see on the right is a growth of 40% in numbers of students per se. From the fourth quarter of 2017 to the fourth quarter of 2018, we have a strong expectation because, we just started to capture the students for 2019. Going to page eight. Look, I think that this page is very important. What I mentioned here in quality, on the left, we see that Estácio, everybody thinks that the big reference for the quality of the teaching here, we have a percentage of preliminary courses that with satisfactory grades, that is much higher than the average of the private and the public schools here in Brazil. On the right, we are talking about the distance learning once again, EAD, and this is where we can see a strong growth.
If we compare it, we are 21% over the national average, and we have the best IDD or performance evolution indicator in Brazil. This is how we transform the student. The ENADE minus the ENEM tests, and really, this is the biggest number here in Brazil, and this is what shows our growth. I am going to pass it on to our CFO, and he is going to talk about the financial highlights. Gustavo Zeno.
Thank you. I wanted to start my presentation with new slides, number nine. Let's talk about the expansion of the business. We have the segments, well, distance learning and on campus, and opening new poles, new cities, expansion of the offerings, and the base of students, the number of students, which resulted in a growth of revenue reaching BRL 3.6 billion or 7.1% superior to 2017. The average global ticket, we can see a highlight here, growth of 3.8%. Well, we have here the FIES program. We've had a growth of the average global ticket in 4%. Going through the costs. Now, we have the same dynamic of the last quarters, and it's important in the personnel and subcontracted. Now, for 2018, the company needed to, once again, do a restructuring of the staff for teaching staff, management staff, and corporate staff.
That measure was important to maintain the efficiency and the profitability of our operations.
To sum up, we got to the level of gross revenue with a growth of 18% in the quarter-over-quarter comparison and 24% in the annual comparison. As a result, we got up to 55%. Now I'm going to talk about operational expenses. It's different from the cost component that I've just mentioned in the previous slide. Here, the operational expenses, they brought a higher weight to the result, especially when it comes to commercial. Now, in net revenue, our level of provisioning went from 7% in 2017 to 9% in 2018. It is important to say that that's a level that was expected already by the company. But it was compensated by the benefit that was brought by DIS and PIR to our student body and to our revenue as a consequence.
As shown in our previous quarter, I wanted to bring you some evidence about our efficiency programs again, which is an important pillar for the growth of our results in 2018. This is slide number 11. Now, when it comes to revenue, the first two blocks here, we say it would be pricing and loyalty. And they both started in 2018. And they're contributing in an important way to the process of capturing or recruiting students. So we expect to have around BRL 50 million- BRL 70 million more revenue for each one of those programs. Now, when it comes to expenses, we've also had two important projects, strategic sourcing and also credit and billing. First one is now evolving. It already has shown some savings. We have reviewed around 85 of the main contracts, and we expect to save BRL 40 million- BRL 60 million.
Now, for the second one, which is the billing system, we are promoting some improvements in the billing management with more customized actions, and we are also improving the volume of credit recovery. That is going to mean in the end of the program, we are going to have a savings of around BRL 10 million-BRL 20 million. We will see now slide number 12 with financial highlights. I wanted to highlight a few things here. The EBITDA performance adjusted in 2018, that got to BRL 1.1 billion. The growth was 22% in the annual comparison. For the fourth quarter, the adjusted EBITDA was up to BRL 253 million and a growth of 6% when comparing that to the same period in 2017.
I want to highlight that we had to adjust a few non-recurring items in our business, especially when it comes to organizational restructuring with professors, the corporate staff, administrative staff, and some other expenses. We also had a receivables portfolio in 2016 that we had to consider as a factor here, and we got to BRL 164 million in the fourth quarter of 2018. Now, when it comes to net revenue, we had the mark of BRL 832 million in 2018 with the adjusted vision. That represents a solid growth of 32% versus the result that we got in 2017. Last but not least here, I wanted to highlight the solid performance, the robust performance of our results here represented by the conversion of EBITDA in operational cash flow. We got to 74% as an conversion index of the EBITDA here, excluding BTN 23.
As a consequence of the results that I have just shown you, we got to a compensation plan for our shareholders that got to BRL 750 million, which is 10% of the value of the company in the market. I turn it over to our CEO, Eduardo Parente, now for a final conclusion.
Thank you, Zeno. Well, here are a few messages that I wanted to show you. These are the important messages. I think that the biggest message here is the generation of cash flow, a solid one. You can clearly see the robustness of the business. Second, we can growth outside of the FIES student loan program. This is very growth, especially in the distance learning, 22% growth in the students. Growth of the average ticket is the third and fourth. You can see the financial performance is robust growth in the EBITDA of 22%. Now, on the right of slide 13, you can see the perspectives, the expectations here for 2019. We have a capturing of 80% of the student body. We can see the directions here of the on-campus on the left and distance learning on the right.
You can see that we have a strong feeling, we have strong hope, and it might not be fulfilled, but we think that it's going to happen. In the on-campus, we have it on average, but the average ticket of the business as a whole, capture and then renewal, we have a slight growth. On distance learning, we have a strong capturing of new students over 10%, and an average ticket of. Well, it can vary between the new students and the students that we already have of 0%- 10%. Here, we have to maintain our efficiencies, but we have to talk about growth. It's time. It's a good perspective. Here, Rogério Tostes.
Well, thank you, Eduardo. Thank you, everybody, for the presentation. We are open for Q&A. I highlight that in the name of the company, thank you very much for your presence.
We have the Q&A session. So operator, please.
If you have any questions in English, feel free to ask the question in English and we will translate it to Portuguese. Should you ask any questions, please type asterisk nine. First question is from Mr. Rodrigo Garcia from BTG Pactual Bank.
Well, good morning. I have two questions. First of all, in regards to the nature of the recurrent staff cost. The recurring items. I wanted to see the details and just confirm the understanding that, in fact, after slower numbers in 2018 and slower growth of the student body, you did an adjustment in the corporate structure, in the number of professors, and we want to know what's behind this. The second question is in regards to the CapEx. It almost doubled, and a lot of us expected a stronger CapEx year-on-year.
But I wanted to understand better. Well, you have the new campus, you have also the program Mais Médicos, which is we need more physicians than you have the medicine course. Well, if you can talk about all that.
Well, here is Eduardo. Before answering this, I wanted to say that this reduction in the staff framework of the staff, has nothing to do with crisis or anything, non-recurring items. The capturing the base student numbers is stable. We have a strong growth, and the reduction in the number of professors was due to having space. Some people that didn't have the performance that we expected, for example. Teachers that we didn't expect, and some people that were not really well-placed. They had different salaries from what we expected in the industry.
Well, Garcia. Hi, this is Gustavo Zeno. Let me just add the point that was also said about the professors. We established a new curricula in 2018. It was an optimization. As a result, this allowed us. It contributed for us to do this adjustment. In other words, we have efficiencies. We have gained efficiencies that are not associated to the capturing of new students. It's a natural evolution of the company. This is one of the ways of achieving this adjustment and is doing a new curriculum and also the career plan for the professors.
At the start of 2018, this tree starts to bear its fruits, and therefore we had a restructure in the framework in the number of professors. Well, the CapEx. The CapEx in the order of 6.9%. This CapEx. It was concentrated due to seasonality. Part of it, a great deal, is to maintain the business.
I understand the CapEx associated to our units. We have the improvement of the facilities itself, and this CapEx can vary, can increase in a year, and we expect it by the end of the year. It ended up growing a little bit more concentrated towards the end of the year. Once we see the history of the CapEx of Estácio, there is always a growth at the end of the year. This is a seasonal growth that is important. The other part of the CapEx that is associated to expansion. We have the three healthcare units for the Mais Médicos program. We have the labs, and this required an investment. Last but not least, we mentioned in the EBITDA very clearly, São José do Rio Preto, Goiânia, and Volta Redonda. These are the new poles that we expanded. Given that, we close the CapEx with 6.9%.
Excellent. Thank you. Well Parente, If you just allow me another issue in regards to the non-recurring costs, non-recurring items in staff for the professors. What can we expect for 2019? We have a higher adjustment for gains of efficiencies. I think that in the curriculum, a great deal of adjustments was done in 2018 in the curriculum. In other words, you have the structure of professors that you think that is reasonable, that is sustainable to implement the new curricula. This is the first question.
The second one, just to talk about the CapEx. Can you share with us in orders of gratitude, for the Mais Médicos, what is the consumption of the CapEx in the context of the medicine courses?
We are always seeking opportunities. We have done the optimization of the matrix, a good, strong optimization. We are moving on to a second phase.
I would like to find, but I think that is very unlikely. The CapEx, I think, for Mais Médicos, it was part in the third, part in the fourth quarter. It is also representative, this CapEx, from the second quarter. Basically, that is all I can tell you. The CapEx for the healthcare courses is third and fourth. Thank you.
Thank you very much.
Thank you.
The next question is from Luiz Mauricio from Bradesco BBI. You may proceed.
Let us talk a little bit about the part of expenses with marketing. There is expenses here in the cycles. How do you foresee this for 2019? Do you have a stabilization? During the capturing of new students cycle, the recruitment cycle. You also mentioned in the presentation, you highlighted the issue of your growth in the Center West and the Southern region. You have the new polls that you just mentioned.
I think that in relative terms, they added weight to what you have in your presence. Could you tell us a little bit about how this process is, and how is the potential growth for the new regions? Do we have a differentiation in the growth delta here or not, or the issue of branding is still more important?
Luiz, thank you. Let me give you Aroldo to answer the first question.
Hi, Luiz. Good question. I am going to talk about the marketing expenses. We have worked at a standard of 6% with ROI. We do not have an expense in these numbers. We think that this is a base that is very close to stability. We do not expect any drastic changes here. Specifically, this is our expectation. I am going to give the word to another participant now.
Hi, Adriano. In regards to the expansion of the distance learning centers. We have the different regions. We are expanding in the Southern region, and São Paulo, this is the highlight region. We have active distance learning centers, over 200 poles or distance learning centers. It is a strategic direction of the company, but there is space for expansion. The Northern region is under our radar or under our strategic region. The Northern region is more differentiated. We have the Flex courses. It has a strong potential for growth. We closed the year with 21,000 students in the Flex mode. We start 2019 with a significant offering of technical courses for partners. The Flex course is an average ticket that is the double of the average ticket in comparison to the on-campus mode and distance learning mode. This is part of the strategy.
I don't know if I explained myself correctly, but anyway.
Adriano, in terms of growth, we highlight a region here. I think that the issue of growth, we are talking about centers, but we're not talking about students. Remember that Brazil is growing as a whole. Our growth was very well distributed. Our base is still centralized in Rio de Janeiro and Northeast, and we are expanding in Brazil. The expansion of distance learning was nationally done.
Well, thank you.
Our next question is from Leandro Bastos from Citibank. Good morning.
Good morning, everyone. I wanted to know about the acquisition strategy of the company. Eduardo was talking about that, but I wanted you to share a little bit more. How you see the market, and what we can expect on the M&A strategy coming from you. That's the first question, and second has to do with PDD. In this quarter, we've seen a better volume of the PDD. I wanted to know from you, have you seen the effect of the new charging or billing policy in that? How do you see that for students? That would be it. Thank you.
Well, Leandro. About the strategy here. I don't want to give you a lot of detail because we don't have it well-defined still right now, okay?
No, that's okay. No problem.
About the PDD, I'm going to turn it over for the best answer here. He's going to answer.
Well, we've seen some impact on the different billing system already. The idea is to sustain that all throughout this year, to see what the results are going to be.
Okay, just one more question then. Something that caught my attention was the Flex modality having a lower volume. Are you going to reposition that or maybe mix more courses into that? Or is that a stabilized level already for the Flex modality? The Flex distance learning modality.
Could you repeat that? We didn't get the question.
Yeah. I was asking about, there's a lower volume. There's a lower ticket for the Flex courses. I was thinking about the idea of maybe repositioning the courses. Are you thinking about that? How can we think about that category from now on?
Well, this is Adriano. It's true, there was a reduction in the average ticket, but that's aligned with our expansion strategy. The thing is, this product is still being released. It's not everywhere yet, and the monthly payment is around BRL 400, usually, for this modality. We are including more and more different courses right now. Of course, there are going to be impacts to that. Especially in the healthcare area, we have more courses, but also engineering and some other areas. There is a natural impact, but we expect the average ticket to be more than BRL 400, which is what we have right now.
Okay, great. Thank you for the answers.
Thank you.
Our next question is from Susana from Itaú. Good morning.
Good morning, everyone. The first question has to do with the following. I wanted to know what you see in distance learning nowadays in this area, and about that guidance that you mentioned about the first quarter of 2019. You are looking at a higher volume for the ticket in distance learning and on-campus learning. What do you think is leading to that higher volume? Just so you know, we understand the dynamics of the market.
Hi, Susana. Thank you for the question. I am going to say a few things, and then I will turn it over to Adriano. In this competitive market for distance learning. I think we have to consider a few things. You see, we have seen higher recruitment of students than our competitors. I think there are a lot of people trying to work with distance learning. A lot of people are still trying to find out what it is, right?
Some people think that it is the old school distance learning, like in the 1990s, but we are looking at a completely innovative thing. We want to be completely digital, and that is changing the amount of flexibility that allows. That changes the courses. It attracts more students to the centers. What we have here is, of course, we have to be careful with our competitors. I think many people are looking at us and trying to see examples or a model of what should be done, but we are way ahead of the others. This is a market that is growing a lot.
It has a very positive projection to expand education, to take education further in the country. I will turn it over to Aroldo and Adriano. They are going to say a few more words.
Okay. Thank you.
This is Aroldo. I just wanted to add a few things. With the pricing project, for instance, that is the beginning of our next initiatives. We are trying to adjust a few things. We are trying to capture more value and have a higher average ticket. The other thing is in the Flex modality, for instance, we are bringing more added value, I think, and that is also going to change the ticket for distance learning. We are looking at a better mix right now. Since we have a national brand, that also helps a lot to make sure that we also expand in the entirety of Brazil.
I wanted to understand one thing. About the new pricing model, do you think you have captured that benefit completely, or there is still a window of opportunity?
I think it is just the beginning. I think we still have a lot of potential ahead of us.
Our next question is from João Noronha from Santander. Good morning.
Good morning, everyone. Talking about the intake now, I just wanted to ask you what the comparison was year-on-year versus the last year. Since last year, the season was till April, approximately. Just to understand the data that you have just mentioned.
Thank you, João. It is the same idea, basically. It is going to be until April.
Okay. In your perspective now, what you have seen in completion, what is the curve? Last year, you had more in April, and probably this year it is going to be more in March. Can we compare them still?
João, there is a specificity here with Brazil because of the Carnival, which has a reasonable impact. What I can tell you, I think, is when we think about on-campus learning, it is similar to last year. For distance learning, it is much better than last year. It is better already in terms of distance learning, year-on-year, comparing with last year.
Great. Thank you.
Our next question is from Caio Moscardini from Morgan Stanley. Good morning.
Good morning, everyone. I wanted to know about the following. What about the partners and their standpoint or how they are welcoming this Flex modality? Because I understand that you have to invest more in CapEx because of them. How are they seeing all this process?
Hi, this is Adriano. If they are welcoming the idea. Look, this is an old demand, I think. It has been on for a while now. It is an interesting product for everyone. Of course, we have to invest in CapEx. But it is double the ticket. But it is a real demand to have courses in this Flex modality in different regions in Brazil. So partners do understand that there is a huge potential in this regard. We understand that we have a great window of opportunity right now, and we are probably going to have even more partners in the future.
Okay, good. What about the competition between partners or among partners? Because we saw that there were a few changes in terms of partners. How do you see that?
Here at Estácio, we do not really see that happening. We have had a common or natural adjustment of our partners. It is not really a rate that should be concerning, I believe, for 2018 or for 2019. Our expansion plan is still going strong. So we are going to expand normally this year, and I have not seen any kind of difficulties to reach our goals.
Okay. Thank you.
Thank you.
Our next question is from Marcelo Santos from JP Morgan. Good morning.
Good morning, everyone. I have two things to ask. The first one has to do with what Susana was saying about the tickets. If you could maybe talk about the ticket for old students and new students. Maybe a higher ticket would lead to abandonment of the courses? That's the first question. The second is, thinking about cash conversion here. I think it was very good rate in 2018. What's the outlook for 2019? Do you think it's going to be the same level?
Hi, Marcelo. Well, about the ticket for old students, it is a very complex matter. But there is some information that we don't really want to be public right now because of a few changes, so I'm going to turn it over to Adriano.
Hi, Marcelo. This is Adriano. For 2019, we're also going to have good cash conversion. We expect a very good rate, even though we're changing some financial products within our structure. I suppose that we're going to have the right conditions to sustain a good cash conversion for this year.
Just a follow-up then. About financial products, how do you see that evolving versus last year in terms of intake, for instance?
Well, economically, we expect to have the same adherence level to PAR. For the second quarter, I don't think it's going to be any different from the first quarter this year. About PAR, we expect to have a better base, and I don't think that's going to be a modest growth maybe, but that's not going to be negative.
Okay. Thank you for the answers.
We have concluded the Q&A session. I will turn it over to Eduardo Parente now for some final words.
Well, thank you very much everyone for your participation in our teleconference. For the results of the fourth quarter, I hope that in three months we will be back here, showing you good results. Thank you. Have a good day.
The teleconference is closed. Thank you all for your participation. Have a wonderful day.