Good morning. Welcome to the teleconference of Estácio for discussing the results referring to the third quarter of 2018. My name is Rogério Tostes , and I am the Director of Investor Relations. Here with me, the CEO of the company, Pedro Thompson, and the CFO, Gustavo Zeno. Following opinions and suggestions of our interactions and analysts and making market benchmarking for better practices, we decided to reformulate all the promotion material with the aim of making our communication more efficient.
We have launched the new investor relation website, www.estacio.com.br/ri, where the audio and the slides of the presentation are being broadcast simultaneously. I would like to thank the investor relation team for their contribution and commitment in this stage. Before giving the word to our CEO, I inform that this teleconference is being translated simultaneously to English, safeguarding best governance and avoiding asymmetry of information between our stakeholders.
All participants will only be hearing the audio conference during the presentation, and afterwards, we will start our Q&A session when more instructions will be provided. In case you need assistance during the conference, please request help from an operator typing asterisk zero. This teleconference may contain predictions about future events that are subject to risks and uncertainties, and the expectations may not be fulfilled, or they can be completely different. These predictions conveyed uniquely on the date that are made, and the company is not obliged to update them in the light of new information. Now, Pedro Thompson will speak. Please, you have the floor.
Welcome, everybody. This is Pedro Thompson. Well, I would like to highlight Tostes' words and thank the whole investor relation team for this new stage. Well, the first slide, what are the highlights of this quarter?
Our total student base has been stable when compared to the third quarter of 2017 with 531,000 students. I would like to highlight the segment growth in e-learning with the growth of 19% in the last 12 months, contributing to performance of classroom-based courses. I am sure that Estácio has the best e-learning system in the country when it comes to satisfaction, product, and performance, and we believe in its growth. Today, about 40% of our student base is in this segment. My second highlight is the performance of profitability of the base, which has been our focus, especially in moments of challenging scenarios, be it by the macro or competitors. We have attained solid growth of average ticket price, be it in classroom-based courses with 13% year-to-year or e-learning with a growth of 18% when compared to the same period in 2017.
In this period, we launched approximately 200 new courses between classroom-based courses and e-learning and flex courses. We also strengthened substantially our e-learning with geographic expansion, new polls, new courses, and offers, and these actions, not only with classroom-based courses, but also with e-learning, allowed a strong performance in the financial results, as we can see in the lower hand side of the slide, where we can see continuous growth in all value drivers, be it EBITDA margin, cash generation, net profit or revenue. We also announced the extraordinary distribution of dividends totaling BRL 400 million. Next slide. Now on page number four, we can see a fiercer scenario in the attraction of students in the second semester because of low economic activity, because of the slowdown of governmental program of financing scholarships and also a competitive scenario.
When it comes to competition, we see pressure on prices, discount augmentation, and also the number of scholarships. These actions, they focus a lot on the bulk, and they relinquish fundamental issues that we think are important for the sustainability of the business in this context. Estácio has adopted a different posture, looking obviously at the bulk issue with tactical actions for capturing new students and with a bigger focus on this crop, and we avoided disruption in prices. We focused on the present value per students in the healthy expansion of this segment of e-learning and also in the augmentation of offers for courses, especially engineering and healthcare. We are also prioritizing new campuses in medicine, besides the four ones that already been opened in the last year.
With this approach, we hope we got good results, important results such as stability of our student base, finishing the quarter with 531,000 students, just like the same period in 2017. Excluding the governmental scholarship financing program, the total base has grown 7%. The stability of segment, for example, XCS. We also have the growth of segment of e-learning integrated courses at 19%, and also the average ticket price growth, and also the indicators related to maintenance and renovation of student base. So we were able to promote improvement to profitability and an outline of results, for example, net revenue, net profit, and generation of cash. Next slide, number five now. There are some highlights here when it comes to operational improvements. For example, average occupancy, we had improvements not only in classroom-based courses, but also in e-learning. This improvement happened because of some actions.
For classroom-based courses, there is an increase in the number of subjects, better sharing of subjects among courses, and a new career for professors. We also have in e-learning, perfectioning of tools of methodology and interaction between professors and students, and also improvement in indicator of students per tutor without affecting the satisfaction of the student. The number of campuses is now one unit below when compared to the same period in the last year because of optimization, because of the merging of seven campuses in the last 12 months. This movement towards better efficiency was compensated by three new campuses of medicine, besides three other new green fields. When it comes to learning, we have a strong expansion in number of polls through partnerships.
Besides the 268 ones that are active in the last year, more than 70 were in the phase of activation in the front at the end of the quarter. I would like to highlight the performance of the staff cost per base of students with a reduction of 12% when compared to the third quarter of 2017. Now, the issue of quality in the slide six. According to the National Institute of Educational Studies, there have been considerable improvements and difference indicated between observed and expected performances in tests like ENEM and ENADE. That means before entering and after leaving college. We had a 12% improvement in the year 2014, and I would like to highlight the e-learning segment with an index of 95% of satisfactory grades.
Talking about the national academic, the ENADE. It got a prominent position. It held this position. 50% of our courses that were evaluated had a very satisfactory grade, which was a great performance not only from the institution, but also from our students. When it comes to the university rankings of Folha de S.Paulo newspaper, Unisinos was ranked among the best private universities in Brazil, and no other institution of higher education in Brazil can combine scaling quality and the standards offered by this university.
Now, a few more details when it comes to slide number seven. We had in these 12 months an accelerated expansion, and we keep a very strong pace. The number of active polls compared to the last quarter of 2017, more than doubled. Now we have 506 active polls. That's a growth of 113%. This expansion has been possible thanks to our partners. We also launched the program of partner management.
That means this comes from the guidance and also monitoring of the poll, and also the application of best practices and award-giving to partners with highlighted performance. We also launched 15 new courses of e-learning Android courses, flex e-learning, and also e-learning that totalized 47 courses and 3,423 offers. That included 401 municipalities. That means 149 new cities. We mapped out more than 1,500 municipalities with potential for e-learning, especially cities with 500,000 inhabitants. I'd like also to talk about our efficiency programs that bring a complete change to our company. In slide number eight, we highlight with bigger detail the characteristics of the projects and financial impacts, especially in costs and expenses. When it comes to revenue group, the pricing and Projeto Fidelidade are in its initial stage. We've already worked initially with project pricing and the last percent crop and re-enrollment.
Full implementation will happen in the first semester of 2019. Talking about revenue, the Projeto Fidelidade is already running, and we've already started the value capture phase. When it comes to cost and expenses, we went a step further when it comes to explaining the potential benefits. The strategic sourcing and credit and collection projects have been already initialized. For the first one, we've seen again 21 categories of spending of the company, and this is also in a more advanced stage. We have to capture more than BRL 50 million at the end of the project. There is a second project, which is credit and collection, with a focus in increasing recovery of credits and improving the collection departments. We are in the initial stage with 5% of the total estimated when it comes to BRL 60 million. Now, let me pass the floor to Gustavo Zeno, our CFO.
Thank you, Pedro. Thank you, everybody. On my first slide, on page nine, I'd like to show in detail the improvement of our revenues. As Pedro mentioned, we have a more cautious posture when it comes to pricing. We're using other leverages such as retention, new courses, campuses, and polls, and they brought very good results in evolution of our revenue. We had a 60%, 6% growth, and we also showed very continuous improvement from quarter to quarter. We also had very good results when it comes to cost contention and also restructuration project of staff. The line has shown a drop of 12%, and it represents 29.7% of our net revenue, which compares with a 35.7% in the third quarter of 2017.
As a result, the gross profit has grown 20% in the year-on-year comparison and reached BRL 487 million, and the gross margin has reached a level of 57%, which is a great leap over the margin of 50% in the third quarter of 2017. Slide number 10, expenses and EBITDA expenses. We had an augmentation of 21% of trading expenses in the year-on-year comparison, especially because of the increment of bad debt provision. This happened because of the changing of criterion for the bad debt provision calculation as it was decided in the beginning of the year. New products are being offered by the company. The PAR, installment payment, for example. Installment payment with more than 300,000 students, which is a lot more than in 2017. The DIS has been offered in the attraction of students in the first cycle of 2018.
Besides the provision on long-term balance, especially complements the provision for 100% of the value of the outstanding balance when, for example, there is no agreement with the student debt default of the payment. This criterion value is a better conservative when it comes to non-recovery of credit and delay, and it reached 6.9% in this quarter and 8%. On the upper right-hand side of the slide, it can show you, for example, the maintenance of administrative expenses. We totalized BRL 138 million and a drop, which is important, of revenue from 17% in the first quarter of 2017 for 16.2% in the third quarter of 2018. One of the culprits that we are having in this year are the extraordinary expenses of consultancies referring to efficiency projects that were mentioned in the previous slide by Pedro.
As a result of revenue improvement and strong control on costs and expenses, EBITDA has expanded 23% year-on-year towards BRL 275 million. When we adjust them to extraordinary services and non-recurring services of consultancy, the adjusted EBITDA shows a growth of 26%, reaching BRL 283 million. When we look at the EBITDA margin, we keep a very strong improvement, reaching 32.2%, that is the reported one, and 33.2% when it is adjusted. This adjusted percentage is compared with the level of 27.8% in the third quarter of 2017. My last slide on page number 11, I would like to highlight the solid position of cash in the company. We finished the third quarter with BRL 771 million in cash, and an EBITDA indicator of 0.3x. The operational cash flow reached BRL 204 million, which is superior to the BRL 193 million of 2017, which is a growth of 6% year-on-year.
When I talk about the governance scholarship financing program, we had an additional BRL 342 million in the cash flow, totaling BRL 546 million in the third quarter, 52% of growth when you compare to the period of 2017. The EBITDA conversion indicator reached the mark of 63% in nine months in 2018, and 97% in third quarter of 2018, which is actually on seasonal grounds. Our cash was especially applied in the program of share buyback, dividends, and also CapEx. There are other options for cash usage, for example, reinforcement of the programs of scholarship financing and also mergers and acquisition. Now, I will give the floor again to our CEO for the final considerations. Pedro, please
Thank you, Zeno. This is Pedro Thompson. In slide number 12, as a synthesis of the results and perspective for our business, I would like to highlight four fronts. First, in the operation, the efficiency projects, the focus on the present value per student, new courses, the work on retention, and the loyalty of the student, and also the expansion of courses of medicine. In the second one, talking about the e-learning segment and its rapid expansion.
We already have 70 hired polls for the fourth quarter, 38 new courses for 2019, and the potential to reach I think we've been cut. There was an interruption in the transmission. As a last front, we're going to use this cash flow in a very good discipline, and we're going to allocate this money on buyback, on dividends, financing programs for students, and also we're going to keep on monitoring options for M&A.
As a subsequent event of the results of the third quarter, we'd like to announce the board of directors approved the proposal for distribution of dividends at the value of BRL 400 million, BRL 1.33 per share, and they're going to be negotiated as a divided yield in November. The last installment will be paid on December 21st, 2018. This extraordinary distribution, along with distribution at the beginning of the year, the program of executed shares and buyback are the proof of our focus on the generation of value for our shareholders.
Well, thank you, Pedro. Gustavo. Now let's talk about the Q&A. Let's go now to the Q&A section. Operator, please.
Ladies and gentlemen, we're going to start our Q&A session. If you want to ask a question, type asterisk nine. If you want to remove the question from the list, type asterisk nine again. Our first question comes from Mr. Rodrigo from BTG Pactual.
Good morning, everybody. I have a doubt when it comes to the dynamics of attraction of students. This is something surprising over the first quarter. I think the strategy is very clear, which does something different from what the marketing is doing. Because they're focusing more on prices. When it comes to the business dynamics, as operational leveraging is very important, and sometimes we have a very negative effect when it comes to the front end, this pressures the margin. The doubt that I have is do you take into consideration any possible change in the strategy? Think on the macro, for example, how macro can help when there is, for example, very strong competition in some sectors, maybe lowering the prices to make up with volume.
I'd like to try to understand, because this strategy is very clear to me when it comes to improving prices, but this base pressure becomes more important to me. The objective is to find this optimal line. So I would like to know what your take is when, for example, when this attraction of student has dropped, so maybe we can focus on volume and less on price. So this is my doubt.
Thank you for the question. Pedro Thompson is answering to you. When it comes to strategy of P versus Q, using reference the benchmarking of the Estácio, which was a strategy change that we had.
Especially what has been affected recently when it comes to the figures that have been disclosed in the last eight quarters, despite the decrease of the volume of attraction and based on how this converts with our indicators, be they PDD, net profit and margins, and also cash generation. I think this strategy has demonstrated that this is a correct strategy because it has a direct impact, and the indicators of margins showed very good improvements in this last quarter with this change of strategy. On the other side, the perplexity is our volume of students. Because it is not exactly in alignment with what we have as a goal when it comes to ticket value, for example. We have already started some improvements in terms of the strategies, new commercial planning, which is very granular, a new policy of pricing.
Not that we are going to change, for example, the ticket value policy, but we are going to give more agility to pricing when it comes to decision-making and benchmarking. In the general plan, in the background, the strategy is correct. Obviously we have to focus on volume, and we are working hard towards this, and I think we are on the right path, and I think that our focus is also correct when it comes to tickets and also volume.
Thank you, Pedro. Let me see if I can understand what you are talking about attracting new students. Can you explain a little better how the dynamic was for the sector? Let us divide it between Northeast, North. So where in Brazil is it harder to attract new students? Have you been losing volume, for example, because of prices?
Well, I think it is too early to talk about 2019 because we are in November. What do you feel about the next year when it comes to macro and dynamic, when it comes to demand for potential students? Do you think that there can be a positive cycle? Is it the initial idea that you have based on what you have been able to attract so far?
Perfect. First of all, when it comes to sectors, we categorize them between classroom classes and e-learning, but the most difficult ones were in the North and Northeast, especially because of prices. Not only because of prices, because of policies bound to waivers, perennial scholarships. We have already anticipated the attraction of new students, and we have a stock of students, so it is too early to talk about it because we are still organizing.
We are still in this initial phase of attracting students that are already enrolled for taking the preparation exams, admission exams. What we have for 2019, for the first quarter of 2019, in this initial stage, especially in these sectors, we are already satisfied with the work that is being developed. I think we are on the right path, and there will be some improvements in our commercial process. We have already done some of them. Our market dynamics is much more granular now.
We have already improved our sales force. The call to action when it comes to pricing has been improved, too. The processes have been improved, and it is based on new management methodologies. We are following new trends and methodologies, and we have a team that looks at pricing 24 hours, and they make decisions in a correct manner with empirical data. I think that for 2019, the strategy, I think it will be kept, but we are working on the student base because we want to reverse this trend that we have had in these five or eight last quarters.
Thank you, Pedro. That was clear to me.
Thank you. Our next question comes from Marcelo Santos.
Just piggybacking on what he said, how the changes in the commercial process happened in the last year. What were the main changes in your management? What timing did you implement? Is there qualification missing on the edge? This would be my first question. The second question is when it comes to the ticket dynamics, I think it is positive. How do you divide, for example, between veteran and newcomers? How much increase do you offer to the veterans?
Thank you, Marcelo, for the question. This is Pedro. Revising what we have done when it comes to commercial processes, we implemented the sales fund. We reached the last stage of the student. We considered the student as a student. With the invoice, when he paid the invoice, we see that he is able to stay with us.
This is the first improvement. With the internal benchmarking, we were able to see some more aggressive issues, for example, related to waiver rings and scholarships that lasted a whole cycle of the student, which was a tractor of value, that reduced value. I believe the evolution of our revenue year on year in the last two years was something perceptible and it was something positive. What we are doing now is first, this call to action that refers to prices and specific campaigns. We are operating in a granular level.
We highlighted this to you because it is a structuring process that will be in power in the beginning of 2019, not only when it comes to counting with intelligence and monitoring. We can also have a few, so we can take better decisions that are assertive. There is a second point. We are going to operate more aggressively when it comes to our commercial team, because we were too regionalized.
Now we have a commercial team, which is very granular. When it comes to the last point, when it comes to the ticket dynamic, this is a normal flux. We check what we had in terms of inflation in our operation, and the inflation is regionalized based on geography. This inflation is forwarded to our veteran students. The increase was very different when it comes to the veterans and the newcomers. It is confidential, we do not disclose this information, but in general, the increase comes from the veteran student.
Thank you. Our next question comes from Maria Tereza Azevedo from Bank of UBS. Thank you for the question.
You talked about attracting students. There was an interruption. How do you see the issue of default on payment, and what strategies have you adopted to break the cycle in the long term?
We have been talking about gains in efficiency, as we commented on the call. There are expected gains for 2019, which are results from projects that were executed, which were carried out during this year. There is a capture curve that is expected for 2019, and after 2019, we will be very close to a new grade when it comes to the project that have been implemented. In this case, we created some new categories in the company.
For example, digitalization, this is also on our discussion. This is a topic of discussion. We do not have any concrete initiative that is aimed at digitalization. We are studying this possibility, and I think it is going to bring some benefits. This is part of our work plan. There are some additional deficiencies that are expected too. When it comes to retention, the company invested time and resources in a project we called Projeto Fidelidade, which is made up of 80 initiatives, and they are already running. We had good news when it comes to the retention rate of our base, as we showed in our release. When we talk about classroom classes, we have 75% of retention. We had good news when it comes to the DIS retention. Also the EBITDA, we have had a retention of 75%.
This deviation, just to make it clear, is not a deviation. It is a new product. It is a crop. So the period when we lose more students is between the first and second period. When you talk about the crop, when you compare students from the first to the second period, there is a symmetry. We did not stop renovating. We did not stop enrolling. This 85 is not comparable. It cannot be compared with the 72% because the 85% of classroom classes includes the whole system.
The DIS just includes the renovation of the first and second period. If you compare these renovations, it is symmetric between DIS students and non-DIS students. When it comes to collection, the PDD is very important. We checked our collection policies. We customized our profiles, and I think this is going to generate concrete results, and I think we are going to capture these new gains in the beginning, in the third and fourth quarter, but the best benefits will come in 2019.
Thank you. There is a second question. About the allocation of capital. You had a cash generation that was very solid and a dividend. How do you see the best usage of cash from now on? Do you see any possibility of a takeover or going, for example, to augment the distribution to shareholders? What do you see as a priority?
Thank you, Tereza, for the last question. We are in a position of cash, which is very substantial. We have net cash and not net debt. This is the origin of our dividends. When it comes to future usage, we are thinking about expansion.
We are very cautious about organic expansion. In fact, our hub for the implementation of new campus makes us be very cautious, and I think that we are on the right path based on what the company has shown us. Our campuses are campuses of medicine, and they bring very good return when compared to other campuses, traditional campuses. I think it is too early to talk about results. When it comes to the business and the expansion of the business organic, I think we are completely inserted in this agenda. When we talk about the sources, the company has a perspective of being an excellent cash generator. We can even get an additional leveraging. So we have many advantages when it comes to using this future capital for organic growth and non-organic growth, and also for new processes of buyback and dividends.
Thank you, folks.
Let me remind you that if you want to ask a question, just type asterisk nine, or you can do it via webcast. Our next question comes from Marcelo Santos.
Thank you for taking my second question. I want to talk about the intake. What are the improvements that you have made when it comes to processes? What are your perspectives for 2019 when it comes to planning? How much do you plan to spend on marketing? Is it reasonable to imagine that with so many drops, you think there is going to be, for example, a stability, a new rhythm? Do you think there is going to be something close to stability? Is it to be expected in the next year?
Thank you for your question, Marcelo. Pedro Thompson is speaking now. This is subjective. This is the focus number one of the company. We had a cut. I believe that a good demonstration would be our retention rates. In fact, this is our number one priority, this issue of attracting new students and breaking this trend of losing new potential students.
Thank you. Let me remind you that if you want to request a question, just type asterisk nine, or you can do it via webcast. We are finishing now our Q&A session. I'd like to give the floor to Pedro Thompson for the final consideration. You have the floor.
I'd like to thank everybody for the participation and also result call. I hope to see you again in our next result disclosure for the next quarter. This teleconference is finished. I'd like to thank you for your participation.