Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Estácio's conference call to discuss the results for the first quarter of 2018. This event is also being broadcast simultaneously on the internet via webcast, which can be accessed on the company's IR website, www.estacioparticipacoes.com.br/ri. We would like to inform you that this call is being recorded, and all participants will only be able to listen to the call during the presentation. We will then begin the Q&A session when further instructions will be given. Should you need assistance during the conference, please request the operator's help by pressing star then zero. This conference call may contain forward-looking statements that are subject to risk and uncertainties that could cause the company's actual results to differ materially from those in the forward-looking statements.
Such statements speak only as of the date they are made, and the company is under no obligation to update them in light of new information. I will now turn the conference call over to Mr. Pedro Thompson, the company's CEO. Mr. Thompson, you may proceed, sir.
Welcome to our conference call to discuss the results for the first quarter of 2018. Gustavo Zeno, our CFO, and Flavia Oliveira, head of our IR team, are here with me. Just to remind you all, there will be a Q&A session as soon as the presentation is over. Beginning with slide two of our presentation, I would like to present the results of 2018.1 intake cycle. By the end of the first quarter of 2018, we enrolled approximately 143,500 on-campus and distance learning students versus 148.3 in the first quarter of 2017. However, as was the case last year, the enrollment period extended until mid-April, with a larger share of students enrolling at the end of the period this year. At the end of the intake cycle, we enrolled 165,800 on-campus and distance learning undergrad students versus 160,200 students in 2017, 33.5% more over the previous figures.
It is worth noting that this extension in the 2018.1 intake cycle was strongly influenced by the period to register the FIES program, which this semester was postponed to March. Moreover, the classification list was also published late. Additionally, the list of students classified to the P-FIES, which represents approximately 65% of the program enroll places, was released by the government on March 26th, further delaying the enrollment process this quarter. Accordingly, by the end of March, only 1.5% of the new on-campus undergrad students entered via FIES versus 5.2% in the same period in 2017. It is worth that most of the students captured in the cycle via FIES were external transfers, not freshman applicants. The quarter intake was also impacted by the ProUni places.
Excluding ProUni and FIES students, the increase in the enrolled student base totals 12,500 students, an increase of 8.4% compared with the same period last year. The distance learning segment was the main growth driver in this intake cycle, with a 20% year-on-year increase, mainly fueled by enrollments in the new centers. An additional 181 new centers enrolled students this semester compared with the same period in 2017, as well as the great demand for the Flex products, whose average ticket is higher than the online average ticket only. Moving on to slide three, I will talk about our new dilution program campaign, called DIS, launched during this intake cycle.
Aiming to continue expanding the sustainable student base and raising our average ticket, we provide our students, by means of the new campaign, the opportunity to pay BRL 49 in the enrollment month and dilute this difference in relation to the full monthly tuition over the duration of the course. Example, offering no discounts, scholarships, or exemptions. Most of the new on-campus and distance learning undergraduate students, online and Flex programs were eligible for the campaign. The installments, which may comprise from one to three monthly tuitions, will be paid through the duration of the course. On this slide, we show the example of a hypothetical student enrolled mid-February in a four-year course with a gross ticket of BRL 800.
This student joined the dilution campaign and paid, at the moment of enrollment, BRL 49 corresponding to January and BRL 49 corresponding to February, and the difference to the gross ticket of both months was diluted until the end of this course. The diluted amount plus the net tickets are issued in a single bill to be monthly paid by the student. Moving on to slide four, I would like to show some highlights of the first quarter results. Net operating revenue, BRL 2,935.7 million, 14.2% up on the first quarter of 2017. The dilution campaign, DIS, had a significant positive impact on net revenue compared with 2017. The assumption of the DIS campaign is that during the enrollment months, the full amount of the monthly tuition is billed without discounts or scholarships and exemptions.
The discounted present value is applied to revenue with accrual of 15% of the total receivable. It is worth noting that as 2018.1, after the launch of DIS, seasonality in revenue tends to significantly reverse between even and odd quarters. It is also worth noting the non-recurring effects of ProUni affected our net operation and revenue and net income this quarter. In accordance with MEC rules, in order to enroll students by the means of ProUni in the following semester, controlling institutions are required to present a tax debt clearance certificate valid until the last day of the previous fiscal year. Due to the bureaucratic issues with the Internal Revenue Services, the company did not renew by one day the tax debt clearance certificate by one of our 22 controlled institutions.
Given that this was a non-recurring situation experienced by the company in March, that we believe that the effective rate will return to historical levels as of April. It is worth noting that this was an accounting fact that did not affect the company's cash, liquidity, or transactions. EBITDA came BRL 330.1 million, a 53.8% increase over 2017, with an EBITDA margin of 35.3%, plus 9.1 points over the first quarter of last year. Regarding this performance, it is worth noting the year-over-year operational efficiency gains, as in the factory cost line, for instance, as well the impact caused by the DIS campaign.
A substantial part of the gain is due to the implementation of the corporate restructuring plans and the review of the educational model designed throughout the second semester of 2017, after the Brazilian antitrust agents did not approve the merger with Kroton. Our quarterly performance allowed us to record net income of BRL 197.4 million, 62% up on 2017. I'll now give the floor to our Head of IR, Flavia Oliveira, who will comment on our operating results.
Morning, everyone. On slide five, I would like to highlight the chart on our student base. We closed the first quarter of 2018 with 546,000 students, 0.7% growth over 2017. As previously mentioned by Pedro, this growth was strongly influenced by the increase in the distance learning student base, mainly by the Flex products, hybrid products, which grew by 54% over the same period in 2017. In addition, we closed the first quarter with 409 operational distance learning centers, an increase of 181 centers in relation to 2017. The distance learning growth offset the 6.7% decline in the on-campus student base, which was under the effect of the 24.8% decrease in the FIES student base and the 4% decline in the ProUni student base. Excluding these effects from the base presented at the end of the first quarter 2018, non-FIES and ProUni student base would increase by 2.3%.
It is worth noting that the objective of fostering a more sustainable student base, ensuring students' financial commitment in order to conclude the enrollment process, improved our students' retention rate by 1.2 percentage points. Moving on to slide six, I will now talk about our average ticket, which reflects the new pricing strategy. In the first quarter 2018, the on-campus average ticket totaled BRL 789, an increase of 17.6% compared with the same period in 2017 due to the 17% upturn in the average ticket of the on-campus undergraduate segment to BRL 818, and the 13.5% increase in the average ticket of the on-campus graduate segment to BRL 299 this quarter. In the first quarter of 2018, the distance learning average ticket increased by 28.5% over the first quarter 2017 to BRL 267.4.
It is worth noting that in 2018, the average ticket was positively impacted by the new DIS campaign. Given that discounts and scholarships were not granted on the price charges from students during the enrollment month. Prices were only affected by the Adjustment to Present Value in the amount of BRL 11.5 million. Moreover, March has historically recorded the highest number of students enrolled in the first semester. Accordingly, it is worth noting that in the second quarter of 2018, the average ticket should correspond to the amount of the monthly tuition only, net of the usual discounts and scholarships. In the distance learning segment, it is worth noting that in addition to the effect of the DIS campaign, our Flex student base grew by 54%, whose average ticket is higher than the online distance learning average ticket.
I will now turn the floor over to our CFO, Gustavo Zeno , who will talk about our financial performance.
Thank you very much, Flavia. Good morning, everyone. I will begin by talking about the net revenue on slide seven. The first quarter net operating revenue totaled BRL 935.7 million, 14.2% up on the same period in 2017. Mainly explained by the BRL 86.9 million upturn in revenue from monthly tuition, an increase of 6.4% over the first quarter of 2017. The BRL 0.3 million reduction in PRONATEC revenue due to the graduation of the last students in this segment. The BRL 1.1 million reduction in other revenue, essentially due to the decline in the entrance exam fees. As of 2018, we stopped charging this fee from the new students, maintaining it only for students enrolled in premium courses. The BRL 56 million reduction discount and scholarship, essentially due to the effect of new solidarity dilution campaign, DIS, during the intake cycle.
These results indicate the strategy adopted as of the first quarter of 2017 to reduce the number of discount, scholarship, and tuition exemption granted, pursuing a sustainable student base with a continuous evolution of the average ticket. The BRL 14.5 million upturn in taxes, which was impacted by one-off effect of the loss of ProUni tax benefit, totaling BRL 8.8 million, as previously explained by Flavia. The BRL 2.4 million reduction in the FGEDUC, due to the reduced P-FIES student base. The BRL 5.4 million increase in the Adjustment to Present Value of PAR, due to the increase of 9,100 students in the program. It is also worth noting that we changed the calculation of APV in the first quarter, and started using a long-term discount rate. The BRL 11.5 million increase in the Adjustment to Present Value of DIS campaign, which was effective during the 2018.1 intake cycle.
Finally, the effect in other reductions composed of the transfer to distant learning partner centers, was reclassified in the first quarter to others under cost of service cost. Consequently, the BRL 4.3 million variation corresponds to the 2017 transfer from partner centers. Moving on to slide eight, I will talk a little bit about our operation cost. Our cash cost of service accounted for 38.4% of net operating revenue in the first quarter, versus 48.3% the same quarter last year, representing a 9.9 percentage point margin gain mainly in the personal line, which recorded a 8.1 percentage point gain. This result reflects the corporate restructuring and the review of the educational model, which began to be implemented at the end of 2017. Not to mention the dilution of costs with decreasing revenue, as explained before.
We implemented a new faculty career plan and began improving the efficiency of the academic planning, increasing the sharing of disciplines between the new curriculum matrix and compatibility with former curriculum matrix. We also highlight that the partial replacement of the professors is listed in December 2017, was carried out throughout February. And that this decrease in the faculty cost cannot be repeated in the next period, as it was done in this quarter. On slide nine, we present our operating expenses. Selling expenses accounted for 13.3% of Net mapping operating revenue in the first quarter, a 0.4 basis points gain over the same period in 2017, essentially due to the 3.1 percentage point margin gain in the allowance for doubtful discount, known PAR and FIES. In this context, it is worth noting the following.
In the first quarter, we adjusted PDA based on the new standards of International Accounting Standards Board on the financial instrument, IFRS 9. In Brazil, CPC 48. Using the concept of expected loss and aging of accounts receivable for regular students and debt renegotiation agreement. We accrue 50% of the balance for this, and 15% for this, and 50% for the PAR. It is worthy noting that the first quarter PDA maintaining the concept used until December 31st, 2017. It corresponds to the balance of 100% of monthly tuition overdue by more than 180 days. In addition to this effect, it is worth noting that the review of the collection policy. In the first quarter of 2017, the presented PDA corresponded to the default recorder in the third quarter of 2016. Period in which there were no advisors assisting in the collection of active students.
Since then, the Estácio implemented a stricter collection process, partnering up with specialized collection firms. The charging process became more rigorous and the minimum debt amount required for students to be able to renew their enrollment significantly reduced. As a result of the margin gain, selling expenses were affected by the following lines. Advertising. The first quarter, we intensified the online media investment to strengthen the enrollment campaign. As a result, advertising expenses accounted for 8.6% of net revenue and a 0.8 percentage point margin loss over the first quarter of 2017. The provision of PAR program implemented in the first quarter of 2017 reduces this quarter's margin by 0.3 basis points, chiefly due to the increase of the number of students who joined the program.
It's also worth noting that we changed the calculation of APV in the first quarter and started using the rates based on the NTN-B 2024, the Brazilian Treasury Bond due in 2024. On this slide, we also present the general and administrative expenses, which accounted for 13.2% of the net operating revenue at 0.66 percentage point margin loss compared with the same period in 2017. Essentially, due to the third-party service expenses, which decreased by 0.4 percentage points with the increase in consulting expenses. It's also worth noting that the loss was partially offset by 0.3 percentage point margin gain in the personal expenses line. Moving on to slide 10, we can see that first quarter net income totaling BRL 197.4 million, an increase of 62% when compared with 2017, due to BRL 115.3 million increase in EBITDA and the BRL 11.5 million decrease in financial results.
As a result of the settlement of debentures and promissory notes carried out in the second semester of 2017, and the decrease of interest rates reduced our cost of debt service. Slide 11 shows Estácio's average receivable period. The average FIES receivable days was 36 days lower than the first quarter of 2017, totaling 230 days due to the lower number of FIES students. The average non-FIES receivable days was in line with the same period in 2017, at 70 days. It's worth noting that we remain focused on improving our collection and the student debt renegotiation campaign. Moving on to slide 12. In the first table, we can see the information of our capitalization and cash.
At the end of the first quarter of 2017, our cash and cash equivalents totaled BRL 627.1 million, conservatively invested in fixed income instruments pegged to CDI rates and federal government bonds, and finally, certificates of deposit of top-tier national banks. Our bank debt of BRL 572.1 million mainly corresponded to our debenture issues, the loans from IFC, the issue of promissory notes, and subsidized financing from regional development bank agencies and banks, and the capitalization of equipment leasing expenses in compliance with Law 11,638. The BRL 468.9 million year-over-year reduction was mainly due to the settlement of the third debenture issue in the amount of BRL 197 million in the second semester of 2017, and the payment of the first tranche of the promissory note in the amount of BRL 107 million in November 2017.
In addition, bank loans, commitments for payments related to acquisitions in the amount of BRL 71.8 million, combined with the tax payable installments, BRL 13.9 million, determine Estácio's gross debt, which totaled BRL 667.8 million at the end of March 2018. As a result, the company's net debt reached BRL 30.7 million at the end of this period, 0.04x our EBITDA for the period. It is also worth noting that our debt and operating cash generation level allow the company to carry out its operating activities, meet its financial commitments, and implement new expansion and growth strategies using its own funds as well as contract loans and financing. Also on this slide, we show our first quarter CapEx. We invested BRL 37.4 million, approximately BRL 10 million more than first quarter of 2017, essentially to achieve higher maintenance investments.
Moving on to slide 14, I would like to comment our first quarter operating cash flow after CapEx, which was positive by BRL 111 million, an upturn of 78%, and BRL 49 million more than the same period of last year. In addition to the increase in operating results, the BRL 106 million upturn in collection, non-FIES, mainly due to the more sustainable base and also contributed to improve this indicator. The increase in changing in assets and liabilities, working capital, mainly refers to the upturn in the accounts receivable in the first quarter, which was impacted by the DIS, the solidarity dilution campaign, implemented during the intake cycle. The first quarter pre-CapEx EBITDA to cash conversion rate came to 33.6%, a 4.6 percentage point margin over the first quarter of 2017. I will turn the floor back to our CEO, Pedro Thompson, for the closing remarks.
Thank you, Zeno. Moving on to slide 14, I would like to emphasize that in the first three months of 2018, we continued to implement drivers of efficiency gains in a disciplined manner. It is important to highlight corporate restructuring and review of the educational model. These two drivers jointly contribute to 8.1 percentage of point year-over-year improvement in the personal cost net operating revenue ratio. We would also like to highlight the expansion in revenue given the new strategies of capturing and pricing freshman applicants via the DIS program. It is also worth noting that the full footprint review. In the first quarter, the activities of five campuses were transferred to other closed units. The enrollment processes of these campuses was transferred to the units that absorbed the activities without any type of significant interruption in operation.
Savings from the phase-out of these campuses can already be noticed in the first quarter results. Finally, I would like to share with you another important accomplishment of Estácio, the opening of the new Mais Médicos campuses. In the first quarter, three new medicine units within the scope of the Mais Médicos program were accredited in Juazeiro, Alagoinhas, and Jaguaribe. The first two sites in Bahia and the last one in Santa Catarina. In addition to the authorization of the respective medicine courses corresponding to the opening of three greenfield units with an average of 55 authorized annual places. All in all, Estácio offers medicine courses in eight campuses through Brazil, consolidating its position as the educational institution that offers the most places in medicine in Brazil.
Moreover, requests for proposal of January of this year corresponding to the public call of university controlling education institutions designed to authorize medicine courses in new municipalities was published at the end of March. We will submit proposals to participate in these processes, which may further strengthen our leadership in medicine courses. To conclude, I would like to say that we began 2018 with a healthy student base, more structured processes, and a team fully focused on the execution. The industry dynamic has changed, and it has brought us many new challenges, but our goal remains the same: gain operational efficiency. We believe that efficient operations and a solid balance sheet are essential for the organic and inorganic growth plans that we are designing. 2018 will continue being a year of hard work and excellent results at Estácio. We can now move to the Q&A session. Thank you.
Okay. Thank you, sir. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw your question, please press star then two. Again, that is star then one to ask a question. At this time, we will just pause momentarily to assemble our roster. The first question we have will come from Vinicius Ribeiro of Bradesco BBI. Please go ahead.
Hey, guys. Good morning. Thanks for taking my question. I would just like to get to clarify two points on this program that you guys launched. The first one that I would like to understand is what percentage of intake was relative to this program? The second thing, you guys on the, if I am not mistaken, in the slide number three, you gave us some color on the recognition of this program. I would just like to get some clarity as to when would the student pay his full debt, when he graduates or before? Thanks.
Thank you, Marcelo. Your first question. The majority of the intake students were applied to this program. Roughly above 90% of the total intake. It is the first question. The second question. The students pay the DIS dilution in the same days of the student starts with us. We do not have any open debt after the graduation of the student. The students only pay one bill. One bill with the full price of the tuition, plus the value of the DIS program .
Okay. Thank you. Just to ask for further the answer, just let me clarify one thing. You guys are on the release, you said that this program represented BRL 128 million of revenues in this quarter. How do I consolidate that with your BRL 1.4 billion revenue? Just to get a better sense of the impact of this net ticket going forward.
Yeah. We only have the impact of this in the quarters that we have intake. Basically, the first and the third quarter of the year. We will always have the impact of the DIS in the case that we charge the full price of the one, two, or at the maximum three first tuition on a monthly basis, and then we will have the whole working capital plus the provision of this value.
Okay.
Just to summarize, the second and the fourth quarters, we do not have the impact of DIS.
Okay.
But we will have the impact of the average tickets for sure, because, the value that we bill the students now, they are the full tickets plus the parts of the DIS dilution.
Okay.
Is that clear?
Yes, it is. Thanks a lot for the answer, Pedro.
Next we have Marcelo Santos of JP Morgan.
Good morning, Pedro. Good morning, Flavia. Gustavo, thanks for taking the question. I have two questions, actually. The first one is about the faculty cost in the first quarter. From the Portuguese call, we understood that you fired the teachers in December, you hired them in February, so you had this kind of a one-off month without so much payroll. Could you give us a little bit more detail on this? Explain how much this helped your margins, what would be a normalized basis so that we can forecast future periods. The second question is about FIES. I understand that in this semester, you had 90% of the intake coming from FIES. Could you give us an idea how last year was related to how many students got the BRL 49 or BRL 59, and how many students were paying full price in the first quarter of 2017?
How much of the intake? In other words, I want to know, what was the penetration of the, let's say, BRL 49, BRL 59 campaign on the intake of the first quarter 2017, so that we can understand how things changed. These are the questions.
Thank you, Marcelo. The first question, the impact of the delay of the phasing of the professors, is approximately BRL 4.5 million in savings of our tuition costs of the first quarter. Your second question regarding the BRL 59. Last year, our intake cycle was driven basically 100% of the new students, with the price of BRL 59. This intake cycle was BRL 49 plus DIS. The difference between the two cycles last year and this year was only the DIS. Last year, the majority of the students basically entered with the BRL 59 only, and this year they will enter with the BRL 49 of cash out plus the dilution of the DIS program. Is that clear?
Perfect. Very clear. Thank you.
Next, we have Maria Azevedo of UBS. Please go ahead.
Hi, thanks for the question and congrats for the results. Can you please comment on the competitive environment, especially in distance learning, and how do you see pricing pressures going forward? Thank you very much.
Thank you, Maria. Regarding the competitive environment, what we are seeing now, we continue to ramp up our distance learning operations. We do not see any challenge until now. For sure, with the new regulatory issue of MEC of June of last year, we will have much more competition. I do believe in that competition, but in the midterm, not now, and we continue to ramp up our student base of distance learning. Any issue about price or about offer and demand in this intake cycle. The most difficult of this intake cycle for us was basically on campuses, and on campuses regarding areas that historically we have a huge dependence on FIES. Basically North and.
Perfect. Thank you very much.
Next we have Susana Salaru of Itaú.
Hi. Thank you for the question. Pedro, if you could elaborate a bit more on the efficiency level going forward, which one should mature in the first half of the year, which should expect to be more relevant to the second half of the year? And if you could elaborate specifically on the new curriculum framework, how it will develop during this year and the next year. Thank you.
Thank you, Susana. Regarding guidance, we are not allowed to provide any guidance. But in terms of the frame, the big picture for the last quarters, we will continue to present efficiency gains about the tuition costs. It's very tangible in this first quarter, but this first quarter will have the event of the delay of the phasing of the new professors from January to February. That will suffer an adjustment of BRL 40.5 million. But we will continue to dilute this gain for the next quarters. It's a fact. Regarding your second question, our curriculum matrix will continue to explore even more. We initiate our new curriculum matrix in the second semester of last year, focus on the new students of six months to one year.
Students studying with us in the courses of business and administration, accounting, economy, then we will continue to expand for more courses along this year and the next year.
Thank you, Pedro. Just a follow-up question for you quick. How much of your students these business, accounting, and economy courses represent approximately?
Susana, in roughly numbers of our on-campus courses is about 35%-40% that we call the management courses. That cover business administration, economy, accounting, advertising, marketing, and et cetera.
Right. Is it still the early beginning of the benefits of the new curriculum? There is still way to go.
Exactly. Our primary focus was on these courses and for the entry students of these new courses, and then we will expand to the veterans, and then we will expand the new curriculum matrix for another courses.
Okay. Thank you very much. Very clear.
Thank you, Susana.
Well, as there seems to be no further questions, I would now like to turn the floor back over to Mr. Pedro Thompson for any closing remarks. Sir?
I would like to thank all of you for participating in our results conference call. Our investor relations department is always at your disposal to help you with any questions you may have. Our contact information is available on our website. We hope to see you again through our conference call next quarter. Once again, thank you very much and have a great day.