Q4 2023 Vitru Ltd Earnings Call
2023 earnings conference call.
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We emphasize that the information contained in this presentation, and any statements that may be made during the earnings call, regarding Vitra's business prospects, projections and operation and financial goals, constitute the beliefs and assumptions of the company's management, as well as information currently available.
Forward considerations are not performance guarantees.
They involve risks, uncertainties, and assumptions, as they refer to future events and therefore depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, market conditions, and other operating factors may affect Vitru's future performance and lead to results that differ materially from those expressed in such forward-looking statements.
Today, we have the presence of the company's executives, William Matus, Vitrus CEO, Carlos Freitas, Vitrus CFO and IRO, and Maria Carolina, Investor Relations.
I'll now give the floor to Mr. Carlos Freitas. Sir, you may begin.
Carlos Henrique Boquimpani de Freitas: Thank you.
Carlos Henrique Boquimpani de Freitas: Good afternoon, everyone, and thanks for joining us again. It's a pleasure to be here with you all for the release of our fourth quarter 23 numbers, as well as the numbers for the full year of 23.
Carlos Henrique Boquimpani de Freitas: A slide presentation will be part of today's call, which is also available in our Investor Relations website at investors.vitro.com.br.
Carlos Henrique Boquimpani de Freitas: Before we begin, I'd like to make note that as detailed in slide 2 of this presentation, safe harbor is in effect for this call.
Carlos Henrique Boquimpani de Freitas: So now let's start and invite you to go to page 4, which I'm going to show you right now.
Carlos Henrique Boquimpani de Freitas: So here we show the few key operational highlights for the period. The first one is that we had more than 808,000 students as of December of last year which was a 15.4% increase in our core digital education undergrad business.
Carlos Henrique Boquimpani de Freitas: That was a major growth and I'm going to talk about it a bit more later.
Carlos Henrique Boquimpani de Freitas: Also, we have an important increase of around 10%
Carlos Henrique Boquimpani de Freitas: in the average ticket in the digital education undergrad segment.
Carlos Henrique Boquimpani de Freitas: in the second semester of last year compared to the second semester of 2022. Just as a reminder, we always think in terms of semesters here at Vitro because it replicates the academic calendar.
Carlos Henrique Boquimpani de Freitas: And this is another, I'd say, reaffirmation of our approach to pricing.
Carlos Henrique Boquimpani de Freitas: Also, we closed the third debentures issue in early December of last year, through which we extended the average debt duration.
Carlos Henrique Boquimpani de Freitas: and also reduce our financing costs.
Carlos Henrique Boquimpani de Freitas: The benchmark was issued at a rate of CDI plus 2.45, while our previous average cost of that was CDI plus 3.
Carlos Henrique Boquimpani de Freitas: And finally, we had important advancements in the migration process from NASDAQ to B3.
Carlos Henrique Boquimpani de Freitas: So we already called the shareholders' meetings that we will approve the transaction, the reverse merger through which Vitro Brasil will incorporate Vitro Limited. These meetings will take place on April 19. So three weeks, four weeks from now.
Carlos Henrique Boquimpani de Freitas: And I'm going to give more details about the process in a few minutes.
Carlos Henrique Boquimpani de Freitas: On page 5 we have the main financial indicators for the year of 2023. So net revenue in our core segment of digital education undergrad.
Carlos Henrique Boquimpani de Freitas: up 42% in the year, with the overall consolidated net revenue increasing 49% year-on-year.
Carlos Henrique Boquimpani de Freitas: Just LBDA increased even further, about 60% in the year, and then with that the margin was up from 33.9 to 36.6% in the full year number.
Carlos Henrique Boquimpani de Freitas: The cash flow from operations was also up even more, 71% in the full year, which led to an adjusted cash flow conversion rate.
Carlos Henrique Boquimpani de Freitas: of 96%. So that's an important piece of our financing approach is to generate cash and take profit of our scale. And finally...
Carlos Henrique Boquimpani de Freitas: Even with our debt that is decreasing, we managed to have a consolidated adjusted net income increasing around 24%.
Carlos Henrique Boquimpani de Freitas: in the year reaching 253 million reais.
Carlos Henrique Boquimpani de Freitas: On page 5, sorry, on page 6.
Carlos Henrique Boquimpani de Freitas: [inaudible]
Carlos Henrique Boquimpani de Freitas: This is a slide that I like a lot because it shows our execution over the last years.
Carlos Henrique Boquimpani de Freitas: So, growing several aspects in number of students, MBDA margin, MBDA as a whole, catch flow from operations. So, we have been, I would say, over-delivering on what we intended to do and what we said that we would do during the IPO.
Carlos Henrique Boquimpani de Freitas: On page 7
Carlos Henrique Boquimpani de Freitas: growth throughout the company. So apart from the 15.4 percent growth in the digital education undergrad segment, we also grew in graduate business in the on-campus business. So it all led to a total student base of 884,000 students.
Carlos Henrique Boquimpani de Freitas: of which 97.5% are in digital courses.
Carlos Henrique Boquimpani de Freitas: So we are clearly focused on the digital business. And here we can also see that we managed to grow.
Carlos Henrique Boquimpani de Freitas: 15% as I said, even coming from tough comps.
Carlos Henrique Boquimpani de Freitas: We already grew roughly 25% throughout 2022.
Carlos Henrique Boquimpani de Freitas: Taking into account the performance in the base of Unia Selvi plus Unia Sesomar in December 21. So, as we can see here in the bar chart at the bottom right of the slide, our CAGR, our annual growth rate was around 20% between December 21 and December 23.
Carlos Henrique Boquimpani de Freitas: So on page 8 we keep maturing the hubs. This is the most important driver for growth and expansion of revenues throughout Brazil.
Carlos Henrique Boquimpani de Freitas: On page 9, we grew throughout the country in terms of hubs and student base.
Carlos Henrique Boquimpani de Freitas: So even here in the south of the country grew by 9% year-on-year, an important growth of 20% in the southeast, 22% in the northeast, and now the number of hubs also increasing by more than 300 hubs year-on-year, with important increase also in the southeast.
Carlos Henrique Boquimpani de Freitas: On page 10, we show the geographical footprint of our hubs.
Carlos Henrique Boquimpani de Freitas: which is quite complimentary, as you can see here in the table at the left of the page.
Carlos Henrique Boquimpani de Freitas: that you know already. So as I said throughout last year we opened more than 200 hubs and a lot of them were opened by partners who used to offer only one brand.
Carlos Henrique Boquimpani de Freitas: And now we're working with both brands. And this can be seen here in the table in the bottom right part of the page. You can see here that we increased by 20.6% the number of cities in which we operate with both brands.
Carlos Henrique Boquimpani de Freitas: So the overall number of cities went up by 5.7%.
Carlos Henrique Boquimpani de Freitas: But the overall number of cities in which we already operate now with both brands went up by more than 20%. So this is Synergis. This is part of our commercial Synergis that we showed to you two years ago.
Carlos Henrique Boquimpani de Freitas: And then now we are delivering on that. And I'm going to show you more details about the execution of the integration a bit later.
Carlos Henrique Boquimpani de Freitas: On page 11, another important slide to show.
Carlos Henrique Boquimpani de Freitas: Our client orientation, our focus on quality. So here on the left, another confirmation that our...
Carlos Henrique Boquimpani de Freitas: The average app ratings, taking into account Play Store and App Store, is 4.8 in both Sedumor and Unilacelve, which are the best in the market. Here on the right, you can see the Reclame Aqui grades as well.
Carlos Henrique Boquimpani de Freitas: As you know, ReclameKey is a site that...
Carlos Henrique Boquimpani de Freitas: kind of states and confirms the client orientation and client service in the last six months. We have a reputation 8.0 in UNIASELF and 7.7 at UNICEF de Mar. Those are the highest numbers among the listed players in the country.
Carlos Henrique Boquimpani de Freitas: Page 12. This is a new slide.
Carlos Henrique Boquimpani de Freitas: This is to illustrate that we are top positioned regarding quality of our courses.
Carlos Henrique Boquimpani de Freitas: In the short at the left.
Carlos Henrique Boquimpani de Freitas: We show the distribution of the institutional concepts, the CIs, as you know, of the six institutions of the virtual group, as well as the other listed players.
Carlos Henrique Boquimpani de Freitas: We have five institutions.
Carlos Henrique Boquimpani de Freitas: individual group with the maximum score of CI5 and only one with a CI4, which by the way has few students.
Carlos Henrique Boquimpani de Freitas: This is important even more now than ever, because as you know, one of the possible regulatory changes that have been discussed...
Carlos Henrique Boquimpani de Freitas: is to increase the bar, to raise the bar from CI3 to CI4 for institutions to be allowed to offer distance learning courses.
Carlos Henrique Boquimpani de Freitas: And in the chart at the right.
Carlos Henrique Boquimpani de Freitas: We show an indicator that it's not usually mentioned, but it is public information. It is part of MEXT evaluation. It is at INEP.
Carlos Henrique Boquimpani de Freitas: which is the Sisi
Carlos Henrique Boquimpani de Freitas: which is the course content.
Carlos Henrique Boquimpani de Freitas: As most of you know, every three years usually, the Ministry of Education makes an in-local evaluation about the quality of a course, taking into account different aspects, such as the academic model, the technological infrastructure, and the level of teachers.
Carlos Henrique Boquimpani de Freitas: So as you can see in the chart, 61% of the vitreous cortis that were evaluated over the last three evaluation cycles, meaning all cortis, has a CC5.
Carlos Henrique Boquimpani de Freitas: which is two times the average of the market, which is the fourth bar here at the left.
Carlos Henrique Boquimpani de Freitas: And by the way, regarding regulation, we don't know what will change, we don't know if anything will change, we don't know when it will change, but we do believe that there will be a stricter focus on quality, which is good.
Carlos Henrique Boquimpani de Freitas: as well as a need for more hybridism in several courses. So, in this scenario, we're showing here that V2 would be quite well positioned and the changes in regulations may even benefit us.
Carlos Henrique Boquimpani de Freitas: So for us, the higher the bar, the better.
Carlos Henrique Boquimpani de Freitas: Slide 13. Slide 13 is also new.
Carlos Henrique Boquimpani de Freitas: It mentions RAID-DNN. RAID-DNN, most of you probably don't know, that we acquired RAID-DNN two years ago, in September 2022.
Carlos Henrique Boquimpani de Freitas: Radeonion has different products, including blogged one in.
Carlos Henrique Boquimpani de Freitas: which was one of the leading sites with content for the NN preparation, which had 17 million views and 1.3 million followers on Facebook.
Carlos Henrique Boquimpani de Freitas: And also, Curso en Ingratuito is part of the group, with 3.1 million users.
Carlos Henrique Boquimpani de Freitas: and almost 1 million followers on YouTube and 12 million views. So this is a major source of leads for us and a very nice piece of our digital education platform.
Carlos Henrique Boquimpani de Freitas: Page 14.
Carlos Henrique Boquimpani de Freitas: In this slide we show details of the intake and average tickets for each of the brands in the digital education undergrad business during the second half of last year compared to the second half of 2022.
Carlos Henrique Boquimpani de Freitas: So, for intake.
Carlos Henrique Boquimpani de Freitas: The intake in the second half of last year was 27% higher than the previous year, especially due to the performance of Unicezumar.
Carlos Henrique Boquimpani de Freitas: And as I mentioned in the previous call, last year we worked in the repositioning of UNICEF Domar and achieved a more balanced split between the first and the second semesters of the year.
Carlos Henrique Boquimpani de Freitas: We
Carlos Henrique Boquimpani de Freitas: We saw an untapped opportunity to increase the intake of this brand in the second intake cycle of the year and then we grew 59% over the previous year.
Carlos Henrique Boquimpani de Freitas: In the case of Unia Selvi, intake grew by 13%, which is a strong performance considering that the quite high comparison base, the quite tough comp, knowing that the intake of Unia Selvi...
Carlos Henrique Boquimpani de Freitas: grew at an annual rate of almost 30% between 2019 and 2022.
Carlos Henrique Boquimpani de Freitas: So for tickets, in the case of Unia Selvi, every ticket grew.
Carlos Henrique Boquimpani de Freitas: Slightly above inflation, about 7%. This is mostly due to this pricing discipline that I mentioned before, our marketing intelligence, and the tools and the procedures, the systems that we have in place to set our prices, to adjust our prices, and this is the kind of discipline that we have been using and mentioning to you over the last years.
Carlos Henrique Boquimpani de Freitas: When we see the evolution of the average ticket of owning a Selvy in the last four years
Carlos Henrique Boquimpani de Freitas: The CAGR of the increase is virtually the same as the annual inflation rate in Brazil over the period.
Carlos Henrique Boquimpani de Freitas: In the case of UNICEF-Dumar
Carlos Henrique Boquimpani de Freitas: We have noticed a clear improvement in the pricing throughout last year, so a 13% increase semester on semester.
Carlos Henrique Boquimpani de Freitas: And this...
Carlos Henrique Boquimpani de Freitas: These are the first results of the implementation of best practices between the two brands. We started in 22 and we are reaping now the results in 23.
Carlos Henrique Boquimpani de Freitas: So, this change had to do with several improvements, including the commercial approach to attract new students.
Carlos Henrique Boquimpani de Freitas: The annual increase of tuition for senior students and a more granular and data-oriented use as we used to do at Unistudio.
Carlos Henrique Boquimpani de Freitas: And by the way, regarding the current intake cycle, until today, 21st of March, we are growing at a level of low double dips in the first quarter of this year compared to the first quarter of previous year.
Carlos Henrique Boquimpani de Freitas: So, page 15, the big numbers, big financial numbers.
Carlos Henrique Boquimpani de Freitas: Net revenue, as I mentioned, growing by 49% year-on-year. Gross profit increasing 59%. So margin went up by 4 points from 61.9 to 65.9 in the year.
Carlos Henrique Boquimpani de Freitas: And the EBITDA margin went up by 2.7%, reaching, as I mentioned before, 36.6% in the year.
Carlos Henrique Boquimpani de Freitas: Now let's talk about each of these segments.
Carlos Henrique Boquimpani de Freitas: On page 18, first, the digital education undergrad business.
Carlos Henrique Boquimpani de Freitas: which is our core business and we grew by 42% in the segment in the in the year. Quarter on quarter was a 17% increase, also important.
Carlos Henrique Boquimpani de Freitas: And we kept and keep on gaining market share in the segment. On the right you can see, as you know, that we have been gaining market share throughout the last years in a booming business.
Carlos Henrique Boquimpani de Freitas: On page 19, some remarks about our medical business.
Carlos Henrique Boquimpani de Freitas: As you know, a quite high quality business, the fifth best private school in Brazil, the largest medical campus in the south of Brazil, with tickets now over R$12,000.
Carlos Henrique Boquimpani de Freitas: Increasing above inflation, given this higher quality, and SIPs still maturing.
Carlos Henrique Boquimpani de Freitas: So we expect promising results for this business over the next years. So with this combination of seats maturing and tickets growing above inflation, the net revenue of our medical business grew 31% in the quarter.
Carlos Henrique Boquimpani de Freitas: On page 20, the on-campus ex-medical business.
Carlos Henrique Boquimpani de Freitas: which grew by 6% in the quarter, but an important growth year on year given the relevancy of this business within Unicef-Domar, especially the health-related courses.
Carlos Henrique Boquimpani de Freitas: And continue education on the right.
Carlos Henrique Boquimpani de Freitas: A strong growth here in the continued education course, segment, sorry. This comprises not only our graduate courses, but also a growing business of technical courses and professional courses.
Carlos Henrique Boquimpani de Freitas: This segment is our smallest today.
Carlos Henrique Boquimpani de Freitas: So far with only 5% of our net revenue.
Carlos Henrique Boquimpani de Freitas: But it is the one that is presenting the fastest growth. So this is also a very promising area, and we do believe that we can offer complementary products to our students throughout their educational life.
Carlos Henrique Boquimpani de Freitas: And to illustrate this potential, to illustrate this prospect, we created slide 21.
Carlos Henrique Boquimpani de Freitas: to show the prospects of the continued education segment.
Carlos Henrique Boquimpani de Freitas: So, just a few numbers here. We have in Brazil today around 1.2 million...
Carlos Henrique Boquimpani de Freitas: college graduates, which is an important flow for our postgraduate courses.
Carlos Henrique Boquimpani de Freitas: and 7.7 million graduates in high school in Brazil, which is an important flow for our technical and professional courses as well, besides the undergraduate business.
Carlos Henrique Boquimpani de Freitas: It's also important to highlight here that we have around 58,000 students in this segment, most of them still in graduate courses.
Carlos Henrique Boquimpani de Freitas: But the fastest growing business is the technical courses.
Carlos Henrique Boquimpani de Freitas: This is a new business.
Carlos Henrique Boquimpani de Freitas: that until two years ago, more or less, was regulated only at state level in Brazil. But two years ago, the Minister of Education, the MEC, authorized this learning place, such as Vitro and others, to offer this type of courses at federal level.
Carlos Henrique Boquimpani de Freitas: based on the quality rates of the digital education undergrad courses.
Carlos Henrique Boquimpani de Freitas: So, because we offer high-quality undergraduate courses, we were allowed to offer, and there is a specific accreditation process for each course, to offer these technical courses.
Carlos Henrique Boquimpani de Freitas: So, given our quality, we were granted so far 42.8% of the seats authorized by the MEC.
Carlos Henrique Boquimpani de Freitas: So this can be a nice contributor for our numbers over the next years.
Carlos Henrique Boquimpani de Freitas: So now about BDA. BDA margin growing as I mentioned 2.7% point sorry over the year and let me show you now where it comes from.
Carlos Henrique Boquimpani de Freitas: So regarding cost of service
Carlos Henrique Boquimpani de Freitas: We had a
Carlos Henrique Boquimpani de Freitas: A slight increase in the quarterly numbers because of intra-year variations, but the yearly numbers, they were declined at 2.3% points year-on-year, which is basically due to operational synergies that I have been mentioning to you over the last two quarters.
Carlos Henrique Boquimpani de Freitas: For GNA, it's the same. We had a slight increase in the quarter, but basically because we had a strong decrease in the third quarter.
Carlos Henrique Boquimpani de Freitas: So, when you analyze these numbers, even for cost of service and for G&A, we had, in case of cost of service, a decrease. In the case of G&A, a stable number of around 60% of net revenue, which is, by the way, the lowest in the industry.
Carlos Henrique Boquimpani de Freitas: So we are quite lean and quite focused on maintaining a lower level of DNA.
Carlos Henrique Boquimpani de Freitas: Or selling expenses on page 24.
Carlos Henrique Boquimpani de Freitas: The quarterly expenses as a percentage of net revenue were basically flat at 16.6%.
Carlos Henrique Boquimpani de Freitas: And if you look at the yearly numbers, there was a slight reduction in such expenses.
Carlos Henrique Boquimpani de Freitas: at a percentage of net revenue, which given certain gains of scale and especially a more optimized
Carlos Henrique Boquimpani de Freitas: mix between digital and offline marketing for the whole group.
Carlos Henrique Boquimpani de Freitas: For PDA, at the right.
Carlos Henrique Boquimpani de Freitas: As it was the case in the third quarter of last year, the fourth quarter of 2023 was very positive for us in terms of cash collection.
Carlos Henrique Boquimpani de Freitas: With that...
Carlos Henrique Boquimpani de Freitas: The PDA is starting to go down, so PDA in the year amounted to 13.4%, so a reduction of 0.8 points over the number of 22.
Carlos Henrique Boquimpani de Freitas: even despite the strong intake results of last year. This is not yet the ideal level, but I do believe that we are going in the right direction.
Carlos Henrique Boquimpani de Freitas: On page 25
Carlos Henrique Boquimpani de Freitas: Adjustment Incomes
Carlos Henrique Boquimpani de Freitas: This quarter we had a reduction in net income for the quarter which was impacted by two effects, two things. One was higher financial expenses.
Carlos Henrique Boquimpani de Freitas: Given that we pre-paid
Carlos Henrique Boquimpani de Freitas: The other effect was due to lower default income taxes in the fourth quarter of 2023.
Carlos Henrique Boquimpani de Freitas: compared to the fourth quarter of 2022. So the positive impact...
Carlos Henrique Boquimpani de Freitas: was roughly R$30 million lower in the fourth quarter of 2023 versus the fourth quarter of 2022.
Carlos Henrique Boquimpani de Freitas: So this Deferred Income Tax, as you know, is generated as we have...
Carlos Henrique Boquimpani de Freitas: over time, which is our case. But the positive contribution of this was more important and stronger in the fourth quarter of 2022.
Carlos Henrique Boquimpani de Freitas: 23.
Carlos Henrique Boquimpani de Freitas: Anyway, we're presenting an important...
Carlos Henrique Boquimpani de Freitas: growth in the adjusted income in the year numbers, even with the only single mother acquisition that in our balance sheet throughout the year. So as you do remember, we acquired single mother in May of 22. That's when we issued our 1.9 billion reais, the first debentures of the company. And here you can see on the right part of slides.
Carlos Henrique Boquimpani de Freitas: The increase in expenses, in financial expenses that I mentioned, so even with the increase in expenses of about 100 million reais last year, compared in 2023 with 2022, we had an increase of about 24% in the net income adjusted of last year.
Carlos Henrique Boquimpani de Freitas: So an important cash flow generation and a reducing level of CapEx. So first, CapEx.
Carlos Henrique Boquimpani de Freitas: CapEx went down throughout the year. So in the fourth quarter, 7.1% of net revenue, reaching 6.2% throughout the year on average last year in 2023, going down from 7.4% in 2022.
Carlos Henrique Boquimpani de Freitas: So, this is...
Carlos Henrique Boquimpani de Freitas: Relatively low, given our acid light operation.
Carlos Henrique Boquimpani de Freitas: And, by the way, around two-thirds of our cutbacks is related to investments in learning and IT systems and technology.
Carlos Henrique Boquimpani de Freitas: So, most of our CAPEX is focused on technology and very few of it, very little of it, is focused on hard assets.
Carlos Henrique Boquimpani de Freitas: On the right part of the slide, cash flow.
Carlos Henrique Boquimpani de Freitas: So
Carlos Henrique Boquimpani de Freitas: We had a slight decrease in the cash flow in the quarter. This was because of certain, the same way that we had in the cost, we had a very strong performance in the third quarter, a smaller performance in the fourth quarter. So that's why we show here as well the semester numbers in the middle of the chart.
Carlos Henrique Boquimpani de Freitas: the second half of 22, and the second half of 23, we had a 36% increase in the operational cash flow between these two years. And, by the way, as I mentioned, we acquired Supermodel in May 22. So here we are do comparing apples to apples.
Carlos Henrique Boquimpani de Freitas: It's just to illustrate.
Carlos Henrique Boquimpani de Freitas: the positive, let's say, working capital environment that we managed to have in the second half of last year. For example, we are now, in December, we were at the lowest level ever in receivables days.
Carlos Henrique Boquimpani de Freitas: with 44 days
Carlos Henrique Boquimpani de Freitas: compared to 57 days that we had, for example, in June of 2013.
Carlos Henrique Boquimpani de Freitas: And if we take, for example, our net revenue in 2023 and compare this net revenue.
Carlos Henrique Boquimpani de Freitas: to the net revenue accumulated in the previous quarter between October 22 and September 23, there was an increase of 4.1% more or less, which is more or less what we've been growing on a yearly basis. But there was a decrease.
Carlos Henrique Boquimpani de Freitas: of around 10.8% in our short-term accounts receivables position in December 23 compared to September 23. So we managed to grow revenues
Carlos Henrique Boquimpani de Freitas: by 4.1% in one quarter, and reduce in almost 11% the accounts receivables. So this is cash flow.
Carlos Henrique Boquimpani de Freitas: itself.
Carlos Henrique Boquimpani de Freitas: So page 27.
Carlos Henrique Boquimpani de Freitas: The integration, which is called here Project Illumina.
Carlos Henrique Boquimpani de Freitas: integration which is one is advancing advance and is advancing faster than expected so here on the right you can see the impact on a BDA through cost and expenses of the cost expense reduction that we had
Carlos Henrique Boquimpani de Freitas: that we overcame what we said that we were going to do.
Carlos Henrique Boquimpani de Freitas: These levers are not only personal optimization, but also gains of scale in contracts and better retention practice at Tunia Selvi. And also on the commercial side, as I mentioned before, through the expansion with other brands within the same city, through different new products and courses, we also managed to beat our estimations for commercial synergies.
Carlos Henrique Boquimpani de Freitas: So, now the next step will be the modernization of the criteria for recognition of the student's engagement.
Carlos Henrique Boquimpani de Freitas: Meaning that as from this year, UNIA itself will use the same criteria of UNICEF for the activation of students.
Carlos Henrique Boquimpani de Freitas: This will result over time in higher retention rates, lower PDA, and higher EBITDA margins as well.
Carlos Henrique Boquimpani de Freitas: So, on page 28, our death level.
Carlos Henrique Boquimpani de Freitas: Our debt level was $1.94 billion in reality net debt.
Carlos Henrique Boquimpani de Freitas: This without leasing, this is the way banks used to look at debt levels. So 1.9 billion reais of net debt.
Carlos Henrique Boquimpani de Freitas: which meant a ratio of net debt over adjustability of 2.9 in December. So it was 3.3 in June, then 3.1 in September of last year, and then 2.9 in December. So we are not only...
Carlos Henrique Boquimpani de Freitas: and of course this was all aligned with our financing plan that we draw, that we designed when we had the combination with Unsettled Mark.
Carlos Henrique Boquimpani de Freitas: And also with the new ventures that I mentioned before, we also extend the average duration and demolition schedule of our debts.
Carlos Henrique Boquimpani de Freitas: Finally, on page 29
Carlos Henrique Boquimpani de Freitas: the status of the migration.
Carlos Henrique Boquimpani de Freitas: from NASDAQ to B3.
Carlos Henrique Boquimpani de Freitas: So
Carlos Henrique Boquimpani de Freitas: what we have been able to do in the last month.
Carlos Henrique Boquimpani de Freitas: Well, we...
Carlos Henrique Boquimpani de Freitas: Launched the transaction in September of last year, as you know, we got the green light from CVM.
Carlos Henrique Boquimpani de Freitas: to convert Vito Brasil S.A. from B category to A category in Brazil in December 4th of last year. And then, just after Christmas, we got the green light from B3 for the Novo Mercado listing.
Carlos Henrique Boquimpani de Freitas: And finally, we got the green lights from the SEC.
Carlos Henrique Boquimpani de Freitas: The S4 form was declared effective by the FCC two weeks ago, March 6th, finally. It was a long, long process.
Carlos Henrique Boquimpani de Freitas: But we managed to accomplish it.
Carlos Henrique Boquimpani de Freitas: And then we were able to call the shareholders meeting, which was done last week, last Friday. And then the next step will be the shareholder meetings of both Vitro Brasil and Vitro Limited, which will take place as I mentioned before.
Carlos Henrique Boquimpani de Freitas: on April 19th.
Carlos Henrique Boquimpani de Freitas: in one month from now, then there will be an election period.
Carlos Henrique Boquimpani de Freitas: of about one month as well, during which the shareholders of itLimited will be able to choose whether to receive
Carlos Henrique Boquimpani de Freitas: Vitor Brazil Shares or Vitor Brazil ADRs
Carlos Henrique Boquimpani de Freitas: Oh
Carlos Henrique Boquimpani de Freitas: Some of them will choose to receive directly shares, which would be easier to trade here at the B3. Some of them For example, some small shareholders in the US for example, they would choose to receive ADRs
Carlos Henrique Boquimpani de Freitas: So we do expect that the delivery of the securities ADRs and shares will take place
Carlos Henrique Boquimpani de Freitas: potentially early June and then we will be able to start trading at B3 at Novo Mercado.
Speaker Change: So that was it. I think it was a good set of results and now I would like to open for questions.
Speaker Change: We will now begin the Q&A session. Remember that to ask questions, you must click on the Q&A icon at the bottom of the screen to join the queue. If you prefer to write your question, please follow the same steps and you'll be joined the queue as well. Upon being announced, a request to activate your microphone will appear on the screen, and then you must activate your microphone to ask questions. We kindly request that all questions be asked at once.
Speaker Change: Let's proceed to our first question. It's from Lucas Di Nagano, Morgan Stanley. Lucas, we will now open your audio so that you can ask your question. Please proceed.
Speaker Change: Hi Carlos, good evening. Thanks for taking our questions. We have two. The first one is related to average ticket. The increase last year was particularly high and for 2024, should both tickets move more aligned with inflation?
Speaker Change: And in the case of an SMI, are you seeing any impact with attrition due to this new pricing policy?
Speaker Change: And the second question is related to regulation. If Mac goes in the direction of increasing the percentage of in-person hours to something from like 30% to 50%, let's say, how do you see impacting your operations both for Unia Selvi and Unicef do Mare? Thanks.
Speaker Change: Great, Lucas. Thanks for your questions. So regarding tickets...
Speaker Change: That's indeed returned there to the slide about tickets.
Speaker Change: Indeed we had an important growth last year in the first semester and also in the second semester.
Speaker Change: Now, looking forward, I mean, we have the intention, and we have been working to deliver it, to increase ticket mortgages in line with inflation.
Speaker Change: So, there are...
Speaker Change: Quarters in which we'll be able to deliver more inflation and some quarters less inflation.
Speaker Change: I think it's still a bit premature to mention how this will evolve over time. What we are seeing is that...
Speaker Change: So far we have been able to have intakes, for example, more or less at the same level of last year.
Speaker Change: So we were able last year to grow intake tickets quite well. This year we have already a higher price. So year on year our intake price is more or less the same level of last year.
Speaker Change: But this will mean that our average ticket will increase more than zero. But I don't know yet if this will be in line with inflation or slightly less than inflation. Let's see.
Speaker Change: Over time, I mean, last year we grew by 7% Unia Estelvi, and 13% tomorrow. So this is way more than inflation. So it's not feasible to keep growing more than inflation forever. So let's see how this evolves for the year.
Speaker Change: And for regulation regarding in-person hours, I mean, we will adapt. We have...
Speaker Change: When we see our hubs on a comparable basis, I mean, we have in the case of Unia Selvi
Speaker Change: The academic model is hybrid.
Speaker Change: In the case of Unicef do Mar, the hubs are also way better and bigger than the ones of the peers. And so we will adapt, so let's see what that comes. We do believe that we are better prepared than anybody else to adapt to this type of requirement for more in-person hours or percentage for these courses.
Speaker Change: Carlos, thanks. Thanks, Lucas.
Speaker Change: The next question is from Mirela Oliveira, Bank of America. Mirela, we'll open your audio so that you can ask a question. Please proceed.
Mirela Oliveira: Good evening.
Mirela Oliveira: Sorry, good evening Carlos, Willem and Carol. I have one question here on cost.
Mirela Oliveira: What do you think on cost opportunities, cost-cutting opportunities, what do you think it's the main lines that could bring gross margin expansions in 2024? And secondly, you mentioned on the release on the cash flow from operations that there was a one-off
Mirela Oliveira: for the semester. Which effect was that, if you could give more details on the impacts for the semester? Thank you.
Speaker Change: Great. So, for cost opportunities, I mean, we are
Speaker Change: Amen.
Speaker Change: So, quite well advanced in integration, so I would say that most of the gains and synergies, they are already incorporated in the numbers of last year, but there will still be some more gains for 2024. And one of the lines that we do expect gains is, for example, contracts, so this impacts both costs and G&A.
Speaker Change: So, when you renew a contract, a service contract, for example,
Speaker Change: Or a IT contract. Now we have a much bigger scale and for our contracts which are
Speaker Change: two years, three years, or one year in duration. So when you renew it, you have only the full year effect of this better rate only in the following year. So we still gonna have more impact for this year. We are also
Speaker Change: integrating our ERP, our academic ERP.
Speaker Change: So our academic ERP is still separate, the one for UNI-SELV and UNI-SELV. The one of UNI-SELV is proprietary. The one of UNI-SELV is not. So we are now integrating and moving to the one of UNI-SELV.
Speaker Change: which also means some cost and savings in cost for this year. But I will tell you to be to be frank that
Speaker Change: I mean, most of the gains are coming from the integration, they are already in-house. We do expect, of course, some more gains of scale.
Speaker Change: with the dilution of fixed costs, which is normal given our business, our size.
Speaker Change: But gains from integration, they are mostly in-house or done.
Speaker Change: And I mean the warm-up effect in cash that we mentioned, we have a very strong...
Speaker Change: collection in the third quarter of last year. We had also some postponements of payments in the third quarter and then we had to
Speaker Change: pay this cost, or to have a higher comparable basis in the fourth quarter of this year. So basically, that's why we mentioned here that the normalized number for the semester is much more important to show, which grew 36%, if I'm not mistaken.
Speaker Change: which is
Speaker Change: here, 36% semester-on-semester. So my point is that the basis...
Speaker Change: For the next, for this year, is what we have here. So R$225 million in cash flow from operations in the semester. It's a very nice level and a very important cash conversion as well.
Speaker Change: Thank you, that's super clear.
Speaker Change: The next question is from Luca Marchesini, Itaú BBA. Luca, we'll open your audio so that you can ask a question. Please proceed.
Lucca Generali Marquezini: Good evening, everyone. Thank you for taking our question. We've been hearing from other players that intake volume has been flattish so far in the first half intake cycle for this year, mainly due to not only a strong comparison base, but also
Lucca Generali Marquezini: to the top-down scenario as a whole. So can you provide us with some color on the intake so far, and if you have been seeing the same trends for vitro? Thank you.
Speaker Change: Thanks, Luca, for your question. In our case, what we have been seeing so far is a growth in intake. So the first, until now, until today, 24th of March, we have a low double digits growth in intake compared to the...
Speaker Change: to the first semester of last year, the first same period of last year in fact.
Speaker Change: about low WDs growth in intake and more or less flattish tickets for intake.
Speaker Change: That's what we've been seeing. So, it seems that we are growing more than the market.
Speaker Change: Again, given the quality of our offerings.
Speaker Change: That's very clear. Thank you, Carlos.
Speaker Change: Take a look at it.
Speaker Change: The next question is from Caio Muscardini, Santander. Caio, we'll open your audio so that you can ask a question. Please let me proceed.
Caio Muscardini: Good afternoon. Thanks for taking my question. I have two questions here. One in regards to regulation, right? One of the discussions that we have been hearing is that the Minister of Education
Caio Muscardini: could implement a minimum...
Caio Muscardini: number of professors per student, right, so I would like to ask how can you protect yourself if something goes on that direction, right? And you have to increase the number of professors that you have, right, to achieve a certain minimum, which we don't know, right? And the other question is in regards to leverage, right? What is your expectation in terms of Net Debt to EBDA during 2024? What level could you achieve in the end of 2024? Thinking just purely organically here, so thank you, thank you for the opportunity.
Speaker Change: Thank you, Caio. Regarding the second question about leverage, we...
Speaker Change: We keep on expanding BDA and also reducing net debt given that we generate more free cash flow than accrued interest.
Speaker Change: So our net debt will go down over time, so the net debt will be lower in December of this year than it was in September last year. So our expectation that this ratio of net debt over the JCBDA
Speaker Change: We will be at around two.
Speaker Change: around 2 by the end of December of this year and again not take into account leasing expenses in the debt but take into account leasing expenses as an expense in the BDA so the way banks use it to calculate the covenant
Speaker Change: So around 2, today we are 2.9 and it will go down at around more or less 0.2 points per quarter more or less.
Speaker Change: I mean, and for, and for regulation.
Speaker Change: Regarding the number of professors or students per professor,
Speaker Change: This is not a requirement for the means of education.
Speaker Change: When the requirements were defined a few years ago, there was no indication, there was no requirement about having a minimum number, or maximum number, sorry, of professors, or sorry, maximum number of teachers, of students per professor, sorry.
Speaker Change: So what we have been doing is that we are quite, I'd say,
Speaker Change: with this issue. We have the academic
Speaker Change: agents, which are also tutors. So the regulation mentions academic agents, which are professors and tutors.
Speaker Change: And we have today more than 3,500 tutors throughout Brazil.
Speaker Change: So this is what is required.
Speaker Change: To have academic agents. There's no such requirement such as you cannot have more than X students per professor
Speaker Change: So otherwise we will not be complying a law. So how can I not comply a law if there's no law? There's no maximum ratio. So we're quite, I'd say, comfortable with that. And that's why we showed that...
Speaker Change: Anyway, when we see the CC, the Course Concepts...
Speaker Change: gives to every institution and to every course, in fact.
Speaker Change: That I'm putting here as well in the screen on page 12.
Speaker Change: 61% of our courts have a CC of 5 and 99% of our courts have a CC of 4 or 5, sorry.
Speaker Change: So this is just a illustration that, I mean...
Speaker Change: We are not very worried about it.
Speaker Change: That's very clear, Carlos. Thank you very much. Thank you, Caio. You too.
Speaker Change: We remind you that to ask questions, you must click on the Q&A icon at the bottom of the screen and write a question to join the queue.
Speaker Change: The next question is from Bruno Gebara, Tarpon.
Bruno Gebara: Bruno, we'll open your audio so you can
Bruno Gebara: Hi all, thanks for taking the question and congrats on the results. I have a specific question, I know it was not part of the discussion here, but it's related to CHURN. If there is any change in CHURN in 2024, and if you could give us some information on that. Thank you very much.
Speaker Change: Thank you Bruno for your question. Regarding churn and retention rates.
Speaker Change: That's an important issue.
Speaker Change: When you compare the fourth quarter of last year with the fourth quarter of
Speaker Change: There was a slight improvement in this ratio, in this rotation rate, both at Chatobar and Unia Selvi.
Speaker Change: And so this is, I think, the start of this recovery process. We had a deterioration of this deterioration rate in the last years, given the economic situation, etc., given also our growth. And now even...
Speaker Change: I mean, despite the fact that we are growing a lot and we had this important intake also last year, we managed to decrease slightly, but the trend is positive, the churn.
Speaker Change: So, and I mean, I mentioned the intake because
Speaker Change: Most of the churn is related to newcomers.
Speaker Change: To new students.
Speaker Change: So, we could have a very low churn, low overall average churn if we have no intake, for example.
Speaker Change: but we don't want it so we we have to have a balance between churn and intake and tickets for this three
Speaker Change: Three-piece equilibrium must be must be reached and I guess that now we are
Speaker Change: closer to reaching this balance.
Speaker Change: Thank you.
Carlos Henrique Boquimpani de Freitas: This Q&A session is now closed. I would like to turn the floor over to Mr. Freitas for the company's closing remarks.
Freitas: Thank you everybody for following us throughout last year and we are available for any further questions you may have over the next days.
Freitas: Thanks and good evening.
Carlos Henrique Boquimpani de Freitas: The videoconference of results referring to Vitru's fourth quarter and full year 2023 is closed. The Investor Relations Department is available to address further questions and concerns. Thank you so much to all participants and have a good evening.