Cogna Educacao SA
BOVESPA:COGN3
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Cogna Educacao SA
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Good morning ladies and gentlemen and thank you for waiting. Welcome to Cogna's earnings conference call for the first quarter 2023. We would like to remind you that this meeting is being recorded [Operator Instructions]
This event is also being broadcast live by a webcast and can be accessed at the address ri.cogna.com.br where you will also find the respective presentation. You will be responsible for changing the slides. You can replay the event right after it's closed. And you can also submit via the website questions for Cogna that will be answered right after the end of the conference.
Before proceeding, I would like to remind you that any statements that may be made during this conference call relative to the business outlook of Cogna projections. Operating and financial targets are based on the beliefs and premises of the management of the company, as well as on information currently available. Future considerations are not guarantees of performance, as they involve risks, uncertainties and premises, and they refer to future events that depend on circumstances that may or may not occur. Investors and analysts should understand the general conditions, industry conditions and other factors may affect Cogna's future results and leads to results that differ materially from those expressed in such forward-looking statements.
With this, I would like to turn it over to Mr. Roberto Valerio, Cogna's CEO who will start the presentation. You may proceed sir.
Good morning, everyone. Thank you for participating in today's conference call to discuss results we believe are excellent in the first quarter of 2023. With me today Frederico da Cunha Villa, our Finance VP; Guilherme Melega, Vasta CEO; Eduardo Honzak our IR and Corporate Finance Director.
This call will last approximately 1 hour; 40 minutes of our presentation and then a 20-minute Q&A session.
As I mentioned, we believe the first quarter has boasted excellent results. It is our best quarter in the last 4 years. We feel happy about the results and excited about the prospects for 2023. All our 3 business units have had a growing revenue.
Now specifically about Kroton. Kroton had an excellent quarter as I mentioned in 2022 and the market could actually see that Kroton had a growing EBITDA and growing profitability although the revenue was not yet growing in the first and second quarters, and I mentioned as soon as revenue began to grow, the results would be even better. And this first quarter is clearly showing that higher revenues have helped our results in EBITDA and also in cash generation. But specifically, I'd like to mention that Kroton's first quarter had a 15% growth in revenue sustained by a larger student base.
This is our fourth quarter of consecutive growth. A quarter when we've had recurring EBITDA growth 23%. We heard a question about expansion of margin. Well, we have delivered 2.5 percentage points in recurring EBITDA margin. I will give you more color on this, but even growth margin based on operating leverage has improved. All of that sustained by a strong growth. A 10% growth in our student base.
Last year we celebrated 1 million students. Well, now in this quarter we're celebrating 1.2 million students; 1,128,000 undergraduate and 75,000 graduate students, so 1.2 million students, and our intake is up 4.2% in volume for almost 3 years now. But it is important to grow revenue in the intake cycle because if revenue grows and we have a quality intake, we ensure growth in the future. So there's 15% growth in net revenue is showing that. Our student base is growing with quality that's why we have better results.
Now the great highlight, looking at each segment or each product, we delivered freshman ticket growth. I don't remember when companies and our industry have managed to do that. Well, we have delivered freshmen tickets increase which shows that we have an edge in the competition, and we see the possibility for the market to resume growth.
Now for graduate students. We have grown 27% in new enrollments and the student base is up 20%. Dropout rates remain under control. And we've had a reduction of 1.1 percentage points, which is great. And the ADA, which is our proxy for on time payments, so the allocation for doubtful accounts is down 11.3% compared to 13% last year of the net revenue, so we've been able to reduce the PDA over net revenue ratio. Now KrotonMed, one of our growth avenues for medical programs is growing 35% in revenue and 62% in recurring EBITDA.
Now Vasta also had great results, growing 17% in the cycle. I mean, if you add the last quarter and this quarter, this result is in line with our guidance. Vasta has delivered 65% of the ACV guidance for this year. So we have a great outlook for Vasta performance.
Now the subscription revenue has grown 17.7%, which is part of our strategy, growing in complementary solutions. We've grown 44% in complementary solutions in this quarter when compared to the same quarter last year. Now EBITDA -- recurring EBITDA, up 12.2%, great growth despite the pressure we've had a higher cost of paper and printing. And so we've also have a provision because there is a retailer in a judicial recovery process. We had to make a higher provision for the accounts receivable of this retailer, and you see that being reflected.
Now in terms of quality, we've had a large number of students approved in the best universities in Brazil at USP, we up 27%, 12% up for UNESP and up also in Unicamp. We are leaders in the [indiscernible] exam, showing the top quality of our products and the positive impact in the lives of our students.
Now looking at the future, we begin operations with a bilingual premium franchise with a good performance because we have included elements from Anglo, which is a very strong brand. And Melega will talk a little bit about that, the Anglo start, which opens up a new avenue for Vasta operations.
Second highlight, Vasta is now working with the public sector, providing our solutions. Obviously, this segment is much bigger, 5x more students than the private sector. So not only do we have a great performance in our core business, but we now have these 2 future possibilities that may have a good impact in the future.
Now talking about Cogna, because all business units are doing well, including Saber that had a great result in the first quarter. Cogna had net revenue growing 13%. Also recurring EBITDA up 12% for the eighth consecutive quarter showing consistency in all business units contributing positively. Our OCG post CapEx, up 27%, which is an increase of 5.8 percentage points in recurring EBITDA conversion.
Now in closing, talking about leverage, we've reduced our leverage. We're now at 2.03x over EBITDA and the covenants have a threshold of 3x. So we are in a comfortable position. All our initiatives of liability management together with the certainty of cash generation because of the very good results from our business units. We have we did a buyback for BRL 1 billion of our debt. This buyback has already been concluded with gains of BRL 10 million because we were able to buy back the low par showing our strengths and our confidence in terms of cash generation.
So as regards debt, this is an important topic. We follow this number weekly, but we feel very confident that this number is under control, and we do not have any points of attention for 2025.
With that, I will move on to Slide 5 to talk about our student intake cycle. So the volume of student intake is growing, but look at the average ticket in all segments. 100% on-site up. Premium Distance Learning also growing and 100% online, which is, of course, the most competitive segment remains stable, which is good news.
Let me go back to say that more important than growing volume, we want to grow revenue year after year. As we have growing revenue, and we've had that 15% higher revenue for Kroton, which proves our strategy is correct, and we've been able to pursue this strategy for the last 3 years.
Moving on to the next slide, talking about our student base, a 10% growth. I'd like to highlight we are growing on high on-site attendance and we are also growing in low on-site attendance. That is we're growing in all segments. You can see the dropout rate is down, especially in high on-site attendance. When you look at low on-site attendance, there is pressure because as we have a large number of freshmen that has an impact on the dropout rate. Let me highlight this is the seventh quarter in a row when we've had student base growth. Last year, we celebrated 1 million students. Now we are celebrating 1.2 million students if we add graduate students, 7 consecutive quarters of growth. So it will lead us to more revenue growth. The new students have a higher average ticket. So we feel confident these are top quality students. We have a number of gateways, the students have to pay their bills. They have to sign their contracts, they have to show continuity before they are recognized as a student. So we feel confident that there will be growth in the near future.
Now Slide 7, I have spoken about the 15% growth of our net revenue year-on-year. And this is because we are growing in student intake, we are growing in re-enrollments and we have greater efficient in discounts. So the credit quality of our students has improved. We are a bit harder in the renegotiations to improve the quality of our student base. But look at the start showing the evolution of the net revenue in the first -- beginning in the first quarter of 2021 until now, until Q1 '23. There is a steady growth as we mentioned in the past. And talking about the second quarter of 2023, it's coming on strong. We believe we will have a double-digit growth again for the fourth consecutive quarter.
Now Slide 8 is really interesting, I'd like to dedicate some time to it. If you remember, as we closed last year in the fourth quarter, we received a few questions about opportunities. I mean, where Kroton improved its results further. And we mentioned we could improve gross margin, which is a result of operating leverage. So that fixed cost versus revenue of 100% online students for every BRL 100 additional in revenue, we add very few reals in costs.
So look at the gross revenue, 2 percentage points up on digital, on medical programs. Corporate expanse, we've been able to reduce as proportion as a ratio of net revenue, higher operating expenses, of course, because we have more on-site activities, more marketing investments, basically related to the strategy of consolidating our brands in Anhanguera. So consolidating in a single brand makes sense for us to invest more in marketing. And we already had a very positive ratio. We thought we had room to increase marketing expenses, and this is what you see on the chart.
We also spoke about this opportunity to improve our provision for doubtful accounts because of higher efficiency, reduction of default rate and [indiscernible]. So all these 3 lines, I mean, especially these 2 lines, total cost, gross margin and PDA as a ratio of net revenue, we mentioned these were the greatest opportunities. And now we can show we have delivered these results. This process, we believe, will continue, and the results so far has been a 2.5 percentage point gross margin gain, which we believe is an excellent result.
Now Slide 9, as a result of all of these factors, EBITDA up 23%, and the margin is no longer 33.9%. It is now 36.4% as a result of the aspects I've mentioned.
On Slide 10, you always asked about campus productivity. Well, this chart is an answer to this question. It's showing our productivity between the first quarter of 2020 and now the first quarter of 2023 for high attendance students, that is the students that really use our classrooms, our laboratories. We had 1,949 students per campus, and to date, 2,402, so a 23% productivity gain. This is because we've had a 10% growth in student base, but also because we shut down a few hubs. We used to have 176 hubs, today 102 hubs, and that has helped us improve our productivity.
Rental costs are relevant for us. So we are paying close attention to our rental contracts. Whenever we have an opportunity to renegotiate the rental or make a change and streamline our campuses to improve results. Of course, it does not impact EBITDA because of IFRS 16, but it is part of our strategy to continue to review the cost of campus operations.
Now Slide 11, talking about the average collection period or ACP. This is a reflective default. Our default rates are improving. So the average collection per is coming down. It was 72 days in the first quarter of 2021. And now in the first quarter of 2023 its 45 days, and the coverage ratio remains steady as you can see.
Now moving on to Slide 12, KrotonMed. The highlights here, we've had a great result from KrotonMed up 35% revenue, up 62% EBITDA. We've had margin gains. And we have already mentioned that after we had the spin-off of Kroton operation as we now have the KrotonMed we can have a different view, a dedicated team, and we mentioned that we would find opportunities to gain efficiency. And this is the result. Now you have efficiency in the negotiation of reenrollments. Of course, these students have a high purchasing power and their commercial conditions was more similar to the average of Kroton. So now we are tapping this opportunity for our medical seats.
We still have the Ponta Pora unit, which will start operations in 2024 in addition to the fact that we've been able to pass on the inflation rate to both freshmen as well as students. So when you can do that, I mean, not only in medical programs, but we've been able to do that in other health care programs.
We've had a one-off effect of FIES contracts because it was in the fourth quarter of 2022, and it was finally posted now, but it's not relevant to the point of making a difference. I mean the operating result has created this higher margin and higher EBITDA.
Now let me give the floor to Guilherme Melega, Vasta's CEO, to talk about Vasta results.
Thank you very much, Roberto. Good morning to all. I would like to start with Slide 14 to discuss Vasta's revenue. In the first quarter we had BRL 403 million with an increase of 16.6%. And we would like to focus on the fourth quarter plus the first quarter because this better reflects our performance. So in cumulated figures, we reached growth of 16.6%.
Now decomposing this number, the total of subscription was BRL 801 million, a growth of 17%. With this, the result of subscription reached BRL 703 million, up 28%, which is the focus of our strategy. And in the subscription products, the highlight goes to complementary products, which as Roberto mentioned, grew 44%, and they are central to our growth strategy.
Now moving on to Slide 15. We'll give you an overview of our costs and expenses at Vasta. Also considering the cycle, there was an increase of 19.1% in costs and expenses, driven by SG&A that grew 20% because of the price increases in paper and printing. I think it's important to highlight as well the provision for doubtful accounts plus equity that grew 2.5%. And the justification for that is that there was PDA that was extraordinary because of the judicial recovery of a large retailer and also our investment in the equity in [indiscernible] that didn't exist before. So the combination of these 2 factors explain our growth. But we had productivity in operating expenses, corporate expenses and also expenses with marketing and sales. There, the concentration will start from Q2 to Q4.
Going to Slide 16. In EBITDA, we reached a total in the cycle of BRL 323 million, 12.2%, up in the comparison with the previous cycle. And even with the impact of costs in paper and printing, our EBITDA continues to grow, thanks to the recovery of our business after COVID.
Now I would like to make some highlights of our operations. This year, we started off with 2 major growth projects. One of them is start Anglo that we are now announcing at Bett. It's our franchise of bilingual schools with management systems and also marketing systems with support for enrollments and financial management. It's a full stop solution for the business entrepreneurs in the area of high performance bilingualism in association with the Anglo brand.
And then we have our return to the public sector. As you know, this area has 5x as many students as the private sector and Vasta could not afford to be away from this market with our current portfolio, so we segmented this market and identified BRL 1.9 billion of addressable market, and this will be our focus in the first 3 years of operations, and operations that is already in go-to-market phase and that we see in a very positive light. So for the rest of the year, we continue to be very optimistic with the performance we had in 2023 and with the building of the commercial cycle and the prospects for growth in 2024.
With this, I close Vasta's presentation, and I turn it over to Frederico da Cunha Villa, who will give you the results on Saber.
Good morning, everyone. I'll start speaking about Saber in a brief presentation, we are now on Slide 18. Just to remind everyone, Saber comprehends the national textbook program by Red Balloon, SETs and other initiatives.
So we start on Slide 18. Net revenue grew 31% with good performance in all Saber's operations, and we were able to capture in the first quarter also the larger part of the purchasing cycle in the national textbook program, which is making us feel optimistic for the next quarters. In terms of recurring EBITDA, Saber grew 7.3% due to the increase in net revenue, which offset the decrease in the recurring EBITDA margin because there was a very strong increase in paper and printing costs amounting to 26% approximately.
So to close, well, we now move on to Cogna as Roberto mentioned before when he -- also Melega explained first, and I spoke about Saber, our 3 units grew. So in Vasta grew 5.1%, Saber 31%, and Kroton 14.9% in growth. So all of these units when summed lead to growth in Cogna of 13% and of recurring EBITDA growth of 12.6%. The growth, as we said before, growth of revenue and also operating efficiencies in our business units make this effect very positive for Cogna.
Advancing to Slide 21, we turn to leverage and indebtedness. This is a very important topic for the organization. And what we want to demonstrate to you is that leverage has been constant in the last 4 quarters. In this quarter, we are down to 2.03x considering that our covenant is at 3x. So we were able to reduce net debt in 0.5% or BRL 17 million. And additionally, we are reducing the average cost of new intake and funding. So this is a very important matter, and it's only a matter of concern because the rate -- interest rate is Selic, which is high. But if you look to the curve, you see that it's slanting downwards as of the fourth quarter Okay.
Now turning to Slide 22. The strong revenue generation and also improvements in gross margin and EBITDA lead to post-CapEx operating cash generation of 27.4% in 1Q '23, reaching BRL 227 million, with conversion of recurring EBITDA into OCG of 50.2%. So this growth reflects operating leverage and revenue quality gains at Kroton. And in Saber also, this reflects the longer purchasing cycle, we were able to capture.
Moving on to the final part of my presentation, still speaking about cash and indebtedness. In the first quarter, we raised BRL 500 million. We amortized approximately BRL 1.4 billion. So we repurchased the principal and paid off the interest of this debt that we wouldn't pay this quarter, but we moved this payment forward. And we also have gains of approximately BRL 10 million in the quarter.
In an incentive line, we've raised BRL 85 million at an average cost of 63% of the interbank interest rate. So the combination of all of these actions and with our robust cash generation, we were able to meet our financial requirements for 2023, and there is no more need for raising more funding.
Now speaking of net cash generation that was negative at BRL 625 million. It's important to say that here we have amortizations. I had repurchase of BRL 1 million in addition to some payments of acquisitions and stock repurchase. All this impact -- had an impact in net cash, but we're still very excited, and this is an affair that's being handled by the financial department together with the senior management of the company.
With this, I turn it over back to Roberto Valerio for his final remarks. Thank you.
Thank you very much, Fred. So now on Slide 24, final considerations, general messages, Kroton continues to make significant progress, both in intake, average tickets, and this is reflected also in the increase of our student base. We are very optimistic in relation the cycle that's starting now because we consolidated some brands in Anhanguera and by analyzing Google searches, we see that there is higher interest and more desirability associated with in enrollments in our brands. And Anhanguera is up in the search is 37%. So we are now starting the second cycle with a very well aligned strategy, concentration in a single brand, more investment in marketing, which is giving us more traction. And this is just the start of the funnel. We are now creating needs and they're going to go into our funnel of conversion.
Just to explain why we are feeling more optimistic about the cycle and Kroton's results. We have mentioned that there are opportunities for improvement in margins and profitability. We continue to believe that primary margins can improve, thanks to operating leverage as we have a wider base of online and part-time on-campus courses, this will -- this will improve. We also have opportunities for efficiency gains in our own operations. So actually, this creates in us the trusted recurring EBITDA will continue to be positive as it is now.
As for cash generation, I think that the streamlining of the campus portfolios help us also reduce maintenance CapEx. We have long-term agreements. And as the lease agreements expire, we'll try to capture these savings because leases are a significant expense. So finally, just to close my remarks about Kroton. The first 6 months of an operation are determinant for the result of the year. So we have had a good 6 months, and we are feeling optimistic about the future.
Now in relation to Vasta, considering the products we continue to grow, as Melega mentioned, but we're also feeling excited at the start of the cycle with the launch of the bilingual franchise that has a longer maturity cycle because, of course, we have to convert and make the franchise agreements and the government, of course -- we have, with the government, we believe that the results will come in sooner. We believe that paper and printing costs, while the increase is something that is just a circumstance after COVID, but even with this pressure, we were able to keep our margins healthy and improve our results. So we are having the Bett Brazil trade fair, which is the most important one K-12 education. We were there showcasing our products, massively and the reactions of our customer base was very positive.
And as a consequence of that Cogna, we are very optimistic about the fact that both Kroton and Vasta are going well. And also because Saber has the bulk of its results concentrated on the first quarter because of the national textbook program. And we know that there will be large repurchase operations this year. And this gives us the confidence that the results for Saber will be highly positive. And by the way, all of the business is comprised by Saber Red Balloon and SETs, et cetera, they are smaller operations, but we see this segment as very positive. And since we operate in different segments, we can be this -- that's the one thing we believe that 2023 is going to be a good year for us. Thank you. We're now looking over for questions.
[Operator Instructions] Our first question is from Marcelo Santos, JPMorgan.
I have 2 questions. The first is about Kroton gross margin. You have mentioned and you have delivered results, and you have spoken about a larger 100% online student base. Can you compare the margins between 100% online student and 100% on-site student so that we can play with these numbers and understand what would happen if you have more online students or more on-site students? Also, you've mentioned an improved competitive environment. Could you give us some more color on that, talking about high on-site and low on-site attendance, please?
Thank you, Marcelo, for your questions. Yes, I will try to give you a summary on gross margin. This is not really so simple, but the basic concept is operating leverage. So 1, distance-learning student with an average ticket of BRL 200. When I add that student to my student base, my variable cost will not be -- will not grow significantly. Why? Well, because the administrative services are there, they are automated. I don't need additional content. I don't need additional professors because the classes have already been recorded. So the only cost is technology and cloud.
And then well, tutoring. But tutor or assistant professors and it's a very low cost for each additional 100% online students. So the leverage is very good because this is a digital business. So new students that have a higher average ticket it means that the merchant delta is even more favorable. So that is why we have such bright prospects. And for 100% on-site, you add more students. And there is a limit because you cannot have more than 50 or, say, 60 students per classroom. If you have more students, then you need more cleaning, more professors, more security on campus. I mean, so the operating leverage is much higher for digital programs than for high on-site attendance programs.
So you can continue this conversation with the IR team. But conceptually, this is the difference. And we have been talking about this. We believe in this, and that's why we want to grow revenue not only student base, but because we can have more revenue and keep approximately the same cost. This will help our results.
The second question about the competitive environment, there are some positive effects. If you look in time, all of us in this industry, we have seen that price war may bring some volumes in the short term, but in the long term, it's not going to help grow revenue. So it's not going to help have healthy results. In markets where you have a large number of players, it takes a while for all players to understand that. But I believe that companies in our industry are now more aware, the price elasticity does not really make any more effect. I mean, even if you lower prices, you will not have a much higher volume.
So then, well, companies stop reducing prices when they see that it's not helping volume. So, I believe this would be the overall picture.
We see more competition in 100% online in other segments. You have the impact of your brand of the quality of your campus. So there are other drivers, not only price. However, yes, I do see our market is more -- is acting smarter. Now to provide some more concrete information about your first question, also as general information, EBITDA margin in 100% on site 120%. And for Distance Learning, it twice higher, it's twice as much. So as I mentioned, you can continue this conversation with our IR team.
Now this gap is basically gross margin, right? I mean, what you explained is about gross margin, if I understood you well.
Yes, it's more related to gross margin.
Our next question comes from Lucas Nagano from Morgan Stanley.
I have 2 questions on our side. The first is about this quarter. I mean, although Kroton has a very good position. It seems like the intake growth is not as fast, especially when you look at 100% online. Is that because of market conditions, are you facing stronger competition in low on-campus attendance? And my second question would be about your ADA in this quarter. It is, of course, the result of the initiatives you mentioned. But for 2023, do you plan to keep the same value, the same number?
Well, I think I can answer these 2 questions about ADA or PDA, yes. We believe it will continue to fall.
Why?
Well, if you look at our on-time payment, you can see that we have improved our on-time payment, making some adjustments, improving our own operation. So -- but if macro conditions improve in the second half of the year then yes, then I believe we can keep the PDA as a percentage of revenue down. And -- but we usually have an improvement in on-time payments, and then we can improve PDA. So that's why we feel confident today. About your first question, volume, student intake and -- Lucas, I apologize, but about distance learning student intake, of course, growing 15% or 20% in an operation of our size. I mean, it is a large number, if you look at it in absolute terms.
However, it's important to understand that we want to grow revenue. Volume, I mean, if we don't grow volume, we are looking at revenue. We want to have a higher revenue and higher gross margin. I know it may sound simplistic, but our decision-making process, I mean, if you look at volume and improve average ticket, we always look at having a balance. So we test markets, we test offerings, and as for me, my personal opinion because I'm always looking at the numbers of Google interest for Anhanguera, for example. And I always look at the implementations we make process improvement, CRM initiatives to improve our conversion rate.
I mean, in addition to the growth of a few channels, our channel of affiliates, third-party sales force, they sell especially 100% online programs. And I believe that in the second cycle, our growth will be higher in 100% online programs. I believe we'll have a better result in the next quarters. I view this segment as a growth potential because of some adjustments we're making.
The next question is from Marcio Osako from Bradesco BBI.
I have 3 questions, please, about the ticket. Could you please clarify for freshman if we exclude the effect of the mix, especially in on-campus, where does -- were there an increase in relation to the past? And what can you tell us about the freshman average ticket last year. Now I would like you to say few words about default and collection of PEP and PMT. You said out-of-pocket is going well. But can you give us also some color on how punctually the payments are for those students on financing plans, PMT, for example.
Also, dropout, distance Learning has been growing fast in intake, but at the same time, we've seen an increase in dropout rates. It's actually higher than in on-campus. So how much of that volume will return in the future? Just to try to understand how sustainable [ DL ] actually is. These are the questions.
Marcio, thank you very much. I'll take in, Fred will answer on on-time payments and PMT. Well, in relation to the average ticket last year for Freshman -- on Slide 5, we showed this effect. For example, if you look at on-campus that was your question, the volume of student dropped, but revenue didn't fall as sharply, which means that the ticket is growing. This decrease was expected because we are reducing the number of units, and we are also reducing our offerings of on-campus programs.
Does it mean that we're leaving opportunities on the table? No because these students that would enroll in on-campus programs are now taking high online content programs. So I wouldn't say that the mix is as concentrated as in the past, we have been focusing on programs with high LTV for at least 2 years. So when we make the comparison between the mix, '23, '22, you see that there's a concentration in high added value programs such as dentistry and medical, but the mix didn't change. So it's actually coming from the ticket increase and also premium DL volume grew 15% and revenue growth 10%. Those are the traditional nursing engineering programs that need landed we have the same mix, there is no difference in mix. There are no relevant program launches between the second quarter '22 and '23. So it really reflects the improvement in tickets. And the effect, of course, is the same. In terms of mix in the segments, the -- they're very similar between '22 and '23.
Now to speak about dropouts, I think that's the most important indicator for that, we can look at it from different angles, but there is no better indicator than growth in your base of students. What's the point of having high intake cycles and the base doesn't grow. So we can see, of course, that there is a natural level of dropout rates because there is a very high volume, especially in 100% deal. But it shows growth. I think that the question is, is this an every process, the student enrolls and then he drops out and he abandoned in the next cycle. No, they don't abandon the segment. Many of them end up returning a large fare of the students, especially the older ones that are enrolled in, especially in digital, are students that have enrolled in the past, but that didn't complete even the 6 months of study. So there's this concept of win back. We are students that we can recover.
And since had a high dropout rates in the first semester means that they did even conclude 6 months of study.
Okay. So now I'll turn it over to Fred.
Hello Marcio, thanks for your question on on-time payments and default. Just to remind you, PEP does not exist anymore. And even PMT was a product that we made adjustments to before only after graduation students have to pay. But this is now a program that is paid off or students along the program. So this means that my -- the default rates for out-of-packet and PMT are connected because they paid the enrollment in PMT. So if it's an on-time payment student in out-of-pocket would be an on-time student also on-time payment student on PMT. In fact, we see also default rates improving. It's just a slight improvement right now because we don't have a solid base of payments. Payments are being made, but I think that for both default rates are positive. I mean this will reflect in our cash and there's also reflection on PDA or provision for doubtful accounts, we're feeling very comfortable about our provision for doubtful accounts. The best metric is PDA over net revenue. And this is what ensures us that will have cash and the sufficient coverage.
And looking to the future, our PDA will remain very close to what we saw in the first 6 months with a small improvement.
Okay, we saw the slight improvement that Fred was talking about. There's a team that tracks only PEP students and uses some scripts for communicating with them. We also have an app containing information, so that we can have a closer relationship with the students. So in fact, it's a number of initiatives that are really oriented to the individual students.
Just to clarify, in terms of the ticket on the table, Slide 5, medical programs are not included, right?
Marcio, yes. It includes medical programs and on-campus, and it's the same basis.
Our next question is from Mauricio Cepeda from Credit Suisse.
I have 2 questions. Firstly, could you give us an update the industry has been discussing FIES? What is the current status of discussions, what has been proposed? So secondly, could you please explain or give us more indications of the drivers -- qualitative drivers in the industry?
So everybody is reporting solid intakes. But at the same time, we see that the economy is not really -- I think it's moving sideways.
So what do you think has led to the improved intake cycles? Do you believe that the economic factors could lead to higher dropout rate along the year or could it interfere in the intake cycle for next semester, so how can you explain this improvement in the industry.
Hello, Mauricio, I'll take these questions. Well, yes, we don't have any additional information. All we know is what is being reported by the media. We have a team in Brazil trying to support us in this process. But there is also a working group, working on it and a number of suggestions that were made by the industry to the Ministry of Education and what we believe is that very soon, they will give us some feedback on them. But I really have no additional information besides what's in the public domain.
About the positive outlook for all companies with stronger intake cycles. What I can say is that if everybody is getting better or doing better it means that there are better trends in macro trends. So I think that in the medium and long term, the trend is positive. I don't think that the macroeconomic factors would deteriorate and probably as interest rates go down, will benefit even further. So overall, I think that the scenario is positive, but I also believe that companies are all seeking greater efficiencies, everybody is relying more and more on technology. So it's only natural that more opportunities are captured in the market. And let's remember that there are 32 million Brazilians without postsecondary education, and they don't wake up one morning and go look for a school. So all players are trying to create interest. So I think it's a mix of the 2. It's a positive scenario on one side. And on the other side, the company is being more efficient.
Our next question comes from Lucca Marquezini from Itau BBA.
About high on-site attendance programs. We can see you have shut down a few campuses. Now are we still going to see that? Are you still going to close 4 units in 2023? And what do you expect in terms of student base in this segment?
Lucca, thank you for the question. No, we do not have any expectations or any plans of closing down units in 2023. The number of units and campuses will have today is considered correct. But of course, we're always looking at our rental contracts and we may have, we may see changes of address or something like that, but it's not in our plan.
Now about 100% on-site programs, we see a higher interest. Also hybrid programs have had an improvement. So we will still feel some pressure on high on-site attendance. Maybe if we have good news on FIES, we will have improvements faster.
Our next question comes from Yan Cesquim from BTG Pactual.
Fred, the whole team. We have 2 questions on our side. They're very specific. The first question would be more directed to Fred. Looking at your financial expenses this quarter, the contingency update was lower than in the last quarters. In the last quarter, you had expense of BRL 30 million - BRL 40 million, and this semester only -- this quarter, sorry, only BRL 1 million. I'd like to understand a bit more about contingency. What happened with this line?
And my second question is about the national textbook program for this year. Most of the deliveries usually happen in the second half of the year. But do you have any information about numbers? What do you expect in terms of deliveries in this program this year?
This is Fred. Thank you for the question. About financial expenses and contingencies. Yes, we had a few reversals, some million, some tens of millions in contingency, we've been able to reverse them because these -- they prescribed, they expired. And so these amounts would not be updated. In the next quarters, this number will come down because the principal amount is coming down. This is, of course, a percentage of the base, and so it will possibly be reduced in the next quarters, unless we have new contingencies. But now in the first quarter and looking at the future, we don't see any indications that might happen.
The second question, I think, Roberto will answer.
Yes, I can answer that. Yan, about the national text program. This year, there are 2 programs. Both for K12 for the first cycle and the second cycle. That is why we believe the revenue will be higher as well as the EBITDA. Now to provide numbers, I think you can talk to our IR team. The easiest way to project that is to look at the magnitude of the program in previous years, looking at the number of students and average ticket. And then use our take rate or our market share of the overall program. And so come and talk to the IR team.
As I cannot provide a guidance, I cannot really provide a number, but we can help you build your number.
[Operator Instructions] Our next question is from Lucas Nagano, Morgan Stanley.
Just one more question, if I may. It's about KrotonMed. Last year, there was a [indiscernible], and I would like to know about the strategy for the unit. What are the prospects for expansion this year and in coming years?
Lucas, thank you for your question. Well, we have a positive outlook in terms of operations. We have opportunities for operating efficiency improvements also in NPS. This will drive, of course, some opportunities in synergies of content and between units. So there are opportunities. As for our maturity of opening still, there are many openings yet that are still maturing. We are also building the [indiscernible] units that will be ready in early 2024. So it's a very positive outlook. Now going into the details, this continues to be a growth avenue for us.
So with this, we close now our Q&A. I will turn the floor over now to Mr. Roberto Valerio for his final remarks.
I would like to thank all who listened in. We are feeling very satisfied with the results of the first quarter. And we believe that the prospects for the year are also very encouraging. And please know that our IR team can support you if you have any other questions or comments please make sure you get in touch. Have a great day. Thank you.
Cogna conference call is now closed. We thank you all for participating, and we wish you a great day. Thank you for using Chorus Call.