Cogna Educacao SA
BOVESPA:COGN3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.23
3.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Cogna Educacao SA
You don't have any saved screeners yet
Everyone, thank you for waiting. Welcome to Cogna Educação's Second Quarter 2023 Earnings Conference Call. We'd like to inform you that the call is being recorded. [Operator Instructions] This call is streamed live via webcast and may be accessed on ir.cogna.com.br, where you will also find the presentation available for download. The event replay will be available after closing the call. [Operator Instructions]
Now before proceeding, let me mention that forward-looking statements that may be made during this call relative to Cogna's business perspectives, projections, operating and financial goals are based on the beliefs and assumptions of Cogna management and on information currently available to the company. They involve risks, and there are no guarantee of performance. They involve risks, uncertainties, and assumptions therefore, they dependent circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions, and other operating factors may also affect Cogna's future results and may cause results to differ materially from those expressed in such forward-looking statements.
Now let me turn the conference over to Cogna's CEO, Mr. Roberto Valerio, who will begin the presentation. Mr. Valerio, you may begin the conference.
Good morning, everyone. Thank you for joining us in this call to discuss our results in the second quarter of '23. With me today, Frederico Villa, our Finance VP; Guilherme Melega, Vasta CEO; and [indiscernible], our IFO and IRO. This call will last approximately 60 minutes. We'll have 40 minutes of a company presentation and then 20 minutes for a Q&A session. I'd like to begin our management is extremely happy with the results, not only because of the numbers delivered in this first semester, but because of the consistency of results. Ever since we had our restructuring that we began in 2020.
In this quarter, specifically, our growth in revenue, EBITDA and cash generation are very clear and driven by all 3 business units: Kroton, Vasta and Saber. All 3 business units are growing revenue, EBITDA, and cash generation. We are growing steadily. We have business consistency and all 3 business units are driving Cogna’s robust results.
On Slide 3, we have a few highlights of operations beginning from Kroton net revenue reached 1,800 million in the first semester of 2023, which means a 13.1% growth versus last year. This is the fourth semester in a row that we're growing net revenue double-digit. So we have to be happy as we look at these results and very optimistic as we look into the future.
Of course, new has been trusted by a number of indicators. Our student base is growing almost 6%, 5.8% in this semester. It's the eighth consecutive quarter of growth, and we're growing on both segments of students. High on-site tenders as well as low on-site attendance. The average ticket is also growing as we look at all 4 categories, on-site attendance premium on distance premium and distance learning. They're all growing. We're going to talk about at later on. So as we have a higher ticket and a favor a larger student base, of course, we are growing. I'd like to talk about the high on-site attendance average ticket growing 10%.
So we are focusing on high lifetime value programs such as law and medical and a few others. Now the third thing is about operating leverage at Kroton. We are also improving. We've improved 3 percentage points on the gross margin this quarter. We spoke about that on Cogna Day last December. This is the result of having a focus on hybrid and digital programs. So our cost is more fixed than variable. So most of the revenue growth translates into a higher gross margin. It's very clear this quarter, also in previous quarters, quarters, we had an improvement, but now 3 percentage points of gross margin increase.
Now recurring EBITDA reached BRL 689.9 million, a 15% growth versus the first half of 2022. And if we compare the quarter is, again, more than 10% growth. So after I'm going to talk a bit more about specific lines such as BDA, marketing, general expenses, but it's important to say that our strategies, specifically thinking about marketing, I mean, I've spoken about that 3 quarters ago that we would resume investment. Although we have increased our margin expenses, the EBITDA margin remains stable. The other highlight is the PDA to net revenue rate. We have made our credit was to grow revenue, but revenue with quality. So bringing out-of-pocket students that have a lower default risk, and we have improved our PDA to net revenue ratio reducing from 13% down to 11.2%. So we are gaining margin here, too.
As we look at expenses, we've had higher expenses in marketing compared to previous quarters. We've spoken about our strategy to consolidate [ Divaritagoras ] in a single national brand, which is Anhanguera. We are paying for the transition cost. But now we will improve Anhanguera awareness, so it becomes a reference. And so in the next quarters, we will continue to invest in marketing to strengthen this brand. Now Kroton.
Great. Increase in net revenue in crop and Med more than 27% and recurring EBITDA growing more than 50% in the second Q of '23. In faster, we're also very happy with the results. We've had a growth of more than 20%, actually 22% in the 2023 cycle compared to 2022. We've reached 82.3% of the ACV guidance for the year, and we still have a quarter ahead of us. So we are in line with our guidance. And the highlight, as we've seen in previous quarters, we've had an important growth in subscription revenue, which is recurring revenue, growing 18%. In this quarter, and we want to highlight also complementary solutions that have grown by 45% this quarter, which is very relevant. It shows we have a great capacity to penetrate in these programs. solutions, strategic English, social, emotional programs, robotics. So we're very optimistic on this front.
Recurring EBITDA grew 22% comparing both cycles. And an important highlight is new business, a new business line in Vasta, we spoke about that in the last quarter. We closed 2 deals for Vasta. So the franchise of [ Englert ], which is bilingual performance franchise, we will begin to harvest results a little bit further on with the franchise schools and another business line that has brought BRL 40 million revenue this quarter, our educational solutions B2G for state and city governments. Let me mention Melega is going to talk more about this. But I wanted to highlight that Vasta and Saber, they have complementary products because Saber has a broad commercial team that sells the national book and text program.
They have access to city and state governments and government on schools. So -- and this is a broad presence that we have. Now Vasta focuses more on state and large city governments, providing customized solutions that is we have 2 different approaches. And the portfolios are complementary, which we believe is very good because we are making the most of Cogna capacity to grow B2G in both Saber and Vasta. Now Cogna, the results in the second quarter 2023 have been very positive. It's the ninth consecutive quarter of strong recurring EBITDA, net revenue growing 20%. And 16% in the quarter. Same thing about recurring EBITDA growing 20% in the quarter. We always say that our priority here is operating cash generation. It has grown 52% year-on-year.
So that's a relevant improvement in terms of EBITDA conversion into cash, 8.4 percentage points. Adjusted net profit this quarter totaled BRL 11 million, 13% higher than in the second quarter of 2022. We continue to work so that we can grow more in net income, which, together with cash generation, these are our 2 main goals. The next highlight is about our leverage. It has been reduced further. We're now at 1.98x EBITDA, which is our lowest leverage since the first Q of 2020, we said we were confident in the company's cash generation that we would continue to reduce leverage, and we remain optimistic as we look at our cash generation, so we'll continue to reduce leverage.
Our team continues focused on liability management. We were the first to use FINEP financing, as we announced in the last quarter. And now Cogna, again, is the first in the education industry to issue ESG labeled debentures with a social bias. This is a 500 million debt at CDI plus 1.9%, which improves the cost of our funding and the term is 24 months. Let me reinforce that for the company, we still want to further reduce leverage. Now on Slide 5, I think I have spoken about our student base growth, growing 5.8% and its balanced growth, looking at high on-site attendance and low on-site attendance, high on-site growing a bit more, and low on-site attendance growing 5.1%.
This is consistent growth percentage refreshment is growing in the student base. So that is good to reduce dropout. We are very rigorous in terms of dropout. When we see the student is not engaged, we recognize that as a dropout. And so we no longer include that revenue stream. So that helps us have a very engaged student base. What you do not see in these numbers, I'd like to talk about post-graduate programs, very consistent results. We're growing double digit in the last few quarters. And here, again, we grew 20%. The student base in post-graduate in the second quarter 2023. The numbers are not here. Here, it's only undergraduate. Now if we move on to Slide 6.
Average ticket also on-site attendance growing 9%, 100% digital going up 6.8%. When you look at the overall mix, I mean, the first chart that talks about high on-site attendance, the average ticket is down 0.6%. It's influenced by the mix because we have students on high on-site attendance who are more on premium programs. So premium programs influence the average ticket, bringing that down. But if you compare premium to premium, there is a slight drop of 4%. And the question is why? We have 3 segments going up and only the premium segment is coming down. The explanation is easy. Premium that is basically engineering programs and health care programs, there are a number of new schools on physiotherapies and nursing so many new schools, and they are entering the market with very low prices.
We are using all our intelligence. We have to modulate our pricing, not to lose market share, but we feel pressure on the premium segment. Now the highlights, although this market is very competitive, we are growing the average ticket on low on-site attendance by 6%. And if you look at the number of students, we're growing 4.8%. So now we have this growth of 10.7%. So we're always talking about our strategy is to grow revenue. On this chart, you can see very clearly, we're growing revenue by BRL 650 million, up to BRL 719 million. This is low on-site attendance. As you know, most of the cost is fixed. And it's low cost if you want to add more students.
So the revenue growth translates into EBITDA. And that's what you see in our gross margin. Now if you look at high on-site attendance, the average ticket is stable, but the number of students is growing. So this revenue growth is very positive. It means we have more students in every class. And so we did -- our team did very good work on average ticket. This result shows consistent work, not only this quarter but in previous quarters as well. Now looking at Slide 7, revenue. I think I have spoken about what is driving revenue, almost 12% growth in this quarter, 13% growth in the semester ticket going up.
Of course, we have a higher net revenue. But we always want to show you the evolution of our net revenue quarter-by-quarter. So you can see this is the fourth quarter of double-digit net revenue growth, showing the quality of our work. on Slide 8, showing how we've gained efficiency and where we are investing more on the right-hand side, you can see total cost as a percentage of net revenue came down from 22% to 18%. It's a 3 percentage points improvement, which is operating efficiency, operating leverage. And this is a mix of hybrid and 100% digital programs. Now corporate expense, relatively stable, down 0.3 percentage points. Operating expenses have had an impact, some items. First, the collective bargaining agreement of employees that was concentrated here and also the new long-term incentive program for executives approximately 75 people who are now our shareholders and that this was a program that was approved in the China shareholders' agreement, and it continues up to 2027.
Now the highlight here will be marketing expenses. We have said in previous quarters that we were going to resume marketing investment because efficiency was improving. We already have some of the best numbers on the market. And with that, as we have centralized these brands under National anger wind, we invested in marketing to make Anhanguera brand even more relevant. So that's why we decided to invest in marketing. We said we were going to do that. It was already our plan. Now it's important to say, we are using marketing expenses enough to build our future so that we have future growth, but without compromising our margins. If you look at EDA, it's also improved by 2 percentage points, and we kept a stable margin.
The conclusion is that the management of the company is piloting this on fine-tuning. We see we are gaining margin in direct cost in PDA. We are trying to use that to invest in marketing expenses because that is building our future. So we are investing more in marketing, but we're not losing EBITDA margin. It has remained stable, a little bit better in this semester. Well, just a bit lower in this quarter, we've capped it stable. So this is what I wanted to highlight. On Slide 9, that is our average collection period comparing the second quarter of '22 to the second quarter of '23. We've reduced by 7 days the average collection period, growing in student base, but we are improving our receivables and the average collection period.
Although we know the overall scenario is very challenging. But we keep accounts receivable quite healthy. You can see the coverage ratio is well-balanced, and we feel happy about what we have achieved as we look into the future, we're also very optimistic on this line. Moving on to Slide 10. I think it is a result of everything I have said almost 10% growth in recurring EBITDA in this quarter, 15% EBITDA growth in the first half of the year.
As we look into the future, we believe that Kroton has all the necessary tools to continue to show these very strong results. If we move on to Slide 11, that's something we always like to talk about. This is a question we often hear from you. It is about the productivity of our campuses. As you know, we've restructured our campuses. In this quarter, we did not shut down any campus. We remain with the same number of 112 units, but we are being able to use our spaces better, and we're increasing productivity.
That is the number of students per campus, if we look -- I mean, from the beginning of the restructuring process, we've improved our productivity by 22%. When you reduce the number of campuses, obviously, you also reduce expenses with rental and other expenses. So it does not really impact EBITDA, but it impacts our cash. That is why we're also improving cash generation.
If we move on to Slide 12, KrotonMed, we said KrotonMed would be an avenue for growth together with digital programs and our Vasta platform strategy. Kroton Med had a very important revenue growth, 27.7% this quarter, more than 30% in the semester. And this growth comes from the maturing of our medical programs, especially in Bacabal, Eunápolis and Codó.
We have already built and it's ready. We will receive the visit of the government authority to approve on Ponta Pora unit. So we believe in 2024, we will already begin operations in Ponta Pora, which will help us improve the revenue. The average ticket in this segment, as you know, we can always transfer the inflation to freshman and senior students and specifically about Kroton Med, the medical programs of Kroton Med. These are premium regional brands. And we have been able, as I said, to transfer inflation to the students also in the other programs.
Now about the margin, the margin continues to be increased. We had 53% margin in the semester, 54% in the quarter. This is because we have unified the academic model. We made some process improvements and system improvements, which has improved our efficiency. So we've gained margin. With that, I will close Kroton.
And let me now give the floor to Guilherme Melega. He will talk a little bit about K-12.
[Audio Gap]
[ million ] in this commercial cycle of 3 quarters. Then we have BRL 101 million on par, very close to our guidance of 20%. And we are expecting that all of this will be recognized by the end of the quarter. Now B2G,B2G and what we -- what led us to go into this market. Here, B2G, as you know, has 31 million students, is 5x as big as private market. And we had, of course, to identify this opportunity, and we try to identify the market that would provide the best fit for our solutions. This represents BRL 87 billion. And when we believe that we can change more quickly, we are starting to prioritize and of this BRL 90 million became a reality in this first go-to-market in we closed the deal with the state of Ara to help students in the fifth week with material focus on remedial work in Portuguese and large-scale evaluations, the digital platform, content and pedagogical support.
So it's an ecosystem focused in the improvement of those rates. It was a SPOT contract, and we work with them in the second quarter. So what are we doing to market to B2G? We have the senior team that is focused on relationships with secretaries of education, payers and governance. We know how important it is to relate to this audience and customized solutions. As Roberto said, it's a very different way of serving this market is very different from some -- it has a great deal of capillarity through the national textbook program and also that distributes complementary solutions. For us to have responsible conduct in this segment, we have structured corporate governance ideas with step by step from the initial contact to the signing of the deal. We have compliance officers and attorney supporting us so that everything is done separately.
Now going to Slide 17 I will focus Well, this is the cycle vision, which is the best for comparison purposes. And we see that the total cost of VA had an increment of 1.3 percentage points in the first quarter as a result of the cost increases with paper and printing this directly impacted our costs and net reduction of our gross margin in those 2 percentage points, there were recovered very responsibly, especially when you consider corporate expenses that will offset this impact of cost increases that put an end on our gross margin of 2 percentage points. greater discipline in pulp and as a result of this, our EBITDA for the quarter reached 31.6%, but I will talk about the EBITDA of the cycle in which we've reached BRL 354.9 million, growth of 21.9% in recurring EBITDA.
This is a sign of a company that's growing that differs on ACV, and that explores new markets, always with of disciplines resulting in an EBITDA increase of 21.9% and margins that remained at 31.6%. Before I hand it over to Fred, I would like to say that the vast team is feeling very satisfied with the performance, our growth strategy and responsibility, and discipline are supporting our growth. B2G started very well with this agreement in the state of [indiscernible]. And we believe that we'll be able to support several other states. Now also with the intake cycle that will be accelerated in the second half of the year. We see some very positive signs for 2024. Thank you very much.
And now I'll hand it over to Fred.
Thank you, Milena. Good morning to all. I was our time presentation for me on Saber. Just to remind you, this comprehends our national or program redone and other businesses. I would like to start on Slide #20. Financial highlights. Our net revenue in the second quarter 2020 grew 100%, BRL 88 million, thanks to the positive performance in all of our operations, both the next program, a or other services gain positive revenue and growing revenue and now going to recurring EBITDA and EBITDA margin looking to the quarter and the half of the year, the semester, we see an improvement in the second quarter. And by looking to the lower chart right, we see that we reached BRL 32 million in the semester, processed revenue grew 43%, and thanks to the increase in net revenue in all of our business lines, which more than offset the reduction that we had in EBITDA margin, especially going to the increase in fiber and printing costs, as we have mentioned.
In spite of the negative result, it's a result that above the company's expectations considering the current cycle as a moment in which we are selling the programs for 2024. So this reinforces our confidence on second half, it will be positive, and which we'll see an expressive increase both in EBITDA and in revenue. Now moving on to Cogna, which is, of course, what ties up all of our businesses Roberto talked about, Vasta Melega talked about first and I just gave you a very quick presentation on Saber. Cogna, turning to Slide 22, we discuss the financial indicators of Cogna. Net revenue is up 20% into '23 in the semester, growth amounted to 16% in the first quarter of the year.
Revenue for the first half '22 was 2.3 million and then in this part, we saw increase of recurring EBITDA, right, 20%. We maintained the margin, and we reached BRL 426 million of recurring EBITDA. And in the first semester, we reached BRL 878 million with the same stability of margins of 23.3% approximately. Now moving on to Slide 23, operating cash generation. This is an important lever for the company as Cogna. We always discuss operating cash generation, leverage, and discipline in allocating capital. There are very important principles to us. In the quarter, OCC reached 71 million, up 15.9% with conversion of recurring EBITDA into of 40.1% in 2Q '23 and growth of approx. 8.4 percentage points versus 2022.
In the semester, we reached BRL 398 million, expressive growth of 37%. Just to remind you, last year, Cogna had OCG of BRL 214 million. So this shows that the growth of revenue that we are generating in all of our businesses and also EBITDA is what makes us believe that we'll have a positive second half of the year, also considering operating generation. Going to Slide 24, adjusted net profit and also adjusted net margin. Here, we reached growth of over 500% semester on semester with an increase of 4 percentage points in the adjusted net margin. This is a result of the combination of a few factors: improving operating results, as we have mentioned when I was talking about the EBITDA of the company, an increase in our contingencies and reversals of contingency, and also an improvement in the financial results in this quarter.
We had an the comparison with the comparable period. And with the reduction of the interest rate by Coupon, we can envision improvement in our financial results for the second half of 2023 and '24. Net profit was positive by BRL 7.1 million in the semester. And in the comparison between First Semester 22, we had losses of BRL 114 million in our books.
Moving on to Slide 25. Leverage and indebtedness. Since the second half of 2022, we have been reducing our leverage, which is, of course, net debt over adjusted EBITDA. That's the indicator. We reached a multiple of 1.98x, which is the lowest level since 4Q '20. And our net debt grew 1.4% compared to 2Q '22 due to the earn-out from the acquisition of Vasta and the Eleva Group price adjustment. So for informational purposes, excluding the 2 effects, net debt would be reduced to BRL 3.3 billion, with a reduction, therefore.
Now moving on to my last slide on cash position and indebtedness. I would like to call your attention to a few highlights. Our gross debt is 4.47 billion. We finished with a solid cash position and looking at our amortization schedule for the first year, starting with a cash position of BRL 1.5 billion. Next week will be amortizing paying out over debentures approximately BRL 800 million. In August, we completed a debenture that Roberto was talking about in the ESG highlights of approximately BRL 500 billion, with remuneration of the interest rate plus 1.9%.
The objective here is liability management because we understand that we have debt that will be paid off in 2025 at a higher cost than we could get today. And for the end of '23, '24, we also have some internal actions to be able to improve our financial results through liability management. We closed the second quarter with free cash flow of approximately BRL 90 million, excluding funding and interest payment. In this case, the FCF was approximately BRL 38.9 million in '23. So the key message here is that we are paying a passion to our leverage, but we just detected that interest rates are going down and with a net debt of BRL 3.3 billion, every percentage point of increase in the Selic rate makes a difference. And with this, the company will be able to obtain improvements of approximately BRL 30 million in our bottom line.
With this, I close my presentation, and I'll turn it over back to Valerio for his final remarks.
Now moving on to the final remarks on the side of Kroton, we continue to look to the future, we'll be able to deliver the growth of volume and revenue managing dropout rate increasingly better and so we're still in the middle of the intake cycle, but the results are quite positive. So we continue to feel confident that we will be able to replicate what bits of the previous cycles. And by the way, improvements in our operational efficiencies, I think that we can also venture some improvements in cost management, 86% of the of our programs were evaluated by the Ministry of Education, and we're rated 4 and 5.
This reinforces the quality of our products. NPS is still on the rise. Once again, this is an indication that our re-enrollment rates will continue to go up in relation to the gross margin. Considering this on-campus, online mix strategy. When we look at the default rate, it's continued to improve, not because of the current economy, but because of the efficiencies and opportunities that the team has been exploring and also because of the better quality of the student debt in -- some in our intake cycle.
But we would like to reinforce that we continue to grow, investing in Anhanguera as brand. So marketing expenses will put pressure on the EBITDA margin. But with a lot of fine-tuning on our part, we continue to make the right decisions from the cash perspective, we have been very efficient efficiency is something that will all be in the renegotiation of agreements that have an impact not only a bit but on cash, and we have been doing it very successfully, the renegotiation of these agreements.
Same, of course, will come gradually because the maturity and the term of the contracts is not the same. I think that Vasta had a great quarter. We see a growing level of revenue, the B2G initiative is already showing some positive results. And in spite of the fact that we lost some primary margin because of deeper and printing costs, we know that this is seasonal. There are always ups and downs, and we can also transfer the inflation pressure to our product. And we know that margins will be not under pressure forever, we'll be able to overturn this. Cogna's a combination of our units will still feeling very optimistic. We are very confident in an improvement of EBITDA and cash generation and liability management actions are being executed with a view of finding other tops. I would like to mention sustainability as well.
We launched our sustainability report very recently, your own invited to find out more about the actions and impact we are creating. And in this quarter, we became the first educational institute to support the 5 objectives of the global contact and we'll be showing you more about this.
With this, I close the session, and I thank you all for participating, and then we can move on to the Q&A.
[Operator Instructions] Our first question is from Lucca Marquezini, Itau BBA.
Well, firstly, about low on-campus content ticket. You were talking about sustainability of the ticket. And how about your competitiveness? There is pressure on marketing and sales. So what have you been doing in relation to this? What's still to be done? Can you give us a dimension of the impact of this in Kroton's margins.
I think I'll take the 2 of them. In relation to low on-campus content ticket. Looking to the future, this is a highly competitive market. It is our largest players and products. So we believe that there was an increase in demand overall. I think that all players have been more rational in their offerings as well in terms of pricing. It's very difficult to predict the future in such a competitive market. But I think that the price reduction is behind us, the price reductions that we saw, and we are going to see more stability. We have several initiatives underway to maximize our tickets, and we're always very happy when we succeed in this, but it's very difficult to tell what comes in future.
I think a more neutral to positive. In relation to the brand our branding strategy is to make a gradual transition. We didn't discontinue any of the [ Pitagoras ] brands to change to an were. So depending on where you live, you see that we have the 2 brands, even in the same unit roars indeed a transition. But for at least another year, we for the second quarter next year, we continue to invest in our branding. I think this is a good way to invest in the future, not only an expense, it shouldn't be seen as an expense. We have the lowest unit acquisition cost in the market, and the investment in marketing is to fuel our growth in the future and to expand our market share. But I think the horizon is 1 year.
The next question is from Marcelo, JPMorgan.
I have 2 questions. Firstly Payments, timely payments in our programs. When you look at the ABA divided by revenue, the debt was around 60% in the quarter, and now I think it's down to 43%. And now what were the positive developments? Anything changed in the outlook for on-time payments in this product and also in relation to the court orders in relation to your medical schools, I think that there was it was a decision and some of those injections in the processes that are more advanced in the ports can continue to move forward. So how many openings are being plus. Can you give us an overview.
I will take the first question and then the second will be answered by Valerio. Well, default rate we have a strong focus on operating cash generation and property tracking active students. And we have been reporting improvements in the default rates quarter-on-quarter. And in fact, there is a slight improvement in the PET cash, we are gaining more income from this program. We didn't change the accounting criteria in either out-of-pocket P&T or PEP. And in late enrollment programs, just to remind you, we don't have this program. It has been changed so the cash actually corresponds to the invoice demand. We have been looking at the different -- well, we have been tracking the active students.
And this is what is helping us in both out-of-pocket and other programs. So there is an increase or rather an improvement in default rates before we had an ADA of 12.3%. And now we have over net revenue of -- in the first quarter of 2022, we were at a level of 13.35%. And this is the best indicator for the second half. And when you look at 2024 and '25, we believe that will maintain the same level of efficiency of the over revenue, around 11%. I'll turn it over to Valerio to talk about the medical program.
As I said there's some lease operational initiatives is the launch of new applications and monitoring of Paxson. Those are minor actions, small innovations with great results in terms of default rate. Now specifically about legal situation of the medical programs -- with my [indiscernible] decision is taking much longer than anyone would have anticipated. And since we are monitoring this very closely. It took over 12 months to be after the decisions and looking at the number of injunctions that we filed, nobody knows exactly how many, but we heard 200 to 250 injunctions.
So that's why we decided to file some potentials for -- and the lanes are still assessing the potential for advance in those that have already been decided upon the taxes not very clear. And I think that what I can tell you is that right now, yes, there are some opportunities, anything I cannot say for I don't know how many of those core orders will go all the way to the end. But as soon as we have more clarity on this, we'll inform the market.
Our next question comes from Lucas Nagano from the Morgan Stanley.
First, about student intake in the second half of the year. Now what is your view on the interest, on the demand? And what would you say about the macro scenario? The second question is about TrusteB2G. You have a specific contract, but the potential market is so big that there is a lot to be tapped. What is your strategy in terms of go-to-market for the next few months? I just wanted to understand if you continue to have has as a steady stream or if there will be ups and downs what do you expect?
I'll take first about intake and then Melega will answer the second question. Now we have a very optimistic view on this cycle. We believe there will be a growth, both in high on-site attendance and also in low on-site attendance, a bit also on price. So we have an optimistic look. However, we always keep our feet on the ground. As I've mentioned, in the second quarter after the reduction of the Selic interest rate and the vote on the new tax reform, I think we all feel a bit more optimistic. So there should be an improvement in the economy. However, right now, in the second quarter, as I said, we are optimistic about growth. But I cannot tell you that there will be a complete market recovery now. Melega talk about B2G.
Yes, let me share with you our view on B2G. Indeed, it's a huge market. We do have a structure to meet this market. providing solutions that will be sometimes spot solutions and some solutions may become structural solutions, permanent solutions in some large cities or states. So yes, you're right. It tends to become a new avenue for growth at Vasta, where a contract may have a long term. Other contracts may be short-term, but it may be renewed. Our expectation is that in the next few quarters, this will consolidate as a new stream as a new revenue stream, stable revenue. Yes, of course, we may have ups and downs, especially now in the beginning. We have already begun with a medium-sized contract.
And so let us see how this will mature, so we can maintain the same level of contracts in the short term. Well, we may be successful or not in the short term, but we will certainly be able to do more on that in the medium term. We expect that to bring more revenue, which will not really change the profile of our company. We remain focused on the private market as a B2B company. This is additional revenue stream that will help us leverage the products that we have developed first for the private market, and then we've customized them for the government market.
Now let me comment on what Melega just said. I think they started really well. I mean in just a few months, they had this contract, this deal signed, and they're also negotiating with more city and state governments. Also, we're learning more about this segment, and we will be able to give you more visibility. I believe that from now until year-end, we will have more information, and we will be able to structure this information, even for us, and also to provide that to you.
Our next question is from Yan Cesquim from BTG Pactual.
I'd like to ask a few questions on my side. First, a follow-up on the question about the intake cycle, I wanted to understand a bit more. I think that as you mentioned, things are going on track towards positive results, maybe not a complete market turnaround, but I'd like to know a bit more about volume and the number of enrollments now that we are at the midpoint of the cycle.
The other question also about B2G, just to understand a bit more how you are closing these contracts? I mean, you've mentioned that not necessarily there should be big seasonal changes. But is that, I mean, just to understand, is that going to work in a similar seasonality as the national book and text program? Or I mean, what should we expect from this revenue stream in terms of annual activities and looking at the contracts that you already have that the deal you've already signed? And next, I'd like to know a bit more about the national book and tax program. Revenue has improved, but there -- we still have an expectation of sales of text books in the second half of the year. So do you have any information about that -- so these are my questions.
Melega, do you want to take that?
Yes. I'll begin from the B2G question. I'll give you some more color about this specific deal. We lost -- this is for school content reinforcement. It is not a traditional sale of textbook where you have to deliver the books until January or February because classes will begin. Now this specific product that we prepared and sold is content reinforcement. So it does not really have a rigorous beginning date. These goals will need 2 months to implement that, but it may begin in March or April or even in the second half of the year. So this product line can be -- I mean, can be sold in the first half of the year or in the second half of the year? I mean, this product would not be sold in the fourth quarter because that is after the national and regional exams.
So we expect that it's more difficult to sell that in the fourth quarter because of the characteristics of the project, but we also have other types of products, textbook, large-scale evaluations. And so for these other projects that we are developing, and we still have to do the go-to marketing campaign. These would be more traditional models that the sales would be more in the fourth quarter and beginning of the year.
Now the other 2 questions about, students dropout and student intake. You know this cycle. You know this process. When the student intake is very strong, there is more pressure on dropout because we have a higher number of freshmen in the student base. But I may tell you that the quality of our student intake has improved. So in the current enrollment cycle, we see very positive characteristics. We're more clearly our re-enrollment or enrollment renewals is higher than in the previous cycle. So we should end with a higher enrollment renewal rate. But we still have some time ahead of us. They will have time until the end of September for enrollment renewal, we will still have to do some negotiation, but the enrollment renewal is above the average rate.
And also, we will have a graduation rate of both previous numbers. So that will certainly generate a positive impact on our revenue from the student base. About the national book and text program, the second quarter has been very good for Saber, driven by the national book and text program that has brought home additional revenue. As a coincidence, this is the moment of higher expenses because we are now in the go-to-market campaign with the commercial team showing the product to the schools. That is why we still had a slightly negative result but better than expected, and we remain optimistic for the second half of the year. There are no signs that we may have something different from what we expected because you might ask, I mean, what is the impact of the changes in the Sao Paulo state government in terms of using textbook. or learning systems.
Of course, Sao Paulo is a big state. It's relevant for the whole program. However, the impact for Cogna in terms of EBITDA is not really significant. It's just BRL 10 million round about that number if Sao Paulo does not really participate in the national book and text program. So it is not really very relevant for us.
Our next question comes from Pedro Caravina from Credit Suisse.
Most of my questions about Kroton has been addressed. But if I could do a follow-up question. I'd like to understand a bit more now that you closed the first half of the year, if you know where the stronger demand came from in the first half of the year. I mean, although you had a higher dropout and so therefore, a smaller student base, in general, education companies did really well in the first half of this year. And I wanted to understand that a bit better if it was because of the macroeconomic indicators or if you gain share? And then what do you view for the future for now the second half of '23 and then 2024. Another question about Vasta, what about the negotiation for learning systems and textbooks. What about the supply of books and papers? What can you tell us about these negotiations?
I'll talk about higher education, and then Fred can talk about the cost of paper and rate. Now I think the growth reported by open companies comes from a number of factors. Yes, I think the market is a bit better, but this is not the #1 factor. I think companies have gained efficiency in most cases. In our case, we've had an improvement in the geographic distribution. We have grown the number of distance learning centers or as they mature, we see a natural and organic growth. And also, we are very rigorous on cost. So we're having more distribution, more students. I do see an improvement in the market. But I don't think this is because the market has a stronger demand. I just think that companies are now better structured and they have gained efficiency. Now Melega.
Yes, now about cost. Pedro, what do we view talking about this cycle I mean, in the midpoint of the year, we usually have this printing window for the following cycle. So yes, our products are being produced at the current cost that we have today. We've had an increase in the cost of paper and bridge. So first and second quarters, we already know the cost. So that is why our pricing strategy for next year has to improve this.
So now that we're working on pricing. And traditionally, in the K-12 industry when the increase is very significant. We try to look at pricing to see how we can correct the price for the following cycles. So we have to include inflation plus the impact of specific costs. Now as we look ahead, the first negotiations with paper cup is we do not see any more pressure on paper cost. Now I believe the cost will be more in line with inflation. But the negotiations are not yet closed. We will be closing them in the next few months. But our first impression is that there will be only the inflation impact on this cost.
Our next question comes from [indiscernible] from the Bank of America.
It's very brief questions. I'd like to understand if you could give us some more color on our methods of recognizing dropout. I mean how do you calculate dropout today versus the way you did it in the past? And also, if you could give us some more color of where you are unifying the brands in Angers you had any difficulty in competition? And what is your performance in these specific regions.
Well, about the dropout calculation method, I'll give you a general explanation of how we recognize dropout students. When you look at the enrollment, we have a few gateways before we recognize someone as a student with a revenue stream. First, the student must have signed the contract. There is a digital acceptance. He has to log in and accept the contract and pay the first monthly payment. And then we have a third gateway, which is that we measure the student engagement. So if he has paid for the enrollment, if he has paid for the following monthly payments, also academic engagement. So if he signs the contract and then pay the first monthly payment, then he is recognized as a student. And then if that student doesn't pay the monthly payment or does not have academic engagement, then we recognize that as a dropout students.
So even before the enrollment cycle. And then we no longer recognize that revenue stream. So we have a very rigorous criteria to recognize a student as a student or then as a dropout student. So I'm not sure if I've answered your question. But if you need, we can provide more detail -- about the brand unification, yes, you're right. Each location has its own dynamics in some marketplaces, [ Pitagoras are ] very strong brands. And so we decided to have the brands living together during this transition. So you have 2 brands on the learning center. In only a few cities, we decided to remove the older brand. And at first, it does have an impact on student intake. But we did that only as a test. And so we test it and where we removed or where we replaced the previous brand, we lost commercial momentum. This is not our policy. It was just a test.
We are now closing the Q&A session. Now I’ll hand it over to Mr. Roberto Valerio for his final considerations.
Thank you very much. We thank you all for participating. We're being very optimistic, very positive, not only in relation to how extent we are in execution, but also in relation to the outlook. I thank the team that has been supporting us in this quest for better results. And our IR team is available for whatever questions you might have. Thank you very much. Have a great day, and we'll see you all in our next conference call. Thank you close Conference call.
We thank you all for participating. Have a great day, and thank you for using Chorus Call.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]