Cogna Educacao SA

BOVESPA:COGN3

Earnings Call Transcript 2017-Q4

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Kroton Educacional Fourth Quarter 2017 Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] Also, today live webcast, both audio and slide show, may be accessed through Kroton Educacional's Investor Relations website, www.kroton.com.br/ir, by clicking on the banner Fourth Quarter 2017 Webcast.

The following presentation is also available to download on the company's website. The following information is available in Brazilian reais in accordance with Brazilian corporate law and generally accepted accounting principles, BRGAAP, which now conform with International Financial Reporting Standards, IFRS, except where otherwise indicated.

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Kroton management and on information currently available on the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstance that may or not may occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statement.

Now I will turn the conference over to Kroton's CEO, Mr. Rodrigo Galindo, who will begin the presentation. Mr. Galindo, you may begin the presentation.

[Rodrigo Galindo, executive]

Good morning, everyone, and welcome to the earnings conference call of Kroton Educacional for the fourth quarter of fiscal year of 2017. With me today are our IRO, Carlos Lazar; and our CFO, Jamil Marques. In today's presentation, we'll take a detailed look at our results for the fourth quarter and for the year. We once again beat the guidance that we gave to the market at the start of this year despite a still-challenging macroeconomic scenario with high unemployment and industry pressures, including the higher number of graduations on FIES students that we had this year. But even with these headwinds, all the company's business, On-Campus undergraduate, Distance Learning undergraduate and Primary and Secondary Education, the K-12, all the business present an increase in operating result and operating margin. And the company beat all the estimates it had announced to the market.

So let's start on Slide 4, please, with a comparison of our actual results in the year with our guidance that was provided in April of '17. In '17, we delivered net revenues of BRL 5.6 billion, 1.3% above our guidance, which is a major achievement considering the scenario we are going through, high unemployment, increasing competition, pressure in enrollment and graduation of larger classes of FIES students pressuring our student base. It is important to highlight that our strategy to invest heavily in organic growth did not yield practically any revenue in 2017. So we are not being positively impacted yet by the strategy of the organic growth because we are just starting the new greenfields now. And this strategy takes time to really impact the revenues and the result.

And even so, we reached the guidance at the same time as we implemented 15 new units, which will gradually generate revenue in the coming years. We will talk more about this in the end of this presentation. It is also important to point out that in the year of 2017 we had 4 fewer months of revenue and results of the FAIR and FAC/FAMAT units, which was sold -- the sale in August 31, 2017, as a result on demand from CADE for the Anhanguera operation. So we had 4 less months of these 2 units. And even with these less revenues and results, we beat the guidance. Even without this revenue and these results, we are able to overcome it. And we beat our original guidance. Our perception is that the 2017 numbers are solid and demystify the idea that the significant reduction in FIES students will lead to a deterioration in revenues, results and margins. This was the top concern of the market in the beginning of the year because everybody knew that we will lose big, big harvest of FIES student that enter in 2013. And the question was -- were, could Kroton be able to neutralize or mitigate this impact of less FIES students. And since we started 2017, we had repeatedly affirmed that we have in the company levers that could -- that will help us to neutralize these pressures. And these results proved that our method are right. We used these levers to neutralize this impact. And we delivered results that beat our guidance.

For 2018, the same levers we observed in the -- the same levers that neutralized the pressures in 2017 remain available in 2018. Therefore, we have a positive expectation in relation to the result of the year. So this is my first message.

And now I invite our IRO, Carlos Lazar, to continue the presentation and present the results of our different business: On-Campus, Distance Learning and K-12. Please, Carlos.

[Carlos Lazar, executive]

Thank you, Rodrigo. Well, so let's turn to Slide 6, where I'm going to start talking about the main lines of our results for the fourth quarter in each of the segments. To ensure comparability, we have excluded the results from some assets that we sold, still regarding the remedy of the Anhanguera merger. So that was excluded in the numbers of fourth quarter 2016 given the divestment happened in this late August 31.

Starting with the On-Campus product. Net revenue was stable despite the smaller base of FIES students and the fact that the last classes of Pronatec, the vocational program students, graduated in the first semester of 2017. The main reason was the good results achieved in the new enrollment and reenrollment processes as well the higher average ticket that contributed in line with the better program mix.

Through efficiency initiatives, we were able to deliver gross income growth in the On-Campus segment of 2.1% with gross margin expansion of 140 basis points. Among the measures adopted, a highlight was the rollout of the operational research software together with the academic model, KLS 2.0, which remain the main drivers of gross margins in this segment by optimizing the cost of the faculty and infrastructure. Another factor that contributed to the margin was the expansion in the high penetration of digital content that successfully cut costs and expenses. And finally, the strategic sourcing project, which currently is in Wave 5.

Operating result and margin before marketing expenses remain practically stable in relation to the 2016 number, with impact from the higher provision of losses given to the increased exposure to the private installment plan that we are offering that offset our cost and expense austerity and the efficiency levers as we already commented in the gross margin [ really ].

So moving on to the Distance Learning segment. You can see the 4.1% drop in the net revenue which was due to the higher share of our 100% online students in our base, which have a lower average ticket, and by the lower revenue from the LFG operation, with the effect neutralizing the solid enrollment and reenrollment process throughout the year. However, we offset the revenue gap through efficiency gains. And as a result, Distance Learning gross income grew by 0.6% with a gross margin over 410 basis points up driven by the optimization of our tutorial model and the performance of Anhanguera's Distance Learning operation.

Note here that the higher share of 100% online student also contribute to the margin gain as it carries a lower level of costs. Meanwhile, the operating result before marketing expenses grew by 4.6% year-over-year with margin expansion of 580 basis points. In addition to the efficiency measures I mentioned before, other factors like the initiatives to streamline headcount offset the pressures from the higher provisioning given to the introduction of PMT payments in this segment.

And lastly is the Primary and Secondary Education, the K-12. The net revenue grew 14.6% in the fourth quarter, following the good performance of the book collection process, the sales process that we see for the 2018 academic year. We also present the gross income increase of 43% almost, with gross margin expanding about 14 percentage points, illustrating the efficiency gains in optimization of the operations, which led to decline of the key cost in expense line. Operating result before marketing in this segment posted a strong growth of 53%. And the margin were up like almost 16%, supported mainly by the actions and through the technical change in the segment.

Going to Slide 7, we show the consolidated result for the fourth quarter and 2017. Note here that we did the same adjustment in terms of the sale of the assets. And the net revenue in fourth quarter was BRL 1.3 billion, remaining stable year-over-year despite all the top line pressures, demonstrating -- show the resilience of our operation. As a result, net revenue in the year grew by 7% to reach BRL 5.5 billion, which is extremely important and confirms the strength of our enrollment and reenrollment process and also the adequate pricing methodology.

In the middle of the slide, the adjusted EBITDA in the fourth quarter reached BRL 534 million, up 2%, with a margin -- with 36 -- 39.6%, gaining 100 basis point, reflecting the cost control and the constant focus on efficiency to make sure that our operation is more robust. Without all these, of course, the margin will be compressed, and I will comment a little bit more in the next slide.

In 2017, we delivered an adjusted EBITDA of 1 point -- BRL 2.4 billion and a margin of 44.1%, representing an improvement of 8% and 30 basis points, respectively. Meaning, so we met our guidance and beat again the market consensus for the margin. So it's very, very important. For 2018, we expect more pressure from the even higher number of FIES students graduating, but we also are working on various growth fronts in all the business segments. And we will continue, of course, to explore our existing efficiency levers while seeking to new ways to further manage the cost structure.

When we probably will -- the targets that when we're going to be reporting the earnings release of the first quarter 2018, we will also be announcing a guidance for the year, which is the same thing that we did last year.

Well, the final part here on the chart, on the left-hand side, the adjusted net income in the fourth quarter was BRL 489 million, which is 2% up and a margin of 36.2%. So the margin was an expansion of 60 basis points year-over-year. And the cumulated 2017, the adjusted net income was BRL 2.2 billion and a net margin of 40.2%. They grew 13% and 210 basis points in the margin side. So it's a beat of, again, our guidance of 200 basis points, which is very, very important to show.

In the Slide 8, the last one of this part, we show the evolution of the adjusted EBITDA margin that start in 2016 with 38.6%, and then we quantify the impact of the shift in the student mix, with a smaller share of FIES students and a higher share of PEP and PMT students, for which we continue to provision 50%. So this effect alone had an impact on our EBITDA margin of 110 basis points. However, as in previous quarter, our efficiency levers were crucial for recovery in this indicator. And given the improvement of 210 basis points from the efficiency gains only, we ended the fourth quarter with an EBITDA margin of 36 point -- 39.6%, up 100% basis (sic) [ 100 basis points ] that I did mention before.

And finally, for 2018, we are also making progress in our projects to improve the retention and the collection indicators, which should make an addition, an important contribution to the operating and financial results for this year, helping -- so to ensure the long-term sustainability of our operations.

Well, to continue the presentation now, I would like to invite our CFO, Jamil Marques. Please, Jamil.

[Jamil Marques, executive]

Thank you, Carlos. Hi, everyone. Well, I'll start this section of the presentation with [ 2 indicators ]: the level of provisioning for losses and the average receivables term.

If you turn to Slide 10, you can see there the PDA as a ratio of net revenue for each of our business segment. As mentioned already by Carlos before, for comparability purposes, these figures also exclude the results from FAIR and FAC/FAMAT, which affect only the On-Campus segment.

If we start with the On-Campus segment on the left side of the page. The total PDA stood at 8.1% in the fourth quarter, up 160 basis points year-over-year, reflecting the higher number of PEP and PMT students in our base since provisioning for these products remained at 50%. If we compare it to the third quarter of 2017, the decrease of 550 basis points reflect the seasonality of the business with a lower volume of PMT due to the anticipation of the enrollment curve in the last student recruitment cycle and also to the early repayment of outstanding installments as well as the dropout in the period. Meanwhile, PDA for only out-of-pocket students remained stable in relation to both the prior quarter and the same quarter of 2016 at a level of 7.4%. As we mentioned in the last earnings session, this reinforces the recovery trend indicator, sustained by our more effective collection actions, including higher efficiency on the written-off portfolio, which is a positive indication for the year 2018.

On the Distance Learning segment, which is on the center of the page, the total PDA in the fourth quarter stood at 9.1%. This is up 100 basis points year-over-year, which is basically explained by the introduction of PMT plan as of early 2017, for which we adopt an accounting practice similar to those applied for PEP plan, and also for the higher share of 100% online students in our base.

In the quarterly comparison, the 10-basis-point drop reflect the same situation we see on the On-Campus side, which is the anticipation of the enrollment curve with a reduction in the offered PMT plans in the quarter. Considering only out-of-pocket students, PDA in the quarter stood at 9%, up 90 basis points year-over-year and up 30 basis points sequentially, penalized by the macroeconomic scenario, especially due to high unemployment, which in turn affect our dropout and delinquency rates. On top of that, this was also affected by the pressure related to the growth of online -- 100% online students.

Turning to the right side, in the Primary and Secondary Education segment. Once again, the PDA remained stable at 0.8%, [ affecting our effect ] on the provisioning policy in the segment.

I would now like to turn to Page 11, where you can see the variations in the average receivables term in each business segment, also excluding the impact from Uniasselvi, FAIR and FAC/FAMAT.

Starting with the On-Campus segment, the average term in the fourth quarter stood at 129 days, practically stable in relation to 120 days in the third quarter. If we consider only the average term for out-of-pocket students, there was an increase of 9 days in the annual comparison, which attest to the effectiveness of the collection plan that we have implemented since recent months ago, especially for the past due balance that was part of the portfolio that had already been written off, which despite the negative effect on average term made a positive contribution to the effective loss.

Meanwhile, the average term for FIES students improved by 16 days sequentially given the normalization of the payment flow and the receipt of additional FIES installment in the fourth quarter, with the installment of November once again being received in December rather than in January, as was the case back in 2016.

Note that as of August, when the government repurchased the remaining 50% of the balance not paid under PN23, we expect the FIES average receivables term to return to its levels of 2014 before we experienced the PN23.

Lastly, the PEP and PMT receivables term in the fourth quarter stood at 321 days. That represents an increase of 16 days sequentially, in line with the expected maturation of this product.

Turning to the Distance Learning segment. The average receivable term for out-of-pocket students was 94 days. That's an increase of 7 days on a year-over-year basis, which is explained by the deterioration in the macroeconomic scenario that also affects delinquency and also by the increase in the 100% online student base. The average term of PMT students in the DL segment decreased by 60 days year-over-year. That's a reflection of the anticipation of payment of outstanding installments by the students.

Finally, looking at the Primary and Secondary segment, the average term stood at 153 days in the quarter. That's an increase of 30 days year-over-year, especially due to the high volume of book collection sales anticipated in the fourth quarter.

Overall, we are very satisfied with our results in the quarter, especially with the stability in our On-Campus out-of-pocket PDA and with the recovery of past due balances from part of the portfolio that had already been written off, which are the initial signs of improvement in our collection process.

Now I'd like to turn to Page 13 to talk a little bit more about our CapEx. In the fourth quarter, we invested BRL 207 million, which corresponds to 15.3% of our net revenue. And that's an amount that's 61% higher than in the prior year quarter given the high investments related especially to content development and the expansion and improvement at existing units given the more premium program mix with the higher share of medicine and engineering programs, which obviously increase the average prices, but also require laboratories, so cost goes up. In 2017, CapEx was BRL 507 million or 9.1% of our net revenue for the year.

Moving to the right side of the page, where we include investments in special and greenfield projects. The CapEx in the fourth quarter was -- in this last quarter was BRL 232 million, which corresponds to 17.2% of net revenue and represents a 56% increase on a year-over-year basis, reflecting the high investment in greenfield projects, with 11 units launched already in the first semester of this year. In the year, total CapEx amounted for BRL 595 million, corresponding to 10.7% of net revenue, above our guidance of 8.9%.

I would now like to speak about -- talk a little bit more about our cash generation, which is on Page 14. In 2017, as already mentioned, we also received the FIES installment for November and December rather than in January, the following year, as was the case already back in 2016. However, note that 2016 had 13 FIES repurchases since the installment for November 2015 was also received in 2016, while 2017 register only the normal course of action in 12 installments. Once again, we delivered very robust cash generation after CapEx and special projects of BRL 1.2 billion, representing a cash conversion to EBITDA of near 56%.

As we have done in recent quarters, we are presenting free cash flow for 2016 with and without the impact from the receipt of the first installment from the Uniasselvi sale, which we received back in March 2016 and represented an amount of BRL 368 million. That's basically in order to facilitate our comparison between periods. On this basis, the free cash flow in 2017 was BRL 382 million. That's down 3.4% from the BRL 396 million we have in 2016, reflecting the impact from the one less FIES repurchase in 2017. This is, in our view, an extremely robust performance that demonstrates the strength of the company's operations despite all the challenges faced, that we've been facing, including the deterioration in the economic crisis and the need to offer students an alternative from unemployment using our own capital.

Moving to the debt side, which is on Page 17 -- 15, our balance of cash and equivalents finished the year or finalized the fourth quarter at a level of BRL 1.7 billion, increasing 5.4% sequentially, reflecting the strong cash generation this year and the receipt of one additional FIES repurchase since the installment for November was once again received in December. Considering as well all the financial liabilities in short and long-term obligations, we ended the quarter with a net cash position of BRL 1.3 billion. That doesn't include what I would like to remember, which is the short and long-term net accounts receivables, which consist essentially of 50% of the FIES amount not paid in 2015 under the PN23, which we expect to receive in full in August 2018.

The second part of the -- also, the second part of the Uniasselvi payment adjusted to present value, which will be made in 5 annual installments, beginning this year and finishing in 2022. And last but not least, the outstanding balance of the payment for the sale of FAIR and FAC/FAMAT, which we already mentioned was concluded in August 2017. Considering all those receivables, we held a net cash position of BRL 2.2 billion as of the end of the fourth quarter, which is a very significant position and can be tapped for various uses, including the ambitious growth plan of the company.

Well, I will now pass the call back over to Rodrigo for closing remarks.

[Rodrigo Galindo, executive]

Thank you, Jamil. On Slide 17, I'd like to make my -- some comment about our strategic planning and our growth strategy. In the last few months, we have conducted a silent revolution in the company, discussing and redefining the strategies that will lead us to succeed in the long term. The discussions were conducted in a structured manner in a strategic planning process which involved 100 leaders, over 4,500 hours of work during 8 months. A very objective and strategic map has defined and detailed the course of our organization for the next few years, for the following years.

There are 3 structural pillars in this new strategy: student success, operational and efficient -- and financial efficiency and growth. All this supported by a clear digital strategy which seeks to digitalize the students' experience while at the same time change the company's mindset clearly into increasingly digital company.

Kroton's course is very clear to the team. And this gives us the peace of mind to how to know where to talk -- where to walk. I think it's very important to have a clear strategy for the team to guarantee that we are following the right path. And we did it in the strategic planning that we concluded -- conducted in the last 8 months.

Let's talk a little bit about growth opportunities now. Growth was always one of Kroton's most important value. And we generate a lot of value for our shareholders delivering growth. And growth, we maintain the growth strategy going forward. We divided our growth opportunity in 5 main blocks. The first one is the On-Campus undergraduate in Brazil, and it's based with organic and inorganic growth. The second block is the Distance Learning undergraduate Brazil opportunities and is based implementation of new distance learning centers and a relevant increase in the portfolio, especially regarding distance learning premium. That is the most novel course in distance learning. The third block of growth opportunities is related to primary and secondary education with a robust project in terms of consolidating schools on K-12. The fourth growth block is the continued education, with relevant growth opportunity in this segment and post positive signs already in 2018. And the fifth block, the last block, but is not less important, is the possibility of the internationalization, which we began analyzing more in depth in 2018. So we are doing analysis about internationalization, the opportunities about internationalization. We believe we developed in the company skills to deliver at scale and quality education that could be helpful in an internationalization process.

So I will now pass the call to Carlos Lazar to detail these growth opportunities.

[Carlos Lazar, executive]

Thank you, again, Rodrigo. So let's start with the On-Campus undergrad in Brazil. As you may know, our initial plan was to open 100 greenfield projects, which we later increased to 112 units announced during our Investor Day back last December 2017. Of this total, 15 are already operational and 9 were opened in the first semester of 2018.

In the second semester of '18, we will implement another 17 greenfield projects, closing the year with 28 units implemented of the 112 initially planned. For '19, we will implement another 35 greenfield projects. So in total, we're going to have 63 greenfield projects by the end of the next year. The results of the first 9 greenfield projects that we have already opened this year are very positive. They all show a demand in the opening classes. So we were activating them. The activities are really happening. And everything is pointing out toward achieving the global target in terms of the student admission for all of them. Of course, there is a ramp-up phase of revenue and result generation for these units, but the basis for the future growth have been set. To ensure the optimum implementation of this organic growth strategy, we created -- a dedicated vice president. In other words, we -- the company is really prepared to continue to grow organically, very strongly, in a very strong manner in the coming years. In addition of the greenfield projects, we acquired also 3 small units that accelerate the company's growth. And have -- and then about that, we also have further pipeline and a very important pipeline of acquisitions.

About the second block of growth opportunities, we can comment about the distance learning undergrad in Brazil also. So considering the new regulatory framework for distance learning announced in last June, we were able to open about 200 new centers per year. In 2017, we did open these 200 new centers. And in 2018, we also are taking advantage of this benefit and have already opened about 100 centers by the beginning of this year. By the end of the first half now, we will be opening the additional 100 that we are able to, so completing the 200 for the year and achieving about 1,310 centers already this year. Please be reminded that our process for selecting and training partners is very complete. Of course, these new centers will also undergo a ramp-up phase before creating more value to the company, but with these initiatives and with a very strong partner network that we build and continue to be built, we believe that this -- we are certain that the base for an accelerated growth in this segment, in DL segment, has also been laid. With 1,300 centers implemented in 2018, we are reaching about 75% of the addressable market. And therefore, we estimate that we will reach 2,800 centers in the coming years, totaling 93,000 -- 93% of the addressable market in Brazil. That means that there are a lot of -- still a lot of room to grow in Distance Learning throughout geographic expansion.

In additional to this expansion, another important strategy for -- to support the growth in the DL is the expansion of the portfolio, especially regarding the Premium Distance Learning programs. With today, we reached about 1,500 new programs and offers, which means that one program in one center. These figures means an increase of 81% in the offer of Premium Distance Learning programs compared to the same period of 2017. So again, this strategy has a lot of potential to create value in the coming years.

Third block of growth drivers is the K-12 project. And as already present to the market, the plan is advancing. The first 2 acquisitions should be announced over the next 4 months. And another acquisition is slated toward the second half of 2018. The pipeline includes 26 potential flagship, 6 of which are more in advanced stage of negotiation. The 4 Kroton projects, the K-12 is completely on track, on schedule and in line to the company's expectation.

For the fourth block of growth drivers, we have the continued education, which is like graduate courses, MBAs and so on. So in 2017, we completed a comprehensive restructuring project here, increasing the autonomy and decision speed of this area. And the results are already starting to be showed. Admission of new students in these kind of programs in the fourth quarter increased by 70% from the same period of a year ago, which shows that we are trying -- entire restructuring process implemented in 2017 is yielding to concrete results. And we also have great opportunity in this segment because our market share is only 2.1%. And we believe it's reasonable to have practically the same market share as we have, for example, in the undergrad, which is approximately 15%. So the growth, it really goes here that we can be achieving.

And finally, the fifth block of growth is the opportunity related to the Kroton's international expansion project. And for that, we believe that we developed enough competence to deliver, as Rodrigo said, the scale and quality. So we are going deeper in the analysis of the international expansion. And we probably are going to have more ideas about what we're going to be doing there during the year.

Thank you. I will now pass over back to Rodrigo for his final comments.

[Rodrigo Galindo, executive]

Thank you, Carlos. Moving to the next column, the same Slide 17, let's talk about enrollment and reenrollment. The enrollment and reenrollment process for the first semester of 2018 are approximately 70% completed. So we still have more, 4 weeks to complete the process. In terms of student admission, we should reach the managerial target that are close to the figures achieved in 2017. So we are in line with our managerial target. We took healthy price in the past. We are doing this with healthy price levels in both segments, On-Campus and Distance Learning and with the PEP even, a financial offer in line with the budget that we originally make our provisions.

The graduation of a large number of students admitted in 2013, specifically in FIES, is expected to pressure the student base. Everybody knows that we have big harvest that enter in 2013. They are graduating now. And of course, this will pressure the base of students. We already anticipated this news. But, however, we have been seeing a slight trend of decrease in the dropout, which is a good sign for the creation on our long-term value. Since in 2019, the large volume of student admissions over the past years will have all graduated and then dropout rate becomes more relevant for the growth of student base. So what we are going to say here is, we still have in 2018 and '19 big harvest of FIES students, but after this, the lever of growth policy is the main driver to drive the student base level. And we are seeing a slight decrease in the student dropout rate. That is very good news.

We believe that we are seeing this reduction in dropout because of the focus that we are doing in the choices of the student. We are implementing a lot of projects to guarantee the retention of the student since 2016, and we are seeing that these products have made the difference in building students' loyalty in the company. And we are very pleased to announce the first concrete result of our Kroton digital transformation journey. We talked a lot about digital transformation in our Investor Day in December. And our ambition about the digital transformation is very high. Our ambition is to become the most digital educational company in the world. And we are working hard for this. And now we are glad to announce the first initiative and then the first concrete result of this process.

We are in the process of implementing an agile develop model across the company, supported by Scale Agile Framework. We are using the SAFe methodology to guarantee agile teams in the whole company. And by year-end, we will have over 400 people on 55 agile teams focusing on 10 agile delivery trains, supporting 22 value streams and ensuring 770,000 hours of developing systems, all of them in agile methodologies. It is a relevant and bold cultural change that places Kroton among the few Brazilian companies with 100% of the develop teams working on agile teams. So this is a very important conquest to be one of the few companies in Brazil that will have in the end of this year all the develop teams -- the develop systems -- the teams are working in agile methodologies. And this is under doubt (sic) [ undoubtedly ] an important step on our digital transformation.

Moving to the next column, our Board of Directors approved the distribution of BRL 148.4 million in dividends, which corresponds to BRL 0.09 per share for a payout ratio of 40%. So we keep the payout of 40%. And our expectation is to keep 40% during the next -- during this year, during 2018. And this level of payout, even being high at 40%, will preserve our cash for our organic and inorganic projects, which will help us to create even more value for our shareholders in the long term.

Last, I want to announce that this week we launched our new Investor Relation website, which we have completely redesigned to offer a more credible and unique experience for our users. And we would like to invite everybody to use our new website, IR website.

So we had some challenges in 2017. We were faced with the following question: Will Kroton be able to keep margins and keep results and keep revenues even being faced with a high -- a strong reduction on FIES students in their base? And the result shows that, yes, we did it. We delivered more efficiency. We delivered other strategies like PEP. And we were able to deliver the result and increase -- even increase margins and increase revenue and increase our operating results in a difficult year, like 2017. In 2018, we have exactly the same challenges, exactly the same pressure in FIES student, and we have exactly the same levers of efficiency to capture. And we are very confident that we can do this in 2018. But in 2018, we are being faced with another question, that this: Will Kroton be able to grow even being big like it is? And the answer is yes. And there's this 5 blocks of growth that we just present before, I think a few minutes ago, shows that we have a lot of opportunities in the company. And we will use all these opportunities. And we are prepared like a company, like an organization to capture all these 5 blocks of opportunities of growth. So growth is on Kroton's DNA in the past, and we will continue growing going forward.

Once again, thank you for the participation in today's call, and I invite you now to participate in the question-and-answer session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Mr. Thiago Bortoluci of Morgan Stanley.

[Thiago Bortoluci, analyst]

I would like to explore a little bit more the pricing dynamics. My question is, if you could shed some light on how you see On-Campus intake prices behaving, not only for you, but if you are seeing incremental pressure from competition?

[Rodrigo Galindo, executive]

Thiago, it's Rodrigo talking. Thank you for the question. The answer is yes. We are seeing more competition in the industry, both in On-Campus and Distance Learning. The more competition is more focused in Distance Learning. I will comment how we have managed with this more competition. We developed in Kroton a very sophisticated price methodology that allows us to classify product by product, city by city. Just to have an idea, in Distance Learning, we have 16,000 different products in different Distance Learning centers. So we capture the prices of each one of our competitors, in each one of our -- of the cities, and we compare with the 16,000 offers that we have. Until last year, we just do this analysis to define the first price that we offer in the beginning of the process. This year, we give another step. And we are able to capture it in a daily basis the offer that our competitor are doing. So when we see, for example, a very aggressive campaign charging BRL 49 for a Distance Learning, for example. It's not a campaign that is a [ brand agency or is broad ] that is then facing or impacting a lot of courses in a lot of cities. Normally, these kind of campaign affect just one course in one city. And now we have information to react specific in that specific course, in that specific city. So what we are doing, we are using intelligence, market intelligence to react in a proper way and hurt just a little bit our revenue. So yes, we are being faced with more competition, but not -- we are not being not disciplined in the pricing. So we have no reason to see a very strong decrease in the average ticket in both On-Campus or Distance Learning because of this higher competition, okay?

[Thiago Bortoluci, analyst]

Very clear, Rodrigo. And just a follow-up, on top of that, the mix, the course mix is still positive, right?

[Rodrigo Galindo, executive]

Yes. The course mix is still positive. And we believe that a part of the decrease of average tuition that we will have in normal courses will be mitigate or neutralized because of the better mix.

[Operator]

[Operator Instructions] This concludes the question-and-answer section. At this time, I would like to turn the call back to Mr. Rodrigo Galindo for any closing remarks.

[Rodrigo Galindo, executive]

I'd like to thank you, everybody, for participating on this call and put our IR area available for further questions. Thank you.

[Operator]

Thank you. This concludes today presentation. You may disconnect your line at this time. Have a nice day.