Cruzeiro do Sul Educacional SA
BOVESPA:CSED3
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 |
3.08
5.3
|
| 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.
Cruzeiro do Sul Educacional SA
You don't have any saved screeners yet
Good afternoon, and thank you for holding. Welcome to the Cruzeiro do Sul Educacional's Earnings Conference Call on the First Quarter of 2024. [Operator Instructions] We inform you that this conference call is being recorded and will be available on the company's IR website at ri.cruzeirodosuleducacional.com.br, where you will also find a complete set of materials for our earnings release. [Operator Instructions]
Note that the information in this presentation and statements that may be made during this conference call relating to Cruzeiro do Sul Educacional's business prospects, projections and operational and financial targets are based on the company's management beliefs and assumptions as well as on currently available information.
Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and hence, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of Cruzeiro do Sul Educacional and lead to results that differ materially from those expressed in such forward-looking statements.
Here with us today, we have Mr. Fabio Fossen, CEO; Felipe Negrao, CFO; and Luis Felipe Bresaola, Investor Relations Officer.
I would like to turn the floor to Mr. Fabio Fossen, who will begin the presentation. Mr. Fossen, you may begin.
Good afternoon. This is Fabio Fossen, CEO of Cruzeiro do Sul Educacional. I would like to start our earnings call by reminding you that in this first quarter of 2024, we celebrated 3 years since the IPO, and we have many reasons to celebrate.
Comparing the first quarter of '21 when we did the IPO with the first quarter of '24, our undergraduate student base in on-campus education grew consistently every year, totaling about 28%, 9% annualized. While our student base in digital grew about 67% or approximately 19% in annualized terms.
In both segments, we recorded growth both in enrollment and student base over the period, even in face of the significant reduction in on-campus enrollment in Brazil.
Net revenue increased from BRL 421 million in the first quarter of '21 to BRL 611 million in the first quarter of '24, a growth of around 45%, 13% CAGR. IFRS EBITDA also rose from BRL 121 million to BRL 191 million, registering an increase of approximately 58%, 16% annualized. And net earnings grew from BRL 16 million to BRL 39 million, a jump of approximately 137%, 33% CAGR.
We achieved these results despite facing a more challenging economic scenario, with the SELIC rate rising from 2.75% in the first quarter of '21 to 10.75% in the first quarter of '24, impacting our students' financing capacity.
In addition to improving business indicators, we have also gained greater commitment from our students. Re-enrollment rates are consistently high in both on-campus and digital. And our delinquency rate, one of the lowest among companies in the sector, remains under control. Receivable cycles have maintained stable at around 42 days, the shortest in the sector, despite the variations in the SELIC rates during this period.
Another important milestone for all of us was the achievement of the Great Place to Work certification in the first quarter of '24, recognizing the satisfaction and alignment of more than 8,000 employees.
Finally, I'd like to highlight our academic achievement that fills our hearts with pride and guides the future of our institution, which was achieving the leadership in the ranking of publicly traded companies for the ongoing General Course Index, IGC, reaffirming our commitment to offering quality education to our students.
It is important to highlight that our performance continues to show robust and consistent growth also in this first quarter of '24. The first quarter was marked by a relevant achievement for Cruzeiro do Sul Educacional, we reached more than 500,000 students enrolled in our institutions. This number highlights the potential attractiveness of our institutions in the region and modalities in which we operate.
We continue to break records in on-campus intake with 59,000 new students and more than 119,000 students in digital undergrad programs. In addition, we maintained high re-enrollment rates, reflecting the quality of our educational services, which requires renewal at least 7x over the 4 years of the courses.
For us, these indicators reflect the alignment between the demand from our students and the company's commitment to offering excellent education and training increasingly qualified professionals for the labor market.
As for the operating details of the on-campus segment, after 2 years of significant student intake, with growth of 26% in the first quarter of '22 and 11% in the first quarter of '23, we ended the quarter with slightly higher numbers than last year.
Following the strategy of maintaining high re-enrollment rates, we achieved a 7% increase in the on-campus undergrad student base. We also recorded an increase in the average ticket of 1.9% compared to the first quarter of '23, reflecting the progress of the new pricing policy adopted in mid-2022.
In the digital segment, we closed the underground base with 315,000 students, representing an increase of 18% compared to the first quarter of '23, despite a stable intake compared to the previous period. With the same proactivity as in on-campus courses, we've responded to the challenges of a competitive market, differentiating ourselves by expanding our hybrid products, which now account for 23% of our digital education, 3 percentage points higher compared to the first quarter of '23, a strategy that has proven successful due to the 8.7% growth in the average ticket of our courses in this period.
Also noteworthy is the increase in the retention of our senior students, up 1.3 percentage points compared to the first quarter of '23, an improvement directly linked to the investments in digitalization and automation of processes initiated in 2023. In addition to the increase of the quality of the student experience, reaffirming our commitment to educational excellence.
Now I will turn the floor to Felipe Negrao, who will talk more about the quarter's financial results. Have a great day.
Thank you, Fossen. So going into the financial details on Slide 7. I'll comment on net revenue in the quarter, which reached BRL 611 million, a growth of 15% versus the first quarter of '23 as a result of the larger consolidated student base.
In the on-campus segment, revenue grew 9%, while in courses focused on the health area, it expanded 7%. In digital, we had a relevant revenue expansion of around 28%, reaching BRL 203 million as a result of the larger student base and the continuity of the expansion of the hub base.
On Slide 8, we show the gross margin for the quarter, which reached 49.9%, 3.2 percentage points higher than the first quarter of '23. The increase in margin in this period reflects the operational leverage as a result of revenue maximization initiatives as well as the efficiency gains.
Moving on to Slide 9. We bring the adjusted EBITDA for the first quarter of '24, which was BRL 196 million, a growth of 20% versus the same period of the previous year. The increase in gross income, in addition to the optimization of the back office, better management of marketing expenses and better efficiency and billing, mitigated the impact of the increase in administrative expenses in this period.
The main reason for the increase in administrative expenses is technology expenditure. Several investments in technologies started in 2023 were concluded. And as a consequence, we had, on the one hand, an increase in technology expenses such as licenses in cloud. But on the other hand, greater operational efficiency presented in other lines of the results as well as more satisfied students and employees.
In terms of administrative expenses, we also had nonrecurring expenses with initiatives such as [ Mais Medical Free ].
Moving on to Slide 10, which shows the evolution of the company's adjusted net income, which reached BRL 44.1 million, 3.7x higher than in the first quarter of '23. The increase in net earnings is the result of a consistent expansion of revenue in addition to the better management of costs and expenses, which resulted in the expansion of EBITDA.
In the next slide, we show the evolution in accounts receivable, which in the last 12 months stood at 42 days, stable when compared to the same period of the previous year.
Moving on to Slide 12. We present the investments made by the company in the first Q of '24, amounting to approximately BRL 38 million, up 37% compared to the first quarter of '23, as a result of the improvement made on our campuses in addition to the progress of the company's digitalization projects. With an excellent executing capacity, we seek to accelerate our investment in order to obtain gains later this year.
On Slide 13, we show the progress of operating cash generation, which reached BRL 174 million, a growth of 22% versus last year. The strong cash generation in the period is mainly the result of the evolution of EBITDA.
Finally, on Slide 14, we present BRL 673 million of net debt, excluding lease liabilities. During the first quarter of '24, we were very assertive in our goal of reducing our financial leverage, measured by the net debt over EBITDA ratio from 1.6x in December '23 to 1.3x in March '24.
Additionally, in 2024, taking advantage of our solid results and balance sheet, we concluded another debt renegotiation, extending the maturity of the debenture with Bradesco, in the amount of BRL 173 million from 2025 to 2029, with a minimum increase in the rate from CDI plus 1.4% to CDI plus 1.54% per year.
I close my comments here and turn the floor to the operator to start the question-and-answer session. Thank you.
[Operator Instructions] Our first question, Mirela Oliveira, Bank of America.
Mirela? Mirela, can you hear us? [Operator Instructions]
I have 2 questions. First, about CapEx. We saw an increase in this first quarter regarding the technology investment. So if you can talk a little bit more about the CapEx level for the year, if it should remain at a slightly higher level. And also the administrative expenses, SG&A, also related to technology. Will these expenses be a new level for the company? Or do you see a margin to reduce that over time?
Mirela, this is Felipe Negrao. In terms of CapEx, we don't provide a guidance, but there's some comments to make. First, CapEx from last year was slightly higher in the company's history. We don't expect to invest as much as last year. And last week, that was [ growing in the quarter ] considering the guidance, but our expectation for the year is to remain at that level.
In terms of expenses, all expenses in technology generate benefits in the other lines of the results, from intake revenue, into personnel, I mean, all of the other lines have a great benefit from technology. So considering that, the technology line itself won't have as many gains in terms of technology expenses, will be at around this level. It was in line, more or less in line with last quarter. When we compare quarter-on-quarter, there's expressive gain, but if we compare what we expense on the last quarter of last year, it remained stable.
Next question, Lucas Nagano, Morgan Stanley. Mauricio Cepeda also has asked us to let you know that Lucas has disconnected, and he can ask the question as he's from Morgan Stanley as well. So Mr. Mauricio Cepeda, please go ahead.
Excellent. Sorry for this logistics glitch. So we have 2 questions here. One is related to the intake, we see that the growth in the quarter was more influenced by a comparison basis that was more complicated. So our question is on the sense of what you believe will be a recurring growth level for on-campus and distance learning since it seems that the environment is a little bit more normalized now? Or if you expect these recurring levels to start appearing in the second half of this year?
And the second is about ticket. The on-campus ticket expanded again when -- resumed expense, but it was, on average, below inflation. So we'd like to understand if the effect here was an effect of the mix or if the ticket became more pressured by discounts?
Cepeda, this is Fabio Fossen. I do not think that the current intake levels are where they could be, we should -- we've improved a little bit in the end of the quarter, especially on digital. We see next quarter in a more positive light. There were some decisions here of not to follow certain promotions to preserve the entry ticket for our students. We can understand that when we look at the growth in the ticket for digital. We didn't follow the promotions that our competitors applied.
On-campus, we believe intake tends to be better. We have a very strong comparison basis for our intake last year. We have 2 following years of very strong intake, and here, we repeated the success of last year, and we don't see that with precaution. What's important is that we are being able to hold on to the seniors, and because every 6 months, they decide to continue buying our educational product because they see it is worth it. So it's a differentiated pricing strategy over the years and all of this reflects in the total revenue at the end of the day.
So in that sense, I'm optimistic in terms of future intake and the pricing continuing with the mechanisms that we're developing along the way. So part of this success is connected to what Felipe mentioned in terms of CapEx, in that initiative that appears as OpEx and what's CapEx based on the evolution of our processes and our evolution as a company, it reflects on a series of changes that we've been doing to the way we operate.
[Operator Instructions] We received a question in writing from Bernardo Fusato from Ártica.
There are 2 questions. Congratulations on the results. The first question is, what is the evolution of the digital in the first quarter of '24 compared to 2023? Should we expect lower margins on digital because there's a bigger mix of hybrid? Or does it make up for the higher cost of service? And the other question is about the 15 entrances for the medical course seats. Is there any new perspective you can share?
This is Fabio Fossen. In terms of the improvement in the -- market has been helping us be more productive in that sense, in the CAC, CAC, and part of the technology investment we've made for us to take more -- or better decisions and work better in this sense.
In terms of the hybrid modality, it is a more productive model for us. Looking at the future, I can't forecast in the sense today because we're waiting for the Ministry of Education's decisions. They've pointed to a number of different directions in that sense. So there's an aspect of having to wait a little bit longer to understand what's really going to happen in terms of the initiative to improve quality of distance learning that the ministry is going to propose to the industry. So that will affect the entire dynamic of the industry, the proposals on the table are the ones that will be permanent.
And the second question about the seats in the medical course and the medicine course. We continue -- we remain confident in what's going to happen. It seems that the -- right on your side, our side is quite sound and the demands made in the injunctions, I believe it's the same set of arguments. And what's important on our side is the seriousness of our institution, the quality of our education and the training of teachers and that we stick to all of our courses, all areas of knowledge has been very relevant.
We were graded 5 in all of the evaluations that we had from the ministry and one of them was 5.00. So that was a complete top score. And that makes us very confident. Whatever the Supreme Court decides, we believe that the guidance of the good law, the rights, will be in the first line of -- on the front of the line actually, to benefit from it, but it's something that we need to wait for the next steps to develop. And the topic of educational quality is what's being discussed, but there are other topics around it. So whatever was on our hands to guarantee that we are a serious institution with quality that delivers value to students, has been done and it has been done greatly on our side.
[Operator Instructions] The questions-and-answer session is now concluded. I'll turn the floor to Mr. Fabio Fossen for his closing remarks. Mr. Fossen, please go ahead.
I would like to thank you all for attending, and my final remarks, I would like to thank the slightly over 8,000 employees at Cruzeiro do Sul. It's been, as I mentioned in the opening remarks, it's been quite a journey since the IPO when the change of the company's management, replacing the founder, is not an easy feat for anyone. It involves not only the Board to organize the company, but it involves all of the company's employees to understand the timing and engage within a new perspective.
So it's a big victory for everyone who's been with us for all this time, and it's been important to all of us, to gain increasing confidence in the growth, almost irrespective of the difficult conditions that may come up in the market and so on, we are prepared to be resilient in different situations. But I would really like to thank all of our employees because our business is done -- made by people to people, and that's -- it's been essential for the numbers that you'll see in our releases and numbers. So have a great day. Thank you so much.
The conference call for the earnings of the first quarter of '24 of Cruzeiro do Sul Educacional is now over. The Investor Relations department remains available to answer any questions you may have. Thank you very much, and have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]