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 Cruzeiro do Sul Educacional conference call today discussing the earnings release of the third quarter of 2023. If you need simultaneous translation, this tool is available on the platform. Simply click the interpretation button at the bottom of the screen and select the language of your choice, Portuguese or English. For those listening to the conference in English, there is also the option of muting original audio. We inform that this conference call is being recorded and will be available on the company's IR website at ri.cruzerierodosuleducacional.com.br where you will also find the complete set of materials for our earnings release. You can also download the presentation through the chat icon also available in English.
During the company's presentation, all participants will have their microphones turned off. After that, we will begin the question-and-answer session. [Operator Instructions] We kindly ask you to make all your questions at a single opportunity. Note that the information in this presentation and statements that may be made during this conference call relating to Cruzeiro do Sul Educacional business prospects, projections and operational and financial targets are based on the company's management's 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, market 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 Coragem 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. Please, Fabio, you may proceed.
Good afternoon, everyone. This is Fabio Fossen, CEO of Cruzeiro do Sul Educacional. Welcome to our earnings conference call for the third quarter of 2023. In addition to the positive evolution in do Sul's results, the third quarter of '23 was marked by advances in the areas of technology innovation which are in line with the company's long-term strategy of placing students and learning at the center of our attention.
The first of these was the launch of the Duda app, which came to improve the student journey. The application was co-built with students uniting the main demands within the academic and administrative years, becoming a unified and closer relationship panel. We believe that the proximity that the app provides can result in positive benefits for all stakeholders.
In addition to Duda, we launched a relationship app to target prospective students that already has had more than 50,000 downloads, strengthening our relationships with potential higher education candidates. Still in the technologies sphere, the advancement of digitalization and automation processes added with changes in the management methodologies of the billing area has been contributing to improving internal indicators, especially those related to [indiscernible]
Additionally, at a strategic level, we made progress in the health business units, which represents more than 51% of our student base with the structuring of a team of experts in continued education who should contribute to the expansion of this line of business in a more decisive way.
In academic topics in the last 18 months, we received the reaccreditation for 9 of our 14 institutions and 7 were reaccredited with the grade of 5 and 2 smaller units with a grade of 4 in accordance with MEC'S institutional contracts. It is important to mention that with the most recent reaccreditation, we've reached a milestone of 64% of our institutions with the maximum grade of 5. The remaining 36% are all grade 4, and it is worth highlighting that they have colleges with no research differential or are institutions with older reaccreditation before 2014 and prior to our acquisition. In our on-campus student base, more than 85% are in institutions with a top grade of 5.
Regarding the performance of the third quarter of '23, undergrad on campus enrollment for intake was 1.8% higher than the same period of the previous year, with tickets practically stable. For the third consecutive quarter, we broke a record in the re-enrollment KPI achieving 90.9% retention. The increase of 0.8 percentage points versus the third quarter of '22 is the result of the strategy implemented around a year ago based on the active participation of our units.
We ended the quarter with a base of 146,000 undergrad students, an expansion of 10.1% compared to last year. It is worth noting that students on health courses represents 51.3% of the on-campus space, an increase of 0.4 percentage points versus third quarter of '22. In digital, undergrad intake grew 12.3% versus 3Q '22, ending with a base of 284,000 undergrad students, an expansion of 21.7% versus the previous year.
Just like on-campus, we made important advances in re-enrollment, reaching the milestone of 77.8% retention, 1.8 percentage points compared to the third quarter of 2012; the highest level in recent years. These levels of re-enrollments that we achieved represent a lot of the policy perceived from students to what we deliver in education at Cruzeiro do Sul units, both for digital and on-campus.
As for the ticket, we had a slight expansion of 0.5% versus third quarter of '22 as a result of the increase in hybrid courses, which already represent 21.7% of the digital base, 4.3 percentage points up versus third quarter of '22. Given the intake dynamics in the digital segment that extends until the second half of November, more recent data from November 7, intake was at around 124,000 undergrad students, an increase of 17% versus the same date in '22.
Following the execution of the organic growth strategy within the digital vertical, we ended third quarter of 23 with 1,673 DL centers and expansion of 309 units in the last 12 months. Finally, with regard to the third quarter financial results, we achieved net revenue of BRL 565 million, an increase of 13.8% and gross margin that grew 1.4 percentage points to 49.1%. Adjusted EBITDA was BRL 180 million, with a margin of 31.8%, an increase of 61 bps versus the third quarter of '22. Net profit reached relevant amount coming from BRL 4 million last year to BRL 33 million in the third quarter of '23. And operating cash generation was BRL 184 million, an increase of 18.3% versus the third quarter last year.
Finally, the company's leverage, and this is an important piece of information at this time, the company's leverage remained stable at 1.3x the EBITDA even after the distribution of about BRL 70 million between dividends to shareholders and share buybacks in the last 12 months. Thank you for attending and participating, and I turn the floor to Felipe Negrao for his comments on the company's financial results. Thank you.
Thank you, Fabio. Moving on to Slide 5. We bring the operational performance data of on-campus student base. We ended the semester with 146,000 students, an expansion of 10% versus the previous year as a result of an intake 2% higher than the 2022 cycle and the improvement of 1 percentage point in the re-enrollment KPI.
Health courses with on-campus needs and higher monthly tuition remained relevant within the student base, representing 51% of on-campus undergraduate students. We also bring ticket data, which includes freshmen and senior from the perspective of net revenue divided by the number of students at the end of the period. It remained stable with a slight decrease of 0.1% year-on-year, impacted by the mix of courses and units with expansion in the student base in lower ticket units.
On Slide 6, we present the operational data of digital courses, which closed the quarter with a base expansion of 22% versus the previous year, reflecting the 12% higher intake and the improvement of 2 percentage points in the re-enrollment KPI. The average ticket which includes freshmen plus senior in digital undergrads courses increased by 0.5% versus the third quarter of '22, mainly reflecting the mix of students in hybrid courses, which helps mitigate the more competitive pricing dynamics of 100% online courses.
Going into the financial details of the quarter on Slide 8, I will comment on the net revenue in the quarter, which we reached BRL 565 million, an expansion of 14% versus the third quarter of '22 as a result of the larger consolidated student base and on-campus education, courses focused on the health area grew 12%. And the penetration of these courses grew by 1 percentage point, reaching 68% of on-campus revenue.
In digital, we expanded revenue by 23%, reaching BRL 182 million as a result of the larger student base and the continued expansion of hub base. In the 9 months, revenue reached BRL 1.7 billion, 13% higher than in the 9 months of 22.
on Slide 9, we show gross margin for the quarter, which reached 49.1%, 1.4 percentage points higher than the third quarter of '22. The increase in gross margin for the period reflects the initiatives for management efficiency. It should be noted that the top line was pressured by the increase in the transfer for Hub as a result of the expansion of digital revenue and student base in third-party hub.
In addition, the other cost line was impacted mainly by the increase in third-party services such as security, technology, laboratory consumables. Given the maturity of the courses in the health area for 9 months, gross profit expanded by 13%, reaching BRL 820 million.
Moving on to Slide 11. We bring the adjusted EBITDA for the third quarter of '23 with close of BRL 180 million, an increase of 16% versus the same period of the previous year. Despite the improvement in the PDA line, which went from 5.7% of net revenue in the third quarter of '22 to 2.8% in the third quarter of '23, higher marketing expenses that are pressuring margin expansion, which stood at 31.8%, 61 basis points as compared to the third quarter of '22.
The improvement in PDA in the quarter is a result of the change in the billing management model with a focus on technology as well as the improvement in re-enrollment rates. Adjusted EBITDA reached BRL 531 million in the 9 months, 16% higher than in the same period of the previous year with a margin of 31.3%, an increase of 0.9 percentage points.
Moving on to Slide 13, with still the evolution of net income. Net income in the quarter was BRL 33 million, 8.7x higher than in the third quarter of '22, reflecting the improvement in EBITDA for the period. In the 9 months, net income was at BRL 94 million, 4.2x higher than in the 9 months of '22.
In the next slide, we show the evolution in accounts receivables within the last 12 months stood at 44 days, an increase of 3 days when compared to the same period of last year due to the higher volume of agreements in progress.
Moving on to Slide 15. We present the investments made by the company in the third quarter of '23, which reached approximately BRL 56 million, an increase of 80% versus the third quarter of '22 as a reflection of the resumption of investment projects in infrastructure and technology, mainly focused on the evolution of the student experience. Investments in the 9 months of '23 were approximately BRL 139 million, reaching the level of 8% of the year-to-date net revenue in 2023 versus 6% in the same period of the previous year.
On the next slide, we detailed our operating cash generation in the quarter, which reached BRL 184 million, an expansion of 18% versus the third quarter of '22 and reached 146% of the EBITDA after leases. In the 9-month period, operating cash generation was of BRL 384 million, 38% above the 9 months of 22, reaching 104% of post-lease EBITDA.
Finally, on Slide 17, we bring net debt excluding these liabilities that reached BRL 570 million versus BRL 509 million last year. Despite the positive operating performance, net debt was impacted by the execution of the buyback plan in the amount of BRL 46 million and the payment of dividends in the amount of BRL 25 million. I conclude my comments here and turn the floor to the operator to start the question-and-answer session. Thank you.
[Operator Instructions] Our first question from Lucas Nagano, sell-side analyst, Morgan Stanley. Lucas, we're going to enable your audio for you to ask your question. Please go ahead.
We have 2 questions on my side. The first about the public consultation about the distance learning courses. One of the proposals that says that they should have a net Digital concept Grade 4 or 5.; cruzeiro has one institution with a 3 grade. So I'd like to understand what would be done to not have this impact, if you could have reaccreditation to achieve 4 or 5 grades in time?
The second question about the competitive environment. When we talk to other players in the market, they say that the price was favorable in the first half of the year. It remains favorable in the second half of the year, but not as much as before. But you at Cruzeiro do Sul had a little bit of a less constructive view of that, and we'd like to understand a little bit more how your perceptions changed from the first to the second half of the year?
Hello, Lucas. This is Fabio Fossen. About the public consultation. It's a process that is still developing. We need to understand exactly what's going to appear in terms of new regulations that the ministry may set forth for us to follow. We have a series of initiatives that will have an impact on the distant learning as we have been building this positive impact in the on-campus courses. It's just a matter of working on the right indicators.
And as for the institution with Grade 3 that you mentioned, we can always apply for reaccreditation in July of '24. So that should not cause any impact. We're not working with any relevant impact for whatever restrictions come up about that. This is something that is a constant concern, and I think you can see that with our grades and the ratings that we have been releasing more clearly for the on-campus courses, that's a tradition for the company and it's a point of attention. So I don't see that -- I mean it is a constant concern, but it is not something that we expect to have any impact in the future, at least as far as the discussions that we can foresee that are unfolding.
As for your second question about the ticket, I think we mentioned in the 2 opportunities we had in the first half of the year that our overall consolidated ticket was slightly lower, and it improved now in the third quarter. It was something strongly impacted by the mix of units, especially on the on-campus courses. We added more units than we expected for those units who have a lower tickets naturally. So that could have been one of the causes as we were seeing in the first half of the year as a whole. We now saw a scenario where we've been able to turn this around, reverse this trend that we were seeing in the first semester overall. And we see a scenario that is not free of the macroeconomic issues and everything that's happening in Brazil. We've been working towards that. We've been working on the mix. For '24, we have more interesting expectations for that.
[Operator Instructions] Our next question is from Butner, investor. Butner's question is as follows.
I have 3 questions. The first, could you please comment a little bit more on the issue of the permission for the new seats in the medical course, medicine. The second question, referring to the invitation to bid of [indiscernible] medical. Is the company interested in participating. And there is a question about the potential consolidation on education in Brazil, whether the company is open to study new acquisitions and M&A opportunities?
This is Fabio Fossen. About these [indiscernible] invitations, it's an ongoing process. And part of our strategy here is to work, understand more cautiously. But what I can tell you from what happens is that our grades have all been 5 and the maximum grade for MECI for the Ministry of Education. So that's part of our strategy.
The same thing about [indiscernible] medical, the program, we're evaluating it and trying to decide whether or not it makes sense for us to participate in 60 positions in smaller cities. We have a company strategy that's based on consistent constant growth over time. And then we will participate in a very well structured way with our institutions. We have a capacity to participate in [indiscernible]medicals because one of our -- the criteria is the number of [indiscernible] and we have a good range of entities for us to participate.
As for the consolidation question, this is something that is discussed every quarter, and we're actively looking all of the opportunities for M&A that may occur. So we've been participating on bids, there's a lot of coming to the table and then leaving without becoming -- or moving forward as a choice from the seller, but we're prepared, waiting, and we have cash. We have the balance to make acquisitions and mergers as well. So anything that would add to our shareholders that would create value to shareholders and students is part of my work focus 24 hours a day here at Cruzeiro do Sul.
So whenever opportunities come up and there are opportunities that will add to us both for shareholders and benefiting students, this is very important for us. And we have to find that in acquisitions or maybe consolidations or mergers as you asked, we need to seek deals that make sense for the company's long-term mission, which is to serve the students and increase the level of their learning throughout the way. Thank you.
Next question, Yan Cesquim, sell-side analyst at BTG. Yan, we're going to open your microphone so that you can ask your question.
I'd like to ask 2 questions. First, looking at CapEx. We see that it accelerated a little bit in this quarter. I'd like to understand whether you can give us a perspective in terms of CapEx for the next year since we're getting to the end of the cycle, this current cycle and understand a little bit better, if you can put more color into the pricing dynamics for the on-campus courses. We see that there's an effect of the base that has a negative impact and the ticket evolution year-on-year. But I'd like to understand what you're thinking looking forward, maybe for the next intake cycle, if we should consider that the ticket will behave the same way or whether you imagine this scenario may change in this next cycle? Thank you.
Good afternoon, Yan. This is Negrao speaking. In terms of CapEx, just to explain a little bit more of this year since we have already talked about it. There was a lot of progression of classes of medicine and health courses, and we had to bring more investments than usual to build laboratory. This is done. I think there's very little to come. So we to have a smaller CapEx level, we do not provide a CapEx guidance for that.
But on the ticket side, I'll turn over to Fossen and he will talk a little bit more about it.
We don't disclose the guidance, but we've been working constantly, if you look at the monthly tuition, our monthly tuition sends a different message than what the ticket said. Ticket is actually an average of the average. When we look at our units one by one, building by building, course by course, that's what we do every week here, we see a slightly different perspective. What I said is the mix kind of hinders the mix of units, the consolidated results.
But we have a permanent ongoing concern, especially on the on-campus courses, where the size of the asset is a given and what we need to do is guarantee the productivity of that asset, both in terms of cost and in terms of revenue efficiency. So we have a very sophisticated structure apparatus for pricing that we work on constantly.
I know I'm more positive in future pricing since we're gaining more and more insights over time and visibility of how to price our courses, especially on the on-campus side, where we know the local competition because they're based building by building. Distance planning courses is a different dynamic for price competition, but we do have knowledge of how to manage that. But sometimes the demand comes strongly where we weren't expecting it. So of course, we're going to service, there's no doubt, we're going to meet the demand, but then on the way at average, maybe the message is not quite as precise.
And I focused a lot on revenue increase because it was important for us to grow top line to guarantee top line expansion, less so than tickets, and I look a lot at monthly tuitions that was more important to me, if I'm building financial health for our future and that is on monthly tuitions, not necessarily on the tickets.
[Operator Instructions] If there are no further questions, I'd like to inform you that the Q&A session is closed. I will turn the floor to Mr. Fabio Fossen for his final closing remarks. Mr. Fabio, please go ahead. Thank you.
I'd like to conclude today's comments here. We're moving towards an end of year with good results. We've been able to revert a gross margin situation that we had in the beginning of the year and with a series of digitalization initiative and innovation processes internally, we are turning the situation around compared to last year, we should end the year at a very positive note in terms of gross margin.
I'm very optimistic for next year in various of the topics involved in our sector. There's all those discussions as people asked about distant learning. I think it's very important to have a discussion about the quality of education that helps the country grow and it will set the good ones aside. And I really do believe in Cruzeiro do Sul taking the lead when the separation is done. If that regulation is well done, if the work to search quality is well done, we are confident that we will do well. That's the same thing for the medicine processes that we also mentioned. We're very confident depending on all the decisions and processes and regulations, of course.
But we are confident on our internal capacity to create, manage and deliver quality education. I have no doubt on this 2 years leading the company. I believe we'll get into '24 in a more positive note than '23. That's the vision that we're having and dynamics that we're analyzing in the areas that we're look into for our industry where we're focused in terms of revenue and our operations.
Thank you all very much. Have a great day.
Cruzeiro do Sul's earnings conference call for the third quarter of 2023 is now concluded. The Investor Relations department will remain available to answer any questions you may have. Thank you all very much. Have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]