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 morning, and thank you for holding. Welcome to Cruzeiro do Sul Educacional's conference call today discussing the earnings release of the third quarter of 2024. [Operator Instructions] We inform that this conference is being recorded and will be available on the company's website -- IR website at ri.cruzeirodosuleducacional.com.br, where you will also find a complete [ set ] of materials for our earnings release. You can also download the presentation on the chat icon, also available in English. [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'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, 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. Please, Mr. Fabio, you may proceed.
Good morning, everyone. This is Fabio Fossen, CEO of Cruzeiro do Sul Educacional. Thank you, all, for participating in our 3Q '24 earnings call.
We ended the third quarter of '24 with the highest free cash generation in the company's history, reaching BRL 199 million, a growth of approximately 56% versus last year. The strong cash generation mainly reflects the 27.5% expansion of EBITDA ex IFRS 16, the positive evolution of working capital and the lower need for CapEx in the period.
In addition, we achieved the highest net income in a quarter since the IPO, reaching BRL 64 million in adjusted net earnings with a net margin of approximately 10%, approximately 4 percentage points up versus the third quarter of '23.
The approximately 88% increase in adjusted net earnings is mainly due to the 2.7 percentage point of growth in the quarter's EBITDA margin comprised of approximately 0.8 percentage points of gross margin, an improvement of 0.7 percentage points of PDA and an improvement of [ 1.6 p.p. ] and labor costs. And a practically stable financial result when compared to the same period of last year.
The positive evolution of the results reflects the initiatives to place the student at the center of [ our ] decisions and to facilitate their academic journey from admission to graduation, which result in better intake, rates renewal and financial management. As with that, we achieved a 7.2% growth in this undergraduate on-campus student base, and 16.4% in digital compared to last year. The space growth coupled with our pricing strategy resulted in a healthy net revenue increase of 10.6% versus the third quarter of '23.
From an operational and structural point of view, it is worth highlighting the growth in the offer of medical courses, which expended by 334 seats since June of '24 through the acquisition of FAPI in the metropolitan region of Curitiba, with a 154 seats and MEC authorization of 180 new seats, 60 at CEUNSP in September of '24 in the region of Itu, state of [ Sao Paulo ], 60 at FSG in Caxias do Sul, Rio Grande do Sul in October of '24, and 60 seats at Cesuca in Cachoeirinha in the region of Porto Alegre, Rio Grande do Sul in November of '24, reaching the milestone of 1,019 seats in our portfolio.
The authorization of all courses with a MEC score of 5 and [ I ] institutions recognized in the regions contributes to the attractiveness of these new courses as well as to the expansion of our business in such an attractive segment as medicine. In addition, the company has 5 requests in the administrative analysis phase at MEC and CNE.
It is worth noting that all of our current courses and the requests under analysis are in regions and cities with high purchasing power and with relevant populational flow, which puts us in a more protected position in relation to possible price pressures in the future.
We ended the first 9 months of '24 with record net earnings. Since the IPO, we posted a 12% increase in net revenue, driven by the 9% growth in the total student base. Adjusted EBITDA grew 14% with a margin of 31.7%, representing an expansion of 0.4 percentage points compared to the same period of last year.
Net earnings reached BRL 154 million, up 65% with a net margin of 8.1%, plus 2.6 percentage points when compared to the 9 months of '23. Free operating cash generation in the 9 months of '24 was BRL 407 million, an increase of 66% compared to the 9 months of '23. In addition, we continue with a healthy and comfortable leverage even after the acquisition and relevant dividend payout we had over the last 12 months.
The financial leverage indicator measured by the net debt over EBITDA ex IFRS 16 ratio reached 1.4x, close to the 1.3x in the third quarter of '23, even after the payment of the acquisition of FAPI in the amount of BRL 158 million and the payment of dividends in the amount of BRL 120 million in the last 12 months. Note that 59% of the debt mature as of 2026, and the current cash balance is sufficient to cover all payments maturing in '24 and '25, demonstrating the company's sound financial position.
Finally, I would like to highlight our journey since 2021 when we had the change to the current management and governance group, Cruzeiro do Sul Educacional in the third quarter and highlight the consistency and relevance of the results we have been delivering.
Since the beginning of the implementation of the company's new strategy defined in the second half of '22, which resulted in the creation of business units by education vertical, on-campus, health and digital education, we have shown continuous, consistent and relevant growth in our student base in all 3 education verticals. We ended the third quarter of '24 with a growth of 24% in the on-campus undergraduate base and 65% in digital compared to the third quarter of '21. This was organic, not including any acquisition.
In on-campus learning, we had a significant progress in the level of retention and re-enrollment, which remained at the high level of 91% of the eligible base in the third quarter of '24, up 2.8 percentage points versus the third quarter of '21.
In digital, we reached the milestone of 78% of students re-enrolled, the highest level since the IPO. The 1.8 percentage point increase in the re-enrollment KPI compared to the third quarter of '21 and the 0.5 percentage points versus the third quarter of '23, combined to the 48% increase in intake compared to the third quarter of '21, were important factors for the 65% expansion in student base. Additionally, in the third quarter of '24, we reached 25% of digital student base enrolled in higher value-added products in our hybrid model.
With the new strategy, we gained focus from the company's senior leadership and a more pragmatic allocation of human and financial capital to deliver since the third quarter of '21, growth of 43% in net revenue, a gain of 2.3 percentage points in gross margin, 61% increase in adjusted EBITDA with a gain of almost 4 percentage points in margin, resulting in a growth of 360% in net earnings with a gain of 6.8 percentage points of margin.
The focus of investments in technology to optimize costs and expenses made in the last 18 months has also shown that we were able to grow the business in the comparison of the 9 months of '24 and '23 while containing the relative advance of costs and expenses with personnel and PDA. Our discipline in technology investments based on concrete results and in M&A, demonstrated in the acquisition of FAPI, will continue to guide our decisions going forward, especially in an environment of upward interest rate trends.
I will now turn the floor to Felipe Negrao, who will provide more details on our financial performance. Thank you.
Thank you, Fossen. In the next slide, I will talk about the operational performance of the on-campus courses. We posted a growth of 7.2% in student base, reaching a total of a 165,000 students. This is the result of high retention rates. The re-enrollment rate remained at 91% of the eligible base, contributing significantly to the expansion of our student base.
We also bring the ticket data, which grew 2.3% in the third quarter of '24 compared to the same period of the previous year. In the 9 months, growth was 1.4%. These results reflect the new pricing strategy and the increase in the share of health students in the base.
On the next slide, we see the operational data for digital undergrad courses, which reached 360,000 students, which represents a growth of 9.3% compared to the same period of last year. This growth was driven by 2 main factors: the 0.5 percentage point increase in re-enrollment rate compared to the previous year; and the 6.6% increase in the intake of new students compared to the third quarter of '23.
The average ticket for the quarter was down 1.6% when compared to the same period of last year. This variation is directly related to a more aggressive pricing plan in student intake for the hybrid format with the objective of leveraging this product share in the digital format student mix.
As a result of this strategy, in the third quarter of '24, 25% of digital student base was enrolled in higher value-added products, representing an expansion of 2.9 percentage points compared to the third quarter of '23. In the 9 months of '24, the average ticket was up by 3.6% compared to the same period of last year, reflecting the evolution of the re-enrollment indicator.
Going into the financial details, I'll comment on net revenue in the quarter, which reached BRL 625 million, up 11% versus the third quarter of '23 as a result of the larger consolidated student base. In the on-campus segment, revenue grew 9%, while on health courses, it increased 13%. In digital, we had a revenue expansion of 12%, reaching BRL 204 million as a result of the larger student base. In the 9 months, revenue reached BRL 1.9 billion, 12% higher than in the same period of last year.
In the next slide, we show the gross margin in the quarter, reaching 49.9% and 83 basis points increase versus the third quarter of '23. The expansion in gross margin in the period is mainly explained by the gain in operating leverage combined to the efficient management of the company's main cost lines. Year-to-date, we had a margin expansion of 1.4 percentage points. The increase in margin in the period reflects operating leverage as a result of revenue maximization initiatives as well as efficiency gains.
On the next page, we represent -- we present the adjusted EBITDA for the third quarter of '24, which was of BRL 216 million, up 21% versus the same period last year. Adjusted EBITDA margin stood at 34.6%, an expansion of 2.8 percentage points versus the third quarter of '23. The increase in the quarter's margin is mainly due to the reduction in the provision for doubtful accounts and the labor lines.
The reduction in [ this ] EBITDA in the period is the result of the new collection management model with the implementation of policies, meritocracy in the management of collection offices, combined with the new collection technology platform fully operational since April of '24.
SG&A gains come mainly from the labor line, which goes -- or adds to the execution of the company's digital transformation project started in the third quarter of '23. In the 9 months, we achieved an EBITDA of BRL 604 million with a margin of 31.7%.
Moving on, we show the company's costs and expenses as a percentage of revenue, or net revenue, excluding non-recurring effects, which grew 2.9 percentage points in the third quarter of '24 and 0.6 percentage points in the 9 months of '24.
Since the third quarter of last year, the company has been focusing on technology projects in 2 fronts, providing a better experience to our students and seeking operational efficiency gains with the automation of processes. The maturation of these projects is already beginning to reflect in efficiency gains on several fronts, as we see in the graph on the right side of the slide.
Moving on to the next slide, we show the evolution of the company's adjusted net earnings, which reached BRL 64 million, 89% higher than in the third quarter of '23. The increase in net earnings is the result of the evolution of EBITDA in the period added to a practically stable financial result when compared to the same period of last year, reflecting the drop in interest rates in this period. In the 9 months of '24, adjusted net earnings amounted to a BRL 169 million, an increase of 75% versus the same period of last year.
In the next slide, we demonstrate the average days of receivables in the third quarter of '24, which was [ of ] 35 days, a reduction when compared to the same period of '23 as a reflection of the constant improvements in the new collection management model, the implementation of collection policies and the management of collection offices and the new collection technology platform as well as improvements in the provision criteria.
On the next page, we present the investments made by the company in the third quarter of '24, which reached approximately BRL 38 million, down 32% versus the third quarter of '23. In the 9 months, investments were up a BRL 107 million, a reduction of 23%.
Moving on to the next slide. We see the progress of free cash generation, which reached a BRL 199 million compared to a BRL 128 million last year. The strong cash flow generation is mainly due to the improvement in EBITDA, working capital and the reduction in CapEx in the period. In the 9 months of '24, we reached BRL 407 million, a growth of 66% versus last year.
Finally, on the last slide, we present BRL 781 million of net debt, excluding lease liabilities, with a financial leverage of 1.4x, practically stable versus the 1.3x in third Q '23. Net debt was mainly impacted by the disbursement of cash to pay for the acquisition of FAPI in the amount of a BRL 158 million and the payment of a BRL 120 million in dividends, which BRL 60 million were in December of '23 and BRL 60 million in September of '24.
I conclude my comments here, and turn the floor to the operator to start the question-and-answer session. Thank you very much.
[Operator Instructions] Beginning with our first question, Yan Cesquim, BTG Pactual.
My question is about the DL regulation. Last week, we had the release of some of the proposals of the regulatory definition of the distance learning. And we saw the regulation of hybrid courses, the restriction in offers of different brands per hub, the workload or the hour loads for distance learning courses. And how do you assess the risks of these changes to the company's strategies? What are the initiatives you're taking to mitigate those risks?
So we've been following closely all of the regulatory discussion on distance learning. We hear proposals coming from one side, the others. Things are not quite final what's actually going to be implemented or not. And we're getting prepared to comply with whatever regulation comes forward. The topic of last week, those issues that came up with one of the articles that said it was the problem of us having 2 different courses, 2 different certifiers in the same hub.
It's not a problem for us because this overlap is very small here. And at the end, we were already in a process of optimizing all of this even before this new understanding of the Ministry of Education [indiscernible] of what to do in distance learning. So we were -- actually, this is an additional cost in all of our product portfolio, our courses and our 7 certifiers. It doesn't make sense to maintain all of that for all 7.
So we were going towards a cost reduction process, reducing the number of certifiers, optimizing certifiers per hub. We only put it on hold because MEC put a hold on the opening of new hubs, and we are waiting to see how to position ourselves according to the regulation that is set forth. Of course, if a lot changes -- or if not a lot changes, we're going to actually reduce operating costs.
As for the smaller load of hours in DL compared to on-campus, we will comply with the determination. But it's kind of a step back because students are already organized and used to -- we already have the [ hour ] grid to share all of that. I don't know whether this is going to bring a great improvement to the quality of education that MEC wants to look at. And they're correct in doing so. But for us, it's not one of the drivers to improve quality of education actually.
And the other regulations in terms of restriction of hubs, size of hubs and so on, I've heard a lot of different formats being discussed in recent months, a lot of opinions, and we're prepared to reorganize with that. And I don't see any major issue. I maintain my view that any restrictions that come for regulators compared to today's status quo, the bigger groups will be able to adapt a lot faster and a lot better than the smaller players in the market.
Maybe there will be a reduction in total number of enrollments in higher education because this will increase cost and this cost is -- will be passed through to the cost of the courses and maybe this will leave out some future students from higher education. But in the balance of things, the main -- the large groups tend to suffer in the adaptation in the short-term, but they tend to resume growth quickly. Of course, it is concerning. We're keeping a close eye, but I don't see it as a disaster to this segment.
Next question, Mirela Oliveira, Bank of America.
I have 2 questions. The first about the pricing strategy for the hybrid courses. We understand that at this time, initially, it's a more aggressive strategy, but I'd like to understand a little bit of the quality of the students coming to the student base and how they're [ behaving ] in terms of [ default ] re-enrollment, if you can talk about this?
And the second question about the SG&A improvement, if you still see opportunities or how much you expect to capture in improvements, especially in PDA and personnel costs?
In terms of the pricing, we have a pricing model when we look more at maximizing revenue rather than specifically the ticket. We do not see the quality of students in the hybrid model getting worse over time. Deep down, we see our total student base with an improvement this quarter in terms of [ default ]. The hybrid model has been one of the drivers. Normally, we have hybrids and a lot of the students are close to the centers or the hubs of our institutions -- our educational institutions. So we end up using the laboratory, all of the infrastructure that is there in our buildings.
So that's one of our strategies to -- for intake and to expand the portfolio of the hybrid courses. So the quality of the students are not a concern to us at this time. We don't see any indication that it would be getting worse because we're being more aggressive in intake strategies.
This is Felipe. So about SG&A, I'll break it down into 3 main points, personnel or labor. SG&A in general, I think that's the first point, tends to grow not as revenue, but there should be still a slightly higher increase, higher than inflation. In personnel, I think we still have the opportunity to reduce it. Of course, these are people who have lower salaries. So it's not going to be a huge impact in those numbers basically due to the automation processes that we have. So there's still a lot of processes in development.
So OpEx tend to increase a little bit more because we reduce CapEx. The projects are getting into operation. And then we don't have as much CapEx, and we have savings in CapEx, but spend a little bit more on OpEx. And PDA, there's still improvements to come. We still -- we've been working a lot last year, this year in the collection side.
Today, we already have a 100% automated model with the management of meritocracy. We replaced [ firms ] allocating portfolio to those who perform better. And we've been working this year. We started working on the credit side, not that we have a policy or a credit analysis of our students, but we have some [ points ]. We had a little bit of our own financing that we started -- we stopped offering this year. And there are some other initiatives that we're working to see whether or not we can improve the quality of entries. And on the medium to the long-term, we'll be able to see an improvement in PDA due to these initiatives.
[Operator Instructions] The question-and-answer session is now over. I will turn the floor to Mr. Fabio Fossen for his closing remarks. Mr. Fossen, please, you may go ahead.
I would like to thank you all for your presence. This is an important moment, as I mentioned in my opening remarks. We're closing a third year of the new management and the new government for our company. Since 2022 -- the end of 2022, [ we've ] started implementing a set of strategic actions to guide our work, and it's been proving positive with consistent growth levels and constant relevant growth over time. Especially now we are including all of those seats in medicine. It's a 50% increase in medical course seats, and that's important. It would be very relevant to anyone. And for us, it is very relevant.
And what's important in medical courses, we have an understanding that we are very resilient to any pressure in terms of offers in medical courses that may come in the future. We're very well positioned with our education institutions in large cities. We gained with CEUNSP in Itu that's close to Campinas, [ Sorocaba ], Sao Paulo. We also have it in Caxias do Sul in [ Cachoeirinha ]. That's the metropolitan region of Porto Alegre. All of our other schools that we're working on, are located in regions with a significant high purchasing power and populational dynamics flow. So it's not like we're lost in a difficult to access corner of the country.
That's both for professors, to teachers, the cost of taking professors to the corners lost in the middle of the country, it's a very high cost. If there aren't doctors there, can you imagine professors of medicine? So we are actually positioned in good places with an availability of professionals to seek from [ USP Unicamp ] and other renowned schools that we can contract. So we see that our courses are valuable, and they continue to be valuable irrespective of the size of our competition that may come what's outlined in the definitions of the Ministry of Education.
Even [indiscernible], it's small cities or small towns located in the middle of Brazil that have a different governmental policy. And for us, we are a lot more resilient to these shocks in offer and supply. So that will continue to bring results to us next year and going forward.
And in other terms, we maintain our vision in the retention of students. Our main goal is for students to get in and spend 4 or 5 years with us. And this is something we know. The students that are retained have a lot more value than entering intake students in terms of financial returns. And we've been working for 2 years that -- we've been talking about in our calls that we're working on that with mechanisms and tools, improving the quality of education, all of this major process to improve the company's profitability as well as our evaluation at MEC don't drop in relative terms. Of course, everybody dropped a little bit with the pandemic, but we don't drop in major terms. And this is good work that will bring results even next year and going forward.
Thank you all very much. Have a great day.
Cruzeiro do Sul's earnings conference call for the third quarter of '24 is now over. The Investor Relations department remains available to ask any other questions you may have. Thank you very much for your participating, and have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]