YDUQS Participacoes SA
BOVESPA:YDUQ3
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YDUQS Participacoes SA
Earnings Call Analysis
Q3-2023 Analysis
YDUQS Participacoes SA
Yduqs reported a notable revenue increase of almost 20% for the first nine months of the year, with EBITDA also evolving positively at 8%. This overall growth trajectory, even without certain government retention effects and bonus payments, would still be in the region of 20%. The average ticket across various segments, such as Medicine, Digital, and On-campus, has seen significant increases of 10%, 8%, and 6% respectively, indicating the company's success in raising the value of its offerings.
Yduqs has delivered consistently high renewal rates of around 95-96% in the premium segment, underlining the segment's stability and importance during times of crisis. This segment achieves growth as well as margins above 30%, outperforming the company average. In Digital Learning, the company experiences a 25% rise in revenue, coupled with margin expansion from 39% to 42%, reflecting the strategic pricing and customer acquisition initiatives that focus on long-term value rather than just immediate enrollment increases.
The efficient management of expenses, including general and administrative costs as well as bad debt provisions, has contributed to stable company operations without major year-over-year variations. This accomplishment is a result of diligent efforts in retention, renewal, and collection practices. Additionally, the company's EBITDA margin improvement demonstrates careful cost control, complemented by revenue growth leading to an impressive 14% growth, aligning with the guidance ex-IFRS and ensuring healthy margins above 30% for certain segments.
The company has achieved strong growth in net income, with a 124% increase over the accumulated year to BRL 331 million, a remarkable performance given the prevailing high-interest-rate environment. Yduqs' solid EBITDA growth translates directly into impressive bottom-line results. Furthermore, the company boasts of robust cash generation, with a strong quarter that contributed to significant shareholder cash flow, affirming healthy cash levels and financial stability.
Yduqs has managed its debt prudently, maintaining short-term maturities with no significant debts maturing by the end of 2023. This tactical approach provides the flexibility to monitor the market for opportunities. The company has also communicated a new issuance of debentures totaling BRL 700 million with maturity profiles spanning 5 to 7 years, which will serve to refine the overall debt profile and total cost.
The company observed a stable campus operation despite industry-wide challenges, achieving a significant 32% increase in new student intake over the previous year's third quarter. This demonstrates optimism about the business's trajectory and recovery efforts, including the ability to incrementally increase prices and achieve healthier margins.
Yduqs highlighted the resilience of its business model over recent years, particularly through the strength of its diverse portfolio, which has been continuously evolving and delivering value despite obstacles such as the FG-FIES retention issues. With signs of recovery in retention rates this year, the business units have demonstrated an important evolution in overall strength and longevity.
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Good morning, ladies and gentlemen, welcome to Yduqs' video conference to discuss the results for the third quarter of 2023. This video conference is being recorded, and the replay will be available at the company's website at www.yduqs.com.br. The presentation will also be available for download.
We'd like to inform you that all attendees -- we should stress that at 11 a.m. Brazilian time, we will have the presentation in English. [Operator Instructions] Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Yduqs' Executive Board and the current information available to the company.
These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements.
Present at this video conference, we have Mr. Eduardo Parente, CEO of Yduqs; and Mr. Rossano Marques Leandro, CFO and Investor Relations Officer. I would like to hand the floor over to Mr. Eduardo Parente, who will begin the presentation. Please, Mr. Parente, you may proceed.
Thank you very much. Good morning, everyone. Welcome to the presentation of Yduqs' third quarter presentation. I think you'll see a lot of consistency here.
Consistency, not only the evolution of our results, a bit here for the fourth consecutive quarter, growing by 2 digits, but also in what we've been telling you that would happen. So there's an important evolution in cash generation and net profit, in evolution of deleveraging and also in funding because of the portfolio that we have, which is no news to anyone, which has helped us to maintain our growth trajectory during the pandemic.
And now when the economic recovery is just starting of classes C and D, you can see how much operating leverage we can bring to our business. So let's move on to the highlights page. I'm now on Page 3. The headline here is the consistency with a new level of EBITDA margin and cash generation.
On the left, we have figures for the first 9 months of the year net profit that has already exceeded BRL 330 million, big increase over the same period last year, and operating cash flow practically reaching BRL 1 billion here. And it's very important that the EBITDA ex-IFRS growing by 35% compared to the same period last year to BRL 1.1 billion in the first 9 months of the year.
This leads to a reduction in leverage, which happens on both sides with cash generation contributing to our debt reduction and EBITDA growing significantly compared to the same period last year. So we went from [ 196 ] at the end of last year to [ 153 ] at the end of this quarter, which is still not where we want to be, but that leaves us in a much more comfortable position, especially at this time when we see a very positive development in the reduction of interest rates.
To the right of the chart, we have very important growth in EBITDA in the third quarter. Last year, the third quarter had already been a very important number. Within the guidance, we had given, we talked about 10% to 20%. We did 14% in the year with a bit of growing in all business units, which is another important thing. It shows the On-campus balance that we have, and we're going to talk about that soon.
And a clear moment of recovery here in the middle that we see good intake, both On-campus exceeding the band of the guidance, 26% vis-a-vis previous year. On-campus, 32% growth of the previous year. And on the right, we have significant advances in our average ticket, both in Medicine with 10%, digital with 8% and On-campus with 6%. I'll talk about each of these figures in detail on the next few pages.
Let's move to Page 4, looking at premium here. This chart kind of repeats itself. There are variations to double-digit growth here in revenue, double-digit growth in EBITDA. I'll comment a bit on that. So what do we see here?
Revenue growing almost 20% in the 9 months of the year. Within the quarter, EBITDA evolving 8% with 2 important effects. We had talked a lot about its previous quarter on the effect of greater retention that we had by the government. And yes, this had an important impact on Medicine. This continues to happen this quarter.
And on the other hand, we have the effect of bonus. Well, we had no bonus last year, and we have bonus above target, very much in line with the results you see here. And the whole growth is -- would be about 20% so much in the quarter and the first 9 months if these 2 effects were kind of deducted.
So the business continues as usual, and we have the effect where we have a prospect of recovery of transfers, not perhaps to have the level we had before but lower. President Lula has enacted an act. On the sense, we have a positive evolution and recovery of growth that follows what we had previously.
Bottom left. We continue growing the total student base, as we've done every quarter, almost getting to 16,000 students, undergrad and grad. So medical students, we have 8,400 students of IBMEC with great evolution in Brazil with the new campus Faria-Lima really booming.
On the right bottom side, so we have undergraduate average ticket renewal, 96% renewal -- 95%, 96%. That's what we have been delivering. So premium is this. I think it is a growth that is constant. And I believe you've seen this in the pandemic, the proof of crisis. It was very important to us at the time of crisis, keeping our portfolio as a whole and ensuring that we would continue to grow with margins above 30%, and this is a segment that grows more than our average with a margin higher than our average.
So it is almost an insurance for hardship moments and good for moments that we're going through now. Moving into Digital Learning, the great joy of the year. Again, we talked a lot to you about this last year, strong growth with margin expansion. Both at the same time last year we said, it's not a year in which we see great price elasticity. We are focusing on the lifetime value, LTV, students. So last year was a combination of higher prices with intake that was not so strong.
And this year, things have envisaged of discounts we see with intake much stronger than last year. And this combination will generate higher LTV. We have a powerful combination. At the top, you see growing revenue, growing margin.
And below, you see the effect of last year's strategy where we have a price level higher that we had -- higher than inflation, which is not the tradition within distance learning. So you're looking at the top, revenue growing 25%, very much driven by Undergrad and Digital Learning. So EBITDA, well, the increase from 39% to 42% in the year. We've been telling you this at a little different level.
We understand that this is something that is here to stay. We talked a lot about the 39% last year, and this operating leverage allowing us to work with higher numbers. Looking ahead, we have an expectation of a contribution to the portfolio as a whole that will be significant. Student base growing 15% compared to last year, where we exceeded 1 million students in this business unit with a ticket that's important here than I tell you, the ticket and natural is to grow along with inflation.
Approximately a bit more or less than the average ticket for over a year. So when people have been with us for over a year, they've gone through all the period of offers [indiscernible] et cetera, that leads to a lot of confusion when we set the price. When we look for less than a year, you have greater notion of trends over a year. So this number is important to us. It's not likely that this number is repeated next year because of the strategy we've had now, but it's bringing very important results to us.
Renewal, again, stable 73% varies 32%, 74%, depending on the quarter. I think we see what is very important here is even number of intakes that were smaller than odd number quarters. So they are converging. It tends to be for the next quarters to be good news. And the chart on the bottom, perhaps is the most important point we had great intake with 110,000 students so growth of 26% compared to third quarter last year and the first, second quarters have been very good.
So we had great intakes in Digital Learning, benefiting a lot from this operating leverage with a lot of technology, again, capability, discipline, focus of taking to students what they need, what they can learn, engaging students.
This has been very successful here at Estacio and other brands. Moving to On-campus on Page 6. We have very important effect here. The aspect of tickets on the previous page, I told you that the 8% of growth in distance learning should follow inflation from now onwards around that. When we look at this On-campus, the reality is different. We see On-campus operations, all of them, doesn't matter the size of the group that is operating, you see a lot of people in red, facing difficulties. This price level is not sustainable.
So we see this movement of recovery. It's been happening for over a year. Wherever we are and our expectation, I'm not promising anything to anyone. This is the work we're carrying out. And I see competitors from all sizes doing that, for us to be able to evolve this price and recovering healthier margin for this area from now onwards.
So beating inflation is something we've been working hard from now onwards and believing in that. So renewal, again, very stable. It's vary from 82% to 83%. It has been like that for many quarters. A very important point is intake of Q3 2023, 53,000 students, 32% over third quarter 2022, very excited about what's happening again.
On Page 7, we have the Enade results, the accomplishment examination for higher education so it's the last 1 during the -- people that went -- took the Enade had their experience university study at home, doing tests and examinations at home. And when we look at the -- some of the institutions, Enade has worsened compared to the 2018. We're talking about 2018. 2018 is the comparable basis. On the psychology management, those courses were assessed in 2022 should be compared to 2018.
On the left, we have our On-campus results. We had an evolution of 1.4 percent point in the courses, well placing from fifth to third place, and it's an important evolution in absolute terms. In relative terms, moved from fifth place to third place in the -- amongst the listed companies with a higher number of students for 3, 4 and 5, very close to the first and second. On the right-hand side, we have distance learning. It's been worsening, but we're still leaders. Most of the -- 100% of students are Digital Learning with technology more than infrastructure that we have. And we are still leaders here. So it is not an Enade that we're going to in the future as an industry looking back, say -- well, it was a year to be remembered.
But in relative terms, Yduqs is doing quite well here as appointed by experts in the industry as well. I'm turning over to Rossano to talk to us about revenue, costs and financial results.
Good morning, everyone. Thank you, Eduardo. Moving to the revenue side. Once again, a quarter with strong revenue growth, moving 14% quarter-over-quarter, 13% in the year accumulated and showing the transformation the business has gone through past years. 2018, we had premium more digital, adding to 22% of our revenue, and we get to 58% of our revenue.
So the important transformation of the business, more concentration in businesses that are more profitable. So more concentrated in the new revenue lines. Moving to the expenses -- the cost and expense, very efficient work the company has been doing, is to be highlighted. We show the growth of G&A and bad debt. So for G&A, we had mentioned the impact here of the increase of variable compensation, the result of the operating results of the company.
So it's quite stable without the specific effect. In case of bad debt, we have provision from -- coming from students, initial provision that we make at the time of recognition of original revenue. We recognized [indiscernible] 20% of all the revenue linked to this.
And also the funding and the intake in the total revenue of the company because of the strong intake and revenue increase and we have also a stake for this. When the accumulative year, we see stability of bad debt on NOR. So in the annual view, we haven't had relevant variation year-over-year, the result of the good work that has been done in terms of retention and renewal, along with collection work.
This shows the effectiveness of our investment in technology that we have made. They are not only guided to the student experience, intake, all the process that involve students, including collection. All platforms that have interactions with students. They're much friendlier, stable, effective compared to last year, makes all the difference considering our aspect to mention, we see positively reduction here, great power of the efficiency of our intake platforms, increasingly technological and digital. everything is more effective, our intake, reducing our costs and leasing.
We have a process that is consensus seeking efficiency in spaces and renegotiation of cost of square meters that we have in the same line. We see a positive impact to our margin. Moving to Slide 10. We go into EBITDA, a combination of these factors, growth of revenue and cost control. We have an EBITDA control growth -- 14% considering the guidance ex-IFRS, we were 37% in each quarter, impacted that it's more positive. This growth led to an increase in margin of 2 percent points in the accumulated of the year, consistency in the growth in the business units.
Highlight that it should be observed with the margin of the premium that has a negative impact, very much due to the retention process of ex-IFRS and the variable remuneration that impacted the results in the accumulated isolating the impact on margin would be practically stable on FG-FIES, mentioned by Eduardo. We have a bill that has been passed. That will be in effect and limiting to retention to 27.5% of FG-FIES from now on -- we should get positive results, not getting to previous levels, but improving regarding the quarters that we've had previously.
Another comment, counting adjusted EBITDA getting to BRL 473 million -- BRL 453 million with nonrecurring effects. Moving to Slide 11, we get to net income. Strong growth, 124%, accumulated year. Well, BRL 331 million accumulated in a scenario of high interest rates, consuming large volume of the operating income. We see positive results. We have great growth of EBITDA, reflecting directly to the final results of the company.
On Slide 12, we have cash generation. Again, we have a quarter of cash generation that is quite strong performance of operating results, is added to our discipline of cash leading to very healthy levels of cash flow to shareholders [ BRL 108 ] million in the third quarter [indiscernible] in the accumulated of this year, great relevant growth compared to previous periods. In this consensus, our average term of receivables is stable with the great growth of revenue and intake. Our average total term is stable or average term of receivables is stable. So we have CapEx all the way reduction. We had a peak in the periods between '21 and '22 -- '20 and '22 rather so we think we have this guidance of reduction of CapEx.
We have the accumulated 8.6% of NOR, getting close to our guidance of long-term reduction of 1% point vis-a-vis previous year. Again, highlighting the concentration that we kept investments in digital transformation and IT, and we'll keep on taking us to the next steps.
We believe the strong cash generation in our business is key, one of the factors that differentiates us in the market. We're very well positioned with great flexibility. We've announced that we're going to pay BRL 80 million in dividends in December. Moving to Slide 13, another slide with positive highlight in the quarter. So I did mention in the initial slide, so we leveraged 1.53x our adjusted [indiscernible] so we have strong cash generation and also because of our EBITDA brings us to this position that is increasingly more comfortable.
So this position of 1.53x reduction of our leverage. So we have short-term maturities. We have no maturity by the end of 2023, and it gives us assurance to keep on monitoring the market in an opportunistic way. Only the ratio of our debt with future prospects of cash generation.
In this context, we've approved to communicate it to the market, the new emission of -- or the issue of debentures, BRL 700 million, maturity in the quarter that was launched in the market with maturity. It will be in 5, 7 years expanding the profile of debt, working on our total cost.
I turn back to Eduardo that is going to talk about the resilience of our business in the past few years.
Thank you very much, Rossano. I think this analysis is quite an important one, especially for those arriving here to the industry. So the top bar chart, all the numbers on this page are LTM, the last 12 months. So the churn is the basis of our EBITDA. We start 2020 when we made -- disclosed the market by business unit.
So when we broke down by business unit, so you see the evolution in the last 12 months in the third quarter, greater the second -- greater than the first. We have important evolution happening. This is the best characterization of the strength of the portfolio we talk about. The green -- the lighter green at the bottom starts with BRL 310 million is premium that never stops growing and is booming. It suffered a bit because of the FG-FIES, greater retention. Recovery of retention this year is higher.
You have growth higher in medical schools -- in Medicine, many -- 2 groups or classes that have not graduated. So are in the medical school. So we have contracts here that are strong. So the slightly bump of FG-FIES, but the recovery here is quite evident. In the middle, we have digital that grew during the pandemic last year with this intake that was smoother and price protection. What we are capturing from this price increase we had last year is coming together this year, with the an intake recovery this year. Super success case from [indiscernible] quarter to 2020 to almost BRL 7 million third quarter 2023.
And On-campus, as I've mentioned previously, from 2014 suffering with FG-FIES on the hardest part in 2022. And with our price recovery, operating leverage and strengthening, we managed to have a major recovery at the time that we're going through 2023. Premium keeps on growing, the other 2 take benefiting from the beginning of economic recovery that we are very optimistic from now on that we're going to have more recovery in Brazil. The economy moving up and the social classes we serve, especially in Distance Learning and On-campus are the greatest benefited parties of this recovery part of this 32 million Brazilians that have middle school, but not have higher education to have their income leveraged by that, trying to seek school benches, bringing great growth to the industry as whole.
Bottom left, it's very important to see this analysis taking the hit of the interest rate increase. We had over 2022, so the green line is how much we paid in interest. LTM grew and grew and now it's starting to be reduced resulting from the drop in interest rates and also because of our deleveraging that is happening, as Rossano mentioned. And a recovery of our net income growing as well as on the right-hand side, an important operating cash flow. In the past 12 months is over [ BRL 1.1 billion ].
Moving to Page 15, another important analysis showing the resilience of our portfolio. We've grown every year in terms of revenue, even very difficult years, 2021 and '22. We have been having major growth in '23. Every year, we delivered a margin of 30% or above. And we paid dividends since 2007, 16 years paying dividends every year, which I think is the sample of the trust that we have in the business, in the recovery, even at difficult times that we've had here.
Moving to Page 16. This is the reason for great pride to us. We have 53 years of strong action. We are very much recognized by that. 3 years to now, we've been working a lot on communication and standardization, and the ways that are usually made by international communities, and also considering goals.
This year, we are 94% in our goals attainment of ESG. We down here. We have a relevant point, our participation in the movement Elas Lideram and Raça é Prioridade, our support to the global compact. we're members of CORB, the public disclosure of greenhouse gas emissions. And the point that I want to stress right now is our promotion in MSCI that we moved to -- from A to AA, the great accomplishments, is the only educational company in Latin America that is amongst the global leaders that MSCI points in the ESG. The only educational company that is part of this AA, AAA rating.
This is not something that is negligible. We're very proud of it, the effective work of many people and external recognition or foreign recognition that what we do is truthful that we're very happy and proud to be able to share this with you.
Moving on to Page 17, a big summary of what we've just discussed. We're talking about consistent EBITDA growth. This is very much the assemble of what you all know. Price discipline, also great cost discipline. We are always thinking what actually adds to the education of our students, having focused on this with quality. We have a portfolio strategy that is winning, leveraging -- deleveraging that's strong even though we haven't had the economic recovery as we expect so average ticket of a classman over year. Growing all our operations. Digital and On-campus intake whole year doing quite well. In this quarter, is still great success compared to previous year's quarterly net revenue growing 2 digits evolving all businesses, including On-campus, very important point.
EBITDA growing for the fourth consecutive quarter 2 digit growth net income, a recovery for levels that in the pre high interest rates, so cash generation for shareholders, quite important. So we have very healthy cash availability. We had very important reduction -- leverage reduction so 0.43x versus fourth quarter '22. So it's important. Considering EBITDA, cash generation and this fast movement is not yet where we would like to be. We have a lot to go and the level that we are already giving, feeling quite comfortable compared to what we felt a year ago.
Moving on to Page 18. We have dividends that we had announced to you that we're going to pay in the fourth quarter intake. Fourth quarter has been doing quite well. We are projecting growth of 10% to 20% vis-a-vis fourth quarter '22. EBITDA of the fourth quarter, we expect to have from 5% and 15% vis-a-vis Q4 '22. We had a growth 19% compared to quarter 4 of '21 so over a strong growth last year, CapEx moving the trajectory getting to 7%, 8% in midterm. We've been telling you with the reduction of CapEx, about 4% compared to last year with an increase of NOR that sets a trajectory for us. To take an additional step to the number that we've been announcing to our guidance for the year, 130, 160 new medicine seats, we had 53 approved in Alagoinhas, and we have the expectation of fulfilling this number this year.
This is what we wanted to share with you. I think the consistency that I showed you in the opening is quite clear and the results are not only talking about the EBITDA, EBITDA ex-IFRS, cash generation, deleveraging, net income. We have important evolution happening here, and you share this not only the pride of what we've done over this year that has led to these 9 months of very positive results, but also the excitement of what we see ahead coming not only to us but to our industry and to our country. Thank you very much.
Over back to you, operator.
[Operator Instructions] First question is from Fred Mendes from Bank of America.
I have a couple of questions here. Perhaps the first 1 is more strategic. Is deleveraging is very clear, the trend with CapEx reducing, the trend is to speed up the deleveraging. So actually, we have at 1.5, should we expect a bit more dividends, continue to deleveraging, seeking new forms of growth? First question. Second question is more an update on news of the new potential regulation on distance learning, some more reductions, restrictions. What can you tell us about these topics.
Well, I loved your questions. Well, the first, it's really cool because you start listing options. So are we going to pay out dividend, deleverage, seek growth options? This shows the moment that we have been able to build to get here, having these options and these discussions. We have a trajection here. I like that page very much that shows the growth every year, margin above 30% with dividends being paid out, classical compounder. And then the element missing there is to make good reinvestments in the industry.
So we look at the 5 M&As that we've made in the past 5 years, have been very successful even though that we made pre-pandemic when you look at the numbers retroactively with loss of revenue, et cetera, but they were good businesses. So I believe we have a discipline here from what we took, what we haven't taken, and we have the recognition that is clear of good capital allocation. A very long answer to you. I believe the trajectory is to keep on deleveraging. In my mind is to get to numbers below 1. The comfort is to get even better.
We have important evolution that continues. We see cash generation and it applies to Q4 that we -- what we have in the budget for 2024 that is ready. What may happen halfway is that we may find a very good opportunity. And the bar is quite high. We're talking about specific points and add to our portfolio places that add very specific additional geographical geographies in Brazil, that may be weaker.
The trend is first to keep on deleveraging. Obviously, we're not going to miss these momentum. We have this track record of over 16 years paying dividend. We are compensating our shareholders. It's important for us to have created options.
Rossano, would you like to add anything on the second question?
Sure, Eduardo. No, nothing to add.
Okay. Aroldo?
Thank you, Eduardo. Thank you, Fred, for the question. Possible change in distance lending regulation is very, very much talked about the basic assumption is that an assumption that brings more surveillance to us is good. Not only for what Eduardo mentioned [indiscernible] we have a year of many visits. We had -- for all of them, we had 3, 4, 5, most of them 5. So we have very good ratings in terms of our courses. So we have an increase in inspection to us. It's going to be good. The points that are being questioned, medical courses, public [ constitution ] and the way to ask today, it's not very good. The short-term impact may be small.
Another important point that we never stopped believing in other courses, both On-campus strong and 100% Digital Learning. So any changes in restrictions on 1 hand or on the other hand, we believe we're going to be benefited by that as well. So we should, of course, revisit our strategies, but we believe we are prepared because we have a broad portfolio of products to be delivered. Any changes to regulation, I believe, are going to be part of it.
Just as we have been in the past changes that have happened over the past years, from 2017 to now, that's it. Slight changes in the short term to our results, considering the we're not large in these medical and semi or hybrid courses that we see opportunities that we can have intake in the On-campus, semi distance the certain changes in the future. So I strongly believe in that.
Next question is from Marcelo Santos from JPMorgan.
I have two questions on my side. First is [indiscernible] seats that should come to the market according to what is -- 2,000 of private expansion, 2,000 public expansion, government published 10,000 seats that you plan to put on the market. How do you assume this should impact the dynamic of supply demand in the market? Do you believe tickets and margins are sustainable. This is my first question in medicine.
Second question is whether you could make a well, elaborate a bit on the competitive environment On-campus and Distance Learning.
Talking a bit about the [indiscernible] so the government has understand that there is need for increase in the seats for medical schools with 10,000 new seats. We should consider that it's not mandatory to get to 5,700 seats in those 95 courses. This is maximum potential.
There are certain limitations of the educational institution, as they are visited. It's important to stress that this number is not certain. It will depend on several other variables, the performance of the project to get to this number, but it is a fact that there is an expectation on the new tender for private institution. We should get to 95 new medical courses and maximum potential of 5,700 in addition to 2,000 to public federal schools and to other 2,000 seats for the previous ordinance of increasing seats in existing courses.
And it's worth mentioning that in this bid, it's a maximum potential because the courses have been -- well, the bar has been raised from 3 to 4. So this has impacted the seat in the recognized course when we go to the analysis of [indiscernible]. We believe that we are very well designed because actually, it has mechanics that take medical schools to places where there is a lack of doctors so places that have 2,500 doctors per -- 2.4 doctors per 1,000 [ united ]. So when you see these ratios, they are municipalities and actually have network of health that is very precarious. So actually, this increase in seats will happen, but not in the volume metrics that is being expected there.
Those are regions that are actually we have lacked medical schools in the region. There is a great pent-up demand. And many times, you increase this bucket, people can -- applicants that could not have access to -- commute to other places accessing medical school seats there. So we are positive about that. It will bring a change in terms of decentralization, taking medical schools to regions that have market demand as well as social demand for those courses.
On our side, we have a history of success in previous tender processes. By analyzing the municipality we see, considering our capillarity with On-campus courses with medical schools that are well seen grad, undergrad.
So we see people that are able to deliver quality medical courses. They'll be very competitive, and that's our case. So we do -- we're not concerned about that because actually, those are geographies where there is a need of medical courses in the region. If you analyze their municipality of 30,000, 40,000 inhabitants. Most of them and around them, we have several health care regions of [indiscernible] 50,000 inhabitants. So quite optimistic with this tender and it's positive for the industry and also for society. So it's not -- there's no short-term concern in this case.
This is it, Marcelo. We are super prepared for [indiscernible]. Some acceleration in price growth will be offset by its volume and it looks we are very ready for that. And there is an effect also on demand. So it's as a tender, as it was said that it has been very well drafted, thinking about what society really needs. And this helps us a lot. There's something that makes sense. So you're having something that is good for everyone.
We're excited with what we have in terms of medical school profits, on On-campus and Distance Learning so if we compare them. When we look at Distance Learning, we have evolution, great groups, is increasingly more difficult for you to be competitive on Distance Learning. So we have a lot of expenses, scales important. So we have an advance of all groups. And we see growth happening. So people always say, well, until when -- so until when, in our view, it's very far. We have 30 million -- 8 million people studying on Distance, Learning. Approximately half of that, we have new students every year, 1.5, 2 million.
So when you have [indiscernible] what we get from middle school, it's a lot of people to join. So we have a very clear benefit to people of income and to education, places in society when you join such course and competition has something that has been very positive. We see great evolution in quality, ours and competitors, people sort of provoke. Other people want to do inclusively better. The point of Aroldo, in his previous answer, the tighter it is, the better to us. The tighter the more we challenge ourselves and to create differentials here. So there are great groups that are growing. We are 1 of them.
We are growing in terms of FG-FIES. This is clear for this year. It's a market dynamic that is a market that is growing. We don't see the market stopping to grow so soon. So we see it in a positive way. What has been happening in Distance Learning. On-campus, this is slightly different since 2014. There is a sequence of crisis. We have FIES, economic crisis, COVID, pandemic, many things happening. On overcapacity that was clear for 2014, that was appropriate at the time, but with the reformulation of FIES and all the crisis we went through overcapacity to the market that is being resolved.
So you take our example, we moved from 120 something to 88, 89 today. Now we see that with the large words. I could take 10 minutes mentioning small numbers there, remember by how that closed our capacity partially or completely. We see this trajectory. We -- it's a rare moment that we are the last add. We saw numbers of -- we've been seeing following numbers of competitors.
This is very good. This is an adjustment of supply and demand. We have a recovery to semi On-campus that is strong. Great opportunities for us, for competitors have seen that before us. We're sort of trying to catch up on bad side. We could be different. So good side is the great opportunity for growth that what we see. The arrival of road on On-campus has had great impact to that at the time that we've seen the product what we're going to do differently, brought great choice over this year.
When we look at the type of margin that we practice On-campus 23% of we have accumulated over the year. When you take CapEx, when you take lease from that and other accounts to be paid interest, et cetera. So it's still have a small margin because we have large leveraging, a lot of technology, a lot of Distance Learning courses, less in the others, in the industry show the difficulty that people are facing. Any movement that is positive. It's a bit the question that people from the newspaper asked me, yes, yes, does not have a short-term effect. Well, good news, last year, if you think, it will be changed.
You have FIES coming back robust and sound as we wish it to be, broadly recognized by society is something that is good to it. Society will have a small impact and gradual that removes the pressure on On-campus. When we look at the prospect of Distance Learning growing and evolving, serving more people increasingly with more quality. When we look at on-campus, I think it's a recovery, not at a level pre-2014, a recovery with -- that's quite different with prices -- quite different from what we priced today, but gradually, slowly and always. We'll keep on growing. Aroldo?
I'm going to take you by surprise. Do you want to add anything?
No, No, I think this is it, Eduardo. Nothing to be added.
Have we answered your question, Marcelo?
Yes, you have, very well.
Next question is from Vinicius Figueiredo, Itau BBA.
Two questions here. First, moving into cash generation. We saw a quarter that is very strong in terms of free cash flow. Very broadly mentioned in the introduction. So you had an improvement in working capital, although greater contribution coming from Gs.
I'd like to understand what has been done in the line of monthly payers, SGs that led you to have cash release in the part of receivables, even with this point of the mix? And the second point I wanted to explore is regarding some costs and expenses. You had an improvement in personnel cost when we look at your On-campus, specifically.
And you have marketing expenses that helped in all segments. If you could comment on how we should project this looking the quarters ahead. This would help a lot.
Thank you, Vinicius. You've asked everyone questions almost. I'll let Rossano talk about. Rossano, he will introduce and then Aroldo and Marcel will come in and complement.
Well cash is a bit what we've been telling you in the past quarters. I mentioned during the call, we've been investing a lot in collection process, using increasingly more technology, digitization, use of services increasingly more intense that our technology intensive. This has been improving our collection process. In addition, this is a product that is very mature.
We have been receiving all these installments of the revenue that we recognized in the beginning for those [indiscernible]. We recognized the payment in the month and student pay the installments over their course. We do not offer anything post-course, but this is paid along their course. So cash that comes in and revenue was recognized last year and increases or improves our cash flow. Well, that's day-to-day work and constant evolution on working capital. Second question on cost and expenses, I'll leave it to Marcel to talk about marketing.
That's something we've been having in marketing with a lot of investment in technology, digitization. Our portals or digital channels have been increasingly more effective. We see more productivity in this line. Total merit of our team market of intake.
Let's turn over to them, so they can talk a bit more about that.
Thank you, Rossano. Well, Vinicius, so far, we've been working quite hard in terms of efficiency in our marketing lines, both in terms of performance that is all online and off-line. Off-line is a negotiation that is more on a case-by-case basis on issuers, et cetera. We changed a lot our model of contracting, is now more regionalized choosing the audience or our target audience. And the part of that everything is online. Our main front of investments is marketing. As Rossano mentioned, we have been following a journey of evolving our intake tools.
The website is a major one, major investments. We moved from a scenario, which we had the time of enrollment that was like days to day. A person with a ready documentation can complete the registration in 5, 6 minutes. Content evolution that we see. We see evolution if the audience that actually applies and enrolls in the same browsing, this has improved 4 percent points with certain consistency. This obviously demands us to be a bit more accurate in the investments in other areas. And this generates efficiencies. You've asked in the line of what we have ahead, that's super important.
Some points that are relevant to us. First, and next year's NM, we have great seasonality. For 2024, it's anticipated. We're talking about the results on the [ 16 ] that is expected. We have all the marketing plan very much linked to now to the end of this year. So we have an expectation of closing the year with a number that is in book terms close to last year. we are closing -- generating percent points, considering your revenue.
But in terms of numbers, we're sort of keeping the same levels as last year. Next year, again, we run lots of tests in terms of price and marketing. And we see the possibility of expansion in some marketplaces with great relevance. My answer of what we have been doing over this year. So we have great opportunity with the market recovery, as we have felt of investing more in visibility and a bit more sort of seeking, trying to present and having the [ Yduqs ] brand a bit more visible.
So next year, between 0.6% and 1% points of margin ahead of what we presented this year. This is super relevant. We've seen all the investments we've made, yielding a lot of results, 1 of them so taking new entrants [indiscernible]. This is quite emblematic to us in terms of growth, shows a bit of our soundness in terms of distribution portfolio and how we have been able to take the brand to every corner of the country in a more uniform way. The other one, I'll turn over to Aroldo.
Thank you, Marcel. Thank you, Vinicius. On-campus and Distance Learning, we have relentless search for efficiency. And as you mentioned, quickly what has been done over the past 12 months, almost that we reduced almost 250 people in the secretariat or registry well service increasing our NPS and satisfaction rates.
So we increasingly try to use technology and using -- we look at the process all the time what can be improved, what we can use in terms of technology. The specific cases, I've mentioned are self-service. We can -- people can use our portals to improve service, reducing costs. So we increasingly looking at that technology also is present very strongly in these processes that were more manual, more in person to -- we are getting good results in the personnel line, but in other lines. For On-Campus, this has been helping in the margin improvement personnel. We've captured a lot. We still trying to get some more possibilities of improvement over time.
Our next question is from Leandro Bastos from Citibank.
Two questions. One, a message of price strategy on the intake of you or on Distance Learning, is it similar to what has been the rest of the year? More elasticity and price ticket a bit below? And then for the [indiscernible] what are you imagining for this market in 2024? I know it's early, but do you consider Distance Learning will be similar to 2023, large volume and higher elasticity. It would be interesting to take this expectation of the company. This is a question.
The second one, taking opportunity what you've mentioned, accounts receivable is active and active.
Talking -- thank you to talk about the mechanic how it works, each transfer of students active from an active provisioning, increase in coverage, how long it happens and how the write-off policy works for this. I think it's would be interesting if you could elaborate on it.
I'm just going to make a disclaimer. We've given a very long answer because you're asking very deep questions, which is really cool, but it shows that the surface is very well absorbed. I'm going to start with 2024 and I'll turn over to Marcel to talk about full Q4 and Rossano talk about [indiscernible].
2024, we read some reports. We haven't been able to read all the reports. I'd like to draw your attention, and I'd like to say that and talk about the quarter is what we've announced today, but the trajectory that we've had since Q4 last year of 2-digit growth, sometimes it 19%, 27%, now it's been 14%. This trajectory is important. We invite you to make a reflection a bit more on the threat. Why do I draw 2024?
We had no fantastic intake in Q4 in Distance Learning. We had fantastic in the first, second and third. Second quarter, we had 80,000 in Distance Learning, which is almost 200 in the first quarter. It's very strong every quarter. Great sensitivity to the moves we've been making, not only for us. Had a quick look at other disclosures.
And on the basis that is large -- great growth on a very large student base. So we have nothing to -- that leads us to think that 2024 will be different. Much on the contrary, what we're feeling now is a move that is a slight move of economic recovery, that impacts us positively. We believe in the strength of the portfolio. It's a portfolio that we worked very well during crisis.
Any recovery 1, 2, 3 of GDP, we have great sensitivity. It's early to talk about 2024, but what we see in 2023 and this sort of final lap of this year makes us feel very excited to what we see ahead. Q4, Marcel?
Thank you for your question. On Distance Learning prices in Q4, we see a scenario that is much more accommodated or laid back. Distance learning, of course, we have constant of tests to check volume price. This is our day-to-day here, but we see a competitive scenario that is much more relaxed in the levels that we've seen over the year. .
We don't see any crazy moves being made by any player. I'm speaking specifically about the Q4. With this, we follow with our levels of tests, and we have equated this quite well. All this LTV, we try to optimize the ratio that we have between base -- student base and price.
We've managed to get these good volumes operating daily, these competitive aspects in the markets where we're operating, testing different strategies. But the scenario overall is very smooth. We're very positive and confident regarding Q4, as Eduardo mentioned, both for Distance Learning and the first signs that we have that we start collecting for the early next year.
It's a quarter again. Adding to the previous question of great preparation for the beginning of next year, that has important seasonality in the 2, 3 first weeks of January that we have prepared. We're very optimistic in this regard.
Thank you, Leandro, very qualified and technical. I'm going to try to be as comprehensive as possible in my answer.
The write-off not only for dues for any accounts receivable that we have open. Our write-off is complete over 330 days of nonperformance of effective delinquency. We have no accounts receivable in the company over 330 days in a year. This is a rule from the first day of delay. So this is a growing rule that will reach write-off at the end.
So the rule of dropout is much more stressed. It reaches 90% or less in 6 months. You have 6% of provision. You reduce the likelihood of receiving once the students are inactive. So it's more faster in a conservative attitude of the company in your point of moving to active and active dues, how this goes to payers or not. We keep accounts receivables.
We have a long-term revenue vision, revenue that we receive on the students over the whole course. When the student drops out, the debt matures immediately. So they have dues to be paid [indiscernible] drop out at the time the debt mature. They have to pay on the spot. So that becomes a normal accounts receivable of students -- tuition paying students.
So it moves from accounts receivable. It's become a normal one. So I'm collecting the students. So that is a churn of accounts receivable from dues to On-campus. So this gives great stability to our level of active dues. If you look an active dues, when you have great intake, et cetera, it goes up, it reduces. So you'll see accounts receivable reduced when it's very stable because you're frequently doing write off. You're getting new students, but at the same time, you're doing write-off of the older accounts receivable showing the maturity of the product and also the good accounting and conservative practices of the company. I hope I've answered your questions.
Just adding to Rossano something that we measure here is how much we get of revenue and cash to dues. And I acknowledge revenue once the student joined and the cash the student that joined in 2020 [indiscernible] cash, not revenue. So those figures, when you get to the end of the year, they are very similar, this year of greater growth. Revenue is a bit higher than cash.
So when we see last year so revenue was lower than cash that came into dues. It's a process that has been going on for 5 years, super stable, totally under control here. So I think concern that we do not have, okay.
Next question is from Lucas Nagano, Morgan Stanley.
I have 2 questions. So first, related to bad debt. It had an expansion that was expected during the freshmen, greater number, et cetera. Considering the trend of growth students, revenue will continue next year. Do you assume that bad debt will keep this level a bit higher, talking about Q3, not 9 months or if you expect to mitigate this effect somehow improving retention, collection. First question.
Second question is a follow-up to public association. Eduardo mentioned that it has an impact more concentrated in the short term. You're going to mitigate that expanding portfolio.
Currently, how are you positioning yourselves? How do you see the risk of this proposal being approved? What is the base scenario working on currently?
It's your favorite topic, Rossano.
Thank you for the question, Lucas. We've been constantly talking about renewal. So many times market associates [indiscernible] renewal is key. Perhaps the great pro that we see for trend in the mid, long term better because students to renew. They have to pay the debt. I'm not going to renew students that have debt. So we'll -- they will pay them off and then renew. When we see for the second quarter with renewal, good results. Renewed the -- prospective debt is not negative.
You see variations according to the project. It brings a variation between quarters when you have a great intake with -- there is an exposure to [indiscernible] revenue is mid, long term. Different risk profile to the company will have certain instabilities, bad debt or variation in other quarters. But if you take more midterm vision, bad debt is relatively stable. We've been saying this constantly that our view for the year is quite similar to the percentage of NOR regarding previous years. You have some events that brings some quarterly variation.
Apart from [indiscernible] when we had 4 quarters for intake rather than having every semester. So we have some specific variations to make these adjustments. For mid-long term, we don't see any factor that would lead to relevant increase of bad debt. Much on the contrary, as we've mentioned previously, this is a question on collection process. We've been investing in technology, improving all the processes.
So we have been increasingly being concerned about this process of credit recovery, taking care of the health of accounts receivables so that in the mid-long term, we obtained positive results in this line of bad debt, for collection process of our students very sensitive.
We do not want to be aggressive the most. We want to keep on studying that they have the ability to pay because we know the product at the end, is very positive and beneficial. So they leave the school much better than they have joined. So the long-term they are being prepared to have the better sellers institutionally. We've been showing in Brazil how much there is in terms of income leap of students from middle school to higher school education.
So we have to have a credit that will boost the paying capabilities soon. I don't want to lose this guy for a temporary inability of paying. So we look carefully and try to make the collection process as strategic as possible to minimize, obviously, our bad debt, but keeping students studying with us because we believe in the final value of our product. This is it.
I'm going to talk about regulation. Well, as to regulation, it's not yet clear. There is a lot of debate. One of our board members said, well, notice. We have news every week on regulation and the education industry. Every week, we have news, great changes, have been very few in the past 5 years I've been here. So we are following this part closely. [indiscernible] are regulation ESG, VP, is actively participating in debates, Aroldo as well. So we have a long way to see what should come ahead. What is important here is for us to -- well, we have a lot of technology.
And actually, we have 3 ways of delivering our services and some variations on it. One thing is digital. That may be 100% contributed to other formats and 1 on campus professor, before students physically and we have the change product that you'll hear a lot. It's important to us, we're going to talk about, which is live, professor on Teams delivering or giving classes.
Well, when you talk about On-campus, semi flex. They are all combinations of these things that give us a lot of flexibility to reach great quality in the student experience, what they expect to have and are able to pay, have physical availability to have. So we have a good base to work on, and we make great efforts. We're very well prepared to absorb changes that may or may not occur from now on.
I think Aroldo's point, is quite important.
What does this impact? We are smaller than the others. It's not something that is so large. In terms of discussions, there are more fashion in the Distance Learning world. We have -- we intend to grow in the semi On-campus. So if this changes, we have to make adjustments in the semi On-campus students that want to do a medical school in the same percentage they have.
They will migrate to semi On-campus, so they don't stop having a dream. So we -- they will adapt. We consider ourselves very well prepared. We'll be more prepared to welcome people impacted by those changes. It's something that we're following closely. We like to be fast to make adjustments that are needed, but it's not something that concerns us so much. But Aroldo, would you like to add anything?
I'd just like to add that actually, today, it's not large. We believe that we do this quite well. I was talking specifically about medical courses or medical schools. So what's being done in terms of practices, we have virtual labs with great technology or in their majority, they are physical within our units, both in our campuses and newly opened specific hubs that but there -- we have a lot of quality involved.
If it's a matter of surveillance crew, we are in. If it's a matter of restriction, so it goes into what everything that Eduardo has mentioned. So it's something we believe very much in what we do. And this is why we advocated.
Second point I'd like to add is the following -- if there is any kind of restriction, this will probably come with some kind of action of accessibility. Otherwise, we'll be reducing audiences or in smaller towns that would have no access. So we have to understand what will come along so we talk a lot about restrictions. We talk a little about what may come along.
So we have some benefits to On-campus, a way for students to be able to pay. So it's a matter of price, geographical accessibility having courses available in those geographies that is not being discussed at a time. Probably, it will be discussed in the future, not only simply getting a restriction that we're commenting now.
The Q&A session is closed. I would like to turn over to Mr. Eduardo Parente to make the final remarks of the company.
To everyone, I'd like to thank you very much for your trust. Many of you have crossed this hand-in-hand with us over those 2 years in our journey, very important to us, to our journey, to our students at the moment that we view the future that is quite different. And again, I highlight the past 12 months, not only the quarter has been very good -- is being very good. I've mentioned this a few times during the presentation, it's been very good, not only in terms of the EBITDA, but everything that comes below when we look at net income, cash generation, the combination of EBITDA with reduction of leverage, which is a consequence of cash generation.
So we have a trajectory that allows us today to go back to be absolute masters of our future. We have -- we've always been -- we have several options in the question of [indiscernible] if I'm not mistaken. So we are very excited about what's coming ahead. I think we have several regulatory questions that has been mentioned -- as I mentioned, [indiscernible] we talk about academic training. We have to have that. We must have a positive side of accessibilities, funding support -- additional support to students. So we have a lot of things happening.
But with this debate, it is always very positive, something that focuses quality, the improvement of lives of people, focusing on our heavy professors, doctors, teachers wherever they must be in Brazil, in all geographies and well trained and everything that we see in terms of market regulation demand. We are at a time that is super positive that makes us feel very excited to keep on delivering in 2024, what we've delivered to you in 2023. Thank you very much for your trust and reminding you those that are listening to us and in the interpretation, we're going to have an English presentation in English to make sure we have direct communication, myself and Rossano.
Well, thank you all very much.
We'll have a presentation in English [indiscernible] video conference is closed. We thank you all for your participation and wish you all a very good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]