Ser Educacional S.A. (SEER3.SA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, welcome to the web conference from Ser Educacional. The discussion of the results referring to the second quarter of 2025. This web conference is being recorded, and you can watch it later at the website of the company. This presentation is going to be also available for download. [Operator Instructions] I would like to reinforce the information we've shared have as based the forward-looking beliefs from Ser Educacional. And the information we have now, these declarations cannot suffer some risks, taking into consideration macroeconomical scenarios. So depending on these scenarios, they might may or not occur. Investors should take in consideration that our analysis take this in consideration macroeconomical scenarios and other factors may change the results from those shared here today. [ A ] part of this web is Mr. Janyo Diniz, CEO; Joao Aguiar, CFO, Rodrigo Alves Director of Investor Relationships. I'd like to invite Janyo Diniz now to give his final -- for consideration of today's conference. The floor is yours.

Good morning, everyone, and thank you for joining our video conference for the second of 2025. Let's go straight to Slide 4, where we present the highlights of the period. Overall, this quarter results maintain the consistency of the good numbers from the first quarter with the main difference being merely seasonal, and this is traditionally our best part of the year, and this time was no different. No different. We recorded solid growth in enrollment and our on-site base, with both indicators showing double-digit increases, this contributed to the expansion of our EBITDA and net margins in the quarter. Our strategy of increasing operating leverage and reducing financial leverage continues to prove effective, converting a considerable portion of the increased revenue directly into EBITDA and consequently, into net income. Another important point is that the results for this semester already exceed or equal the total accumulated for the entire fiscal year of 2024. The accounting net profit in -- for the semester is 26% higher than the adjusted net profit for 2024. And our post-CapEx cash generation practically reached the same amount cumulated last year. This robust performance allowed us to accelerate debt reduction. We reduced our debt by over BRL 100 million compared to the same period last year, including BRL 70 million in this half year alone. These positive results reinforce our commitment to our strategic focus on optimizing operations with buildings were occupied by high demand courses. We are ready to gradually replicate operational model in new markets, especially where our brand already has recognition and established demand. Slide 5, increased efficiency. We show the evolution of our operational and financial efficiency over the last few years. We have seen a significant increase of the number of students in Hybrid Learning opening of 5 new campuses in the last 2 years. Furthermore, we highlight the significant reduction in our net debt to adjusted EBITDA ratio. This result is not only the result of the growth in adjusted EBITDA, but also the increase in cash generation, which allowed us to reduce nominal net debt. On Slide 6, we highlight the significant growth in our medical school program base, which increased from 521 to 2,001 annual openings. The most recent approval occurred in March 2005 in Maracanau with the addition of 60 openings. This increase of 62% in place represent a significant increase in the number of new medical students we expect to enroll in the coming years as these new places mature. Now let's move to Slide 8, where we analyze the fundraising results for the first half of the year. As most of the fundraising takes place by the end of March, the second quarter figures are marginal resulting in little difference between the accumulated results for the semester of 2025 year. Therefore, we can conclude that the recruitment process was successful, especially in hybrid education, which grew almost 15% this year. This growth was partially offset by the digital graduation where we chose to maintain the average ticket, something we will discuss later. As we can see on Slide 9, the combination of successful enrollment season and solid drop out control resulted in a positive performance of our blended learning student base this semester, which grew by approximately 13%. Furthermore, the total undergraduate student base increased by 8%. We have a big highlight, the growth of medical student base, which resides a 27% increase, driven by the accreditation of new courses, as mentioned previously. As a result of our strategy of increasing operational leverage and focusing on programs with higher average ticket prices and better student credit scores such as health care and law, our student base is becoming increasingly concentrating these programs. This is evidenced on Slide 10. We have seen consistent growth of the student base for health courses, both in hybrid and digital learning, which is gradually reducing our participation in courses with lower average ticket prices. This change has been occurring over the last past few years, which is one of the main factors contributing to the positive result we are achieving this year. On Slide 11, we present the evolution of our average ticket, which grew 30.7%, mainly due to the growth of the participation of hybrid education student base, which went from 49.2% to 52.9% of the total undergraduate student base. And the increase in average ticket of digital education students, which increased 2.9%. The average hybrid education ticket fell by 2% due to the 33% growth in the PROUNI student base. And excluding this effect, the average ticket grew by almost 1% on the same comparison basis. In addition, we had the already no impact in the increase in student payment punctuality this quarter and a marginal effect of early enrollment and re-enrollment that moved part of the revenue to the Q1. Those were my initial comments. And now I will hand over to Joao to talk about the financial results.

Thank you, Janyo. Good morning, everyone. Let's now turn to Slide 13, where we detail the evolution of net revenue this quarter. The second quarter, like the first showed a robust growth of 10%, especially when considering seasonal factors. This is our best quarter in terms of revenue recognition and overall results, which raised the comparison base for year-over-year growth. Other factors such as increased punctuality and early re-enrollment, as mentioned by Janyo also impact this season. In the first quarter, revenue increased by approximately 20%, influenced by the introduction of the Ser Solidario program, which -- and still without the recognition of PROUNI discounts, which recorded a 33% increase in the student base this year. On Slide 14, we analyze the performance of EBITDA and adjusted EBITDA, both showing solid growth of 70% and 25%, respectively, along with significant margin expansion. This increase in EBITDA and adjusted EBITDA margin is a result of the operational releveraging that Janyo mentioned. The increase in enrollment and successful reenrollment this semester resulted in a high occupancy of buildings and classrooms, allowing us to keep the operation costs and expenses under control. Among the lines that showed the most significant increase, we highlight the provision for doubtful accounts PDD, which increased due to the 3 main factors: greater provision for losses in digital education due to the increase in dropouts this semester and consequence of the growth in reenrollment last semester, change to our billing format, which reduced the volume of discounts granted in the financial result and increased the DTA with no practical impact of net profit, with no impact on net profit and the increase in the provisioning of the FES and guaranteed fund. Year-to-year, we also recorded an increase in PDD due to the implementation of the Ser Solidário program. But since seasonally 3 are not many reenrollment in the second quarter, the impact of PDT was small as we can see. Where we summarize the impact of the Ser Solidário program, both in the quarter and the year-to-date. The tuition installment program was successfully implemented and as you can see, increased revenue this quarter by BRL 3.8 million, totaling BRL 27 million to date. Currently, the program provision is at 38% of revenue that the present value adjustment, AVP, which showed the wise decision for this start with increase of PMR to date being only 2 days. The program will continue its implementation in the third quarter and it will be applied to a new eligible enrollments in hybrid education, excluding fast-growing and medical courses. On Slide 16, we present the evolution of our net income and adjusted net income. As we can be seen, the improvement in net operational performance, coupled with financial deleveraging, which has been our main focus over the past 2 years has allowed us to significantly increase profits for our shareholders. This resulted in the accumulated net accounting profit for the year, right, exceeding the profit of the entire year of 2024. Our net margin for the quarter reached very healthy levels, reaching 13.8% adjusting not only for nonrecurring earnings, the margin reached 14.7%, a significant increase compared to the 9.2% and 8.7% we achieved last year. On Slide 17, we highlight our operating cash generation both pre and post CapEx, which I consider the most significant results of the quarter. All our pre-CapEx operating cash flow [ GOC ] grew 42.8% year-over-year, while post CapEx increased an impressive 730%. The conversion of adjusted EBITDA into cash was also quite significant this quarter, which with an increase of almost 80% points, reaching 21%. It's important to note that seasonally, this is the quarter in which we pay the most interest due to the largest student base and revenue generation. This is the period chosen to honor the majority of our financial commitments. Tax generation in 2025 could have been even higher, had it not been for the slower FIES payment flow this year compared to 2024, resulting in a difference of approximately BRL 40 million in cash generation. If payment flow had maintained last year place, the results would have been more positive than those reported today. On Slide 18, we present our average collection period, which has been decreasing for the fourth consecutive year. This reflects the improvement in harvest quality post pandemic combined with a more restrictive policy on branding agreements in addition to the sale of the Educred portfolio to PraValer. This information revealed throughout this year highlights the improvement in practical all of the Ser Educacional operational and financial indicators as a whole. And on Slide 19, we show the significant reduction in our debt and financial leverage, which fell from 1.93x last year to 1.24x. This reflects the combined effect of adjusted growth, cash generation, and nominal reduction in gross and net debt. It should also be noted that in May, we paid BRL 19.7 million in dividends to our shareholders, something we had not done since 2021. We are approaching our stretch goal of operating with leverage below 1x, which we consider healthy for a company with our profile, especially given the absence of tax shields in our sector. This means we have all the characteristics of a healthy company generating cash, investing and expanding reducing debt while also paying dividends to our shareholders. And finally, on Slide 20, we present our CapEx, which this quarter as in the first showed a significant reduction compared to last year. This occurred for two main reasons. First, the completion of some investments made to adopt properties to accommodate students, allowing the return of some real estate in line with our operational optimization plan. Additionally, considering I was on the fourth lot of the credit medical programs this -- last year. Last year we don't need to make these significant investments, and we postponed the start of some projects, which will result in the second half of the year. We highlight the expansion of the [indiscernible] where we plan to expand parking garage and polyclinic aiming to improve our services in the city. Those were my comments on the results. Now I will hand over the floor back to Janyo for his final considerations.

Thank you, Joao. On Slide 21, we present a 6 units, we are operating in 24 months located in Patos, Paraiba. Ordinary a super hub due to the high demand in the region. We decided to accredit the in-person courses in nursing, nursery, law of psychology and dentistry. This expansion exemplifies our focus on promising cities located in micro regions with good demand on recognition of our brands. This way we can grow sustainably offering courses in demand by the market in strategic locations and with low maintenance costs since the unit is located in a shopping mall industry. Furthermore, our brand is desired by the public and due to the strong acceptance in the job market and academically quality. On Slide 23, I'd like to reinforce our strategic positioning to remain focused on optimizing our operations, although the turnaround process was successfully completed. We want -- the company to remain firmly committed to efficiency to generate cash and achieve our financial leverage reduction goals next years. In this sense, we continue to invest in health care programs accredited new medical programs and invest in our brands. Our goal is to become increasingly recognized in the market for offering positive experience for our students with increasing integrated continuing education ecosystem, utilizing cutting-edge technology and encouraging entrepreneurship for those students. Those were my opening comments. We are available for questions.

[Operator Instructions] Our first question comes from Lucas Nagano from Morgan Stanley.

We have two questions. First of for the enrollment, those years. Could you talk about how this is developing? And to this transition for the new regulation, the new policies affecting the pricing? And the second question is for medicine courses and has a huge growth on the first quarter with the mix of new courses, new schools and is decelerated on the second quarter. I would like to ask which are the factors, what are happening with the [indiscernible] , I would like to this Ser Solidário the punctuality discount is affecting medicine courses.

Thank you, Lucas, for your question. I'm going to ask first question and Aguiar and my colleagues are going to ask this. The capitation reenrollment is in line with what we expect next year. The on-site in hybrid education are walking by side, developing as we wanted, expect. Remote service has more pressure as we expected, mainly because this change on the law and the competitors are also looking for new ways to enroll more students on price discounts as we try to keep our average ticket, we see as a good strategy, and we're keeping our pricing and long distance education has a more bigger pressure.

Thank you, Lucas, for your question. Basically, on the average ticket medicine, there has been criteria in the second quarter, which is based a little bit on what happened on the first quarter, which was basically three main points. First, the anticipation of reenrollment that happened in the first quarter. So we had this movement is more bigger revenue on this average ticket. And second point was the increased punctuality payments and its discounts. The impact medicine as well because these discounts average 10%. So they impacted our average ticket as well. And PROUNI. PROUNI, we had a growth on PROUNI on the second quarter and have anticipation of reenrollment in the first quarter. And basically, all the students in PROUNI just got in now on the revenue accounting, we have this growth on the second quarter. When we see this impact from looking back to the first quarter and we equalize those results, we can see that we have a growth of 14% . So it was something very seasonal because of the PROUNI. There was the biggest impact here and we have also the impact on the reenrollment and the punctuality payments. The best way to look at it is 2 quarters with a 14% growth.

Our next question comes from [indiscernible] from JPMorgan.

My first question is, I'd like to focus on medicine. I would like for you to paint us how is the competitive landscape? We see our colleagues commenting on this relationship with a squeeze relationship for certain places and certain places. If you see how is this relationship with your competitors looking at the second 2 quarters, second half of the year? And what is the gross margin you can see as the moving parts on the second quarter and second half of the year?

Thank you for your question. related to the medicine course. This is what we expected. The most of our places, we have this fill in the first quarter and the first half of the year. We feel, as we said in the past, in small cities, we have more pressure for the courses as it happens in the first quarter. What happened now, we have like some remaining student places. We didn't have in the first half year this pressure. As we see Maracanau, which was approved in the middle of the half year, we fill those places quickly.

Livia. Looking at the second question, I think that our company is doing really well in this trend on increasing our margin as we were able to observe in the first quarter. A very positive point to build the model for future is this period on enrolling students on the middle of the year in our winter. We see in this period a small change on trends of the base of students on the reenrollment or new students being enrolling. The generation of revenue look for us as really well controlled. Another very important point that this semester showed us and it's important for us to repeat in the future is the success on the contention of the costs. We generated more revenue, having based occupation of real estate, buildings and classrooms. This is a very big trend. Looking at our process in winter, it's going really well. Promoting the next semesters and years in 2025 is a year where the new student place for medicine, they contribute little to our results because they are still first or second semesters -- so on these harvest years, the accumulation of those courses. Those maturation of medicine course being a very favorable market with a better ticket for us is not very relevant in the beginning because we grow 90% the number of student places. When you put that in the maturation long term, this allows us to scale our margins on the margin of medicine being more robust compared to other courses.

Our next question comes from Lucca Marquezini from Itaú .

Good morning, everybody. Thank you for the ports. I would like to know about the rentability of the good results in courses and there is more space for growth or this is the level we're going to stay on those coursing lines. And looking at this the profitabilities and the generation of cash revenue, we see in Fortaleza in those courses, those results, we see the generation of cash. We see some renovation medicine. Please, can you comment what is your strategy on acquisitions, on M&A, on medicine, -- this would help us having a good Panorama.