Yduqs Participações S.A. (YDUQ3) Earnings Call Transcript & Summary

Hello, good morning, ladies and gentlemen. Welcome to Yduqs video conference with the result of the third quarter 2021. This video conference is being recorded and the replay can be accessed at the website of the company, www.yduqs.com.br. The presentation will always be available for download. [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 profit, operating and financial projections and goals constitute beliefs and assumptions of the Yduqs 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 environment. The industry and other factors could cause the 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. Eduardo Haiama, CFO and Investor Relations Officer. Now I would like to hand the floor over to Mr. Eduardo Parente, who will begin the presentation. Please, Mr. Eduardo Parente, you may proceed.

Thank you. Good morning, everyone. I hope you're all well and healthy. I'd like to start our presentation. We are proud of the quarter we've had. It's something we have had and expected to actually happen, and it seems things are quite promising. I would like to start on Page 3. We have 3 major messages here. So we make an effort. What are the 3 things that we think are important for us to take away? The first thing is that we are used -- we've always seen in our discussions, digital and premium growing quite strongly. We see the 9 months of revenue, both have exceeded total revenue from last year and as we had anticipated to you, so we reached 50% of our net operating revenue. This is almost a growth everybody is used to, just to tell you that it continues to happen, strongly helping a lot our business. It helps a lot to transform the face of our business. Second great point. I think this is a novelty that is worth reinforcing are the clear signs of the on-campus recovery. We have since before the previous quarter, we had 3 quarters with a lower price. We had an increase in the on-site campus. So we had a renewal. So EBIT margin returning to 2020 levels. The increase on campus intake versus last year on campus mode. Most students are actually back to campus. And since the beginning of the year, we have an in-person or on-campus classes, and we had a quite positive evolution in enrollments for the next semester. This is the second great point, digital and premium maintaining strong growth. And the second point is on campus recovery. The third is not a novelty, we're clearly known by you as very disciplined in our capital allocation. But I think at this time of volatility, this becomes even more important, allows us to become seniors of our destination, making better decisions, keeping all the alternatives we had open and equal, what we had. There are 3 signs that are very important points that I wanted to share with you and many numbers, many details, transparency on next pages. Moving to Page 4. This is a reference to the estimates that we pointed out last quarter on intake and average ticket. I'm going to show you the left. We have 2019, because 2020 was quite a typical year when we see on-campus the growth of 12%. We look at 2020, we had a relative drop. Not only do we have a growth of 12% on campus, and it's very much on a basis that has relative success, considering a very difficult world we had last year. Digital, we had a 13% growth, vis-a-vis the growth we had that was quite large last year. So we're talking about almost 80% growth. When we look at the intake of the year, in the past 12 months in 2021, 342,000 students, a growth of 60,000 vis-a-vis previous year. And I think perhaps you can count in a handful, the number of destinations that had 342,000 students. This is what we had as intake. So a handful of people who have like 60,000 students between 2020 and 2021. And the growth is quite strong. And below, we have our comps. So we had a reference from 6.2% to 6.6%. We had 6,400 students in medicine and the ticket has increased more than we had estimated. For the first 9 months of the year from 0 to 5, we reached 12% of growth. On digital, the same. We had an expectation of growth of more than 10%. And the ticket got a little worse, actually did, but practically stable vis-a-vis the same period previously on the on-campus. This is something that you get very anxious as to the situation, the final lap. Well, for next semester, we're doing quite well. And in any dimension you choose. So it's a very small part of the process. So on-campus, on purpose, we put a larger band. In terms of intake, we've reached it over 12% increase on-campus intake and the ticket behaving quite well. Again, the ticket alone is very good news. But along with the renewal indices that we had along with the NPS and several things, the news is quite good in terms of the soundness and clear sign of recovery. Moving to Page 5. What do we have in terms of highlights? I've mentioned on the left here, we see strong recovery. We had the outlook of closing the year of 2,000 hubs. In our digital world, we came to practically 1,000 students, only on digital. When we look to the right, on the top part of the page, the revenue of Digital reached -- exceeded BRL 1 billion, more than the revenue last year. Same thing with premiums, BRL 640 million, which is higher than the revenue we had last year, the whole of last year, reminding that both together in the first 9 months accounted for 70% of our EBITDA -- 70% of our EBIT, 50% of our revenue in businesses that have very strong growth. Below, on the left, the evolution of 3 average tickets, we see quite positive, including digital. The drop was smaller than what we expected. And when we look, along with the renewal rate, the 3 renewal rates were higher than what we had last year. So a year ago, we were at a situation, and we were giving a lot of discount and increased PDD and stable tickets. And now we had actually no discount and actually bad debt is dropping and ticket increasing strongly with the renewal rate higher than what we had a year ago. All of this leads to this part on the bottom right. So this is closing in 2020, the first year that we've shown EBIT margins per business premium closed with 50% margin, 2020 after all the administrative adjustments. First semester, we closed at 47%. And in this quarter, we get back to closer to previous year. Same thing on digital. Last year '20 45%, first semester; 39%; third quarter, 47%, getting close to 45%. But a great news, I consider, the on-campus. We've had a first semester that was difficult. Non-intake of first quarter was weaker. First quarter had great impact. And the first quarter, I'm always going to show you later, but we haven't had it on the third, neither the second nor the third. We see recovery is quite strong in terms of margins happening in the following quarters despite the intake having been smaller than the previous year. So the 24% of EBITDA on-campus margin is a clear sign of recovery. And lastly, on this little banner below, 80% reduction of nonrecurring effect on EBITDA. In 9 months last year, we had almost BRL 300 million on recurring effects, and it dropped to 59% because of 3 ordinances that were dropped in the second wave moment that we're going through. I'm moving to Page 6. Let's talk about premium. The great highlight here is the revenue of 9 months exceeding last year with a growth in medicine of 38% over the 9-month period. When we look at the top left, the net revenue, adjusted net revenue, we talked a lot about. Just last year, we were talking about adjusted. It was a moment of a lot of discounts. So the leaps would be even greater. But because of transparency, we trust very much the adjustments we made last year. We believe they were correct. We prefer to maintain the same metrics, the same discussion on the evolution results. So what we show in green is the evolution. That is quite strong in the number of students in medicine. We see the revenue at the top and the base, about 30% [indiscernible]. And in gray, you see Ibmec that has joined the premium unit, bringing a lot of value. And with a quite important representativeness, practically not impacted by the pandemic, as you can see. On the top right, what I mentioned previously, we have third quarter 48% margin, retained close to 50% of last year. Most important than that, we only disclosed last year by business unit close. In the premium unit, we closed BRL 310 million last year, EBITDA. In the first 9 months, we had BRL 304 million EBITDA. In the colored one. So Ibmec getting to 6,400 students, average ticket 6%. Next, Ibmec, almost 5,000 students with average ticket stable at BRL 2,700. Renewal rate of 98%, more than 1% point than previous year, with the expectation of up to 450 new medicine seats under the approval process and the growth of the medicine average ticket exceeding expectations at 2021. Moving to Page 7. We have close to 1 million students, thanks the integration of Qconcursos and [indiscernible] in revenue. So below, we have the evolution of undergraduate studies. Distance Learning, it has strong growth. If we consider in terms of percentage, it's a bit more smaller. But in absolute terms, it's higher than what we had in the previous years. So quite important evolution here, from BRL 377 million to BRL 780 million. So here, with total EBITDA of BRL 440 million, we get to BRL 420 million in the first 9 months, showing great soundness in the growth, not only in the business, below at the left, the base of students growing, and this [indiscernible] in blue, the pace of Qconcursos joining. The students that pay Qconcursos, not all users, only those paying one getting to practically 1 million students. So you know the growth trajectory. So we're getting to almost 3x what we had in the third quarter 2019, which makes the base to be very young, a lot of maturing to happen. On the right, the bottom right, we have a renewal rate growing vis-a-vis previous year and something that we're very proud of and improvement of our NPS is quite strong. And we have on-campus and digital grade, transformation of our digital world, our evolution with our method, the way we teach using technology to take quality education to the masses. Ticket, as I said, very much in line. The rest I've mentioned, we're expecting the expectation of 2022 to getting to 2,500 centers. Talking a bit about Qconcursos. We've been growing quite a lot. We just attained this acquisition, not only for the business itself. This growth of 25% year-over-year shows that. And we don't disclose detailed results, but it's a strong cash generation. Revenue, strong revenue growth on the right, is the reason for great pride. We are in the list at Mercado Livre, Americanas, Magazine Luiza. The only education company that is in the largest e-commerce companies is Qconcursos, ranking 10th, and what you're going to see increasingly, what we brought to our family is a group of fantastic people that have this mind of inclusion to teaching, of expanding to people that have more difficulties in education and have this mind that is absolutely digital in a world where engagement is a strong reducer of [indiscernible] quality and relationship that you have. And we're all learning a lot from them. It's a very good experience for the group as a whole. It is not just a financial matter to have Qconcursos. On Page 9, talking about on-campus. It's interesting to note that when you look at the ensemble of the numbers, vis-a-vis the growth I've just shown you on premium and digital, these are numbers that do not present growth. On the other hand, the best news of the whole presentation is here. When we look at the revenue that drops, 6% vis-a-vis third quarter 2019, 13% vis-a-vis first 9 months of 2019, EBITDA that has -- that is not yet equal to the others exceeding 2020. But here, we have this clear recovery in first quarter in terms of intake. That was poor, weak, considering previous year of impacting less the following quarters. You noticed that on the left, when we talk about revenue, quarter-over-quarter, the drop is small. When we look at the 9 months, we had an impact in the first quarter of this non-intake. Student base, vis-a-vis third quarter 2019, grows a bit. Obviously, it's not oranges for oranges. We had a change here when you compare oranges for oranges. There's a drop compared to 2019, but not great drop. What is important is undergraduate average to many people. So when we had the mandatory discounts of where you're going to be able to keep the students, the mandatory discounts were ended. We resumed original prices, and we went beyond them. In terms of increase, we had increase in most losses above inflation. So we're trying to recover previous losses and a recovery rate of 83% point vis-a-vis previous year. So we had a [ starter ] we're working on discounts, understanding what was happening during the pandemic, forgiving debt. This is not the situation we have today. This is what we used to have, our management gives 2 courses during -- on campus. So students tell us, well, there are [ subjects ] that are much more expensive than us that we recovered. It has been very praised, and it's working quite well. So we resumed with 50% of students in February. I actually started teaching on campus in the second semester. We have more than have 50% of students in very positive mood. So next week, we're starting tests, and people are choosing their disciplines for the next semester, very positive atmosphere. NPS [indiscernible] at 19% points of growth. Health courses continue to have greater representative, something we didn't talk too much. There is something that is very important. Well, we had a reformulation of the semi-on-campus, quite strong. So the numbers that you see here on the left, '19, '21, they are very different causes. So we had semi-on-campus managed by distance learning, almost like [ a favorite student will be there ] and we inverted this logic last year to have -- from distance learning to on-campus, we managed to get a very good evolution and as an alternative. So what we had to offer, the original for those that had no conditions, there were [ ex-FIES ], they could not afford BRL 800 of on-campus. They were actually channeled directly to distance learnings. So we provided an individual offer and this has been quite successful, not only for you to have an alternative for those that can no longer pay. And also for those -- for many to have a [ freedom ] of choice, so have a bit of [ chance ], and this has been working quite well. On Page 10, I think this page is quite important. It talks about [ a lot ] we're going through. I think you part of it, so we had some improvement. We always communicated transparently what has been happening, just to illustrate this -- we this curve. It's a tragic number of tests [indiscernible] from March 2020, 13th of March on a Friday. We have the [ resumption ], overall, in Brazil of on-site classes. So last year, we had this intent for enrolees for January of 35%.We went on holidays, we're very excited of what was going to happen, and what happened was that we had the second wave. We detected it very quickly. We had a very strong reaction, which was very positive despite weak intake for a semester. So the intention to get back on campus dropped sharply as well as the intention to enroll. What do you see on this chart? So we have big drop in terms of death as most of the population are vaccinated, much smaller fear of returning on campus. At the top, we see some international references. Those that are Brazilian are very used to this. Those who from abroad, perhaps, may be surprised by the numbers, to put it in the correct perspective. This is the number disclosed daily by [indiscernible], somebody we greatly respect, and this shows that we are in line with Germany and other European countries in terms of death per [ immediate ] inhabitants in the past few weeks and better than some countries that overall have managed this process better than us over the pandemic. I'm going to hand over to Haiama to talk about our revenue and our results.

Thank you, Parente. Good morning, everyone. Well, to show you a bit of the revenue numbers, Parente mentioned previously, to put -- to remember our 2 segments that grew a lot, digital and premium, reached around 50% of total revenue. And this dynamics in the next year's segments that should keep on growing of increasing more is share, over time. And another point that is very important [indiscernible] again, showing the chart in the middle of the drop of the impacts that we've had of laws and court decisions, almost BRL 70 million previous quarter to BRL 9 million this quarter. So if we consider this revenue, we would have had 12%. But as has been said, it was temporary. Our adjusted revenue has grown 6%. On the chart on the bottom right, it shows a bit why since the beginning of this year we stopped showing [ our bridge ] of revenue the variations of case. As you can see, FIES in the quarter accounts for almost 6% of the global revenue. And this tends to reduce in the next quarters. On Slide 12, we talk about costs. And here, I'd like to highlight 2 main items on the bottom chart. First, the bad debt and discount dropped [ here ] regarding last year, we had 11.4%. This year, we have it 10.7% despite our rate of renewal having improved. Why is this important? Because at the end of the day, it shows that we don't need to provide further discounts to renew our students with better indices. All right, so this is quite good, but considering the quality of the results. On the middle bottom chart, basically we're showing cost as a percentage of revenue is dropping from 69% to 67% in absolute terms, growing in line with accumulated inflation. And here, I'd like to highlight basically a line that is regarding publicity this quarter has grown a bit more, almost 25%. Regarding previous quarter, basically on 2 lines, because advertising is in line with previous year in absolute terms, but in the part of marketing, one is related to sales commissions. Last year it was almost end of fourth quarter and now it's dropping a bit more in the third quarter. So we were accounting for this expense. And the other one is related to call centers. And here, we have 2 factors. First is that depending on what we have, this [ line on time ] tends to grow, but the other one has been outsourced in terms of call center. On Slide 13, we have constant revenue, the impact on EBIT. So in consolidated is in line with better quality. Our non-recurrent level was almost BRL 70 million on previous year. This quarter, it dropped to BRL 35 million. And what draws most attention here is what we have on the right, when you look at the reported previous year growing 31%. And the nonrecurring level when we call the adjustment dropping from BRL 300 million to BRL 60 million, all of this increasing our EBITDA margin growing from the first semester to the third quarter. And on the bottom right showing what has been brought up, what has been said that the percentage today within our EBITDA. Total EBIT of the premium digital reached almost 70%. In 2022, the trend is these levels will keep on growing. And EBITDA, we believe that the intake will be more normalized in on-campus in the first semester. It will have a great impact that will be positive both in terms of the revenue and EBITDA in the on-campus assessment. And I'd like to talk a bit more why we understand that this result has been very good in the third quarter. On Slide 14. On this slide, we show the EBITDA ex acquisitions. Why? We started consolidating in May last year and [indiscernible] of August, and more recently Qconcursos from July. If we were to make evolution of a better quarter against quarter as we're showing here, including acquisitions, the comparison would be fair and would not actually show the evolution of our business. And what is this evolution? As you can see, on the left bar, our EBITDA in the first quarter of 2020 was BRL 351 million. And this first quarter 2021, it was BRL 242 million. Why the drop? The drop is basically due to intake. It has been mentioned in previous semester, our intake had a great drop basically in on-campus and in a normal scenario previous years, what would -- we expect the results of a weak intake of the first semester. Well, we would never be able to recover for the second because second semester, seasonally, is weaker in terms of intake than the first. But this chart shows what actually happened. In the first quarter, actually, our EBITDA was lower than the second. It was a bit higher than the quarter previous year, reminding you adjusted. And then in the third quarter, in reported numbers, we were 7% above and adjusted in line. Why is this number important? Because it shows that our business actually is changing. Note that fact [indiscernible] and digital continuing to grow, leading the results not to be the way they were previously because they were -- we had great intake in the first semester for on-campus. And the other point important to highlight that Parente mentioned, on the on-campus side, everything we have been doing, continue doing in terms of optimization of cost and so this year, we returned some units for on-campus to optimize the cost line. Important to mention that these returns were more campus optimization loss year in campus. So it's more in line with cost, in fact. And the other one in line of revenue of on-campus was the ticket that has been mentioned that has grown. After 18 months of stability year-over-year, in this quarter, tickets are growing on-campus. When you combine high ticket with the improvement in cost, the margin has helped at the end of the day to, despite weaker intake, we had a quarter that was more in line with previous year which is quite reassuring for the fourth quarter in terms of results, just as not only what is reported, but the adjusted one. Adjusted, reminding you that we expect the level falls in line of what we had in the quarter in total terms and well below the previous year. On the next slide, so we have reported income with a growth of 16%. I want to talk about what has impacted income in the past 9 months and what kind of adjustments we have been placing regarding what should be analyzed. So let's look at the first financial result. We have a bridge between reported from previous year and this one. Obviously, we had a bit of debt, but we had an impact on financial results. The main [ count ] is on depreciation and amortization. What are the impacts? First line on our table are the leasing, rentals. [indiscernible] we had more rentals and we had more expenses despite what I mentioned of returning the units that remained. The second line of growth are improvements that we make over the years -- that we have made actually over the years in the rented properties. And since we are returning some of these assets, well, imagine that we painted a third-party building. The painting, roughly, would depreciate over 10, 15 years. We have to paint it -- the building again. But when we [indiscernible] saying, well, let's not keep this property forever. Let's turn it in, in 2, 3 5 years. What happens is that the depreciation of the investment made happens according to the contract. So it ends up depreciating in fewer years. This is what actually happens. So this was why we have an adjustment of BRL 21 million related to that. The third row, we made several acquisitions in the past 2 years. UniToledo last year, our [ DigiPare ], [ Athenas ] and not Qconcursos, some kind these acquisitions add some kind of premium. And there will be depreciation now and in the next 4, 5 years. So it's totally noncash. Cash has been [ disbursed fast ] but in terms of income has an impact. The other rows are future investments that we are expecting to make in the next few years to improve the units, the part of IT and digital transformation that was starting to depreciate. The adjustment is related to what we've had on the EBITDA and the way it impacts net income. And this Slide 16 is cash flow, and adjusted cash flow is in line with the previous year. But you would say cash flow is in the reported result moves from BRL 1 billion to BRL 700 million, which is on the table first line. First, we have to remind you that according to IFRS, I have to consider interest expenses. It was operational this year, we had no doubt, and I had no debt. And I would consider this expense. This is capital structure. Nothing to do with the operational health of our business. The line here removing these expenses to compare apples for apples. So second line calls the attention the one before last was a delay in FIES receivables. In December 2019, we were supposed to receive BRL 136 million FIES reimbursement, and due to a problem that we had with the [ COMEX ] system, it was rolled over to January 2020. And so we adjust it. So we had a lower flow of the EBITDA. So this has helped companies to postpone payments that would happen over the year to put almost everything for the last quarter. And this year, the impact was quite small to compare apples for apples. We have the adjustment of BRL 680 million, so the cost was in line. So where are we investing this in money, which is our CapEx, the chart on the right. We've maintained our guidance that 40% approximately should be spent on digital transformation and IT, and this is what we have been maintaining. This growth of 9 months, we have been talking for some time that the investment of this year will be slightly higher than the previous year, reminding you that we spent BRL 450 million last year. And this investment that we made in digital transformation and IT is showing the results as Parente mentioned on the previous slides with an improvement of our NPS, retention, engagement students, there we understand that post-pandemic period, it will be even more important to keep on investing on this front. On Slide 17, we talk about our capital allocation discipline and are comfortable [indiscernible]. We have almost to [indiscernible] in the first line and level of indebtedness that is low, 1.4x net debt per EBITDA. And with the profile, the credit, that is very good. [indiscernible] expect it was [ foreign ] banks -- this very comfortable situation and prepared for that scenario. And in 2018 we had investment [indiscernible] that is quite stable. So at the time, we did not have still many M&As, it did not make sense for the cash flow there. So we reduced the level of dividends, and we allocated it to M&A, so we have UniToledo, [indiscernible] and QConcursos. What multiples -- multiples post synergy, we can affirm, what will they be? Because the integration that's almost over. The most critical processes and systems is over. Now, basically, we have to do more of the same to attain total synergies. So when you talk about multiples of 4 to 6.5x after acquisition compared to our current multiple of EBITDA in the past 12 months, so -- because ex-IFRS. So our acquisitions, even in the most lower levels that we're doing now because of the pandemic, generated a lot of value. So when you combine our discipline to our current situation, the future plan is our plan and it's flexible. We may be amortizing the debt over time, gross debt. We may be paying more dividends or not. We may possibly have a share buyback as we did in 2018, or looking at interesting M&A operations, we can allocate that. So we have this flexibility despite this situation that we see in July. So we are at a very comfortable situation for any kind of scenario. With this, I'd like to hand over back to Eduardo Parente. Thank you.

Okay. So we had -- we made a great summary of the main points of digital and premium continuing with strong growth, showing the recovery. I think we have this situation that is quite sound financially, that shows that it paid off, the discipline we've had over the years. Just to illustrate that, the growth of digital, we got to 2,000 centers, BRL 1 billion in revenue, 1,000 students, revenue has grown in the past 2 years, intake that we diluted now in the fourth quarter rather than 2 semesters and digital has been quite effective, actually helping us to [ quote ] ticket. We had a growth of 18% year-over-year premium, strong growth with revenue of BRL 640 million. Exceeding last year, we got to 6,400 students, so we practically doubled revenue in Medicine. And the 2 businesses are half of the revenue, 70% of EBITDA, which gives much more of the face of consolidated business with growth, strong growth. And as Haiama said, what you see our year with intake, known by the market that was very poor, we have a possibility of upside for the first semester. It's quite interesting for the first semester next year, we recover the NPS intake and the 2 business just keep on growing. Investments in digital transformation and IT moving ahead a lot with increasing the engagement with students on digital and on-campus, reminding you that on-campus, so students are back to classrooms. The 2 NPS is growing a lot, which is great. We keep on optimizing our [indiscernible], reminding you that we've done what we said, so we keep on our campus optimizations, so we have our influence on ticket and, actually, the margin dynamics, actually getting -- we get to 24% -- from [ 10% ] to 24%. So this intake, 12%, that is better than the market. So when we see the bit of the third quarter, despite hindered by the first quarter intake, it's a good situation, 80% reduction in the nonrecurring effect, I think, we see, for the first time, bad debt and discounts dropping. That was a number that was increasing. We always told you that we would get to the single digits, and now we have. And we have it dropped compared to same period last year as Haiama showed here. This is 1.4 net debt of EBITDA generating cash and having good effect of businesses is the worst part of the pandemic. It is over. It leaves us in a very comfortable situation in terms of option. I'm going to move on to the last page, Page 19. When we look at Premium and Digital prospects ahead, Premium and Digital, they're going to exceed 50% of NOR next year. Our expectation is that it's not 30% of our EBITDA. We have an expectation of EBITDA on-campus. So the growth would be a greater share next year in terms of medical students from 7,100 to 7,500 medicine students, expectation of 2,500 DL centers, expansion of love long segments and increasing our portfolio. We have a lot. We have a great potential if we expand. on-campus, we have student enrollment intention increase with expectation having levels prepandemic, expectation of all units operating with students back on site in 2022 or that was 60%, will reach over 80%. And revenue and EBITDA recovery is expected to happen in 2022. Digital transformation and IT is becoming stronger. We have an impact on that, but this is something that has been, to me, not only a learning, but a way of thinking quite differently about the business. So if you tell us where we are today if 3 years ago, if we just start today, we -- the people would say that we were visionaries, where we gained comfort of evolving the margin, testing things. So you test things and you see they work well. If it doesn't work, you stop and then you ask. So what we have been able to do, sometimes I take people to attend classes -- at the end of class, you have done the roll call, you've raised the students grade and you have a journey that is totally different. I talked last night, and people were choosing their subject for next semester on their app. All of this has a great influence on NPS, just as it helps the quality of teaching. You can create an opportunities that are different for students to prepare for a classroom, or they are absorbing contents and learning via distance learning. This is absolutely fantastic. We've been doing this. Last point of this bullet is that we are evolving a lot in terms of using AI to understand the behavior and performance of students. Last year, we had a test that was totally digital with no teachers teaching. It's actually been on-campus, and we're going to do this. And now we're going to have a great pilot for a final digital exam to understand who has learned what, what students were assessed, or what questions have worked, what questions don't, which measure learning, which do not. This is a new step that will allow us to take a further step ahead of competition considering digital, distance learning with the participation of digital and on-campus students. Lastly, we understand that this scenario is extremely favorable for M&A operations, but with the increase in interest, we're going to be more careful than we've been. So we have debt under control, so we have to be disciplined in capital allocation and focus on the continuous improvement of cash flow conversion. Well, this is what we've had. Again, I think it's been a quarter that has been hard and an environment that has been quite tough, but shows that all our efforts that we've made of this third crisis have paid off. We are much more robust, believing a lot on-campus. This is something I say. I tell people a lot within YDUQS. And the pandemic has shown us that distance learning works. And it's shown that everybody is crazy to get back. Obviously, it's not going to be the way it was before. Several adjustments will allow us to have more efficiency, make use of technology and digital concepts in terms of teachers contributing a lot, and things are much broader in their tasks as educators. The digital content in on-campus has improved greatly. Acceptance and the satisfaction that students have over their journey. NPS reflects this quite clearly. So again, a result of hard work, it's not simple, but we are confident that we come through the crisis well. We've taken care of your money quite well. Those who have trusted us, we thank you very much for your confidence, for your trust. And once again, I'd like to thank you for your time and trust and move on to the Q&A.

[Operator Instructions] First question is from Mr. Samuel Alves.

Two questions on my side. The first is regarding on-campus structure. We've noticed this small reduction of [ campi ] operating on -- exclusively on-campus. The question is where you see space today for some specific adjustments for the structure of on-campus while considering the recovery of the segment? This is no longer necessary. This is the first. And the second on depreciation that Haiama was mentioning during his presentation, amortization of the spread, etc. Do you think the 2022 recurring ahead could be something between what was it -- it was in the beginning of the year and this platform now? Just to understand if we've had in the third quarter a factor that has been abnormally higher because of the improvements.

Thank you, Samuel. I'm going to hand over to Adriano and Haiama to answer your questions.

Samuel, regarding the configuration of our units in Brazil, we have some opportunities of optimizing our units, but it's quite marginal. And we have, as Haiama said previously, an improvement in the current configuration of our unit, with certain returns or some areas where we have greater migration to a more hybrid type of teaching. We see how this is going to be implemented. Semi on-campus is to meet demands of course that are less complex that had an average ticket that was smaller. Consequently, smaller margin of these courses are offered through the semi on-campus method. And consumption of classrooms is smaller. This leads us to reconfigure our campus. And over the next year, we still have some adjustment to our units throughout Brazil, but precisely aiming at optimizing basis in the reduction of the operations. This is our main strategy for this year.

Thank you, Samuel. Regarding depreciation in the third quarter. I'd say that basically it's in line of the improvements that may have had a higher level, the number properties that had a depreciation [ necessity ]. If you think for 2022, what should remain for some time. First, this remained. It's the depreciation that started with digital, then Athenas. We're going to have a bit with Qconcursos for the next 4, almost 5 years of amortizing this spread. And we have this towards -- actually being totally absorbed, this number, I have to give you the specific value. It's well below probably into 2022, where we expect to end these improvements that we are actually having. And looking at 2023, not only at this level, but also considering this time that should be longer amortization of leasing, et cetera. So we're going to have this grown actually with [indiscernible]. We had other properties and the optimization of campus. And Adriano mentioned, well, the return -- not only the return of the whole campus, but partial one actually makes this to drop. I have to give you details the changes between positive and negative. The negative fluctuations there, would may be contributing positively, I have to give you for 2022, okay?

[Operator Instructions] Our next question is from Marcelo Santos.

I have 2. First is on-campus teaching segment that is gaining relevance is smaller, if you consider with traditional distance learning and traditional on-campus. Do you think this is growing a lot? What dimension should it have? Do you think there is a greater upselling or down selling compared to distance learning or downselling of the traditional on-campus? The second question is what is the impact in terms of margin when you have a migration to the semi on-campus? Actually, the question is on the semi on-campus.

Thank you, Marcelo. I'm going to answer both here. Semi on-campus system is gaining relevance. We believe it's going to grow a lot. It is a very interesting alternative from the standpoint of cost that you have or you take -- those that don't have the [ BRL 681 ] but helps to fill the room with BRL 350, BRL 400. It's a way for you to have more people and reduce fixed cost. We managed to get the product right. So it's quite successful and quite well accepted. The impact on margin, we think it's quite positive because, actually, we have this as an upsell. Well, it's not BRL 700 and BRL 200, you have something halfway. Historically, I'd like to reinforce this. We don't see the migration of the pay distance learning to -- from FIES to distance learning. We have those that try via distant learning. But the on-campus pay is a base that historically has been growing in the market as a whole. The COVID time has been a peculiarity, but we don't see this happening. What we see, actually, are some competitors of ours that had this product as intermediary. They managed to capture part of the people that do not have BRL 700 that would like to have their networking. And this is something that we are benefiting and having great success. We believe this will be quite representative ahead, perhaps with a similar impact that we've had when we brought [indiscernible] when -- of having an acceleration in a product that has a price above the one that we would pay previously when people were only on distance learning.

[Operator Instructions] Our next question comes from Mr. Javier Martinez.

Eduardo, our opinion, you are at a very interesting situation today. On one hand, you have 50% revenue, 70% debt and a resilient business. You have cash flow and you have a possibility of investments in the future. On the other hand, you expect a recovery, and we agree that the business of on-campus next year. And lastly, you've been lucky, or you were intelligent to maintain a leverage that is quite low. This is a very interesting situation that generates lots of options. I'd like to understand what is the strategic framework that you have for options. So what are the options? What are the criteria? Help us understand your lessons and your ideas going forward.

Thank you, Javier. Okay. Thank you. I think you depicted it quite well. Many people look at [ us ] and they associate our institution to the past that on-campus heavy, I think, with very high fixed costs. I think this, some time ago up to now, people see it quite differently. I think, in your relation, there's a part that is on campus, yes, but which is not that heavy. We made mistakes in the past, but they were a small mistake. We had the opening of new campi, but we did that with -- we perfectly understood and left this path and this generated today a structure of on-campus that is quite robust. And I believe the great point is this. In the first quarter, we were hardly hit by the lack of intake. We were kind of taken aback when you see that. You never thought that poor intake would affect the future for you. So the opposite should be the same, but the past should not impact the whole year. But it did. So we see that the dropout rate is quite high. The first semester ends up having a great impact. Students that register, pay and leave. This helps the economics of first quarter, and this did not happen this year. And when you look, well, we have 2 businesses with high margin and high growth in the [ third ], I believe, all the signs here that we are out from the great crisis. So we had the first quarter margin price retention. And our own intake within this year even compared to second semester last year. The situation we look is that -- we see that our situation is much better. So there's a risk of upside that is quite relevant for us in the next semester. So what do we have looking ahead? And I'm going to ask Haiama to help me talk about capital allocation. We've always told you 3 things: distance learnings, medicine and M&A. Medical students keep growing, both in distance learning and in the health [ course]. We managed to do something that is like both. So we get good results. So we got to get a sell-through, 53 students breakeven. So we are at a place that people have students to break even. We can have flexibility of pricing. So it's almost flat compared to the previous year. When we look at the price item by item, we're being benefited by mix. It is smaller obviously. It was being benefited by an improvement in the mix when we move to the better pricing that is -- that people have within this market. So for medical studies [ associated ], our structure is very streamlined, even delivering many times in higher quality than our competition. M&A changes our minds a bit. We are disciplined. That's why we've had frustrations of businesses we would have liked to have but haven't. Looking at that, I think we're quite happy at the conservative level we've had, especially considering 2 large ones that we've lost, that we're paying up at this most, that would not have this flexibility. In the short term, we're looking -- we're buying, we think, so we have to be very careful and buy things with [ shares ], totally different. So you can have a totally different vision ahead. Again, for 3 years, you've known this group and for 3 years, this group has been telling distance learnings, medicine and M&A. The fourth thing that we're kind of fond of is short-term courses that what we believe has a great potential here. But it does not exist if you do not have the correct platform and the correct technology. So we're going to spend, but it would take a lot of effort, money, time when we find the correct way of being extremely competitive in that. And today, we believe we're getting close to this formula. Haiama, do you want to add anything?

Just to add to what Parente mentioned. First, that on the organic side, more than the growth in distance learning and premium, due the fact that we have great support and are generating a lot of cash, we should be investing a lot in what we understand will be the future of education. Digital transformation, IT, along with all the improvements that we are making in terms of infrastructure to our campaign. Our mid- long-term plan has not been impacted by the crisis considering these conditions. The second point is -- which is related more to M&A specifically, considering the interest level. When we look at future curve, 12% nominal, 5.5% real interest, and the spread level of companies that are more leveraged on what they're paying. So the math that we're going to do is, how much does it cost to carry this level of debt that is higher? And how long it takes for you to have a turnaround in the assets that we're looking at with the multiple we understand we will get to in the future and see whether things pay off. One thing is doing M&A when interest is 2% or nominal or negative, but even if you pay 2%, 3% spread, you're paying 1 %, 2%, 3% [indiscernible] on actually carrying the debt and you can take for 3, 4, 5 years to improve your operations. When you carry 20% a year, 15%, 12% real debt, you can expect 3, 5 years to present results. Otherwise, your economic production in the acquisition is lost. That's why Parente mentioned that we are very much -- we're very careful in this regard, and we're looking at opportunities, which is the most important part.

Let me add something to what Haiama said here. When I look at this industry, 3 years that I've been here, I see a lot of the ideas of today, wonderful visions that the future will be like this and that. And I think from all divisions, wonderful visions I've seen there are actually admirable. They've seen something -- they built something of great value there. Yes, there are changes that happen in the industry, have been happening gradually. What are those changes? Distance learning, growing a lot, centers opening, and hybrid and I think this is something. Well, I'd like to have some credit on it, not being falsely modest. We have been experimenting and trying different things. If you look at our business today and what it was 3 years ago, medicine that became -- actually, now, we have our internal seesaw. We have a single concept of medicine throughout the business that reduces greatly our operating cost. So on generating hybrid teaching, we talk -- people talk about hybrid education [indiscernible]. So there was a class I was where it worked, and we had engagement. And we move to the digital too, and we hear all the time [indiscernible] you haven't heard us talking about digital transformation just to hybrid the future. We have seen things happening, so obviously [indiscernible] [Technical Difficulty] What we have in the presentation so you don't tell us what is it that we need to know. We keep doing well.

Let me ask [ Gabriel ] some more questions, strategic things. I have some other things. Well, the first question is, well, you've shown that the premium courses, they hold well. The results were stable. I'm going to insist on the question on the previous quarter. In strategic terms, do you think about actually or perhaps going after courses with higher tuition fees, BRL 2,000, BRL 3,000 tuition fees and increase the offer you have of these more premium courses? The second question is in terms of trend. This is about Distance Learning. We see that, at least talking to experts, we have a certain trend that the growth rates reach levels that are a bit more normal, more organic. We've seen high 2 digits in the growth of distance learning, and this may be saturated. My question is, what do you see in terms of growth of segmented of distance learning. If you're going to get to levels that are more common in terms of growth? And the third question of trends in terms of prices. You see tickets are still dropping. It seems that there is a certain competition for price. What do you think -- when do you think will be the end of this conflict? I have just another question, well, 2 very basic questions. First is, why is your personnel expense -- why is it growing not only in absolute terms but considering net income? And the other one is marketing expense. I didn't quite understand. It's grown regarding net income, not only 2020, 2019, you talk a bit about the sales commissions. Do you see that this will be normal from now on to get students or this tends to stabilize?

I'll take the fun ones, and I leave the expenses one for Haiama. So I take a note here. Okay. Trends and strategies for premium course. Let's talk about courses with greater potentiality. Well, we go after everything. Everything has to be complete. As Haiama said, 8.6% EBITDA and pay something of 15%, that will become 8%. This range of 4% to 6% is what we seek, both synergies within the on-campus world. It's easier for us to identify quite well where this value comes from. And online is strong. And we've been looking at more courses with different prices. It's very craze, people save BRL 1,000 premium. I think they make this have BRL 2,700 BRL 2,400 type of ticket that you move into the world of -- that we call premium here. And obviously, expansion of Ibmec is something that we are at a period of turnaround. We haven't talked about that. The NPS, Ibmec and medicine is evolving quite strongly. We managed to get, especially in Rio at Ibmec, a very strong branding situation. It's quite important. Of course, with a higher tuition fee, if it's worthwhile, yes, at a time of crisis, this is very good. At a time of expansion, perhaps not so much because we believe that the expansion of higher education is struggling in classes C and D. When you find Classes A and B or you're fighting with someone for a student that is already somehow in higher education. So yes, for our portfolio, it would be very interesting to have more students in this premium world, expansion of medicine. And the [indiscernible] is still waiting for us to do this, but we do not discuss acquisitions that are within reason. With regards distance learning, let me take both together, growth and price. I always say prices are going to drop because they will. Our calculations that when we see various large competitors with EBITDA at about 20%, we have to take care in the way people account for them. So people consider to transfer, people consider to add the reduction of there. When we see it again, many people are operating around 20%. And 20%, when they put rental that CapEx on that is relatively small cash generation, and you have 5%, 10% price reduction. People have difficulties of operating within the market. So we believe that 10% is where the price is going to stop. We've been talking about this for some time. It hasn't been happening. But again, this -- when I'm not happy with the growth, we -- having 14% margin, we have this freedom and [ price ] and possibility of making this choice and dropping this price in the market. Growth rates. What happens? You started having much more volume within distance learning. This applies to YDUQS and the market as a whole. For you to grow 50% when you had 500,000 students intake in the market as a whole, it's one thing. But if you have 1.5 million, 2 million, you have the same 500,000 students of intake, they are a different rate. I think saturation is far. When we look and we see the number of students with middle school debt get a degree, middle degree is much higher than higher education students with degree. So we have a stock of students, so natural candidates for distance learning, people that have degree that 2, 3, 4, 5 years, are going to seek education. That keeps really. So we don't see why stopping growth. What has happened a lot talking about strategy and trends is that it's become -- I'm going to cue the translator, so it's a fight a big ball. So the small ones, people start differentiating quality and content. For the small ones, this is very difficult. So you see a lot of people that do not have the on-campus with the possibility of growth. So this is why the margin is smaller. So we charge -- sometimes what we charge is less. So we have a situation which is different and then again, we're very well positioned whatever the future is. But we're far from having a drop in growth that is significant. Obviously, 55% equal to what we had last year or previous year of growth is something that we won't see in terms of intake. This 2-digit number, probably starting with 2 is what we see. Fun part.

Thank you, [ Mauricio ]. Expenses with personnel this quarter and growth in the comparison year-over-year more, because last year, we had a drop, and with the drop, we were amidst the crisis and our result that was reported was very poor. What we had provisioned in part of the bonus, we sort of reverted that. So only that in the previous year. And corporate expenses led to a reversion of BRL 12 million of bonus at the time. Another point that has impacted this year and not last year is what we call LP. Well, our profit sharing program, we call it compensation. Why is it important? Because compensation, whenever we hand shares, we have to consider the expenses of the plan and also labor charges on those deliveries. And we account for the charges that effect on this profit sharing or LP. But one year before the delivery. Since we had delivery of shares in September this year, we started accounting for these expenses from October last year of charges this quarter, which did not happen last year. We did not actually shared or have delivered shares. So despite our having acquisitions, et cetera, this part that is a cleaner quarter compared to acquisitions this year against the quarter of last year, that the fluctuation [ suddenly ] increased. It was more the way we accounted for it specifically. In marketing, specifically, we continue viewing that marketing expenses and advertising as a whole tends to be in line with what we had in the second semester last year. We still view this dynamics of growth of our distance learning. It is -- we should expect that, in absolute terms, it should grow, but we are actually making spending in digital and IT, so actually, to improve our spending. So what are those improvements? So we have [indiscernible] basically, it's our educational system. It's our CRM and our billing. So various fronts that we undertake, they're complicated to be happening with systems that is a monolith where everything we make may have further implications. And we're making this investment to break down so this product increase. So it's CRM, which is the heart that will help us have an intelligence and agility, that will be much better from now on. This investment has started this year, it should be completed next year. So probably next year, we'll see improvements in the way of operating to be increasingly more effective in our actions. So overall, next year, do not expect a drop regarding what we've had this year. But ahead, we should have various benefits.

Our next question is from Mr. [ Victor Tomeda. ]

Most questions we wanted to talk about have been discussed, but there's a topic we'd like to see some color though [ being ] touched, which is strategy or sort of lifelong education strategy. So if you can give us some color and some more details on how you have the technology, the QConcursos, you have on this area various segments. So for this line of revenue to become more relevant.

Thank you, Victor. I'm going to hand over to Aroldo.

Good morning. That's a good question. We've been working as we do here. We're testing a lot of things. We've been testing things in the past with the arrival of Q and has accelerated that and brought some new possibilities. I'm going to talk about what we have concrete, some things ahead. I cannot tell you everything because it's part of our strategy of growth. So whilst we're testing the thesis, we'd rather not speak. On the first, we launched the first legal subscription of partnership of Q and Damasio. We try to benefit from the best of what each one have. Each brand has the best, first to offer new courses overall. So it's a legal subscription, and we take a brand and content of Damasio, with technology of engagement of communities offer, of course, of Q. We're designing a platform of free courses. Also Qconcursos still use most the potential of our brands, [indiscernible], Ibmec or our local brands to offer courses. We also -- this also impacts the graduate studies, not only free courses of extension courses, but graduate courses or shorted courses that we've launched, 6 months course at Damasio that have had great results. Last year, Qconcursos, we also leveraged sales of this kind of course of graduate studies that are shorter. We already have some tests. Some things have been proven, shorter grad courses, synergy between Damasio and Q products in terms of Q products to Damasio to our other brands in the group. But the fact is that we have a lot of things being tested from platforms, engagement, tools, courses being tested now. Q arrives recently, we were using this period, this past 6 months to test a lot of things, to develop things and adapting things that they have to be able to, in the next year, we can launch many new things to the market. In the short term, we've launched what we already had of quick development. A little was being questioned. So they were sorted. Damasio already studied this partnerships are more obvious [indiscernible]. The fact is that we've been thinking, testing a lot, using brand and content from other brands. [indiscernible] helps a lot with that, with sales, technology and offer courses that are coming.

Our next question is from Vinicius Figueiredo from Itau.

The topics we had sorted here, most have been answered. But the first question, that would be about renewal rate that has improved again as you pass on retention improvement in NPS. You mentioned a lot. To what level makes sense to think about the increase of this rate from now on? And second question would be more specific on expenses, nonrecurring expense, there was more -- a bit more pressure this quarter for M&A and cost over expenses and transition. We'd like to note if what we can expect it for the next quarters, if we should see a normalization of these lines?

I was looking at your name, Vinicius. That's an excellent [indiscernible]. Thank you, Vinicius, for your question. I'm going to hand over to Marcel, Marketing VP. Marcel will talk about renewal.

Vinicius, thank you for your question. In renewal, we had pointing to several improvements, things and tools and instruments, what we've been doing in-house impacting the students, models to renew that direct things. This has had very good positive results for the students, and now we start working much closer to the freshmen that I believe have the greatest gap to cover both in terms of on-campus and digital. So we have all the efforts here. So both are recurrent in our base students. We believe the growth drivers are going to be happening when we have everything well organized for the on-boarding of freshmen and the renewal. Well, some advances are generated. The first of them, we're again talking a lot about tools and technology and now we start taking to the students front. And two, for example, we have been implementing within the student portal, the renewal tool that they can view their grades, their invoices. So this has improved greatly students' experience and anticipated our analysis of renewal and retaining the base as a whole. The next frontier, as Eduardo mentioned, is that we'll start having much more analytics of students' journey. We use a part of it. But all those algorithms are integrated here and the renewal tools to support the process. So again, reinforcing [ the freshmen or older students ]. We should always keep an eye on them, but the freshman are the great focus now.

Vinicius, sorry to ask again, specifically, what lines do you want to understand the evolution of?

Sure. Two main ones. I think, one, we actually talked about it at the call yesterday, well, restructuring expenses related to integration with M&A.

Sure. For M&A, specifically, it will depend on whether there is an operation or not. But overall, it's quite small. There's almost nothing. As to the restructuring, it is what we have shown, if I'm not mistaken, fourth quarter or third quarter last year, I can't remember. And we showed a table as to how this restructuring cost has been evolving over the years and results it's been bringing. It started in '17, '18 and year-over-year has been dropping greatly in terms of expected, the level of efficiency we've been reaching increasingly [indiscernible], where do we still have opportunities for improvement. In addition to what I mentioned of the optimizations that Adriano has been implementing in the on-campus units, with return of properties or perhaps the whole building. In general, the spending is quite small. We still have, regarding optimization of classroom, are getting to 40% digital content at Estacio where the other models that we've implemented, it is possible to get there with great quality. And as I said, that we had all the work done, it's more marginal, the spending that we have here and it's [indiscernible] and Athenas. We still have a few years, 2 perhaps 3 years of lower spending to take the whole optimization of cost there, right? Or in absolute terms, what should we expect from the nonrecurring numbers. Let's exclude this year, let's take the third quarter this year, BRL 35 million of nonrecurring, BRL 9 million were revenue. So we have BRL 26 million left. Of the BRL 26 million, a great totality was optimizing costs, right? Which is what I said that drops year after year. In the next 2 to 3 years and what is left, it depends on having or not an M&A ahead, but it's a residual amount. I don't know if it has helped you in directing it, if that is what you were seeking.

Yes, it has. Very clear.

The next question is from Mr. [ Henapratta. ]

Well, I think people covered a lot of our questions. But taking this last one of Vinicius, I'd like to know the -- about the integration of [indiscernible] Athenas synergies, if they are within budget, expected, if it is above, below, if you can share that with us.

Sure. As I mentioned on that slide, which we showed capital allocation. Now we are very confident that we're going to get at the multiples, post-synergy, of 4 to 6.5x. The great weakness of any integration system is integrating systems and processes. This has been done. Once you've done that, basically, you have the normal optimization of your day-to-day that we implement. What was used to be Estacio only, they move on like that.

What are interesting numbers here, great numbers to you comment on?

We went through a pandemic period. So it takes of it a lot. So what was the business plan that we had for [ digital ] for revenue and costs. If you're interested in terms of revenue and cost, we more than offset that. When we look at that way, don't put everything and try to be lucky and that we're going to deliver. And we actually have been delivering more than we were planning, so that our EBITDA that we have today for this year is even above what we had in our original plan. And as Athenas here, it was a bit the opposite. It's much better what we imagined, although we already had that investing in the North and Midwest, they are marketplaces that are very good in terms of growth dynamics. But this growth, actually, has proven good and has brought results that above what we expected initially. So these are 2 great ones in terms of integration. We should say that we're quite happy with what is coming, in line or better what was initially projected. Going back to on-campus and [ digital ], and then this is totally detached in terms of results. So we are very happy of what has been delivered. And the risk, the future risk is negligible because the worst part is over, which is the process integration.

Our next question is from Mr. Javier Martinez.

My question has been answered.

I'd like to hand over to Mr. Eduardo Parente. So we're gonna have this question for his final remarks.

So it's very good to see a lot of people turning, we have very high-level questions. Digital and premium continue deliver on-campus recovery, and we show our responsibility of choices, thanks to the capital discipline you've always had. I'd like to thank you all very much, the effort and dedication to all faculty members and administrative staff of YDUQS and we're seeing great effort, and thank you for your trust in our performance and our care of -- taking care of your investment. Thank you very much. We're going to have a very positive fourth quarter. We're very excited, very excited about 2022. Well, I wish you all a very good week.

The YDUQS video conference is now closed. We thank you very much for your participation and wish you a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]