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

Good morning, ladies and gentlemen, welcome to Yduqs [Audio Gap] call for the First Quarter of 2025. This conference is being recorded, and you can access the presentation on the -- on the website of the company, www.yduqs.com.br. The presentation will also 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 prospects, operational and financial projections and goals are the beliefs and assumptions of Yduqs Executive Board and the current information available to the company. Those 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. It's important to stress that to better visualize the presentation, you should enable full screen mode. Present at this videoconference, we have Mr. Eduardo Parente, CEO of Yduqs and Mr. Rossano Marques Leandro, CFO and Investor Relations Officer. I would now like to hand the floor over to Mr. Eduardo Parente, who will begin the presentation. Please, Mr. Parente, you may proceed.

Well, good morning. Welcome to Yduqs presentation first quarter 2025. I hope you're all well. Thank you very much for your time and attention. I'm going to start with our highlights. Great highlight of the quarter as it's been in closing 2024 is our cash generation, from the standpoint of operating cash, an increase of 31% in the past 12 months, almost BRL 1.4 billion in the past 12 months. Important growth in the quarter, 37% growth in operational cash generation over the quarter. As it's been in the closing of last year, our FCFE from BRL 44 million in the previous year to BRL 528 million in the past 12 months. The quarter has important results of BRL 85 million to BRL 251 million. On the operating side, we see important work of developing the quality of our revenue. Starting with premium, we've enhanced it, base of EBITDA both in the medical school and IBMEC, we have students with more demand than supply. We have a growth that happens constantly. Students that give us greater margin with lower bad debt to our portfolio. And we started offering in the partner centers, of the 500 centers we have in Brazil, we have Semi On-campus or the only choice they had was to choose distance or on-campus. So as of second quarter last year, they have the Semi On-campus. It's more expensive with better renewals and should bring greater consistency to our revenue. The third point is that we have identified students that want to stay with us. They have enrolled. For a reason or another, they did not engage. We have a tuition waiver program for those students. So we think it doesn't make sense to charge them and it helps improve the quality of our revenue. In terms of business units, the great highlight is IBMEC is soaring. The Faria Lima unit is growing very fast. There are other units as well in Rio, Belo Horizonte and Brasilia, on Paulista Avenue as well. And we had a net revenue increase of 20%, EBITDA of over 31%, EBITDA margin and students base over 21% growth. When we look at the projections and forecast of what we see in terms of cash generation, what we expect for the future, this has given us great confidence to pay dividends above the minimum. So BRL 150 million in May, the buyback program of BRL 9.80 on average, and we closed it early this year, a great highlight here for the first quarter. And myself and Rossano will tell you towards the end about our guidance, but the great star of our guidance, just as in the presentation as a whole is the outlook we have for the year of BRL 500 million to BRL 600 million cash generation for the year for shareholders. We have the -- we look at the second quarter, we have a comparison base vis-à-vis the previous year, which is weak. We have great conditions to beat second quarter of last year. We're bringing this guidance with great confidence of free cash flow to equity of BRL 500 million to BRL 600 million. I'd like to give you the final results of our intake of first quarter. We had a preview on the 13th when we gave you -- well, when we had our call of the results of the fourth quarter. So the forecast is a bit better than what we had, On-campus is 0 to 0, Semi On-campus is a bit better than we had expected. So the end of the intake of first quarter was better than the end of intake of first quarter last year, phenomenon that we see happening in the beginning of this quarter. It's an interesting phenomenon I mentioned regarding the enhancement of the revenue quality, semi on-campuses absorbing part of distance learning, both on the right-hand side and left-hand side. So intake growing 6% vis-à-vis previous year. The base has grown 2% vis-à-vis previous year as a whole and we have the improvement. When we take the ticket of Semi On-campus in partnering center is almost twice as much as the other ensemble that we have on the other side. So it's an important growth. It comes as a twofold increase. It's recent in our portfolio. So we have quite relevant expectation on the role of the Semi On-campus to our businesses on the hubs. When we look at the business units, when we see net revenue in the quarter, we have an increase of 2%. As I mentioned previously, we have an ensemble of students that want to study with us. They register, they do not engage. They do not have academic engagement, they haven't attended the classes, they haven't actually entered our system. So we have always exercised our right to charge for the quarter. People end up not paying anyhow or we create some kind of friction in the relationship and that prevents us from getting the student back. So we actually allotted 5% of the intake revenue for the students that did not engage with us. This has an effect on the revenue, on the quarter EBITDA. When you take it over 18 months, the effect is offset with contingencies we would have over time, and it does not have any cash effect. What are the changes here? We have BRL 1.70 billion of the Digital and On-campus, that would be BRL 7 million higher if we would make those forecast or provisioning in the student profile of people that intend to study with us is we're taking less this consumption as we had last year. So we had this pro forma number. This is the -- well, this is the number, not the pro forma. Just for you to have a comparison base year-over-year, it would be BRL 7 million higher if we hadn't made this provision, and we have a drop in this that we haven't put it here, but it's an important piece of information to you. Let me move into each one of the business units. On-campus, we had important revenue growth, 6%. Again, it would have been higher if it hadn't been for the provision that we make. The student base growing by 14%, important effect of Semi On-campus. I'd like to draw your attention to this minus 1%. You remember that in 2020, 5 years ago, our greatest base and historically, we had 300,000 students and the drop that was stressed in 2021, '22, we started seeing last year a reduction in this drop rate, and we have a type year-over-year. That's interesting piece of news because On-campus has very strong operating leverage. Once we resume this growth, we have a positive impact to the business. EBITDA, again, there's a drop of 9% over the quarter, nothing that consensus when we look at the budget because it's break down by units. So one thing slides to one side to the other. What we look for the year is not -- neither here nor other business units, any relevant change of margin compared to what you've seen in closing 2024. Average ticket, 3% growth compared to last year. This shows our effort on our shares [ x7 ]. So our projections for the year are numbers that we have a bit more, 3 more. And the renewal rate that is traditionally stable, 81% to 83%. Currently, we had 82%, a bit above last year. As to Digital Learning, we had a drop in revenue of student base as well, much of what we said in the previous chart, the effect of Semi On-campus. We have a trade-up. And due to our choice, Semi On-campus is close to On-campus. We don't want to change this halfway. And we have an effect that seems to be negative. And again, a margin -- an EBITDA margin that is stable compared to last year. We have the effect of the provisions of the non-engaged, and the average ticket, again, here, we don't have the effect of the relevant increase that we had in 2024. These are students that have been with us for over a year. So we see here over the year, second half, we have a number that is closest to 0 to 0 vis-à-vis last year. Because of the ensemble of the base, the renewal rate is quite good, a bit above the numbers we have. This is quite strong. The second quarter, you see -- you remember that the odd number quarters have better performance than even numbered quarters, and we see a much better performance that we saw in the past. IDOMED or medical school grow -- 2-digit growth in revenue, total student base. When we look at the total student base, we exceeded 10,000 students in undergraduate studies. So this is changing gears here. We're very excited to what we have for medical school ahead. EBITDA had an important growth compared to previous year. And margin evolution, we don't expect much different margin compared to what we had in late 2024. When we look at pricing, we had many new students, units that are smaller than our average price. We don't think this 2% is a situation we'll have ahead. It's just very specific to the period we're going through and renewals at very high rates, 97%. Moving on to IBMEC, great highlight, 20% revenue growth. In São Paulo, it's extremely important. We have intake that is very strong this quarter. Well, beyond the business world, IBMEC is known in economics and business administration. We also have an important intake for law and also other areas. So we have a move from the city center to Botafogo neighborhood. So we're getting to 7,000 students, undergraduate students, total student base growth of 21%. We have also graduates that is growing. We want to take up the space that is of our right in this world. We have very shy action when we look at other competitors. EBITDA evolving 31% compared to previous year in the quarter. When we look at the year, we may have a small margin evolution. It won't be the 4% for the whole year. We have stability in the business as a whole and ticket evolving quite well with renewal at 95% as it's always been. Let me call Rossano to tell you a bit about revenue and financial results of our quarter.

Thank you, Eduardo. Good morning, everyone. Let's move on to the consolidation revenue. Eduardo has gone over all the businesses, and I'm going to highlight the greater share of our premium unit, IBMEC, with medical school, we're getting to 28% of total revenue. As Eduardo said, 2 highly profitable businesses increasing our EBITDA, and we see greater share than this number, reminding you that the total revenue is impacted comparatively to this provisioning of the revenue we've been making as of this quarter. In terms of cost and expenses, we highlight bad debt. We said this year would be a year of reduction of the bad debt as a percentage of our NOR in the part of marketing and sales. So we had an increase there. It's a bit above in the first quarter. We see this phenomenon continuing over the years. It should maintain over the next quarters. Now the highlight of cost and negative impact, well, you have loss of operating leverage in Digital with no revenue growth. And the mix has a negative effect. Digital has a lower cost structure, especially property losing total impact to EBITDA. This impacts a greater cost impact in the total value. With that, margin having a slight drop, we see on the next slide, we move into EBITDA comparative year-over-year, the share of both businesses, IDOMED and IBMEC expanded the share and EBITDA because the margin is higher, IBMEC 4.1 percent point, IDOMED 1.7 percent point. IBMEC getting close to 5%, IDOMED operating above 50%. The share of those 2 businesses growing the business as a whole naturally support our margin growth. This will intensify over the next quarters. On adjusted net income year-over-year, we are growing 7% in this quarter. Two important enhancement factors. First, Eduardo started describing. And the second one, I'm going to give you further details. Let me tell you that we have a Selic or interest rate impact. It has an impact of the rate year-over-year. We have BRL 10 million negative as an impact. Two special factors. One is the non-engaged freshmen provisioning with all the operating benefits it has. In addition, we have a benefit of the financial view. We have important volatility reduction in this result. We've been communicating to the market. We're trying to reduce volatility, increasing predictability, and this is important step in this direction. Second step is migration of funding products. One of the private financing, we're migrating products. The original we used historically. We received the tuition of students over the time line of the funding, which is twice as much the time of the students contract, who is a medical school student with us for 6 years, they would pay their private financing over 12 years, and would get over this timing. We had no risk of receiving, but I'm creating long-term accounts receivable. This migration brings a huge benefit to us of cash conversion. To give you an idea, over this quarter, I have a positive impact of BRL 74 million in our FCFE over the timing of the financing I received in the quarter, I generate permanent impact. This will happen in all quarters from now on. This quarter, BRL 74 million specifically, we estimate the benefit for the year twice as much. And this is a benefit that will happen every year from now on or throughout the year. This has an impact -- negative impact of BRL 9 million in the financial results, very positive NPV that will be important for our cash. And you see an important reduction of our PMR, and this is very important for that. Let's move on to cash side. The highlight for our quarter is a gigantic growth as cash generation, as Eduardo mentioned in the previous slide. We have OCF for almost BRL 4 billion and BRL 461 million in the quarter. When we look at FCFE, the increase of BRL 400 million year-over-year. In the past 12 months, we have over BRL 500 million, BRL 528 million in the past 12 months. As I told you in the previous slide, look at the drop in the 8-day renewal rate well or accounts receivables, the 8-day rate cut and DSO. So the improvement of credit recovery and also lower penetration of this. We had it in the fourth quarter last year, and Eduardo also mentioned in the previous slide, and it's happening this quarter. This reduces our receivables. So this is throughout the course. When I have a reduction of the penetration of this, I reduce the average receivable times. So the previous number that we mentioned of FCFE. So this will structure our structure of net debt, generated BRL 528 million FCFE. How does this impact your final view of net debt? We have a balance that would be my net debt, but I had some programs that you know. The first of them, the buyback of BRL 300 million that was carried out, average price BRL 9.80 that was very successful in several aspects of the business. In addition, we paid BRL 80 million in dividends last year, and it will be BRL 150 million this year. As we've mentioned, we had expenses of BRL 116 million that you know that are being very positive to our business. We get to a net debt that is very similar year-over-year, but with programs that are extremely effective to us. Important slide here in terms of debt. Let's start with leverage at the bottom. I talked about reduction of net debt, the buyback program, let's look at how we will get to leverage ex buyback. We would be getting to 1.42x. And this is a clear path in the direction we gave in the YDUQS Day that we would attain 1x net debt EBITDA. We made a decision with a very extensive program buyback. We followed the same direction. The buyback program increased slightly this leverage from 1.42x to 1.59x. We are getting 1x EBITDA net debt, a great reduction in our leverage. And news here, we've extracted our debt structure that would actually mature in '26, '27. We are actually postponing that to 2030. Renegotiation reduces the cost of debt in addition to extending it and reducing total cost. We are obtaining the spread of the debt of 1.07% above CDI, a spread that is lower historically, another view of efficiency and market trends and our ability of cash generation. When we look at the schedule of amortization, we had nothing maturing in 2025. We reduced a lot [indiscernible] in '26, '27. Our cash that is BRL 0.9 billion, we are -- or BRL 2.9 billion. So we can deal with those [indiscernible] '26, '27 with the cash that we have forecast that will be within the guidance Eduardo mentioned. And now I'd like to call Eduardo to move on.

Thank you very much, Rossano. I'd like to share 2 charts that I like very much in this presentation. We always share them. That shows you where we are in a greater horizon of our business. The first one, simple 7% evolution in this year. Since before the pandemic in the business, we're always delivering the EBITDA margin above 30%, recently, almost 34%. Dividend payments since our IPO in 2007, when we have greater confidence in the cash flow to come as the current year, we tend to increase this amount. When we look at 2025, BRL 150 million of dividends with BRL 154 million with the buyback program. So we have all this amount going to our shareholders. So BRL 304 million. So we have operating cash evolution in the past 12 months. What do we have here? So low operating cash flow in the pandemic world and this recovery with the location of our business. We have always been great cash generation. We're going back to that. Rossano mentioned BRL 1.4 billion that we're generating in the past 12 months. This is important for the cash flow for shareholders. This is very important. On the right-hand side, the gray bar, we have net income increase in the past 12 months. The green line is how much we're paying in terms of interest. Net income reaching almost BRL 500 million with accounting adjustments and the improvements that Rossano mentioned. The number is slightly below that, but we have BRL 559 million of interest being paid now. Last time we paid this amount of interest, we had interest rates at the level we have today. The net income was well below just as cash -- operating cash generation and for shareholders. We created over this period much more robust business, top line growing business despite the macroeconomic conditions being similar to what we had in the past. So we have business evolution. The black line, we have On-campus, then Digital, then Medical and IBMEC, IDOMED. And IBMEC have been growing from -- to BRL 140 million, a little bit in the past 12 months, IDOMED from BRL 270 million to BRL 605 million. And we have On-campus and Distance Learning, On-campus moves of BRL 600 million almost to BRL 400 million and at this level and Distance Learning has been growing. And recently, we had a slight drop. Interesting, when we sum all these 2, we're talking about above BRL 1.1 billion. And here, we get BRL 970 million. Here, when we add that, we get to BRL 1 billion. We were able to find a way of serving this entrance audience that need to study, they really want to study. We provide them quality products in different ways so that it fits in different budgets, different timings. And the 2 businesses communicate a lot. When you look at the beauty of our portfolio with the ability of defending itself at difficult times, but great ability to deliver good times, great operating leverage that we have, we've been able to master that the way we have of delivering high-quality products for every different needs of every student. In the past quarter, we have an overview of our results in 2024. We wanted to share 3 things we're very proud of and we want to share with you. First, the program Mediversidade at IDOMED. We are expanding the boundaries of diversity within Yduqs. We made this book and this short movie with real experiences that we have in our group. I have a QR code on the slide if you want to see it, if you're curious, a 5-minute video, it's very beautiful and moving. It's worthwhile watching it and to see what we do. Another interesting point, we have the new sustainability index of B3. We have in 2024 integrated report. You can access it on our website, on our sustainability site. And well, as I said, the ISE B3 index portfolio. What have we had over the year? Strong cash generation, BRL 1.4 billion, FCFE of BRL 528 million. So over BRL 500 million of cash generation, we may reach BRL 600 million. BRL 150 million of dividends paid, a buyback program that is very sound shows that our confidence and cash generation ahead. We are certified that our shareholders receive increasingly more of our generation here. Very important improvement in the quality of revenue, strong growth in premium trade-up from Distance Learning to Semi On-campus. This tuition waiver program for non-engaged freshmen that has no cash effect or EBITDA effect in the midterm. It will reduce the volatility between quarters. And IBMEC, we put it close to premium that increasingly has greater stars. The growth is -- well, we're showing you how important it is quite unique part of the Yduqs Group and is to have an institution of ultra elite in the business world and increasingly more in law and technology in the main capital cities of Brazil. I'd now like to start talking about guidance on the YDUQS Day. We mentioned that we would look at what happened at the end of the quarter and ahead. I'm going to call Rossano to join me here. Before calling him, I'd like to show you what we mentioned a year ago. The EPS growth we have here BRL 1.6 to BRL 1.9. We delivered BRL 1.7 and a bit is evolution ahead. We talked about BRL 8 billion to BRL 10 billion of operating cash generation in 5 years. We talk about the capital allocation framework, the trajectory. Rossano mentioned a bit of that, the trajectory that -- well, that would be reducing indebtedness to get onetime there. So the dividend payment and acquisitions, acquisitions that make sense that you look and that are accretive from the standpoint of what we have today. Acquisitions that very quickly bring more cash generation into our portfolio. What have we delivered here? When we look at the past year, on the left, we delivered BRL 1.73 of EPS within the range we mentioned last year. OCF growing compared to previous year, important evolution here. And we made 2 acquisitions that have been excellent. We had very positive feedback of what we have brought with Edufor and Newton Paiva to the group. On the right-hand side, things that we haven't mentioned that we ended up doing. So this FCFE of BRL 362 million. Not even the most optimist of analysts had this forecast. It came above what we expected, a recovery very strong. Well, dividends, we said we would pay the minimum. We look ahead and we see cash coming. We actually took the liberty and we were bold enough to go beyond minimum dividends with this BRL 150 million. And the shares buyback program. Looking at the share at a very attractive price. When we look at our capital allocation framework, there was no better business than our own share. And we had the share buyback program at BRL 9.80. As Rossano mentioned, that will generate a lot of shareholder value ahead. Those were our deliveries. We had a very important evolution since the YDUQS Day. As promised, we said that at the end of the first quarter, we would call you to point what was ahead to see. I'm going to call Rossano to help me to tell you what we see ahead for the forthcoming years.

As Eduardo mentioned, first to look ahead as we promised you, we should consider some factors. Before updating this view, let me tell you a bit of them. So our vision of 2025 until 2029, a 5-year scenario. The curve has changed a lot since our YDUQS Day last year to now the impact that currently affects not '25. It will reduce the impact, but it has an impact until 2029. Second factor is migrating of the privately funded. It will have a permanent cash benefit over the years, but has a small counterpart in the net income in the financial results. The third factor is the provision of non-engaged students. That's a negative impact factor only in the first year. It will improve our relationship with students, will generate positive results being conservative. We're not projecting that, only negative impact for 2025. The last factor we mentioned several times during the presentation, something we're very proud to have done a buyback program of BRL 300 million, generating positive impact to '24, '25 and expense over the years, and we look ahead from '27 to '29 in a more optimistic way than previously. As you can see, especially '25, '26, we see negative impact regarding our last year view. Even though we had no change in our confidence, we have some negative impacts that will lead us to review actually funneling our vision of our 2025 results. Turning to the final slide, we look at reviewed net income. So 2025, we're reviewing our revision of EPS from BRL 1.7 to BRL 2 straightening. Well, once we have the intake the end of the quarter, we have more confidence for the short-term guidance. 2026, we adjust things between BRL 2.2 to BRL 3.2. '27 remains stable between BRL 3 and BRL 4. As we said, we increase our confidence in the long term. We increased 2028 to 2030 to BRL 3.5 to BRL 4.5 per share. We don't change our strategy. Our capital allocation framework as last year, we see strongly reducing leverage, getting our target of net debt EBITDA. We are going to be great payers of dividend. We'll -- so then we'll be paying close to the minimum, a bit more. We have minimum dividends to speed up the reduction in net debt and action and acquisitions in a very opportunistic way with few acquisitions in an accretive way and acting in a very opportunistic and timely way. We're very confident in our cash generation. I think this is the great point of our presentation. We'll be talking a bit more about that. We had great transformation in the past when we brought the whole debate around EBITDA to net income. We're taking the next step, getting to free cash flow for shareholders. And this is important to give some freedom going back to our origin of great cash generation or generator and dividend payer. Everything has been designed to be significantly better than 2024 in terms of cash generation. With the evolution of our EPS, we are very excited to the future we have ahead. So this is it. Thank you very much. Thank you very much for your confidence, your time. We've shown you that we have important evolution once again in cash generation, great effort that we're making in terms of improving the quality of the revenue, the star -- star IBMEC growing. It was a bit hidden in our portfolio. IDOMED doing well, very robust portfolio and very high potential for leverage in moments of slight improvement in the economic scenario. Thank you very much. Once again, let's move on to the Q&A session.

[Operator Instructions] Our first question comes from Mr. Marcelo Santos from JPMorgan.

I have 2 questions. The first would be to Rossano. You said the cash generation guidance is BRL 500 million, BRL 600 million for 2025. On your bridge of cash generation, I understand that this may include incurred interest but not paid that. In the past 12 months has been BRL 100 million. How much this component could be for 2025? Just to help us understand without it, what could be the cash generation? That's the first question. And the second question, more for Parente. How does this exemption program is -- how is it communicated to students? Just a bit fear this could not generate more or how is it changing behavior in students since the company has changed its attitude? How does it charge students?

Marcelo, thank you for your question on this topic. I don't know if it's clear to everyone. We forecast we have a strictly cash generation. When you have this vision or difference of net debt over the period, you see many times, especially in the quarters of difference between interest paid and interest incurred. This vision varies a bit in the quarter. So the delta that Marcelo mentioned in the projected vision for 2025, we should get close to 0. The trend is for it to have 0 difference, BRL 500 million, BRL 600 million in our provision. We have no component of this potential variation of incurred interest vis-à-vis paid interest.

Thank you, Marcelo. I hope and Jessica are doing well there. I'm going to ask Marcel to answer the question because I think he's going to be more accurate than I.

Marcelo, on this topic of engagement that we're talking about in the call, we don't have this proactive communication with students. We've increased the level of transparency that [indiscernible], especially on the contracting of this, the students have per year, they have the possibility of having that in their registration process that we had. We have been evolving over the years in following up engagement with students and systems as well, et cetera. That's what we have been following up over the period and working with them during the renewal process and towards the end. If they do not renew, we have the provision, and we have this space provisioned over the semester to follow the dropout situation for the future. Is that clear?

Our next question is from Mr. Caio Moscardini from Santander.

Two on my side. First is, how do you estimate seasonality of cash generation over the year? I assume first quarter should be the strongest in terms of cash generation, the second quarter comparatively should be weaker. I'd like to confirm that. And what do you expect for the second semester? And the second question is regarding capital allocation. How do you expect dividend vis-à-vis consolidation to behave? And how are those debates or discussions on the Board level? What is the preference of the Board in these terms?

Caio, thank you for your question. We're very in line with what you said our quarterly provision. We're not opening a cash previous review quarter-to-quarter. You may have a slight change of being bold to bring for the first time cash flow that is yearly. We're very confident regarding it, very happy with this delivery. Certainly is a highlight of our earnings results for the forthcoming year. We're not opening this quarter-by-quarter view because there is greater volatility than -- but your view makes sense, is in line with our expectations. On capital allocation, would you go take it? Well, we can stay on and you can add. Well, Caio, business as usual, the framework we shared with you, we want to get to as quickly as possible 1x net debt over EBITDA. So this is our mantra here. We choose paying more dividends than doing buyback programs at the times that we see. Well, people do not get the good things that we see ahead on the dividend side. And the buyback program is actually you're leaving less capital on the market. It's -- I'm being exaggerated here. It's a way of consolidating as well. But we had no reason why not to do it. So we had the buyback program at BRL 9.80, you see the impact we had in 2024. This has been very important. As to consolidation, it's a little consolidated industry. If you get any market reference, this is clear, and we think there is room for that. For you to do things with money, interest rates at 14% is very difficult, except for small things that we can do just like the 2 we had this last year, Edufor and Newton Paiva, and we can bring value very quickly. Those companies that we add to our portfolio, they generate more cash faster than what we pay in terms of interest. It's an industry that will have consolidation. So we have action by action. We're not going to do this at any price. We respect our competitors with a conversation we had in the past. Today, we have nothing super active, but we are in conversations, but there is nothing -- well, we're not taking -- well, we're spending little time on that. Well, in the meantime, people are doing their housekeeping, reducing leverage, et cetera. This is the trajectory we're aiming at, and we've been successful. Increasingly more, we see a better positioning with consolidation ahead. I think it is a time that demands more conservative view, and we've had that for many years but always looking at opportunities.

Our next question is from Mr. Samuel Alves from BTG Pactual.

Parente, Rossano, Marcel and the directors, 2 questions on our side. The first is on profit or income -- net income guidance. You talked -- mentioned the bridge of guidance from -- well, the EPS of shares from the YDUQS Day until now. And you have the guidance from between BRL 1.7 and BRL 2. I'd like to understand BRL 1.7, BRL 2, and then BRL 1.6, BRL 2.6. That was not very clear to us. That's the first question. And the second is on the new way of the [indiscernible] receivables. You mentioned in the presentation this and having recurrence in the cash generation that is much better for the company, even though there was no risk of receiving before. My question is, well, I'd like to understand why you haven't done that before? Is it just because you've made an agreement with the counterpart? I just want understand a bit of this background.

Thank you, Samuel. Well, BRL 1.6 to BRL 2.6, that's what the math gave us. Just as math gave to BRL 3 to BRL 4. Today, we have better forecast on the short term. We have gone through the first quarter of the year. And just as we have more positive view on the midterm, the adjustments both in 2026 and also the past 3 years, they reflect our update on this vision. I would be embarrassed to you if I hadn't gone the quarter with a range of BRL 1 in the net income. We have a very good view as to where the year is heading to. Well, in a bit, we get very little mistake in net income. We have more factors below that are more beyond our control, but we feel reassured talking about the BRL 0.7, but we don't think we're going to go beyond BRL 2. And our guidance is, we try to be in the midrange in our forecast, in our provisioning and a lot may happen on one side or the other. This is the reason to have the BRL 1.7 to the BRL 2 there. Rossano [indiscernible], would you like to add that?

Well, thanks for your question. Two reasons why we didn't do it before. Well, it's a financial decision. You understand the rate that you would pay the delta between the 2 rates, you probably use a provider for the 2 private financing, you get a rate when you have the -- when you receive over the period of the finance at a different rate when you have -- when you receive it within the ports term, this rate delta historically was higher than the cost of capital. Since I don't need immediate cash, it didn't make sense to us to migrate products. Since the 2 rates evolve, we get to a point that the delta between the 2 rates was smaller than our cost of capital base. And the NPV made sense, and we have all the other benefits, as we made better cash conversion, lower time line. Though we have benefits even though they're not students, we are okay, the product migration provided it does not allow for migration if we have quarterly so that we [indiscernible] kept to the initial product we know. This is negotiable. We were able to negotiate the migration, as I've shown in previous slides and bring positive results, especially in the cash generation view.

Our next question is from Mr. Flavio Yoshida from Bank of America.

Parente, Rossano, I have 2 questions on my side. The first in cash generation and the guidance. Look at the -- looking at the guidance, I think the greatest trigger for attaining that is the reduction in the receiving time line. You talked about the reduction in the distance. Is there anything else to improve another line that will contribute to attaining that? And still on cash generation, I'd like to understand what you see of higher risk to cash generation to be on low, a bit below that. What is the highest risk that you see on this topic? My second question is regarding margins. I'd like you to help us understand considering this new dynamics of recognizing non-engaged students, what should we expect margin over the year?

Thank you, Flavio. I'm going to give the 2 questions to Rossano.

Well, thank you for your questions. The first on cash. You've asked first about -- let me start from the end. You asked about risk. As I said, we're very confident on this guidance of cash generation. This range is -- gives us great confidence to us. Of course, we have several risks and opportunities, but we're very comfortable with this range. We always look at the halfway in this range, perhaps with cash. And this is a guidance we have highest level of confidence. We have risks and opportunities. They are both operating below the EBITDA line. When you look at EBITDA for the income, you increase variability for cash even more. You increase the points where you can have both risks and opportunities for this balance of opportunities, again, quite confident. We don't have specific risk that is more relevant in the block as a whole. On the triggers there, we see for this increase, you don't have greater increases from now on. We generate above BRL 500 million. We should improve a little over the next quarter. To be in the range, we don't have to improve some more. So we have reduction in the payment terms only, that would easily and confidently get to the range. Moving on, let me just adding to what Caio mentioned previously, second quarter, well, we have this rate that is quite low. We're quite reassured here and confident. Sorry, if I understood, your last question is margin considering the last changes that we made. As we mentioned, this view of not recognizing the revenue of freshmen, the greatest impact in this quarter of greater intake. Since it has an improvement in the result of bad debt over the quarter, it will smooth out over the period. It was 0 in the first year. As Eduardo mentioned in the presentation, the cash impact is 0. The impact of cash is more negative in the beginning, and it will actually offset and it will get to 0 when bad debt is 0. So it's much smoother over the year. So we see improvement in the margin over the year, not only due to that, but due to the other factors that we mentioned during the presentation. We see some specific negative aspects in the first quarter, but the margin reduction over the year is much more positive than what we see in the first quarter.

Just to add, Flavio, you see within a quarter, we started talking about quarterly business in 2020. I think it was a demand from the market or analysts. Well, we start seeing things move to one side to the other. So you see in our presentation, the margin from On-campus smaller than first quarter last year, IBMEC much higher than first quarter last year. So we do not see in any of our businesses relevant margin changes over the year. Within the portfolio, there are things that grow more, things that grow higher margin, they tend to pull the average above. Within each business, we don't see greater changes. So this recognition does not have a cash impact. From what Rossano said, it will not -- we won't have everything back in this year, but over the 18 months, we have 0 impact in the EBITDA. So I think it has been a measure that was very ascertained. Many of you have written about that of our -- having a more easily understood revenue and less volatility. That's quite understandable. Of course, there's no right time to do it. Of course, when we move from 15% to 20% of bad debt provision in the first quarter, it was very good. We have a very good first quarter in terms of cash generation, which is our interest, the promise we make to you and other points are a bit tighter, but there is no time at the right moment. So something we have been working on. That was very ascertained people that have gotten it now. And in short, they will see the benefits because this is positive for the industry actually.

Our next question is from Mr. Eduardo Resende from UBS.

Parente, Rossano, I have 2 questions on my side. First is on the trade-up from Distance Learning to Semi On-campus. Is there any study on the company on the dropout rate of students in the Semi On-campus at the various centers or hubs? Just to have an idea how much less it is regarding Distance Learning. The second is, as it's been mentioned, this quarter shared a clear message on receivables. And we've seen the reduction of the DIS [ adhesion ] or adherence. What is this reduction of DIS? Does it come from the strategy of company of prioritizing receivables somehow offsetting the effect of the greater growth in the Semi On-campus? And what comes from a demand reduction? That would be questions I have on my side.

I'm going to ask Aroldo to help me in this dropout Semi On-campus, and then I'll talk about DIS.

Thank you, Eduardo, for your question. We see -- well, we see the trade-up more students on Semi On-campus of our partnering hubs, what we see in terms of dropout rates, historically, Semi On-campus has a dropout rate that is halfway through between On-campus and Distance Learning higher than Distance Learning. What we see now in the beginning of the first renewal of partnering hubs is that it's a bit below what we have historically a new product, but above Distance Learning. We have to understand how this will evolve, but we see some positive results in this first renewal coming from partnering hubs. I won't mention the number, something we're going to understand, had positive signs and the history is actually quite positive.

On DIS, it depends on the student profile. It's very well communicated, very easy for people to choose whether they want to join or not or adhere or not. Intake that did not grow so much, that has brought people that has higher financial power that do not need to have DIS. There's nothing of changes on our side. I think there is a change in the profile of students, lower [ adhesion ]. There is a positive effect to the quality of the revenue. We don't know how this will behave from now on. BRL 14 million that we had last year, that tends to be positive in the midterm.

Our next question is from Mr. Gustavo Miele from Goldman Sachs.

I also have 2 questions. The first is a follow-up on the previous question. I'd like to hear more about the unit economics of the student that has a trade-up for Semi vis-à-vis Distance Learning. If you could comment on the margin ramp-up expectation you have? You expect the bad debt is more efficient vis-à-vis what was before. And also ROI, the marginal CapEx that you have to disburse here for the student may be low. There may be an ROI expansion. If you could comment how accretive this unit economics of the new students, so to speak, is or maybe for the company vis-à-vis previous expectations? This is the first question. The second one is not more on the regulatory on the company that we've had in Brasilia regarding the legal framework. Do you think there may be some relevant change vis-à-vis what has been [ said ] recently by the industry considering this delay we've seen? Those are the 2 points.

Well, thank you, Gustavo. Unit economics of students on Semi On-campus, the marginal ROI is infinite. We have 2,500 stores that had a product. And now I have a more expensive product with high [ adhesion ]. So I had Semi On-campus at our units. I started doing that at the various hubs to [indiscernible] just as all the competition has always done. We took long to make this decision. That's why we did it in a very optimistic way. We have great growth potential. If we take our fair share on Semi On-campus, we have less than what we should have. And this is a great intake that we have now and the previous quarter, especially now it shows that things that we got it quite right and how relevant the potential is. And in terms of economics, well, in terms of unit economics, we showed in the presentation, ticket of Semi and the hubs, it's lower than the ticket of Semi On-campus at the units since the growth comes from the hubs on the release. So the average ticket on the On-campus drops, bringing the mass of the growth comes from students that are paying a bit less. But when you compare with the original product, they had access to 2007 with practically twice as much as we had that we're charging today on Distance Learning in the digital unit, the Distance Learning plus flex with courses that are not so different. When you go into the Semi On-campus at the hubs, you have many, many classes on Teams. This is the beauty of our -- I don't like this term very much, our ecosystem, our portfolio because Teams comes up in the On-campus, especially towards the end of the course, they rather have Teams class because they're already working. They have on the life only through Teams, they can Semi On-campus on the hub. So I have great -- a lot of classes that I have great ability to add students there practically at marginal cost that is 0. The costs that I have are similar to Distance Learning, have transferred that are smaller than Distance Learning. And a bit of what Aroldo mentioned just now, we have a trend considering that historically, Semi On-campus renews more than Distance Learning or having lower bad debt and a better forecast. We don't have sufficient cycles to be very clear or very vehement about that, quite humbly so. It seems that we're going to have a very good evolution. Well, thanks to Brasilia, the legal framework has been discussed for a long time. Claudia Romano, our ESG VP and Government Relations and Communication, she has very close relationship with the government. It is her and our institution. We like to contribute to any government thoughts on education on the future. We have legitimacy and authority of those that actually have students from the public high schools. Many times they go to Estacio, well, 80% of our students that join Estacio come from public education. So we have interest in improving all the courses, the quality of students, our interests are in line. When you see what has been discussed on the legal framework, of course, things are not good economically speaking, bringing from 40% to 60% online on-campus, it increases our cost. We have time to adapt to that. On the other hand, certain things are very good. We produce our content. We see people buying content, et cetera. When we see the government regulating things that we already do tests at the hubs. We have been doing that for 2, 3 years. I think, well, dropout rates in Distance Learning people that resulted because people did not want to go to the hubs to do exams. So if we don't do that, we can have problems. But we think that on average, the impact is quite small, financially speaking. We have a positive impact to the industry as a whole. Very important to mention that there is a transition period. It's not that it's going to be like that overnight. And financial impact, we think it's reduced. Whatever financial impact we get, we believe there are things to be mitigated. We would very much like it to be in effect. We have this threat, you have the legal framework, come on, let's do it. And I think the intention of the government is very good. There are certain things that perhaps I wouldn't do, but there are small things like differences. So we would like to have things to be put into effect. And when it is approved, the financial impact in the short term is small. In the midterm, it will be close to 0.

Our next question is from Mr. Renan Prata from Citi.

I have 2 questions briefly. One is on this migration from the student loan. Just to make it clear here, you migrated the product from the student loan, what is from the legacy portfolio plus new contracts or only new students that only move into this modality? Just to understand this dynamics, what was recurrent, what's structural? And the other one, just a brief follow-up on Parente's talk on the medical school students or ticket. The medical school ticket was a bit weaker in this quarter, specifically because of what? Because of the new units that had better performance. Could you clarify that as well?

Thank you, Renan. I'm going to turn over to the experts, Rossano for the first and Silvio will answer the second question.

Thanks for the great question. On this migration, this is super important to understand that the migration is from the base, the base that is being renewed, not of the accounts receivable previous one -- previously, those accounts receivable follow the same time line. There was no one-off recurring early time. So all the students, even those renewing, they renew the conference, the migration is on this new, the new revenues from this quarter start having receivable deadlines that are shorter. So the previous revenues continue to keep the same time line. So that's why there is no change. This positive impact 100% recurring from now on because it only respects the new revenues, not only freshmen, but also of classmen renewing. I hope I have answered your question. And if not, let me know.

It is clear.

Silvio?

Our next question is...

Just a second. We have the second question. Well, Silvio is opening his mic.

Can you hear me?

Yes.

Well, regarding the medical school ticket, it's actually a mix. We have a growth -- of course, we have the maturing -- the programs that are maturing are Mais Médicos. They have a lower ticket, but as you increase the seat, you have to give 10% of those in full scholarships. So if you consider the increase in the student base, considering the Mais Médicos full scholarships and the increase of the student base and the various schools with a lower ticket, it's natural for us to see a lower ticket that we have here. But then we [ x ] those to expect if we -- we actually have a growth of tuition paying students of over 50%, 5% and 6% on upperclassmen. The increase in ticket happens, and it's a bit light loaded because of the mix considering the units where we're growing most.

Our next question is from Mr. Lucca Marquezini from Itaú BBA.

It would be a question regarding commercial expenses. We see an increase, especially in On-campus. I'd like to understand if this has been simply explained by the increase of Semi On-campus or if there has been a need of change in the commercial strategy, thinking about increasing intake. Just this point, please.

Thank you, Lucca. Rossano?

Thanks for your question. This has been a factor that was specific for the first quarter. Commercial expenses, we have that impacted by the first quarter of 2024. We know the whole cycle runs in 15 months and intake of first quarter 2024 was growing this intake. The curve changed from the second semester of '24 or '25, there was a change in what we have bad debt and On-campus will go back to margin On-campus operating in line with what we had last year recovering the negative impact of the quarter. In terms of M&S, well, the increase is 1 percent point. It's within the margin. Of course, we are -- we act with tactics in M&S as opportunities come up. Market sensitivity as demand fluctuates, the small variation 0.1, 0.2 percent points in M&S is expected over the quarters. We don't have within this range. We don't have great provisions of what has happened within the first quarter.

Our next question is from Mr. Lucas Nagano from Morgan Stanley.

Parente, Rossano, I also have 2 brief questions. The first on migration of this financing model. You've explained quite well. The question is on this receivable portfolio that is existing. You see an inorganic lever for cash, some kind of early payment. And the second one is on student base intake. First quarter may be a good reference for the year. On-campus more stable, Distance Learning dropping because of this great penetration of Semi On-campus.

I'm going to ask Rossano for help, but I'm not the financial side. We have a legacy that if we get good price, cool. So far, we haven't had it. Is that it, Rossano?

Sure. I can turn it over to Eduardo. Actually, that's it, Lucas. Well, negotiation is separate. I could negotiate early payment of the student base, the legacy student base. But since we don't need immediate cash generation, I'm only going to do that if the cost is quite attractive. So far hasn't been any long-term receivables. If we have attractive rate to have an early payment, we would do that. Since we can have intake freely on the market, in general, our intakes, our primary intakes or fundings can get better rates than what we have in the long term, but Eduardo is saying that if we have an opportunity, we're going to do that in the funding. It's an important thing in your question, Lucas, because you're emphasizing something we said, perhaps we haven't been so emphatic, which is that this change is not a specific change. We're not getting receivables from the past. We're changing the way we operate from now on. This is recurrent. This will increase our cash generation every quarter ahead. So this is...

Well, thanks. This helps us to highlight that student base with this yearly reference, what is happening here?

Let me see. Let me share my view. If Marcel wants to add, that could be quite valuable. We closed the first quarter better than we closed last -- the first quarter last year, as you've seen in the guidance, the reference we had given. I think we got it right. We had this paranoid view that this is what we are like today. And you see how we did better than what we mentioned in our reference. The conclusion with that is that the end of the intake of this year has been better than what we had last year first quarter. Second quarter is better than last year. The second is purely online or Digital Learning. And it's too soon to have expectations on that. So the numbers are smaller on students over the year, and they are -- well, we have Semi On-campus coming in very fast asking to open ways. So you're right. First quarter is another important quarter for us to create a base for the year, but we have more upside than downside in this evolution. I'm not going to call it margin of the delta that we have 9 months ahead. We have more upside than downside, but the effect, you're right, it's not getting on the base that we formed in the first quarter. Have I said something stupid, Marcel?

No, we've been capturing good value in renewals. We've seen a base profile that is better in the second quarter. That should also be quite constructive for the rest of the year. Have we answered your question, Lucas?

Yes. Very clear.

Well, the Q&A session is closed. We would now like to give the floor to Mr. Eduardo Parente for the final remarks of the company.

Well, thank you very much for your time, for your trust. I'm very happy with the quality of the Q&A session. We're talking a lot about positive things, building questions on measures that have been broadly known as we're taking to enhance the revenue, the results once again. In the past, we were very much pressured by you to go into this movement, so we are taking an attitude of greater transparency, easier analysis of our results in the industry of education. As to the quarter, the great point is cash generation. A year ago, we forced you to make up the conversation a bit of net debt or net profit actually. It's important to talk about EBITDA, net profit. It was possible for us to compare at the time. We could show the business generating operating cash constantly. But actually, we have cash generation for shareholders. We had a conversation on that. We organized our guidance on that. It's been very important for us to show you the future. There has been at some point second half of last year, if we got some questions whether we would get to our guidance or deliver our guidance or not. So we were quite conservative. There was a change in the Selic interest rates. Well, the second half was not wonderful, but we delivered our guidance, considering the responsibility and accountability we feel when we shared that with you. Rossano shown the impact of the interest rates and the buyback program. It shows a trajectory when you take free cash flow yield, our yield, it makes us feel encouraged and excited regarding what comes ahead. We are changing our conversation regarding FCFE. We had BRL 528 million in the past 12 months of cash generation for shareholders. What we have ahead to be within the guidance are smaller challenges, and we believe there are positive things to come. And with an improvement in the quality of revenue that is quite strong helped by paying out BRL 500 million in dividend. Last week, we closed the buyback program. So we could see more robust going back to our origin that has always been a very cash generation or strong cash generation business. Thank you very much for your trust. Thank you for your feedback. We learn a lot from you. On the day we publish our earnings results and the questions we get things that people say, people talk about Semi On-campus should be -- there should be on Distance Learning, we are actually thinking about that. We know about the cost of this change to you, people. We want improvements there in the market. So thank you very much. This is very important for our trajectory. We've had very rich enriching feedback. We try to listen and keep on evolving. BRL 528 million of cash in the last 12 months and cash generation ahead. Thank you very much for your time and for your trust. Have a good day.

The Yduqs 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.]