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Edited Transcript of ESTC3.SA earnings conference call or presentation 8-May-20 12:00pm GMT

Q1 2020 YDUQS Earnings Call

May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of ESTACIO PARTICIPACOES SA earnings conference call or presentation Friday, May 8, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eduardo Haiama

Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board

* Eduardo Parente Menezes

Estácio Participações S.A. - CEO & Member of Board of Executive Officers

* Rogério Tostes

Estácio Participações S.A. - Director of Investor Relation

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Conference Call Participants

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* Caio S. Moscardini

Morgan Stanley, Research Division - Research Associate

* Marcelo Peev dos Santos

JP Morgan Chase & Co, Research Division - Senior Analyst

* Samuel Campos Alves

Banco BTG Pactual S.A., Research Division - Research Analyst

* Susana Salaru

Itaú Corretora de Valores S.A., Research Division - Sector Head, Telecommunications, Media & Technology

* Victor Tapia Migliorin

Banco Bradesco BBI S.A., Research Division - Research Analyst

* Vinicius Serrão Ribeiro

UBS Investment Bank, Research Division - Research and Analysis Associate

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Presentation

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Rogério Tostes, Estácio Participações S.A. - Director of Investor Relation [1]

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The presentation will be done with the -- by the CEO and then Q&A with the directors that are here with us. These slides of the presentation are being transmitted in our website, www.yduqs.com.br. And we are doing the simultaneous translation for the best governance, and the translation will be in English. (Operator Instructions)

Well, the conference can -- the disclaimer is that the company's financial information is presented based on consolidated numbers, Brazilian reals in accordance with Brazil law and accounting practices adopted by Brazil. We are doing the presentation based on information that is available to us as of now.

Now I will give the word to Eduardo Parente. He will start the presentation.

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [2]

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Thank you, Tostes. Good morning, everyone. Thank you for being here. I hope that everybody is doing fine. It's interesting -- well, for 2020, it's been a long time since we did this earnings call. But the big change is that at these times, that we are suffering, we are all suffering, we can look inside and -- well, looking at the first quarter, then we can talk about other things, but we can look inside, and we can see the robustness of the company that we built. And it's a great deal of you invested in this company. We have this situation that is not trivial. We had the issues with the FIES financing. But since we faced a lot of challenges before, and I am certain that, well, in absolute terms, we will leave this crisis even stronger than when it started. So I'm going to start by Page 3 in your presentation. Talking about the COVID-19 pandemic. Well, we've worked a lot even before the crisis to assure that from the standpoint of our students, the people, the health of people, and also, the cash flow -- from the cash flow standpoint and the operations, we go through this period with the smallest impact possible. And here are a few examples. Page 3, we can see on the side of the student, in 1 week, we could get everybody studying at home, getting classes broadcasted live. And we had the same features as well. This was a battle that we trailed, and we prevailed. And we already had that technological background in our company. So it was easier -- maybe easier than first to implement this than maybe the competition. But we, once again, have 15,000 classes per week. Here -- well, that was on-campus transferring, the distance learning, of course, no impact on classes. We had now -- we have now more classes than before and more students than before. And in medicine, we also continue with the higher standards of the theoretical classes in the virtual environment. Also, we have -- if you've seen a lot of things that we have from the technological standpoint: applications, sharing of information. And over 95% of our students are participating in the class with 95% engagement. And we have practical classes, some we can get a virtual solution through high-tech tools; and those that we cannot, they're being accumulated. So we -- when we come back to the on-campus at the end of May, June, then we can replenish this curriculum once again. But here is the perspective that no students, I repeat no students, are going to lose the time line for their graduation dates and this time is being well used, the time that we are all staying at home.

Here community. We see a lot of things that we can talk about. We have the Resolve Sim, the initiative. Well, we had the (inaudible) redeemer, where the physicians, I don't know if you remember, (inaudible) through the physicians, we were part of that. And we are helping -- the Resolve Sim is an idea that we had right at the beginning of the pandemic during the quarantine. When we announced that the ENEM exam was not going to take place, we had a high percentage of our students that are faster students, they come from the public learning contact. And well, there are a few opportunities here to implement technology to inform these students, and this is a very good tool. It's an initiative to support the public school students for the ENEM at the entrance exams. And we are used to talking to all socioeconomic strata, but we want to help people that need aid. And the public schools, sometimes they don't have a lot of resources. And we had a platform that we recognize. And actually, it's recognized from abroad, and we have a lot of content. So we talk to our partners and we got the content of YDUQS, our partners. And in 30 weeks, we gathered, we amounted, we amassed the content which is basically the content for ENEM that is available for the distance learning that is available for all the public high school students for free, this content to study for the ENEM. We had over 200,000 accesses, 10,000 users using this to Resolve Sim, usually translating to, "Yes, we can solve it."

Now from the standpoint of the company itself, I think that it's very interesting that we are talking about the financial help that we give to people that lose their jobs. We want to help the students to accelerate the -- well, we want to cover all the students from the educational insurance standpoint up to 6 months. Also, we have an overview that is very pinpoint. When the pandemic really gathered strength in Europe, we anticipated and we wanted to do the correct closing of our accounts.

What was -- we really had all the numbers well close. We captured everything, and we're going to talk about that up ahead. In this world, post pandemic, we have a low leverage, 1.1x the net debt over the EBITDA, and the extended net debt amortization is on schedule. We're going to talk about that later. And we also have 100 actions to improve working capital and reduce the impact of delinquency. We are ready to do this. And the big focus here is to make sure that on the medium and long term, we want to keep the students enrolled, and this is one of our main goals. We need to have a strong cash flow to keep the capacity and bring whatever is necessary. And we want to regain the growth also in medicine and in the other areas.

Let's go to Page 4, please. You can see some numbers on the responses to the implemented actions on the pandemic. Let's remember, March 13, we started the official quarantine in the state of Rio de Janeiro. It was right around the time in the state of São Paulo as well. And right around that week, between 13 and 23rd, all the classes, except a few -- all the states, except a few, started the quarantine. We are using Microsoft Tools -- Teams. We are using it to provide a class that has a lot of things that we have idea -- ideas that we can implement when we come back to the on-site. And obviously, we have here 50% of attendance once we started with virtual classes. We started to build up the operations. We had some students with hardware issues. We have the partnerships with our students. And we want to offer special conditions for those that did not have it, something that was very interesting while we have the teachers. And I see this in my class, right -- the people, at the beginning -- in the first class, people had difficulties accessing this new digital environment. And now today, everybody is basically digitally fluent. This curve, we got last week to 70% attendance on the live broadcast of the classes and we record these classes. A lot of people that have difficulties accessing the class in real-time with lower broadband, they can see the recording of the live class. But once again, 81% of the people are watching the classes in real time. This is marginally good, but it's practically the same as we had in the normal operation on the on-site. So now we are really expecting that the students are focusing on the content, and they're watching it from the comforts of their homes.

Here is an interesting phenomena. If you look here in the northern part of Brazil, we had Internet issues as well. Well, we have a couple of -- we have some of the students watching the classes together, and people are gathering to watch the classes. The -- once again, the dropout rates are marginally the same, practically the same as last year. We can see April year-to-date, 3.6% in 2019, 3.9% in 2020. And here, we gather all the executive directors, and we discussed this issue, and we look at the previous numbers. Obviously, nobody has a crystal ball here. And then a couple of weeks and few months of everything that is happening, we are looking at the best case scenario really of our projections going down here. We can see the cash -- well, there is a reduced impact on collection if you compare April of 2020, if you compare it to April of 2019. We have a series of actions here to reduce or delay the cash outflow. We are paying bonuses, well, dividends CapEx. All of that is scheduled for the future, some contract renegotiations as well. We -- some are permanent, some are only for periods of time, but all of the contracts are being renegotiated. We are applying the MP 936, professional teacher that has their -- the teachers are working, we are really presenting -- we're keeping 99% of our employees at home, and the workforce is in home office regime.

Let's go to Page 5. We can stay here within what was in range. If -- well, we are a little bit disappointed here with the on-campus -- well, the on-campus, we had an expectation of having more students. And on March 13, really everything stopped. It grinded to a halt. We had an expectation of going over 10% of getting the intake -- more intake of students and that didn't happen. Here that 82% is the stage of completion that we shown of intake expectations. Once again, digital learning is the big highlight. And an interesting point is, here the intake in the first semester in the digital was higher than the 2 previous semesters. What happens on the on-campus at the moment that we had a start-up of the crisis, the pandemic, I think it was 13th through 16th of March, the intake continued very strong. And well, the intake was still maintaining good numbers until the lockdown.

Here, the big message of the highlights of the quarter. You -- those of you that follow us, you know that we have a big battle to fight. The less relevant year, we gathered over BRL 1 billion from -- we lost BRL 1 billion with the FIES financing. So our plan was always to 'let's fight the FIES issues reducing costs,' and that's what we were doing, and we are still doing. What's outside of our plan and our expectation are a few of the impacts of the COVID-19 pandemic. The first 5,000 additional students that we didn't get with the intake. Our renewal was worse with -- also people -- well, the end of the intake and the renewal was worse than the previous year. We have these -- I think it was March, we had an impact, really important impact. Everything that I'm trying to show here in this -- in the slide, this has an impact on costs. And up until the time, it's not less than what we expected.

I think that the big message here is that even though we had a lot here in comparison to the previous year, the adjusted EBITDA loss of 9%, we have a very strong focus on, once again, distance learning. We had good numbers, the on-campus and FIES was growing more, the revenue was growing. And one thing that we think that was important and it's important to look at the sector 6 months before and now more. We're looking at an 81% cash conversion, and it's a low level of indebtedness.

Here, an important highlight. It's important to mention that we had the approval finally from CADE, C-A-D-E. Finalizing without any restriction, the CADE didn't question any part of the operation. And now we have a talent integrated with a cash position of BRL 1.5 billion.

Please go to Slide 7. What do we have here on resilience in a challenging scenario. Looking at on-campus student base, we have a drop in 1%, obviously. And what is important here is that we have the FIES, well, issues that we've had for a few quarters, those issues. We had last year a record intake with 7% if you compare to the same period of last year of '19. Here, the FIES base was less and less relevant. As you can see in the quarter projections our base here was -- is 9% of students. And this is a new FIES student in terms of behavior that is very much like the other students. And here, this year, that loss that the FIES base represents every quarter for us, it will not take place from 2021 onwards.

Another important thing, in our financing, we had 16,000 students on the first quarter of '19 or 9,000 students in the first quarter of 2020 for the PAR students. Now we can see the retention rates, there is less. And the average ticket, if you do not count on the FIES, we are talking about 758 in the first quarter of '19 to 739 in the first quarter of '20.

Digital learning. Let's see the expansion across the board. Here, the new intake record, the base. The base of the digital learning really grew 31%. It's very robust. We had a strong base. It was a base of 10,000 students that grew substantially. The number of DL centers, we had -- last year, we had 635. Now we have over 1,000 DL centers with a good retention rate and a loss in the renewal. The retention rate of the DL, we can see 82.8% to 81.8%. We see the DL net revenues growing 27% and the EBITDA growing 29%, if you compare it to the same period last year.

Let's go to Page 9, medicine. Great opportunity ahead. The student base grew 16%. The average ticket also grew 10%. Net revenues 30%. We had an expansion, well, in the paying base, the seat expansion in Mais Médicos I unity. Our unit, new unit, in Città America, it's a great, great success. A lot of people are seeking, and really hospitals that are referenced are looking for our students that graduate from the Città center. We can see -- so we had -- by 2021, we had 15 campi in operation by 2021. We have over 10,000 students by 2024 in medicine. And we also have in our PhD, well, in the context of Estacio, we are investing very strongly in the expansion here. And along with our talent, we have a preparation for residency. And we are evolving in this value chain. Well, there is an operations expansion through the medicine value change -- value chain with the SJT MED, the medical education.

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [3]

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Well, now I'm going to talk about net revenues. The Slide #10, position for growth. Let's start by the net revenues of the form of FIES. In -- over the last 2 years, we had an increase of 21%, also 8% if you compare to the previous year. And in the lower graph, we can see a drop of the FIES base and our effect as a whole. It was 27% in '18, and in this first quarter of 2020, 10%.

In terms of numbers, let's see. Our net revenues reported in the first quarter of last year, BRL 933 million. In this quarter, we had lost BRL 70 million in FIES base. We had a growth in distance learning and growth in the delta of medicine. So that loss actually is being -- we have a compensation of the losses of FIES. And from next year onwards, when this loss is almost 0, none, we will have an increment that is robust in our revenue.

In -- on Slide 9 -- 11, I'm sorry, looking at costs and expenses, short-term pressure. We have a growth in cost expenses of 6%. This is due to the M&As and the restructuring of the group. A few points. Let's talk about the expenses that are -- we commented the expenses related to the COVID-19 contingency plan, getting the classes online broadcast so the students will not lose the semester. This is an additional cost.

Second point. We're talking about here the bad debt. Well, even though the quarantine started at the end of March, it had some effect. And also what we have to talk about how -- the earnings. We can see the nonrenewals. There's going to be an adjustment for that. Also, it's important to highlight that this is a mix of the increase of the bad debt. When you reduce the percentage of the FIES in student and then you have the mix that doesn't have the fee as financing, of course, the bad debt increases.

The third point. It's important to mention. Well, on the graph on the right,lower, you can see here the advertising costs. It grew 15% in comparison to the first quarter of '19. And I commented in the fourth quarter that the increment that you proceed of '19 against '18 and 2020, well, the expectation of the number itself, it was, in absolute terms, almost the same as '19, but this growth that we can see in this quarter is more of a formality of costs. And the trend is that over the next quarters, we will converge so that the absolute numbers in this line are online -- aligned with the numbers presented in '19.

Let's go to Slide 12. As we commented, the EBITDA is suffered. We had about 9% drop adjustments, of course, because of the M&A. And here, the main impact in this line, there is an increase here in the nonrecurring items. I also reported the advertisement costs. But here, the important point to highlight was the generation of cash flow. If you look at the accounting number, degeneration of the cash flow is 121% of the accounted EBITDA. We do an adjustment and BRL 136 million receivables -- well, we had a reported cash conversion of 121%, cash adjusted by BRL 136 million due to the delay of the FIES transfer in December of '19. The cash conversion, we have 81%, which should be one of the biggest ones in this sector. Another point that we should mention again, which was mentioned before, we can see that the cash conversion -- well, we had the nonrecurring impacts, and it was lower impact in comparison to '19. So the solid cash position after the acquisitions, we ended post payment of the acquisition of Adtalem. We started BRL 1.5 billion below the budget. So the first quarter in March of everything that was captured in April, and here, the payment from the payment of Adtalem was BRL 2.2 billion with a new -- with the cash that we received due to the acquisition.

Now remember, one thing, in terms of value repaid at the end of the day, when we acquired, it was BRL 1.9 billion. Once we acquired, by the value of the firm, when we conclude because of the mechanisms, the payment -- effective payment was BRL 1.8 billion. In terms of costs, it's important to mention that even with an increase of cost, we had, over the left, capturing. Here, the cost of the company is very low. Even with all the debt -- the new debt, it is the CDI rate plus 1.5%. So let's go back to financials.

Well, let's go to Page 14, the Adtalem acquisition being concluded. Well, we already explained this. We had the closing in April 24. We received a cash with an operation of BRL 389 million, the net debt cash, so the enterprise value is BRL 1.8 billion. In terms of financial performance, with the Adtalem management in IFRS 16, we can see here the net revenue is BRL 853 million, and this is going to show in terms of our results.

In regards to the synergies, the ones that we identify, a few things that we can mention. Well, this has been easier than we expected. We had predicted a very difficult time. Nonetheless, we are seeing that there is a lot of culture values. And the passion for the student, really, we can perceive that very well in the M&A, and there are additional good things, and we are very excited about this. We can see the leadership of the market. We can see the niche students are much higher. We use the new brands (inaudible), all the ones that you know. There is the issue of IT, which is always very interesting for us. And we -- this is very positive here as well because of the easy -- how easy it was to do the integration and introduce the digital content, for example, to widen on the on-campus courses, units operating in an easier way. And it's easier to integrate some units, the course portfolio between institutions. It's easier to integrate thousands of students. And in synergy, we went up beyond what we expected. We had over -- by the preliminary data indicate synergies above BRL 80 million, the most obvious here is the online teaching, the on-site, that is very important, and we have technologies that are being implemented here to facilitate that. And obviously, this is a big economy that is being displayed in the details of the budget here on the revenue.

In pricing, how do you do the market testing and research? And we have a structure, even though the origin -- the structure is much more flexible, much more technological. And we identified a lot of actions that now in the intake, we have a great expectation in those results. The cross-selling as well, mainly medicine and law, we have the basis here and other themes here. The fact is that BRL 1.8 billion that we talked about the enterprise value is 9x the EBITDA that we had recently. And our expectation is that over the next days, the range of the synergies that we already mentioned and identified of above BRL 80 million, that the preliminary data indicates, shows that all the initiatives were identified and each of them are being implemented. As a reflection of that, we expected good synergies for 2020 and we can see the numbers for this year.

Let's go to Page 15 to conclude, conclusions and perspectives for 2020. I think that the EBITDA in this quarter, above -- below of what we expected despite the slowdown, but we have a solid base of students here, the numbers are growing. To keep the operation running, we can -- we think that we are a benchmark in the market -- not only in the market, but it's a benchmark of the market that services all of the market, not only the Class C and B. Universities and small universities that have 15,000 students, we are delivering in comparison to them. We are delivering to the student at their home. The quality is superior, far superior, than the competition. We are convinced that the fundamentals are here. They are still solid, as we mentioned. We -- the cash flow generation is still good. It's still solid in the balance sheet. Here, we have -- the numbers are a bit worse than last year because of the COVID pandemic. And now we are leaving -- once we leave the situation in 2, 3 months with the cash generation and the operation that is robust, the pace here we have -- we are starting to look at this with a lot of -- it's a solid position, even more than what we mentioned and talked to you and the expectation for 2023. Our expectations for 2023 have not changed internally.

Last but not least, we always talk about -- if you look at here, the -- we had the distance learning that was 22% in the past, and now it grew a lot. We also have the 3 growth leverages, which is medicine and the M&A. And we are going to emerge even stronger after this crisis. A lot of people that we talked to, they are going through difficult times, and of course, it will be a difficult time for everybody, but we have an expectation to run a good business with responsibility looking towards the future. I think that really we're going to come out stronger in the distance learning. People are getting more used to working digitally in the digital context. And they understand more and more how to stay home, what to do at home. And I think that, that really is very positive for this digital market.

So to summarize and conclude, we are alert. We are looking every day at the times of improvement or worsening of the situation. We, every day, are thinking about how can we assure that the operation is robust, but we are looking at the future, we're looking at the post-pandemic crisis. We informed our students that we are looking to the future and how can we use our strengths to really regain growth in the moment of postcrisis.

Thank you very much.

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Rogério Tostes, Estácio Participações S.A. - Director of Investor Relation [4]

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Now thank you, Eduardo, Haiama. Well, let's go to the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question comes from Mr. Marcelo Santos.

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Marcelo Peev dos Santos, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Well, I just wanted to ask you a question about the -- what we see the smaller companies that don't have an online structure as good as yours, and they don't have the agility to do the transition to the virtual learning. Do you think that in the second half of the year, that's going to give you an advantage in regards to the competition? And maybe you're going to offset a lot of the impact on the -- of the lockdown, getting the students from those competitors that did not adapt it? And the second question is, can you talk about the opportunities of M&A? There are companies doing M&As. Do you see an opportunity to do an M&A? Or the idea is to wait and see what -- if you can comment on those future opportunities for M&A, please?

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [3]

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Well, I'm sorry, I pressed the button, and I think that I just turned everybody here out. Look, I agree with the numbers. I think that this intake of 20.2 -- 2022, we are getting ready for it even more in the details than we had before. So external transfers, we increased the number of quarters. We are -- we have over 80% of our students thinking that the solution -- digital solution that we have is good or very good. And the on-site, they're saying that about digital learning, but more so. I think that we have -- this is the moment of truth for the sector. If you think about this 3, 4 years ago, the situation was that the students came, and they were strongly -- well, they have the capacity to finance themselves, mainly with the FIES financing. And with the end of the FIS financing, we had -- there were -- the conditions were less attractive for the students. And now the financing is coming out of pocket -- out of the pocket of the students. And yes, you think, well, now you're seeing those students that really can pay for an education. And we can see also those service providers, us, they can provide a quality service for the student that can fit the pockets of the student that makes it easier for the students to pay, and we are strong in that sense. And those that cannot adapt to the pockets of the students, the size of the pockets of the students are going to become weaker. And the idea is to give the opportunity for those students -- and to give the opportunity for those that are more robust in technology and in cash flow the companies that will take the technology to more students in the market, a bigger chunk of the market. So I think that we will have people with -- well, our competition is going to have difficulties and the intake of students, some will not survive. And I think that the pandemic tends to accelerate the adjustment of the market.

In regards to the M&A, I don't think things change in a relevant way. I think it will accelerate a few processes. A month ago, maybe more, we are -- we were looking at the question, "Hey, do we have cash flow?" But for a long -- now for a long time or for the time that the pandemic left, we start to look at all opportunities of all sizes. I think that there is a lot of things that we have to get on the table, understand and analyze.

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Operator [4]

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The next question, Mr. Samuel Alves.

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Samuel Campos Alves, Banco BTG Pactual S.A., Research Division - Research Analyst [5]

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Well, 2 questions from my side. First, in regards to the PDD, you mentioned in your question, in the comments, about the provisions. And then there is a component at the end of March, which is natural because of the deterioration of the scenario. But just to understand, was there a perspective effect in the death of the quarter? Or is there anything else in March? And the second question is, do you -- can you comment on the issue about some cross-entities, which is reduction? Did you have any issues with that? Did you have -- maybe you had to solve that in the future?

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [6]

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Well, Haiama here talking. About the provision for the doubtful counter of bad debt, well, no, no, there was no -- no extra things here. The -- well, we didn't change regardless of the impact of the COVID.

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Samuel Campos Alves, Banco BTG Pactual S.A., Research Division - Research Analyst [7]

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Now can you comment on the provision here for the bad debt?

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [8]

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Since the quarantine started in the second week of March, where the intake is lower, the perspective here is -- well, let me remember how our curve of bad debt accelerates with the dropout and we didn't change the criteria. We didn't change the perspective. The perspective is the same, but it accelerated because of the dropout in nonrenewal, but I'm going to give the word to Parente.

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [9]

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I'm going to -- well, since we are doing the webcast, then I think that the question is for (inaudible) as well.

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Unidentified Company Representative, [10]

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There is a flexibility or discount if there is a strong dropout. So I'm going to -- well, we have a strong pressure really. And sometimes we see anxiety to help those that are in need. There was, I don't know, 3, 4 weeks ago, some time ago, a boom of help, and we had even the public policy helping -- I mean, the politicians helping the -- to try and propose and help the students. There is a situation where there is a lot of people trying to make an effort to help people and students at this time. We anticipated that actually to that. Once we look at the people that are going through difficult times, we had a discount of 12%. And well, there are people that lost their jobs that cannot pay 88%. So this, from the social standpoint, it's questionable. We look at the effort of trying to provide BRL 600 for the workers that are not registered. We have to look at the help given to the population as a whole. We had a program here, but that -- from the business standpoint, it doesn't make sense because my intention is -- my intention is to help the people in need so that the people can continue studying and can continue advancing themselves. Here, in Rio de Janeiro, which is our biggest space and we had 10,000 -- well, for each month of the pandemic, where we are getting the people, we are giving them scholarships really with -- we are seeing the students that lost their jobs. We are looking at one-by-one of the students, seeing -- well, we are going to have a few people that are going to lie, but we understand that as part of the cost of the process for the scholarship process, for the students, we already mentioned the 10,000 scholarships. We had an extension from the payments, and maybe once again, that is within the tuition fee, and we want to really avoid the dropout.

The -- we are seeing the second cycle that is very good, and we are taking that throughout Brazil. Now, in all the states in Brazil, in this moment, we want to take it through all the other brands of our YDUQS. So people need to enroll in the scholarship. We're going to see one by one, and we're going to try and focus these resources that we have on those that needed the most.

These scholarships, these concessions on the tuition, we are going to do the renewal of the students. We can work with those that want to renew their studies. We have the mechanics of the monthly fee for the tuition and all the programs. Certainly, if we approve a law here and they are the cancels that gives you extra benefits to the tuition, we -- our expectation really is where we talked to the regulators, we are extremely sensitive to the -- to what is happening to the students. This is being recognized by the public powers. And we are working with this issue diligently, and we have our view here. Our vision is that, in the end, the good will prevail, and we will stand by our students.

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Operator [11]

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Our question is from Susana Salaru.

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Susana Salaru, Itaú Corretora de Valores S.A., Research Division - Sector Head, Telecommunications, Media & Technology [12]

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We have 2. Well, at the beginning of the discussion, Eduardo, you mentioned that you did not change any expectations for 2021 for the results and performance. Can we -- we can read along the lines that in 2020, we are expecting a stronger recovery of the result. This is the first question. And secondly, in regards to the point of the discounting the tuition or the full-time 100% scholarship, is there going to be throughout Brazil? How many scholarships are going to offer monthly for all the units in Brazil?

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [13]

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Susana, great to hear you. Let's talk about this. 2020, it's still very early. It's something very interesting is that we have a very good overview of what might take place in 2, 4-year -- 2, 4 weeks and a good prediction for 2021, but there's a lot of variables here. In fact, we don't work right now at this moment with a lot of changes in 2021. But once again, we have a talent joining YDUQS. We have medicine and law growing regardless of coronavirus. And we have the end of the fee as losses.

Hello? Am I here? Yes. Okay. I'm back. I'm back. So when we add all this, the growth of the distance learning in medicine, the joining of Adtalem, the end of the FIES-base losses, at the moment, we are still losing a lot with the FIES that what we are losing or will lose with the COVID-19 pandemic. So once the situation is solved and we all go back to normality, we can foresee that everything is under control and we are keeping our expectations the same for 2021. What is our big concern is not losing any opportunities and keep the student base. This is a key for us, so we can go through this strong winter in 2020 and emerge victorious. But we are expanding throughout Brazil this week on Saturday. And on Monday, actually, we started to announce this, but now we have this strongly -- we are expecting 50,000, 60,000 scholarships in this program. It's not for the semester, it's for this month. It's per month. And we are counting 3 months, depending on the need. I have stories here that are really heartbreaking from the students that are people that get 1, 2 -- Hello? of the set of scholarships and the number of favorite students is about 50% of the students. 50,000, 60,000 exemptions for 1 month at the end of the year, 50,000, 60,000 minus.

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Susana Salaru, Itaú Corretora de Valores S.A., Research Division - Sector Head, Telecommunications, Media & Technology [14]

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Okay. Just a follow-up. You have that insurance. Are you going to direct the student for the insurance?

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [15]

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The insurance, we have it since 2015. And if you lose the scholarship and you have the conditions to receive the insurance, we're going to activate the insurance. Once again, we assembled a cell, a working group to service those students so they can get a good and fast response.

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Operator [16]

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And let's talk about -- let's talk to Mr. Victor Tapia.

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Victor Tapia Migliorin, Banco Bradesco BBI S.A., Research Division - Research Analyst [17]

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Now more along the lines of the distance learning. With everything that is happening with the quarantine lockdown, it's possible to have an impact on the -- well, the fit and base on the on-campus. But there are some small players on the other hand that don't have the structure to have a robust distance learning as you. So the gain in market share that you might have in the distance learning can offset the impact in the student base in the context of the student base of the on-site?

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [18]

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Victor, I'm going to answer the question, but if I'm wrong, please ask me again. We have the expectation of distance learning to still keep the same numbers maybe this is the thing that we can have the same information. After the quarantine, our numbers have improved, of course. I think that those competitors that do not have distance learning, once the tide recedes, they're going to try and find different paths to compensate for the FIES losses. And I think that every company has wrongs paths to trail and we chose the distance learning with medicine, and it allows us to generate cash to consolidate. We think that this is the winning pathway. So I talk to our Director of M&A. He's on the phone. We had people -- we had competitors with difficulty keeping their costs. And now the costs are higher than their students can pay. So I think -- is very high medicine, and the on-site has a smaller margin, and we have big efficiency. It's very efficient. And we can see small operations that don't have the online. They don't have that efficiency. And here, big issue is that you cannot, nowadays, have costs that do not add anything to the training and the graduation of the student. Once you go to our units, you can see that everything is functional. Everything is beautiful, but it's very [spartan]. We don't have parking lots. We work with students that have a lot of quality to deliver the content, but not necessarily they had their training with research -- advance research. We have that, but it's more the exception to the rule. We have a strong online content. With all this, we see the difficulty in the small players. Of course, those that really don't have this path already established, well, really, they're going to get weaker, and we can use that weakening as Marcelo has said, we can use that -- we can ensure we compensate for any eventual losses that we have in our on-site.

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Victor Tapia Migliorin, Banco Bradesco BBI S.A., Research Division - Research Analyst [19]

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The distance learning is still the same, right?

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [20]

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Correct.

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Operator [21]

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Next question Mr. Vinicius Ribeiro.

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Vinicius Serrão Ribeiro, UBS Investment Bank, Research Division - Research and Analysis Associate [22]

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Two questions. First, can you tell us, even if it's qualitative, on how your curve of dropout in bad debt, revenue for bad debt, is behaving? And there wasn't a lot of pressure in your budget. And when can we expect that you have your different products being affected at the second cycle of intake in the second semester? Do you have different products that can service different base of students in the second semester?

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [23]

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Vinicius, provision for bad debt, the question to understand a little bit more. The difference learning and on-site, is that it -- that was the question?

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Vinicius Serrão Ribeiro, UBS Investment Bank, Research Division - Research and Analysis Associate [24]

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Exactly.

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [25]

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Well, this is very interesting. During the crisis, we are learning to -- well, we are learning very fast. I always saw that distance learning, these are the ones that have more difficulty. And well, we can see that in this period of crisis, now getting into the details, historically for us, here, the distance learning, we always had similar numbers to on-site. And post quarantine, the collections actually improved relatively speaking. So the revenue here, the collection today, where we are living, as Parente has said, we have that lever of the distance learning, giving support to all the operations, gives us more comfort for the cash generation. And we -- on the on-site, not that -- it's not that the on-site has worsened substantially. But in fact, the distance learning improved in terms of collections, in terms of revenue. Now in regards to distance learning premium, we tested that at Unitoledo it was our first brand that we tried the distance running without Estácio. Being a competitor of Estácio in practice, but it was very positive results. When we sell distance learning with the Adtalem brand, we started with a pilot in Fortaleza in the northeast. We are starting to operate with a different distance learning from Estácio de Sá. The first operation with the 3 brands, we operate with YDUQS, Estácio and the one in the northeast.

Distance learning premium, we have extra objects for learning, besides the quarantine really helped us. It was a big test, enormous test, that we did with the -- on how the on-site adhered, on-site students adhered to the distance learning premium. Besides all of the information that we have in our models for learning, we start to use the synchronous, the meetings with the teachers we include that to -- well, the real time in attending the classes, we include that to reach a different segment. Now for the second semester, we can use all the other local brands that we got from the M&A. I don't know if I answered, but this is the expectation.

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Operator [26]

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The last question comes from Mr. Caio Moscardini.

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Caio S. Moscardini, Morgan Stanley, Research Division - Research Associate [27]

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Two questions. One about the earnings and the other one is provision for bad debt. Apparently, we have the tuition deadline by May already. And about the distance learning, I want to understand the one -- the difference between the monthly payment and the PAR financing? There was a drop in the PAR finances. There was a drop, and I wanted to understand what are the drivers?

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Eduardo Haiama, Estácio Participações S.A. - VP of Finance & IR and Member of Executive Board [28]

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Well, in regards to provision for bad debt, PDD, through Portuguese, well, the revenue, it's still at the beginning. And since we are at the inception, we are seeing the same trend that we observed in April. Once again, we are still at the beginning. You have to see it what's going to happen until the end of the month. Our expectation is that things are not going to change. We follow day-by-day, as Parente has mentioned. We have the revenue that has that relationship between the accumulated crude and the daily. As for the provision for bad debt for the monthly payer, well, this has dropped. PAR has the amount of students that are subscribed is dropping. The trend should be that is maintained. As to how much the situation is with regards to the monthly payer, in the first quarter, at the period of intake when you have the invoicing and the monthly -- while the student has to pay the monthly fee tuition up ahead in the future, at the beginning, you have a very low provision for bad debt. The provision for bad debt, the PPD is, well, we start -- when we see the dropout rates increasing and the nonrenewal that starts to impact the digital product. So it's more natural that the student starts to pay by month. And when you do a negotiation that is broader, it basically in the months of intake, the trend is that the intake is going to be lower.

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Operator [29]

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We close, right now, the Q&A session. And I would like to give the floor to Mr. Eduardo Parente for the final thoughts.

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Eduardo Parente Menezes, Estácio Participações S.A. - CEO & Member of Board of Executive Officers [30]

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Well, thank you once again to you all. Ladies and gentlemen, thank you for the trust invested in us. I think that this is a very difficult time. But those of you that know us know that we have a very fine-tuned team that has leveraged, has worked with all of the team, and we are extremely engaged from what I can see. Over the last 6 weeks, we want to really educate people. We want to get things right, make things right. And certainly, we will be stronger out of this pandemic and this crisis. Thank you, all.

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Operator [31]

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The earnings call of YDUQS is closed. Thank you for your participation, and have a wonderful day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]