Vasta Platform Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Bhavesh, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Vastor Platform Third Quarter 2023 Financial Results Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Conference Call.

Operator

After the speakers' remarks, there will be a question and answer session. Quarter. Before we begin, I would like to read a forward looking statement. Q3. During today's presentation, our executives will make forward looking statements.

Operator

Forward looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these forward looking statements. Q3. Forward looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and the related benefit and our expectations regarding the market. Forward looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we are issuing today as well as those more fully described in our filings with the Securities and Exchange Commission.

Operator

Q3. The forward looking statements in this presentation are based on the information available to us as of today. You should not rely on them as predictions of future events, and we disclaim any obligation to update any forward looking statements except as required by law. In addition, management may reference non IFRS financial measures on this call. The non IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS.

Operator

Quarter. Thank you so much. I will now hand the call over to Marcelo Werneck of Investor Relations. You may begin your conference.

Speaker 1

Good evening, everyone. Thank you for joining us in the conference call to discuss Vasta Platform Third Quarter 2023 Results. I am Marcelo Werneck, Vasta's Investor Relations. And today we have the presence of Guilherme Emelyga, Vasta's CEO and Cesar Filva, Vasta's CFO, who will be joining me on the call. During the call, we will cover key highlights, financial insights and strategic developments that have shaped outperformance in the 2023 commercial cycle.

Speaker 1

Let me now hand over the floor to Guilev Emelega, our CEO to make his opening statements.

Speaker 2

Thank you, Martell. Thank you all for participating in our earnings release call. I would like to cover Slide number 3 with some highlights of our 2023 commercial cycle. In this quarter, we concluded the 2023 commercial cycle, and we believe that the commercial cycle is the best way to understand our business. Our net revenue increased 24% to EUR1.437 billion, mostly due to the conversion of 2023 ACV into revenue and also due to the performance of the non subscription products and B2G.

Speaker 2

VASTA subscription revenue has reached 1,207,000,000,000, an 18% increase over the 2022 sales cycle quarter or 22% excluding textbook subscription products. Our complementary solutions segment continues to stand out, showcase the highest growth rate among our business segments, with a 42% increase in the current cycle. Quarter. Moreover, as mentioned in the last quarter, in 2023, VASTA started to offer its products and service to the Brazilian public sector, B2G. In Q3.

Speaker 2

In the Q3 of 2023, we generated BRL40.7 million in revenues with the B2G sector. And in 2023 sales cycle, we generated BRL81,200,000 in revenues with the B2G. Moving to the company's profitability. In the 2023 commercial cycle, our adjusted EBITDA experienced a growth of 23%, reaching BRL411 1,000,000 while maintaining and adjusted EBITDA margin closed to 29%. Finally, this was another year of significant improvement in our cash flow.

Speaker 2

In the 2023 sales cycle, free cash flow totaled BRL145 1,000,000, a 167 percent increase from BRL55 1,000,000 in 2022 cycle. The last 12 months Free cash flow to adjusted EBITDA conversion rate improved from 16% to 35%. I will now turn back to Marcelo to talk about the financial results of the quarter and the 2023 commercials.

Speaker 1

Thank you, Malika. In this slide, we present the composition of VASTA's net revenue. On the left side, you can observe the significant organic year on year growth in total net revenue for the 3rd quarter, which increased by 37 percent reaching BRL258 1,000,000. On the right side, let's detail the key components of this revenue growth. And we experienced a growth of 20% year on year.

Speaker 1

During the Q3 of 2023, we successfully generated another BRL41 BRL1 million in revenue from the B2G sector. And finally, the non subscription revenue increased by 17% reaching €22,000,000 Moving to Slide number 5, we analyze the net revenue for the 2023 commercial cycle. In 2023, we achieved Onorganti net revenue growth of 24%, amounting to BRL1.437 billion. As you can see on the right, our total subscription revenue increased by 18% on an organic basis to BRL1.207 billion. Subscription revenue excluding Par had an increase of 22%, reaching BRL1.95 billion.

Speaker 1

However, Parr, our textbook subscription products declined by 11% amounting to 112,000,000 Subscription revenue continues the major contributor to our total net revenue, representing 84% of the revenue share. Also our successful expansion into the Brazilian public sector B2G has yielded promising results contributing to 10% of our overall revenue in the 2023 cycle and generated $81,000,000 in revenues. Non subscription revenue now comprises only 10% of the total revenue and increased by 12%, primarily driven by the introduction of the new revenue streamline from our flagship school, Start Anglo. Moving to Slide number 6. In this quarter, our adjusted EBITDA amounted to €39,000,000 with a margin of 15%.

Speaker 1

This positive performance is attributed with several factors including strong sales results, cost dilution and operational efficiencies. On the right side, The adjusted EBITDA for the 2023 cycle increased by 23% to reach EUR 411 1,000,000 with a margin of 28.6%. In the next slide, you will see the breakdown of the adjusted EBITDA margin. In slide 7, the EBITDA margin show a slightly decrease of 40 basis points compared to the last cycle from 29% to 28.6%. Firstly, our gross margin declined 30 basis points S23 was a year that the industry faced higher inventory costs caused by rising inflation on paper and production costs.

Speaker 1

Moreover, our provision for doubtful accounts, PDA, grew 150 basis points compared between the commercial cycles. This increase in PDA is impacted due to the provision of 100 percent of accounts receivable 1 large Brazilian retail company undergoing bankruptcy procedures in the amount of €9,000,000 in the 23 commercial cycle, which contributes to 80 basis points in our EBITDA margin. We also experienced 70 basis points in our generic EBITDA, which will be explored further ahead in our presentation. Despite this challenge, there are several positive aspects to highlight As we managed to offset these negative impacts through significant operational efficiency gains and cost saving measures, An improved product mix fueled by the growth of our subscription products has played a crucial role. As a percentage of the net revenue, Our commercial expense had an improvement of 40 basis points indicating greater cost effectiveness in our sales and marketing efforts and our adjusted G and A expenses improved by 100 basis points.

Speaker 1

Moving to Slide number 8, the adjusted net loss in the Q3 of BRL 23 amounts to BRL30 1,000,000 compared to a net loss of BRL42 1,000,000 in the comparable quarter of 2022. As you can see on the right side, our adjusted net profit in the 2023 commercial cycle had show improvement increasing by 83% compared 20 22 cycle, reaching BRL36 million. Finance costs in the scenario of a spike interest rate continues to impact our bottom line. However, we have remained committed to deleveraging as you see further in this presentation. Moving to Slide number 9, we show the free cash flow evolution.

Speaker 1

We continue to observe the normalization of the company's cash flow generation. In the Q3 of 2023, The free cash flow totaled €58,000,000 representing a solid increase compared to €17,000,000 in the Q3 of 2022. Moreover, to the right side, in the 2023 cycle, our free cash flow reached 145,000,000, a 167% increase from the €50,000,000 in 2022. On another important metric, our last 12 months free cash flow to adjusted EBITDA conversion rates improved from 16% to 35%, reinforcing the message that cash generation continues to be a key focus area of our business. Moving to Slide number 10, let me give you more details on the provision for doubtful accounts.

Speaker 1

Total expenses with PDA in the Q3 of 2023 totaled $50,000,000 representing 6 percent of the net revenue compared to the expenses of $5,000,000 in the comparable quarter. Moving to the right side of the slide, We can observe that PDA for the 2023 commercial cycle where report provision for doubtful accounts grew 100 and 50 basis points between the comparable cycles from 2.4% to 3.9% of net revenue. This increase in PDA is impacted due to the provisioning of 100% of accounts receivable from a large retail Brazilian Retail Company undergoing bankruptcy procedures in the amount of $9,000,000 in the 2023 sales cycle, combined with the revised credit landscape. This has necessitated a prudent approach to risk management and credit provision with the prevailing market conditions. All factors considered the participation of PDA in relation to VASTA's net revenue increased to 3.9% in the 2023 commercial cycle compared to 2.4%.

Speaker 1

However, excluding this one off effect of the larger retail provisioning, the normalized The deviation would be 3.1 percent of the net revenues, which is more in line with the typical course of our business. Moving to the next slide, we observed that the average payment terms of Vasta's accounts receivable portfolio was 118 days in the Q3 of 2023, which is 31 days lower than the Q2 of this year. I will now conclude my part of this presentation with Slide number 12. At the end of the Q3 of 'twenty three, Vasta achieved a reduction in net debt, which amounts to BRL998 1,000,000, an improvement of $60,000,000 compared to net position in the Q2 of 2023. This achievement is due to the positive cash flow generated during the period in the amount of 58,000,000 which surpasses the impact of interest accrual of $36,000,000 and the share buyback program in the amount of $6,000,000 in cash outflows.

Speaker 1

On the right side of the slide, we can observe that in Q3 2023, the net debt the last 12 months adjusted EBITDA ratio stands at 2.48 times, which marks an improvement of 0.14 times compared to the Q2 of 2023 and an improvement of 0.5 times when compared to the Q3 of 2022. With that being said, I'll pass the word to our CEO, Guilherme Nelligha.

Speaker 2

Thank you, Marcelo. Moving to Slide 14. In this quarter, we released our sustainability report for the year of 2022. This report, which is company's 2nd report, was prepared in accordance with international standards for reports of this category and showcase the implementation of our corporate strategy, challenges and achievements, while also reaffirming our commitment to transparency and sustainability. The report compliance with the global reporting initiative and also considers other standards recognized in Brazil and abroad, Such as the Sustainability Accounting Standards Board guidelines for education sector.

Speaker 2

We are proud to say that we made strides We increased the visibility of our ESG strategy in all three pillars. In the environmental pillar, We published our 1st greenhouse gas inventory. We increased renewable energy consumption. Quarter. We have been FMC certified for sustainable paper sourcing, ensuring exclusive partnership with similarly certified suppliers.

Speaker 2

We developed and distributed content related to sustainability among several other achievements. In the social pillar, we launched our 1st affirmative internship program, to the Somos AFRO. We enhanced regulatory tools with clear gold driven policies. We continued our efforts with the Somos Institute. For every BRL1 invested by the Somos Institute, BRL11 were returned to society.

Speaker 2

And the governance pillar. I can highlight that we have committed to the UN Global Compact's ten principles in human rights, labor, The environment and antitrust, and we have the Woman on Board certification due to the presence of Woman on the Board of Directors. Quarter. I encourage you to visit our website and access our full sustainability report, which is available both in Portuguese and English. I'll start my presentation with Slide 15.

Speaker 2

To mark the closure of 2023 business cycle, I would like to highlight 6 key elements that I believe have shaped this cycle. Our brands, Our journey of evolution was marked by the continuous evolution of our core and complementary brands. For example, Our Pitagoras brand, which is celebrating 57 years of excellence, has rejuvenates its brand, modernized itself and brings transformation in the pedagogical structure. We also redefining the educational experience with the migration from the Eleva brand quarter to our new identity, Amplia. And in complementary segment, the launch of Eduol in the partnership with Macmillan Education and NILE market a significant milestone for the 2023 cycle.

Speaker 2

Exceptional academic results. Our dedication to educational quality was reflected in outstanding academic achievements. ENGLE continued to lead to the U. S. And the U.

Speaker 2

S. And the U. S. And the U. S.

Speaker 2

And the U. S. And the U. S. And the U.

Speaker 2

S. And the U. S. And the U. S.

Speaker 2

And the U. S. And the U. S.

Speaker 3

And the U. S. And the U. S. And the U.

Speaker 3

S.

Speaker 2

Also earned their place as Amplia and Fibonacci also earned their place as top performers in the NNA examinations. Revenue growth in in new avenues. The launch of Start Anglo franchise combining bilingualism with academic excellence represents a strategic expansion in our pursuit of new revenue stream. The first units are set to operate in 2024, marking the beginning of an exciting journey. Initiative technology sorry, innovative technology.

Speaker 2

Our Plurals platform proved to be a valuable ally for parents, students and teachers, leaving the K-twelve web traffic with 30 2% traffic share in Brazil. We surpassed the milestone of 2,000,000 enrolled students. Also our adaptive learning and artificial intelligence solutions such as Pluravadapta and Hedera Salmatamil demonstrate our commitment to driving educational innovation. Solid financial results. Our financial indicators speaks for themselves.

Speaker 2

We achieved 24% growth in revenue, 22% in EBITDA and an increase of 167% in free cash flow. These numbers reflect our commitment to financial stability and value creation. B2G, quarter. We successfully ventured into the public sector, generating revenue of $80,000,000 by serving other 300,000 students. With all this in mind, 2023 was an extraordinary year, a milestone in our journey.

Speaker 2

These achievements position us favorably to face the challenges that the future holds. We have the confidence that we are on the right path to continue delivering outstanding results for our shareholders, solidify strong partnerships and make a significant contribution to our country's education. Having said that, I finish our presentation and invite you all to the Q and A session.

Operator

Our first question comes from the line of Lucas Nagano from Morgan Stanley. Please go ahead with your question.

Speaker 4

Hi, good evening everyone. Thanks for taking our questions. We have two questions. The first one is related to the 2024 SUV. If you could give us some color on the expectations.

Speaker 4

So for example, core revenue grew 15% this cycle. It was a little bit dragged by par, but we were just wondering if this is the new expected level from now The penetration of learning systems is more mature. And in complementary, you delivered 40% growth, and we were wondering if this is sustainable for a few more years. The second question is related to BTG. If you could provide us Some details if this was related to 1 or a few or many contracts and what What type of service was provided?

Speaker 4

We wanted to kind of assess the level of recurrence and the ability to scale up this type of solution. Thank you.

Speaker 2

Thanks, Lucas. Let me address your questions. First about 2024 ACV, let me give you some color about that. First, let's keep in mind that our ACV for the last 4 commercial cycles, so since The ACV of 2019 until now, we have a compound growth of 20.5%. So we just delivered the last ACV that when you compare the last 4 cycle, we reached more than 20%.

Speaker 2

That's the trend that we want to keep on our company. And we do not expect Any different trend from that? Since our core is still growing, we have very reputable brands and they are very important for learning system growth and complementary. Although it's growing fast, we have a very low penetration yet on our base and on the total schools. So we definitely foresee this level of growth for complementaries.

Speaker 2

So we definitely expect to keep the trend. On Cognizant Day on December 7. We will deliver our guideline, and we will wait until then since we are on the peak of the campaign, but just giving you some color, we do not expect any difference on the trend. Quarter. B2G, we recognize the second half of the same contract That refers to the state of Para.

Speaker 2

We delivered the first half of the year. Now we delivered the second half of the year. So it's a single contract. And the contract with the public entity must be renewed every year. So although we believe we set the baseline to growth Next year, it represents a single contract for us.

Speaker 2

But definitely, we expect growth coming from the B2G from this baseline for next year.

Speaker 4

Very clear. You mentioned that for next year there is a baseline, but Should there be like some kind of volatility in the process like in the next quarter, in the next few quarters? Thank you.

Speaker 2

Sure. We do not expect any new revenue in Q4 since this product is related to SIADI and the SIADI exam is in November. So we already delivered all our products and services for this year. But we expect to renew The contract or to acquire new contracts for next year. And normally, the revenue recognition should be Q2 and Q3, quarter.

Speaker 2

But that's not the rule.

Speaker 4

Perfect. Thank you.

Operator

Our next question comes from the line of Marcelo Santos from JPMorgan. Please go ahead with your question.

Speaker 3

Hi, good evening. Mel, Thank you for opportunities to make questions. I have 2 also on our side. The first, if you could comment a bit the margin outlook for the coming cycle. So you said like this cycle you had a slight decrease.

Speaker 3

You listed the issues like a little bit of bad debt, production costs and paper. How do you see the outlook for the coming cycle? And the second question is if you could comment a bit on Edoque Bank. Is there any Metric of performance that you could share, we see still generating net losses, but it's in early stages. So Is there any insight you could provide on this initiative?

Speaker 3

Thank you.

Speaker 2

Hi, Marcelo. Thank you for your question. Regarding margins, we expect to have Better margins for next year. We are always pursuing the 30% adjusted EBITDA margin. We will not expect New impacts from paper for next year.

Speaker 2

So we already recognize Our inventory levels is already at the old price level. We do not expect new paper price increases. Of course, there are inflation, but we have been able to move cost based price adjustment. So our prices For next year is around the double digit level. So we expect to recover some of our margins quarter 2024.

Speaker 2

And regarding Edouc Bank, Edouc Bank, we're very excited with Edouc Bank performance. This year, the company was able to fund themselves with BRL70 1,000,000 securitization, And they have new credit lines in place to fund the growth. We expect to end quarter. This year, December, with 85,000 students billet and next year December next year with 220 1,000 students billed. So it's a very fast growth company that have funded by itself in the market That proves the confidence that everybody has with the business model.

Speaker 2

And in terms of TPV, We are reaching the BRL50 million level right now. And obviously, this will grow quarter. With the village students for the new village students level for next year.

Speaker 3

Just a clarification, the €50,000,000 is what if you annualized like today's student, it's €50,000,000 or it's €50,000,000 for this year, Just to understand.

Speaker 2

No, it's monthly, €50,000,000 Yes, it's monthly. €600,000,000 annualized.

Speaker 3

Quarter. Okay. 50,000,000 monthly, 600,000,000 annualized. Thank you very much. Very

Speaker 2

clear. Thank you,

Operator

quarter. We have a follow-up question from Marcelo Santos from JPMorgan.

Speaker 3

Hi, thanks for the follow-up. Just wanted to ask one single question. Usually the Q3 was very weak quarter in terms of margins like seasonally speaking and you have been proving that. What's happening? What's causing you to generate this improvement over the last several years?

Speaker 3

And is this something that we should start seeing more smooth EBITDA distribution in the coming years. Thank you.

Speaker 2

Marcelo, The major contribution is volume. We are growing and Q3 benefits from higher volumes And not only on the B2B segment, but also on the B2G. We just recognized BRL40 1,000,000 on the B2G. So margins are growing because the company is growing. That's pretty much it.

Speaker 2

There is no and that seasonality Q drives our margins. Q4 will be the biggest margin on our business, followed by Q1. And then we have Q2 and Q3 We are stabilizing it on a new level of around 10%.

Speaker 3

Perfect. Thank you very much. Very clear.

Operator

Thank you. Our next question comes from the line of Lucas Nagorno from Morgan Stanley. Please go ahead with your question.

Speaker 4

Thanks for the follow-up question. It's I have a question on PDA specifically. So looking at Q3 alone, the PDA expenses increased because of churn, mainly known premium brands, as you say. I just wanted to understand what causes churn and how is the financial situation in those calls. Because the hypothesis is that things should improve from now, led by macro indicators.

Speaker 4

So I just wanted to Understand if there's kind of any structural change there. Thank you.

Speaker 2

Hi, Lucas. Thank you. And you are right. Your hypothesis is right. We had a one off in terms of cycle.

Speaker 2

We had the recognition of BRL9 1,000,000 from the large retail company in bankruptcy procedures. This considering it, our PDA level is now at 3.1%. And this increase of 0.7% from the cycle of 2022 is pretty much due to macroeconomic environment. We are seeing a slightly delinquency increase in the entire economy and the schools are also facing that. And the 3.1, we believe it's still a very low PDA level and definitely is One of the lowers in the industry.

Speaker 4

Okay. Thank you.

Operator

There appear to be no further questions at this time. Marcelo Werneck, I'll turn the call back over to you.

Speaker 2

I'll take it here. Thank you all quarter for participating in Q3 earnings release. We are very proud to deliver The cycle results that we just delivered with 24% revenue growth, 23% EBITDA growth and the free cash flow EBITDA Moving from 16% to 35%, moreover, to have implemented 2 very important growth avenues such as the B2G and the Start Tango business. And looking forward to see you again, and we to reaffirm our commitment and excitement for the new cycle and looking forward to see you at the Cogna Day.

Operator

Thank you, ladies and gentlemen. We will conclude today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Vasta Platform Q3 2023
00:00 / 00:00