Vasta Platform Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 20, 2024

There are 4 speakers on the call.

Operator

Good day, everyone, and welcome to the Avasta Platform 4th Quarter 2023 Financial Results Call. Before we begin, I would like to read forward looking statement. During today's presentation, our executives will make forward looking statements. Forward looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other facts that may cause our actual results to differ materially from those contemplated by those forward looking statements. 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 their related benefit and our expectations regarding the market.

Operator

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. 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 the future events, and we disclaim any obligation to update any forward looking statements except as required by law. In addition, management may I will now turn the call over to Marcelo Wernicke, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good evening, everyone. Thank you for joining us in this conference call to discuss VASTA Platform's Q4 and full year of 'twenty three results. The Q4 also represents the Q1 of the 2024 sales cycle, which goes from October 23 to September 24. I am Marcelo Veronec, VASA's Investor Relations. And today, we have the presence of Guilherme Melega, VASA's CEO and Cesar Silva, VASA's CFO, who will be joining me on the call.

Speaker 1

Let me now hand over the floor to Guillermo Melega to make his opening statements.

Speaker 2

Thank you, Marcelo. Thank you all for participating in our earnings release call. I would like to cover Slide number 3 with some highlights of 2023 fiscal year. VASTA concluded this year with 18% net revenue growth over the same period of last year, mostly due to the conversion of ACV into revenue and the performance of the B2G business unit. VASTA subscription revenue has reached BRL1.278 billion.

Speaker 2

Our complementary solutions segment continues to stand out, showcasing the highest growth rate among our business segments with a 34% increase compared to 2022 and with an accelerated increase in both student base and market penetration. Moreover, as mentioned in the last quarter, in 2023, VASCE started to offer its products and service to the Brazilian public sector, and we generated BRL81 1,000,000 in revenue from the B2G sector in 2023 fiscal year. The expansion into the public sector marks a momentous opportunity for VASTA, allowing us to contribute to advanced education in Brazil, while creating new revenue strengths. Moving to the company's profitability. In 2023, our adjusted EBITDA experienced a growth of 20%, reaching R451 1,000,000, while increasing an adjusted EBITDA margin to 30.3%.

Speaker 2

This increase was mainly driven by gains in operating efficiency, cost savings and sales mix that benefited from the growth of subscription products. Finally, this was another year of significant improvement in our cash flow. In 2023, free cash flow totaled BRL189 million, a BRL100 million increase from BRL89 million in 2022. The free cash flow to adjusted EBITDA conversion rate improved from 24% to 42% as a result of VASTR's growth and implementation of efficiency measures. I will now turn back to Marcelo, who will talk about the financial results on the quarter and 2023 fiscal year.

Speaker 1

Thank you, Malaga. In this slide, we present the composition of VASA net revenue. On the left side, you can observe the organic year on year growth in total net revenue for the 4th quarter, which increased by 10% reaching BRL554 1,000,000. On the right side, let's detail the key components of this revenue growth. Total subscription revenue had an increase of 16%, reaching €515,000,000 and representing 93% of our total revenue for this quarter.

Speaker 1

Par, our textbook subscription products also increased by 16%, amounting to EUR 78,000,000 benefiting from the migration of non subscription. Non subscription dropped 35% to €39,000,000 and as expected, we did not record B2G revenue in this quarter. Moving to Slide number 5, we analyze the net revenue for the 2023 fiscal year. In 2023, we achieved an organic net revenue growth of 18% amounting to BRL 1,000,000,000 486,000,000. As you can see on the right, our total subscription revenue increased by 14% on an organic basis to BRL1.278 billion.

Speaker 1

Subscription revenue, excluding Par, had an increase of 16%, reaching $1,155,000,000 and par, our textbook subscription products declined by 3% in the year amounting to $123,000,000 dollars Subscription revenue continues to be the major contributor to our total revenue, representing 86% of the revenue share. The B2G contributed to 5% of our overall revenue in 2023 and generated BRL 81,000,000 in revenue. Non subscription revenue now comprises only 9% of total revenue and as expected dropped 11% to €127,000,000 Moving to Slide number 6. In this quarter, our adjusted EBITDA amounted to BRL240 1,000,000 and with a margin of 43 0.2%, an increase of 20% from the 200,000,000 in the Q4 of 2022. This positive performance can be attributed to several factors, including strong sales results, cost dilution and operational efficiencies.

Speaker 1

On the right side, we see that adjusted EBITDA in 2023 also increased by 20% and reached the 451,000,000 with a margin of 30.3%. Let's now move to the next slide and explain the breakdown of the adjusted EBITDA margin. In Slide number 7, we observed that EBITDA margin improved 60 basis points from 29.7% in 2022 to 30.3% in 2023. Firstly, our gross margin declined 1 percentage points as 2023 was a year that the industry faced the high inventory costs caused by the rising inflation on paper and production costs. Provision for doubtful accounts or PBA declined 0.2 percentage points between the years in line with the revised credit landscape.

Speaker 1

As a percentage of the net revenue, our commercial expenses increased by 1.2 percentage points, driven by higher expenses related to business expansion and marketing investments. And adjusted cash G and A expenses improved by 2.9 percentage points, mainly driven by workforce optimization and budgetary discipline. Slide number 8. In the Q4 of 2023, adjusted net profit totaled $96,000,000 a 32% increase compared to adjusted net profit of $73,000,000 in the Q4 of 2022. In 2023 fiscal year, adjusted net profit reached $60,000,000 a 55% increase from an adjusted net profit of $39,000,000 in 2022.

Speaker 1

Finance costs in a scenario of spike of 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. Our cash flow generation was one of the main highlights of this year. In the Q4 of 2023, the free cash flow totaled negative €100,000 representing an increase compared to negative €43,000,000 in the Q4 of 'twenty two.

Speaker 1

Now on the right side, in 2023, our free cash flow reached 189,000,000 dollars a $100,000,000 increase from the $89,000,000 in 2022 as a result of VASA's growth implementation of efficiency measures. Another important metric, our free cash flow to EBITDA conversion rate improved from 23.8 to 41.8, reinforcing the message that cash generation continues to be a key focus of our business. Moving to Slide number 10, we show the provision for doubtful accounts. Total expenses with PDA in the Q4 of 2023 totaled €29,000,000 representing 5.2% of the net revenue, comparing to an expenses of €29,000,000 in the comparable quarter. Moving to the right side of the slide, we can observe that PDA in 2023 fiscal year grew from 3.6% to 3.8% of net revenue.

Speaker 1

In 2022, PDA had an impact of the provisional of 400% of the accounts receivable from a large retail company undergoing traditional recovery. In 2023, PDA is linked to a credit scenario review tied to the refinement of our customer base strategy, where we have chosen to cease financing mainstream school with low value contracts and we are increasingly putting emphasis on premium schools. This shift is promoting growth in high quality education systems such as Anglum, Pega, Amplea, Mackenzie and Fibonacci. These brands show high average ticket values, lower default rates, greater adoption of complementary solution and foster long term relationship. Moving to the next slide, we observed that the average payment terms of VASTA's accounts receivable portfolio was 169 days in the 4th quarter of 2023, which is 16 days lower than the Q4 of 2022.

Speaker 1

Moving to Slide number 12. Let's take a closer look at the net debt movement. As of the end of 2023 fiscal year, Vasta had a net debt position of 1,064,000,000 dollars a $66,000,000 increase compared to the Q3 of 2023, mainly due to impacts of financial interest costs and the share repurchase program. In comparison to the Q4 of 2022, the net debt position increased $22,000,000 from $1,042,000,000 driven also by the financial interest costs, the share repurchase program and M and A expenses, which were partially offset by the positive free cash flow of $189,000,000 in 2023. I will conclude my presentation with Slide number 13, where we can observe that as of the Q4 of 2023, the net debt to adjusted EBITDA ratio extends at 2.36 times, which marks an improvement of 0.07 times compared to the Q3 of 2023 and an improvement of 0.4 times when compared to the Q4 of 2022.

Speaker 1

With that being said, I'll pass the words to our CEO, Guilherme Maelaga.

Speaker 2

Thank you, Marcelo. Moving to Slide 14. Let's talk about ACV. From the commercial cycle of 2020 to 2023, we have achieved a compound annual growth rate of 20%. In the commercial cycle of 2024, we ended with BRL1.4 billion in contract signing.

Speaker 2

Traditional learning system represents 77% of our subscription revenue and we will increase 14% in comparison to the 2023 commercial cycle. Higher growth observed in our premium brands such as Anglo, Perga, Fibonacci and Ampea, reassuring our perception that quality and reputation remain decisive in our business. Complementary Solutions will have the highest growth rate among the business segments with a 24% increase compared to the 2023 cycle subscription revenue, continuing to ramp up penetration across our client base. The partner school base that uses our complementary solutions increased by over 300 new schools, surpassing 1,700 schools and a 14% growth in the number of students served by our solutions. The growth of the complementary solutions is concentrated in 3 main solutions: MindMaker, Leader in Me and Edwall.

Speaker 2

And finally, consistently with our strategy, we continue to invest in the migration from par paper based products to par digital subscription products. Our Textbooks as a Service platform offered on a fee per student basis. Moving to Slide 15. Let me provide you with exciting update on our significant avenue of growth. As mentioned last quarter, the launch of StartHangal franchise combining bilingualism with academic excellence signifies a strategic expansion in our quest for new revenue.

Speaker 2

And we are happy to report that we currently have 2 fully operational units in 2024. The first is our flagship in Sao Jose del Uprate, which is operating with 300 students. And additionally, our inaugural franchise in Alphavide is exceeding expectations, boosting over 170 students, surpassing our target of 120 students. Furthermore, we have secured a contract with the prestigious institution, Liceo Pasteur, for a new flagship in Sao Paulo, planning to commence operations under the Stark Humble brand in 2025. With 15 contracts already in place, we are optimistic that this franchise model will play a pivotal role in the successful execution of our business strategy.

Speaker 2

Moving to Slide 16. And finally, let me provide you an update on another growth avenue, our B2G initiative. 2023 marked the year when we expanded our products and service to serve the Brazilian public sector. We generated BRL81 1,000,000 in revenue from the B2G sector in 2023, and we have already renewed this contract for 2020 4. We are very optimistic about the possibilities this development presents and are committed to deliver high quality education solutions tailored to the unique needs of the public sector.

Speaker 2

With all of these accomplishments in mind, 20 future challenge. We have the confidence that we are on the right path to continue delivering outstanding results for our shareholders, solidify partnerships and make a significant contribution to education in our country. Having said that, I finish our presentation and invite you all to the Q and A session.

Operator

Thank We'll take our first question from Marcelo Santos with JPMorgan.

Speaker 3

Hi, good evening. Thanks for taking my questions. I have actually 2. The first question is on the ACV. Could you discuss the evolution of ACV that you have up to like the 2024 cycle in terms of volume, price, churn?

Speaker 3

Could you give us an idea how these things moved versus the previous years just to understand the dynamics? Sorry, if that wasn't the slide, but I couldn't really get the presentation so far. And the second question is regarding the margin outlook for 2024. So now that you have the cost pressures behind, what kind of evolution I mean it looks like it's going to be a good evolution in terms of margin for 2024. Is that the case?

Speaker 3

What are the moving parts here to understand the outlook of margin for 2024? Thank you.

Speaker 2

Hi, Marcelo. Thanks very much for your question. Let me give you some color about ACV. And now since we are the only player delivering details about the results, We will consider to reduce a little bit the disclosure about the ACV details, but I can give you some color about that. We are pretty much breakeven in terms of volume.

Speaker 2

And our ACV growth relies on pricing and better mix. That's pretty much the major drivers of growth on our ACV. And in terms of margins, I would say we already reached the 30% margin that we aimed for. Cost pressures are definitely behind us and we had a very good year in terms of savings and reducing redundancy in process with SG and A savings. But we intend to spend commercially in acquiring new contracts.

Speaker 2

So we do not forecast major improves in the margin. So they should be around the 30% level.

Speaker 3

Okay, perfect. Very clear. Thank you very much.

Speaker 2

Thank you.

Operator

And We'll take our next question from Mariela Olivera with Bank of America. Good evening, Maligan, Marcelo and everyone. I have one question on the growth perspective. The ACV for the next year implies a slight deceleration from the past years. Could you comment a little bit on the if this deceleration is driven more by the traditional learning system or if it's lower growth on the complementary solutions, so a little bit of the mix here.

Operator

And a second question, could you provide any more details on the B2G contract that you just renewed?

Speaker 2

Thank you very much, Mirela, for your questions. So in terms of ACV, complementary keep boosting the growth is the most testing product that we have. We grew more than 30% less cycle and we intend to keep the pace is definitely where we have more room to grow. In terms of products of Learning System, we have a slower growth in Learning System, it's a more penetrated market. And our strategy is to focus on premium brands.

Speaker 2

So we will focus on premium schools, focusing on Anglo, Perga, Amplea and McKenzie. This will be the major focus for our learning system growth. But complementary is the main lever for the growth. And regarding B2G, we renewed our contract with Para pretty much in the same terms that we had last year. So it's already a huge accomplishment.

Speaker 2

So our business will keep the same will start the growth from the same level we left on 2023. And we are very confident to book new contracts very soon. We have a very heated pipeline. And on Q1, we already have the sales for the Para contract and we expect to have new contracts in Q2. But for the time being, we don't have anyone signed yet.

Speaker 2

So I can just share with you our positive sensation about the business.

Operator

Thank you. That's very clear. Thank

Speaker 1

you.

Operator

All right. And there are no further questions at this time. I'd like to turn the call over to Guir Melega for closing remarks.

Speaker 2

Thank you all very much for attending the FASBEC Q4 conference call. We are very proud to deliver the results that we reached in 2023. Just to mention a few, our revenue grew 18%, our EBITDA 20%, our free cash flow grew 112%, so very solid results. And we opened our 2024 year at a very good momentum. We launched last year the Startango and we are seeing the new franchisees piling up, new contracts being signed, very positive for the company.

Speaker 2

And also B2B with a very significant pipeline for new contracts, we are in major states and huge municipalities. So we definitely expect to have new contracts very soon. Thank you all very much. Looking forward to see you in the Q1 conference call.

Operator

Thank you. That does conclude today's presentation. Thank you for your participation and you may now disconnect.

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Earnings Conference Call
Vasta Platform Q4 2023
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