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spk06: Good afternoon everyone and thank you for standing by and welcome to ARCO platform fourth quarter and full year 2022 earnings call. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After ARCO remarks, there will be a question and answer session. At that time further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. This event is also being broadcast live via webcast and may be accessed through ARCO's website at investors.arcoplatform.com, where the presentation is also available. Now, I will turn the conference over to Karina Carreira, ARCO's IR Director. Karina, you may begin your presentation.
spk03: Thank you. I'm pleased to welcome you to Argo's fourth quarter and full year 2022 conference call. With me on the call today, we have Argo's CEO, Arigisaka Bokanchinetu, and Argo's CFO, Roberto Otero. 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 factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include but are not limited to statements related to our business and financial performance, our expectations and guidance for future periods, our expectations regarding strategic product initiatives and their related benefits, and our expectations regarding the market. These risks include those set forth in the documents that we issued earlier today, as well as those more fully described in our findings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of the date hereof. You should not rely on them as prediction 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. We have provided a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS financial measure in our press release. Please note that except from revenue, gross margin, selling expense, G&A, and cash flow from operations, all other financial measures we discuss here are non-IFRS. and growth rates are compared to the prior year comparable period unless otherwise stated. We also know that year-over-year comparisons are affected by acquisitions that were not included in our 2021 financials. Let me now turn the call over to Ari, ARCO CEO.
spk01: Thank you, Karina, and thanks everyone for joining today's conference call. 2022 was an important year for ARCO. We delivered solid results across our main commitments with investors, including another strong year for ACV growth. The resumption of our healthy operating cash flow profile and important evolutions in our integration agenda to better and more efficiently serve our clients and continue to grow in a more sustainable way. On cash generation, we showed improvements on all metrics that drives free cash flow generation, including higher profitability with 150 basis point expansion of our adjusted EBITDA margin to 36.5%, better capital allocation, taking our CAPEX back to historical levels at 9% of revenues, lower working capital consumption, and finally, a lower effective tax rate. As a consequence, we generate the higher cash flow after CAPEX of ARCO's history. On growth, the commercial cycle for 2023 year proved that we can focus on cash flow generation and dedicate energy to agendas without jeopardizing our growth rates. We posted intake and a strong price increase across all brands, leading to a 24% year-over-year ACV growth to 1.9 billion reais, 100% organic. Our two main core brands combined sustained high growth rates at 96%, and our most recent acquired brand, COC, delivered good results in terms of growth, retention, and price increase. Our cross-selling efforts were once again key to such successful commercial cycle for supplemental solutions, with 71% of its intake originated from cross-sell. Finally, we had an important outcome from our integration agenda with the corporate organization leading to improved process and higher GNA dilution. We remain focused on reducing redundancy in IT and in Archotech platform aiming at a more efficient capital allocation and higher quality across the brands. I will now turn the call to Otero who will continue the presentation. Otero, please go ahead.
spk04: Thank you, Ari. Good evening, everyone. Thank you for your time. Moving to slide five. Net revenues for the fourth quarter of 2022 were 679 million reais, a 47% increase year over year, and representing a 34.7% revenue recognition of the 2023 ACV, which we will detail a few slides ahead. Net revenues for 2022 totaled 1,775,000,000 reais, a 44% increase versus 2021. or 37% organic growth when excluding M&As concluded in 2021 and 2022. Despite a 62% increase in costs year over year, mainly due to pressures coming from paper prices, we managed to deliver on 150 basis points EBITDA margin expansion year over year in 2022 due to the 4% contraction in our G&A and a more efficient sales process. Moving to slide six, as mentioned by Eddie, 2022 marks an inflection point on our cash flow trajectory. We revisited processes, made structural improvements in our operations, and focused on better allocating our capital. As a result, we improved in every line of our operating cash flow, leading to a free cash flow to firm of 122 million reais, at 267 million expansion when compared to last year. We improved our working capital dynamics with delinquency days receivables and collection returned to pre-pandemic levels. Our effective tax rate was 13% in 2022 versus 18% in 2021 as we optimized our corporate structure to take advantage of the tax benefits on recent acquisitions. And finally, our capex went back to historical levels at 9% of revenues, below the guidance provided to the market of between 10% and 12%. On slide 7, we show the evolution of our capex in recent years. 2020 and 2021 were years of heavier investments, not to mention slightly lower revenue recognition due to the students dropouts in our partner schools. As we integrated and improved acquired businesses, we invested in tools to support our partner schools throughout the pandemic. In 2022, we invested in a more efficient and integrated way. Adjacent EBITDA minus CAPEX also returned to historical levels, and we believe there is room to further improve in years to come. Moving to slide eight, we ended the year with 1,305,000,000 Reais in loans and financing and 1,391,000,000 Reais in accounts payable to selling shareholders, translating in a 3.1 time net debt to adjusted EBITDA multiple, down 60 bps from end of 2021. We're confident our cash position combined with future cash generation from the operations is enough to cover for our short-term obligations, and we're committed to continue reducing our leverage through higher profitability and strong cash generation in years to come. To conclude this session on slide nine, we present the main highlights of our 2022 ESG report. We had an important improvement in key metrics and are confident in the achievement of our 2025 goals. We increased our impact on education with the expansion of students impacted by our pedagogical solutions and initiatives from the ARCU Instituto. And approval rates universities through SISU of students using our solutions increased 33% in 2022. We increased the percentage of women in leadership positions and the percentage of ethnic diversity. Our voluntary turnover reduced almost five percentage points, and our employee NPS improved six points versus 2021. Finally, we concluded our first carbon footprint measurement for scopes one and two, and in 2023, we're committed to analyze the best alternatives to reduce or compensate for such emissions. We know we have an important and critical role in our society, and we are committed to continue impacting lives through quality education and a sustainable business. Moving to slide 11, we are proud of the results of our 2023 commercial cycle. Our ACV bookings reached 1,930,000,000 reais representing a strong 24% year-over-year organic growth. The core segment grew by 23% year-over-year to an ACV of 1.5 billion and over almost 1.8 million students. Our supplemental content solutions grew by 35% to an ACV of 393 million and over 876,000 students. We'd like to highlight the stellar performance of CoC, a brand we acquired end of 2021 and had its first commercial cycle under ARCO's umbrella in 2022. The solution delivered 30% year-over-year growth, a 15 percentage point improvement in retention to 95% and our price increased 5 percentage points above inflation. Escola de Inteligencia and Pleno, or social-emotional products, delivered more than 40% growth year over year, confirming social-emotional as a relevant competency inside school. And on cross-sell, 71% of the new school intake for supplemental content solutions was originated from cross-sell initiatives. Despite increasing the number of course students using one or more supplemental content solutions 18% from 15% in 2022 school year, there is still room to increase this penetration and are convinced of the benefits of this strategy to the entire portfolio. According to our analysis, referrals increased by 23 times the lead conversion of supplemental content solutions. And having a supplemental solution reduced course churn by 50% for those schools. On slide 12, we detail the buildup of our 2023 ACV bookings. Our growth has always relied on our ability to retain our clients, improve our value proposition-driving price increases, upsell our solutions within our partners' goals, and attract new partners' goals. This year, it was not different. Despite the slightly higher consolidated churn at 91%, our main core solutions sustained retention rates above 95%. This year's average price increase was more than 3% points above inflation at 9%, and we delivered the largest ACV of new contracts in the company's history at 391 million reais. Moving to slide 14, we'd like to provide a quick update on ISAC's operation. ISAC concluded 2022 with a top line slightly higher than expected at 163 million reais, almost 1.2 thousand partners calls, and an annual recurring revenue of 235 million reais. On slide 15, we list ISAC's main priorities for 2023, which include investments in the go-to market to further consolidate its leadership position in the market, enhance product offerings and unlock scale gains, and improve efficiency, and capture synergies with ARCO through core-sell, leading to a reduction in its CAC. I'll now turn the call back to Ari. Ari, please go ahead.
spk01: Thank you, Otaro. On slide 17, we present our four main priorities for 2023. First, on slide 18, we'll continue improving our structure to better and more efficiently serve our clients. We have initiated our efficiency roadmap in 2022 with the corporate reorganization and integration of the supply chain teams under a single structure. In 23, we'll focus on strategic sourcing Especially on initiatives related to printing costs logistics and inventory discards and optimizing our internal it systems and improving the quality of our educational platforms. On enhancing our sales efficiency with the creation of an operation excellent Center aiming to increase sales performance. elevate our planning and monitoring capacity, support optimal capital allocation between business units, and lead cross-brand initiatives. On slide 19, our second priority is to sustain our high growth profile. We will continue to use our proprietary sales process, the quality of our solution, and our reputation to increase our market share and the penetration of solutions in current partner schools. After years of strong growth and creation of this large platform, Cross-Sell became a central piece in our growth, so we'll continue to leverage on the close relationship with our partner schools to expand the adoption of other ARCO solutions. Finally, as we continue to invest in updating and evolving our solutions, we are able to support price increases above inflation while improving satisfaction levels. On slide 20, our third priority for 2023 is boost cash flow generation. We are confident that by making our operation leaner and more efficient, our cash flow profile will improve significantly in upcoming years. We'll do so by improving our process and structure, optimizing our corporate structure, and continue to reduce our effective tax rate. Of course, also investing our capital on a more diligent and efficient manner. Thank you for your time. Operator, we can now open for questions.
spk06: Thank you. The floor is now open for questions. If you have a question, please press part one on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing the hashtag key. Questions will be taken in the order they are received. Would you ask that when you pose your question that you pick up your handset to provide optimum sound quality? Please hold while we poll for questions. The first question comes with Luca Marchesini with . Please go ahead.
spk07: Good evening, everyone. Thank you for taking our question. So in the fourth quarter, we saw a significant dilution in G&A expenses. Since you could, please provide my call on the initiatives that led to this dilution. And also, if you can comment if these initiatives have already matured or if you should expect more dilution going forward, it would be helpful. Please. Thank you.
spk04: that previously were not centralized or fully integrated across the brands that we own. So we've been integrating whatever we think that is not what drives differentiation of our brands and where we think we can better serve our clients by centralizing and integrating. This also applies to back office. We still have some back office areas that were located at the brands level. that we've been integrating into the holding level. As a consequence, we managed to decrease the size of some teams along 2022. The second reason relies on managing third-party services and third-party suppliers in a more efficient way and internalizing some activities that previously we were hiring from third-party suppliers in general. So the largest effect was in 2022. When we look from 2023 onwards, I think this will allow us to grow the GNA at a much slower pace when compared to top-line growth, okay? So we should not expect GNA to reduce in nominal terms. I think what we will see is GNA dilution contributing to margins, okay? So that's the expectation.
spk07: That's very clear. Thank you, Otero.
spk04: Thank you, Luca.
spk06: The second question comes with Marcelo Santos with JP Morgan. Please go ahead.
spk02: Hi, good evening, Ari, Otero, Karina. Thanks for taking my question. I have two, actually. The first one is you provided information on how the ACV changed on price, 9% on price, 9% on churn. How does this differ between core and supplemental solutions? Could you give us some idea on how this changed between these two types of solutions? And the second question, there was a decline in the ACV of other supplementary solutions. I know it's quite small. I just wanted to understand better. You mentioned you stopped some of the sales efforts for some of these initiatives. What are you changing on those initiatives? Which are these initiatives that are responsible for this decline? Thank you.
spk04: Marcelo Botero here. Thank you so much for the questions. On the first one, I would say starting with pricing. In this cycle, we saw a more similar pricing performance when comparing core to supplemental, which is a change when we compare to pre. historically supplemental or the level of pricing power we have for core, we did not have for supplemental historically. This cycle, we managed to increase both core and supplemental products by a similar rate. So this is to answer your point on pricing. When it comes to retention, I would say that for core brands, for most of the core brands, we saw instability. or improvement in retention. Taking, for example, SAS, as an example, we reached 98.5% retention rate. This is the most premium brand we own, as you know. So in general, it was a very good performance. On supplemental, as you know, retention rates for supplemental are still lower when compared to core. So that's why when you look at the combined churn, it shows a deterioration compared to last year, mostly because of the higher share of supplemental in the base of ACV. So this is the first aspect there. And the second one, in this cycle, we saw Conquista, which is a lower price point quote, also gaining share in the overall ACV, and Conquista still has a slightly lower retention rate when compared to other core brands. So it was mostly a mixed effect, okay, driving this 9% churn, which shows to be higher than last year. But when you look on the brands and compared to last year, in most of them we saw stability, and in some cases, such as SaaS, for example, we saw retention rate increasing. And with regards to the other supplemental segment, actually those are mostly tech services and to some extent some communication tools that we were offering to other players. Okay, so to customers outside our base of schools. we decided to only offer those services in-house to our base of clients. So we interrupted to sell those services to clients that do not belong to our base of schools. So it was literally a business decision to reduce complexity and focus on what moves the needle. So we decided to keep those services in-house and stop selling them to schools outside our base of clients.
spk02: Okay, perfect. Thank you very much.
spk06: The next question comes with Xavier Martinez with Morgan Stanley. Please go ahead.
spk05: Yes, thank you. I have four questions, if I may. The first one is on margins. You are guiding for a range of flat to 200 basis points increasing margins from 36.5 to 36.5 to 38.5. And I was trying to do the math, the back of envelope math on those numbers. And you are increasing prices 9%. So this is more than inflation. You have a churn of 9%. I guess that logically you are probably losing some of the less profitable clients. Paper was price pressure last year, so hopefully this year at least should be similar or improved. Printing, you mentioned in the call, is going to improve because of scale, operating leverage. You have the negative impact, around 30 million from ISAC, but still margins should be increasing, no? Are you being conservative in that guidance? What is behind that flat to small increase in margins? That's number one.
spk04: Hey, Javier Otero here. Good to speak to you. So, on margins, the effect that we saw on paper prices last year affected the negotiations that we established for this year, Javier. Remember that we started producing and printing the content quite early in the process, so we started this process sometime around July last year. So those negotiations actually happened during 2022 when the level of paper prices was still quite high. And those contracts, they remain in place for the majority of 2023. We are already in the process of negotiating prices for the 2024 cycle with a completely different price level for printing. so we should not see this effect next year based on the negotiations that we have in place and they are quite advanced actually but for the at least half of 2023 we'll still deal with a higher price to print our content okay so that's the single reason why we are not increasing the EBITDA margin range But you're right. I mean, when you look at the other components of profitability, they would contribute to a higher margin. But, I mean, we still see some gross margin pressure, especially in the first half of the year.
spk05: Understood. Very clear. Thank you, Jotaro. If I may go for the second, it's on Isaac. So, you're growing pretty fast, not just to double or more than double, it's already reaching quite a reasonable scale. So when do you think that you're going to be in breakeven? Or maybe the strategy is not to go into breakeven, it's just to use this as a distribution or marketing cost to subsidize the growth in core? Or what is the strategy in prices? Because I guess the reason why you are still expecting negative margin is because of prices. you have already quite a reasonable scale to be profitable.
spk04: Thanks, Xavier. Yes, you're right. I mean, when we model, Isaac, we expect the company to be able to reach a breakeven by the end of next year. So that's the expectation. So end of 2024, beginning of 2025, considering the scale that the company is supposed to reach, that should be the inflection point in terms of profitability. There could be upsides and downsides to this assumption. A potential upside, for example, is the speed of reach will evolve in terms of cross-sell. We are assuming a certain percentage of this incremental growth to come from cross-sell, but this could prove to be conservative, especially because ISAC is not a pedagogical product, and we are basing the cross-sell assumption on our experience with pedagogical products, right? So eventually we could see upsides there, but we could also see downsides. So I think it's realistic to assume, and I think it's reasonable to assume a breakeven as we cross 2024, okay? Okay, that's fair.
spk05: So the idea is to make money eventually, okay. So, Otero, another question is on supplemental, the bookings. Obviously, they are growing. So you're going to have a fantastic 2023. So don't misunderstand my comment, but you're growing only 26%. You're growing quite similar to core, no? And you're growing more in volumes and less in prices than core. So shouldn't we be expecting supplemental to grow double than core, given the penetration, the cross-selling? So are you having more complexity or difficulty to cross-sell, and that's also part of the reason why prices are lower. What is happening there?
spk04: Sure, thank you. Yeah, I think I agree overall with your opinion, Javier. If we look at the supplemental performance, excluding international school, we would have grown above 40%, close to 45%. So I think Once we are managing this company completely, for sure this will impact performance, growth performance. We saw a stronger performance in other bilingual products that we own. So I think we can say that once we are fully managing international school will probably benefit more from cross-sell and also from, I mean, the go-to-market strategies and processes that we've been applying to other brands. Okay, so again, I mean, when we exclude international school, the performance would be about 40% growth, which I think considering the scale of those products already, I think it's a very solid performance. So it's difficult to compare to the growth rates of three, four years ago of above 60, 65% because the scale of those products was also much smaller, right? So, but again, I think we can do better than what we did in 2023, and having traditional school in our portfolio will be one of the drivers, but not only. I think cross-sell is a learning curve, okay? I think we still see room to improve cross-sell processes internally, okay? It's a learning curve, it's something new. I think we're doing step-by-step there, but this should also be a source of improvement in growth rates for Supplemento.
spk05: Okay, thank you, Teru. And my final question for Ari on the offer. The offer was on December 1st, four months ago. Can you update us a little bit? So why is it taking so long for the board to have a view? What is happening there?
spk09: Hi, Javier. Thank you for your question. Just on the last question regarding the supplemental, I just want to clarify that in this year, we have 71% of the new intakes for supplemental coming from CROCEL. So as Otero said, we have been improving the CROCEL process. And as you exclude international school, from the supplemental solutions, we posted a growth of more than 40%. We still have a very low penetration, but we went from 15% to 18% of at least one solution of supplemental in our core brands. And we also have the growth that are coming from new schools that do not use products from Marco. So we expect to have a solid growth of supplemental solutions throughout the years. in a higher level than we have on core, of course, which is a larger business. Regarding your second question, unfortunately, I don't have any updates for you right now. The last update that we gave was through a formal communication, and that's what we have to say. It's written on the last communication that we did with the market.
spk05: But we're supposed to be waiting for an answer from the board, right?
spk09: Yes, I believe so.
spk05: Okay. Thank you, Ari.
spk09: Thank you, Javier.
spk06: Thank you. The next question comes with Mauricio Cepeda with Credit Suisse. Please go ahead.
spk10: Hello guys, thank you for having the opportunity to put questions here. I have two questions, one related to the debt itself. I understand from the speech that you are relying a lot on the operating cash flow to the leverage, but if you could maybe detail if there are other options to decrease to that level, given it's in kind of a considerable high level now. And the second one is related to ISAC. Now that the macroeconomics are deteriorating and the interest rates are up, if there would be problems in ISAC, related to more delinquency or PDA, or even if there could be a risk of adverse selection of wallets that are dealt by ISAC. Thank you.
spk04: Hi, Cepeda. Thanks for the questions. It's Otero here. So as you said, I mean, we think we actually are sure that the leverage will continue during 2023. Okay. This will be mostly driven by EBITDA expansion, okay, for this year. So we expect the 3.1 times that we ended 2022, to be below three times at the end of 2023. But as you said, I mean, we still have a relevant amount of seller's notes coming due this year. As we show both in the presentation and the financial statements, We continue to book international school as a short-term obligation. This is more a contractual obligation, but as you know, this is still under arbitration, and the most likely scenario is that international school will become we come to a definition only in the beginning of next year. So in terms of outflow, we should not expect, based on the information that we have today, and of course this is a hurricane change, that this outflow will only happen next year. Still, in terms of balance sheet management, what we'll probably do is replace those seller's notes with banking loans along this year. Despite the impact from the Americanas event in the market, We're not seeing a negative impact in our ability to attract or to add those lines and financial institutions' appetite to offer those lines to us. So this is what we'll probably do in terms of balance sheet management. Again, replace seller's notes. with banking loans and we're not seeing a negative impact in terms of appetite or conditions for us to do so this year. So that will be the single source of incremental liquidity that we plan to seek this year. Aside from that, the leverage will come from EBITDA expansion and operating cash flow generation mostly. In terms of Isaac, actually, the collection period for Isaac is finishing right now, right? So after the completion of the enrollment process at schools, so the period between January and March is actually quite important. It's actually what drives the result of the cycle for Isaac. So at this point, we can say that the collection performance was very good. It was much better than how the market performed in terms of NPLs. and it was better than Isaac's performance in the prior cycle. Okay, so despite the deterioration in the macro environment in general, driven by several factors, including the interest rates, we did not see that affecting the collection or the ability to collect for Isaac. Again, and GELS and the liquidity in general is performing better than last year and much better than the market is performing. Still, I mean, given the profile of the business and how contracts are renewed, ISAC can use all of this information to reprice the contracts for the next cycle, okay? The numbers I'm giving is the average of the portfolio. but of course in some specific situations you have different performances for specific schools and they can use the moment to the renewal moment to reprice those contracts and bring the net take rate back to where it should be okay so at this point again we're not seeing any negative implication to the business.
spk10: Do you see any kind of risk of the potential clients being now a little bit more adversely selected like the worst schools or let's say the worst paying parents could end up with FISAC?
spk04: I think it's difficult to put, to generalize a bad school. I think at the end, the adverse selection for this business is actually benefits from the fact that you have a very polarized base of families paying one single client, right? So the client is the school, but at the end, you have a base of 200, 300 families there. So this mitigates the adverse selection risk in general. I think at the end, ISAC leverages a lot on their proprietary historical data of payment performance for schools, for families, so they have a lot of data intelligence backing their pricing strategy. So if this is the case, either they will decide not to bring that school or they will price that school at a completely different level relative to the portfolio. So the risk appetite is low because it's not necessary and they rely a lot on their proprietary data to price the contracts completely individually. So the pricing is done individually for each school based on historical figures that those schools supply to ISAC combined with information that ISAC through its technology can collect to also combine and bring the ideal pricing for those schools.
spk10: Okay. Great. Thank you.
spk06: Thank you. The next question comes with Ian with BTG Pactual. Please go ahead.
spk08: Good evening, everyone. Two questions here on our side. The first is regarding working capital dynamics. We see that Q4 is usually hit by worse working capital dynamics, especially because of the concentration of revenue recognition in the quarter. And this time we also saw a similar scenario, and especially because we had this higher revenue concentration. But I just wonder if this is the reason and we should see the normalization of these working capital dynamics soon or if there is any other reason for the print in working capital that we saw. That's the first one. And the second one is regarding the very nice breakdown that you gave us on the ACV splitting what was the churn and price increases and new clients. And I just wonder if you could share with us what was the historical churn level? I imagine that if we compare to the last couple of years, the churn probably improved a lot. And I just wonder if we are seeing here a normalized churn level, if you see space for improving this ahead or if it should continue at this run rate, a healthy run rate, okay? That's it. Thank you, guys.
spk04: Hey, Otaro here. Thanks for the questions. So on the first one, the key reason there is, as you said, a higher revenue recognition in the quarter, but more than that, okay, it's a higher revenue recognition for supplemental solutions in the quarter, okay? So supplemental has a different DSO profile when compared to core, okay? So, I mean, when you compare brand by brand relative to last year, we're not seeing an increase in DSO, okay? But we did see a higher revenue recognition or a higher revenue concentration for supplemental solutions in Q4, okay? And they have a different profile. So we should see, as collection kicks off, and it has already started, which you see a normalization there. So delinquency in general is performing quite well. So at this point, we are running with delinquency levels better than those that we posted before COVID. I think it's a combination of this cold market recovery after the pandemic, but also several internal processes that we implemented during COVID that combined are driving this improvement in collection in general. So you should see the DSO or the cash cycle as a whole normalizing as the revenue recognition and the mix also normalizes and the seasonality is smooth, okay? In terms of ACV and the churn level, when we look at churn levels before the IPO, it used to range around 5%. After the IPO, as we added more supplemental solutions to the portfolio, it went up to between seven to eight. And in this cycle, we posted 9%. Again, I think the key reason here, we did not see a deterioration in churn. The churn that we provide is actually combined churn for all the solutions, so the mix impacts a lot here. And we have two components. The first one is supplemental with still a higher churn compared to core. I think here we don't think it should be structurally higher than core. It should be higher but not structurally higher and not at the magnitude that it is today. So I think there is room to improve here. And also some core brands with still a higher churn when compared to the more mature ones, and they outgrew in this cycle. So as a consequence, the combined churn looks higher than those levels that we posted a couple years ago. So looking ahead, what should drive a churn reduction is our efforts to reduce churn on supplemental as a whole, okay? We still have brands in supplemental with 15, almost 20% churn. It's extremely high, so there is room to improve. and in the core brands challenging those less mature brands to bring their retention rates to levels close to SAS, Positivo, for example, COC, all of them with retention rates above 95%. Okay, so that's the challenge, that's the goal, and we expect that to drive combined churn to close to 7% as we posted in previous years at least.
spk10: That's clear. Thank you, Otaru.
spk06: Thank you. If anyone has any questions, you may press star 1 on your touch-tone phone. Well, thank you very much. At this time, we have no further questions in the queue. This concludes our call for fourth quarter and full year 2022 earnings call. Thank you very much for your participation and have a nice rest of your day.
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