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spk00: Ladies and gentlemen, thank you for standing by and welcome to the VASTA platform third quarter 21 conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this time, you will need to press star 1 on your telephone keypad. And if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Bruno Giardino. Thank you. Please go ahead.
spk01: Good evening, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's third quarter 2021 results. With me on the call today, we have Mario Guio, Vasta CEO, and Guilherme Melega, Vasta COO. 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, expectations for future periods, our expectations regarding our strategic product initiatives and their related benefit and our expectations regarding the market. Forward-looking statements are based on our management beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we issued 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 the date hereof. 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 reference known IFRS financial measures on this call. The known IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRI. Let me now give the call over to Gil to make his opening statement.
spk06: Thank you, Bruno. Thank you very much for participating in our earnest release, and I would like to start on slide number three with some highlights of the quarter. The third quarter was the last one of the 2021 commercial cycle, one of the most if not the most challenging period in our history. As we commented in the previous calls, the second wave of COVID came up right at the back-to-school period, hitting the students' enrollment at our partner schools and also the sales of the pedagogical materials for the 2021 school year. Nevertheless, Vesta concluded the 2021 commercial cycle with a 7% subscription revenue growth over the same period of the last year, and 11% if we exclude PAR, our hybrid subscription product based on textbooks. Our total net revenue dropped 12%, as the pandemic effect on the textbook business was even more severe, leading to a strong decline in our non-subscription revenue. Our adjusted EBITDA reached $168 million in the 2021 cycle, a 35% drop in comparison with the 2020 cycle. driven by the reduction in the net revenues and higher provision for adoptable accounts, among other factors. Excluding the write-off of editorial costs recorded in the third quarter, our adjusted FDTA totaled 188,027% lower versus the 2021 cycle, yielding a margin of 21%. If 2021 was a lost year in terms of financial results, it has been a great year for the expansion of our Plural platform. The B2B2C services debuted in October with the Plural MyTeacher and Plural Adapter recording its first sales. Plural Store, which offers complementary solutions in partnership with EdTechs all over the world, is also live. We have reasons to say, however, that the worst is behind. The preliminary 2022 ACV reached a total of $888 million by the end of October, showing an organic growth of 20% versus 21% subscription revenue, with still two months to go in the commercial campaign. If we include the acquisition of Eleva, the preliminary ACV goes up to $975 million, showing a growth of 32% year-to-date. Having said that, I'll pass the floor to our CFO, Bruno.
spk01: Thank you, Guil. As we did last quarter, we will start by analyzing the performance of our revenue in the cycle, which is now complete. Our total net revenue declined 12% over the 2020 cycle, as you can see in the left. However, when we break this information into subscription and non-subscription, we noticed that our subscription revenue increased 7%, representing 83% of total revenue. Going further into this breakdown, we can see that by excluding PAR, our subscription revenue grew at a double-digit rate, 11%, in spite of all the headwinds already commented. In the chart below, you see that PAR declined at 7% in the period, driven by the higher reuse of textbooks, a phenomenon that we observed in the past during recession times. Finally, in the bottom of the chart, non-subscription revenue fell 53%, reflecting not only the weakness in the textbook sales, but also our commercial efforts to bring non-subscription clients to our subscription products. As you can see in this slide, the pandemic effects have hit our business lines in different ways, with the growth in subscription products preserved, particularly in the lines that do not involve textbooks, while non-subscription revenue has suffered the most. In the slide five, we detail the net revenue performance in the quarter. Net revenue presented a 10% drop when compared with the last quarter, owing to a concentration of deliveries to some brands in the second quarter of 2021, while non-subscription revenue declined 13%. We believe that the analysis of the cycle entirely, also showing these charts, offers the appropriate angle to analyze our revenue performance. Moving to slide six, let's comment on our adjusted EBDA and net profit results. In terms of adjusted EBDA, VASTA posted a negative $29 million result in this quarter due to the revenue decline, to the higher provision for accounts, and enhancement of our administrative structure following the IPO. Additionally, we recorded a $20 million write-off in editorial costs, reflecting a review in our textbook and editorial strategy given the structural changes in the business. Excluding this effect, our adjusted EBDA was negative in $9 million. In the 2021 cycle, the adjusted EBITDA totaled $168 million, basically due to the same factors mentioned before. Excluding the write-off of editorial costs, adjusted EBITDA was $188 million, 27% lower year-over-year with a margin of 21%. Our current adjusted net profit for the 2021 cycle was $28 million, pressured by the lower operating results. Next, I'll give more details on slide seven on the provisions and our accounts receivables. The higher recognition of provision for adoptable accounts, PDA, in the third quarter and in the 2021 cycle has to do with the challenging business environment of this school year. Since the beginning of the pandemic, our approach to credit issues faced by our school partners has been to extend payment terms instead of granting discounts. which resulted in an aging of our receivable portfolio and higher provision needs. As you can see in the left, the PDA expense represented 3% in the quarter and 3.8% in the cycle over net revenue, well above historical levels. On the other hand, the higher PDA reflects our care with our provisioning standards, which is attested by the average days of receivable following three days in the yearly comparison to 85 days as shown in the right chart. That said, I'll pass the word back to Mario.
spk06: Thank you, Bruno. Moving on to slide number eight, I will comment on the performance of Plurals in this period. In October, we celebrated the debut of our B2B2C platform, which was a great achievement of our Plural team. Plural, my teacher, our private classes platform, and Plural Adaptive, our adaptive learning platform, recorded their first sales in October. We see a strong need to long-term potential for the B2B to see services, and this potential could materialize exponentially once the product is better known by our community. As you can see in this slide, we have focus on the dissemination of these products among our partner schools, teachers, and students. Plurals Store is also live, offering a series of complementary solutions in partnership with many ad techs from all over the world. Moving to slide number nine, let's comment our deal with Eleva. On October 29th, we closed the acquisition of Eleva platform, following the antitrust approval without restrictions. This transaction adds not only a sizable and complementary portfolio of schools to our platform, but also a long-term contract through which Vasta will be the exclusive provider of learning systems to almost all K-12 schools held by Eleva. Positioning Vasta to benefit from the consolidation of the fragmented K-12 market. The integration of a lab is happening as planned. Since the signing, we organized a clean team that planned the integration in every detail, which is a basis for a nice and smooth integration. We have already concluded two important steps, which is the definition of the new organizational structure and the integration of editorial and digital content teams. Some of our next steps will be executed as soon as the back-to-school period ends. Moving on to slide 10, we present our M&A track record. We delivered five acquisitions since the IPO, being Eleva, of course, the biggest one. As a conclusion, our M&A pipeline remains rich, and we are engaged in other transactions which are at different stages. With that being said, I will pass the floor to our COO, Guilherme Meliga, who will detail our operational results of the period.
spk05: Thank you, Gil. Slide number 11. On October 31st, the 2022 preliminary ACV totaled $888 million, an organic growth of 20% versus the subscription revenue collected in the 2021 cycle. With the commercial campaign still two months to go, excluding paper-based PAR, the organic growth is of 29%. Nearly 100% of our new sales have come from traditional learning systems, complementary solutions, or from our new digital textbooks platform, offered on a fee-per-student basis. reflecting our focus on reducing our exposure to the paper-based textbooks channel. With 11, the preliminary 2022 ACV totaled $974 million, a 32% growth versus our 2021 subscription revenue. We will update 2022 ACV numbers when campaign ends. I will turn back to Gil. Thank you, Mariga.
spk06: Going to slide 12, first, neither the return of students who drop it out from our partner schools based in 2021, nor the volume of textbooks that should have been purchased in a regular environment were considered in our ECV projections. That was a gap of 112 million students. that could be captured in the upcoming years, as represented at the chart to our left. Also, although the volume of enrolled students in 2021 cycle was below its full potential, we retain our client base with long-term contracts, which represents additional growth potential with our acquisition costs should our partner school's base is restored in the upcoming years. By the end of October, our 2022 ACV corresponds to a base of more than 5,000 schools, as shown in the chart at the right. Having said that, I finish our presentation and I'll open for the Q&A session. Thank you very much.
spk00: At this time, I would like to remind everyone, in order to ask your questions, you may press star, then the number one on your telephone keypad. Again, that's star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vitor Donita from Goldman Sachs. Your line is open.
spk04: Hello, good evening, everyone, and thanks for taking our question. Two questions from our side. The first question is, thinking about the preliminary ACV, since PAR tends to have lower tickets, can you give us a sense of how the number of client schools and the average tickets evolved to reach the 20% growth in ACV and perhaps of what each grant has been typically replacing PAR, since PAR is not being emphasized in Excel? Second question from our side would be regarding ARAVA. The organic and non-organic figures for ACV 2022, they seem to imply ACV 411 of 86 million reais for 2022. This is 9% below the 95 million figure that was initially announced for 2021. So could you give us some color on whether this was mostly related simply to dropout or if it was related to any commercial or accounting factors? Thank you.
spk05: Hi, Victor. This is Guilherme here. Let me address your questions. First, regarding the preliminary ACV for 2022, as we mentioned, there is almost non-par paper based on the number. The number is almost exclusively from traditional learning systems, complementary solutions, and the digital platform for textbooks. We'll give more disclosure about figures and how it is detailed later on on the process once the campaign is finished. What I can tell you right now is that we have a much better mix from the 20% compared with the same 20% that we disclosed at the same period last year. The preliminary ACV number that we are disclosing is year-to-date numbers. They are not full campaign numbers, as it is the 20% that we disclosed on Somos organic growth. So there is yet two months to be performed by Eleva on the campaign and on the campaign of Somos tubes. On the figure that we are disclosing, the 86, we are also already including the commercial discount that proprietary schools on a level has guaranteed for the next cycle.
spk06: For the long-term contract, right? Victor, please have in mind that we signed the 10-year contract. a contract with Eleva and they have the right to have 60 million reais of discounts for this period, right? So we are including in the Eleva numbers the discount they have.
spk04: Very clear. Thank you very much.
spk00: Your next question comes from the line of Vinicius Siguredo from ITAU. Your line is open.
spk02: Hey, guys. Good evening. It's from Ito, actually. Thanks for taking my question. My first question is regarding TDA. If you could please comment on the increase that we have seen in squarers. Do you believe that this should be a more specific event of this quarter, or we should see a more conservative approach following the next quarters? Another question is regarding the non-subscription revenues. When should we expect a more robust recovery in this line? Is it reasonable to assume that we should continue to lose value going forward in the consolidated results? Thanks.
spk01: to do thank you thank you for the question Vinicius this is Giardini speaking here regarding the first question we have observed during since since the beginning of the pandemic me the needs of increasing provisions because our clients are in trouble because of all the situation our business is living so we have to be more permissible with with with the payments right so that makes us that brings the need for increasing provisions. That's why we have seen higher provisions for doubtful accounts during this period. We have a particular issue with some of the participants related to the textbook chain. This has pressured our members as well. When we look forward, we think that there is no reason for our provision for doubtful accounts do not return to historical levels, which has been around 1% of net revenue. We just don't know if we will be able to be back to these levels in 2022 already, all right? Maybe 2022 will be an accommodation year, right? But for sure, we are living maybe the worst period of our history in terms of collection of receivables, right? This is clearly related to the pandemic, as I told you. And we may start to see a normalization of these levels already in 2022. All right, I'll pass the word to Malaga, which will respond to the second question.
spk05: Hi, Vinicius. Thank you for your question. So regarding non-subscription revenues, what we faced in 2021 for us is a total outlier for the trend of this market. This is still a challenging market, especially due to the spot textbooks market. But we do not expect anything, any new drop higher than a single-digit level for the next quarter.
spk02: Okay, very clear.
spk05: For the next commercial cycle, to be clear. Yeah, that's it. Sorry. Thank you, guys.
spk00: Thank you. Again, for anyone else who wants to ask questions, you may press star, then the number one on your telephone keypad. Your next question comes from the line of Andres Coelho from Scotiabank. Your line is open.
spk03: Yes, thank you for taking my question. I have a couple of questions. The first one is on your cost, what you're seeing for your cost structure next year. given inflationary pressures, inflation in Brazil. So just wondering, obviously your ACV bookings were very attractive, right, with including a level over 30% year-over-year, but I was wondering how you're expecting your cost structure to evolve. That's my first question. If I may follow up with a couple of additional ones. Thank you.
spk01: All right. Thank you for the question, Andres. We do not expect the inflation to be a concern for next year. As you're going to see when we update the ACV figures, we are growing ACV in terms of prices as well. So we are benefiting from this inflation in our top line. That's one thing. Second thing is we do not see strong pressures in our cost lines that are linked to inflation. situation is quite under control and also most of our costs are and some of the fixed expenses have a fixed nature right so we have a strong operating leverage once revenue goes up and it will probably be with this with this ACV we are announcing today the price is still preliminary right so inflation is something that concerns every management of every company in Brazil but we can say that it's not a big concern to us in 2022, all right?
spk03: All right. Thank you. Second question, on slide number 12, you're showing that the number of partner schools will grow to 5,383. I'm just wondering if that number includes the schools from Eleva, number one, And number two, if that includes complementary solutions, schools subscribing to complementary solutions, if this is just for the core content, excluding complementary solutions.
spk06: Hi, André. This is Gui speaking. The number in the chart is the number of schools, including all the schools that came with the LEVA, right, with the acquisition of the LEVA. the number of schools we have gained from the market in this year-to-date commercial campaign, right? So combining the number of schools with the level and the number of schools that we sign a new contract with them, we have almost 5,400 schools. And as Malega said, we still have two months to go in this commercial campaign, right? Usually, this number represents the schools using the core products and some of them are also using our complementary solutions, right? So I don't have exactly the exact number here, but around 10 to 12% of our schools, they also have a complementary contract regarding to complementary solutions, right? So, but mostly, In the chart, you can see the core solutions contract.
spk03: Thank you very much. I have one last question, please, if I may. There is some concern that after the very dramatic drop in the share price of Basta, you could take the company private. or that you can delist the company. So I'm wondering if you could just comment on that possibility, whether you see that happening, or is that something we should completely discard in the incoming months?
spk01: Andres, although we do not agree with the level of prices we see in the screen today, this conversation doesn't exist here at neither Invasta nor at Cognos.
spk06: Fully agree, Andres. We are working hard here to deliver value for everybody, our shareholders and also our controlling shareholders.
spk03: Okay, very clear and congratulations for the strong ACB bookings.
spk01: Thank you, Andres.
spk00: Your next question comes from the line of Vitor Donita from Goldman Sachs. Your line is open.
spk04: Hi, thanks for taking another question from us. Just a quick one. If you could give us some more color on how the commercial strategy for scaling up the B2C platform will be and thinking about the tutoring and the rest of the platform. If there is also a clarification, if the preliminary 2022 ATV includes any estimated contribution from the platform. Thank you.
spk06: Yeah, thanks, Victor. This is Gil. Basically, the marketing we do for reaching the B2B2C is students, right? Because at the end of the day, the students are hiring a private class or families are hiring an adaptive self-paced study program. program, right, through Plural Adapter. So we are showing the products in the Plural, right, so everything is integrated in Plural. That means that when the student is using Plural for, you know, homework and so on, they can see that there is this button available, name it Plural My Teacher, and also Plural Adapter, right? So the first step is to make available for all the students from the secondary education on, okay? We are not offering this kind of products for, I would say, primary education and preschool, okay? Only for secondary and high school. And the second step, we have an inside sales team making clear what is the product, what is the benefit for the families, what is the benefit for the teachers. So it's 100% digital campaigns. We like to use not a kind of a push strategy but a pull strategy that means that we allow teachers to offer some classes, private classes for free and then students can have this trial and after that they can start paying for the next classes and the same concept is behind the marketing for the adaptive program, right? Victor, we do not consider that the revenues coming from B2B2C is subscription, right? So regarding the last part of your question, the answer is zero, right? We do not consider that any kind of revenues coming from the B2B2C strategy is ACV or will be in the ACV, okay? When this kind of revenues are relevant, probably we'll show in our release that there is a line for digital revenues coming from B2B to C, right? But we'll never include that in the ACV building, all right?
spk04: Very clear. Thank you very much.
spk00: There are no more questions at this time. Presenters, you may continue.
spk01: Well, so again, thank you very much for being with us today. We are available for questions after this call through our IR department represented by myself. So good evening, everyone, and thank you again.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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