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spk07: Good afternoon and welcome. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the VASTA second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Bruno Giardino, CFO, you may begin your conference.
spk05: Good evening, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's second quarter 2022 results. With me on the call today, we have Mario Guil, Vasta CEO, and Guilherme Melaga, 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 or 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 benefits, 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 filing with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today's hearing of. 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 refer to 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 the IFRS. Let me now give the call over to Gil to make his opening statements.
spk03: Thank you, Bruno. Thank you all for participating in our earnings release. Let's jump to the highlights of the quarter on slide number four. As the main highlight, we can see the VASTA not only consolidated the recovery of profitability, but also delivered a strong cash flow generation, attesting that the business is back to normal following a 2021 cycle severely hit by the pandemic. Net revenue grew 35% year-on-year and 27% in the cycle to date, driven by an acceleration in growth of subscription revenue that grew 33% in the 2022 cycle to date, and is representing almost 90% of the total revenue of the company. And that shows that VASTA is a true platform with a predictable and recurrent revenue. Adjusted EBITDA was 11 million reais in the second quarter, recovering from a loss of 17 million in the same quarter last year. In 2022 cycle to date, the adjusted ABDA margin expanded 6.6 percentage points to over 30%, the highest for this period in our recent history. We attribute this increase not only to the normalization of the business and sales mix of superior quality, but also to the efforts such as the workforce optimization and our financial discipline. Operating cash flow totaled 103 million reais in the second quarter, a significant improvement from a consumption of over 60 million in the second quarter last year, driven by the recovery of operating results and better working capital dynamics. As we approach the end of 2022 cycle, subscription net revenue growth converts to the 35% growth implied by our 2022 ACV of R$1 billion. Therefore, we reiterate that in 2022, we will collect 100% of the ACV by the end of this commercial year or by the end of the third quarter of this year. With that being said, I pass the word to our COO, Guilherme Melega.
spk02: Thank you, Gil. Now moving to slide number five, we detail the ACV growth composition. In 2022 cycle to date, more than 85% of 2022 ACV was already captured. The different seasonality of our brands, mainly Eleva and McKenzie, has led to a less concentrated distribution of subscription revenue along the 2022 cycle when compared to previous cycles. For the following quarter, we expect ACV recognition to be 14.5%, which guides for a full recognition of ACV within 2022 cycles, as Gil mentioned. Now I'll turn the floor to our CFO, Bruno Giardino, to talk about the financial results of the quarter.
spk05: Thank you, Malaga. In the slide five, we present the composition of last year's net revenue in the second quarter of 2022. As you can see in the left side, total net revenue increased 35% year-on-year to $190 million. Moving to the right side, we see the components of revenue growth. In total, subscription revenue jumped at 48%. driven by an acceleration in the recognition of ACV when compared to the previous year, plus the contribution of 11. Subscription revenue was mostly composed of revenue from learning systems, as the delivery of PAR and complementary solutions occur mostly in the first two quarters of the cycle. Moving to slide six, we analyzed the net revenue for the 2022 cycle to date, from fourth quarter 21 to second quarter 22. Net revenue grew 27% in this period, driven by a 33% growth in subscription revenue. As we approach the end of the cycle, we see the growth in subscription revenue converging to the ACV growth of 35%. Non-subscription revenue fell 6%, in line with our initial expectation of stability or small decline in this line. In the following slide, adjusted EBITDA total 11 million, a relevant increase from the minus 17 million of the same quarter in the last year. This improvement was driven mainly by operating leverage gains, cost savings, and better sales mix with the growth of subscription products and the contribution of 11. In proportion of net revenue, gross margin grew 580 bps while adjusted cash G&A expenses and commercial expenses were down to 170 bps and 50 bps, respectively. There was also a significant decrease in the provision for doubts for accounts, as there was a hike in the provision in second quarter 21 to accommodate the impacts of the pandemic on our receivables. As a result, adjusted EBITDA margin reached 5.9% in the second quarter this year, versus a negative margin of 12.2% in second quarter 2021. In the 2022 cycle to date, adjusted EBITDA grew 59%, reaching $313 million, with margin increase of 660 basis points. This is evidence that VASA's profitability is now standing at a much higher level than last year and closer to the company's potential. In terms of adjusted net profit in the second quarter, despite the growth in operating profit, we posted an adjusted net loss of $42 million, worse than the same quarter last year, mostly driven by the higher financial leverage of the company and the higher interest rates in the country. In the 2022 cycle to date, adjusted net profit totaled $62 million, slightly down compared to the 2021 cycle. Moving to the slide number nine, we show the operating cash flow solution, and this is the main highlight of the quarter in our view. In this quarter, operating cash flow totalled $103 million, a significant improvement when compared to the second quarter of 2021, even when we normalized the operating cash flow of that quarter by the early receipts of accounts receivable amounting to $52 million. In the cycle to date, the operating cash flow totaled $31 million, or $58 million, when excluded the early payment of royalties to content providers in the amount of $20 million. This is also an improvement compared to the previous cycle, which had consumption of $113 million. Next, I'll give more detail on the provisions in our accounts receivables. As you know, over the last quarter, we have recognized higher provision for adoptable accounts due to the challenging business environment for our school partners, as well as our decision to support them by extending payment terms. In the cycle to date, we have seen a gradual normalization in the payments, aligned with the restoration of school partners' regular activities. But this restoration is not yet completed. That's why the average of days of accounts receivables was 140 days in this quarter, to 2022 days above the same quarter of the previous year. By adjusting this metric by 11 of the last 12 months net revenue, the average term was lower at 133 days.
spk08: Moving to the next slide.
spk05: VASTA ended the second quarter with a net debt position of $865 million. From the first quarter, The decrease was related to the operating cash flow generated in the quarter, as mentioned before, partly offset by the interest accrual over our net debt position. In the right chart, we see that our leverage measured as net debt to last 12 months adjusted to BDA has started to decline since the first quarter, reaching 3.04 in the second quarter, 22, or 2.98 times including Eleva's last 12 months in full. We expect this downward trend to continue over the coming quarters as our adjusted BDA base increases.
spk08: Next, let's talk about EducBank.
spk05: This was our last acquisition, recently announced in July. So we acquired a minority interest in EducBank, the first financial ecosystem dedicated to K-12 schools. For those that are not familiar with this business, EducBank provides educational institutions payment guarantee to school's tuitions, making the usual uncertain flow of tuitions over the school year a regular monthly flow of cash discounted by a take rate earned by EducBank. In the bottom of this slide, there is an illustration of how the business works. This is a market that we estimate to have a total payment value of $70 billion. The investment will total $158 million for a 47% stake, to be paid in two ways. First, $88 million in cash over the next two years, according to the growth of Edukbank's student portfolio. And two, $70 million in capitalization of credits arising from the sale of Vasta to Edukbank, the right to access our client base. VASTA will have the right to appoint two members out of six to the board of directors of Edukbank, which will continue to be independently managed by the founders. As VASTA will not consolidate Edukbank in its balance sheet, Edukbank results will be recognized via equity income. With that being said, I pass the word back to Gil.
spk03: Thank you, Bruno. Moving to the next slide, I will give you more details of the reason why we invested in EdukiBank and why it's important for VASP's platform. To access new revenue pockets and build products that complete our portfolio to K-12 schools, since the IPO, we had several developments in our platform, such as reinforcing our core content with a lab acquisition, the creation of Fibonacci learning systems, and the distribution agreement with McKinsey. We also expanded our complementary solutions and entered the B2B2C segment through the launch of Plural MyTeacher and Plural Adapta. In the bottom, in the digital services, we completed the acquisition of Cell, AIME, and Fidelis, aiming to build a portfolio with administrative services that will address the needs of our partner schools. putting up time for them to focus on what they know the best to educate. With the Duke Bank transaction, VASTA gains exposure to the K-12 payment means. It's still an explored segment for us, adding another arm in the development of its digital services platforms. Moving to the next slide, ESG reports. From this quarter on, VASTA will report updates about ESG standards, including a quarterly panel of key indicators in line with the topics identified in the maturity process, reinforcing our commitment with the highest ESG standards. Committed to accountability and transparency, VASTA launched the first greenhouse gas emissions for its operations. The purchase of renewable energy reduced VASTA's total emissions by 14%. Another highlight in the quarter was the AFRO internship program, which will create exclusive inter-vacancies for black people in the organization. In the environmental fields, 97% of the energy consumed in this quarter comes from renewable sources. being 100% in our largest distribution center in São José dos Campos. 100% of our suppliers are FSC certified. In the social field, 47% of all of our leadership is women. Permanent space in profs, and we also provide the permanent space in profs to give visibility to the pedagogical actions for black teachers. A program of mentoring from Instituto Somos accelerates 371 young talents from public schools. And we know that for everyone we all invested in Instituto Somos, more than 11 REIs are generated in benefit to society. In the governance field, we have a diverse board of directors with 42% independent members and a relevant female participation that granted us the Women on Board seal. Important to mention that VASTA received no complaints in this quarter related to leaks or loss of data. Having said that, I finish our presentation, and now I open the Q&A section. Thank you.
spk07: As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question today comes from the line of Lutka Markenzini with ITAU. Your line is now open.
spk04: Good evening, everyone, and thanks for taking our questions. The first one would be, With the acquisition of EducBank, VASA now should offer partner school services that go beyond learning systems and academic solutions. That said, what should we expect in terms of the relevance of financial solutions in the consolidated net revenue in the long term? And then secondly, regarding PGA, there was a significant decrease year over year as provisions went up last year due to the higher delinquency caused by the pandemic. Should we consider the number reported in this quarter as the normalized level from now on?
spk08: Thank you. Thank you very much, Luca.
spk05: Regarding your question on the projections for financial services, it's still too early to tell because EduBank is a new business. It's nothing business, let's put it this way. It's an accelerated ramp up of revenue, but it's still small. So we cannot predict how important it will be when compared to our traditional businesses. However, we see a huge potential, a total addressable market that may surpass more than $70 billion. This is more than the addressable markets we have for other products we have here in the company. So it's definitely a great potential and I think that EducaBank will be relevant in the future, financial services will be relevant in the future. That's why we wanted to be in this business. However, it's too early to give any kind of prediction of how representative this will be within our revenue pie. Second question, regarding PDA, I think we are on our way to a normalized level. We are not there yet, I would say. We think that when the situation normalizes, we should have a PDA over revenue less than 2%, perhaps approaching 1%, which is the historical level of the company. So we are not there yet. We are getting there. Eventually, 2023, we can be around this level, below 2%, or closer to 1%, as I mentioned, okay?
spk03: Look, if I may add, this is Gil speaking, if I may add something regarding the first question. It's important to understand that VASTA is serving today more than 5,300 schools, and we know that the total amount of tuition in those schools are around 17 billion reais per year, right? So that's the That's the same for Eduki Bank in our base of clients. Second, important to mention that we have minority stakes. So we are not consolidating Eduki Bank in our P&L, right? So you are not going to see the Eduki Bank revenues in our P&L, right? And third, it's super important to understand that for us it's super uh powerful the combination of fidelis which is our financial and academic erp plus eduki bank so we are aiming to provide the partner schools everything they need to be a better school in terms of you know in data to be more efficient, and also to help the schools to have this working capital through EdukiBank. So more important than having EdukiBank, it's having the combination of EdukiBank and Fidelis embedded in our digital platform.
spk08: Thanks, Guilherme. That was very clear.
spk07: Your next question comes from the line of Vitor Tomita with Goldman Sachs. Your line is now open.
spk06: Hello. Good evening, everyone, and thanks for taking our questions. A couple questions from our side. The first one is if you could share any initial views regarding the earlier commercial trends in the sales cycle for 2023. And our second question would be, how do you see the likelihood of revenues for this cycle actually surpassing 100% of ACV, given the strong revenue performance of complementary solutions so far? Thank you.
spk03: Victor, just to clarify regarding your second question, is if we are expecting to have more revenues than the ACV of this cycle, right?
spk06: Yeah, of this cycle, if you think that's possible. Thank you.
spk08: Okay.
spk02: Okay, so I'll start here. Victor, it's Guilherme speaking. So initial view of the commercial cycle was very good, very positive. We had a very good first half of the year, as we all know. The first half is not the peak of the season. The peak is yet to come. But so far, so very good. We had a sound campaign to... July 31st, both in core content and complementary. We have new products in complementary, especially in bilingual, that are leading us to a very good campaign. So we are very positive about the campaign. We are keeping the trend, the same we did last year, so we expect to reach our goals. And regarding ACV, We do not expect any increase in ACV recognition from the previous $1 billion that we already guided the market. We are seeing the contracts performing as expected. And we have a different seasonality this year. That's why Q2 is more concentrated in ACV. But Q3 will most likely deliver what is expected to reach the 1 billion.
spk03: And, Vitor, just adding a little bit more colors on this marketing campaign, we are seeing an interesting movement. That is, we are selling more premium brands than, you know, our... mainstream brands right and that's very very important not only because premium brands they have you know a higher average ticket but also because the churn in the medium and long term the churn of a premium brand is lower than a mainstream brand so we saw I don't know if you remember but we saw the same phenomenon happening in the last cycle as well so it's important to mention that not only because Anglo is performing very well, PH is also performing very well, but we have this new third premium brand, which is Fibonacci, right? We have created Fibonacci exactly to address this need for more premium brands in some places where Anglo and PH work. already installed, right? So I guess this is the trend that we are seeing. So far, as Malaga said, we are in the middle of a marketing campaign, but so far so very good.
spk08: Very clear. Thank you very much.
spk07: Your next question comes from the line of Marcelo Santos with JP Morgan. Your line is now open.
spk01: Hi, good evening. Thanks for the opportunity to ask questions. I have two. The first, if you could provide an update on the B2C2B initiative. I hope I got this right this time. And the second one, if you could give us an idea on how your leverage should progress. So you got to around three times, and that will be done now. How do you see that going forward, and what would be a comfortable level? Thank you.
spk03: Great. Marcelo, thank you for the questions. I'm taking the first one. We are in the full deploy, fully deploying our Plural MyTeacher and Plural Adapta. We are seeing hundreds of new private classes given every month. All the KPIs that we are seeing in our reports are very good, so we can really say that we have an excellent new ed tech as part of our platform, right? Especially in Plural My Teacher. Plural Adapter, it's going fine as well. We are launching. We started the first product of Plural Adapter was focusing on the secondary school. Right now we are launching products for the high school as well, and that opens more opportunities for us. And as you may remember, we also said a little bit in the last call about Plural MyTherapeuta, right? So we are piloting all the tech framework products to deliver a good experience in, you know, in providing students and families the connection with a good therapist. And as soon as we see that the product is okay, we are going to launch or, I mean, we are going to, you know, to deploy or to connect in our platform. Right now, I'll pass to Jardino.
spk05: Hi, good evening, Marcelo. I was waiting for the margin question, but thanks for the leverage question anyway. Our expectation is to have our net debt to adjust to the PDA in a level lower than three times by the end of this year, right? This could go down in a faster speed, but we are now committed to invest the money on EducBank, right? So this may be our leverage do not fall as fast as expected, but for sure we expect to end the year below three times, and I think next year even lower as we project to be growing in EBDA next year, right? So we probably, we should pursue a leverage of around anywhere between two and three times I think would be a good leverage level for the company considering our current structure of capital, okay?
spk03: And we are also improving the BDA to cash, right? And given that you mentioned the margins, you can give more colors on that.
spk05: Marcelo, we reiterate our perception and our belief that margins will expand in 2022 when compared to 2020, right? So anywhere higher than the 26 point something level we had in 2020, okay?
spk01: Perfect.
spk08: I would ask that as a follow-up, so it takes a lot. I knew you would do that. Thank you.
spk07: As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. We will pause for just a moment to compile any final questions. We have one more question here from Marcelo Santos, again with JP Morgan. Your line is open.
spk01: Instead of the margin question, I'll ask about M&A Outlook. How is your pipeline doing now? How is your appetite? And are the prices of non-listed companies in sync with listed have been going down? Any perceptions there would be great. Thank you.
spk03: Yeah, Marcelo, we have, I would say, we have a strong pipeline of not acquisitions, but companies that we are, you know, studying. We are focusing more on the side of complementary solutions and added tax, right? We are, at this moment, we are talking to, in the core content, I mean, we are talking to two small players in the market, right? because, as you know, we and the other player, the other listed player, we have around 50% of market share in the learning system market. And that means that 50% of the market is still in the hands of medium and small guys, right? We are seeing these small guys initiating talks to, you know, in terms of M&As and acquisitions and so on, right? But we are, as always, we are focusing more on how can we complete our platform. Eduki Bank was a very, very important investment. Now we are connecting Eduki Bank with Fidelis, and that will generate not only more revenues, more cash, more EBITDA, and so on, but also will increase the stickiness of our platform. Let's have in mind that after a school year, adopting our ERP and having all the services regarding the working capital will be tough to leave our platform, right? So there are opportunities. We are looking for not listed companies. If I understood the other part of our question, now currently we are not aiming any other listed company. But if we had an opportunity to complete or to bring more services, more TAM, especially more TAM to our platform, we will be always open to understand.
spk01: Actually, I was not so ambitious to ask if you would buy ARC or anything like this. I was just asking if the price that the non-listed are asking, if it makes sense? Because we usually hear that non-listed companies are still with an old mindset and trying to ask too high of a price. It didn't decline. So I just wanted to, like in your conversations, has the pricing environment become more rational on this M&A market or no? That was the actual question.
spk03: Yeah, I got it. I can tell you that if it's irrational, we don't talk. All the opportunities we are studying now, they are pretty rational, especially the guys that are suffering a lot with the kind of players that we and ARK represent to the market. We are not seeing some irrationality in the market. I guess this year is better than last year. Compared to the last year, I guess it's better.
spk08: Perfect. Very clear. Thank you, Guil. At least with the kind of assets we are talking to. This concludes today's Q&A.
spk07: I now turn the call back over to Bruno Giardino.
spk05: Thank you, Emma. Guys, I would like to take the opportunity to make an important announcement here. After a cycle of nearly two years and a half, we've been blessed First year helping in the preparation for the IPO and later as the CFO of the company. I will begin a transition period with the new CFO of Vastas, Mr. Cesar Silva. And after that, I will be dedicated to personal projects, okay? So from today until September 15th, I'll be transferring my activities to him. And for your information, Cesar Silva is currently Cognizant's Controllership Director. He has more than 25 years of experience in the financial management and controllership, and I'm sure that he will be a great addition to Vasta's team, right? And as for the part of IR matters, Mario Gil will succeed myself as the investor relations officer. So I would like to thank all this audience for the presence here, and I would like also to thank my colleagues here at VASTA for the opportunity of being together and sharing battles with you, such nice and talented people, particularly this guy sharing the room with me today, Guilherme Melega, and especially Mario Gil. So thank you very much, and this concludes our second Q22 conference call. Thank you.
spk07: This concludes today's conference call. Thank you for attending. You may now disconnect.
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