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spk01: Ladies and gentlemen, thank you for standing by and welcome to the VASTA Platform first quarter 2022 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on the touchtone telephone. I would now like to turn the conference over to your host, Mr. Bruno Ghiardino, CFO. Sir, please go ahead.
spk04: Good evening, everyone, and thank you for joining me in this conference call to discuss VASTA Platform's first quarter 2022 results. With me on the call today, we have Mario Guil, VASTA's CEO. 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 act as 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 initiative, and their related benefits and our expectations regarding the market. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we issued today, as well as those more freely described in our filings with the Securities and Exchange Commissions. The forward-looking statements in this presentation are based on the information available to us as the date hereof. You should not rely on them as predictions of future events, and we disclaim any obligation to update any forward-looking statements except as required by law. In addition, management may reference non-IFRS financial measures on this call. The known IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. Let me now give the call over to Gil to make his opening statement.
spk03: Thank you, Bruno. Thank you all for participating in our earnings release. I would like to start on slide three with some highlights of this quarter that has a special meaning for us. Vast first quarter results confirmed the recovery trend on operational results. After a long period of results being hit by the COVID-19 pandemic, numbers finally attested that business is back to the high growth field. 2022 ATV for school year total 1 billion reais, which represents a growth of 35% over the subscription revenue for the last cycle, for the 2021 cycle. and the 2022 ACV showed a richer mix in source of revenue as we managed to increase growth in our premium brands and to initiate the migration from textbook paper-based products, PAR, to digital subscription products, textbook as a service. Therefore, excluding PAR, the ACV grew 48%. Complementary Solutions had the highest growth rate over 70% year-over-year among the business segments as we accelerated ramp-up of these solutions. In 2032 cycle, from fourth quarter 21 to first quarter 22, the net revenue grew 25% due to the recognition of 68% of the ACVs. No subscription segment revenue as expected was stable compared to the previous cycle. Adjusted EBITDA grew more than 100% in the quarter and 41% in the 2022 cycle as a result of the net revenue growth, operating leverage gains, and cost savings, with margins increases of 430 base points. For the second quarter of 2022, we expect the DACV recognition to range between 16% and 18%, reiterating our belief that 2022 will be able to collect 100% of the ACV. Moving to the slide number four, we detail the ACV growth composition. 2022 ACV is less concentrated in the first two quarters than in the previous years due to the different seasonality of new products such as Aleva, McKinsey, and textbook as a service platform. That means that although the first two quarters continue registering the largest part of the ACV revenue, there was less revenue captured in the first half quarter of this cycle when compared to the previous year, being 68% in the first half of 2022 cycle versus 71% in the same period of 2022 cycle. In this first quarter, the net revenue increased 36% year-on-year to R$381 million, exceeding the R$370 million guidance. Subscription revenue totaled $334 million, an increase of 37% driven by the 2022 ACV recognition, also exceeding the guidance, and the non-subscription came in line with the guidance. For the following quarter, as I mentioned, we expected the ACV recognition to range between 16% and 18%. I will now pass the floor to Bruno Jardim, our CFO.
spk04: Thank you, Gil. In the last five, we present the composition of Vastos Net Revenue in the first quarter of 2022. As Gil commented, our total net revenue increased 36% year-on-year, exceeding the $370 million guidance. Moving from the center of the slide to the right, we see the components of revenue growth. Excluding PAR, subscription revenue increased 48 year-on-year, reflecting the superior quality of revenue mix in the 2022 ACV. PAR net revenue fell 12%, which is aligned with our strategy of shifting revenue from textbooks to learning systems and digital platforms. Textbooks in this first quarter represented 14% of total sales only. In total, subscription revenue jumped 37%, and continued to gain relevance in the mix, reaching 88% of total net revenue. Non-subscriptor revenue increased by 25%, offsetting the decline registered in the fourth quarter 21. Moving to slide six, we analyzed the net revenue for the 2022 cycle to date, from fourth quarter 21 plus first quarter 22. Net revenue grew 25% in this period, and again, From the center to the right, we see subscription ex-par revenue jumping 41%, while par revenue fell 12%. In total, subscription revenue grew 29%, making 68% of total 2022 ACB, while non-subscription was stable in the period. In the slide 7, adjusted BDA more than doubled in the quarter, reaching $141 million, not only due to the growth in net revenue, but also as a result of operating leverage gains and cost savings. The margin expanded from 24% to 37.1, driven mostly by gross margin, up 660 bps, also helped by commercial expenses and adjusted G&A expenses, down 500 bps and 280 bps, respectively. The first quarter adjusted the BDA margin of 37.1 is the highest of our recent history. In the first half of the 2022 cycle, in the chart in the right, adjusted the BDA grew 41%, reaching $302 million, with margin increase of 450 percentage points. This is definitely an evidence that Vasa's profitability is now standing in a much higher level than in 2021, and it is closer to the company's potential. In slide eight, I will comment on adjusted net profit, which in the first quarter increased to 51 million from 21 million in the first quarter of 2021, following the growth in operating profit. In the 2022 cycle to date, adjusted net profit increased 4%, as the increased operating profit was partly offset by the company's higher financial average and the higher interest rates in the country. Moving to slide nine, which show the operating cash flow evolution. In the first quarter 2021, operating cash flow totalled 51 million, benefited by the anticipation of accounts receivable amounting to 52 million. In the first quarter 2022, operating cash flow totalled 13 million, impacted by the early payment of royalties to content providers. Therefore, on a normalized basis, the operating cash flow increases from nearly zero in the first quarter of 2021 to 33 million in the first quarter of 2022. It is noteworthy that our operating cash flow generation would have been even higher if we excluded the upfront capex for the acquisition of Chromebooks that are part of our 100% digital solutions. Likewise, the normalized operating cash flow was negative 45 million in the 2022 cycle to date, up from a negative $104 million in the same period of 2021. We observe that the operating cash flow generation is usually negative in the first half of the cycle as we invest in the production of materials in preparation for the school year, but we receive the payment from customers in arrears along the cycle. Next, in the slide 10, I'll give more details on the provisions in our accounts receivables. As you know, over the last four years, we have recognized higher provision for data accounts, VDA, due to the challenging business environment for our school partners, as well as our decision to support them by extending payment terms, which increases the aging of the receivables portfolio. While we have seen an improvement in the delinquency rate in the first quarter, the higher provision standards adopted in the second half of 2021 have increased the need for provisions in this quarter. That's why you have the PDA flat in terms of net revenue in the cycle two days. Finally, the average days of account receivables was 198 days in the first quarter 22, the same level as of first quarter 21. By adding a level's last 12 months net revenue in the denominator, the average time of receivables decreases to 188 days, 10 days less. I will conclude my speech in the slide 11 with our net debt. VASTA ended the first quarter with a net debt position of $939 million. From the fourth quarter, 21, the increase was related to the acquisition of Fidelis and by the accrual of the interest rate, which more than offset the operating cash flow generation in the period. In the right chart, we see that our leverage measures measures as net debt to last 12 months adjusted EBITDA has started to decline, reaching 3.67 in the fourth quarter or 3.28, including 11 last 12 months EBITDA in full in the denominator. We expect this downward trend to continue over the coming quarters as our adjusted EBITDA base increases. With that being said, I'll pass the board back to Gil.
spk03: Thank you, Bruno. Moving to slide 12, we are proud to say that Vasta's brands maintained the leadership in numbers of approval in the most competitive admission tests in the Brazilian best universities. The performance of our premium brands was particularly noticeable in medicine, the most competitive career in the country. Our top of mind brand, Anglo, expanded its leadership in admissions for medicine at the University of Sao Paulo the best university in Latin America according to the higher education ranking, with an increase of 64% in admitted students compared to the last year. The top performance at Brazil's best universities among the key attributes considered by the K-12 schools when choosing a content partner. Moving to slide 13, let's talk a little bit about ESG. By the end of April, VASTA issued its first sustainability report available in our IR portal. VASTA's ESG report was elaborated according to the highest standards available. We hope this report will help the investor community to understand how serious we are about ESG standards at VASTA. Having said that, I finish our presentation, and now I open the Q&A session. Thank you very much.
spk01: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please stand by while we compile the Q&A roster. We have the first question. It comes from the line of Marcelo Santos of JP Morgan. Your line is now open. You may ask your question.
spk02: Hi. Good evening, Gil, Giardino. Thanks for the opportunity for asking questions. The first question is if you could comment a bit on your B2B2C initiatives. You have Plural, I think my teacher or my prof, Plural Tutor, and there was also the recently launched Plural Therapy. So if you could comment how these are going, it would be interesting. And the second question is more to Jardim regarding the margin outlook for the calendar year 2022. In the previous call, you said that you expected at least to recover the levels of 2020. Could you make the same comment now, or could you say a renewed outlook? Thank you.
spk03: Okay, thank you. Thanks for your question, Marcelo. This is Guil speaking. Actually, we call those initiatives you mentioned more B2C2B, right, because we offer a plural my teacher, plural adapt, and plural therapy that we are in the piloting period. Now we are not offering, you know, for sales, but we consider that our B2C2B, and by that I mean that we offer to the student the opportunity to connect with the teacher, and then we give to the school a rebate of the class just to keep, you know, schools engaged with the process. We are happy with the first results in this first quarter. Of course, the revenues still does not represent... They are not meaningful in the total revenues of the cycle, right? But I can tell you that we are selling, for instance, private classes every day, right? In a daily basis, we are selling... private classes all over the country. The level of the NPS of the students regarding this new service is very high. And we are also selling adaptive programs in a daily basis for students from the secondary school on, right? We are not offering adaptive programs for primary school or preschool. So we are, in short, Marcelo, we are considering that the pace of the revenues we are generating with these new services are in line with our business plan, right? And we also know that this kind of product will be more important for students even more important in the second semester, right? When many students, they must, you know, recover grades and that generates more demand for this kind of product and service, okay?
spk04: Marcelo, regarding to your second question, yes, we reiterate our view that the 2022 fiscal year, we have adjusted the BDA margins closer to the 2020 level, right, higher than what we had in 2021. So this is a renewed outlook. Eventually, we can surpass what we posted in 2020. The thing is that, as you know, the inflationary environment in Brazil is getting difficult, so we have some challenges ahead. Nothing that will compromise the delivery of this product this higher level of adjusted BDA, but it makes it hard for us to make any kind of forecast more precise right now. But definitely, we will be close to 2020 levels, and eventually, we will surpass that level in terms of adjusted BDA module.
spk02: Perfect. Thanks, Giorgino, and thanks, Gil, for clarifying the B to C to B. It makes more sense now to me. Thanks a lot.
spk01: We have the line of Emiliano Flores of Scotia Bank. Your line is now open. You may ask your question.
spk06: Hello. Thanks for having my question. It's only one. If you could share your thoughts on the outlook for the 2023 cycle, how are you seeing the K-12 recovery in this period? That will be it. Thank you very much.
spk03: Great. Thanks for the question. Well, we are in the beginning of the book building for the next year, right? So we just finished. We have just finished by the end of April. We finished the first commercial or the first marketing quarter for the next ACV, right? What I can share with you is that we are super motivated with the results of this first quarter, right? We are... We finished the quarter above our targets for that period of the commercial year, right? And we are also expecting to see kids, especially in the preschool, we are not seeing this year the full potential of preschool. And by that I mean that in the number of students, we are happy, we are okay, we are positive students. to deliver 100% of the ACD, but we will still see some gaps in number of students in the preschool, right? So we are expecting that in this year more students will come back to preschool, and that means that for the next year we can, besides building a good ACD, we can see more returns in terms of students for preschool And these types of students, they are not so important in terms of revenues because the cheaper prices we have are regarding preschool, but they are super important in terms of the life cycle in a school. A student entering in the preschool will stay in the school for, at least 15 years, right? So that's so important for us and for the market as a whole to bring all the kids back to the school in the preschool, okay? So we are positive with the first results in our marketing campaign for the next cycle, and maybe we can have this positive trend of kids coming in the preschool again, coming for the schools.
spk04: It's important to remember here, Emiliano, this is Jardim speaking, that we have the first year of Eleva with us for the 2023 cycle in the go-to-market. Also, McKenzie with us in the commercial process.
spk03: Also, Fibonacci.
spk04: Fibonacci, yes. We know we did brands incorporated into our go-to-market, which we think is a great strength we have. And we also have a lot of cross-fail opportunities within the base of ILF and McCain's, in which the penetration of complementary services is relatively small. So I think we have good potential here to bring another very good fail cycle in 2023, okay?
spk06: Super clear. Perfect. Thank you.
spk01: Thank you. Next question, we have the line of Luca Marchesini of Itaú. Your line is now open. You may ask your question.
spk05: Good evening, Gio and Bruno, for taking our question. So regarding PDA, we saw a strong increase with the company associated with the extended payment terms for schools. Now that we do have a more normalized year in terms of ACB grades, what should be the dynamics for the PDA throughout the year? Thank you.
spk04: Thank you for the question, Luca. Yeah, it's always difficult to predict the coming quarters, but we definitely expect some improvements ahead, right, as we see the beginning of a normalization in the payment cycle. So gradually, we should see a more recovery, let's say, in the PDA level to the historical levels. Historically, we had an effective recovery loss of 1%, a little bit higher than 1% of our receivables portfolio. And this is the level where the PDA should converge to. So gradually, we should come back to this level. It's very difficult to make predictions for the coming quarter, but this is definitely the trend we see ahead, okay?
spk05: That's very clear. Thank you, Bruno.
spk01: Thank you. Again, if anyone would like to ask a question, you may press star, then number one on your telephone touch phone. Again, that would be star one on your telephone keypad. We have a question that comes from the line of Lucas Nagano of Morgan Stanley. Your line is now open. You may ask your question.
spk00: Hi, everyone. Thanks for taking my question. Also about the 2023 cycle, Could you comment a bit on the pricing, considering this extended inflation plateau we're facing? Do you expect to price above inflation and maybe close the gap from last year, from the current year?
spk03: Great question, Lucas. Yes, we are going to pass to our price list the The gap of inflation, we left last year, right? When we released our price list last year around, if I am not wrong, was by the end of July or the beginning of August because schools need the price list prior to the enrollment period, right? So when we released our price list last year, the inflation in Brazil was around, 6%, and we decided to increase our prices around 7.5%, 7%, right? And then we saw that spike in terms of inflation here, and if I'm not wrong, again, we ended last year with inflation around 10%, okay? So now we are aware of this phenomenon, so we are expecting to pass through the prices the gap of the inflation we left on the table last year plus the inflation of this year, right? And which means that we are not planning to pass above inflation, but we are planning to correct the gap of inflation we left last year and to pass the whole inflation for this year.
spk00: Thank you. Very clear.
spk01: Thank you. Again, if anyone would like to ask a question, you may press star 1 on the telephone keypad. I am showing no further question at this time. I would now like to turn the conference back to Mr. Mario Gio. Sir?
spk03: Thank you all for participating in our earnings release, and I hope to see you all healthy and well in our next quarter.
spk01: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for participating. You may now disconnect.
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