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Operator
Hey everyone, and welcome to the VASTA Platform Fourth Quarter 2023 Financial Results Call. Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties, and other facts that may cause our actual results to differ materially from those contemplated by those forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and their related benefit, and our expectations regarding the market. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we are issuing today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today. You should not rely on them as predictions of 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. I will now turn the call over to Marcelo Warnick, Investor Relations. Please go ahead.
Marcelo
Good evening, everyone. Thank you for joining us in this conference call to discuss VASA Platform's fourth quarter and full year of 23 results. The fourth quarter also represents the first quarter of the 2024 sales cycle, which goes from October 23 to September 24. I am Marcelo Derneck, Vassar's Investor Relations, and today we have the presence of Guilherme Melliga, Vassar's CEO, and Cesar Silva, Vassar's CFO, who will be joining me on the call. Let me now hand over the floor to Guilherme Melliga to make his opening statement.
Guilherme Melliga
Thank you, Marcelo. Thank you all for participating in our earnings release call. I'd like to cover slide number three with some highlights of 2023 fiscal year. Vasta concluded this year with an 18% net revenue growth over the same period of last year, mostly due to the conversion of ACV into revenue and the performance of the B2G business unit. Vasta's subscription revenue has reached R$1,278,000,000. Our complementary solution segment continues to stand out, showcasing the highest growth rate among our business segments, with a 34% increase compared to 2022, and with an accelerated increase in both student base and market penetration. Moreover, as mentioned in the last quarter, In 2023, VASTA started to offer its products and services to the Brazilian public sector, and we generated 81 million reais in revenue from the B2G sector in 2023 fiscal year. The expansion into the public sector marks a momentous opportunity for VASTA, allowing us to contribute to advanced education in Brazil while creating new revenue streams. Moving to the company's profitability, in 2023, our adjusted EBITDA experienced a growth of 20%, reaching R$451 million, while increasing an adjusted EBITDA margin to 30.3%. This increase was mainly driven by gains in operating efficiency, cost savings, and sales mix that benefited from the growth of subscription products. Finally, This was another year of significant improvement in our cash flow. In 2023, free cash flow totaled R$189 million, a R$100 million increase from R$89 million in 2022. The free cash flow to adjusted ABTDA conversion rate improved from 24% to 42% as a result of VASTER's growth and implementation of efficiency measures. I will now turn back to Marcelo, who will talk about the financial results on the quarter in 2023 fiscal year.
Marcelo
Thank you, Melega. In these slides, we present the composition of VASTA net revenue. On the left side, you can observe the organic year-on-year growth in total net revenue for the fourth quarter, which increased by 10%, reaching R$554 million. On the right side, let's take a look at the key components of this revenue growth. Total subscription revenue had an increase of 16%, reaching $515 million and representing 93% of our total revenue for this quarter. FAR, our textbook subscription products, also increased by 16%, amounting to $78 million, benefiting from the migration of non-subscription. No subscription dropped 35% to 39 million, and as expected, we did not record B2G revenue in this quarter. Moving to slide number five, we analyzed the net revenue for the 23 fiscal year. In 2023, we achieved an organic net revenue growth of 18%, amounting to R$1,486,000,000. As you can see on the right, our total subscription revenue increased by 14% on an organic basis to R$1,278,000,000. Subscription revenue, excluding PAR, had an increase of 16%, reaching R$1,155,000,000. And PAR, our textbook subscription product, declined by 3% in the year, amounting to R$123,000,000. Subscription revenue continues to be the major contributor to our total revenue, representing 86% of the revenue share. The B2G contributed to 5% of our overall revenue in 23 and generated 81 million reais in revenue. Non-subscription revenue now comprises only 9% of total revenue and, as expected, dropped 11% to 127 million. Moving to slide number six. In this quarter, our adjusted EBITDA amounted to 240 million and with a margin of 43.2%, an increase of 20% from the 200 million in the fourth quarter of 22. This positive performance can be attributed to several factors, including strong sales results, cost dilution, and operational efficiency. On the right side, we see that adjusted EBITDA in 23 also increased by 20% and reached 451 million, with a margin of 30.3%. Let's now move to the next slide and explain the breakdown of the adjusted EBITDA margin. In slide number seven, we observed that EBITDA margin improved 60 basis points. from 29.7% in 2022 to 30.3% in 2023. Firstly, our gross margin declined one percentage point as 2023 was a year that the industry faced high inventory costs caused by the rise in inflation on paper and production costs. Provision for double accounts, or PDA, declined 0.2 percentage points between the years in line with the revised credit landscape. As a percentage of the net revenue, our commercial expenses increased by 1.2 percentage points, driven by higher expenses related to business expansion and marketing investments. And adjusted cash G&A expenses improved by 2.9 percentage points mainly driven by workforce optimization and budgetary discipline. Slide number eight. In the fourth quarter of 2023, adjusted net profits totaled $96 million, a 32% increase compared to adjusted net profits of $73 million in the fourth quarter of 2022. In 2023 fiscal year, Adjusted net profit reached $60 million, a 55% increase from an adjusted net profit of $39 million in 2022. Finance costs in the scenario of the spike of interest rates continues to impact our bottom line. However, we have remained committed to the leveraging as you'll see further in this presentation. Moving to slide number nine, we show the free cash flow evolution. Our cash flow generation was one of the main highlights of this year. In the fourth quarter of 2023, the free cash flow totaled negative 100,000, representing an increase compared to negative 43 million in the fourth quarter of 2022. Now, on the right side, in 2023, our free cash flow reached 189 million, a 100 million increase from the 89 million in 2022 as a result of VASA's growth and implementation of efficiency measures. Another important metric, our free cash flow to EBITDA conversion rate, improved from 23.8 to 41.8, reinforcing the message that cash generation continues to be a key focus of our business. Moving to slide number 10, we show the provision for double accounts. Total expenses with PDA in the fourth quarter of 23 total 29 million, representing 5.2% of the net revenue compared to an expenses of 29 million in the comparable quarter. Moving to the right side of the slide, we can observe that PDA in 23 fiscal year grew from 3.6% to 3.8% of net revenue. In 22, PDA had an impact of the provision of 100% of the accounts receivable from large retail companies undergoing judicial recovery. In 23, PDA is linked to a credit scenario review tied to the refinement of our customer-based strategy, where we have chosen to cease financing mainstream schools with low-value contracts and we are increasingly putting emphasis on premium schools. This shift is promoting growth in high-quality education systems such as Anglo, PH, Amplia, McKinsey, and Cibonacci. These brands show higher average ticket values, lower default rates, greater adoption of complementary solutions, and foster long-term relationships. Moving to the next slide, we observed that the average payment terms of VASTA's accounts receivable portfolio was 169 days in the fourth quarter of 23, which is 16 days lower than the fourth quarter of 22. Moving to slide number 12, let's take a closer look at the net debt movement. As of the end of 23 fiscal year, VASTA had a net debt position of 1 billion and 64 million, a 66 million increase compared to the third quarter of 23, mainly due to impacts of financial interest costs and the share repurchase program. In comparison to the fourth quarter of 22, the net debt position increased 22 million from 1 billion 42 million driven also by the financial interest costs, the share repurchase program, and M&A expenses, which were partially offset by the positive free cash flow of $189 million in 2023. I will conclude my presentation with slide number 13, where we can observe that as of the fourth quarter of 2023, the net debt to adjusted EBITDA ratio extends at 2.36 times, which marks an improvement of 0.07 times compared to the third quarter of 2023 and an improvement of 0.4 times when compared to the fourth quarter of 2022. With that being said, I'll pass the word to our CEO, Guilherme Melega.
Guilherme Melliga
Thank you, Marcelo. Moving to slide 14, let's talk about ACV. From the commercial cycle of 2020 to 2023, we have achieved a compound annual growth rate of 20%. In the commercial cycle of 2024, we ended with 1.4 billion reais in contracts signed. Traditional learning system represent 77% of our subscription revenue, and we will increase 14% in comparison to the 2023 commercial cycle. Higher growth observed in our premium brands, such as Anglo, PH, Fibonacci, and Amplia, reassuring our perception that quality and reputation remain decisive in our business. Complementary solutions will have the highest growth rate among the business segments. with a 24 percent increase compared to the 2023 cycle subscription revenue continuing to ramp up penetration across our current client base the partner schools base that uses our complementary solutions increased by over 300 new schools surpassing 1.7 thousand schools and a 14 percent growth in the number of students served by our solutions The growth of the complementary solutions is concentrated in three main solutions, Mindmaker, Leader in Me, and Edwall. And finally, consistently with our strategy, we continue to invest in the migration from part paper-based products to part digital subscription products. Our textbook as a service platform offered on a fee per student basis. Moving to slide 15, Let me provide you with an exciting update on our significant avenue of growth. As mentioned last quarter, the launch of StartAngle franchise, combining bilingualism with academic excellence, signifies a strategic expansion in our quest for new revenue. And we are happy to report that we currently have two fully operational units in 2024. The first is our flagship in São José do Rio Preto, which is operating with 300 students. And additionally, our inaugural franchise in Alphaville is exceeding expectations, boosting over 170 students, surpassing our target of 120 students. Furthermore, we have secured a contract with the prestigious institution Liceu Pasteur for a new flagship in São Paulo. plan to commence operations under the StartAngle brand in 2025. With 15 contracts already in place, we are optimistic that this franchise model will play a pivotal role in the successful execution of our business strategy. Moving to slide 16. And finally, let me provide you an update on another growth avenue, our B2G initiative. 2023 marked the year when we expanded our products and service to serve the Brazilian public sector. We generated 81 million reais in revenue from the B2G sector in 2023, and we have already renewed this contract for 2024. We are very optimistic about the possibilities this development presents and are committed to deliver high quality education solutions tailored to the unique needs of the public sector. With all of these accomplishments in mind, 2023 was an extraordinary year and another milestone in our journey. These achievements position us favorably to face the future challenge. We have the confidence that we are on the right path to continue delivering outstanding results for our shareholders, solidify partnerships, and make a significant contribution to education in our country. Having said that, I finish our presentation and invite you all to the Q&A session.
Operator
Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, it is star 1 again. We'll take our first question from Marcelo Santos with JP Morgan.
spk02
Hi, good evening. Thanks for taking my questions. I have actually two. The first question is on the ACV. Could you discuss the evolution of ACV that you have up to like the 2024 cycle in terms of volume, price, churn? Could you give us an idea how these things moved versus the previous years just to understand the dynamics? Sorry if that wasn't the slide, but I couldn't really get the presentation so far. And the second question is regarding the margin outlook for 2024. So now that you have the cost pressures behind, what kind of evolution I mean, it looks like it's going to be a good evolution in terms of margin for 2024. Is that the case? What are the moving parts here to understand the outlook of margin for 2024? Thank you.
Guilherme Melliga
Hi, Marcelo. Thanks very much for your question. Let me give you some color about ACV. And now, since we are the only player delivering details about the results, we will consider to reduce a little bit the disclosure about the acv details but i can give you some color about that we are pretty much break even in terms of volume and our acv growth relies on pricing and better mix that's pretty much the major drivers of growth on our acv and in terms of margins uh i would say we already reached the 30 percent margin that we aimed for. Cost pressures are definitely behind us and we had a very good year in terms of savings and reducing redundancy in process with SG&A savings. But we intend to expand commercially in acquiring new contracts, so we do not forecast major
Operator
improves in the margin so they should be around the 30 percent level okay perfect very clear thank you very much if you'd like to ask a question that is star one and we'll take our next question from mariela olivera with bank of america
B2 G
Good evening, Malik and Marcel and everyone. I have one question on the growth perspective. The ACV for the next year implies slight deceleration from the past years. Could you comment a little bit on if this deceleration is driven more by the traditional learning system or if it's lower growth on the complementary solutions? So a little bit of the mix here. And a second question, could you provide any more details on the B2G contract that you just renewed?
Guilherme Melliga
Thank you very much Mirela for your questions. So in terms of ACV, complementary keep boosting the growth is the most fasting product that we have. We grew more than 30% last cycle. and we intend to keep the pace is definitely where we have more room to growth. In terms of products of learning system, we have a slower growth and learning system is a more penetrated market. And our strategy is to focus on premium brands. So we will focus on premium schools, focusing on Anglo, PH, Amplia, and McKenzie. This will be the major focus for our learning system growth, but complementary is the main is the main lever for the growth. And regarding B2G, we renewed our contract with Pará pretty much in the same terms that we had last year, so it's already a huge accomplishment. So our Our business will start the growth from the same level that we left on 2023. And we are very confident to book new contracts very soon. We have a very heated pipeline. And on Q1, we already have the sales for the Pará contract, and we expect to have new contracts in Q2. But for the time being, we don't have anyone signed yet. So I can just share with you our positive sensation about the business.
B2 G
Thank you. That's very clear.
Operator
Thank you. As a reminder, everyone, that is star 1 to ask a question. And we'll pause for a moment. All right, and there are no further questions at this time. I'd like to turn the call back over to Guido Melega for closing remarks.
Guilherme Melliga
Thank you all very much for attending the FAFSA Q4 conference call. We are very proud to deliver the results that we reached in 2023. Just to mention a few, our revenue grew 18%, our ABTDA 20%, our free cash flow grew 112%, so very solid results. And we opened our 2020-24 year at a very good momentum. We launched last year the start angle and we are seeing the new franchisees piling up, new contracts being signed, very positive for the company. And also B2B, with a very significant pipeline for new contracts. We are aiming major states and huge municipalities, so we definitely expect to have new contracts very soon. Thank you all very much. Looking forward to see you in the Q1 conference call.
Operator
Thank you. That does conclude today's presentation. Thank you for your participation, and you may now disconnect. Thank you. That does conclude today's presentation. Thank you for your participation and you may now
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