Vasta Platform Limited

Thank you for standing by. My name is Novi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vesta Platform Third Quarter 2024 Financial Results 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, press star 1 again. Thank you. 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 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 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 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 the 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 would now like to turn the call over to Cesar Silva, CFO.

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's third quarter of 2024 results. I'm Cesar Silva, Vasta's CFO, and today we have the presence of Guilherme Melega, Vasta's CEO, who will be joining me on the call. Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statements.

Thank you, Cesar. Thank you all for participating in our earnings release call. I would like to cover slide number three with some highlights of our 2024 sales cycle. As we approach the end of the current cycle, we are pleased to report that in 2024 sales cycle, our subscription net revenue has achieved a growth of 12.5%, reaching billion, 358 million reais. Vasta concluded the 2024 sales cycle with a 6% net revenue growth over the last sales cycle, mostly due to the conversion of ACV into revenue. Complementary solutions continue to present the highest growth rate among our B2B segment, with a 21% expansion in the cycle compared to the same period last year. Moving to the company's profitability, in 2024 cycle, our adjusted EBITDA experienced a growth of 9%, reaching R$449 million, while increasing an adjusted EBITDA margin to 29.4%. This increase was mainly driven by improvement gross margin benefit from premium products expansion, gains in operating efficiency and cost savings. Finally, we have seen some instability in our cash flow for this sales cycle. In 2024, cycle free cash flow totaled 146 million reais, a slight increase from 2023, which achieved 145 million reais. In Q3, we have above average payments related to paper and printing, which will be reduced to Q4. Moving to slide number four, The annual contract value ACV bookings for 2024 sales cycle achieved 1,358,000,000, a growth of 12.5% comparing to 2023 sales cycle. This amount represented the conversion of our expected sales based on contracts into revenue during the sales cycle and was slightly higher than previous disclosure. Our top performance continued to be premium brands and our complementary products. It's worth mentioning that our CAGR for the last five cycles was 18.5% of growth, showing our resilience and capacity to keep growing in a higher double digit for several years. I will now turn back to Cesar to talk about the financial results of the quarter.

Thank you, Melegan. In this slide, we present the composition of VASTA's net revenue. On the left side, you can observe the organic year-on-year growth in total net revenue for the third quarter, which decreased by 14.6%, reaching R$220 million. Vast subscription revenue achieved in the third quarter of 2024, R$260 million, a 6% increase compared to the third quarter of 2023, in line with the expectation for the sales cycle. Remembering the second and third quarter of the year is always the lowest in volume during the year. Non-subscription, which now represents only 6% of the total revenue, dropped 36% to 14 million. And in this government segment in this quarter, we did not generate new revenue. And as you can see in this slide, it represented 41 million in the third quarter of the last year. However, in the sales cycle, Considering the net revenue performed in the first quarter of the year, we achieved 69 million of revenues, which means a decrease of 15% compared to 2023. Moving to the right side of the slide, we analyzed the net revenue for the 2024 sales cycle. We achieved an organic net revenue growth of 6% in the sales cycle, amounting to 1,529,000,000 reais. The main factors to this exceptional performance were, firstly, the subscription revenue has increased 12.5%, reaching R$1,358,000,000, and continues to be the major contributor to our total revenue, representing 8-9% of the total revenue share. Non-subscription revenue, as expected, dropped 31%, to R$102,000,000. And the net revenue of B2G, achieved 690 million, represents 5% of our overall revenue in this sales cycle. Moving to slide number six. In this quarter, our GSEP data amounted to 21 million reais, a decrease of 45% from the 39 million in the third quarter of 2023, mainly due to lower revenue in this quarter related to the B2G segment. On the right side, we see that adjusted bid day in 2024 sales cycle increased by 9% and reached R$449 million, with a margin of 29.4% or 0.8 percentage points above the 2023 sales cycle. Let's now move on to the next slide and explain the breakdown of the adjusted bid day margin. So in slide number seven, we observed that the day margin achieved 29.4% in the 2024 sales cycle. And there has been an increase of 0.8 percentage points from 28.6% in 2023. Our gross margin has increased at 2.3 percentage points, benefiting from better premium product expansion, synergy gains, and cost-efficient initiatives. Provision for doubtful accounts was stable between the years, despite having a difficult credit landscape in this sales cycle. As a percentage of net revenue, our commercial expense is increased by 2.3 percentage points, driven by higher expense related to business expansion to the commercial cycle of 2025. And adjusted G&A expense improved by 0.8 percentage points, mainly driven by workforce optimization and budgetized discipline measures. Moving to slide number eight, we show the adjusted net profit. That's total in the third quarter of 2024, 48 million reais, a 59% decrease compared to adjusted net losses of 30 million in the same quarter of 2023. On the right side of the slide, in the 2024 sales cycle, adjusted net profit reached 62 million reais. There has been an increase of 71% from an adjustment net profit of 36 million in 2023 sales cycle. Moving to slide 9, we show the free cash flow evolution, that in the third quarter of 2024, the free cash flow totaled 55 million reais, representing a decrease of 5% comparing to 58 million in 2023. On the right side of the slide, in the 2024 sales cycle, our free cash flow reached 146 million, an increase of 1 million from the 145 million reais in 2023, showing stability in the performance of the year. The cash flow was negatively impacted by a higher seasonal volume of payments related to purchase of paper and printing in the second and third quarters compared to the previous cycle, where part of these payments occurred in the last quarter of the year. It's worth mentioning that we foresee a lower volume of production-related payments in the following quarters, And consequently, we expect to achieve a double-digit growth in the free cash flow for the year end of 2024, comparing to last year. Moving to next slide, we show the provision for doubtful accounts. Total expense with PDA in the third quarter of 2024 totaled $7 million, representing 3.6% of net revenue compared to an expense of $15 million in the comparable quarter. For the sales cycle, the total amount of PDA was 60 million reais, compared to 560 million in 2023. The provision for down-to-accounts represents 3.9% of the net arrival for both cycles. showing stability in the number was building a very challenging and restrictive credit landscape for non-premium brands' business. Moving to the next slide, we observed that the average payment in terms of fastest account receivable portfolio was 112 days in the third quarter of 2024, which is six days lower than the comparable quarter and in line with the seasonality of our business model. Moving to slide number 12, Let's take a closer look on the net debt movement. As of the third quarter of 2024, VASTA had a net debt position of 1 billion 40 million, a 23 million reais decrease from the previous quarter. Free cash flow was higher than financial interest costs and this made possible the reduction in the total net debt in this quarter. In comparison to third quarter of 2023, the beginning of this cycle, The net debt position increased 42 million from 998 million reais. This increase was driven also by the financial interest costs in the second repurchase program, which were partially offset by the positive free cash flow of 146 million in the period. I will conclude my part of this presentation with the slide 13, explaining some more detail about our net debt composition, which represented 1 billion 40 million at the end of this quarter. This amount is composed by the ventures issued to the parent company in the amount of 765 million reais and account payables for business combinations, which total 630 million reais, reduced by our cash availability, which represents 355 million reais. In the lower left part of this slide, we can see that in the third quarter of 2024, the net debt to last 12 months adjusted BTD ratio has increased just 0.04 times from the last quarter, showing stability now stands at 2.32 times. And compared to the third quarter of 2023, the educator has improved from 2.43 times a decrease of 0.11 times. With that being said, I pass the word to our CEO, Guilherme Melegan.

Guilherme Melegan Thank you, Cesar. I will give some updates about our growth avenues in our platform Plural. Starting with StartAnglu, our initiative to launch this new model of franchise combining bilingualism with academic excellence continues to ramp up and signifies a strategic expansion in our new revenue streams. We keep the pace of signing new contracts every month, and we have already signed 34 contracts as of this date, and we have over 200 prospects. This strong pipeline underscores the robust potential for further growth and market penetration of StartAnglo. Last quarter, we launched the revitalization project of the Liceu Complex. And this project, besides creating an operating unit with 1,000 student capacity, will preserve the entire historical architecture design. And we expect to commence our flagship operation in São Paulo in 2025. In 2025, we're going to have five new units in operation. The Liceu Pasteur Complex, our flagship in São Paulo, Jardim Marajoara, Granja Julieta, Piracicaba, and Luiz Eduardo Magalhães, all franchised units. And together with São José do Rio Preto and Alphaville, we will achieve the total of seven units running and provide a high-quality education service for our students. After launching this important avenue of growth of VAST in 2023, we already can see expressive results and look forward to see the next years. Moving to slide 16, I'll talk about the exceptional SIEBE result in Pará. Firstly, I would like to explain what is SIEBE. And in a simple way, I can say that it is a large-scale assessment system for basic education in Brazil. Such that the last SIEBE result showed an exceptional improvement of the state of Pará in the national ranking, moving from the 26th position in the 2021 exam to the sixth place in the 2023 exam for high school students. The scores of these students increased by 43% comparing to the last exam. And besides, students from elementary years got excellent results as well. To remember, at the beginning of 2023, we were contracted by the state of Palau to implement a customized solution aiming to learn recomposition, core skills, and preparation for SIAB. We used our plural technology as the platform, and throughout the use of large-scale tests and teaching training, we managed to help over 340,000 students to achieve these impressive results. Pará's performance was highlighted in the most important media, and with this significant achievement, we were able to validate our value propositions. Moving on to slide 17, finally, I would like to remember that starting in 2025, all our schools will have at their disposal the intelligent assistant through our artificial intelligence integrated in our platform. We launched this innovation at Batch Educar at the beginning of the year with great success and high receptivity. In the recent months, we have trained employees, school managers, and teachers and conducted several demonstrations validating and presenting the implemented tools. In summary, we gathered all our excellent content from our basic education systems, and Plural AI itself divides, classifies, and prepares the content, creating several knowledge bases separated by brand and material. With each interaction, Plural AI understands your request, searches all related knowledge, and decides its best response. Building on this preparation, Generative AI enables teachers to create supplementary lesson plans, generate images, scripts for presentation, question lists, and help students develop study guides. This innovation aims to empower teachers in the teaching process and enhance students' learning. This groundbreaking tool is reshaping how educators and learners engage, offering a more dynamic and efficient education experience. Having said that, I finish our presentation and invite you all to the Q&A session.

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Luca Marquezini,

Okay, good evening, everyone. Thank you for taking our question. We have actually two questions from our side. First one would be regarding the B2G unit. So we saw another quarter of no revenue coming from this unit. So if you could just provide more color on the schedule for the coming quarters to help us try to project this line going forward, this will be very helpful. And also, regarding the expenses for cash and commercial expenses, we saw an increase in the quarter. So if you could help us better understand the reasons behind this increase and also what would be the normalized level going forward, this would be very helpful. Thank you.

Thank you very much, Luca. Let me start with the B2G. Yes, B2G, we did not secure new contracts yet. Given municipal elections in Brazil on October, the contract was postponed, but we have a very heated pipeline, and we expect to recognize revenues in B2G in Q4 for Classroom 2025. As we mentioned earlier, B2G is a very important avenue growth. The contracts are very sized, but since we did not sign anyone yet, I will postpone any guidance by now, but I can guarantee we have a very heated pipeline on that. Regarding your second question about commercial expenses, We increased the commercial expenses because we are increasing growth. We have also a very sound 2025 sales cycle, boosted by premium learning systems and complementary products. And since we are growing fastly, we are investing more on commercial expenses. But we believe we are reaching a very good level of commercial expenses to secure double-digit growth for the next coming years. We have been expanding around 18% of our revenues on commercial expenses, and this probably will be our level going forward.

That's very helpful. Thank you.

Your next question comes from the line of Marcelo Santos with JP Morgan.

Hi. Good evening. Thanks for taking my questions. The first question I wanted to ask is about the competitive environment. Was there any significant change in the environment since one of your main competitors went private? Did that change, or did any other thing change that you would be worth highlighting. And if you could give us a color of how the ACV is shaping up for the next cycle. I know you're not going to report that now, but maybe some directional indicator.

Hi, Marcelo. Thanks very much for your questions. We didn't see any change in the competitive environment. It's definitely a competitive industry. But we are having, and I will comment on our second question as well on the ACV. We have a very strong portfolio with premium brands. And this year we are leveraging on our technology since we launched the Plural AI. And we are launching it for the entire platform, all the brands. And we are pricing it for the next ACV. So we have a very robust pricing for 2025 plus a very good learning, a premium learning system commercial cycle together with the complementary products that keep the high double digits growth. So putting all together, We definitely expect a higher growth from the previous cycle. We just recorded 12.5 growth from our last cycle. We are definitely forecasting higher double-digit for the next cycle. I think for now that's the best color I can give you.

Okay, higher double-digit. Thank you very much.

Again, if you would like to ask a question, press star 1 on your telephone keypad. I will now turn the call back over to Guilherme Malaga, CEO, for closing remarks.

Thank you all very much for participating on VASTA Q3 earnings call. We are very pleased to share with you the good momentum that we are living in the company. Our business units performing strong. B2B is about to deliver very significant growth for 2025. And B2G also delivered great results on the academic side from the Pará contract. And that definitely is helping us a lot on our prospects and we have a very heated pipeline and we are close to secure new contracts and we do expect revenues for Q4. Start Anglo reaching 34 contracts signed, two operating units in 2024, moving to seven operating units in 2025. So we are up to a very good momentum and creating a very robust platform for 2025. Looking forward to talk to you on our next earnings call. Thank you very much for participating.