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spk01: Good evening, ladies and gentlemen, and welcome to VTRU's second quarter 2021 earnings conference call. All participants are in a listen-only mode. Later on, we will conduct the question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded and will be available on VTRU's IR website. Now, I would like to introduce the host for today's conference call. Mr. Carlos Paredes, Vitru CFO. You may begin.
spk00: Carlos Paredes Thank you, Pereira, and good afternoon, everyone. Thanks for joining us. It's a real pleasure to be here with you for the release of our second quarter 21 numbers. I hope you all are doing well and healthy. Here with me, I have Pedro Graça, the CEO of Vitru, as you know. Maria Carolina Gonzalez, the head of IR, and also Raquel Suzaki from our Investor Relations team. A slide presentation will be part of today's webcast, which is also available in our Investor Relations website at investors.vitru.com.br. I trust you all have this presentation in front of you, and before we begin, I'd like just to make note that as detailed in slide two and three of this presentation, Safe Harbor is in effect for this call. So now I invite you to go to page five of the presentation. Here you have a glimpse of the highlights of the second quarter of this year, and as not a surprise to you all, the first highlight is the announcement that we made yesterday regarding the agreement for business combination with UniSedomar, which, as we discussed, is a leading institution for high-quality education here in Brazil, and also would affect the presence in health-related courses, including medicine. We are very happy and very proud for having reached this agreement with the families that controlled it, Sedomar. This transaction is still subject to unauthorized authorization, which we expect to have by the beginning of next year. Second highlight is that we have new courses. We got the approval for the law courses in digital education. This was granted. We have the five grades granted by the Ministry of Education. We're still not allowed to offer this course. There's still some pending steps in this process. But once it is done, we're going to be allowed to offer more than 22,000 seats of law in digital education. It's going to be a game changer, a revolution in the industry. And also, we got authorization, or in fact, we got a grade five from the Ministry of Education to offer law courses, and we got the authorization to offer now nursing courses in digital education as well, which we already started to offer two weeks ago, in fact. This is also a major push for digital education in Brazil. Nursing is a leading course today on campus, and by the way, our nursing digital course is already the second largest we have today in the current intaking cycle. And that with only two weeks of intake. So there's a huge demand. We are taking high quality education to all the places in Brazil where there's no brick and mortar education available. that with all the quality that you know that we offer. This is also an important game-changing movement in the sector. In terms of bullets, we reached nearly 364,000 students in digital education with important growth in the Southeast, which I will show you later. Net revenue in our core digital education segment grew 35%. in the second quarter of this year. And the consolidated net revenue grew around 30%, so very sound numbers. Regarding just the BDA, it increased 22% in the quarter and 29% almost in the first semester of this year. Later on, I'll explain the difference between the second quarter and the first semester numbers. And our BDA margin in the first half of this year was now 30% compared to 2009 and one year before. And cash flow generation from operations, increasing 33%, reaching 76 binaries in the first half of this year, with an important cash conversion of around 84%. So now on page six, some highlights of Unicef Demar, just for those who could not participate in the call we had yesterday morning. So UNICEF is a leading institution with net revenue of around 730 million Riyals in 2020, and more than 250 million Riyals last year as well, with a 25% margin. With 760 hubs, so more or less the number of hubs that we have as well, and in total more than 300, in fact 214,000 digital education students including graduation and undergraduation. 17,000 on campus and an important CAGR of around 50% in the last three or four years. On top of that, it is a very relevant player in medicine. It is one of the, it is among the top 10% of medical courses in the education standards and a high demand a ratio of 11 to one applicants per seat, in two sites, there in Maringá and now in Corumba. And with the best overall indicators of quality. As you can see here on the right, they have a CI, an Institutional Concept of Five, such as UNICEF. They have this IGC, the Scores Index, the Scores Quality Index, of four for 10 years, which is quite unique in the industry. They have an IUD of 3.75. IUD, as you remember, is that indicator that measures the evolution of the students throughout the course, comparing the grades of the NN with the grade of the NNAT. That's the value added, provided by the institution. It's measured by the IUD. And IUD is around 40% above the one of the markets, and even above the one of UNICEF, which is the highest average IDD in digital locations among all listed companies anywhere there. On page seven, some reminders about the transaction details. After the analysis of dense growth authorities, hopefully beginning of next year, Vitro Brazil will own 100% of the total share capital of Sesumar, which is the company that owns Un Sesumar, to be paid around 60% at closing, 18% after one year after closing, and 19% in Vitro shares to be issued at closing. For a total equity value of 3.15 billion reais, enterprise value of 3.2 billion reais, which means an implied multiple of EV, EBITDA, considering the last 12 months as of now June, which now the numbers are available, of around 11.8. And also from a PE perspective, it is a very accurate transaction. The last 12 months net results, net profit of UNICEF is So it is a transaction of around 15 times P. If we look at the last 12 months numbers, if you look at the prospective numbers, the future numbers for 21, 22, et cetera, it is even lower. And a transaction with a lot of important synergies, which are here on the right. Not only cost, but also cost. synergies, but also commercial synergies. We have already estimated that the synergies regarding costs and expenses will amount to between 115 to 130 million reais per year by 2024. So in two years from now, synergies of around 115 to 130 million reais per year, which if bring to today's value, taking inflation out, it was between 100 to 110 million reais per year. So a very sizable amount of synergies with a total present value of synergies in cost and expenses of more than one billion reais. And on top of that, we have very potential commercial, very potent potential commercial synergies. which are here on the right, the first two bars, the faster expansion with the potential use of both brands in cities with only today one brand. Today there are 600 cities in Brazil with only a hub from either Unicef or Unicef. So the potential for cross selling here, it is huge. And also with the increase of offering of courses that we, for example, have here in UNICEF. We have today around 150 undergraduate courses in digital education, while UNICEF has a bit more than 60 courses. So also here an important potential to offer both, this course in both brands. And after the transaction, The families that today control UNICEF-CDMR will hold around 23.6%. Of which, the pre-elected funds, around 56.6% and free-float of around 20%. On page eight, another important highlight, as I mentioned, the new courses we have in digital undergraduate courses. First, nursing. Nursing is already being offered, as I said. and today around 6% of all our intake is in nursing. It's the second largest course in our intake for the current cycle. And again, this started three weeks ago. So there's a huge potential demand for nursing courses. So this is gonna be important driver for growth here going forward. And also law and psychology, by the way, as well, are one step behind. We have already been granted the grades from the Ministry of Education, but there's still a final process to offer these courses of law and psychology, which we hope that we can offer this quite soon. And here in the pie chart on the bottom right, you can see the size, the relevance, of nursing, law, and psychology in the current on-campus enrollment. The three together represent around 27%, more than one-fourth of all students in on-campus courses. On page nine, there are some more numbers about our growth in our digital education courses. We reached 308,000 students, a growth of 30%, quarter on quarter, in line with the GIGR we had in the last years, and reaching a total number of around 371,000 students, of which 98% in digital education. As you know, as we discussed already in the last call, The intake cycle for this year, for the first semester of this year, was quite a bit different than what we had last year. You see here on the bar chart in the bottom that there was a certain delay in the intaking for the first semester of this year, which has some impacts that I'll show you later in the average ticket, by the way. But the intake cycle was strong. Again, this is already presented in the past. we had an increase of 32% in the intake for undergraduate courses this year. By the way, the current intake cycle is also very strong. We're still far from the end of the intake cycle. As you know, we have this modular academic approach to which we have incoming students basically throughout the year. We're still far from that. What we have seen so far is that On a comparable basis, intake is very strong again. On page 10, the expansion throughout Brazil, comparing June over June. You see here that we have growth throughout Brazil, throughout the country. In our core market, the regional market in the south of Brazil is 17% growth, even being incumbent here. throughout Brazil, in the center, north, northeast, strong growth, and particularly in the southeast. In the southeast, we are doubling the number of students year over year over year. And this is not only pushed by the maturation of our courses, but also by the expansion, sorry, maturation of our hubs, but also from the expansion You can see here on the right that we have increased by 31% the number of hubs in the last 12 months. On page 11, some more color about the Southeast expansion. As I said, we are doubling the number of students year over year. We had 16,000 two years ago. One year ago, sorry, in December of 19, 16,000. In December of 20, 30,000. 43,000, so we are virtually doubling year over year. This is a region that we are still shy. Now, with the business combination with Unicef do Mar, we are going to accelerate the penetration in the southeast. Just as a reminder, the portfolio of hubs of Unicef do Mar and Unicef do Mar are very complementary. For example, Unicef do Mar has more than 130 hubs in the state of Sao Paulo. It is a very complementary portfolio of hubs if we sum the two institutions. On page 12, the maturation of our current hubs. This is a very known chart that I like a lot. This is just to highlight that we keep maturing the hubs that we opened the last year. The base hubs and the nature hubs are mature. They are stable. They are more or less around 100, between 100 and 110,000 students, which is normal. They are virtually in full capacity as you know, and all the expansion hubs growing as planned throughout the country. And today we have a maturation index. If we sum all the expansion hubs of around 34%, which means a potential to increase three-fold the number of people in these hubs. On page 13, some more financial numbers. Here I'd like to highlight the increase in net revenue of 35%, as I said, in this quarter, and 28% in the first half of this year. So very strong numbers. in our core business and also in the consolidated numbers. And here on the right, what I said, this was already presented as well in the first quarter of this year. The delay in the intaking cycle in the first semester of this year, basically because of the NN delay. As you know, NN is an important trigger for enrollment and then was delayed from early January to end of March, so the whole sector had this effect of a more back-ended intaking cycle, which means that the newcomers that joined us throughout the first intaking cycle, they left on the table less revenues than last year. Basically, that's the reason for this slight reduction of 3% in the average ticket. On page 14, some consolidated figures, as I said before, 30% increase in net revenue in the quarter, 35% gross profit increase, and adjusted BDA increasing as well and reaching 96.5% BDA in the first six months of this year. Some more details on that on page 16, we have growth but also in continuing education, a very strong growth here as well, of more than 21% this quarter. And on campus, undergraduates virtually flat. This is declining over time, as you know, but this is more than compensated by the growth in digital education. So on page 16, some more details about continuing education on campus. Continuing education keeps growing as fast as under graduation. And on campus, as I said, it is declining a little bit year after year. And we have as well here, important just to remind you all, that we have virtually no dependence on FIES. So FIES was in the first, in the second quarter of this year, only 0.7 million reais, so virtually zero. And this is standing to zero going forward. On page 17, the breakdown of our adjusted BDA. Here we have a slight increase in the margins in the first half of this year, and a slight decrease in the margin in the second quarter of this year. But here, I'd just like to point out that we should look here at the half-year numbers. Basically, because last year, and this I tried to explain in the last call, last year when we had COVID, we made an additional provision for certain costs in the first quarter of last year that we reversed in the second quarter of last year when we didn't incur this cost. So the comparable basis of last year was a bit choppy. That's why it is better to compare quarter, sorry, half year over half year. But that's basically the reason we had last year in the first quarter a two-million-year provision for material that we sent to students that we didn't send, and this provision was revoked in the second quarter. That's why the comparison based on last year is a bit strange. So if you look at the first semester numbers, there was an expansion of 1.1 points in margin, cost of service decreasing to 28%, selling and PDA increasing a little bit, and I'll show you a bit later. And at the end, we overpassed the 30% adjusted PDA threshold this half year. At page 18, some details here as well. So if you look again at the first half numbers, comparing this year with last year, there was an important reduction in cost of service. So 34% going down to 28%. So the nominal number was virtually set year over year. And this is through gains of scale. This is through The implementation of the FLEX course, this is through general optimizations of personnel as we go further. As we grow, we are able to optimize more and more, for example, the ratio of students per class. We are able to dilute fixed costs. This is a clear gain of skill as we go. On the G&A side, on the right, we are more or less stable with 7.5%. of uh of uh of revenues this this semester and 6.5 in the quarter uh here the play important highlight that we were not a listed company last year now we are so we have some more costs this year but going forward the trend here is is to have further gains of scale and a further reduction in the gna cost as a percentage of net revenue which by the way is very very lower than the peers. On page 19, selling expenses and PDA. So a slight increase in selling expenses this year, basically because a big part of the intake last year, in the cycle of intake in last year, a big part, as we know, was made before the pandemic, so in January and February. Now, the whole intake cycle this year was within a pandemic scenario, so we had to incur more online media. We and all the peers, we had to incur more online media as a result of the pandemic, especially in our case as the hubs were closed. As you know, the hubs are an important piece in our selling machine. With the hubs closed, we had to incur more online media. The delays in the NN also was important to increase the need for more marketing expenses. But on top of that, there is another important factor, which is the important increase in the intaking. We had a very strong intake this year, and also a very important intake last year, which now translates into a slight higher PDA. you see the PDA on a quarterly basis. As a reminder, last year, in the second half of last year, our intaking grew by around 40% compared to the intaking in the second half of 2019. As you know, the newcomers represent a big chunk, the bigger chunk effect of PDA, so now we have this effect in the second half of this year. On page 20, adjusted net income, a bit down compared to last year, and here the most important reason is that we recognized last year for the first time, in the beginning of last year, before tax assets, so the comparable base here is not up to here, but also had an increase in financial expenses this year. Most of our debt is linked to IPCA. It's still linked to the acquisition of UniaServi from Croton, five years and a half ago. As you know, IPCA was much higher than expected in the first half of this year. On the right, the adjusted cash flow from operations, as I said, is very strong, growing a lot this year, and with important cash conversion. show actually nice net revenue every day numbers, but also we are focused on generating cash and cash flow. So we generated 76 million reais of cash flow in the first half of this year to a cash conversion of around 84%. So on page 21, just to wrap up, Just to thank you all for your time and to highlight once again that we are very happy with the transaction that we announced with Unicef de Mar. So far in the last, let's say, 20 years, we have been growing a lot purely on organic basis. All those numbers that I mentioned before, just to remind, are on organic basis. So the growth in hubs, the growth in intake, the growth in revenue, ability, purely on an organic basis. But we also told you throughout the last year and in the IPO process that we raised funds for M&A and that we were going to look for nice M&A opportunities that make sense. And now with Unser Damar, we found this ideal partner. We share the same culture. We share the same values. We share the purpose of taking high quality education in the four corners of Brazil. So we're very proud for that game-changing transaction, clearly a transformational transaction for us and for the sector as a whole. And with, as I said, a very complimentary footprint with skill and the importance of
spk01: value creation through synergies going forward not only cost but also commercial so thank you all and i'd like to open for four questions please 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. Again, I would like to remind everyone, in order to ask your questions, you may press star 1 on your telephone keypad. There are no more questions at this time. Presenters, please continue.
spk00: There are questions here from the webcast. The first question is from Vitor Tomita from Goldman. Hello, Vitor. The first question is, could you give us some more color on UNICEF's current exposure to law, nursing, and psychology courses, and whether that could support the launch and promotion of digital courses in those areas? Very nice question, thank you Victor. One of the competitive advantages of Unice do Mar is that the high quality and the focus that they have in health related courses. They are very known in Paraná and they have campus in Maringá, Londrina, Curitiba. They are very known for high quality health courses So it is very clear that we will be able to join forces once approved by the Anticorps authorities and then take profit of their knowledge together with our knowledge because we also have quarters in psychology and nursing and create a very nice product. Our nursing quarters is already being offered as I said. Their nursing quarters will still be offered but once it is approved it will be also a success for sure. And for law, it is in our case and also in their case a very important course on campus. And we are very confident that once it is allowed to be offered through these locations, it's also going to be a success as strong as the one of nursing. The second question from Victor is that Now that Flex courses are launched more widely, could you give us some additional color on the economics for Flex, especially in terms of how average Ticket compares to your pre-existing hybrid courses? Thank you very much. Very important question, Victor, because there is some confusion about it. The Ticket is the same. There's no differentiation between the Flex course and the typical hybrid course. In the Flex course, you have live encounters, live classes with the tutor. There's a dedicated tutor from the region. You have a class, have classmates, you have everything the same. The only difference is that instead of going to the Hub, you meet online. So the pricing is the same. There's no price differentiation here for a Flex course. So it is an opportunity for us to enter into either smaller cities that today do not support a traditional UniaSELVI hub and slash or those courses that do not have a sufficient demand in a given city. So those are the questions. So thank you very much. It was a pleasure and we are available here, myself, Carol, Raquel and Pedro to answer further questions going forward. Thank you.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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