Cogna Educacao S A S/Adr

Good afternoon, ladies and gentlemen, and thank you for standing by. At this time, we would like to welcome everyone to Cognos Educação third quarter 2020 earnings conference call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After the company's remarks are complete, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Also, today's live webcast, both audio and slideshow, may be accessed through Cogna Educação's investor relations website at ir.cogna.com.br by clicking on the banner Q20 Webcast. The presentation is also available to download on the company's website. The following information is available in Brazilian reais in accordance with Brazilian corporate law and generally accepted accounting principles, BRGAP, which now conform with International Financial Reporting Standards, IFRS, except where otherwise indicated. Before proceeding, we would like to mention that Forward-looking statements are based on the beliefs and assumptions of Cogna management and on the information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of the company and could cause the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Cogna's CEO, Mr. Rodrigo Galindo, who will begin the presentation. Mr. Galindo, you may begin the conference.

Good morning, everyone, and thank you for participating in today's earnings conference call of Q3 2020. With us today, Bruno Jardino, our director of IR, Shamil Marques, our financial VP, and the CEOs of our four vertical units, Roberto Valério Croto, Paulo de Tarso Pleitos, Paulo Serino Saber, and Mário Guilho Vasta. Beginning on slide four, with a quick overview of our performance in the first nine months of 2020. Quite challenging year, as expected, aggravated by the impact of COVID-19. However, under these difficult circumstances, I want to discuss highlights showing the resilience of the company. Looking at recurring EBITDA, we delivered growth in three vertical units this year, except Groton. In addition to the impact of FIES students' graduation, which was expected, Groton was our most affected division by the pandemic, especially in student intake. But we delivered a post-CAPEX operating cash flow of 183 million this quarter, which represented 80% conversion over recurring EBITDA. We believe this is relevant data considering all the pressure on the operating result. Finally, we've maintained a solid cash position with 5.3 billion RELs at the end of Q2 2020 with an elongated debt profile. In the middle of the slide, you see a table showing net revenue and recurring debt EBITDA in the nine months of 2020 in a vertical breakdown. In addition to the recurring EBITDA margin, in the case of Groton, we had a relevant impact of FIAS students impact on student intake and retention, which were strongly impacted by the pandemic, coupled to higher provisions, also as a result of the pandemic. So we posted a reduction of 27% net revenue and 73% recurring EBITDA, with a drop also in EBITDA margin. Plato's had a 12% net revenue increase, 23% recurring EBITDA growth. Saber had a net revenue drop of 7%, especially in K-12, but we had a relevant growth in EBITDA and EBITDA margin. VASTA had a growth in revenue, EBITDA, and EBITDA margin. So we had an impact of Groton, which is a big weight. The other verticals performed very well, even under difficult circumstances with a pandemic. Now slide five. We see more details on Croton. As mentioned, Croton performance was impacted in 2020 by the volume of FIAS students' graduation and the pandemic. And so we had a lower student intake and retention, coupled with a higher need for provisions. The impact is clear in the chart on the left, showing different factors that influenced the EBITDA variation in the first nine months of 2020. It's also clear on the chart the company obtained a significant number of efficiency gains and savings, totaling 314 million BRL reduction in G&A expenses, which helped amortize the impact of almost $1 billion in net revenue, plus $400 million in provisions and negative operating result. But it's important to see that even with a drop in revenue, we could increase students' payments, both in nominal numbers and in relative terms. As you can see on the right, the ratio of receivables and the net revenue grew from 91% in Q3 2019 to 114% in Q3 2020. And the same is true about the first nine months of 2020. Crowd and revenue is lower, but solid and capable to generate cash. Finally, out-of-pocket average ticket grew 9% this quarter, showing our improved commercial discipline. Now, slide six. We share results of student intake in the second half of 2020. Student intake fell only 2% compared to the second half of 2019. which we consider a good result given the circumstances. Distance learning students intake soared 32%. We had a drop in on-campus programs, which means that we see a trend towards more hybrid programs accelerated by the pandemic. We saw the same behavior last year, and now we see it again. Now, in terms of on-campus programs, intake first vs was very small in addition we reduced pep which was offered for the last time so it will no longer be offered in the second half of the year and it represented only six percent of our intake in 2019 in 2020 second half we could see a drop in demand for this product And in most cases there was a migration of these students to the equivalent digital, especially premium digital program. So we see a trend towards more hybrid programs accelerated by the pandemic. The second point I think is important is a lower intake of on-campus and, but we have more sustainable practices. We are not offering. exemption in the first installments in the installment program also our focus on revenue and cash we had an increase in the average ticket of six percent so the on-campus student intake average ticket went up six percent now with this trend towards more hybrid programs we believe the new breakdown by percentage of on-campus content will help us provide a more accurate view of the current market trends. So as of this quarter and in line with our view towards the future, we will look at high on-campus content versus low on-campus content. So the intake of students in high on-campus content, so on-campus programs, plus premium digital, had a drop of 38%, or excluding FIES and PAP, 31%. As you can see on the left corner, the volume of new enrollments in digital premium almost doubled, partially offsetting the drop in on-campus intake. This product already mirrors our complete on-campus undergraduate offering, except when not allowed by the current legislation. Otherwise, we have equivalent digital programs. And we're now implementing a plan to significantly increase our product distribution, especially of premium products in our partners' network. Now, regarding programs of low campus content, once a week model, or a distance learning hub, and also the 100% online programs. In this group of programs, we had a visible intake growth of 25% and relevant gains in the participation of the 100% digital program. The high dropout from on-campus programs reflects a deterioration in our students' payment capacity and also the company's more conservative behavior to accept renewals of students with delinquent payments. or high risk profile. As we said in the beginning, our revenue received from students went up showing that we did see a higher dropout, but the remaining students have lower risk and more payment capacity. So our position is more solid and more capable to generate cash. In digital programs, we had a dropout rate falling half percent, which is good considering the circumstances. Now, slide seven, we will be talking about VASTA commercial cycle. In the beginning of this year, before the pandemic, VASTA announced an annual contract value for 2020 of 716 million ralphs, which represented a 25% growth over the 2019 ABC. Due to the pandemic, we announced a $40 million reduction, driven by higher dropout rate in partner schools, especially in the early years. Younger students. In Q3, VASTA completed its commercial year of 2020 and posted $692 million BRL subscription revenue, only 3% less than the previously announced ABC. So we are proud of the result. It was a bit better than announced. So the reduction was not 40, but only 24 million. So the effective revenue is 682 million reals. And based on that, we are building our ACV. and we're proud to disclose the preliminary ACV for 2021 now. To date, VASCA has secured a total $835 million in contracts for school year 2021, which represents a 21% increase compared to the subscription revenue posted in the 2020 commercial cycle. Therefore, the ACV 21% higher. And please note, the ACV building process will continue until January, so we expect an even higher volume. But regardless of the numbers, the result shows vast platform competitive differential. We're very well positioned to support the digital transformation of Brazilian schools as presented to the market. With that, I conclude my initial presentation and hand it over to Bruno Jardino. He will talk about our financial highlights in Q3 2021.

Thank you very much, Rodrigo. Please let's turn to slide nine, in which we'll talk about the operating results. Starting with Croton, our results in the third quarter were impacted by the same impact with a sharp drop of 32% in revenue. Now, moving on to Platos, what we observe in the lower part of the slide is that Platos continues to deliver very good revenue, 12%, once again. This reflects the company focus on digital products and with very solid intakes. But as for EBITDA, in this quarter, we suffered the impact of COVID. The reclassification of corporate expenses in the first half of the year and also higher marketing expenses. This is justified because of the continuous growth of revenue. So we had a decrease of 5% in EBITDA, but in the year we saw growth of 13%, quite healthy considering the times. Moving on to slide 10, in which we talk about VASTA. Here we are using a pro forma analysis for EBITDA because it... adjust the effects from 19 and 20 that could distort comparability. So what we see is growth of 3% in revenue. This is made up by the recovery of the non-subscription revenue since the economic activity is picking up again and this type of revenue is being captured once again. And this is also offset by the decrease in subscription revenue because there was an anticipation in the recognition of revenues in the cycle starting in 2020. Those two effects offset themselves. So with VASTA, we saw a small growth in revenue. In relation to EBITDA, here we see substantial improvement in EBITDA owing to the lower operating expenses and lower PDA as well in this quarter. And in the year, using the same pro forma view, we have very solid results with 8% and 8% growth in EBITDA and recurring EBITDA. And in the lower part of the slide, we see the impact of COVID putting pressure on Saber, especially in early years, plus the compulsory discounts, which is something we had announced in the previous quarter, and also the The discounts on Saber's net revenue that had been launched on discounts in the previous quarter, this is an impact of 8 million. And so, of course, it affects net revenue and also the EBITDA comparison. So Saber shows a decrease in EBITDA with also high comparability because of the contingency credits that increased the base for Saber. It's important to mention that EBITDA for Saber in the year grew 11% with a notable exemption of 4 percentage points in margin. And now moving on to my last slide, number 11, we see other revenues, other results that had the impact of the start of the cycle of sales. So we closed an agreement in an amount of 306 million of sales in the national textbook program this year. This is a program related only to renewals, and we're starting to capture those results in the first quarter. And the rest of the agreement will be recognized in the coming months. In the comparison, of course, there is a distortion because of the other... but in the lower part, Cogna, which is the summation of everything, we see a decrease of 17% in net revenue with a decrease of 51% in recurring EBITDA because of the weight of Croton in our business. So with this, I turn it over now to Jamil Marques. He will discuss the financial highlights. Thank you very much, Bruno. Good afternoon to all. Please, let's turn to slide 13. I would like to talk about our receivables, average term of receivables and coverage. In short, we have an adequate coverage ratio for each specific operation. Looking to the blue part, we see Croton with an increase of 11 days in the receivables term. especially in the payment plans and PEPI. This was partially offset by the significant reduction in P and the average term of receivables of out-of-pocket. We also had an increase of 133 days in VASTA because we are extending the term for payment for schools. In other businesses, we had either a decrease in the case of platos or stability in the case of Saber. This led the average term of receivables of Cogna to remain basically in the same level as in the third quarter, 19. Now moving on to slide 14, I would like to highlight some of the highlights in out-of-pocket students, giving you further information about the impacts we saw in this quarter. I would like to call your attention to the robustness of our results in this Semester, we had a high coverage of out-of-pocket that went from 19% to 41.9%. This is to fight the aging of the portfolio. In the center of the page, we also see an improvement in the current student base. We are converting a much higher share of new revenue into cash if you compare it to the previous year. In combination, those two factors led to a sharp decrease in net receivables of 15% and of 15 days in the average receivable term of powder pocket. And this, of course, is a sign of our robustness in cash conversion. Moving on to slide 15, I would like to talk a little more about cash generation patterns. in the quarter. In spite of the decrease in EBITDA, our cash generation post-CAPEX and expansion investment was 183 million, an increase of over 100% in the comparison with the same period last year. This is highly positive. It reflects the lower consumption of working capital and the improvement in the quality of revenues. This led to a conversion of 80% of into cash this semester. Now, moving on to slide 16, I will talk a little more about our debt, our cash position. Net debt over EBITDA is still under control. We see the position that's very solid, solid cash position at 5.3 billion reais. This was favored by the resources coming from VASTA without considering the potential anticipated redemption of debentures we have announced early this month. On the right side, we see our amortization profile with the next disbursement occurring only in August 2021, the most substantial one. So long debt payment profile. And our debt is under control. Net debt over EBITDA is at 2.2 times by the end of So with this, I close my presentation and I hand it over to Rodrigo.