Cogna Educacao S A S/Adr

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome everyone to Cogner's first quarter 2021 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 completed, 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 Investors Relations website, ir.cogna.com.br, by clicking on the banner, FirstQ21 Webcast. The presentation will also be available for download. The following information is available in Brazilian reals in accordance with the Brazilian corporate law and generally accepted accounting principles, which now conform with international financial reporting standards, IFRS, except where otherwise indicated. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Cogner Management and on information currently available to the company. They involve risks and certainties and assumptions because they relate to future events and therefore depend on circumstances that may and 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 results to differ materially from those expressed in such forward-looking statements. I will now turn the conference over to Cogner's CEO, Mr. Rodrigo Galindo, who will begin the presentation. Mr. Galindo, you may begin your conference.

Good afternoon, everyone, and thank you very much. I hope your families are well. Thanks for being with us, talking about our results in the first quarter of 2021. With me on this call, Federico Villa, our CFO, and I are a director, and the CEOs, Roberto Valerio at Croton, Mario Ghio of Vasta, Bruno Giardino, our CFO in Vasta, I are a director, and Eduardo Onsaker, Corporate Finance Director, and I are a director. I'll begin today on slide three with an overview of what we delivered so far. And let me highlight the process of Groton restructuring. We made it clear from the beginning that in 2020, we would be restructuring to begin 2021, capturing our profitable operations. And I believe the results show, especially Groton, that the adjustments begin to provide results. Let me highlight that. Talking about the restructuring of Groton, we already see the first results with a recurring EBITDA margin of 9.3 percentage points. So we are confident that all the adjustments promoted in 2020 have placed Groton in a positive operational way. We highlight that Groton average collection days closed the quarter at 67 days, seven days fewer than last Q, consolidating our leading position in the industry. So that we have accounts receivable that are now very robust. This indicator shows a reduced default level And it demonstrates improvement in our receivables provisioning that we made in 2020, now adequate to the company revenue level. So we feel comfortable about our receivables. To reinforce that, during the presentation, you will see that our coverage ratios make it very clear that we are at a very comfortable position. with PEP students 66%, PLP 80%, and out-of-pocket 61%. That's the coverage ratio, so it means we are in a very comfortable position and very adequate for our balance sheet to be very healthy. Still about croton, we highlight that student in cakes has grown 5%, so even in the most critical period in 2020, Where we had the pandemic, we've grown 5% and Huberto will make it really clear. So we are ready for a robust growth in more digital segments. Now hybrid plus premium. Digital and digital, well, digital has grown 43% and hybrid 43% and hybrid, sorry, 15%. We also want to highlight a post-CAPEX operating cash generation of 170 million at Cogna. If we exclude 62 million of advanced credit card receivables, we still have a very healthy position facing a consumption of 147 million cash. More important is to highlight that we successfully concluded the debauchery covenants renegotiation process, keeping us in a very solid cash position with a net debt of 2.9 billion and average duration of 25 months. And this is because of the covenants we renegotiated. We believe That it shows the company commitment with our strategy that we've been pursuing, which is to grow our profitability consistently and sustainably, prioritizing segments with an asset light business model so that we have a higher growth potential and higher return on invested capital. So that's our strategy. and the recent numbers of Crotten show we are on the right track. Slide four now. Let me highlight that we, I'm going to provide more details on the post CapEx operating cash generation. As we can see on the chart, we point to a growth of 1.9 percentage points in the company consolidated margin reaching 29% this quarter. with a recurring EBITDA of 366 million compared to 44 million in the same quarter last year. It's important to remind you the first quarter of 2020 did not have the full impact of the pandemic because it only started by the midpoint of March. On the right, you can see the operating cash generation. Despite the impact on EBITDA, we delivered operating cash generation of 170 million. So that's high quality EBITDA. The cash generation, the post capex cash generation, if we adjust by the advance on credit card receivables, we still see 62 million, still substantially higher than the 147 million of consumption in the first quarter. Now on slide five, our message is on the successful renegotiation of the debenture covenants, which led to us obtaining a waiver that includes in the last 12 months adjusted EBITDA, all the extraordinary PDA adjustments of Q2 and Q3 2020, totaling 644 million between Q4 2020 and Q3 2021. So with that, it is important to highlight that Cogna has reached a net debt adjusted EBITDA ratio of 1.97 times in Q1 2021 compared to 1.89 times in Q4 2020. as we apply the PDA adjustment that has already been mentioned. So both numbers help the company reach this comfortable position and a turning point in the company leverage already this year. And then a downward trend, which is again a comfortable position. With that, I'll give the floor to Roberto Valerio, our Croton Managing Director, who will be presenting our operating and financial highlights at Croton. Thank you, Rodrigo.

Good afternoon, everyone. Let's take a look at slide seven, where we will talk about the results of Croton's restructuring in 2020. As we can see, the results of Q1 2021 make clear that Croton is is on a positive uptrend of profitability and default reduction. In this respect, I think it's important to highlight that despite the drop in revenue that was impacted by the graduation of students and the delay of NM and lower intake, particularly in on-campus content because of the pandemic, the recurring EBITDA grew by 18% in the period with a margin expansion to the 209.3 percentage points. The major highlights of the delivery of reported EBITDA are focused on the economy of operating costs, and major streamlining of marketing expenses. We worked hard in all lines and we could reduce them in addition to marketing expenses that already reflect the new strategy focused on digital rather than offline media, something that was the topic of the Cogna Day last year. Additionally, we also have a new PDA level which has enabled us to extract this improvement. We are very confident that the reduction of units and streamlining the operation, and also in corporate areas, not only have brought lower expenses, but also have enabled us to the transformation that the education sector is going through. Therefore, we believe that Croton is in the right path to deliver EBITDA growth still in 2021, despite the many challenges that the pandemic is imposing on us. Moving on to slide eight, I'd like to talk about Croton's restructuring from the cost point of view. In this slide, I show financial and economic information of the Croton campus, particularly those 45 units that we've mentioned. In this respect, I highlight that non-recurring expenses to the tune of BRL 82 million in first Q 2021 has a portion of BRL 35 million, which are derived from write-offs that have no impact on cash. and the expenses connected to Croton's restructuring on this slide are in line with what we announced in Q4 2020 when we opened up the details of this project to you. We'll still have PRL 60 million to be recognized as non-recurring expenses in 2021 and Of this 22 million, they have no impact on cash. Also, BRL 9 million was posted to CapEx in Q1 2021 and 10 million reals in this first quarter. But we are very comfortable that the operating results of Groton in the first quarter are good. clear evidence of the potential of value creation that this restructuring project will have, particularly since fourth quarter 2020. Now, slide nine. Let's talk about the operational results of Groton. Here I'm going to show the indicators related to account receivables. Here we close the first quarter of 2021 with an average term of payments of out-of-pocket students of 67 days, seven days less than what was reported in Q420, making Croton one of the best in the sector of higher education. And this reflects a default reduction that shows that the improved provisioning of account receivables done in 2020 in line with the level of the company revenue has really paid off. Out-of-pocket student PDA dropped by 2.9 percentage points to 13.1% of net revenue. And I still point out that the coverage ratio of 61.2% and the lower volume of account receivables is still lower 456 million BRL, according to the slide. And I believe that all of this data show that the criteria that we've adopted is in line with the company's new reality. And now slide number 10, let's talk about new enrollments. And like Rodrigo said,