Cogna Educacao S A S/Adr

Good morning and thank you for waiting. Welcome, ladies and gentlemen, to Cogna Educação's first quarter 2022 earnings conference call. We would like to let you know that we have with us Mr. Roberto Valério, Mario Gil from Vasta, and also our CFO at Cogna. This event is being recorded and all participants will be in listen-only mode during the company's presentation. After that, we will have a Q&A, and at that time, further instructions will be provided. Should any participant need assistance during the call, please press zero for the operator. Today's live webcast, both audio and slideshow, may be accessed through Cogna Educação's investor relations website at ir.cogna.com.br. The following presentation is also going to be available to download right after this earnings conference call finished. You can also submit your questions via the website and you will get your answers after the conference call. Before proceeding, let me mention that forward-looking statements on this conference call are based on the beliefs and assumptions of Cogna Management and on information currently available to the company. They involve risks, And as you know, future considerations involve risks, insurgencies and assumptions because they relate to future events and therefore 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 results to differ materially from those expressed in such forward-looking statements. With this, I turn it over to Mr. Roberto Valeri, who will start his presentation.

Thank you. Good morning, everyone. Welcome to our call to discuss our numbers in Q1 2022. With me today in this call, Federico Villa, our Financial VP, Mario Guil, CEO at Vasta, Bruno Jardino, CFO at Vasta, and Eduardo Honczak, our IRO Director and Corporate Finance Director. Today's call will begin on slide three. I'm going to give you a summary of our views on the first Q2022. Now, first, we will look at Croton and VASTA and then Cogna consolidated numbers. In Croton, Q1 2022 shows we're closer to the revenue turning point. A year ago, we had a 19.2 drop in revenue compared to Q1 2020. Today, the gap is only 4.9% compared to Q1 last year. Therefore, we see a clear trend to resume revenue growth as of 2023. Now, we've actually mentioned this in previous meetings. Especially in the last call on Q4-21. So we now see a higher intake and a lower dropout rate. I'm going to talk about this further on as we talk about Crofton. And we've had this significant reduction in the dropout rate. That is a higher student base. Let me also highlight and draw your attention to this great landmark. one million students, a number we did not have since 2015. Basically out-of-pocket students without any benefits to volume. I mean, we're not benefiting volume and forgetting about profitability. much to the contrary our current base of 1 million students has a higher quality of receivables because it's not vulnerable to any programs we continue in our asset light strategy concentrating in hybrid and digital programs we also see a better ebitda margin despite lower revenue and pressure on the cost side, which we see in all industries, I mean a higher inflation, and also in our case, we see students coming back to campus. Despite all that, our EBITDA margin has grown in this quarter. It shows the capacity of this team to continue to gain efficiency consistently. As we've said, we can see these efforts quarter after quarter to improve profitability for the first time. We are opening information to the market about Cropton Med. We are therefore delivering not only the med seeds we had in the guidance, but also EBITDA and revenue. At Vasta, the results have confirmed we have resumed revenue growth and profitability growth. we now see students as i mentioned coming back to school as you know the pandemic is now lower and we see a higher penetration of complementary services in the network of schools that subscribe and buy our services with that in the first q 2022 our revenue has grown More than two-thirds of the ACV have already been attained. In addition, the restructuring we conducted in 2021 has brought clear benefits, improving the profitability in this vertical that has grown more than 5.3 percentage points in the EBITDA margin. At VASTA, we also have the first sustainability report. And by doing this, we are strengthening VASTA commitment and actually Cogna's commitment to ESG. Now about Cogna, let me... Let me tell you that Kogna continues to generate value. We said that in 2020, we had to resume cash generation. We have been able to attain this goal in 2021, according to the numbers we've posted in Q4 2021. And now in Q1 2022, we continue to grow revenue. We had a drop last year, you remember, and we're also improving profitability and accelerating significantly our post-cap tax operating cash generation. It shows the quality of management work. This is the fifth quarter in a row where we see results improving. Now looking at EBITDA and operating cash generation we see positive and growing results improving our leverage levels and making it possible for us to take important initiatives in line with our strategy first we are pre-paying short-term debt So we're going to use cash to pay for our short term debt. We're also repurchasing debt that was negotiated below par whenever we have an opportunity. This is also part of our strategy to reduce our debt. We are fully implementing our program to repurchase stock announced in February, believing that our current price is below a fair price and that's why we are repurchasing in addition we are investing in the develop of some long-term options such as the voom platform we have recently launched in the mdp version it is a marketplace an educational marketplace and very soon we will see the voom bank now in 2022. Dr. With that, let us move on to slide five please so that we talk about cropton results, you can see intake dropout and student base I have already mentioned, we reached 1 million. Dr. undergraduate students and but look at the growth of our students base for growing 11.4% as we compare 2022 to 2020 that is, we are growing. Quickly, we have a drive of low in-person content programs. So concentrating the on-campus content in premium and hybrid programs and the low on-campus content for the digital base. we know that 100% digital programs are growing. Now we see an 11.4% growth in the student base. That is a strong growth. 14% in low on-campus content and 8% in high on-campus content. Now this is about our student base. Now, if we look at this quarter in terms of in terms of revenue growth. In this trade cycle, we have increased high on campus content programs, 13% growth year on year and low on campus content. We've had a growth of 26%. That is a very strong growth based on Our recent expansion, we have expanded our learning centers and that has brought us to a 22% growth in student intake. I mean, in the 2022 enrollment cycle. So growing 22% volume and dropout, the total dropout rate has fallen. 0.9 percentage points. And we've seen lower dropout rates in the last four cycles. So that is in line with our strategy of trying to bring new oxygen to our student base and trying to replace students who had more difficulty to pay for monthly tuition. Today, we have a higher quality students, lower lower PDA, lower default rates, and lower dropout. Now, on slide six, let me talk about revenue, total revenue, and cost of customer acquisition, and a little bit about our learning centers. It is important to say that our revenue is growing 6.3% compared to compared to last year that is comparing 2022 to 2021 this is a competitive market and our commitment has always been to grow volume and profitability and you see yet one more sales cycle where we had precisely that higher volume and higher profitability so if you look at the at a series of intake cycles of enrollment cycles, we can see we are improving revenue and profitability and we believe will continue in this trend in 2023. In high on campus content, we are growing. It's important to say that if we made a comparison on the same basis, I mean, as we analyzed in 2021, our revenue growth in high on campus content would be even higher. Let me explain this effect. You remember that in the first half of 2021, we still had P&T installment program, which used the raw price. That is, it did not include anything else. Then you added all the installments when They were not paid in the first half of the year. Let's say from March, the students stopped paying. And so that raw amount would be paid by the student at the end of the program. But now we made a change. So instead of having the student pay the gross amount or the raw amount of the program in the end of their program, we now receive payments from the following month that is during the program it brings a cash benefit because we receive earlier and there's a reduction in PDA and but now we are charging the net price and not the growth price. So you have an effect of revenue reduction. But if we would compare on the same basis that is apples to apples without considering the PMC effect, our revenue would be growing 8.8%. Let me remind you that this revenue used to be posted, but because we only received further on, we had a lower cash conversion, lower than today. So today we have the net price, yes, but we received much earlier. So that is the explanation behind that. And we have now provided both numbers, revenue growth in the XPMT program, and then after the change. So I think this is important information. You can see that we have a higher revenue in... low on-campus content programs, but we're growing volume 26%, and then revenue 22%. So it's only natural that we see this difference between volume and revenue. Why? Well, because we now have more 100% digital students, and so it is a different mix of The second chart shows our marketing efficiency. We have two pieces of important information, total expense and sales and marketing divided by students enrolled. That's CAC. I think you remember we have been reducing CAC every year. period, we've been able to reduce another 26% CAC compared to the first half of 2021. Now, you also have some more information about sales and marketing. If we made a comparison to the revenue received, I mean, this revenue that we delivered is 16% higher and also it costs 16% less than in 2021. This is efficiency for us. We are bringing more revenue and investing less to obtain this revenue. The final chart shows our expectation for revenue growth, and it shows the profile of our learning centers. 41% of our learning centers have been operating for less than a year, approximately 30 students, as you can see in the third column. And so as Maureen Dasey- A mature, we will see more enrollments the learning centers that have been in operation for more than two years they already have 150 students enrolling every year, and this is the trend after two years, and we also have some incentives. a 40 percent incentive in the first year and then it is reduced down to 30 percent as you know the premium distance learning we have 25 and now we are providing these 40 rebates so the average would be 30 but the fact is that we have added more than 1 000 learning centers we're still in their ramp up. They have not matured. And so we can certainly expect efficiency gains. Now on slide eight, we're going to talk about the quality of our receivables. We've seen a drop in PDA. We already had a reduction in the number of days Or receivables. So now we've had this reduction down to 46 days. So it's the lowest average receivable term in the history of Crofton. Our students are paying earlier. It shows the quality of our current student base. So I believe this is a very important piece of information. The on-time payments are improvement. And you can see the chart in the middle showing receivables. You can see that our accounts receivable is now lower, both in gross numbers as well as in net numbers. We keep a coverage level at 60%. We believe this is perfectly adequate, but it shows that the quality of our students, the quality of our receivables, the quality of our collection has certainly improved. Now, slide 10. Let me talk about our net revenue and EBITDA. As I mentioned, revenue is still falling. but much slower than before. So you can see in the chart in the middle of the slide, it shows the revenue is falling, as I mentioned in the beginning. Because we had a great cycle of renewals and new enrollments, we believe that as of 2023, we will resume revenue growth at the current profitability levels, which is what you can see also here on this slide, about 30%. and coming up to 33.9%. So we see a higher profitability. We have been able to resume profitability, and we expect to resume revenue growth, meaning we will continue to add value consistently. So let me highlight this margin gain, which is very important, 4.2%, comparing year on year.

On slide 11, we are now for the first time opening the information on Croton Med. And we just wanted to give you a little more color on our seven units and the amount of openings, the number of medical education openings for the year. Today, we have 556 openings in total by the end of the year. We hope to have 636 medical education openings openings with a maturing process that will lead to more concentration of revenue in the semester, but still we'll be able to reach 24% of the revenue that is expected for the year. And we have guidance given of 482 million, and we have achieved already 24% of this revenue. and 22% of EBITDA, but I would like to highlight that we have more revenue and results concentrated on the second half of the year in which we'll have more medical education seats than in the first half of the year. So this is very much in line and we are very much on track to deliver on the guidance. So with this, I close the explanation on Croton and I hand it over to Mario Gil, who will discuss Vasta. Thank you very much, Roberto. I would like to start my presentation on slide 12. In K-12, we are celebrating more than 1 million students. This is a very important milestone for us. It's the first time we have achieved this number. This is the result. of a very positive commercial cycle with added schools amounting to 700. And this of course is a jump of more than 20% in relation to the previous year. This positive cycle for private K-12 education shows that we have left behind the lockdown effects of COVID in which we had several students leaving schools And once again, we have resumed the historical traits of resilience student base and ticket growth above inflation that is typical of Brazilian education. We also have to highlight complementary solution growing at two digits and the CAGR of complementary solution partner schools, he reached 43% between 2020 and 2022. This led by two pillars. First of all, a more differentiated portfolio of integrated solutions. And secondly, the quick cross-selling growth among our subscribers of core and complementary solutions. There is growth potential of more than 300% of our complementary solutions, potential that should materialize and be driven by just a few products now. I would like to discuss Vasta's financial performance. Revenue was up 35.5% in the quarter, meeting the guidance that was given, especially in the subscription approach. We know that there is a mismatch between subscription and the guidance that we provided on the first quarter. And now on the 2022 cycle, Between fourth quarter 21 and first quarter 22, year-to-date revenue was 24.7% higher than in the previous cycle at 779 million. Besides that, subscriptions also improved the quality of our revenue with greater loyalty and predictability. Today, we had around... 87.4% of the total revenue of the cycle being represented by subscriptions. I would like also to highlight recurring EBITDA amounting to 288 million. This represents 45.8% in the cycle with an improvement of 530 BPS of margin. The results on VASTA, of course, the consequences our greater scalability of our operations with more revenue. We can also work on the relevant lines and overhead costs. And also we have had success with cost efficiency initiatives started in 2021, demonstrating the team's ability and diligent efforts. And as for EBITDA margin, we expect our business models to show good results. With this, I close the highlights on Valsa and I hand it over to Frederico Villa. Thank you, Guil, and congratulations on the great results. I will start my presentation on slide 17, speaking on the Saber's operating and financial results. By the way, let me remind you that Saber now represents the National Textbook Program Sets and VUMP. After the sale of the operations of schools, we have now full alignment with our asset light strategy. But we have now demonstrated that our business with the National Textbook Program Sets and VUMPs are now integrated. And speaking on net revenue, there was a reduction of approximately 1.5% from this, well, in spite of the growth in revenue in Red Balloon. However, there was a reduction in the national textbook program affected by the seasonality of this line. Now, in recurring EBITDA, reduction was... around 26.2%, with R$32 million in EBITDA overall. This is explained moving from revenue to EBITDA. Once again, we see the impact of the National Textbook Program seasonality and also editorial and marketing expenses in the first quarter. As we know, revenue is received along the four quarters of the year. This is how we look at the Sabir business and our Red Balloon student base grew approximately 18% in the comparison with between 2022 and 2020. Now turning to Cogna and moving on to the final part of the presentation. Cogna is made up of Croton, and that Roberto Valério spoke about. Mario Guil discussed Vasta and Saber. So the news is positive. Net revenue in the company grew approximately 6.4%, reaching 71.2 million in the period. Here, the main impact came from Vasta's solid performance, growing 35.5%. in a total of around 100 million in the comparison with the previous quarter. And in the comparable version X schools, we see that this was a positive result. Now, looking to the graph to the right in recurring EBITDA, we see that recurring EBITDA totaled 402 million reais up 35 million reais versus what we announced in the first quarter 21 or 78 million more if we consider the sale of schools. So regardless of the comparison basis, ex-schools or with schools, our EBITDA is growing. And this shows that we have paved the way for this growth in the last three quarters. The message I would like to give you on Cogna is that in fact, 2022, well, the quarter started showing signs of revenue growth. So definitely the year of inflection, the turning point was 2021 for Cogna. Now turning to slide 20, we would like to give you a message on OCG after CapEx. From the operating cash generation in the first quarter that was negative, we have now cash generation of around 178.2 million so net cash represented 225 million reais positive and we have made this announcement to the market in due time and but even with the advanced receiving of receivables we grew significantly in the period. So the consistency of our OCG is one of the highlights. Our beta conversion represented 44% into OCG. This is 254 BPS versus Q1 2021. In net cash generation, we reached 512 million reais, superior to the first quarter last year, in spite of the buyback operations and also the operation of 100 million in the ventures in the secondary market. So the company is keeping an eye on revenue and another one on cash. This is part of the wisdom that have brought us these positive results. Now, turning to leverage, Cogna closed the first quarter 2021. When we look at net debt over adjusted EBITDA, the leverage rate was 2.15 times. This amount is in line. with what we presented to the market in the fourth quarter, 21, in spite of the increase in interest rates, we are able, well, thanks to the strong cash generation and EBITDA to maintain the same leverage ratio, our net debt. Cash gross debt represents 7%. Our cash is very positive at 3.8 billion reais, leading to net debt of 3.1 billion reais in our amortization schedule. We expect amortization of one point. Well, from two billion, this is what we were doing. But as Roberto has announced, we are. buying back the debt that's being negotiated below par so our cash is now very close to the interbank interest rate and as a result of this we will amortize and we have no intention in the short term of rolling over our debt the company's leverage is under our full control. So the solid performance of the company and revenue a bit culminating in cash generation makes us very comfortable in relation to our leverage. So with this, I close this presentation on Cogna. And I hand it over once again to Roberto Valerio. talk about the future outlook of the company. Well, thank you very much. On perspectives for the future, just to summarize, in spite of the revenue retraction we expect for 2022, this will be compensated by operational improvements leading to greater EBITDA margin. We're still in May. We have many years ahead of us. It's a challenging year. and also it's an election year in Brazil, but we feel confident that with our initiatives, in spite of the drop in revenue, profitability will improve. And as of 2023, with more growth in revenue and recurring EBITDA, we'll be able to take Kroaten to a new level of value generation. So we are also working... on alternatives to grow this alternative, this vertical and from 2023 on, we expect revenue to grow. As I said, I would like also to underscore that we have had non-recurring expenses back in 2021. Now they are being reduced and they are related to Croton's restructuring. but the expenses now are at a much lower level. This shows that we are moving in the right direction when we show information without non-recurring expenses. We're not expecting any major restructuring for the near future. As for VastaWell, the ACV was confirmed last year. There was a break in ACV because of the second wave of the pandemic. So conversion of ACV demonstrates the company's ability of delivering results when not in a pandemic. The first quarter was very good. We are much more asset light, much more digital. Several additional products are being connected to the platform and distributed to the network. So we have positive margin expectations as well. And let's not forget the improvement in revenue quality since we are now gaining traction in our subscription earnings. So with Cogna, we would like to highlight the message of strong cash generation that will continue in the near future and in coming years. And as we have maintained this target of 1 billion in cash generation by 2024, according to the guidance that was previously given. VUMP is a platform model that is very successful in VASTA, focusing on adult education. We have no expectations of short-term results, but maybe in a horizon of two or three years, we'll have a more diversified business through VOOM. Cash is being generated. We are prioritizing payment of debt and the buyback via the M&A because the price of our shares is very low. We are not expecting any major M&A's in the short term, but there could be some M&A's of a minor significance to complement our portfolio. With this, I end my presentation. I thank you all and invite you to the Q&A session in which we'll be happy to take your questions. Ladies and gentlemen, we will now begin the Q&A session. If you want to ask your question, please press star one. To remove yourself from the question line, press star two. Just a second, please, as we collect the questions.