Vasta Platform Ltd (VSTA) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vasta Platform Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Bruno Giardino, CFO.

Good morning, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's second quarter 2021 results. With me on the call today, we have Mario Ghio, Vasta's CEO; and Guilherme Melega, Vasta's COO.

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 benefit 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 issued yesterday 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 the date hereof. 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.

Let me now give the call over to Ghio to make his opening statements.

Thank you, Bruno. Thank you all for participating in our earnings release. I would like to start on Slide #3 with some highlights of the quarter.

Net revenue expanded 17% in the second quarter, backed by the growth in the ACV and also in the non-subscription products. In the 2021 commercial year-to-date, subscription revenue ex PAR increased by 18%, while PAR, our hybrid subscription product was down 15%. As we previously commented, the textbook chain was hit due to the higher reuse of textbooks affecting both PAR and our non-subscription businesses.

Even with all the challenges that the second wave of the COVID caused to the business, we expect to record a high single-digit organic growth in the subscription revenue this year and a double-digit organic growth excluding PAR.

Complementary solutions has been the highlight of the cycle with 51% growth to date, and which advances the high potential of this segment offers.

Adjusted EBITDA was negative in BRL 17 million in the second quarter due to the unfavorable revenue seasonality of the second quarter, also hit by the higher provision for doubtful accounts and by the enhancement in our corporate structure following the IPO. We note that the second quarters typically are no -- not representative one in the composition of our operating results.

Finally, we posted a net loss of BRL 25 million in the quarter, but adjusted net profit of BRL 125 million (sic) [BRL 125 million] in the cycle, 31% up.

That said, I pass the floor to our CFO, Bruno Giardino, who will detail our financial results.

Thank you, Ghio. As we did last quarter, we will start in the Slide #4, analyzing the performance of our revenue in the cycle from fourth quarter 2020 to the second quarter 2021.

Our net revenue declined in 13% year-over-year, as you can see in the left. However, when we break this information into subscription and non-subscription, we noticed that our subscription revenue increased 10% year-over-year, representing 84% of total revenue.

Going further into this breakdown, we split subscription revenue into traditional learning systems and complementary solutions in the upper right side of the slide. We call ex PAR, subscription ex PAR. Excluding PAR, subscription revenue grew 18%, slightly below the 23% growth in the ACV we reported in the fourth quarter 2020. This gap has to do with the lower enrollments registered at partner schools when compared to schools' expectations at the ACV formation.

In the chart below, in the same slide, you see that PAR declined 15% in the period as the lower number of students is complemented by the higher reuse of textbooks, a phenomena that we observed in the past during recessionary times.

Finally, in the bottom of the chart, non-subscription revenue tumbled 58%, reflecting not only the weakness in textbook sales but also our commercial efforts to bring non-subscription clients to our subscription products.

Therefore, as you can see in this slide, the pandemic effect has hit our business lines in different ways with the growth in subscription products preserved, particularly in the ex PAR lines, while non-subscription revenue has suffered the most.

In the Slide 5, we detailed the net revenue performance in the quarter. Net revenue grew 17%, driven by traditional learning systems and also by non-subscription products. The volumes of complementary products and PAR were not meaningful as these products are typically delivered in the first 2 quarters of the cycle. The same happened with non-subscription products.

Moving to Slide 6. Let's comment on our financial performance. The second quarter is usually a weak quarter due to the reduced level of revenue. And this quarter, particularly, was further hit by higher provisions for doubtful accounts that I will comment on, on the next slide.

Also, the yearly comparison is affected by the heavier corporate structure following the IPO and by the savings captured in the second quarter last year with a provisional measure 935, amounting to nearly BRL 5 million -- BRL 5.3 million. In the cycle, adjusted EBITDA is down 25% on the back of the 13% lower revenue and the effects previously mentioned.

On the right, as a consequence of negative operating results, we had an adjusted net loss of BRL 25 million, but we reported an adjusted net profit of BRL 124 million in the cycle, 29% higher year-over-year.

Next, Slide 7, I'll give you more details on the provisions. Since the beginning of the pandemic, our approach has been to support our school partners by extending payment terms instead of granting discounts. Additionally, the textbook distribution channel has suffered with a sudden decrease in textbook sales, causing some of our clients to fall back in payments.

As we extend payment terms, the aging of our accounts receivable led us to recognize higher provisions for credit losses. We estimate that the effects related to the current situation hit our second quarter by BRL 8.6 million and BRL 15 million in the cycle, as you can see in the chart.

With the normalization of school activities ahead of us, we expect a normalization in the payment cycle of our clients in 2022 when provisions could potentially come back to historical levels, which is 1% of net revenue. The acceleration in the migration to the digital platforms should also help as we reduce our exposure to the book distribution channel.

Lastly, in the right, I would like to highlight the conservativeness of our provision standards. As even with the aging of the portfolio, we maintained days of receivables stable versus last year at 119 days.

To wrap up the financial session, I would like to share details about Vasta's first market issuance debt on Slide 9. We raised BRL 500 million in nonconvertible debentures with a 3-year term, with a remuneration rate of CDI plus 2.3% per year. Following this transaction, our average debt maturity stands at 29 months and our cash position remains quite strong for new M&A and expansion activities.

That said, I'll now pass the floor back to our COO, Guilherme Melega.

Thank you, Bruno. Moving on to Slide 9. I will comment about our 2022 sales cycle, which has been progressing well as we see increased activity at schools.

This is the [mandala] that represents our platform, and it gets richer every month with new launches, partnerships and M&As. On the following slides, I will comment about our focus on digital; our new learning system, Fibonacci; new add-ons on Plurall Store; the launch of Plurall Adapta and Meu Prof; and digital student acquisition platform.

In the Slide 10, I detailed our strategy to the B2B core. In this cycle, we have intensified our efforts to stimulate sales of digital products as well as to migrate PAR clients to PAR platform solution, which has textbooks and all other mandala services and products embedded on it. These products offer more revenue resiliency, higher average tickets and higher margins, benefiting not only the company but also our offers.

Still on B2B core on Slide 11. We are proud to announce a new brand to our learning system portfolio, Fibonacci Learning System. This is a premium product designed in partnership with the top ranked Colégio Fibonacci, top 10 in Brazil's high school test, ENEM, for 10 years; and top 1 ranked in ENEM's Essay Test in 2011 and 2019. We have already started sales of Fibonacci Learning System with the third year of high school for 2022, and gradually, will progress to third year years.

Moving to Slide 12. Let's switch to the complementary solutions. Our Plurall Store, a marketplace with ed techs from all over the world, is going live for this sales cycle. The portfolio offers solutions in 8 different areas. Contents recently added were Redação Nota 1000, our essay review services; and Caminho focusing on sports, which have the largest addressable market among all complementary fields.

Next, on Slide 13. Let's comment on Plurall Meu Prof and Plurall Adapta, both service solutions available on Plurall platform. Plurall Meu Prof means Plurall My Teacher. And it is an online platform for private tutoring, where students can reach our network teachers for private classes, booking and paying online.

Plurall Adapta is a self-study adaptive platform for academic enhancement. Both are full digital services, B2B2C model, billing families directly, reserving rebates for the partner schools and opening new markets for Vasta.

Finally, on Slide 14, our digital service platform focusing on student acquisition takes shape, with the acquisition of SEL and EMME and the launch of Somos Integra.

Somos Integra is a lead generator for our partner schools. The service connects kindergarten families to partner schools, provider of broader services of K-12.

EMME is a digital marketing company focused in student enrollment. It is our newest acquisition announced today.

SEL, a company specialized in portal management and digital content provider for K-12 schools.

With the student acquisition to establish it, Vasta will directly contribute to partner schools' commercial front.

Turning back to Ghio.

Thank you, Guilherme. Moving on to the Slide 15. In late July, we welcomed Estela Vieira to the Board of Directors as an independent member and Chairwoman of the Audit Committee, filling the vacancy left by Francisco Fernandes due to his passing.

Now our Board of Directors is complete, again, bringing together seasoned executives with complementary skills. The composition of our Board of Directors and Audit Committee is shown in this slide. I would like to highlight that according to our high standards of corporate governance, the Audit Committee is formed by the same 3 independent directors and that all transactions involving related partners must be only approved by the Audit Committee.

Talking about governance, I would like to take the opportunity to show how strong is our commitment with ECG -- ESG. I invite you to move to Slide 16.

On the environmental side, Vasta is certified by the FSC and requires that all its suppliers are certified as well. We also buy energy from the renewable sources, and 100% of the waste generated in our distribution center is correctly treated.

On the social side, maybe the most important area of impact for us, we highlighted the activities of Somos Institute, which supports 6 preparatory courses for low-income students; and Somos Futuro, which has granted high school scholarships and full support to more than 500 low-income students in 98 cities in our country. And more than 6,000 hours of mentoring were offered to this group of students by Somos employees -- volunteers for this approach.

And finally, on the governance side, Vasta has 3 independent members in the Board and Audit Committee only formed by independent members. Also as we have 2 women in the Board, we earned the Women on Board certification. Diversity also goes down in the organization. 49% of the leadership position in Vasta are occupied by women.

Moving on to the next slide. As we progress to the end of our presentation, I would like to comment on the M&A. In addition to the organic growth, Vasta announced today the acquisition of EMME, our fifth acquisition since the IPO, and as told by Guilherme, a key piece to the formation of our digital services firm.

The acquisition of Eleva Learning System, the most relevant one so far, is being analyzed by the Brazilian antitrust body, and we expect to have the approval until the end of this year. Our M&A pipeline remains rich, and we are engaged in several other transactions, which are at different stages.

Now I'll call Bruno to our closing remarks.

Thank you, Ghio. And our last slide today is also a new announcement. We will launch early next week, our first share buyback program through which we plan to acquire up to 1 million shares in up to 6 months, a relatively short period of time.

Having said that, I finish our presentation, and now open the Q&A session. Thank you very much.

(Operator Instructions) First question, we have Andres Coello from Scotiabank.

I can read in the Cogna press release, it says with approximately 50% of the 2022 business cycle completed, we are very optimistic about the organic growth for ACV 2022. That's what the Cogna press release says about Vasta.

So I was wondering if you can give us a little bit of color about what very optimistic means? If you're expecting double-digit growth for ACV in 2022? Or just if you can give us any color on what you're seeing for the next school cycle?

Andres, this is Guilherme. Thank you for your question. And yes, let me give you some color about our campaign. We are definitely optimistic about the campaign. We are keeping the same trend that we have been keeping in the latest years, where we target double-digit growth for ACV, and we are seeing a similar trend but with better mix.

We are targeting on digital products. And we also are pursuing a change in paper-based products to the power platform or learning systems, which give us a better resiliency in our revenues and better margins.

So we see the same kind of growth in ACV in a market that is getting heated. When we talk with our school partners, they are actually more optimistic about the enrollments. And on top of that, we are pursuing a better mix.

Andres, this is Ghio. If I may just complete what Melega said. Let's remember that the ACV is comprised not only by the new contracts but also the renewal contracts with our partner schools, right? So we are also seeing a low -- an excellent churn, I mean, a lower churn, right? So the 2 factors are pointing to a good ACV building, right? That's why we are so optimistic with -- so far, we are so optimistic with this commercial cycle.

(Operator Instructions) I am showing no further questions at this time, presenters. I would now like to turn the conference back to Mr. Mario Ghio, CFO -- CEO.

Thank you all for participating in our earnings release. We hope you all stay safe, and to see you -- and see you in our next call. Bye-bye.

Thank you very much, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you for your participation, and have a wonderful day. You may all disconnect.