Vasta Platform Ltd (VSTA) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Vasta Platform Fourth Quarter 2021 Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Bruno Giardino, Chief Financial Officer. Please go ahead.

Good evening, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's fourth 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, our expectations for future periods, our expectations regarding our strategic product initiatives and their related benefits 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 today 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 information available to us as of 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.

Hello, everybody. Thank you, Bruno. So moving to the Slide #3. The fourth quarter of 2021 is the beginning of the 2022 cycle, a new chapter in Vasta's history because we reset the company in its growth trajectory. As we commented in the previous calls, 2021 was perhaps the most difficult period in the Brazilian K-12 sector and in the company's history, for sure.

But 2022 school year began in line with our expectations with the schools fully reopened, a scenario that enables Vasta to fully convert the 2022 ACV into revenues.

In this fourth quarter, we also began the integration with Eleva, the 6th largest learning system in Brazil and the biggest acquisition in the history of our company.

We are quite happy to have Eleva with us, and we are excited with all the opportunities we see with its combination with Vasta.

Talking about the ACV, as we announced last month, we collected a total of BRL 1 billion in subscription contracts, which represents a growth of 35% over the subscription revenue for the 2021 cycle. Excluding Eleva, the ACV increased 22% only by organic means.

As we will detail you in this presentation, the composition of this ACV is richer than before with a great performance of our premium brands. In this fourth quarter, the first of ACV 2022 recognition, total net revenues increased 16% year-on-year with subscription products up 22%. Excluding PAR, subscription revenue increased 34%, which demonstrates that we continue to migrate our textbooks-based revenue to learning systems or digital platforms. Adjusted EBITDA grew 10% following the growth in the net revenue and partly hit by temporary cost pressures, Eleva acquisition and integration expenses here included.

Adjusted net profit fell 17% on the higher financial leverage due to the acquisition of Eleva and on higher interest rates in Brazil.

For the first time, we are releasing a revenue guidance for the next quarter. So we expected to have BRL 370 million of total revenues in the first quarter of '22, being BRL 320 million in subscription revenues and more BRL 50 million in non-subscription revenues. This implies a growth of 32% in total revenues, reiterating our belief that 2022 will be -- in 2022, we'll be able to collect 100% of the ACV, but also to stabilize the sales of the non-subscription segment.

Now I'll pass the floor to our COO, Guilherme Melega.

Thank you, Ghio. Now moving to Slide #4. Let's talk a little bit about our ACV. Our 2022 ACV totaled BRL 1 billion, a 35% growth versus the subscription revenue collected in 2021 cycle. Organically, it means a 22% growth.

Complementary Solutions once again had the highest growth rate among the business segments with a 47% increase, evidencing that Vasta has captured a strong cross-selling potential offered by its base. Traditional learning systems, including newly launched Textbook as a Service platform and excluding Eleva, grew 31% compared to 2021 subscription revenue. Traditional learning systems, ex Eleva and complementary products together grew 32%.

Finally, Eleva delivered ACV of BRL 98 million, contributing 13 percentage points to consolidated 2022 ACV growth.

Now moving to Slide #5. We detailed the composition of our ACV growth. I would like to emphasize in this slide that the quality of this ACV, we managed to grow faster in our premium brands, Anglo and pH, and to initiate the migration from paper-based products to digital subscription products, Textbook as a Service platform in line with our strategy.

As you can see in the slide, new clients and the combination of cross/up-sell and price readjustments continued to be the main drivers of ACV growth. Each one contributed with 15%.

In the cycle, our churn was slightly above 8%, which we attributed to the tougher macroeconomic conditions. While the churn rate of our premium brands remained remarkably low, there was an upward pressure in the churn rate in the mainstream segment and for our clients. Approximately 35% of partner schools that left our base were delinquent as of December 31.

In the Slide #6, we give you more information on how our ACV will be distributed over the year. The 2022 ACV is less concentrated in the first 2 quarters than in previous years. Due to the different seasonality of our products, such as Eleva, Mackenzie and Textbook as a Service platform, as well as lower PAR revenue, all recognized in Q4 and Q1. That means that although the first 2 quarters will continue to register the largest part of ACV revenue, there will be less revenue to be captured in the first half of the sales cycle when compared with previous years, and the opposite will happen in the second half.

To illustrate, in the fourth quarter, we collected 34.7% of 2022 ACV, whereas we have collected 38.3% of subscription revenue of the 2021 cycle in the fourth quarter of 2020.

In order to facilitate this understanding, we are providing a guidance for the first quarter of 2022, and the second quarter of 2022 ACV recognition. So we expect to have BRL 320 million in subscription revenue in Q1 2022, 32% of the ACV, implying a 31% year-on-year growth in this line.

As for non-subscription revenue, our forecast is BRL 50 million, implying a 33% year-on-year growth. Combined Vasta is about to deliver 32% year-on-year growth in the first quarter of 2022 to BRL 370 million, confirming the recovery trend that is suggested by our ACV. In the remaining quarters, as we have more ACV to be recognized, we may expect sound growth rates to continue throughout the year.

I will now turn the floor to our CFO, Bruno Giardino, who will talk about the financial results of the quarter.

Thank you, Melega. In Slide #7, we show the composition of Vasta's net revenue in the fourth quarter. Total net revenue increased 16% or 9%, excluding Eleva, which contributed with BRL 25 million since its integration in late October.

The revenue from subscription revenue jumped 22% year-on-year and continued to gain relevance in our sales mix, as you can see on the right, reaching 87% of total. When we exclude PAR, our subscription revenue increased 34%, or 22% excluding Eleva, the pink bar, on the right-hand side.

Non-subscription revenue declined 14% in the fourth quarter, reflecting the still tough dynamics in the textbook market. As previously discussed, revenue growth is set to accelerate in the coming quarters.

Now in the Slide 8, we see adjusted EBITDA and net income. Adjusted EBITDA increased 10% in the quarter following the growth in net revenue. The margin declined 230 basis points. However, due to temporary cost pressures, it included expenses related with Eleva integration. These more than offset the efficiency in commercial expense and the slightly lower provision for doubtful accounts we had in this quarter. When we look forward, we see a recovery trend for EBITDA margin on a yearly basis as: one, revenue growth will accelerate; two, we restructured our workforce in December with benefits to be reaped from January on; and third, synergies from Eleva acquisition.

In the fourth quarter, adjusted net profit declined 17% year-over-year to BRL 98 million. Despite the growth in operating profit, the increase in net financial expense due to the increased financial leverage and the higher level of interest rates, our leverage is up because of the Eleva acquisition that was consolidated in late October.

Next, I'll give more details on the provisions and accounts receivables on Slide 9. As you know, over the last quarters, we have recognized higher provision for doubtful accounts, PDA, due to the challenging business environment for our school partners. Since the beginning of the pandemic, our approach to credit issues has been to extend payment terms instead of granting discounts, which resulted in an aging of our receivable portfolio and higher provision needs.

In this fourth quarter, however, as a percentage of revenue, the PDA declined 0.9 percentage points, and we expect a gradual reduction going forward towards the normalization in the payment cycle.

Finally, the days of accounts receivable when we adjust for the effect of Eleva acquisition stand in line on a yearly base and following the regular seasonality of the business.

With that being said, I pass the word back to Mario Ghio.

Thanks, Bruno. Let's move to Slide #10, please. While we are already discussing '22, it's important to take a step back and look at how much things we did in '21 that we are pretty sure will be the future of Vasta. In this slide, you can see all the developments we made since our IPO.

Starting on the left, we reinforced our core business with the acquisition of Eleva, the creation of the Fibonacci Learning System, and also the distribution agreement with Mackenzie. We also launched the Textbook as a Service platform.

Moving up in the Mandala clockwise, we enter in the light pink area. We expanded our complementary solutions reach with the opening of Plurall Store, which offers a series of solutions in partnership with education companies from all over the world.

Then we entered in the B2B2C segment through the launch of Plurall My Teacher, our private classes platform, and Plurall Adapta, adaptive learning platform. We'll talk more about these 2 initiatives when we glide ahead.

In the bottom, the digital services are the acquisition of SEL, EMME, and more lately Phidelis will enable us to build a portfolio of administrative services that will address the needs of our partner schools, freeing up time for them to focus on what they know best, which is to educate.

Now I would invite you to focus again on the light pink area. This is everything we built or acquired since our IPO, in 1.5 years. We accessed new revenue pockets and we built products that may be the future of our company.

Moving to Slide #11. Let's comment on why being a platform is so important for us. We believe that Plurall is a true platform and the only super app of K-12 education in Brazil. It always started with the full integration of Vasta's multi-brand portfolio, which has led to the capture of operating and financial benefits with a unified go-to-market and technological backbone.

At the 2nd stage, the platform relevance in terms of the number of students, teachers and traffic share attracted important partnerships with third parties like Mackenzie, Fibonacci and all the ed-techs we included in Plurall Store.

At the 3rd stage, the stage that we are now, is the offering of new disruptive product set at marginal cost began with our interest in the B2B2C segment, and we'll continue with the development of new products that are the relevant addressable markets with expected launch in the beginning of this year.

On the Slide 12, I will comment on the B2B2C segment. As we talked in the last conference call in October, we celebrated the debut of the B2B2C platform, which was a great achievement of our Plurall team. Plurall My Teacher and Plurall Adapta recorded their first sales in the first quarter of this year -- in this quarter, the fourth quarter of '21, and the awareness of these products has been increasing lately day by day. We see a strong long-term potential for the B2B2C services, and this potential could materialize exponentially once the product is better known by our community. As you can see in this slide, in the bottom, we have focused on the dissemination of these products among our partner schools and students.

Let's talk about ESG on Slide 13. By the end of April, we are going to issue our first sustainability report elaborated according to the highest standards available. We hope this report will help the investor community to understand how serious we are about ESG standards at Vasta.

Moving on to Slide 14. We anticipate some of our achievements related to ESG. On the environmental field, 89%, almost 90% of the energy consumed comes from renewable sources, being 100% in our largest distribution center in São José dos Campos. 100% of our suppliers are FSC certified.

In the social field, more than half of our -- all of our leaderships are women. 94% of women who took maternity leave remained in post-return employment.

On the governance side, our Board of Directors has 28.6% female members, 42% independent members and has a participation of 14% in terms of the LGBT group. Female participation in the Board of Directors granted us the “Women On Board” Seal.

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

(Operator Instructions) Our first question will come from the line of Vitor Tomita from Goldman Sachs.

Two questions from our side. The first one is on PAR. If we look at the reduction in PAR ACV, could you give us a sense of how much of that reduction is driven by book utilization or churn? And how much is instead driven by migrations to other learning systems you offer?

And a second question from us, thinking about the potential of Plurall as a platform for third-party offerings, which is something you touched on in the presentation, could you give us a sense of how relevant Mackenzie, Fibonacci and the third-party apps in Plurall Store have been as a part of 2022 ACV growth?

Vitor, this is Melega. I will take your first question, and then I will turn to Ghio for the second one.

Giving you a little bit more details about PAR, the reduction in PAR revenues is mainly due to the migration to learning systems and to the implementation of the PAR Platform as a Service, which will only be recognized in from Q2 to Q4 this year because it's a service and we only recognize it once the service has been delivered. So those 2 are the main drivers. We did not see an increase in reutilization of books. And what we are performing now is fresh strategy to migrate to Platform-as-a-Service and learning systems.

Vitor, this is Ghio. Regarding to Mackenzie and Fibonacci, because of the commercial agreement that we have with Mackenzie, we can't be very specific in terms of numbers, right? But what I can tell you is that Mackenzie is representing just a few percentage points of our ACV, right?

And Fibonacci is really in the beginning of the trajectory with us, right? We just launched with Fibonacci, the material focusing on the prep course for universities, right? So for vestibular, and it's very small, the revenues we saw from Fibonacci, but the potential of Fibonacci is huge because, as we like to say, Fibonacci is the best school in the country if we consider the results in learning. Okay Vitor?

(Operator Instructions). Our next question will come from the line of Marcelo Santos from JPMorgan.

Could you please explore a bit the higher churn from the angle of the competitive environment? I know you mentioned the macro, but what can you say about competitive environment?

And the second question that I would like to ask is, you mentioned that you would have like new launches on the B2B2C market. Is it something -- could you discuss a bit what else do you have in store there that we could see still in 2022? I think that's what I understood from the release, you would come with new things.

Thank you, Marcelo. Let me take your first question. We see the competitive environment pretty much as usual. It's a very competitive market. And we see pretty much the same competitors driving innovation, driving good products, and we keep moving forward also. We don't see any change if that is what you are implying in the competitive environment. And so far, we had a very good start, not also in the sales campaign, but also delivering the contracts and the revenue side.

Yes. Marcelo, this is Ghio. I will take your second question. So let's first give a step back, and I would like to reinforce the importance to have true platforms.

We are in the stage of our platform that sometimes a client, it's also a provider, right? The real concept of a platform, you become a platform when you have a client -- for instance, our teachers, they are our clients because they are consuming our products and services. But through Plurall My Teacher, they are, at the same time, providers of new services, new contents to our ecosystem, right? And we are doing the same with schools and many other stakeholders in our ecosystem.

Regarding your question, what we are planning to launch in the beginning of this year is regarding to therapy, right? The same technology we developed for Plurall My Teacher, we can use for therapies right? And we are seeing a huge demand, I mean, families, they are -- after 2 years of pandemic, they are really concerned if their kids need some kind of professional therapy. And we are planning to launch in just a few weeks. At this moment, we are testing a kind of a better version of our Plurall My Therapies. And this is the innovation I mentioned in the presentation, but it's important to understand that the true platform means that sometimes our clients are also our providers. We have some ideas to transform even our students in providers of services for other students, okay?

Perfect. Just a follow-up on Melega's answer. So the increasing churn, as your understanding, has nothing to do with an increase in competition, just to be very clear, that was your answer?

Marcelo, in the traditional learning system, especially in the mainstream, we did see more competition, very aggressive commercial features to our customers. And we did see a higher churn due to that, but also due to the weakness in terms of financial terms of our customers that needed to switch to another provider to have better commercial terms, which we did not retain. But that's pretty much it.

In the premium segment, we didn't see that trend. And we definitely are very confident about the quality and our brand to maintain competition away from them.

Yes. And adding on that, Marcelo, it's important to comment that 35% of the schools, that churn, were delinquent payers by the end of last year, right, by the end of the year. And we decided to not renew their credit for this year, right? So there is more competition, especially in the commercial schools in the middle end of the market, but we also decided to not renew the credit with the delinquent schools, and this specific part of the churn is representing 35% of the churn.

Next question will come from the line of Vinicius Figueiredo from Itau. You may begin.

I would like to follow up to one of your previous answers. You commented that you noted the weakening of some of your competitors. In your view, this trend, together with tougher macro scenario, does it increase the number of opportunities for market consolidation through acquisitions?

Yes, Vinicius, I guess I can start and Melega can complement me if he wants. Yes, there is always an opportunity for more acquisitions for the consolidation of the market, right? But for now, we are super focusing on integration of Eleva, right? We have a lot to do in the Eleva integration side. We are starting to collect all the synergies we can collect with Eleva. And we are also now focusing on integrating the new products we also bought in the last year. So for instance, (inaudible), it's in the beginning of its cycle inside Plurall, we are starting to offer SEL as the front end of schools with families and the recently acquired Phidelis, which is a complete ERP.

We are now integrating this kind of back-office services into Plurall, right? And with that integration done, we can start, for instance, to offer financial services to schools as well, right? So we are not -- to be super clear with you, we have some opportunities. We are talking to some learning systems. But for us, first, the Eleva integration; second, the integration of all the technologies we bought last year in Plurall. And from these new technologies, we start to offer new services, such as I mentioned to Marcelo Santos, My Therapies, Plurall My Teacher, it is just in the beginning of the journey with our students. So there are opportunities, but it's not our focus at least in the first half of this year.

Our next question will come from the line of Andres Coello from Scotiabank.

You mentioned in the release that in the fourth quarter, there was a little bit of cost pressure from the Eleva integration. So I'm wondering if you can just provide us a little bit of color regarding how much the cost of the integration during the fourth quarter. Perhaps just detail if those costs were already included in nonrecurring expenses in your release or those were not included there. And just a little bit of a better idea of your margins post integration, if you want to call it that way.

Andres, thank you for the question. These expenses related with Eleva integration are the usual expenses that we have in any kind of M&A, lawyers, consultancy, that type of stuff, right? This this was a relatively feasible amount, we are not giving disclosure, but we can tell you that this is not included in nonrecurring expenses.

What do you see in nonrecurring expenses are expenses related with the restructuring of our workforce that we did in December, right? Results are yet to come. So these expenses related with Eleva, for sure, are kind of a pressure in our results, and they are temporary, okay?

When we look forward to 2022, we clearly see a recovery trend for our EBITDA margin, right? We are talking here in margins going back to the level of 2020 or even more. And we are pretty confident that Eleva can have margins even greater than ours, right, because I think that Eleva is a pure subscription product. So it naturally has higher margins than Vasta. So the integration plus time for synergies is also another factor that makes us confident that margins are on an upward trend in 2022, okay?

Andres, if I may add, just to give you more colors about what we are calling here the restructuring of our company. right? Because of the integration of Eleva that not only we saw opportunities to be more efficient in many areas, we cut 20% of our payroll, right? So it was a power for restructuring, right? And as Bruno said, the results are yet to come. We are expecting to see the impact of this reorganization in our margins in the first quarter of now '22.

(Operator Instructions) Our next question will actually be a follow-up from Marcelo Santos from JPMorgan.

A quick one. I just wanted to check Mario Ghio's comments on the prepared remarks. Do you expect to be able to collect 100% of ACV in this commercial cycle? That's the question.

That's it, Marcelo. You are correct. We are expecting, given that we have a good start in this year, right? So schools are open, students are going to the schools. Yes, we are expecting to convert 100% of the ACV into revenues this cycle.

And I'm actually not showing any further questions in the queue. I'd like to turn the call over to Bruno for any closing remarks.

Thank you. Thank you, everyone, for attending our call. We are always available to follow-up questions, right? And thank you, and take care.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.