Q4 2020 Vasta Platform Ltd Earnings Call

Ladies and gentlemen, please stand by your basketball platform for <unk>.

2020 conference call will begin momentarily. Thank you for your patience and please standby.

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Ladies and gentlemen, and thank you for standing by and welcome to the basket of platform for quarter 2020 Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question answer session to ask a question during the session you'll need the press star one on your telephone please be advised the today's conference maybe recorded.

If you require and further assistance. Please press star zero and I would now like to turn the conference over to your Speaker today, Bruno Giardino Investor Relations manager. Please go ahead.

Good morning, everyone and thank you for joining in this conference call to discuss the vast of platforms fourth quarter 2020 results.

With me on the call today, we have.

Lots of the seal club of Spaghetti, our CFO and Gilead.

The vast of seal 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.

And by these forward looking statements for.

And 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 the related benefits and our expectations regarding the market.

Forward looking statements are based on management's beliefs and assumptions and on information currently available to our management the.

The risks include those set forth and the press release issued yesterday as well as those more fully described in our filings with the Securities and Exchange Commission the.

The forward looking statements in this presentation of our based on information available to us as up to date hereof, you should not rely on them as a predictor of future events and we disclaim any obligation to update any forward looking statements except as required by law. In addition management may reference non <unk> financial measure some of this.

Paul.

No I am for Ash.

And for Us financial matters, and not intended to be considered in isolation or as a substitute results prepared in accordance with ISR.

Let me and I'll give the call over to my review of our seal to make his opening statements.

Thanks, Bruno Thanks, very much for participate and our earnings release call I would like to start on the slide number five with some highlights of the year the.

The annual contract value ACC for 2020, one commercial weird totaled 850 million reais, 23% higher than the amount of subscription revenue is recognized it in 2020 commercial year orbitale exclusively by organic you mean.

The growth of traditional learning system was even higher at 26% highlighting the strength of the brands and assertive commercial strategy that the new how to make the best of the technological and quality of features as competitive edges in order to increase the market share.

Complementary solutions experienced a 65% annual increase in the number of deals close it in the ACD for 2021 and accounted for eight per cent of the total HCV. This year and the expectation is that day will further increase the do significance as we move for.

In terms of the portfolio of solutions offer on top of that we also announced the three acquisitions so far move.

Moving on to slide number six I would like to make some comments about the the pandemic scenario.

The second wave of Covid, and Brazil is worse than the first day.

And it into a drop in the text the book sales due to the reuse of books by families impacting not only the known discrete from revenue, but also the behavior of the par learning system base of don't textbooks the.

The second wave is also affecting the enrolment process of children and partner schools families have postponed enrollment by comparison with the the previous years, while orders have transferred the day of children to public schools.

According to 2020 official SKU sales was 2.5% of the students and private schools migrated to public schools and the trend for 'twenty 'twenty. One is that this percentage will continue to grow all of these factors can affect our revenues in this commercial year.

Now I'll pass the floor to our CFO for this project.

Thank you good morning, everyone.

Moving to next slide number seven.

This slide we present, the main financial highlights for the fourth quarter as well as for the whole year.

Despite the fourth quarter of being slightly below the same period and 19 in terms of revenues. What we can see is that we performed better than the same period and 19 in almost all the all of their lives.

With the gross profit growing 14%.

Adjusted EBITDA of 14% as well.

This better performance or the solid year over year of growth against 19 is also clear and the accumulated 12 month figures of the ear.

Regarding the numbers themselves, we can see that the accumulated revenue for the whole year, reaching $998 million I light increase of 1% when compared to the previous years. We just felt and are considering all of the impacts of COVID-19 in our society and economy.

Yeah.

With the gross profit of approximately 620 median and 14% increase when compared to 19.

And adjusted EBITDA of 296 million in line with the market consensus for the year and a robust 17% growth when compared to 19.

In terms of adjusted EBITDA margin of sound improvement of four percentage points during the year more.

From the 26, we had in 19, the 30% in 2020.

Which he got the net income what the dimension that these figures for 2020 are impacted by the non recurring events. We had during the year the IPO as an example.

Moving without such impact net income would be growing 48% in the quarter and we will be close to breakeven in the year.

And one less in for that is also the worthy to highlight what our free cash flow of almost 134 million during 2020 and adjusted.

Adjusted EBITDA to cash conversion of 45.2 per cent.

Moving to next slide number eight the IDE.

Yeah here is to go deeper in our analysis of regarding the revenues of the company given that the fourth quarter in end of fiscal year easing fact of the first quarter of our.

Cycle.

These more detailed breakdown was important to highlight the different impacts and behaviors presented during the beginning of 2020 once business cycle.

We would characterize it unfortunately by uncertainties and connection with the possible second wave of COVID-19, which ended up.

Commercial offering the early this year.

And first of all important to highlight that the world at.

Despite the fact that the business is comprised of two reportable operating segments, one carpet and AD tech platform and to digital platform. We present in this is like a supplemental information and data.

As of the soup segment composing the operation the operating once I have just described.

Having said that and you can see the net revenue from subscription products, which includes all educational solutions with recurring revenue basically learning systems, both traditional and par.

And I also complementary solutions accounted for 83 per cent of the company's total revenue during the fourth quarter was up almost 31% over the same period of the 19.

Important here to highlight that the 31% growth of subscription revenue in the fourth quarter is the one that in the.

Part of the cycle, we will match with the ACB and we have just announced.

In terms of it should be noted that one of the subscription revenue has shown solid growth. This fourth quarter revenue from the non subscription business was down 59% by comparison with the same period last year.

And the which is why the total net revenue decreased by five three per cent compared to the fourth COVID-19.

This behavior reflects the impacts of the pandemic that led to a sharp drop in the per case of textbooks by schools and book starts one account.

The year certainties related to the start of 2020, you won the school year.

And it is our view that this is likely to continue throughout the back to school period, and therefore also have an impact in the first quarter 'twenty one.

And one last point I would like to call your attention in this analysis.

And so the fact that our pod learning system, which makes up the subscription revenue posted a similar performance to that of tax book sales in other words, you'd want and they've got deeply affected by the current circumstances and by a higher volume of REIT utilization of observe.

Of the period.

On the other hand, when we analyze the traditional learning system will see that the performance of the sub segment was even stronger with revenues growing close to 60% in the quarter.

In summary, we are not immune to the effects of the pandemic, but the.

Of it are quite different depending on the product and sub segment being end of life.

For example, regarding the ones driven by textbooks, which means the no subscription part of the business as well that the.

Lots of learning system, the impacts are more severe.

Cost of the re utilization as I just mentioned.

Oh and the other hand regarding the ones related to the traditional learning system as well as complementary solutions the ones with higher margins worthy to mention the impact and not so severe which means all of our business has demonstrated certain resilience.

Moving to slide nine.

And he's one of the is that an old acquaintance of us and its purpose is just to reinforce the message that we conveyed in the last two calls regarding all the results that despite the differences analogy that we have between the quarters of the ear with the strong recognition of results more concentrated in the for any of the fourthquarter.

What are the result of recognition of course in 2020 was very similar to the one and 2019.

This time, we are presenting the curves for revenue and adjusted EBITDA for the subscription part of the business.

As you can see we had and even greater recognition of revenues and the fourth quarter.

'twenty when compared to the same period of the previous year, we 2020 being four percentage points above the level of presented in 19 and.

As a consequence of the anticipation of part of the sales of subscription products due to the uncertainties related to the pandemic and the beginning of.

1000 from 21 academic year. This means that many schools have anticipated the orders, which will negatively impact the results for the first quarter. This year.

On top of that investors should also consider a gap and the ACB of reallocation higher than the 3% we had in all the commercial.

The last commercial cycle.

Having said that I would like to yield the floor to malaga to continue with the presentation value of fleet.

Thank you Cosmos.

Now moving on to slide 11, we present here three growth cycles, that's true.

And we'll guarantee of healthy and sustainable performance for the coming years the.

Of course that is to increase the students deans.

Both organically and through acquisitions the <unk>.

Second the growth cycle will come from the inquiries and the penetration of the complementary solutions that part of the web experience.

Yes.

65 per cent and increase the volume of homes at schools and the true Duane.

The weighted plagued you want from Cds.

Sure.

Finally, the towards the cycle will come from growth through new technologies and digital transformation.

Going a little further into the details.

The growth we can see on the slide 13.

That's the competitive advantage presented by Boston throughout 2020, and insurance solid growth for both the main products, which despite being a more mature solution showing an increase of 11%.

And the numbers of schools, and 14% and the total numbers of students of.

As well as being complementary solutions, the best experienced a much higher growth due to better still open iteration, and our base presenting and increase of 75% and.

And the numbers of Scoop, and 64% and the total numbers of students.

The solid growth and the number of for new students and cross selling.

And what not only the levers the guarantee the <unk>.

Strong growth and <unk>.

And CV.

And you can.

And see on the slide 14 the.

In addition, we have brought out of operating as an essential and transformative tool for schools to continue with their academic activities during the pandemic.

Serving us both credit and important captains for.

Attracting new clients through all of our base and also on the 14th retention agents of roster posted one of the highest contracts renew rates ever required the units here.

History.

The combination of all these factors resulted in 23% HCV.

The over 2020 subscription revenues.

Now on slide 16.

We brought in additional weight, so and allies, the commercial cycle by showing the breakdown of the HCV and the real real events of two additional.

The growth systems for our operation on the left hand side, we can see that 75 per cent of the ACB is made up of traditional learning systems wide complementary solutions accounted for 8% and far for 17% and.

The graph.

And the rights.

We can see the annual growth rates in the last commercial cycle component of their solutions, where those that showed the greatest growth given there's fewer open iteration and the strong increase and the portfolio of solutions off of it.

And third traditional and systems.

Why do you do much.

More mature solutions for sure where the growth of 26% year over year, highlighting the competitive differential.

The shown by vast of doing the from them.

Finally.

That's pretty loose mention what ended up being more.

By the effects of the pandemic and practically did not grow and there's less promotional cycle.

With this.

The operational highlights I turn back to view to continue the presentation.

Thanks, Malaga moving onto the slide the number 16 in addition.

Organic growth Vasta also made the progress and its M&A front and encourage location by announcing the acquisition of the 11 learning system. The seats at the largest in the country, which is the learning system with a strong premium brands and non operation with the high margins that we would enable the.

Scale gains and operational synergies by adding more than 177000, new students to our base. In addition, vasta has signed a commercial agreement with all of US preparatory schools for the next 10 years.

Moving to slide the number 18.

If for the first.

To the page it seems to be well underway and are ready to deliver and a solid growth rate. We still have many of other levers to be and look it.

In the sense, we want to take this opportunity to present, a new way of exploring our platform with the new solutions that we started to operate that as of this year.

First of the main news for the next commercial cycle includes the incorporation of all of the futures offered in the Pluto store plus the pools of private class platform.

Some of those integra and the digital front and many other opportunities and solutions that are being developed such as entertainment.

The one the slide 19, we have the Pluto start that hasn't read the presented in the last conference call and.

And it and is a platform with hundreds of percentage of digital services that are very affordable to families. But the biggest new news here is the launch of the better version of true.

And those private class platform with the Dis service all of the students who need support who will be able to contract classes directly through Pluto chosen the time the teacher with the best score and the price of they went up.

Moving to slide number 20, we.

And the last of step and our growth is try to do it which is the digital solutions. This is the future where foster has managed to differentiate itself more and more from its competitors.

And where we are putting many of efforts to ensure the digital transformation for our partners moving to.

Present 21.

And we present here the three phases that we are developing to facilitate the the digital acquisition of the students for our partner schools. The first established two of low digital integration between the schools and offer a solution for the front and.

So that.

Slide <unk> half of them more attractive portals to attract families and to convert leads into new enrollments.

All of that front, both both Somos Integra that we'll talk about and the Nexus lights and the recent acquisition of S. E. L were important steps to overcome.

That is will overcome this phase the second step is to offer more branded content and to partner schools, which SCL also fits perfectly in this pursuit and finally, the digital enrollments that we intend to bring more news in the near future.

On the slide 20, we have the opportunity.

The two presents Somos Integra, which is an important tool for connecting kindergarten and schools and so must partner schools with a view to digitally capture and the flows of the students from kindergarten to elementary schools by bringing these two vasta in addition to offering.

And for us to offer and a digital integration two between partner and schools is able to guarantee of continuous and sustainable flow for children within our ecosystem.

Moving to slide 23 finally in these last two slides represent more details.

Regarding the digital front end and the rationale behind the acquisition of S. E. L. F sales technology helps to develop manage and ERP data on line portals for the school for a specific of school or for his school networks. It also allows and content creation.

And our customize it and and scalable way so that schools can better communicate with its community and can differentiate the themselves from competitors and has an important and has important clients such as savvy and marking the learning system and.

And the incorporation of the services will be important.

And for faster to organize all of the communication for our partner schools and help for them to enroll more issue that's.

Having said that I finish our presentation and I now open the Q&A section. Thank you.

Thank you as a reminder to ask a question.

And you will need to press star one on your telephone to withdraw your question press the pound key keep stay involved with compile the Q&A roster.

Okay.

Our first question comes from Thiago are of Gull with Goldman Sachs. You May proceed and your question.

Yes. Thank.

Good morning, Neil and team the here, but I don't want Goldman and thank you very much for the classroom and fill up the first question. If I may is related to the overall results of your component every solution and also the poorer and store quite interesting by the way. It was interesting to see and know how fast the component therapies and as expected to.

The growth this year. Despite the fact that the schools are still facing and of a quite challenging environment and dealing with this reopening process.

All of you and all of their facilities and so I was wondering if you guys kind of give us some colors on the opportunity you see for component type of solutions and how fast the business back.

Non-GAAP growth all seemed to stabilize and Brazil, and hopefully the pandemic crisis is behind us. So the with my first question. Thank you.

Hi, Thiago this is <unk>. Good morning, Thank you for question.

And actually Diego assets are in the middle of the last year, we were very concerned.

About the behavior of complementary solution and you know and the middle of the of a pandemic, but the than we realize the debt. If we could offer digital solutions I mean hundreds of percent digital solutions because in a digital solution doesn't matter if the school results.

And if the school is hybrid of if the school is closed it right. So and realizing that we started to develop the Pluto store concept right. So the best way to understand how we are dealing with this tough moment is offering Pluto store.

100% of digital content for appropriate area of third party content right.

And they are also a very affordable if compare it to many other solutions in the market right. So that was super important to the HCV building for this year, but important to comment.

I meant that all of the revenues that we are going to come from.

The Pluto star of Pluto, and my teacher, and so on and they are not included in the HCV. We are only considering the ACB you know the stack of the contract sign it by the schools regarding to the second part of.

Your question Diego, we are considering that in the second semester. We can see our work we are expecting to see you know the schools and families are coming to you know to the to the normal to you know to a more.

Traditional.

Education at the.

For a more traditional the school year that that's what we are expecting.

In our case I guess, the worst is behind all of the factors we had the specially in the text of the books and the non subscription part of the business and also empower the.

Our only occurring in the fourth quarter of any given year and the first quarter of the following year right. So the the.

Worst of.

Part of this year is behind us and we are expecting to see everything coming to normal and the second semester.

Great.

Thank you.

Thank you for that are quite helpful. My second question.

And it's related to the current stock price.

Price some liquidity.

Are you concerned about the SAR two things and if so what are the options that you know.

You and the company you are analyzing too.

The of drafts and what is.

So of growing about some concern thank you.

Yes, yeah. Likewise, we are we are also concerned with that and we I study and analyzing all of the you know all of the solutions. We can have it for this for this problem.

And the in.

And the in the near future we.

And we can choose one one of the one of the options, we have and we will keep everybody posted about it.

Okay. Thank you.

Okay.

Thank you and I would now like to turn the call back.

Over to Bruno Giordano.

So we have of here we have here a question from Pedro Mariani of Bank of America. Thank you very much better for the questions sexually he has three questions first one ease of mind makers included in the ACG guidance and how much does that represent.

And second.

And does the a C V already includes the potential cancellations from COVID-19 and 2021.

And third he asks for a more details on the receivables on the fourth quarter.

For the questions.

Okay. So Ah hi, Peter this is Gil and I will I will answer the two first questions.

And then and club as we recover your last question.

Regarding for my the makers, Yes is included the A&D and the ACD and because we bought the mine the makers in January last year right. So with this new go to market called the net robotics that are the services might be makers is provided and his.

With that in our complementary solutions regarding to the second question, Yes devolution of cancellations everything it's included in the a C V and by that I mean, the ACB is net of the evolution of cancellations and for one if the behavior.

Hey, you're of the curve of the evolutions and cancellations are the same of the the historical behavior. We know right. So when we build the D. A C V.

We always did.

Deduct from the HCV any kind of impact it and impacts.

Facts that we and we know okay. So.

The answer to your second question is yes, now open the floor to Claus I Pedro and.

We thank all of the receivables, we do see and increase let's say of 37 days when compared to the fourth for a 19 and.

And I think it's important to highlight this increase.

Is directly related to let's say company renegotiating and extending terms.

Uh huh.

With the our customers, okay, and trying to support them in these periods of short.

And tight cash flow and with he got the comparison between the fourth quarter and the third quarter last year, we see a higher increase of almost 90 day. This is completely normal considering the seasonality of the business. Okay. We are let's say in parts of.

The peak season.

This may vary from almost 200 days in the peak.

Going to 60 days, let's say when we are and the value of the the season in terms of our sales and so should be no concern on this he got it.

And this seasonality again.

Weighted to the fact that in the fourth quarter and first quarters we.

We have close to 70 per cent of the revenues of the company Okay.

Yes, maybe it maybe I could just said the pay the debt are in the certain moment last year, we had the opportunity or two.

The offer a discount to our to our clients you know facing.

The more problems or to give them more oxygen and you know more working capital to pass through the through the pandemic. So we decided not to offer discounts who decided to offer more time for being day there.

You know the depths with us and we believed that was the best way to deal with the the situation and S. Malaga mentioned and in the presentation. The churn and we had the this year was a bench markets of benchmark and not only for US I guess for the market okay.

And just to clarify.

Vacation here are in the HCV. We include the returns and cancellations for the north.

And as if it was a normal year right. What is the what is regarding COVID-19.

Out of the a C V. We are yeah, if COVID-19 the bring the zinc back that are different from the previous year that will impact the did not.

The C V, but the recognition of revenue coming from the a C. The.

Perfect.

Okay.

Okay.

Thank you for something.

And I'm not showing any further questions at this time I would now like to turn the call back over to Mario for any further remarks.

And thanks again for party participating in our earnings release I Hope you all stay safe and also hope to.

And again in our next call.

Bye bye.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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