Q1 2021 Vasta Platform Ltd Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the backup platform one Q21 conference call.
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I would now like to hand, the conference over to your Speaker today Greenough Giardino. Please go ahead Sir.
Okay.
Thank you good morning, everyone and thank you for joining me in this conference call to discuss the platform first quarter 2021 results.
With me on the call today, we had might've yield losses.
But the CEO and Gilead.
During today's presentation, our executives will make forward looking statements for.
Forward looking statements generally relate to future events or future financial or operating performance.
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.
But are not limited to statements related to our business and financial performance expectations for future periods, our expectations regarding our strategic initiatives and their related benefits and our expectations regarding the market for 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 issued yesterday.
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In addition management may refer them to no ifr at financial matters on this call. The known ISR assets financial measures are not intended to be considered an isolation or as a substitute for results prepared in accordance with the ISR line.
The call over to Michael could you. Please.
His opening statement.
Thank you Bruno Thank you all for participating in our earnings release, and I Wanna first I Wonder I want to welcome Bruno Giardino, you know his first call as our new CFO and wish him the best for Windows in Boston.
I'll, let school for the slides a number for with some highlights of the quarter, starting with the annual contract value D. A C V for 2020, one commercial weird debt totaled 853 million Reais, which is 23% higher than the amount of subscription revenues recognized at day 20 for any commercial.
Cycle and will also be paid exclusively by organic you mean.
But also let's remember that the ACD is not a guy that salt revenue, but shows the total amount of contracts and the duration of the contract sorry net for the next commercial cycles.
As you know the second wave of COVID-19 in Brazil. It is harder than the first wave in 2020. This second wave of happen exactly in the peak of enrollments to the 2021 ski school year, adding to an already fragile macroeconomic ultimately.
This combination has affected our business line isn't different madness subscription revenue has proven more defensive than they ever have your news associated with the sales of textbooks.
Like for learning system, and the non subscription revenue however, in the 2021 commercial ear.
Debt, Oh, 456, new schools to our client base with an average contract duration of more than three five year debt.
Why well, we may not be able to fully recognize the revenue we can play it by the eight T V 20 to anyone commercial weird.
We are very well positioned to capture incremental revenue once the pandemic effects disappearing.
It is also most of the work that's always true then credit outstanding results in the most competitive universities admission test as well as as where it was in the National High School. It is exempt.
As we will detail later in the presentation and finally, Florida remains as the absolute leader in terms of web traffic and we continue to expand the offer of new feature such as total store crude all my teacher and digital services, which enhances our long term growth potential.
Now I'll pass the floor back to banana trials, Dino who will comment on the financial highlights of the core for us.
Thank you Jim.
So moving to slide six in this sorry slide five in this slide we analyze our revenue performance in the 2021 commercial year to date, which consists in this time of the fourth quarter 'twenty with the first quarter 'twenty one.
Our net revenue declined 17% over year over year as you can see in the last chart.
However, when we break this information into subscription and non subscription we noticed that our subscription revenue increased 10% year over year.
Representing 85 per cent of total revenue from 64 per cent and the same period of last year.
Going further into this break down to the right side of this last slide.
We split that subscription revenue into traditional learning system and complementary solutions.
In the upper right side of this slide we will call. This block at subscription X bar B a R.
This sub segment grew revenue by 20 per cent in the 'twenty two 2021 commercial year to date.
Below the 23% growth in the ACB, We report it.
This little GAAP has to do with the lower enrollment register a partner schools when compared to their expectations in the U S. At the S. E T V formation.
When the possibility for second waiver for the pandemic was not being even considered we'd note that the number of basic education student debt private schools fell two and a half percentage twenty-twenty. According to the last census, and initial analysis. So for our clients student day suggest an even bigger drops for 2021.
In the chart below you'll see that bar or learning she said basal textbooks posted a 16% decline in the commercial year to date.
On the top of the lower number of students enrolled at our client schools. The sale for textbooks had been more severely affected by the weak macroeconomic environment.
Historically in recession times, there is a greater volume of for us and for chase of secondhand textbooks that negatively affects the sales of new ones.
Finally, looking to the bottom of the chart.
Slide non subscription RASM revenue standard, 65%, reflecting not only the weakness in textbook sales, but also our commercial force to bring non subscription clients to Waller subscription problems. There for as you can conclude the pandemic effects are.
Our business lines in different ways with the growth in subscription products preserve particularly in the export line.
While non subscription revenue have suffered the most.
Then we move to the slide number six.
When we provide where we provide further breakdown into.
The quarter for square and the commercial year to date. So as you can see our net revenue declining 28% in the quarter as we were deficient to anticipate part of the revenues are for the commercial year to the fourth quarter right, but when we look into the 2021 commercial year to date figures.
This decrease is lower off swing up 17% volume then on that on the on the line right.
The right hand side.
We provide a further breakdown into traditional alerting system complementary solutions in par and as we mentioned before the behavior off subscription X bar products.
That means traditional routing systems and complementary solutions have been preserved right are growing at 16% and 42% in the cycle right, whereas the other segments like bar and non subscription will have.
For the most.
So.
Moving onto this line number seven I present, adjusted EBITDA and net profit figures right. So in the first quarter, we posted 67 million rise in EBITDA I dropped off 47% right and we'd had decrease in the margin. This has to do with the lower amount of revenues we posted.
And the spirit right through them therefore.
Impacting dilution of fixed assets.
<unk> costs and seeks in expenses, but looking in this cycle and in the in the right hand side of the chart.
Note that debt Foster posted 226 million rising EBITDA adjusted EBITDA, a fall of 50%, but we got 90% nine basis point increase in the EBITDA adjusted EBITDA margin to $36 one per se.
Following adjusted net profit on the right side of this line, we had that drop off a 53 per cent.
Adjusted net profit for the first quarter.
Which has to do again with the lower level of revenue and operating income in the quarter, but when we look at the commercial cycle as a whole our commercial cycle.
To date Vasta managed to grow adjusted net profit of 6%.
And the spirit, two 163 million Reais and this growth has been a favorite buy their.
Interest income on IPO proceeds debt more than compensated the drop in operating income.
That I conclude the dissection of financial highlights and I turn back the I'm trying to back into my view Rcs you'll change it.
Thank you Bruno let's move to slide number eight I will comment on the performance of our schools in the National High School exams at name.
In the 20th 19 edition, which results weren't disclosed by the end of 2020, Boston not only maintain the lead there ships versus peers, but also expand the difference for this to the to the competitors in debt here in Boston was the content provider for top.
For a rank of the schools in 191 series, which is 46% more cities than the second player from 28 per cent in 2018, considering the top three ranking Boston was the content provider for 372 schools.
<unk>, which is 51% more than the second player and up from 30% in 2018 moving to then for the next two slides slide number nine.
Oh, where we will highlight for the outstanding performance of our brands at the most competitive emission tests vasta had the highest number of approvals in 2021 division test for soft Brazil's and Lockton Best University Universe.
First off so Paulo will speak and University of Campinas, when he country. According to the high <unk> to the times higher education.
<unk> ranking.
Our results are two times higher than the second player.
For instance in medicine in a universe of so Paulo are the most competitive the green in the country.
One of our high end brands had the highest number all the students approved approve it 66, the students aren't matching Uzbek an average of one approved for the student at each for N. P. Agent also one of our high end brands had before.
First debt towards and the eighth its position in the same course in this is Xu the unified the mission system for federal universes, there were more than 9000 buses the students approve it with hundreds of them in the top positions as you can see in the.
These lights are.
Interest like now open the floor to our CEO, Jeremy male a guy who is going to cover the satisfaction of our clients.
Thank you Gil.
Blood number again, something we are particularly proud off.
All forward brands average 72 week envelope ph bar, having scored exxon's line.
Moving to 970 917, respectively.
I don't know.
Yes, Paul for.
Sure.
We believe the quality recognition of all our services and our client satisfaction.
To our long term strategy differentials also result.
Catcher for more than 450, new schools.
2000 2021.
Commercial cycle.
The traction we have.
So for now walk you set a new partnership with Colorado for people not present for nine consecutive years, among Brazil stop.
Hum.
We will also launch a heck of.
New assessment. So this would be cool at all in 2021, and then E learning system.
For the 2022 commercial Sun.
Now turning back to deal.
Thank you Malika, let's move to slide 11, please I will cover the recent developers all the developments of our portal platform, which remains the absolute leader in terms of web traffic offering a unique digital experience to students and supporting the continuation of schools.
Moving to studio social isolation times, we have to continually expand the range of solutions offered by poorly such as total store, which is substantially expands the offering of complementary content. Two hours truth is another feature recently launched it is crude or private classes plot.
For.
Paludal my teacher.
Which allows us to those for a partner schools to contract.
Classes inside the platform finally, we have a device that fast in the expansion of our digital services platform.
With the acquisition of S E L and the launch of Somos Integra, which connects kindergartens schools and our partner schools moving to slide number 12. Our this is our last slide.
I would like to comment on the M&A side. In addition to the strong to the strong organic growth a vast also made progress in its M&A for all by announcing three acquisitions since the IPO being a level learning sister Nora lab a platform the most relevant debt tranche.
Action is being our lives it by Brazilian antitrust body.
And we expect it to have the approval in the second semester of this year in parallel we initiated the planning of the integration and the works are in an advanced at this stage our M&A pipeline remains rich and we are engaged in all their transactions which are different.
Ages, having.
Having said that I finish our presentation and now open the Q&A section. Thank you very much.
As a reminder, if you would like to ask a question press star and the number one on your telephone keypad now.
And you'll have a quick question from detour Tomita Goldman Sachs.
Yeah.
Good morning, everyone. Thanks for taking our question so I'll try to Blackstone.
The strategic value.
The final spring line you can how much was impacted by COVID-19 and how long income Screeched shrunk back book offering in China.
For our non small arms as well so going forward do you expect for revenue from bar to recover quickly.
Operating debt and there'll be less prioritize debt.
Future sales cycles.
And second question would be.
If you can give us for more color on the strategy to create a new brand partnership.
Especially on how we complement you on it.
Brooks flow and it'll be caring for part of it.
The price point and also how you think Shaw structure sales.
All right.
Thank you.
It'll take thanks for your questions I will start covering the first question regarding to par in Malaga could comment a code on a day Mark comments on my my and so so first of all yes, we are seeing par affected by the COVID-19 more than any other debt.
More than our other initiatives right and let's remember that during the ACD beauty for 'twenty. One we were already focusing more in traditional learning systems and also in complementary solutions right. We what we were doing that for the time it because.
We were seeing that far given that the product is basically the regular tax textbook spike could be more affected than the other line right, but on the other hand, Victor we know that some.
More or less one third of the schools in the country day, we'll never use the learning system right that that's a reality, we can say that the market share for learning systems or the penetration of learning systems in Brazil our.
Close to 70 per cent and we believe that the debt. That's the penetration that we are going to see for loan assistance in the upcoming years, So having a solution for each schools that don't like the concept of a traditional learning system give us the opportunity to you know to fight for it.
For revenue in that part of the market that the peers cannot compete.
But I guess I can also offer to you that our main strategy to par.
Each to eliminate the printed books right. So all the initiatives we are doing with far from dis a commercial site to the next to commercial cycle is to increase the penetration of our learning book, we choose our hour.
Our chrome book as a service right. So we are converting traditional a par clients into par learning book clients and also our we are of course are transforming our we are incentive based and the digital adjacent these utilization off par right.
Having said that Victor Ah interesting to understand that par has margin and pod generates cash.
So it's not a business that we should Q is facing a difficult moment right, but gave us as I mentioned the opportunity to fight in a part of the market debt the peers cannot compete okay.
Moving to the second part of your question and please malaga feel free to complement me at the end right.
Regarding to people not shall we see fibonacci as an excellent opportunity to reinforce our premium brands and let's remember that simple not choose located in Minnesota is right. So it's the first the brand is the first to premium brands, we have immuno share right.
We have an envelope we.
We choose the top of branding so Paul do we have a pea age, which the top brands in Rio but people notches hour is going to be our top brand for us and we believe for with the behavior of people not true which is by the way you.
The top ranked top two blankets countryside, the SKU in the countries, they're only top 10 schools in Brazil in the and then results that is not located in debt in the in the capital for the state right.
So with people not sure we are aiming a reagents where do your other high end brands. We have are not reaching all the results we would like to see for instance, the northeast region and the North region, So adding people and ask you to our portfolio. We believe we will have for.
Well people are not cheap debt. If you don't actually learning system will be in our portfolio. During these marketing campaign, but the revenues are going to we are going to see the revenues in D. C. V 22, So the 22, yes. So for the next commercial cycle and again, we get what we do.
That's simple and actually reinforce our portfolio for learning systems right.
Yeah.
Thank you very much.
If I just could debt.
One thing about block, where we are.
A lot of women is from all the parties to migrate to a full digital platform such as Black box you could go platform.
So for subscription model also microwave.
For additional learning system. So I think we can see debt bonds, it's pretty much changing.
The business model to who'll be digital or microwave for loading system.
The trend there.
For my with schools to clip off the new bidding for the troops.
Perfect. Thank you for that much.
And once again as a reminder to ask a question press star one.
And you have a question from entrees per.
Hello from Scotiabank.
Yes. So thank you so much for taking my question first.
First I wanted to ask you because this is such an extraordinary situation.
You just mentioned that barring what caught in the middle of the second wave, where all subscribing for children to schools.
So I am wondering and eat in Brazil.
Scan.
It's great to have children to school needle also that all of the school year.
And in a way and I just wanted to know if you are expecting that probably a net.
Water or and you will see more students and getting into cash.
Right up K 12 schools that is actually possible or we have to wait until the next school cycle. That's the first question.
Question has to do a little bit with your business model and obviously best value is in your story. So understanding your business model, but I'm wondering if you go and take a little bit about how your deal.
In the sense that what.
What percentage or what part of your own view of your billing comes from software and services and what part comes from.
Mhm services in a way I want to kind of gross busy week to week basketball is a software company and I think we can.
Especially for an education company and I I mean, it's complex question.
But I just wanted to hear your opinion. Thank you.
Great interest thanks for your questions.
Regarding regarding to the let's just start with for the last question right.
Currently well, let's let's say that's a vasta aimed at best It was an education company with some Teck features two day, we see ourselves as a tech company delivering education right. So that's the first statement the second state the money is there.
Vast majority of our revenues today are coming from you.
You know are the the core content and the complementary solutions, which are I would say completely educational businesses right. So and the vast majority of our clients today they sign a contract for a bundle right the bundle which comprised it by.
The colt and the teacher training pleural plaque for MS asthma Central one right. So that's that's the the comfort that that that debt our clients signed this bundle, but yes, we are moving to become a software company and I would say debt.
<unk> by the end of the second quarter, we are expecting to see the first revenues coming from these completely digital initiatives such as brutal my teacher with which is the platform for connecting teachers and students for private classes.
And also polo store, which is our store connecting third party content or services to our students. So if we could advance the moving five years from now five years from now we are going to be much more of a software company. That's a company that delivers education, but.
To date, the vast majority of our revenues are coming from educational bundles, such as learning systems complementary solutions for one regarding to your first question our expectations about.
You know overcoming this tough period, that's a COVID-19 brought to our business is not in the next quarter I would say we are expecting to see better days in the next semester right, especially with young kids.
Uh huh.
The most impact that segment of education, but by COVID-19, It's the preschool rights and the and the primary school.
Especially in pre school.
<unk>.
It's not that difficult to bring the key the back to school in the second semester right because they don't have a tight curriculum to follow during the day school year. So yes, we are expecting we cannot.
We are not foreseeing a how this will impact positively.
Our revenue, but yes, we are expecting to see more keep coming back.
To school in the second semester, especially in the fourth quarter of the year and probably I can comment that we are delivering.
Product made especially to our failure rates kids that were outside the school, which means we didn't have for this product in our portfolio. So far but we are we are.
We are developing this product to a seller with kids debt is paid after David homes during the 2021 or two quarters of the year right as a way to our partner schools to incentive rates Fabulous to bring the kids back to school and a failure.
The kids to have a good <unk> 2021 'twenty 'twenty two sorry.
The school year right.
And finally, my comment about the future and dress is debt in the fourth quarter of this year and remember that the fourth quarter or for any given year is the first.
Who are in the new commercial cycle right. So we are expecting to see for the fourth quarter of this year.
As we mentioned we are we are seeing good.
How can I say goods information rights regarding two vaccines regarding to the macroeconomic scenario in Brazil. So we are expecting tool to have the next day commercial we're our best bet their commercial weird then than we are seeing.
<unk> this year right in any in any of our products. Even par we are calling for net debt the behavior of par for the next commercial cycle will be better than used commercial cycle right.
Bar, it's a it's a product that we only sell in the fourth quarter than in the first quarter of.
Any given year right. So in the second quarter in the third quarter, we don't sell we sports books or and we don't sell parts. So all day back.
We could have with par we all read that we all read that so now we are I would say debt. We are passing on a speed bump right and the better days Luca.
Thank you very much very complete thank you.
Yeah.
Okay.
So we have here a question from Pedro.
Pedro money in your Bank of America.
Actually two questions. Thank you very much Pedro first.
First question is a follow up regarding bar.
In order to reduce the problems of revenue conversion phase for this year.
Would it be possible to gradually change our distribution strategy and directly de levered part textbooks to schools.
Do you believe this could be an alternative for for our revenue recognition.
Second question was there any reduction in enrollments, you'll notice that our client schools are in the latest latest months.
And if there has been any change in the mix of schools due to the crisis.
Great Panther. Thank you. Thank you for your question regarding too far.
We are doing debt, we are trying to dis intermediate to the you know the sales the sales from front us too for the school and we also have our Levered posture, which is our ecommerce debt. So we do.
Due to we can intermediates ourselves as true lever for us right, but the main factor that is bringing the revenues that for revenues down is not related to intermediation or not right I would say debt. We are seeing three the combination of three factors.
Leading part to this result for these schools adopting traditional textbooks, where they schools debt took more time, you know to adapt it for the first wave of COVID-19. So these schools adopting a regular text books day, we're a little.
B the slow in adopting the operation in the beginning of the pandemic and that means that at the end of the year day last tamari student start day. They saw last enrollment than they were expecting this is one factor the second factor is the.
The you know the middle class family and Brazil lost income so if they can really use the book of an older Kids.
Kids are if they can you know buy a second hand book.
Of course, they will day will doing in in this scenario right. So this is affecting par.
Even more than the first than the first factor I mentioned right, even the traditional learning system given that the issue that they write in the you know they write in the work of books. They basically in the traditional learning system. They destroyed the material during the you know the.
The school year. So books are different right. That's why books have the problem in terms of a second hands.
Secondhand the assemblies buying secondhand books, and the third effect or its regarding to two enrollments right. So really we are now we can see debt is schools adopting textbooks they have less students.
Comparing to the projections, they have and they sign and Bein D. A C V. They have more they are being more affected than than schools are adopting the order.
Do you are there products right. So jump into your second question in Malaga. Please feel free to add on my on my answer here.
Yes, we are seeing for for the traditional learning system and complementary solutions that are novel reach schools. They are they are they are with laughing Romans than they expect to have for these for this specific school year right.
Depends on the brands it depends on the neighborhood they are more or less impacted right, but our I would say I can I can offered this information to you pay the debt on average we are seeing the schools.
With.
Somewhere between 6% less is true then if they then day, we're expecting to have two nine per centralize the students' debt than they expected to have right. So in that sense, we are seeing debt to the base of students.
We should have with the D. A C V to anyone is affected between 6% to 9% in number of students.
Okay.
And there are no further questions in queue at this time.
Excuse me operator, another question came up here.
Another analyst.
The securities to pose a question so.
That's a question from from Luca magazine EE that'll be a thank you Luca for the question.
His question is S. Carbon mass continues to deleverage should encourage vasta to increase in many activity going forward and you'll excuse me I'll take this question to myself so.
Look up I.
I think Vesta Vesta has has capped out.
Very active in M&A pipeline.
Overall this dispute right and this is part of our strategy. So we maintain a great focus on on.
Many activity there's a we have a rich pipeline ahead of US we have a very oh, we have a.
Many conversations with the targets.
Egypt banning the different stages right. So we plan to continue doing M&A and we don't believe that.
The current situation of Cognos lavage.
We will impair our ability to bring them in as a in the even in the even in the short term right. We have to consider that maybe the deals that are closer to a to a closing or deals or for a small.
Amount of revenue right, our ticket and that helps.
I have asked for to do it without hurting cognizant average, but are there the debt right answer.
Answer to your question as well.
We continue to win their lives M&A, regardless of cognex leverage situation.
Luca maybe I could just add to what Oh, Bruno said debt.
<unk> been debt, we have a traditional learning system under.
<unk> got approval, which is a lever right. We are focusing all of our energy two day in dealing with the opportunities we have in new technologies to complement to ROE and also complementary solutions right. So this kind of deal is usually is.
I would say a small deal right. So we don't have any problems to to buy this kind of companies Moe and the tax for one and we are going to move forward in terms of a consolidating more the market of traditional learning systems only.
After gods approval okay.
Okay.
So operator I have no further questions in my Whatsapp Q so.
You can proceed to <unk>.
Final remarks.
And there are no further questions in the audio queue and I'll turn the call back over to management for any closing remarks.
Well. Thank you very much for for being in this call with US Our IR Department is represented by myself and all of these are available to receive your questions.
Have a great day.
Thank you all stay safe Bye bye.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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