Q1 2021 Vitru Ltd Earnings Call

[music].

Good evening, ladies and gentlemen, and welcome to the first quarter 'twenty 'twenty 1 earnings conference call. At this time, all participants are in a listen only mode.

We'll conduct a question and answer session and instructions will follow at that time.

A reminder, this call will be recorded.

I'd now like to introduce your host for today's conference call Carlo Sleep beaches CFO you may begin.

Okay.

Thank you operator and.

And good afternoon, everyone.

Thanks for joining us the real pleasure to be here with you all for the release of our results for the fourth quarter of this year hope all of you are doing well and healthy.

Here with me is Maria Catalina Gonsalves, the head of our Investor recent Department.

And a slide presentation will be part of today's webcast.

Which is also available in our Investor relations website at Investor.

Bob Vitry Dot Com BR.

So I Trust you all have disciplined patient in front of you.

Of course before we begin I'd like just to make note that attitude in the second flight on this presentation.

Safe Harbor, if in fact for this call.

I'll now invite you to go to page 4 of the presentation.

So this patient usually summarize what we believe are the main highlights of the fourth quarter on this year.

First we have launched a new academic model that we called the FICA scores.

First from presents a huge opportunity.

Each of hundreds of smaller cities in Brazil, and I'll get the next day something later.

Second the intake numbers were very strong in this current cycle with a growth of around 32% versus what you had in the intake of left here.

On this again purely on organic basis.

With the delay of the and then as you all know the shape of this firstly taking cycle from southern trading 1 was more upsell you back ended than what we had last year, but at the antenna to other grades of component that's confirmed our resilience of our hybrid model.

With that we've reached more than 320000 students in this notification we didn't foresee on the growth in the.

Kathryn a weekend.

<unk> of 85%.

Both in the southeast in Brazil versus what we had in the first quarter of last year.

Regarding the financials.

Again, very fun with numbers, but net revenue in our core digital education on Big Red segment increased by 20% when compared to the first semester.

On.

The consolidated adjusted EBITDA grew by 40%.

Would you meet a substantial increase in our margins.

Our EBITDA margin grew to 26, 7% this quarter force of 22.4.

And last but not least our adjusted cash flow from operations.

Was up 55% this quarter.

And will reach a adjusted cash flow conversion from operations all around the other 7% this quarter, so very solid numbers as well on the financial.

Yeah.

All of this will be discussed in more detail throughout my presentation from each day.

Looking at next page with the flex Corpus So now on page 5 please.

As I mentioned, we launched this new model flow corpus.

We did last year.

On the product.

Regarding the subject which were quite successful.

And we decided to deploy the flex force concept.

Brazil, So what is that.

It is basically the same class a day and took their centric.

The approach that we offer in our traditional hybrid model, but instead of meeting weekly in a hub.

With your classmates and yours indicated tutor you meet virtually with Europe that meets weekly live classes with your tutor.

So even from other hubs is smaller and youth as a place for example, Oh, but why did you do it well why are we doing that.

This model, it's very stupid.

It was better for smaller cities.

I mean did the students will not discovered by us in our traditional hybrid model.

Because as you can imagine.

There is a minimum size of a minimum scale for us to open a new hope in a given city.

So we we were until now focusing our air force in mid size and large cities because of its the pure nature of our hybrid model with.

A nice hub with weekly meetings, you know hubs.

So for us it presents a huge opportunity to accelerate the growth of our student base by offering our high quality malls 12, Brazil.

With a faster expansion of hubs.

We just gave you.

And being present in every corner of our Brazil, with our vision, which is to offer education with the high quality.

Again to their base.

And plastics, we still have.

The the class if you still have the sense of belonging.

Uh huh.

The the Nikkei computer that you have when you go to University, you'll have a dedicated to the from your.

The region and instead of going to a hub physical need to meet and because we live in a small city you basically go to hope has just taken because then you have your on a weekly live live classes with you today.

So this is different from what's involved with from a competition. When you think about just on learning.

Now moving to page 6 here in this.

Slide 6 we have a snapshot of the growth in all of these.

We had as of March on.

330000 students being 97% on 5% have been engaged in digital education courses.

And we focus on the students based on.

All of our digital game on Undergrad segment, which is our main business.

You can see that we had a CAGR of 30%.

The last 5 years.

And when you look at the numbers for this quarter gross interest.

It meets them all of them because suddenly people are simple and.

And why was that because as I mentioned before this was due to the different shapes and then taking purposes in the fourth quarter of this year.

The first quarter of last year and neither later on always showing from number I bought it.

Uh huh.

So is this the.

This shaped what some more back and it's a day on the left here and do this maintenance I said due to the billing day in N, which are then even important okay kept on list 4.

Enrollment in our post secondary segment on Brazil, I do know.

He brings a lot of momentum to the channel sector.

And the results. This year were released in late March instead of beginning of January has done last year.

So and you remember that when I said in late March when we were we're leaving the numbers of last year I told you that our index up to the day, while it's growing high teens.

This meant 18% effect and now with the full numbers.

For Florida, Florida, the intake cycle.

An important growth of 32% when we take the whole on things like right.

Very nice growth and they've taken a floor for this quarter on for this semester, especially now on.

Then make special note on some situations, we are confirming the strength and resilience of our model.

No.

Moving to page 7 we show a.

But the on the the trains and increase in our digital education shouldn't be weighted.

Extend it substantially throw those who are well above the market and this is a market that has been expanding a lot overall and in our opinion will spanning from Florida after COVID-19.

And within this growing and appealing market, we have a growing set of new competition. So our growth was particularly.

Particularly strong in the South East region of Brazil.

Oh, our base there grew by 85% in the first quarter on these Oh this year compare to the water had in March I'll finish here.

And here on the right part of the slide you can see as well the evolution of the number of hubs in the last 5 years, we have been opening.

Around or slightly more than 150 hubs sport.

Most of the Parker said, Hello, and now we have more than 700 employee hubs, Florida.

With the flex courses.

We are going to open even more hubs throughout Brazil as I said this new concept will help us to accelerate growth throughout this year and in the future. So Florida easier we are going to open 250 hubs throughout Brazil.

Yeah.

Now, let's move to page 8.

Just to focus again on the southeast.

The the growth as I said it was very strong in the focused where we have been historically shine.

But where we have been expanding on lots of them, but on the last 2 years to 2 years.

Uh huh.

As you I didn't know if I I always tell. The example, we were very very very sharp in the southeast on pizza and the team and then we entered into the Martha mirrors their eyes, a win with a number of hubs that were successful and then it will depend on the partner and then we entered.

In and William.

In 19, especially last year, we opened a lot of hubs and we will unless you're in 19.

By the way the city of religious on any of them at in these parents taking cycle.

Ive already our second largest capstone in Brazil.

Yeah. He takes the first 1 that's put on every second 1 you have to feed other reason there. So these are just to confirm that our model is also proving itself in the southeast.

And it's.

It's very strong El Nino said I spent the zone 2 and in a real now and now we're growing a lot are in Sao Paulo, we opened a lot of new hopes there from total so you can figure in the short term.

Who have hung in on from 7 hubs in the southeast now.

Alright, Alright, do you want to work in the state of simple.

And we're going to grow even further there in simple stuff on politics.

Our next frontier for important growth in the southeast.

Yeah.

Now on page 9 we focus here on the most important driver for organic growth over time, which is the maturation of our expansion hubs.

We had a we have now almost 90% of our hopes.

And that he called expansion of hubs that were opened.

After the change in regulation on installing it in 17 and are therefore, not yet to mature.

That's the 1 who called exponential hubs.

Uh huh.

And we shall maintain our substantial growth overtime as those around 660 hubs that are in the expansion on hubs mature over time.

They are people like cohort here on the chart on the right, they're still making up as I said.

And to illustrate this growth potential with couple of other there's a theoretical maturation on index.

Which is basically the number of students that we have now divided by the potential number on average eating the pumps.

Once they reach maturity with just for this case here after a 708 years, but we have now a maturation of index of around 32%. Once you meet that booth paint to hubs has the capacity to increase that there couldn't be a threefold.

And again this is growth.

That is at risk.

But there the brand is there the tutor.

All of our hard the partner is there. So it is a growth with limited risk of medication.

1 remark here as well just to highlight that the number that we show here are the picture is off the end of March on horse.

But as I said they were affected by this more back and that's profiling being taken in the fourth quarter I'll be here, but in a more normalized scenario upstate.

For example, the number of students in the big hubs are the ones that are mature already that they should have been flipped that the normal trend and the growth index potential hubs would have been even stronger.

That's what we expect to see now in the second quarter for example.

Now moving to page 10.

To focus here.

Before on the metal revenue.

And the average tickets are aimed at taking cyclical for the diesel education on the graduate segments.

So net revenue in the quarter increased by 3.2% from the segments and again.

It was purely on Oregon Booth and despite this is like any other profiles.

So even though we have this modular approach them.

We only have a revenue contribution from our new students once he or she Jennifer.

So it's different from the from the typical model that he do it by the competition and which is based on the on campus on weather.

Our purely a beach it though model it is a sequencing of synthetics.

So you can join us in March or in April and then your comfort with revenues once you join us.

Because we have this that's going on here on the right are more back and its profile for the intake.

We had let's say lower revenue contribution in the fourth quarter of this year. So again here on the right you can see.

See the purple.

On the lifeboat launch day.

Kurt It's a core for 2020.

63% of the intake of new Commerce.

Alright here by February.

While these here it was only 60% 52% of the total intake in do you think they can cycle.

So here you can see clearly that last year, we had very strong January and February months.

And then it was much slower than the.

The pandemic.

Now it is more spread over time.

Do you need what does it means that we.

We have.

A decrease in the average ticket this quarter because here in the middle a 4% decrease in net ticket, which was the main cause for that's what's clearly this delay in the entrance of new students. They are here in our picture of March.

So they are in our upstream doesn't mean either.

But they brought not much revenue in the first quarter on video.

So so this is as I always say our ticket we increased a little bit.

On waters with degrees in some quarters that are left the mirth or as you remember our figures increased by $3.5 per cent.

Compared to the first half second half story.

In 19.

And this reduction, but it was free and we saw it in this fourth quarter from here.

The strength for Devon.

We've worse reports now already in the second quarter in the second half upstate.

Yeah.

The trend is for it to be stable over time, given our model.

Now on page 11.

We will show a bit more about the several lines of on income statement you can see growth in net revenue led by the expansion on additional accretion on the graduate as I said before.

As well as important increases in gross profit.

And disability.

Margins.

Let's now move to the next leg to dig a bit deeper about the drivers of these numbers.

But based on health, we will focus on them that's resin.

Between this quarter and you can see the growth in the consolidated net revenue.

On a 17% was driven.

By not only by the growth in digital education on the grid.

Uh Huh that we've just discussed but also by the growth in continuing education.

And mainly with our beef towards get them graduate courses.

There was a substantial growth net grafts on the segment led by a better mix of courses and by I'll say, a more intense and focused us on digital marketing this quarter compared to June quarter.

So the run rate here is extremely positive and we still continue to see a important growth in that would be putting them on the kitchen segment throughout this year as well.

Based on our consolidated growth was diluted by the reduction on chemical segment, which has been declining over time in line with our view for the whole all secondary sector are in Brazil.

The second line much more concentrated now on quarters not offered in this application such as la on North recycles et cetera.

And we do believe that the relative contribution of this segment for our consolidated overtime, we would use it for.

Which means that our consolidated net revenue growth will be more and more closer by close to the growth in our 2 digital education segment.

Which are growing a lot.

Yes.

Now on page 13 are the drivers of it are the pieces of the adjusted EBITDA Bridge.

So again a growth in our margin a 4.3 points, which is 20.617 percentage is in the first quarter and usually in the in the first quarter of the month. It is.

Usually a smaller margin for the whole year.

We have had a.

A reduction in cost on surface and increase in selling M. P. D expanses, which is here on out.

On the following slides on page 14.

You can see importance on reduction in the <unk>.

And the cost and the margin in the cost of service and in the let's say, let's get into increasing the gross profit.

This was due to a number of things.

First that's really gained on scale.

And as we go forward, though we can dilute more on our fixed cost. We have also an important reduction in personnel costs.

And this was driven.

By a better ratio of students birth tutor as we grow further as we optimize on a daily basis, our business we are improving steadily.

Suddenly the deterioration as well the fixed quarters also help teach them to to maximize this situation and.

And we have as well we had to fill an important reduction in the cost of academic material sent to citizens Oh.

Our our model.

Still based on on stemming from books to students.

They liked it to have as well.

The app and the size of the computer based.

Alerting system, Oh collect half of books are and what is that.

In the coffee with books.

There was an important increase.

Margins here as well regarding G&A on the right.

Jet increased roughly 20%.

In line with increase in our net revenue and such increase was part.

Due to our to our roof.

But also due to our new entity as on because the company.

Anyway, the G&A at 8.6% of net revenue.

You might opinion on E. I'll tell you a nice number and way below what we see.

The ratio of our peers.

So basic thing.

She is focused on on Sunday.

Second price increase a little bit this quarter.

And this was due let's say to force to the from Deneke last year, a big chunk of our intake was as I said in January and February before the pandemic now with the pandemic. Our hopes are closed and hope to play an important role in nowhere enrollment in that line.

Hum.

And the delay and isn't it so which was also seen in the.

The whole sector with a delay and then we had to spend more money to attract the attention on student so with the going forward, we shall see a reported redemption as well here and there isn't any line.

Regarding the P. D are on the right.

PPD inquiries on little bit on compared.

Compared to the first quarter of last year, it is more or less more or less aligned to what we have seen in the last quarter, but higher than what we saw in the fourth quarter of last year and this was due to 3 reasons.

The first 1 was.

On the very strong intake, we had less and less in the second half of last year unless you're the second line. They can cycle. We grew 40% votes on the second semester, especially in 19. So as you know are the.

Most of the P D. It's contemplated around.

On a newcomer.

So this new commerce.

They are on.

Part of the explanation for the increase in P. D. The second 1 is of course, our currency on the crisis, we cannot to fight it.

Just 2.

Different from what you saw last year last year, the dependence on it quite a while.

It's harder in the second line in the third.

Quarter on nothing to Portland and also.

The third 1 the fact that our folks are closed.

Our model is a hybrid 1 oh.

Typical of traditional model.

Life on this weekly meeting with a tutor.

It help us to do it to.

Keep the students more engaged over time.

It brings the strength of community that I mentioned before enhancing engagement.

As we move out of the pandemic and.

With the with the return of the weekly meetings had to hub our number here as well show show the return to a normal numbers and we go out on the spending.

On page 16 net.

Income and cash flow net income there was a reduction in net income base.

Basically because of a 1 off we had less unit left.

Last year, we were recognized for the first time before it fixed assets of around 18 minute race. So if you see the cash earnings that we had.

It is unfortunately building. So if you take out the 18, you can react to last year.

Net orange wouldn't have grown from 8 to 16 million reais more or less.

So our important growth as well in net earnings on a cash basis.

And I'm here on on the on the right.

A very important growth in cash flow from operations and it's just a cash flow conversion from operations.

We have here.

But increase in the cash generation.

And and the cash flow conversion of more than 100% on 10%.

It is very important for us we attract the students we would think students and we can collect from them as well.

We are very focused on both receivables management.

We are fortunate, but we could have.

On a.

But higher student day for example, if we simply provide a discount to par.

Other people choose to renew with US we don't pay their tuition it would have been very easy for us.

But it would have not been a a nice indicating.

Cash and free cash flow perspective, so that the balance between tickets are sitting on a day.

Retention and cash flow is very important for us as always.

Well regarding expansion on page 7.

17 are on top of the growth in the student base in a.

Digital education segment that I mentioned already we as I said before we are we launched the new standard corpus.

In the fourth.

And with the success.

We are still in very few.

A few hubs.

We decided now to expand this new offering all the technical force through all to Brazil in the second half of this year now we are going trough on the thinking around 145 hubs throughout Brazil.

This is a new roof Avenue, just has a huge potential either very very put them into the market.

And.

The public the typical clients because the same person that later on.

You wrote and engage with us.

To go under the way the quarters before.

Here is a very important way to to stay tuned on between large dislike longer dealing with the students overtime minimizing.

The cost to attract these claims.

And last but not least on page 18.

M&A we are <unk>.

Going through the funnel, we are advancing in our reported.

Had been discussing with a number of players and with a few of them we are upstate advancing strongly.

And quickly in the M&A process.

Nothing yet to be announced.

But we trust to be able to announce something to you whitestone.

Yeah.

So to wrap up on page 19 keep takeaways are again, we are the leading pure player in digital education in Brazil delivering above.

Both above expectations on that.

We promised during the IPO last year.

Delivering a important growth in average every tickets on the base.

Tickets.

Improvements in margin.

An important focus as well in the southeast with cash flow generation. So all of that's the true north as well to capture future growth.

So with that I would like to open for questions.

Thank you as a reminder to ask a question you will need to press star 1 on your telephone.

Rich on your question Pesky price them back will become part of the current day roster.

Yeah.

And our first question comes from day to me that with Goldman Sachs. Your line is now open.

Hello, Good afternoon law.

Thanks for taking on Blackstone.

So we have 2 classroom on ours.

Sports line.

If you could elaborate a bit more on commodity shrunk.

I know, it's trash off net can take Boston.

And our second question.

Thank you Colorado zone.

We will be flat carpet.

You bet on problems day in 5 years from now.

And the chart on our.

Our student day. Thank you.

I think it would be there for a question on.

The competition on dimension in the fourth quarter.

That's with the delay in the in the NIM.

But you had to choose a picture to compete a bit for a bit stronger this quarter on them in a normal quarter on okay.

And then it's very important.

Beef in the even in the.

Overall enrollments on a calendar.

So this quarter.

There was in the let's say in the first half of the on Linkedin cycle, Let's say.

More of a competitive environment.

And especially in January and February.

Then in March April and they are all day to what's more normal.

Normal so that's how we that we had a very good scenario and we were able to deliver at nights ago.

But I guess it was slightly stronger in the first month of this of this intake cycle because of the delay of the mental everybody had to ask.

They choose to fight a bit stronger.

Yeah.

And for the second question.

The flex Costco the flex of course potential I mean, we don't I don't.

Have you on the.

The Portland places on the weekend of having flipped coffee in the future we will have in Brazil.

Around 800 cities for example that are between 2 and 3 in 2040 thousand.

People that we could.

On the anther with our flex force for them. So they would typically typically.

Focus on students that are bigger than 40000 people in total population.

So the flex force has a important potential to expand this did this growth in interest rate growth.

Have you a number 2 to see what would be the target for fixed quarters.

But this is clearly an important driver for our growth on the pension going forward and with that we can.

Now we can see that we can reach every corner overdue.

Thank you very much.

Thank you.

To ask a question you will need to press star 1 on your telephone.

I would now like to turn the call back over to Chicago Pizza.

Yeah, we had here a question from from from Pedro from from from from BTG.

He was he was he's making 2 question from Portland.

Is the ideal level of P D looking forwards.

Uh huh.

P D a.

As I said, it's very it's higher.

Around.

Then the newcomers they can take and much lower which 10 years. So.

The ideal level of PD.

Very tricky and very very good.

Interest I mean.

If we stopped growing.

The next quarter for example, if we don't have anything at.

Our P D all day.

We'd be very smaller if you don't have to do here. So it will depend on on the growth on that it would have.

What we expect to see that given the nature of our growth.

This number here that we had a 16% last year was around 40% show a slowly.

Decline overtime as we have more females, you know took in beef compared to choose which of the 2.

So we'll.

I'd say overall.

Medium term.

We shall have a P D level of around 9% to 10%.

In the play for 5 years.

Because we are going to keep growing a lot our student base. If we if we stopped growing.

We have been more on that.

The second 1 the second question Pedro is what is our expectation for the next intake cycle.

It is oh, let's see.

Very strong we have being ready preparing themselves for the Mexican taking cycle.

It will of course depend on how the pandemic evolves.

On the new because are.

We it is effect that's the the the hubs closed.

Affect our all our intake cycle, but even with that we had 32% growth this quarter.

A semester and 40% growth in the second semester of last year, which was within the middle of the percentage. So we have a very strong uptake.

Our prospect for the second half of this year as well.

Okay.

Yeah.

As a reminder to ask a question you will need to press star 1 on your telephone.

Yeah.

I'm not showing any questions at this time I would now like to turn the call back over to Carlos free that's for closing remarks.

Take away or.

So I guess, we were able again to deliver a nice number and myself and I've got Oh and hold on our teams. We are at your disposal to shoot for any other questions. They put them on.

Sure.

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

Okay.

[music].

Yeah.