Q2 2021 Vitru Ltd Earnings Call
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Good evening, ladies and gentlemen.
And welcome to V tooth second quarter 2021 earnings conference call. All participants are in a listen only mode.
Anna we will conduct the question and answers.
Session and instructions will follow at that time.
As a reminder, this call is being recorded and will be available on <unk> IR website.
Now I would like to introduce the host for today's conference call.
Mr. Carlos Brito vitro CFO you may begin.
Thank you operator.
Good afternoon, everyone.
Thanks for joining us, it's a real pleasure to be here with you.
While the release of our second quarter 'twenty one numbers.
I hope you all are well and healthy.
Here with me.
Have been Nebraska, the feel of the true end demand.
Maybe I can arena going forward the head of IR and also IPO for Lucky from our recent thing.
A slide presentation will be part of the webcast.
Also available in our Investor Relations website at investors <unk> Com BR.
I Hope you all have this presentation in front of you and before we begin.
I'd Love just to make note that attitude is like two and three of the presentation.
Safe Harbor in effect for the school. So now invite you to go to page five of implementation.
You'll have a glimpse of the highlights of the second quarter.
Uh huh.
Of the year.
Not a surprise to you are the first highlight was at least in.
North America that we made yesterday.
Regarding the agreement for a business combination.
When you say tomorrow.
Which as we discussed is a leading institution and indication for high quality education here in Brazil.
And also it would affect the presence in health latest Cortez include the medicine, we're very happy and very proud.
Having reached this disagreement with the.
This transaction is still subject to antitrust authority authorization, which we expect to have by.
By the beginning of next year.
Second.
I like that.
Sure.
Families new quarters, a week got the approval.
The Florida law Corpus and only in vitro location.
It was granted who had the five great granted by the Ministry of Education.
With did not allow us to offer because there's still some pending that's in this purpose.
Uh huh.
We had one eight of them were going to be allowed to offer more than 22000 seats of law. In these new indications, we're going to be a game changer, a revolution in the industry.
And also we were also.
Alright.
But you can get the minutes.
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Hello, everybody.
Correction, we work with.
Yeah.
So.
I was presenting the second bullet in slide number five all of the communication that it's worth you all have in front of them.
Oh I see before then.
We got.
If the regulation.
We've got a great price.
From that and some niche applications to offer long courses and we got the authorization to offer now nursing corpus of English education, as well, which we already started to offer.
Two weeks ago.
This is also a major a push for additional indication of English nursing is a leading cause debating on campus and Oh by the way.
Our nursing digital course.
He is already the second largest we have.
In fact in the currency and taking cycle.
And that with only two weeks of <unk>.
So.
There's a huge demand we are taking high quality education to all the.
The places.
Theres, no brick and mortar education available.
But with all of the quality that you.
That'd be helpful for doing this also.
For some game changing a lot of movement there.
Okay.
So the bullets, we reached nearly 364000 students in these verification.
With important growth in the southeast.
I'll show later.
Revenue in our core digital education segment.
<unk> grew 35%.
In the second quarter of this year.
And the consolidated net revenue grew around 30%, so very solid numbers.
<unk> adjusted EBITDA.
<unk> increased 22% in the quarter and Jenny.
And that's 9% almost.
In the first two months of this year.
One other thing that difference between the first and second quarter and the first semester numbers.
And our EBITDA margin in the first half of this year.
Well, if my 30 per cent.
Compared to 2009.
For the floor.
Cash flow generation from operations income.
Leaving 33%.
Switching 76 billion Reais in the first half of this year with an important cash conversion of around 84%.
I'll now on page six.
Yeah.
Some highlights of our own since I'm on it just for those who cannot.
Participating in the call we had.
This morning, so onto the war.
Lead institution with net revenue of around 730 minute really into <unk> and 'twenty.
And more than 250.
Whereas last year as well with a 35%.
Our margin, which fell 160 hubs for more or less the number of hubs that we have as well.
And in total more than 300 in fact, 2000.14000 digital education students, including graduation, and other graduation.
Thank you.
I'll jump in on campus and an important CAGR of around 50% in the last three or four years.
On top of that.
It is a very relevant player in medicine. It is one of the.
It is among the top 10%.
Medical quarters.
In the education standards.
And.
<unk> demand.
Our ratio of 11 to one.
Applicants per stick.
And to fight their money and non accordingly.
And with that.
Yes.
Overall indicators accordingly.
As you can see here on the right.
<unk>.
They have a CIA.
Institutional concept of five such as well.
If you have this IGT.
Of course index of course clothing.
A hole for 10 years.
Which is quite unique in the industry.
They have a IGD.
$3 five as I remember is that the in theater that measures the evolution.
The students throughout the course compared to the grid of the and then with the belief that.
The February <unk> provided by the institution is measured by the <unk> and <unk>.
Around 40% above the one oh.
The markets and even above the one off into a separate which is the highest average RGB in visa application among all listed companies English.
On page seven.
Reminders about the transaction details so F ter.
The amendment to our purpose.
Hopefully beginning of next year.
Brazil will own 100% of the total share capital of symptoms.
Furthermore.
The company that owns that.
They don't want to be paid around 60% at closing.
Perfect.
One year after closing.
19% easy for shares to be issued at closing for a total <unk>.
Equity sale of three points.
<unk> beaten raise.
Enterprise value treatment.
Some have been already which means any fines.
A multiple of EBITDA.
12 months.
Now June with now the numbers are available of around 11 eight.
And also from a fee perspective.
Thank you.
It is a very.
Crickets transaction, the last 12 months net with both the profit of onto the warrant.
Both 200 millimeter node.
So it is a transaction of around 15 times.
We look at the last 12 months numbers.
If you looked.
Got it.
They're prospecting number of the future numbers.
One thing too et cetera. It is.
The lower band.
It's an infection with a lot of important synergies.
Which is which are here on the right.
And not only cost.
Synergistic with.
Also commercial centers.
We have already.
Estimated debt.
Regarding cost and expenses.
We will amount to between 115 to 130 million reais per year.
By 2024, so three years from now.
The synergies of around 116.
230 million Reais per year, which if we.
Bring tissue base value taking patient out.
Between 100 to 110 million reais per year, so a very sizeable amount of synergies.
Total present value.
Synergies and cost and expenses.
More than 1 billion right.
And on top of that we have.
A very potential commercial very important potential commercial synergies, which are here on the right. The first.
The faster expansion.
With the potential use of both brands in cities with only today, one Brent to believe there are.
600 cities in Brazil, with only a hub from either when you put them all.
So the.
To bolster growth for cross selling here. It is huge and also with the increase of offering.
Courses that we forget what happened here.
Perfect.
We have to be around 151, there were great quarters in visa application.
All of these have been upheld.
Potentially a bit more than 60 quarters. So also here important potential choose to offer both.
This quarter in both banks.
And also the <unk> transaction.
Finally as of today control arm.
We will hope around 23, 6% our future.
For the three profit perfect response.
$66 six.
For clothes.
Around 20%.
On page eight.
Another important highlight as I mentioned, the new quarters will have in detail on the graduate courses.
First motion.
They're either being offered as I said.
And to date around.
6%.
Of all our intake is emerging as the second largest.
Intake second largest court dates for the current cycle.
Again deep star.
Three.
So there is a huge.
A potential <unk>.
<unk>.
Four four nursing courses. So this is going to be an important driver for growth here going forward.
And also law, if I close it by the way.
Or once once that.
We are behind.
We have already been granted the great fundamental application, but theres still a final purpose.
So all four quarters of law and psychology, which we hope that we can offer for quite some time.
I'm here.
Pie chart on the bottom right you can see.
Ice and the relevance of Murphy's law and psychology in the current on campus enrollment.
So.
<unk> together with events around 27% more than one fourth of all students.
On campus courses.
That's helpful.
Some more numbers about our growth in <unk>.
Our reasonable indication.
Water.
We reached 308000 students a growth of 30%.
Quarter on quarter.
In line with the CAGR, we have in the last years.
Richard.
Total number of around 371000 students.
Of which 98% in digital education.
And as you know as we've discussed already in the last call the <unk>.
Take cycle for this.
Year for the first semester of this year.
It was quite a bit different than what we had left here is here on the bar chart.
In the model.
There was a certain delay in the inflation for the first semester of this year, which has some impacts that I'll show you later in the average ticket.
But the Olympics was a stronger.
Again this is already presented in the past, we had an increase of 32% in the intake or under evaluation courses. This year.
And by the way revenue currently take cycle is also very strong.
Phil.
Far from the end of the cycle.
We have it's modular academic approach to reach.
We have incoming students.
Basically a 12 year.
And with too far from that and what we have seen so far is that on a.
On a comparable basis.
<unk> is very strong again.
I think the Olympics.
The expansion throughout Brazil, comparing June over June.
You see here that who had growth throughout Brazil throughout the country.
In our.
Core market the regional market in the south of Brazil.
17% growth.
Even be an.
And throughout.
The center, North northeast strong growth and particularly in the southeast.
Southeast.
Doubling the number of students.
Over at year over year.
And it is not only.
Bye.
And kind of the maturation of our courses, but also by the expectation.
Let's talk about attrition of our hubs, but also fund the expansion.
We see here on the right that would have increased by 31% the number of hubs in the last 12 months.
On page 11.
Some more color about the southeast expansion.
In effect, we are doubling the number of students year over year. So we had 16002 years ago, one year ago, probably in December of.
<unk> 19.60000 in December of 'twenty 30000 now.
Now in June of this year for.
43000, but we have worked with Dolby.
Over here.
So this erosion that we are still shy.
And now with the business combination with one another one.
We're going to accelerate the penetration in the focus.
As a reminder, the.
11 portfolio of hubs of owning <unk> and <unk> are very complementary.
For example.
And then one more.
130 hubs in the state of component.
So it is a very supplemental commentary.
Our portfolio of hubs.
Yes.
The.
Institution.
Also throughout the maturation of our current hubs.
This a very known charted I'll look it up.
And just.
Just to highlight that we keep maturities the hopes that we opened last year the base of the major hubs.
If we see major they are stable they are more or less around 100 between 110100 students, which is mobile VR virtually at full capacity as you know.
And all of the expansion.
As planned.
Throughout.
The country and we do have a maturation index.
Are some of the exploration hubs of around 34%, which means a potential to increase threefold.
The number of people in the tubs.
I'm pleased 13.
Our financial numbers.
Here I would like to highlight the increase in net revenue of.
If we 5%.
As I said in this quarter and 30%, 28% in the first half of this year, so very strong numbers.
In our core business and also in the consolidated numbers.
And here on the right.
I said.
This was.
Third external growth in the first quarter of this year.
The delay in the inflation cycle.
First semester of this year.
Basically because of the NIM debate.
And then.
It is important.
Trigger for for enrollment.
In Brazil.
And what the needs from early January to end of March for the whole sector had the effect of a more back ended is taking cycle, which means that.
The newcomers that join us.
Throughout the first intake cycle the left on the.
Alright.
Less revenue.
And then left here lately.
This slight reduction of 2% and the average tickets.
On page 14.
Consolidated figures.
As I said before 30% increase in net revenue in the quarter.
35% gross profit increase.
Adjusted <unk> increase.
Including as well and reaching 96, 5% EBITDA in the first six months of the here.
So for more details on that on page 16.
Growth strong.
The table dislocation.
But also in continuing education of very strong growth as well.
21% this quarter.
On campus owned.
Right right.
Where can accept.
Well.
This.
Declining overtime.
I don't know.
But this is more than compensated by the growth in additional indications.
So on page 16, some more details about continuing education and on campus.
Location keeps growing.
At first.
Under regulation.
And on campus.
It is.
Declining a little bit year after year and.
And we have that 12 year important to just remind you all that will have virtually no dependence on fifth so.
It was in the first.
Second quarter of this.
Year, only beautiful southern Midland rigs working here and it has tended to view going forward.
On page 17.
The breakdown of our EBITDA.
Here, we have a.
So I think.
In the margins in the first half of this year and a slight decrease in the margin in the second quarter of this year.
Just like to point out that we should look here at the half.
Year numbers basically because last year ended.
As explained in the last call last year.
When we had the COVID-19.
We made a.
Provision for income.
In the first quarter of last year.
That we reversed in the second quarter of last year. When we did incur an discussed so the comparable base of last year wasn't it.
The COVID-19.
Choppy.
That's why it is virtual quarter sorry.
Year over half year, but thats the visibility we had last year in the fourth quarter, a 3 million reais.
Provision for material materially with students and that we've been on.
And this provision.
In the second quarter, that's why the comparison base of last year is a bit.
So if you look at the.
First the macro numbers there was a special off at one point to one point in margin.
Cost of sales decreased to two 8%.
Selling a car T D.
And I'll show you a bit later.
And at the end.
Over the.
The 30% adjusted EBITDA threshold.
Threshold. This this half year.
At least 18.
Some of the table here as well so if you look again at the first half number.
Uh huh.
Year with last year.
There was an important reduction in cost of service.
So 34% green balance of 28%.
So the nominal number was virtually flat.
Year over year and this is true.
Gains of scale.
This is through the implementation of the flexible business through general optimizations.
Personnel as we grow further so as we grow we are able to optimize more and more the for example, the ratio of students per class when they're able to dilute fixed costs.
So this is.
A clear against a scale as we grow.
On the G&A side on the right.
We are more or less stable with seven 5%.
Uh huh.
Revenue.
Estimate connector and six five.
In the quarter.
The occasion to highlight that we were not a listed company last year now we are so we have some more cost this year.
But going forward. The trend here is if you have further gains of scale and a further reduction in the G&A cost.
A percentage.
Revenue, which by the way is very very lower than peers.
On page 19, some expensive M P D.
So a slight increase in selling expenses.
And the busier.
Basically because a big.
Part of the intake last year in the cycle of and taken last year.
But I didn't know what was.
Before the pandemic for January and February.
Now the whole intake cycle easier.
Within a pandemic scenario.
We had to incur more online media.
Oh, the peers, who had some core anymore on media.
Pandemic, especially.
Actually in our case at the hub we're closed.
As you know the hub.
<unk> are important.
In our selling machine.
We would hope closely.
But weaker and more online media and the delay in their name.
So it was important.
Important too to choose or to increase the need for four more marketing expenses.
But on top of that there is a another important factor which is.
Important.
We had to your thinking.
We had a very strong intake this year.
And also a very important take last year, which now translates into a slight higher PD here on the right.
The PD.
On a quarterly basis.
As a reminder, last year in the second half of last year.
The increase in taking group by around 40% compared to the taking in the second half of <unk> 19.
As you know the new commerce.
And it represents a big chunk of it the bigger chunk the effect of PD somehow we had this effect in the second half of this year.
All based training.
Adjusted net income.
A bit down compared to last year.
And here the most important reason.
We recognized last year for the first time in.
In the beginning of last year.
<unk> efforts for the comparable if not it's not.
Our picture.
But also we had increase in financial expenses this year.
Most of our debt is linked to IPG is still linked to the completion of the of.
<unk> from <unk>.
Five years an IPO.
So as an old IPC.
Much higher than expected in the first half of each year.
And on the right.
Cash flow from operations as I said very strong.
A lot easier and within corporate cash conversion, so we not only.
So akshay.
Game changing transaction is.
Complementary footprint.
So thank you all and I'd like to open floor for questions. Please.
Yeah.
At this time I would like to remind everyone in order to ask your questions. You May Press Star then the number one on your telephone keypad.
Again, that's star one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Okay.
Yeah.
Again, I would like to remind everyone in order to ask your questions. You May press star one on your telephone keypad.
Yeah.
There are no more questions at this time.
Please continue.
Yeah.
Is there a question here from the from the webcast.
First question from Vitor Tomita from from Goldman Hello, Viktor.
First question is could you give us some more color on ownership of modest current exposure to law enforcement and psychology.
Cortez and the weather.
Could support the launch and promotion of digital course in those areas very nice question.
Thank you Victor.
Uh huh.
One of the competitive advantages of <unk>.
Onto the one is the high quality and the focus that they have in house.
I'm presented courses.
They are very low.
In English is bottleneck.
And we have chemicals in Lyon Gerland arena curriculum.
They are very known for high quality health coaches. So it is very clear that.
We will be able to join.
Released once COVID-19, but by the authorities.
And then a big profit of their knowledge together with all of those but we also have quarters like this.
In cycles.
And create a great product.
Our nursing quarters is already been offered a defense.
They're multi quarters.
We will still be offered but once it is approved it will be also success flushed with a floor.
It is.
In our case and also in Turkey. It is very important.
Court in Kansas.
But.
We are very complementary, but once it does allow us.
We offer through these locations.
I'm going to be a success.
Strong <unk> of nursing.
Second question from Victor.
Is that.
That's flat quarters are launched more widely.
Could you give us some additional color on the economics for flex.
Especially in terms of how average ticket compares to your pre COVID-19.
Hybrid courses.
Very much.
Very important question Victor.
There is some confusion around the ticket is.
The same thing.
There is no differentiation between the flex course, and the typical hybrid costs.
Of course, the in the fixed cost you have life.
Life in Congress life, with a tutor or dedicated tutor for the reason you have a class have classmates. They have everything at the same the only difference is that instead of going to the hub units online.
So the.
The pricing is the same there's no price differentiation here for <unk>.
Flex force.
It is an opportunity for us to enter into either smaller cities that today.
Do not support a traditional when you still have the hub.
<unk> plus <unk>.
Those quarters that do not have.
Demand in a given city.
So.
Those are the questions.
So thank you very much for the pleasure and we are.
Are available here and myself Karl.
Hi, Gail and Pedro.
To answer further questions going forward.
Okay.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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