Q3 2021 Vasta Platform Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the best of platform third quarter 'twenty One conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
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I'd now like to hand, the conference over to your Speaker today, Mr. Bruno Giardino. Thank you. Please go ahead.
Good evening, everyone and thank you for joining me in this conference call to discuss the platforms third quarter 2021 results with me on the call today, we have Mario deal Foster CEO, and Gilead and email I got vast a 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.
By these forward looking statements.
Forward looking statements. In this presentation include but are not limited to statements related to our business and financial performance expectations for future periods.
Our expectations regarding our strategic product initiatives and their related benefits and our expectations regarding the market.
<unk> looking statements are based on management's beliefs and assumptions and on information currently available to our management.
These risks include those set forth in the press release that we issued today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward looking statements. In this presentation are based on information available to us as well.
To date.
You should not rely on them as predictions 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 measures on this call the known I F. R. S financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with ISR.
Let me now give the call over to <unk> to make his opening statements.
Thank you Bruno Thank you very much for participating in our earnings release, and I would like to start with slide number three with some highlights of the quarter.
The third quarter.
Last one of the 2021 commercial cycle one of the most if not the most challenging periods in our history as we commented in the previous calls the second wave of Covid came up right at the back to school period, hitting the student enrollment at our partner schools and also the sales.
The particular vertical materials for the 2021 school year.
Nevertheless, Vesta concluded the 2021 commercial cycle with a 7% sure description revenue grew over the same period of the last year.
And 11%, if we exclude far our hybrid subscription product basically don't textbooks. Our total net revenue dropped 12% as the pandemic effect on the tax the book of business was even more severe leading to a stronger decline in our.
Non subscription revenue.
Our adjusted EBITDA, reaching $168 million in the 2021 cycle or 35% drop in comparison with the 2020 cycle driven by the reduction in the net revenues and higher provisions for adopt of dumped four counts among among other.
Factors, excluding the write off of editorial costs recorded in the third quarter.
Adjusted EBITDA totaled 188 million, 27% lower versus the 2021 cycle within a margin of 21%.
<unk> 2021 wasn't last year in terms of financial results. It has been a great year for the expansion of our pool platform that need to be to see sort of the beauty in October with the flu my teacher and pool of adopter recorded its first sales through the store.
<unk>, which offers complementary solutions in partnership with that detects all over the World is also lives.
We had two reasons to say however that the worst is behind.
The preliminary 2022, <unk>, reaching a total of 888 million by the end of October showing an organic growth of 20% versus 21 subscription revenue.
With two months to go in the commercial campaign. If we include the land for the acquisition of the lab with the preliminary ACD goes up too.
975 million showing a growth of.
32% year to date.
Having said that I'll pass the floor to our CFO Bruno.
Thank you view as it did last quarter, we will start by analyzing the performance of our revenue in the cycle, which is now complete our total net revenue declined 12% over the 2020 cycle as you can see in the left however, when we break this information into subscription and non subscription we noticed that our subscription.
Revenue increased 7%, representing 83% of total revenue.
Going further into this breakdown, we can see that by excluding par our subscription revenue grew at.
The double digit rate, 11%, 11% in spite of all the headwinds already commented.
In the chart below you see that far declining 7% in the period driven by the higher use of textbooks a phenomenon that can be observed in the past during recession times.
Finally in the bought off the chart non subscription revenue.
<unk> fell 53%, reflecting not only the weakness in the textbook sales.
Also our commercial with Fox to bring now subscription clients to our subscription products.
Therefore, as you can see in the slides the pandemic effect.
Have heat.
Our business lines in different ways with the growth in subscription.
The products preserving particularly in the lines that do not involve textbooks by our non subscription revenue has suffered the most.
In the slide five we did tell you that net revenue performance in the quarter.
Revenue presented a 10% drop when compared with the last quarter, owing to a concentration of deliveries to some brands in the second part of 2021, while subscription revenue declined 13%.
We believe that the analysis of the cycle entirely also showing the charts all sort of the appropriate angles when I liked when our lives our revenue performance move.
Moving to slide six let's comment on our adjusted EBITDA and net profit results in terms of adjusted EBITDA that.
Posted a negative 390 million result in this quarter due to the revenue decline to the higher provision for doubtful accounts and the enhancement of our admin assistant with structure following the IPO.
Additionally, we recorded a 20 million of write offs in editorial costs, reflecting a review in our textbook and editorial strategy given the structural changes in the business.
Excluding this effect, our adjusted EBITDA was negative <unk> 9 million.
And the 2021 cycle the adjusted EBITDA totaled 168 million basically due to the same factors I mentioned before.
Excluding the write off of editorial costs, adjusted EBITDA was 188 million, 27% lower year over year with a margin of 21%.
Our current adjusted net profit for the 20th century, one cycle was 28 million pressured by the lower operating results.
Next I'll give more details on slide seven on the provisions in our accounts receivables there right the higher recognition of provision for doubtful accounts.
In the third quarter and into the into 2021 cycle has to do with the challenging business environment of this school year since the beginning of the pandemic our approach to credit issues faced by our school partners has been to extend payment terms instead of granting discounts, which resulted in an aging of our receivable port.
Folio and higher provision needs as you can see on the left the PD expense represented 3% in the quarter and three 8% in the cycle over an extra revenue well above historical levels.
The other hand, the higher PTA reflects health care with our provisioning standards, which is affected by adverse days of receivables falling three days in the yearly comparison to 85 days as shown in the right sharp.
That said I'll pass the word back to my view. Thank you Bruno moving on to slide number eight I will comment on the performance of <unk> in this period in October we celebrated the abuse of our B to B to C platform, which was a great achievement of our portal team Blue My teacher.
Private classes platform in poodle adaptor.
<unk> adaptive learning platform recorded their first sales in October we see a strong mid to long term potential for the b to b to C surfaces and this potential could materialize exponentially once the product is better known by our community as you can see in this slide we have focus on the disc.
Termination of these products among our partner schools teachers and students Putto Star. He's also life offering a series of complementary solutions in partnership with many edge effects from all over the world.
Moving to slide number nine.
Let's comment our view with the 11th.
On October 29, we closed the acquisition of a level platform following the antitrust approval without restrictions.
This transaction will not it's not only a sizeable and complementary portfolio of our schools school slower platform, but also a long term conflict through each of us will be the.
Exclusive provider of learning systems to almost all K 12 schools held by <unk>.
Positioning us to benefit from the consolidation of the forgive me.
<unk> markets the integration of our lab is happening as planned since the signing we organized that the clean team that plan of the integration and never detail, which is a basis for a nice tenants move to integration. We have already concluded two important steps we choose the definition of the new organizationally stroke.
And the integration of the detour with digital content.
Some of our next steps will be excluded as acute as soon as the back to school period Pan.
Moving on to slide 10, we present, our M&A track record.
We delivered five acquisitions since the IPO female ever of course, the biggest work as a conclusion, our M&A pipeline remains reach and we are engaged in all the transactions with our.
Which are at different stages with that being said I will pass the floor to our COO.
Malaga, who will tell you our operational results of the periods.
Thank you <unk>.
Alright.
Slide number 11.
31st.
And in 'twenty, two preliminary HCV totaled 888 million and organic growth of 20% versus the subscription revenue collected in the 2021 cycle with.
With the commercial campaigns Q2 months ago.
Excluding paper basis for the organic growth is off 29%.
Nearly 100% of our new sales have come from traditional learning systems complementary solutions or from our new digital textbooks platform.
On a fee per student basis.
Reflecting our focus on reducing our exposure to the paper basal textbooks Shannon.
With 11.
<unk> 2022, HCV totaled 974 million up 32% percent growth versus our 2021 subscription revenue.
We will update 2022, ECP numbers when campaign ads.
I will turn it back to Gil.
Bank of America go into slide 12.
First neither the return of students who drop it from our partner Schools' base in 2021 not the volume of textbooks that should have been put chase it regularly.
Regulatory environments were considered in our ACB projections.
That was a gap of 112 million that could be captured in the upcoming years as represented at the chart. Two two hour less also although the volume also enroll the distributors in 2021 cycle was below its full potential we retain our client base with long term contracts.
Which represents additional growth potential with our physician costs should all.
Our partner schools basis restored the in the upcoming years, but at the end of October by the end of October our 'twenty to 'twenty two HCV co response to a base of more than 5000 schools as shown in the chart at the right.
Having said that I see in a shallow of presentation and I will open for the Q&A session. Thank you very much.
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, Thats star one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Vitol Danita from Goldman Sachs. Your line is open.
Hello, Good evening, everyone and thanks for taking my questions two questions from our side the first question.
Thinking about the D.
D C.
It tends to have lower tickets can you give us a sense of how the number of client schools and demand and the average ticket evolves to reach that 20% goal in ACD and perhaps that's what each brand has been cheap because of inflation box and spot market pricing.
Second question from our side would be.
I think the latter.
Organic and Nonorganic figures far Atg 2000 times to maintain train by ETP Party laugh out of AGC.
You're going to react.
If you choose.
Is 9% lower than the 95, and we don't see a guy that's like an issue getting all sorts of problems into one so could you give us some color on why that was mostly related to distinguish the dropouts.
We can swap related to any commercial accounts and platform.
Sure.
Hi, Victor this is Jeremy here with me are the rest of your questions first regarding the preliminary view for 2022.
As we mentioned there is almost none par.
Paper based on the number.
Number is almost exclusively from traditional learning system is complementary solutions and the.
The digital platform for textbooks.
We'll give more disclosure about our figures and how it is detailed later on on the process once the campaigns, finishing.
What I can tell you.
Right now is that we have a much better mix from the 20% compared with the same 20% that we just closed.
At the same period last year.
Regarding that allows them.
The preliminary ACP number of deaths.
Sure.
Disclosing is year to date numbers they are not full campaign numbers as it.
It is the 20% that we disclose it on some of those organic growth. So there is yet to months.
To be performed by a level on the campaign and.
On the companion App, so almost two.
The figure that we are disclosing the 86, we are also already including the commercial discounted appropriate Terry schools on a lever has guaranteed.
For the next cycle for the long term conflict right. Victor Please have in mind that we signed a 10 year contract with the lab and.
They have the right to have 60 million reais of discounts for this for this period right. So we are including in the India level numbers the skull today they have.
Very clear thank you very much.
Your next question comes from the line of Vinicius Figueiredo from <unk>. Your line is open.
Hey, guys.
Helpful.
So even though.
Thanks for taking my question.
Question regarding EBITDA.
If you could comment at all today.
Quarter.
We believe that this should be a more specific or even a quarter or we should see a mark whole service team approach fall over the next quarters and other questions regarding digital subscription revenues.
When should we expect a more robust recovery bye.
We can hold you assume that you should continue to do those but we.
And the consolidated results.
Thank you.
Thank you. Thank you for the question Vinicius. This is Jamie speaking here.
Regarding the first question we have observed.
During the <unk>.
Since the beginning of the pandemic.
The increase in provision because.
Our clients are in trouble because of all the situation our business is leaving so.
We have to be more permissible with.
With the payments right so that makes us.
That brings the need for needs for increasing provisions. That's why you are seeing we have seen higher provisions for doubtful accounts.
<unk>.
During this period right.
We have a particular issue with us some off some of the participants related to the textbook chain. This has pressured our members as well right.
And when we look forward, we think that there.
There is no reason for our provision for doubtful accounts do not return to historical levels, which has been around 1% of net revenue, which I don't know if we'd be able to be back to those levels in 2022 already alright, maybe 2022 will be an accommodation here right, but for sure we are leaving the.
The worst period of our history in terms of in terms of.
Collection of receivables right.
This is really related to the pandemic as I told you and we May we may start to see a normalization of this levels already in 2022.
Alright I'll pass.
I'll pass the word to medica, which will respond the second question.
Yes.
Hi, Ben issues. Thank you for your question so regarding non subscription revenues.
What we face in 2021 for others, a total wealth lawyer from them.
For the <unk> market.
This is still a challenging market.
Especially due to the spot textbooks market, but we do not expect anything any new drop.
Higher than a single digit level for the next quarter.
Okay.
Okay very good thanks, a lot.
Our next commercial site in the next few months should be clear that this sorry. Thank you guys.
Yeah.
Thank you.
Again for anyone else, who wants to ask question you May Press Star then the number one on your telephone keypad.
Your next question comes from the line of Undress Coelho from Scotiabank. Your line is open.
Yes. Thank you for taking my question.
Yeah.
I have a couple of questions. Please the first one is on your cost what do you see for your cost structure next year.
Given any inflationary pressure some inflation in Brazil. So I'm, just wondering and obviously your ACD bookings were very attractive right with including a little over 30% year over year, but I was wondering how you are expecting your cost structure to evolve. That's my first question.
Yeah, if I may put up with a couple of any kind of looks like.
Alright. Thank you for the question on this.
We do not expect.
The inflation to be a.
Our concern for next year.
As you are going to see when we updated the ACD Caesars we are growing a T V.
In terms of prices as well so we have a we are benefiting from this inflation in our in our top line.
That's one thing second thing is.
We do not see.
Our strong pressures in our cost lines that are linked to inflation.
Situation is quite under control and also most of our costs are and some of the fixed expenses have a fix in nature right. So we have a strong operating leverage box revenue.
It goes up and it will probably be with this with this ACB we're announcing.
Today, it's still primarily preliminary right so inflation is something that.
Concerns every every every man.
Management of every company in Brazil, but we can say that it's not it's not a it's not a big concern to us in 2022 alright.
Alright, Thank you and second question on.
Slide number 12, as you're showing that.
The number of partner schools will grow to Python closer to an 83.
I'm just wondering if that number please.
The schools from Atlanta number one.
Number two is that groups are complementary solutions to school subscribed two complementary solutions.
Just for the core content.
Excluding complementary solutions.
Hi, This is Gary speaking.
The number the number in the chart because the number of schools, including all of the schools that came in with the lab right with the ACA.
Physician often ever and also the number of schools we have.
The gain from the marketing this year to date commercial campaign right. So combining.
Combining the number of schools with the lab and the number of schools that we signed a new cone to three then we have almost 505400 schools and like I said, we still have two months to go in this commercial campaign right.
Usually.
This number represents the schools using.
Core products and some of them are also using our complementary.
So I don't have exactly the exactly number here, but.
Around 10% to 12% of our schools. They also have a copeland Mesa with contract regarding two complementary solutions right. So but mostly in the chart you can see the core.
Solutions contracts.
Thank you very much I have one last question. Please if I may there was some concern that after that theyre very dramatic drop in the share price of basketball.
And you can pay the company Brian right.
Or that you can believe the company. So I'm wondering if you could just comment on that possibility, whether you see that happening.
Something we should complete the scar.
In coming months.
And dress.
Although we do not.
I agree.
With the level of prices, we've seen a screen today, we this conversation doesn't exist.
Here at <unk>.
Neither invest another call going on.
Yeah.
I agree and we are working hard to adhere to the liver.
New for everybody our shareholders and also our you know controlling controlling shareholder.
Okay, very clear and congratulations for the strong ACD bookings.
Thank you Andrew.
Okay.
Your next question comes from the line of be toward Anita from Goldman Sachs. Your line is open.
Hi, Thanks for taking another question from US just a quick one.
EBITDA from our color on how the commercial strategy for <unk>.
Trading after the Beechwood beaches, he's last farm will be.
And.
Thinking about the Q3 and.
And the rest of the platform and if you if that also clarification if the preliminary 2022 ATV equaled thingy estimated contribution from the platform. Thank you.
Yeah. Thanks, Victor this is Gil basically the marketing we do four four for reaching the B to B to C C.
That's right because our are at.
At the end of the day the students are hiring a private class our families our hiring.
Self paced 30.
Program right through Blue ROA Doctor So.
Showing the products in the pool right. So everything is integrated in our in Peru.
That means that the Wednesday student needs using Pluto for you know homework and so they can see that that.
That is this burden will available name it <unk> my teacher and also Pluto adopt right. So.
The first step is to make available for all the students from the secondary indication.
Okay. We are not offering these kind of products for.
I would say primary indication in preschool K only for secondary in.
In high school.
And the second step we have an inside sales team.
You know, making these making making clear what what is the progress what is the benefit for the families. What is the benefit for the teachers right. So it's 100% of digital campaign.
We like to use not a kind of a push as trusted you bought a poorly strategy that means that we allow teachers to offer some classes private classes for fleet and then the students can have this trial and after that they can start.
<unk> been for for the next next day classes in the same concept is behind the marketing for the the adaptive the adaptive program right.
Victor.
We don't we do not consider that the revenues coming from B to B to C. E Superscription right. So regarding the last part that we are question. The answer is zero right. We do not consider that any kind of revenues coming from the b to b to C.
Your strategy is.
As a C V or will be in the HCV, okay with this kind of revenues.
Our relevant probably will show in our in our belief that there is a line for digital revenues coming from B to B to C. But we never include debt.
N D ACB.
Alright.
Thank you very much.
There are no more questions at this time presenters you may continue.
Well so.
Again, thank you very much for being with us today.
We are available for questions. After this call through our IR department represented by myself.
Good evening, everyone and thank you again.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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