Q4 2021 Vasta Platform Ltd Earnings Call
Good day and thank you for standing by welcome to the vast platform fourth quarter 2021 conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Joe Giordano Chief Financial Officer. Please go ahead.
Good evening, everyone and thank you for joining me in this conference call to discuss about the platform fourth quarter 2021 results with me on the call today, we have Michael deal faster.
The CEO and Gilead.
Yes.
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.
Patients are future periods, our expectations regarding our strategic probably major fleets and their related benefits and our expectations regarding the market.
Forward looking statements are based at Nomura managements beliefs and.
And on information currently available to our management.
Risks include those set forth in the press release issued today.
Well those more fully described in our filings with the Securities and Exchange Commission.
Forward looking statements in this presentation are based on information available to us as up to date hereof.
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.
<unk> financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with Ias.
Let me now give the call over to <unk> to make his opening statements.
Hello, everybody. Thank you Bruno.
So moving to the slide number three the fourth quarter of 2021 at the beginning of 2022 cycle, a new chapter in Boston Easter because we reshape the company and its growth trajectory as we've commented in the previous call Australia.
Perhaps the most difficult period in the Brazilian K to 12 sector and in the Copa Twister for sure, but let me tell it to school year began in line with our expectations with the schools fully reopen a scenario that the neighbors roster to fully cohorts <unk> ACD into revenues.
<unk>.
In this fourth quarter. We also began the integration with the lap of the tickets largest learning system in Brazil, and the biggest acquisition in the history of <unk>.
Company.
We are quite happy to have a lever we does.
And we are excited with all the opportunities we see with its.
Its combination with <unk>.
Talking about the HCV as we announced last month, we collected a total of 1 billion Reais in superscription, culprits, which represents a growth of 35% over the short description revenue for the 2021 cycle, excluding el effort the ACD inquiries at 22.
Only by organic in minutes.
As we will detail in this presentation. The composition of this ACD is richer than before with the great performance of our premium brands.
In this fourth quarter the first.
ACB 2022 recognition total net revenues increases.
At 16% year on year with the subscription products up 22%.
Excluding part subscription revenue increased 34%, which demonstrates that we continue to migrate our text books basis revenue for learning systems or <unk>.
Digital platforms adjusted EBITDA grew 10% following the growth.
The net revenue and partially hit by temporary cost pressures and Napa acquisition and integration expenses here included.
Adjusted net profit fell 17% on the higher financial leverage due to the acquisition of 11 on higher interest rates in Brazil.
For the first time, we are releasing our revenue guidance for the next two quarters. So we expect to have $370 million.
<unk> of total revenues in the first quarter of 'twenty two.
320, neither <unk> subscription revenues.
And more safety.
No subscription revenues.
Implies a growth of 32% and total revenues reiterating our belief that 2022 will be in 2022, we'll be able to collect 100% of the ACB.
Also to stabilize the sales of the non subscription segments.
Now I'll pass the floor to our CEO .
Thank you view now moving to slide number four.
Talk a little bit about our HCV.
Our 2022, HCV total 1 billion Reais.
35% growth versus the subscription revenue collected in 2021 cycle organically it means a 22% growth.
<unk> solution is once again.
The highest growth rate among the business segments with a 47% increase.
Advancing the prosper has captured the strong cross selling potential will provide space for additional revenue systems, including newly launched her textbooks as a service platform and excluding <unk> grew 31%.
Compared to 2021 subscription revenue.
Traditional learning systems X El Abra and complementary products together were 32%. Finally, however delivered HCV of 98 million.
<unk> 13 percentage points to consolidated 2022 ACB growth.
Now moving to slide number five we did tell you of the composition of our HCV growth.
I would like <unk> to drive the quality of these HCV, we managed to grow faster than our premium brands NPH and to initiate the migration from prepaid visa products to digital subscription products textbooks and service platform in line with our strategy.
As you can see in the glide new clients and the combination of cross sell and price readjustments continue to be the main drivers of ACB growth.
Each one contributed with 50%.
The cycle, our churn was is likely above 8%, which we attributed to the macroeconomic conditions, while the churn rate of our premium brands remain remarkably low there was an upward pressure in the churn rate in the churn rates in the mainstream segment and block clients approach.
And it will be 35% of partner schools that left our base were delinquent as of December 31.
In the slide number six we give you more information on how our our HCV will be distributed over the year.
The 2022 ECB.
Less concentrated in the first two quarters than previous years.
Due to the different seasonality of our products products, such as de lever Mackenzie and textbooks as a service platform as well as lower part revenue all recognized in Q4 and Q1.
And that means that although the first two quarters will continue registered the largest part of HCV revenue there will be less revenue to be captured in the first half of the sales cycle when compared with previous years.
And the opposite will happen in the second half so we illustrate in the fourth quarter, we collected $34 seven.
Percent of 2022 ECB.
We have we would have collected 38, 3% of subscription revenue of the 2021 cycle in the fourth quarter of 2020.
In order to facilitate this understanding we are providing our guidance for the first quarter of 2022.
Second quarter of 2022 safety view recognition.
So we expect to have 320 million Reais, new subscription revenue in Q1 2022.
32% of the ACB decline of 31% year on year growth in these lines.
As for non subscription revenue power forecast is 50 unit decline of 33% year on year growth.
Combine that fosters a bulk delivered 32% year on year growth in the first quarter of 2022 to.
317, <unk> confirming the recovery trend and there is suggested by our ECB.
Our remaining blockers as we have more <unk> to be recognized we may expect some growth rates to continue throughout the year.
I will now turn the floor to our CFO Bruno Giardino, who talk about the financial results of the quarter.
Thank you Malika.
Slide number seven we show the composition of our fastest net revenue in the fourth quarter total net revenue increased 16% or 9% excluding Atlanta.
<unk> contributed $25 million since its integration in late October .
The revenue from subscription revenue.
Jeff the 22% year on year and continued to gain relevance in our sales mix.
As you can see on the right, reaching 87% of total when we exclude par our subscription revenue increased 34% or 22% excluding <unk> the big box.
On the right hand side.
Non subscription revenue declined 14% in the fourth quarter, reflecting the dynamics of the textbook market.
As previously discussed revenue growth is set to accelerate in the coming quarters.
Knowing the slide eight we see.
Adjusted EBITDA and net income adjusted EBITDA increased 10% in the quarter following the growth in net spreads.
Margin declined 230.
Basis points, However, you want to.
The temporary cost pressures you've included expenses related with <unk> integration.
These more than offset the efficiency in commercial expense and slightly lower provision for doubtful accounts, we had in this quarter.
When we look forward, we see a recovery trend for EBITDA margin on a year to date at what revenue growth will accelerate.
We restructured our workforce in December we benefited.
From January client and third synergies from <unk> acquisition.
In the fourth quarter, adjusted net profit decline of 17% year over year to $98 million. Despite the growth in operating profit.
Net financial expense.
Increased financial leverage.
And the higher level of interest rates, our leverage is up because of it.
Division that was consolidated in late October .
Next I will give you more details on the provision.
And accounts receivables on slide nine.
As you know over the last quarters, we have recognized as higher provision for doubtful accounts.
Due to the challenging business environment for our school partners.
Since the beginning of the pandemic our approach to credit and shoes has been to extend payment terms instead of renting the outcomes.
Which resulted in an aging of our receivable portfolio and higher provision needs.
This fourth quarter, however, as a pet.
In data revenue the PDA declining 1%.
Nine percentage points, and we expect a gradual with debt reduction going forward towards the normalization in the payment cycle.
Finally, the days of accounts receivable.
When we adjust for the effect of our land acquisition spend.
In line on a yearly base and following the regular seasonality of the business.
With that being said what back to my view.
Let's move to slide number seven please.
While we are already discussing trading too.
Pertinent to give a step back and look at how much things. We did to anyone that's are pretty sure. We are pretty sure it will be the future robust.
In this slide you can see all the developments we've made since our appeal.
You start getting the last we reinforced with our core business with the acquisition of <unk>, but the creation of Vista Bonacci learning system and also the distribution agreement with Mckinsey we also allowance.
The book as a service platform.
Moving up in demand dollars clockwise, we enter in the light Pink area, we expanded our complimentary solutions reach with the opening of pools store, which offers a few results solutions in partnership with education companies.
All over the world.
Then we enter in the B to B to C segment to the launch of Florida might featured our private class its platform and pool adaptor adaptive learning platform, we will talk more about these two initiatives.
In the bottom the digital services are the acquisition of sale, Amy and modulate the Fidelis will enable us to build our portfolio.
Munis strategic services that we will address the needs of our partner schools freeing up time for them to focus on what they know best which is to advocate.
Now I will invite you to focus again on the light Pink area. This is everything with view to our acquired since our IPO.
In one and a half year.
First the new revenue pockets and we built products that may be the future of our company.
Moving to slide number 10 less common.
<unk> been a platform is so so important for US we believe that total is a true platform and the only super airports K to 12 education in Brazil.
We started with the full integration of Boston multi brand portfolio, which has led to the capture of operating and financial benefits with that.
<unk> go to market and technological backbone.
Second a stage the platform relevance in terms of the number of students teachers and traffic share.
<unk> important partnerships with 30 parts like Mark gains if people not cheap and August <unk>. We include the <unk> store.
So at this stage.
We are now offering of new disruptive broad set of marginal cost begun with our interests in the b to B to C segment, and we'll continue with the development of new products.
All the revenue wont addressable markets with the expected launch in.
In the beginning of this year.
On the slide 12, I will comment on the <unk> segment.
As we've talked in the last conference call in October we celebrated the debut of the B to B to C platform, which was a great achievement of our <unk> team Fluoro My teacher.
In total a doctor recorded their first sales in the first quarter of this year.
In this quarter the fourth quarter after the one and the awareness of this product has been increasing lately.
We see a strong long term potential for the B to B to C serves can send this potential could materialize explanation once the product is better known by our community as you can see this lies in the border we have focused this time.
The nation of this broadly some month, our partner schools and students.
Let's talk about ESG on slide 13 by the end of April .
We're going to launch it.
Going to issue our first sustainability report elaborated according to the highest standards available. We hope that this report will help the investment community to understand how serious we are about ESG standards at Boston.
Moving onto slide 14.
Dissipate some of the of our achievements related to ESG.
All the environmental fields, 89% almost 90% of the <unk>.
Consumers comes from renewable sources being 100% in our largest distribution center with <unk> hundred percent of our supplier suppliers are.
Certified.
In the social fields more than half of our all of our leaderships are women, 94% of women, who took maternity leave we made it in the past with the employment on.
On the governance sides our board.
Directors had.
2028, 6% female members, 42% of independent members and 14%.
And has the participation of 14% in terms of the engine.
LGBT group.
Your participation in the board of.
Directors granted us women on boards you.
Having said that I finish our presentation and now we will open the Q&A session. Thank you very much.
Yes.
Yes.
As a reminder to ask a question you will need to press star one on your telephone and to withdraw your question just press the pound key.
Again, Thats star one questions one moment for questions.
Our first question will come from the line of tore midterm from Goldman Sachs you may begin.
Good evening, good evening, Gary Gino Thanks.
Thanks for taking my questions two questions from our side. The first one is on farm. If we look at the reduction and bar ACD could you give us a sense of how much of that reduction is driven by book for utilization our charge and how much is that driven by.
Migrations to other learning systems you offer.
And a second question from us thinking about the potential of Fluor all as a platform for third party offerings, which is something you touched on in the presentation could you give us a sense of how relevant Mackenzie Fibonacci and a third party apps in Fluor All star has been as a part of something to Chew ATV growth. Thank you.
<unk>.
Okay.
Hi, Victor This is malaga I'll take your first question and then I will turn to do for the second one.
Giving you a little bit more details about bar.
The reduction bar revenues.
Mainly due to the migration to learning systems into the.
Implementation of the law.
Platform as a service which only.
We recognize it.
In Q2.
From Q2 to.
Q4 this.
This year, because it's a service.
And we only recognize it.
Then once the service is.
He has been delivered so.
Those two are the main drivers we did not see an increase in <unk> off the books and what we are performing as our distress strategy to migrate to platform as a service and alerting systems.
Hi, Peter this is gil regarding two markings into bonacci.
Because of because of the commercial agreement with that we have with Mckinsey we can be so experts.
We can be very specific in terms of numbers, but what I can tell you with that mckinsey as representing just a few percentage points of our HCV right and if people are not really in the beginning of the trajectory with US right. So we just launched it with people not the.
Material focusing all the you know the.
The breadth of course for universities right. So for this <unk> and this is very small the revenues we saw.
From people notch, but but the potential of <unk>.
It's huge because as we like to save people not just the best at school in the country. If we consider the results in any editor.
Very clear thank you both.
Yes.
Once again Thats star one for questions. Our next question comes from the line of.
Marcelo Santos from Jpmorgan, you may begin.
Hi, Good evening, you Malaga Gino thanks for taking the questions would you. Please explorer beat the higher churn from the angle of the competitive environment. I know you mentioned the macro but what can you say about competitive environment.
And the second question that I would like to ask.
You mentioned that you would have like new launches on the B to B to C market.
Is it something.
Just because the beat what else.
Do you have in store there that we could see in 2022, I think thats, what I understood from the release you would come with new things. Thank you.
Thank you Marcello.
You can pick your.
First question.
We see the.
The competitive environment.
Pretty much as usual.
It's a very competitive market.
We see pretty much.
Same competitors.
Rising.
Innovation driving good products.
We keep moving forward also.
We don't see any change to that.
What you are implying in the competitive environment.
And.
So far we have a very good start not also in the sales campaign, but also delivery the contracts and the revenue side.
No.
This is Gil I'll take your second your second question first.
If I step back and I would like to reinforce the importance the importance to have.
Two.
Platform, we are in the stage of our platform that sometimes the clients. It's also a provider right.
The real cost of our platform you'll become a platform. When you have a client for instance, our teachers. They are our clients because they are consuming our products and services, but throughput might feature they are at the same time providers of new services new content.
Two our ecosystem right. Then we are doing the same but with the schools and many other.
They call them in our ecosystem regarding to your question what do we what we are planning to launch in the beginning of this year is we've got to therapy right.
Same technology, we developed for food on my teacher, we can use for therapies right.
We are seeing a huge demand I mean families. They are after two years off from them because they are really concerned if they need some kind of.
Our professional.
Uh huh.
Therapy, and we are planning to launch in just a few weeks. We are at this moment, we are best in a kind of a better version of our Pud on my therapies and this guy. This is innovation I mentioned in the presentation, but it is important to understand that the two platform means.
That sometimes our clients start also our providers. So we are we are we have some idea to transform even our students in providers of services for order for others to that's okay.
Perfect. Thank you very much just on a follow up on <unk> answer.
So the increasing churn as you understand it has nothing to do with an increase in competition.
Very clear that's what's your answer.
Marcello.
Traditional learning system.
Especially in the mainstream.
Did see more competition very aggressive commercial features to our customers.
And.
We did see a higher churn due to that but also due to the to the weakness in terms of financial terms of our customers that needed to switch to another provider to have better commercial terms, which we did not think so.
But thats.
Pretty much it.
In the premium segments.
We didn't see that trend and we definitely.
I'm very confident about the quality.
Our brands to maintain.
Maintain competition.
Away from from them.
And that the ending on debt to Marcello.
It is important to comment that 35% both of the schools that churn.
Billing Quinn failures by the end of last year by the end by the end of the year and we've decided to not renew the credit for this year right. So there is more competition, especially in the commercial the commercial with schools at the middle end of the market, but we also decided to not renew.
The credit with the delinquent school and these specific.
Part of the journeys, representing 35% of the chair.
Perfect very very clear Milligan view, thank you.
The next question will come from line of business.
<unk>.
<unk> you may begin.
Good evening, everyone. Thanks for taking my question I.
Just to follow up to one of your previous answers you commented that you noted the weakening of some of your competitors.
Yes.
And together with a tougher macro scenario does it increase the number of opportunities for in market consolidation through acquisition.
Yeah, I guess I can start and Malaga can complement me.
Yes, there is always opportunity for more acquisitions for the consolidation of the market right, but for now we are super focusing on integration of a lever right. We have a lot to do.
In the last integration side, we already starting to collect all of the synergies we can collect with the lab and we are also now focusing on integrating the new products.
The new products. We also bought in the last few years. So for instance hit us so not a new.
In the beginning of this cycle inside <unk> we.
We are expecting to offer sale as upfront.
The front end off with schools with families and their.
The recently acquired Fidelis, which is a complete the ERP. We are now integrating these kinds of costs of services into pool, right and with that.
And.
With that integration then we can start for eastern to offer financial services to schools as well right. So we are not to be Super clear with you. We had some opportunities as we are talking to some to some learning system, but for us first.
Do you allow integration second the integration of all the taking long technologies, we bought last year in Peru and from this new technology. This back to offer new services, such as as I mentioned to Marcellus served as my therapies.
My teacher. It is just in the beginning of the of the journey.
<unk> always true that so there are opportunities, but it's not our focus at least in the first half of this year.
Thanks very clear.
Yes.
Our next question comes from the line out and it is clear low from Scotiabank you may begin.
Thank you. Thank you for taking my question.
And in the release that in the fourth quarter.
What's a little bit of cost pressure from the level of integration. So I'm wondering if you can just provide just a little bit of color regarding how much.
The cost of the integration during the fourth quarter perhaps.
Just detail those costs were already included nonrecurring expenses do release only those who are not included there and just a little bit of.
But the idea of your margins.
Equation, you want to call it that and we thank you.
Hi, and thank you for the question.
These expenses related with a lot of integration the usual expenses that do we have any kind of M&A.
Lawyers consultancy that type of stuff right.
This was a relatively sizable amount.
We're not giving disclosure, but we can tell you that.
This is not included in non recurring expenses.
What do you see non recurring expenses, our expenses related to the REIT.
Three of our workforce.
In December right resorts are yet to come so these expenses related to deal with the 11th.
For sure.
Our RF.
Kind of a pressure in our results and they are temporary okay. When we look forward to 2022, we see a recovery trained for R&D day margin side, we are talking hearing margins going back to the level of 2020 or even more.
We are pretty confident that the lab can have margins, even greater than ours right.
Because I think that the lab is a pure subscription product.
And naturally has higher margins than than Boston sold integration plus type of synergies is also another factor that makes us confident that margins are.
On an upward trend in 2022, okay.
Okay. That's great. Thank you.
Address if I, if I may add to just to give you more color about the what we're calling here the real structural nation restructure of our company right because of the integration ortho level, but not only we saw opportunities to be more efficient in many areas.
We cook, 20% of our payroll right. So it's it was a power for <unk>.
We are struggling right and as Bruce said that the results are yet to come.
We're expecting to see this.
The impact of this reorganization in our margins in the first quarter of <unk> 22.
Yes.
Okay, that's very clear and very impressive thank you.
Yes.
And once again Thats star one for questions. Our next question actually a follow up from Marcellus Santos from Jpmorgan. Your line is open.
Hi, Thanks for the follow up just a quick one just wanted to check my views comments on the prepared remarks, so we'd expect to be able to collect 100% of ACC. This commercial cycle.
Just a question that's it Marcelo you are correct, we are expecting given that.
Have a good it's a good start in this year right. So the schools are open if students are going to the schools. We are yes, we are expecting to convert 100% of the ACB into revenues this cycle yet.
Perfect. Thank you very much.
Thank you and I'm actually not showing any further questions in the queue I would like to turn it over to Bruno for any closing remarks.
Thank you. Thank you everyone for attending our call.
We're always available to follow up questions and.
Thank you and take care.
Okay.
And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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