Q3 2022 Vasta Platform Ltd Earnings Call

Today, we have Michael deal buses CEO Malaga.

Malaga fastest <unk>.

And says a few blockbusters CFO .

Before we begin I would like to read our forward looking statements.

During today's presentation, our executives will make forward looking statements forward looking statements generally relate to future events or future financial or operating performances and involve known and unknown risks uncertainties and other factors that may cause our actual results to differ much.

Clearly 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 forward looking statements are based on our management's beliefs and assumptions and on information currently available to our management.

These risks include those set forth in the press release that we are issuing today as well as those more fully described in our filings with the securities and exchange Commission's.

The forward looking statements in this presentation are based on information available to us as of today.

Should not rely on them as predictions of the future events and we disclaim any obligations to update any forward looking statements, except as required by law.

In addition management may reference non <unk> financial measures on this call.

<unk> measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IRS.

Let me now give the call over to <unk> to make his opening statements.

Okay.

Thank you Marcella. Thank you all for participating in our earnings release call I would like to cover this slide number three with some highlights of the commercial cycle in this quarter. We concluded the 2022 commercial cycle and we believe that the commercial cycle is the best way to understand our business vast are concluded.

This cycle with a 38% subscription revenue growth over the same period last year.

Subscription revenues.

Two descriptor subscription revenues totaled $1 billion, and 24 million Reais enders exceeded by two 4% our ACD guidance of $1 billion, excluding par the ACD grew 47%.

This superscription revenue highlights in the cycles in the cycle or the performance of our premium brands and also an excellent cross selling of complementary solutions that grew seven 7% compared to the last cycle.

Then also description segment as expected declined compared to the previous cycle with textbook sales, representing now only 12% of fastest revenue. Thus in 2022 cycle. The net revenue grew 30% vast as EBITDA was 300 entered.

<unk> $36 million in the commercial cycle and the margin expanded 10 percentage points, reaching 29%.

In the third in the third quarter vision EBITDA was 23 million recovering from a loss of $25 $29 million in the same quarter of the previous year.

This increase is a result of better product mix workforce optimization, and our budgetary discipline and finally, our free cash saw a significant improvement of 177 4 million Reais and total 55.

<unk> million Reais in this commercial cycle when and.

When compared to a consumption of $190 million in the last cycle.

The improvement is driven by the recovery of operation operating results and better working capital dynamic that is bringing down the net debt EBITDA ratio to less than three times. This is the third consecutive quarter of improvement in this indicator.

With that being said I pass the word to our CFO <unk> will give more details about the 2022 ACB growth.

Thank you Gil now moving to slide number four we detail the ACB growth composition.

1022 commercial cycle was a very positive year, surpassing our 1 billion HCV guidance by two 4% Q.

Q3, net revenue quarter on quarter grew 49% and 30% in the 2022 commercial cycle driven by acceleration of subscription revenue that grew 76% quarter on quarter and 38% in the total commercial cycle.

<unk> now represents 88% of total revenues.

<unk> paid in prior releases the differences or knowledge of new brands, such as <unk> and marketing has led to a more balanced with revenue recognition throughout the quarters. Although the first two quarters continue resisting the larger chunk of commercial cycle first half of 2022 accounted for 68% of <unk>.

Total HCV versus 71% in the same period of 2021 cycle.

I will now turn back to <unk>, who will talk about the financial results of the <unk>.

Okay.

Thank you Malika.

In slide number five we present the composition of fastest net revenue.

As you can see on the left side in the third quarter total written net revenue increased 49% year on year to $180 million to $90 million, including here to eight 1 million in revenues from Elisa.

On an organic basis, the revenue growth was 32%.

Moving to the right side, we see the components of revenue growth.

In total subscription revenue jumped to 76%, reflecting the superior quality of our revenue mix in the 'twenty two ACD plus the contribution whatsoever.

Subscription revenue was mostly composed of revenues from traditional learning systems and complementary solution.

Which is aligned with our strategy of shifting revenue from textbooks to learning systems and the digital platform.

Moving to slide number six we analyze the net revenue for the 2022 cycle.

Net revenue grew 30% in this quarter or 20% on an organic basis, excluding alpha.

Again from the center to the right total subscription revenue grew 38 or 25% on an organic basis.

Subscription revenue, excluding par jumped 44% wildfire revenue fell 4% to $126 million.

As previously mentioned, we see subscription revenue, making more than 100% of our HCV guidance, while non subscription revenue that now represents only 12% of our total revenue was down by 12% in line with our expectation for this cycle.

Moving now to slide number seven.

Adjusted EBITDA in this quarter.

$23 million.

A relevant increase from the minus $20 9 million in third quarter 'twenty one.

This improvement was driven not only by the growth in net revenue, but also by operating leverage gains cost savings and better product mix with the growth of subscription and premium products.

On the right side of the slide we still get adjusted EBITDA for the commercial cycle doubled reaching 336 million with margin increase of 10 percentage points to 29%.

This is evidence that the fastest profitability is notwithstanding in a much higher level than in 2021 and closer to the company's potential.

Yes.

Okay.

Okay.

In slide number eight we observed.

In proportion of revenue gross margin grew two eight percentage points.

Due to a higher quality sales mix complementary solution penetration.

And cost dilution.

There was also a decrease in the provision for doubtful accounts.

There was a height in the provision in 2021 to accommodate the impacts of the pandemic.

Moreover, commercial expenses and adjusted cash G&A expenses as a percentage of net net revenue were down two four percentage points and three six percentage points respectively.

These are attributable to the efforts such as workforce optimization and our budgetary discipline.

As a result, adjusted EBITDA margin reached 29% in this cycle.

<unk> was a margin of 19% in prior commercial cycle.

Okay.

Moving to slide number nine in the third quarter adjusted net loss totaled 42 million in comparison to an adjusted net loss of 47 million in the third.

Third quarter up 21 impact mainly by higher financial leverage and the hike in interest rates. However.

As we can see in the right sites in the 'twenty to 'twenty two cycle adjusted net profit increased 25% to $20 million.

Now moving to slide 10.

We showed the free cash flow evolution.

In third quarter 'twenty two.

Operating cash flow totaled $17 million, a significant improvement from a negative $6 million in the third quarter of 'twenty one.

In this commercial cycle, the operating cash flow totaled $55 million or $75 million when excluding the early payments of 20 million in royalties to content providers.

Also an improved compared to prior cycle, which had a consumption of $119 million.

Next moving to slide 11.

More details on the provision for doubtful accounts and our accounts receivable.

During the pandemic the challenging business environment faced by our partner schools as well as our decision to support them.

Extending payment terms pressured our receivables collection.

And impacted our operating results by requiring a higher level of provisions for doubtful accounts.

Total expenses with TBA.

22, commercial cycle totaled 27 million, representing two 4% of net revenue compared to an expenses of 34 million in last commercial cycle.

On the right side, we can see that the average days of accounts receivable was 102 days in the third quarter up 22.

Or 10 days by adding <unk> less 12 months net revenue, which is 70 days above the same quarter of previous year.

Nevertheless, we can observe a gradual normalization in the payments aligning with the restoration of the Scoop partners regular activities.

I will conclude my part of this presentation with the slides 12.

Faster and the third quarter of 'twenty, two with a net debt position of 90 $180 million.

From the second quarter of 'twenty, two the increase was related mostly to the M&A operation in relation to the acquisition of <unk> Bank.

And interest accruals on the financial debt.

The accounts payable from business combination, partly offset by cash flow improvements.

And the right chart, we can see that our leverage measured as a percentage of net debt by less 12 months. Adjusted EBITDA has started to decline since the first quarter of 'twenty, two reaching a ratio of 292.

Third quarter of 2002, or $2 87, including a levels less 12 months EBITDA in food.

We expect to continue this helped position over the coming quarters.

Let me now.

Give the call back to Gil.

Thanks, So Marcello earlier earlier this year, we announced the acquisition of a minority interest in <unk> bank, but given that we had many questions about the deal and also the business model now we are giving more color on that <unk> mission is to make it to the schools the usual uncertain flow of tuition silver.

The school year, our regular regular monthly flow of cash discounted by a take rate earn at Baidu Keybanc. It took.

Bank business model differs from other competitors there is friction less since the collection process from the students parents continues to be carried out by the schools that more than any anyone else understand the needs of a long term relationship with assemblies. This translates into a into a high NPS.

Score and low churn of schools.

The investment was 157 million Reais for.

45% stake in <unk>.

80, $587 million in cash of which 40 million is conditioned to the growth of students and $70 million in capitalization from the sale of vastus, our vast <unk> bank of the rights to access our base of schools.

<unk> will not consolidate the <unk> banking in its balance sheet that <unk> results will be recognize it via equity income. This decision was taken to preserve fastest asset light model without consolidated in our balance sheet, a noncore business in a capital intensive model.

With that being said <unk> bank has doubled the numbers of students since the acquisition date and base. It on the exact existing pipeline. This number should continue this trend in the short and the medium term finally, the acquisition of <unk> bank complement our portfolio of administrative services that address.

Versus the needs of our partner schools, freeing up time for them to focus on what they know most which is to educate.

Now I'll give I'll pass the floor.

Over to Malaga.

Thank you view moving on to slide 14, we present, our projection of our HCV 2023.

On October 31.

2023, preliminary CV guidance totally.

$1 billion $230 million and organic growth of 20% versus the subscription revenue collected in 2021.

Cycle or 23% versus the.

2022 in theory.

Excluding paper basis bar, the organic growth is 22, 4% as nearly 100% of our new sales have come from traditional learning systems and complementary solutions, reflecting our focus on reducing exposure to paper based textbooks China comp.

Complementary solutions will continue to account for the highest growth rates amongst the business segments, along with our premium brands.

We are assuring our perception that quality and reputation remains the maintenance of the gaming business.

I will now turn the floor back to you. Thanks Malaga.

Moving to the slide 15, now let's cover our ESG initiatives.

Sorry on the slide 16 since last quarter Foster has been reporting updates about ESG standards, including a quarterly panel of key indicators in line with the top because identified in the maturity process reinforcing our commitment with the highest ESG stand.

<unk>.

We launched this quarter offer internship program, which has created exclusive internal vacancies for black people in the organization. So far 13 people have been higher with this program. Another highlight in this quarter is that we continue to increase the use of renewal.

Sources of energy now, 98% of the energy consumer comes from renewable sources being 100% in our largest distributor distribution center in <unk>.

Committed to the accountability and transparency vast amounted the first the greenhouse gas emissions for east 40, <unk> operations and the purchase of renewable energy.

<unk> reduce it vastus total emissions by 14%.

Having said that I finish our presentation and invite you all to the Q&A session.

Ladies and gentlemen, once again, if you do have a question. Please press star one on your telephone keypad once again.

One quick question.

And we will take a question from Lee and then core.

Rob <unk>.

Hi, guys. Good evening, everyone. Thanks for taking my question.

But revenues coming from complementary solutions showed a good performance this quarter.

How should we expect the contribution of this segment the company's consolidated results looking looking forward. Thank you.

Hi, Felipe this is Jeremy Thanks for your question complementary.

Solutions are.

The main driver for growth in our company with traditional business.

We recorded more than 70% growth.

The last commercial cycle and we foresee.

Very strong growth for <unk>.

The next the next commercial cycle of course.

The base is increasing so we do not expect.

70%, but definitely will be the booster of the 20% guidance that we just gave you guys. We just gave.

And Philip if I, if I may add this is Gary speaking, we still have only one quarter of our partner schools adopting at least to one complementary solution if im not wrong only 3% of our partners' schools are adopting two or more solutions right.

The Malagasies right, we have a road for growth regarding two complementary.

Super clear thanks for the question.

Yes.

Just to reminder, everyone that is star one if you would like to ask a question.

At this time I will now turn please note on the phone.

Another reminder, any star one if you have a question.

There appear to be no further questions at this time.

Okay.

Okay.

Okay.

Okay.

And to everyone out there are no further questions I'll hand back to our management team for any additional or closing remarks.

Thank you operator.

In my final remarks, I would like to say that we had.

Our next <unk> commercial cycle, and we are really confident that the next commercial cycle will be as good as this one.

We had the opportunity to share with you guys that are all the marketing process or the commercial process.

Is going fine.

It's pretty it's pretty much comparable comparable to the last cycle. Our manager has reinforced that our premium brands and then also complementary solutions are showing an excellent performance also in these commercial cycle that so we are we are really confident that we brought roster.

Two two.

To a to a high growth.

Moments right and and also on the other hand, we are always.

Looking for ways to be more efficient to be more cost efficient and as you could see in our presentation as well we have increased it by.

10 percentage points the margins in this commercial cycles. So.

Was it was a very good year and we are confident that the next one will be as good as this one so thank you very much for participating in our third quarter.

<unk> quarter earnings call and we hope to see you again in the fourth quarter call Bye Bye take care.

And everyone that does conclude today's conference we would like to thank you all for your participation today you may now disconnect.

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