Q4 2022 Vasta Platform Ltd Earnings Call
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Good afternoon, and welcome to vast up platform Limited's fourth quarter 2022 financial results conference call.
All participants are in a listen only mode.
After the Speakers' presentation, we will conduct a question and answer session to ask a question you will need to press star followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Marcelo Vernick with Investor Relations. Thank you. Please go ahead.
Good evening, everyone and thank you for joining us in these school for sculpt discuss device the platform's fourth quarter and full year of 'twenty to 'twenty two results.
The fourth quarter also represented the first quarter of the 'twenty two 'twenty three sales cycle, which goes from October 22 to September 23.
I myself, the next fastest IR and with me on the call today, we have might've deal buses, you'll get let me Malaga buses.
And it 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 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.
Statements. In this presentation include but are not limited to statements related to our business and financial performance and expectations for future periods, our exploration 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 deterioration to date as well as those more fully described in our filings with the SEC.
The forward looking statements in this presentation at least all the information available to us as of today.
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 no idea for S financial measurements on the skull.
No I, yeah for <unk> financial measures are not intended to be considered in isolation or.
The submission for our results prepared in accordance with Ias let.
Let me now go over to <unk> to make his opening statements.
Vesta concluded this year with a 39% subscription revenue growth over the same period of last year subscription revenues totaled one point to one 2 billion realized in 2022 in the fourth quarter of 2022 or the first quarter of the next commercial cycle.
<unk> continues to show a very positive trend after the excellent results shown in the 2022 sales cycle and exceeded that exceeded our two.
2022, ECB guidance by $2 four 4%.
Then also description segment as expected remained flat compared to the previous year, representing now only 11% of us US revenue. Thus in the 'twenty to 'twenty two our full year net revenue grew 33% and reach at 1.264.
Billion Reais.
The results reflect the strategic consistency and operational excellence as we continue to observe migration of customers from non subscription to subscription products up sell to premium education brands accelerated growth in the complementary solutions portfolio.
Complementary solutions grew 58% compared to the last year.
Fastest adjusted EBITDA grew more than 100% and reached 375 million with a margin increase of 10 five percentage points, reaching 29, 7% in.
In the fourth quarter, adjusted EBITDA totaled 200 million, a relevant 25% increase compared to the to the fourth quarter of 'twenty, one when adjusted EBITDA was 161 million.
This improvement was mainly driven by operational leverage leverage gains cost savings and improve its sales mix with the growth of subscription products and a.
The more the higher penetration of our premium brands.
It's it's also worth mentioning that the adjusted EBITDA and adjusted net profit were negatively impacted by 15 million in provisions for doubtful accounts or P. D. Eight of our large retail company.
Large retailer Brazilian company undergoing judicial recovery.
Our free cash so saw a significant improvement off to have over 200 million.
To a total of 112 million normalized free cash flow in 2022, comparator conception, a consumption of a $94 million in the last fiscal year.
Improvement is driven by the recovery of operational results and better working capital dynamic that is bringing down the net debt EBITDA EBITDA ratio to less than three times.
This is the fourth consecutive quarter of improvement in this indicator and finally talking about the 2023 HCV.
We announced that last quarter, we signed a total of a one one point.
Two 3 billion are.
Realizing subscription contracts, which rep, which represents 10%, 20% organic growth over the subscription revenue.
Of the 2022 commercial cycle traditional learning systems ACD grew 20% Wiley complained while complementary solutions grew 39%.
In comparison to the last AC.
I'll now turn back to myself and active we will talk about the financial results of the quarter and the full year of 'twenty two.
Thank you Gil.
Ah is a slide we presented the composition of fastest net revenue.
You can see on the left side in the fourth quarter total net revenue increased 27% organically year on year to $505 million.
Moving to the right side, we see the components of our revenue growth.
Total subscription revenue jumped 28%, reflecting the superior quality of our revenue mix and penetration of complementary solutions across our client base.
No subscription revenue increased 20% motivated by the sales growth absurdity and spot sales in this quarter.
Okay.
Moving to slide number five we analyze the net revenue for 'twenty to 'twenty two fiscal year.
Net revenue grew 33% organically in 2022.
Two $1.264 billion.
Again from the center to the Reits total subscription revenue grew 39%.
Organic basis.
Subscription revenue, excluding par jumped 46% wildfire revenue went up by 3% to 127 million.
Subscription revenue, which affords great loyalty profitability and results predictability represents now 89% of our total revenue.
While non subscription revenue represents now 11% of our total revenue.
Moving to slide number six.
EBITDA in this quarter totaling 200 million.
A relevant increase of 25% from the.
161 million in the fourth quarter of 'twenty one.
This improvement was driven not only by the growth in the net revenue, but also by operating leverage gains cost savings and better sales mix.
<unk> benefited from the growth of subscription and premium products.
On the right side of the slide we see that adjusted EBITDA for 2022 more than doubled reaching 375 million with margin increase of 10 five percentage points to 29, 7%.
It is also worth mentioning.
That is adjusted EBITDA and also adjusted net profits were negatively impacted by the 15 million PPA for 100% of receivables released two fastest product inventories of a large retail company undergoing traditional recovery.
Otherwise our results would have been even higher.
This is evidence that the fastest profitability is notwithstanding a much higher level and closer to the company potential.
In slide number seven.
We observe that in proportional off net revenue growth.
Gross margin grew four five percentage points due to a higher quality sales mix complementary solutions penetration and cost.
Pollution.
The reported <unk> line is flat in 2022 compared to 2021 at six 3% percent of the net revenue.
This reflects a three 6% sorry.
However includes the here is the provisioning after 100% of accounts receivable from the retail companies undergoing judicial recovery.
Amount of $15 million.
Excluding these one loss provisioning factor the normalized EBITDA in relation to the fastest net revenue reduces one one percentage points from three five to $2 four.
In the comparison between the ears.
Moreover, commercial expenses and adjusted <unk>.
G&A expenses as a percentage of net revenue were down two one percentage points and four two 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, 7% in 2022.
Versus a margin of 19, 2% in prior year.
This is the highest margin and fastest recent years.
Moving to slide number eight in.
In the fourth quarter adjusted net profit totaled <unk> <unk>.
73 million.
Relevant 35% increase compared to the fourth quarter of 2021 when we.
Reported adjusted net loss of 54 million.
In 2000, <unk> adjusted net profit reached 39 million a significant increase from a loss of $10 million in 2021.
Okay.
Okay.
Moving to slide nine.
We showed the free cash flow evolution.
In the fourth quarter of 2000 June cash flow totaled negative 39 million an improvement from a negative $7 8 million in the fourth quarter of 2021.
In 2022 fiscal years, the free cash flow totaled 92 million.
$112 million when excluding the early payment of 20 million in royalties to a content provider also a significant improvement compared to the previous year, which had a consumption of 94 million reais.
Okay.
Moving now to slide number 10, I will give you more details on the provision for doubtful accounts.
The reported PTA line in the fourth quarter of 2022 is 29 million.
Included here is the provision of 100% of accounts receivable for retail companies undergoing should reach a recovery in the amount of 15 million.
The normalized EBITDA in the quarter adds to 14 million.
Which represents two 7% of the net revenue.
Stability in comparison to the fourth quarter of 'twenty one.
Moving to the right side.
For the full year of 2022, the reported EBITDA line is 46 million.
31 million on a normalized basis.
Which represents two 4% of the net revenue.
This represents a reduction of one one percentage points in the comparison between the ears from three 5%.
To two 4%.
Yeah.
Okay.
Moving to the next slide we see the average payment terms offered fastest accounts receivable portfolio.
108.
87 days in the fourth quarter of 2022.
Five days lower than the same quarter of the previous year.
It's worth mentioning that the higher average days in the fourth and the first acquired of the year.
We are aligned with the seasonality of our business.
I will conclude my part of this presentation with slide 12.
Buster ended the fourth quarter of 'twenty two.
With a net debt position of 1 billion in the 42 million.
In comparison to the fourth quarter of 'twenty two.
Net debt position increased by 155 million due.
Due to higher interest rates accrue for the amount of $119 million.
And the 107 <unk> million in M&A acquisition.
The minority acquisition of Deutsche Bank in July and Fidelis in February of 'twenty two.
Partially offset by the positive cash flow of 92 million into 2022.
And the right chart, we see that our leverage measured as net debt divided by the last 12 months. Adjusted EBITDA has it started to decline since the first quarter of 'twenty two.
Reaching a ratio of two 7% to eight times in the fourth quarter of 'twenty two.
It shows a downward trend for the fourth consecutive quarter.
With that being said I'll pass the word to our CEO nelligan that will give you more details about between 23% <unk> growth.
Thank you Marcello now moving to slide 14, we detail the ACB growth composition as.
As reported in the last quarter. The 2022 commercial cycle was a very positive year, surpassing our 1 billion HCV guidance by two 4%.
From the commercial cycle 2019 to 2022, we have a compound annual growth of 20%.
And we can now confirm that our 2023 total HCV.
Is $1 billion 230 million Reais.
Which means 20% organic growth versus the subscription subscription revenue collected in 2022 cycles.
Moving to the right side, we see the components of 2023 ACB growth.
Learning system represents 79% of our subscription revenue.
An increase of 18% in comparison to 2022 commercial cycle higher growth of service in our premium brands.
We're sharing our perception that quality and reputation remain best in our business.
Complementary solutions had the highest growth rate among the business segments with a 39% increase.
Continuing the penetration ramp up across our client base.
Our paper remained flat compared to 2022.
Moving to slide 15, we bring more color on the 2023 HCV buildup.
A combination of new clients cross sell upsell and price adjustments.
Key drivers for the growth.
New clients represents 9% growth in HCV.
While this sum of cross sell up sell and price readjustments contributed to 20% growth in ACB.
Churn represented 9%.
One percentage point above last year's.
Reflecting a fighter management.
Delinquency receivables.
Worth mentioning that churn rate of our premium brands remaining low.
Moving to the next slide we give you more information on how our <unk> will be distributed over the year.
The fourth quarter represented the first quarter of 2023 sales site.
Our subscription revenue grew 28%.
With this we reinforced the thesis of high growth of the company, which should follow the pace of expansion mainly through the penetration of complementary solutions and increased participation of premium segment in ACB.
Non subscription revenue increased 20% motivated mainly by spot sales review.
Fulfillment partners.
Our guidance for Q1, 2023, which represents the second quarter of 2023 severe recognition, we expect our net and net revenue from 395 million to $415 million.
To be comprised of 350 million to $260 million from subscription products, 29% of 2023 ACB.
$45 million to $55 million from non subscription products.
Means we expected 2023 sales cycle to be slightly less concentrated in the first two quarters.
When compared to the last cycle.
Moving to slide 18.
Now, let's cover our ESG initiatives.
Since the second quarter.
Austin has been reporting updates about the ESG standards, including Athena of key ESG indicators aligned with its topics identified doing materially review process.
Reinforcing our commitment with the higher ESG standards. The main highlight in the fourth quarter relates to the fact that Vasco Simon with <unk>.
<unk> principals of the UN global compact of human rights labor environment.
Corruption.
Movement reinforces the company's commitment to sustainable development and the best ESG practice.
Other highlights include the offshore inter ship program, which create exclusive inter ship positions for black people in the organization. The launch of the first greenhouse gas emission compensation program for its operation.
The increased use of renewable and renewable energy sources, and our day to day activities and the achievement of targets for diversity in leadership and board of directors.
Yeah.
All forward the tail of ESG initiatives and full information can be found investors sustainability.
Moving to slide 20, let me give you some color on the start envelope.
In 2022, we took the decision to promote effective and innovative bilingual education through a unique solution that uses our existing products to combine two elements in high demand bilingual relocation and performance in University entrance exams.
In the first quarter of 2023, we became partners of start <unk> High school focuses on promoting bilingual education with high performance, which will be a model institution for the franchise projects that we expect to launch in the first semester of 2023.
Who partnered with <unk> and responding to an increasingly strong demand from families and students for academic excellence bilingual education and innovation.
The launch of start angle implies low capex and high and high Knowhow as we capture the synergies from existing products combine it together.
The next step will be launching of a franchise model where in addition to the sales of learning system. We also expect to collect fees from the schools tuition, which has a total addressable market over 70 billion.
I will now turn it back to Gil.
Thanks, Nelligan move into slide number 22.
We have announced the transition period of my role as CEO . After 36 years dedicated to education as a teacher as an add on it.
<unk> and also of course as an executive I have chosen to step down from my executive role in Boston and hand over this rose to 11 in Malaga currently Vesta Seo our transitional period goes to the end of April .
Yes.
Open to Q&A.
Sorry.
Loss.
The screen.
Yes area. It is not a farewell as I will continue to act as a member of <unk> Board and head of the strategy.
Our strategy and innovation Committee I will also continue to represent <unk> president of our Brazil, The Brazilian Association of learning systems and application platforms and entity that brings together the main companies in this sector.
I am also talking taking this opportunity to highlight that I am leaving the equity roll in the hands of a very competitive is killed.
<unk> represented by the sea level in Latin America, our new CEO SaaS, Camilla Daniela <unk> and of course, our board of directors and the audit Committee.
Having said that I finish our presentation and invite you all to the Q&A section.
Yes.
If you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, well pause for just a moment to compile the Q&A roster.
Our first question comes from Marcelo Santos from JP Morgan. Please go ahead. Your line is open.
Good evening first I would like to congratulate you for his tenure malaga for assuming the new position Jewish wish the best for you and your next endeavors.
My question I have actually two would you. Please provide the margin outlook for 2022 do you think there's still room to increase what kind of indications and what are the moving parts that we have here on the margin for 2023 and the second question is on the churn.
Is there.
I understand you mention in the release that there is a macro consideration behind the churn but is there a component also coming from higher churn in the complementary solutions or does that not play a role that these are the two questions.
Okay.
Thank you Marcelo this is <unk> here.
<unk>.
Starting with your first question about our outlook for 2023.
We are very positive for 2023.
We definitely see room for improvement.
In terms of margin that you mentioned.
We operate around 30% margin and we expect to be around that although we had cost pressures in paper and printing. We are confident that we can have a stable margin around the 30% level.
About the churn yes.
As we have.
Our software environment, mainly due.
As to the type of management that we did with our schools with the collections.
And I think we had a cleanup on our base.
We do not expect that to continue and about complementary products, we did not see.
An increasing churn above the normal chart.
So I would say that the mix of core and complementary.
Too much stable in the number that we just provided.
If I if I, if I may add a little bit here of a sale of the churn is much more related to low end schools.
If we take the churn off hour a premium brand, it's around one 1% to 2%, but in the other hand, the low end brands that have a.
A much higher.
Our churn.
In double digits, I would say right.
Specifically kind of schools are the schools that we help our dialogue with supported a lot during the pandemic, but since the last year, we have been very restricted in terms of off.
<unk> renewed contracts with the schools that have a profile of PD right. So nothing regarding two complementary solutions is more related to this the specific kind of schools.
Perfect very clear thank you very much.
Our next question comes from Lucas Nagano from Morgan Stanley . Please go ahead. Your line is open.
Okay.
Our next question comes from Luca <unk> from <unk>. Please go ahead. Your line is open.
Good evening, everyone and thanks for taking our questions just regarding the HTC announced for 10 weeks.
Can you please comment on the breakdown between volume growth and pricing adjustment and then also.
Also if you could just comment on how the competitive landscape has evolved during the commercial cycle. While your competitors have been more aggressive on pricing in light of these weaker macro scenario.
Helpful. Thank you.
Thank you Lucas.
Let me take your question about the PCV.
Regarding competitive environment, that's pretty much the same it's a competitive market.
With phase <unk>.
A fierce and good competition, and we didn't see that changing or.
Weakening our prices or margins.
In terms of breakdown.
What I can tell you is that we had double b's a double digit price increase I would say a low double digit price increase.
That's the level of breakdown that we can give you.
Thank you for your question.
If I if I can.
Also add something here Luca.
There is there is the third consecutive year that the highlights of the ACG book building are related to premium brands.
It is important to mention that because when we are talking about premium brands a pre school looking for a premium brand is less.
Our focus in on pricing right. That's why we are I would say we are.
Yes.
We are.
Going a little bit this low in terms of selling low.
The low end the brands right, because that's the kind of schools very sensitive to prices or to pricing.
Yes.
That's great. Thank you.
We have no further questions in queue I'd like to turn the call back over to the presenters for any closing remarks.
Hi, Thank you this is <unk>.
I got here.
Talking.
Thanks.
First I would like to thank.
Thank you very much to participate on today's call.
We are very proud of the year that we're just delivering in 2022 very confident in 2023 with good projects growth projects on our company.
Yes, especially.
We'd like to thank you Gil.
For the well.
For the journey that he did here and Somos.
Over almost three decades.
Tony comes.
So.
On the construction of our business and we will keep your legacy here.
And.
Thank you very much for also been with us in the future on our board and helping us with strategy innovation.
Everything that you always provided us with your insights.
Thank you very much looking forward to see in our Mexico.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Okay.
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