Q1 2023 Vasta Platform Limited Earnings Call
Ladies and gentlemen, thank you for standing by today's conference will begin in approximately two minutes to allow as many participants as possible to join we thank you for your patience.
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Hello, and welcome to the faster platform first quarter 2023 financial results all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad I will now turn the conference.
To my fellow we're neck Vastus IR. Please go ahead.
Good evening, everyone and thank you for joining us in this conference call to discuss the plant performance first quarter of 2023 results.
Marseille over Nike plaster IR.
With me on the call today, we have Latin America fastest deal instead of a few of our fastest CFO .
Before we begin I'd like to read the 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 their pharmacy and.
And involve known and unknown risks uncertainties and other factors that may cause our actual results could differ materially from those contemplated by these forward looking statements.
Forward looking statements in this presentation include.
They are not limited to statements related to our business and financial performance expectations for future periods.
Expectation.
Regarding our strategic product initiatives and their related benefits and.
Our expectation regarding the market.
Forward looking statements are based on our amazing managements beliefs and assumptions and the only formation 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 we forget.
And the Exchange Commission.
The forward looking statements in this presentation are based on information available to us as of today.
Not rely on them as predictions of the future events.
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 you know I am sorry, its financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with all your friends.
Let me now give the call over to Glenn Malaga to make his opening statements.
Thank you Marcella. Thank you all for participating in our earnings release call I'd like to cover slide number three with some highlights of the 2023 cycle to date.
This first quarter also represents half way through the 2023 commercial cycle, which goes from October 2020 to September 2023, and we have delivered all of our economic and financial results as per our guidance.
Buster concluded the 2023 cycle to date with the 18% subscription revenue growth over the same period of last year, which translate in subscription revenues totaling 801 million reais.
Complementary solutions continuously presented the highest growth rate among the business segments with a 44% expansion in the cycle to date compared to the same period last year.
As anticipated in the previous quarter, the 2023 HCV.
Slightly less concentrated in the first two quarters with a cumulative ACB recognition of 65% compared to <unk> recognition of 66, 5% and prior commercial cycle today.
This is due to the differences analogy and mix of products.
The non subscription segment as expected grew 9% in this commercial cycle and it represents.
Now only 12% of <unk> net revenue.
In 2023 cycle to date, the net revenue grew 17% to 908 million Reais.
Moreover, we continue to see the normalization trends of the company's profitability and cash flow generation.
<unk> adjusted EBITDA grew 10% to 332 million Reais and reaching a margin of 36, 5%.
It is worth mentioning that the adjusted EBITDA and adjusted net profit were negatively impacted by the 15 million reais due to provision for doubtful accounts made in connection with a large retail that's answered in bankruptcy proceedings in Brazil.
Okay.
Thus free cash flow totaled 36 million reais in the first quarter of 2023, a significant 188% improvement from the $13 million in Q1 2022.
And the 2020 to recycle to date free cash flow totaled negative $7 million and 89% improvement from negative six 5 million in 2022 commercial cycle to date.
Worth mentioning that free cash flow to adjusted EBITDA conversion rate measured for the last 12 months' period and drove an improvement from a negative 52% to a positive 31%.
Results of the company growth and constant efficiency pursuance.
And finally, we would like to introduce two growth opportunities that will be.
Pursuing as a relevant for Vesta this year.
An important part of our growth agenda.
<unk> continues to ramp up and in this quarter.
In the first quarter of 2023, we acquired 51% interest in capital of Squali Staci LPTA.
It is a flagship school focusing on promoting bilingual location with high performance and responding to an increase increasingly strong demand from families and students for academic excellence bilingual education and innovation. This will be a more modern distribution for the franchise project that we will have that.
We have launched this week at <unk>, Brazil.
The biggest advocate education events in Latin America.
Another key aspect of our business, we would like to highlight this is that starting this year roster answered.
With its products and services to the Brazilian public sector BTG.
Our broad portfolio of core content solutions digital platform in complementary products together with customized learning solutions tested over decades by the private sector will now be available to K 12 public schools K.
K 12 public sector in Brazil comprises more than 32 million students five times the number of students in the Brazilian K 12 private sector.
Both initiatives will be covered in more detail as I had in this presentation.
I will now turn it back to Marcelo <unk>, who will talk about the financial results of the quarter.
And the 2023 cycle to date.
Thank you Melanie.
Yes, indeed, the slides that we present the composition of the <unk> net revenue as you can see on the left side in the first quarter total net revenue increased 6% organically year on year to 403 million Reais.
Moving to the right side, we can see the components of the revenue growth.
In total subscription revenue grew 7%.
Excluding <unk> subscription revenue increased 10% year on year, reflecting the superior quality of revenue mix into 2023 HCV.
Our net revenue fell 15% to $31 million.
It did not subscription revenue decreased 3% to $4 6 million, which is aligned with our strategy of shifting revenue from textbooks to learning system and digital platform.
Moving to slide number five we analyze the net revenue for the 2023 commercial cycle to date.
Net revenue grew 17% organically in 2023 to 980 million Reais.
From the center to the right total subscription revenue grew 18%.
On an organic basis.
Subscription revenue excluding Florida.
It's 22% to 703 million Reais.
<unk> revenue went down by 3% to 9% to $80 million.
Subscription revenue, which affords greater loyalty profitability and results predictability represents now 8% to 8% of our total revenue while non subscription revenue represents now only 12% of our total revenue.
Moving to slide number six.
We analyze the performance of the.
Revenue in comparison to the guidance provided last quarter.
In the last quarter.
We provide the guidance for net revenue subscription revenue and non subscription revenue.
We can now confirm that most of the quarter and cycle results to date, we're in accordance with our guidance range with the subscription revenue at the upper end of the guidance and the non subscription revenue at the low end of the guidance.
Worth mentioning that 2023, Acu cypress to date reaches 65, 1%.
Moving to slide number seven.
Adjusted EBITDA in this quarter.
Factored by higher inventory costs caused by rising inflation on paper and production costs.
That was partially offset by gains in operating efficiency cost savings and the sales mix that benefited from the growth of subscription products.
On the right side of the slide we see that adjusted EBITDA was 223 cycle to date.
<unk>, 10%, reaching.
$332 million and a margin of 36, 5%.
It is worth mentioning that cycle margin was negatively impacted by the 15 million Reais, which represents 170 basis points due to the provisions for doubtful accounts.
In the first acquired office commercial cycle in connection with a large with deal that entered into bankruptcy procedures in Brazil.
Moving to the next slide in the first quarter of 2023, adjusted net profit totaled 26 million Reais and into 2023 commercial cycle to date adjusted net profit decreased 6% to $98.
Yes.
Moving now to slide number nine we show the free cash flow evolution.
In the first quarter of 'twenty, three free cash flow totaled $36 million, an improvement of 188% from a free cash flow.
$13 million in the first quarter of 2022.
And the two into 'twenty three cycled to date, the free cash flow totaled a negative 7 million also unimproved once comparing to previous year, which had a consumption of 65 million reais.
I would like to draw your attention to important measure of the financial health of fastest as we continue to see the normalization of the companys profitability and cash flow generation.
The last 12 months adjusted EBITDA to free cash flow conversion rates improve.
Improving from negative 52% considering the fuel from the second quarter up <unk> 21 for the first quarter of 2022 to a positive 32, 1% considering the periods from second quarter of 2022 to this first acquired after 'twenty three.
This is a result of the company's growth and constant efficiencies with forcing the message that cash flow generation continues to be our key areas of focus of our business.
Okay.
Moving now to slide number 10.
I will give you more details on the provisions for doubtful accounts.
We reported provision for doubtful accounts DDA grew one eight percentage points between the comparable commercial cycles.
This increase in EBITDA was due to the provisioning up 100% of accounts receivable.
Larger retail compound in Brazil undergoing bankruptcy <unk> and the amount of $15 million.
And the represents 117 percentage points of our growth in the reported provisions for doubtful accounts and get to 'twenty three commercial cycled to date.
Excluding this factor the participation of the CE in relation to fastest net revenue remained stable too.
Two 6%.
Three commercial cycle compared to two 5% to <unk> 22 commercial cycle.
Moving to the next slide we see the average payment terms of fastest accounts receivable portfolio was 100 100 1990 days in the first quarter of 2023.
One day higher than the first required of the previous year.
And alignment with the seasonality of our business.
I will conclude my part of this presentation, which is slide 12.
As of the end of the first quarter of 'twenty three fastest requirement net debt in the amount of $1 42 billion Reais.
Equal to the net debt position of the fourth quarter of 'twenty two.
The impact of higher interest rates.
It was offset by the cash flow generated in the periods.
In comparison to the first quarter of 'twenty two.
Net debt position increased by 103 million due to the impact of higher interest rates and the investments made in the minority.
Net debt position increased by 103 million due to the impact of higher interest rates and the investments made in the minority.
Mystique acquisition offer.
Mystique acquisition offer.
Keybanc and the acquisition of Fidelis and the first quarter of 'twenty two.
Both of which were partially offset by our positive cash flow generated in the period.
The net debt by the last 12 months adjusted EBITDA.
At 285 times as of the first quarter of 'twenty three.
0.07 times higher in the fourth quarter of 'twenty two.
In the <unk> 82 times lower than the first quarter of 'twenty two.
In the comparable quarter.
With that being said I pass the word back to our CEO Gilead Inelegance.
We will give you more details about some of our growth initiatives.
Thank you Marcello.
Let me now bring you more color on a new revenue stream line that is the public sector.
For BTG.
Starting in the first semester, we begin offering our products and services to clients in the public sector. In addition to our existing private schools client base.
Our broad portfolio of core content solutions includes for the public sector.
Our existing crude oil platform as a virtual learning environment print.
<unk> printed and digital structure content.
Active diagnostic assessment and featuring and the preparation of students for the public sector.
Main Brazilian assessments, such as <unk> and <unk>.
Moreover.
We have a robust portfolio of existing complementary solutions such as competition thinking.
And social emotional and bilingual.
As we can see the graphic in the far right. The total K 12 sector in Brazil comprises more than 39 million students. According to the latest expenses.
Of this total 83% or $32 8 million comprises students from the public sector, and only 17% or $6 6 million or students enrolling in the private sector.
We know that our countering is very unequal and providing quality location for parts of the population, we will only increase inequality, which does not speak to our ESG agenda as.
As we can certainly captured good results by entering the public sector.
The total addressable market for the public sector is more than 406 billion reais.
Our initial assessments taken into consideration the areas of prioritization and our penetration capacity.
We estimate that prioritizes serviceable addressable market of $1 9 billion of rats.
We're not providing any guidance of this segment as we begin to capture revenue from the public sector, we will provide full disclosure about it.
Moving to slide 15, let me give you some updates on the stockpile.
This quarter, we acquired a 51% stake in its quality start LPTA.
For $4 5 million Reais.
Scully stock is located in <unk>, Tom Paul.
And it will be our flagship school boosting our entrance in the bilingual franchise business in response to an increasingly demands of families and students for academic excellence in.
In this case powered by Anglo content bilingual education and innovation.
The launch of start envelope implies low capex and high Knowhow as we capture the synergies from existing products combine it together.
This will be a modest institution for the franchise project that we have just launched this week in the bedsheet, Brazil beer.
I will end my presentation with slide 16.
We are proud to say that fastest brand brands maintained leadership in numbers of approval and the mission fast of Brazil best universities. According to <unk> unified selection systems.
Our top of mind brand <unk> expanded.
Expanded its leadership in admissions across the best universities and is the most competitive car here in the country, which an overall increase of 12% and admitted students compared to 2022 and near 12000 students approve it overall.
The top performance of Brazil's Best University is among the key attributes consider by Cade to our schools when choosing a content partner.
Having said that I'll finish finish our presentation and invite you all to the Q&A section.
Thank you if you have a question. Please press star one on your telephone keypad. If you wish to withdraw your question simply press Star one again.
Your first question comes from the line of Marcelo Santos with Jpmorgan. Please go ahead.
Hi, Good evening. Thank you for taking my questions I wanted to explore a.
The <unk> initiative.
How does the go to market will work in this segment I mean whats.
What are you going to.
Cds or states that have either no host cities <unk> bidding processes open or you're going to like how are you going to approach and deal with this product I think.
And what's the timeframe for you to start generating these results and the second question. What did you include in this Tam of $1 9 billion and this is mostly.
Content that the cities or states would used to replace the National book program content or are you considering more other services. Thank you.
Hi, Marcello. Thank you very much for your questions. Let me give you more color about BTG.
So on the <unk> initiative, we are focusing.
To serve large public systems, either states or.
Municipalities.
And.
We are targeting to enhance.
Enhance the learning of students.
Using digital platform adaptive diagnostic assessments and preparation for <unk>.
Mainly now and the way we are approaching it is definitely.
Reaching the big States and large municipalities for auction process and open opportunities.
To serve with this with this products were established.
Business director that are pursuing these opportunities and we have right now some good contracts.
In discussing.
Regarding the Sam representing the one 9 billion here and business.
Your advisors.
Large.
Municipalities and states.
With the basic teaching materials and platforms and assessments.
We use the external consulting firm to help us to target those.
Those stop.
Large <unk>.
<unk> systems.
Perfect. Thank you very much milligan.
Your next question comes from the line of Lukas <unk> with Morgan Stanley . Please go ahead.
Hey, good evening, thanks for taking our questions. We have two the first one is on costs.
Should the paper inflation keep pressuring margins for the rest of the cycle or do you see some room for improvement and what are your expectations for the next cycle.
And the second question.
Second question is also about the two <unk> strategy.
I wanted to understand how is the business model exactly I or selling.
The exact same product or do you need to make some type of adaptation and.
And from the strategic point of view.
To seeking to do this now.
Okay. Thank you very much Lucas for your questions, Let me start with the margins.
We.
We expected the price increases in paper and printing team and it's already factor in our numbers.
We are pursuing this year is to be around the 30% EBITDA margins the 30% level.
We do not expect.
Any any other impact that is not reflected on the.
On the figures right now.
You mentioned the cycle.
I understand that you were asking for the sales campaign for 2020 'twenty four.
We already launched the GPM for 2024.
We are very excited with the initial numbers nor.
Normally up to eight through to the end of April we account for it for 10% of the total growth of this of a normal cycle and we are seeing very positive figures.
From the very beginning.
Regarding <unk> strategy, we are not.
We are the contracts that we are discussing right now are very customizable contracts to enhance.
To enhance the learning process of students leveraging on all of our digital tools.
Platform adaptive.
<unk> diagnostic SaaS mens and some of the discussions with tailor made solutions and content for them to address their specific needs.
<unk>.
There are.
Public system.
So we do not plan to use our products in the private market to serve the public.
We are counting on leveraging our scale for digital solutions to serve the public sector.
With products.
Everything that we are pursuing right now are white label products for the public sector.
And.
We're doing it right now obsolete due because of.
The large tam of the market and now we have the technology and the products to scale up with digital solutions for the public sector.
Thanks for your question Lucas question very helpful. Thank you.
Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
And do you have a follow up question question from Marcello Santos with JP Morgan. Please go ahead.
Thank you for providing the follow up opportunity.
I wanted to understand better if there is going to be a margin impact of this <unk> initiative given that you are using different products.
This is something that is going to be noticeable maybe cycled and secretary to give the idea of the Martin and 30% for the year, but in the next couple of years. This is going to in fact, some higher margin profile and the second question is regarding the franchise model that you announced using using this.
Cool.
Start school that you acquired.
This franchise model differs from for example, a school clients of yours that adopt and low inputs. The anvil brand what are the main differences between these two models. Thank you.
Yes.
Thank you Marcelo for your questions.
Regarding <unk> margins I would say that it's too early to tell about their margins.
It will be based on digital materials, mainly we do not expect lower margins than the public market than the private market, but it's too early to tell we don't have any contract yet.
But we definitely expect.
To be very solid margins since it is digital regarding the franchise model that.
We are just launching Betsy fare.
With our flagship in some of those other who prior to we bundle together <unk> solutions with a brand new curriculum.
Of bilingual product.
Tied up with.
Innovation.
Ovation materials, such as head bands.
And other tools.
A different my it's not the same product.
Of our regular private school, who will have access to.
And we are also leveraging the new brand of start putting everything together, we will set a new pricing point for new entrants. We have this model already establishing an <unk> operator has an anglo and <unk> stocks and they're completely different schools with different.
Publix.
<unk> different different.
Different targets.
We are very confident that this will be a very sound business.
Our franchise providing.
Full.
Ohio to our new.
And Trent in the in the business.
Okay.
Alright, Thank you very much.
There are no further questions at this time I will now turn the call back, particularly army Malaga CEO .
Thank you all very much to participate on Vas that Q1 conference call.
We are very excited about the new growth opportunities.
On <unk> and on start <unk>.
And.
We had a very good start on our sales cycle for 2024 campaign.
And lastly, we're very proud of our students' performance in 2023, Universal emission cycle and we are.
Very very excited about the perspectives of 2023 results in 2024 commercial cycle.
Thank you very much looking forward to see to see you all in Q2.
This concludes today's conference call you may now disconnect your lines.
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