Q2 2023 Vasta Platform Limited Earnings Call
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Yeah.
Hi, Dan.
Right.
Thanks.
Hi, guys.
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Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed starting musicals. Thank you for your patience.
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Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed on music hold thank you for your patience.
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Hello, and welcome to.
Cause the vos platform.
Second quarter 'twenty to 'twenty three financial results. My name is Krista and I'll be the conference operator today.
During today's presentation, our executives will make forward looking statements forward looking statements generally relate to future or <unk>.
Future events or future financial or operating performance, and then 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 includes butter.
And not limited to statements related to our business and financial performance expectations for future periods, our expectations regarding our strategic product 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. The forward looking statements. In this presentation are based on the information available to US as of today, you should not rely on them as predictions of future events and we disclaim any obligation.
Two updates.
Okay.
Any forward looking statements, except as required by law. In addition management may reference non I S. R. S financial measures on this call.
No and I asked our S financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with I S. R. S. I will now turn the call over to Marcello warning Investor Relations you may begin.
Okay.
Yes.
Good evening, everyone. Thank you for joining us Schoolfriends Sculpsure Cisco's vast supply performs second quarter of 2023 results.
Hello, there Nick.
Our relations and today with me.
Friends of Malaga buses et cetera.
<unk> CFO will be joining me on the call.
Do we just couldnt cover key highlights financial insights and strategic developments that have shifted the foremost.
Cycle to date.
We will also leave plenty of time for questions at the end of this presentation let.
Let me now hand over the floor to Latin America, our CEO to make his opening statement.
Yeah.
Okay.
Thank you Marcella. Thank you all for participating in our earnings release call I would like to cover slide number three with some highlights of could talk 2023 cycle.
As we approach the end of the current cycle we are.
Is it to report that in 2023 cycle to date, our net revenue had a substantial growth of 22%.
Richard 1 billion 179.
Moreover, our accumulated subscription revenue during the 2023 cycle to date has reached <unk> 1 billion.
12 million.
Is anything up 18, 5% increase compared to the previous year.
This growth closely aligns with the 20% growth projected by our 2023.
That roster is truly have all been enjoyed robust plot performed with consistent recording revenue.
Notably our complementary solutions segment continues to stand out showing the highest growth rate among our business segments with a remarkable 45% increase in the current cycle compared to the previous site.
In 2023 lost time need a significant stride by X.
Randy its product and services offering to the Brazilian public sector.
During the second quarter of 2023, we generated 4 million reais in revenue from the BTG sector.
Moving to the company's profitability.
In the 2023 cycle to date, our adjusted EBITDA experiencing a growth of 19%, reaching 372 million, while maintaining an adjusted EBITDA margin close to the 32%.
Finally, we continue to see the normalization of our company's cash flow generation.
<unk> thousand and 23 cycle to date, our free cash flow, reaching 87 to one.
131% increase from the 37 million recorded in 2022 cycles. Each represents 50 million improvement from the free cash flow generation between the cycles.
It's worth noting.
Our last 12 months free cash flow to adjusted EBITDA conversion rates, we're seeing significant improvement.
Rising from 11% to.
26%.
This progress is a direct outcome of our company's growth and unwavering commitment to operational efficiency.
I will now turn it back to Marcello topical solution.
Three cycle today.
Thank you Melanie.
This slide presents the composition of net revenue.
The left side you can observe the significant organic year on year growth in the total net revenue for the second quarter, which increased by 43%, reaching 271 million Reais.
Shifting our focus to the right side, let's detail the key components of this revenue growth.
Firstly subscription revenue had a substantial increase of 21%.
Excluding Barr our subscription revenue experienced even higher growth of 24, 5% year on year.
This expansion is a result of good quality of revenue mix, achieving if you can get to 823% ACB.
Moreover, we are delighted to share that at 23 vast achieved a significant milestone by expanding its product.
And services offering to the Brazilian public sector. It drew.
During the second quarter of 2023, we successfully generated with 40 million in revenue from the <unk> sector.
We will provide more detail in the upcoming section Wilsons presentation.
No subscription revenue increased by 23%, primarily driven by the introduction of a new revenue stream from our flagship schools stock envelope.
Okay.
Okay.
Moving to slide number five.
The net revenue for the 2023 commercial cycles to date.
In 2023.
On organic net revenue growth of 22%.
Two 1.179 billion Reais.
Continuing from the last two.
You're right our total subscription revenue experienced strong growth increasing by 18, 5% on an organic basis.
Description revenue, excluding Barr saw an increase of 22, 4%, reaching 911 million reais.
<unk> revenue declined by seven 8% amounting to $101 million.
Subscription revenue continues to be a major contributor to our total revenue representing a significant 86% share while no subscription revenue now comprises only 11% of the total revenue.
Furthermore, our successful expansion the Brazilian public sector has yielded promising results contributing to 3% of our.
Overall revenue in this cycle to date.
Yeah.
Moving to slide number six in this quarter, our adjusted EBITDA amounted to $4 1 million Reais with a margin of 16%.
This positive performance can be attributed to several factors, including strong sales results cost dilution and operational efficiencies.
Turning our attention to the right side of the slide adjusted EBITDA for the 2023 cycled to date.
The strong growth increasing by 19%.
To reach 372 million with a margin of 31, 6%.
These results against the fastest operational efficiency and financial performance are now operating at a much higher level aligning closely with the companys potential for sustainable growth.
You got coming slides, we'll see the breakdown of the components contributing to the adjusted EBITDA margin.
Okay.
Slide number seven the EBITDA margin showed a slight decrease of 70 basis points compared to the last cycle to date from $32 three to 31 six.
This decrease can be mainly attributed to two factors provisions for doubtful accounts PDA meet in the fourth quarter up 22, resulting for a large retailer bankruptcy proceeds be Brazil.
The higher inventory costs.
The rising global inflation in paper and production expenses affecting our gross margin in the current cycle.
Despite this challenge there are several positive aspects to highlight first we managed to offset the impact of these increases.
Significant operational efficiency gain and cost saving measures.
This will have a resilience and adaptability navigating through market fluctuations.
Furthermore, our improved product mix fueled by the growth of our subscription products.
Plays a crucial role in mitigating the effects of the nation sectors.
It's also worth noting that as a percentage of net revenue our commercial expenses demonstrated an improvement of 40 basis points 40 basis points, indicating greater cost effectiveness and our sales and marketing efforts.
Additionally, our adjusted G&A expenses improved by 210 basis points.
So we have prudent financial management.
Overall, while facing certain challenges in the current cycle, we remained focus and leverage our strengths and equally distracting can measures to optimize performance.
The positive developments in operational efficiencies and cost management, coupled with the growth of our subscription products reflect our commitment to driving sustainable value for our companies and shareholders.
Moving to slide number eight.
The adjusted net loss in the second quarter of 'twenty, three amounted to 32 million, representing a 24% increase compared to the same period in 2022, when we recorded an adjusted net loss of 42 million.
While finance cost in a scenario of a spike in interest rates continued to impact our bottom line. We have remained committed to.
Deleveraging by reducing our net debt and improving our net debt position as you'll see fluids the English presentation.
Okay.
Moreover, it is important to highlight that our adjusted net profit in the 'twenty to 'twenty three cycle to date has shown an improvement increasing by 6% compared to the same periods in 2022 cycle, reaching now 66 million Reais.
Okay.
Moving to slide nine we show the free cash flow evolution.
We continue to observe the normalization of the Companys cash flow generation.
The second quarter of 'twenty, three the free cash flow totaled <unk>.
<unk> 94 million.
Representing an eight 4% decrease compared to $103 million in the second quarter of 'twenty two.
More over to the right sites and get through into 'twenty three cycle to date, our free cash flow reached <unk> eight 7 million.
Marking a remarkable 132% increase.
The $37 million recorded in the two weeks 22 cycles.
It's worth noting that our last 12 months free cash flow.
Sure adjusted EBITDA conversion rates pricing and improvement rising from 11% to 26%.
This progress is a direct outcome of our company's robust growth and commitment to operational efficiency reinforcing the message that cash generation continues to be a key area of focus of our business.
Okay.
Moving to slide number 10, I will give you more details on the provision for doubtful accounts.
Reportedly provision for doubtful accounts PDA saw a substantial reduction when comparing the quarters decreasing from one 9% of net revenue in the second required to up 20, 220.4% in the second quarter of 'twenty three.
However, it is important to note that this quarter our results were positively impacted by a partial recovery of a retail provisions.
Excluding this effect the <unk>.
<unk> EBITDA for the quarter would have been two 5% of net revenue, which is more in line with the typical course of our business.
Moving to the right side of the slide we can observe the PD for the 'twenty two 'twenty three cycle to date.
Reported a provision for doubtful accounts increased by 100 basis points.
Between the comparable commercial cycles.
This increase in PD is still influenced by the one off provisioning of accounts receivable from the larger deal.
Brazilian company mentioned earlier.
If we exclude this factor the participation of PTA in relation to <unk> net revenue.
Stable accounting to two 6%, India 23, commercial cycle compared to two 4% 2022 commercial cycle.
Okay.
Moving to the next slide we observed that the average payment terms of fastest accounts receivable portfolio was 140 90 days in the second quarter of 2003.
We achieved 50 days lower than the first quarter of this year.
And the line due to the seasonality of our business.
I will now conclude my presentation with slide 12.
As of the end of the second quarter of 2003, <unk> achieved a reduction in net debt.
<unk> amounted to $1 billion and 15 million Reais.
Showcasing an improvement of 27 million Reais.
Compared to the net debt position in the system.
Quarter.
This achievement is attributed to the positive cash flow generated during the period, which not only suppressed the impact of interest accrual in <unk>.
I mean the outflows.
On the right side of the slide from Kinder deserve.
As of the second quarter of 2003, the net debt by the last 12 months adjusted EBITDA ratio stands at 250.
<unk> 57 times.
Which marks an improvement of zero point to two eight times compared to the first quarter of 2003, and unimproved authors INO five times when compared to the second quarter up 22.
The reduction in net debt and by lowering the net debt by the last 12 months adjusted EBITDA ratio showcase our commitment to good financial management and sustainable growth.
By continually striving to reduce our net debt, we can enhance our financial flexibility lower interest costs and enable us to navigate in economic challenge more effectively insuring them more.
Prosperous future for Boston.
With that being said I'll pass the words to our CEO Lenny Malaga exclude even module deals about some growth initiatives.
Thank you Marcello.
Let me now provide a recap and slide 14 into a new segment that folic sector <unk> and.
In 2023 cluster took a major step forward by expanding its product and service offerings to the Brazilian public sector.
In terms of market size as illustrated in the graph on the left the total K 12 sector in Brazil comprises more than $39 million true.
According to the latest census, among this total 83% are the students from the public sector, while all of 17, our students' enrollments in the private sector.
Entering the public sector presents an opportunity for capturing positive financial results. The total addressable market for the public sector amounts to more than 406 being <unk>.
Based on our initial assessment, considering prioritization areas penetration.
<unk> and <unk>.
Sure, we estimate that prioritizes serviceable addressable market of $1 9 billion.
Regarding our go to market strategy.
Our target audience consists of states and large municipalities, especially those with low results in <unk>.
The aim of improving improving the quality of education for the disturbance.
To lead this segment effectively we have appointed new dedicated business director and tailored and attractive portfolio of products and services always leveraging from our current portfolio.
In parallel we are.
Establishing a robust framework of corporate governance, which includes a diligence compliance team continuous training of our team members and our rigorous audit process.
This commitment to corporate governance ensures that we maintain the highest standards and upholds the trust of our stakeholders place in us.
Regarding the Q2 results we are delighted to have secured an opportunity contract payment.
At enhancing via discourse.
That is a crucial national assessment that measures the quality of basic education, who plays a vital role in identifying areas that need improvement to foster educational development.
Our program focus on developing core skills in Portuguese and mathematics, laying a strong foundation for our students' academic growth.
We have successfully captured $40 5 million of this contract in Q2.
This is a testament of our capability and securing strategic partnerships and delivery delivering tangible results.
We are immensely proud to have the opportunity to contribute to the improvement of education in the public sector.
Making a positive impact on such a large scale is at the heart of our mission.
This project aligns perfectly with our commitment to driving indication on progress in Brazil.
By collaborating with the location of institutions and governments, we aim to create lasting improvements in the quality of fabrication and powering students to reach their full potential and fostering a brighter future for our society as a rule.
Moving to slide number 15, let me give you some update on the starts to Congress.
In the first quarter of 2023, we took a significant step by acquiring a 51 stake new starts at <unk> school located in some of those other components states.
Start will serve as our flagship school.
Marking our entry into the bilingual franchise business.
It is a strategic move combines academic excellence powered by our premium brands congruent with bilingual education and innovation there.
The launch of <unk> represents an opportunity to have synergy, enabling us to leverage existing products and expertise to minimize capex, while maximizing knowhow.
This integration allows us to offer a compelling and competitive vocational solution to the market.
We are delighted to announce that our efforts have already borne fruit as we have successfully signed at our initial contracts.
<unk> means that the first franchise in schools will be fully operational by 2024.
Our foray into the bilingual franchising business demonstrates our commitment to innovation and diversification by offering higher quality education and leverage our strong brand presence.
As we move forward, we will continue to build on this momentum in expanding our franchise network and enriching lives.
Unscathed in Brazil, we are excited of the prospects of making a positive impact on even more students fostering academic excellence and bilingual proficiency while.
And the growth of our brands and companies.
Now moving to the last slide slide 16 ESG.
As you know <unk> reports updates about the ESG standards, including a fan of key ISG indicators.
For the second quarter information is available in the release, our consolidated data can be found in the rosters sustainability report.
However.
One topic I would like to highlight is our prospects in 2023.
Through the Summer Institute.
To corn the organization of could look at order naphtha base.
Award.
As the largest and most important award basic education in Brazil.
Then its 25th edition the award recognizes and values features in our school administrators from early childhood education to high school.
I encourage you to visit our website and learn more about these important initiatives.
Having said that.
Finish my presentation, and a variety of all to the Q&A session.
If you would like to ask a question. Please press star one on your telephone keypad.
First question comes from the line of Marcelo Santos from Jpmorgan. Please go ahead. Your line is open.
And good evening Malaga Marseille, a thanks for taking the questions I have two the first question is if you could give a bit more details on the <unk> contracts that you closed.
Perhaps you said in the remarks, but I couldn't hear that well so.
With the buyer of that contract.
Is it something like one off you mentioned spot or is it something just this quarter or as a recurring and what exactly did you sell it I just wanted to get a little bit more information on this first contract and the second one is kind of related the second question.
You had a strong EBITDA, especially.
The seasonally weak quarter and EBITDA was strong was it mostly because of this contract or there wasn't a material improvement in the private business and the non <unk> business. These are the two questions. Thank you.
Our seller thanks very much for your question.
Let me take the opportunity to give you more color about this important contract.
Our client is the state of Florida.
We are serving around 300000 students.
More than 4000 features.
It's a contract where we provide content for the site assessment digital platform assessments.
And pedagogical support.
Mainly focus on the fifth nine in high school.
<unk>.
Focusing on mathematic in Portuguese.
Yes.
Yes, we are considering this.
<unk> contract could.
Could be recurring.
The second semester, but.
It's on the on the.
Main role of opportunistic.
Contracts that we see a lot can be the BTG market. So we do expect to have more confidence of this type in the future.
Given.
Little bit color of bulk margin I'd say, we are pretty much on our running rate margin.
The <unk> margin is not.
Neither enhancing or jeopardizing the current margins that we have we're pretty much seeing the same margins on both market with the <unk> experience that we have so far.
What we are seeing in terms of margins is actually our running rate in this cycle to date.
Perfect. Thank you very much.
Your next question comes from the line of Lukas Nagano from Morgan Stanley . Please go ahead. Your line is open.
Hey, good evening, thanks for taking our questions I have two questions. The first one is related to the.
2024 sales cycle can you comment a little bit on the on the progress so far.
And give some color on the churn rate intake process and how much you expect should really just in prices.
And the second one is related to.
And just a follow up on margins can you comment how it was.
Uh huh.
Fact of the.
The higher <unk>.
Mrs for paper on this quarter, because you mentioned that you are on the running rates.
So it doesn't mean that youre not seeing any impact on on paper costs. Thank you.
Okay.
Hi, Lucas Thanks for your questions left the update about 2024 sales cycle with.
And the first half of the cycle, which normally accounts for 30% of the total cycle and we are very excited about the results. We are seeing improvement year over year, a significant improvement either in new schools intakes and lower churns.
Again. This is an initial perspective, we have the second semester with accounts for 70% of the 2024 cycle. So so far so good.
And we are confident about the second half.
Regarding margins, let me give you margins and prices, let me give you more color on that what I mentioned regarding margins and we have a slide on the presentation is that considering the cost increases that we face in this year with paper.
In printing.
And the gross margin shows that we are some points behind less cycle. This is the new running rate that we have for.
For the company, we have more cost pressure on the Cogs side.
Prices for next cycle.
We expect to recover those pointless above inflation, because we definitely phase it will be up cost.
Our cost based price adjustment due to the cost that you can see that we had on our P&L.
Okay.
Okay.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Question comes from the line of Marcelo Santos from JP Morgan. Please go ahead. Your line is open.
Hi, Thanks for the follow up I have two extra questions.
<unk>.
Given that you are following oldest public standards that are going on could you give us an idea like of like for all the tenders that are open now what is the total value that is on the table.
Uh huh.
I believe this should be public information, but we don't we don't have to think for me. It would be very interesting. If you could give us some number on how much is being offered to the market right now on all the tenders that you could participate.
Or any information in that regard and the second question is you had some large nonrecurring M&A effect on your P&L this quarter.
Could you give some color on those thank you very much.
Sure Marcello Lippi.
Let me try to provide and this will help us to to expand a little bit our approach to the <unk> sector.
There are no problem.
<unk> opened right now at least for that.
We are aware of what we do is.
Pretty much identified the opportunity to the channels that we have with the states.
And.
By tailoring the solution, we generate the demand and then the.
The offer of course Taylor.
Taylor soil tailored solution, it's a different approach from selling.
Standard products to the public sector. So we generate the demand identify and tailoring the demand using our current portfolio. So it's a low capex solution because we leverage on what we have and we identified the specific needs of our states for a large municipality. So I have no figure to share with you because we are.
We're generating the demand and once the demand is generated it will become a public offering and we will participate.
The second one is regarding <unk>.
M&A, Yes, we had the recognition of fair now until <unk>.
A one time event.
Regarding complement various solutions that can be acquired in the past that went really well and and we recognize the last payment.
This quarter is a one off payments.
There is nothing now expected in the future.
Perfect, that's very clear and thanks for the explanation on the on your <unk>.
Go to market approach very interesting.
And we have no further questions in the queue at this time Marcelo I will turn the call back over to you.
Okay.
Thank you all for participating on vast of Q2.
Earnings call.
We believe our cycle to date results demonstrate the consistency of our strategy combining growth and.
Capital expenditure discipline.
We are also very positive about 2020 for HCV.
Pain and above the good start of the BTG business.
Looking forward to seeing the next call so have a great quarter. Thank you.
And this concludes today's conference and you may now disconnect.
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Yes.
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Okay.
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Thank you.
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