Q2 2025 Vasta Platform Ltd Earnings Call

Speaker #3: To ask a estion at that time, please press star, followed by the number one on your telephone keypad. Before we begin, I would like to read a forward-looking statement.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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 to update any forward-looking statements except as required by law.

Speaker #3: In addition, management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not presented in isolation or as a substitute for results prepared in accordance with IFRS.

Speaker #3: I would now like to turn the call over to Cesar Silva, Chief Financial Officer. Thank you. Please go head.

Speaker #4: Hello, everyone. Good evening. And thank you for joining us in this conference call to discuss Vasta Platform's second quarter of 2025 results. I'm Cesar Silva, Vasta's CFO, and today we have the presence of Guilherme Melega, Vasta's CEO.

Speaker #4: We will be joining you on the call. Let me now hand over the floor to Guilherme

Speaker #4: Melega, our CFO, to make his opening intended to be considered in statements.

Speaker #5: Thank you, Cesar. Thank you all for participating in our earnings call. Let's move to the slide number three, with some highlights of 2025. We are now entering the final portion of 2025 sales cycle.

Speaker #5: Which runs from October 2024 to September 2025. And pleasure to report that in the second quarter, we continue to deliver solid financial and operational performance.

Speaker #5: With consistent growth across both our core and complementary solutions. A particular highlight this quarter was our free cash flow. Subscription revenue reached 1 billion 340 million, in the cycle to date.

Speaker #5: A 16% increase compared to the same period of 2024. These results demonstrate our ability to sustain double-digit growth in our core business for the fourth consecutive year.

Speaker #5: Our complementary solution business grew 24%, supported by accelerated expansion in both student-based and market penetration. As a result, net revenue in the 2025 cycle to date reached $1.488 billion.

Speaker #5: A 14% increase compared to the same period in 2024. This growth was driven by the successful conversion of ACV bookings into revenue. Along with the strong performance of complementary business.

Speaker #5: In the B2G segment, we recorded 9 million. In revenue. From new customers, totaling 50 million in the cycle to date. Over the last two quarters, we generated 14 million from new customers, mainly municipalities.

Speaker #5: We began using our product and service. Confirming that our strategies on the right track and diversifying our B2G portfolio into states and municipalities. In the 2024 sales cycle, we booked 69 million reais in revenue from the Para contract.

Speaker #5: Which was recognized all at once. Covering the first and second semesters and in the current cycle, the first semester of Para was booking in Q4 2024.

Speaker #5: And the second semester is expected to be performed in the second half of 2025. On the profitability front, adjusted EBITDA reached 462 million. An 8% increase compared to the previous cycle.

Speaker #5: The EBITDA margin was 31.1%, reflecting a different product mix. Lower year-to-date B2G revenue and higher marketing expenses related to business expansion. In Q2 alone, adjusted EBITDA was 42 million reais.

Speaker #5: With a margin of 11.7%. Up 2.9% points from Q2 2024. Free cash flow remains a key strength. In the cycle to date, free cash flow totaled 224 million reais.

Speaker #5: An increase of 133 million reais. Year over year. In Q2 2025, free cash flow reached 80 million reais. A 108% increase compared to Q2 2024.

Speaker #5: Our last 12 months, free cash flow to EBITDA conversion rate improved to 57.7%. Driven by growth and sustained efficiency measures. These results reflect our ongoing efforts in operational discipline, from automation in collection process to centralized payment scheduling and renegotiation of supplier terms.

Speaker #5: We also continue to make progress in the leveraging with net debt EBITDA last 12 months at 1.9 times. Down 2.28 times. In Q2 2024.

Speaker #5: Turning to start angle bilingual school, another important growth avenue we can say that our operations continue to expand. We implemented five new operating units this year and together with our two flagship schools, we now have seven units in operation.

Speaker #5: Closing this quarter, we have signed over 50 contracts and we are actively working to deliver another strong growth cycle in this business line. Finally, we remain committed to innovation and inclusion.

Speaker #5: As we prepare for 2026, plural AI will introduce new tools focusing on equity and personalized learning. The individualized education plan, EEEP, will empower educators with tailored pedagogical recommendations, supporting inclusive practice and transforming challenges into opportunities for growth.

Speaker #5: We are confident in our strategy and proud of the progress made so far. I'll now turn back to Cesar Silva, who walked us through the financial results.

Speaker #6: Thank you, Melega. In slide number four, we present the composition of Vasta's net revenue. On the left side, you can observe the organic growth for the second quarter in total net revenue, which increased by 21.8%, reaching 358 million reais.

Speaker #6: Vasta's subscription revenue achieved in the second quarter of 2025 is 320 million reais, a 15% increase compared to the same quarter of 2024. Non-subscription revenue increased 98% to 29 million reais, due to a seasonal effect between the first and second quarters related to delivery of books.

Speaker #6: And in the governance segment in this quarter, we generated R$9 million in revenues, and together with the R$5 million booked last quarter, we totaled R$14 million in new customers.

Speaker #6: So, in the sales cycle, we achieved 15 million reais, a decrease of 28% in compared to 69 million reais of 2024, a zero explained by Guilherme before.

Speaker #6: Moving to the right side, you have the numbers of the net revenue for the 2025 sales cycle to date. We achieved an organic growth revenue of 13.6% in the 2025 sales cycle to date, amounting to 1 billion 488 million reais, the main factors for this performance were firstly, the subscription revenue had increased 16%, reaching 1 billion 340 million, and continued to be the major contributor to our total revenue, representing now 90% of the revenue share.

Speaker #6: Non-subscription revenue increased 11% to 98 million reais, this growth is mainly driven by two effects. The new revenue for our flagship start angle resale in São Paulo that not exist in 2004, 2024, and the growth in the number of students in the angle pre-university course.

Speaker #6: Which enrolled 21% more students than last year. Moving to slide number five, we can say that in this quarter, our adjusted EBITDA amounted to 42 million reais, with a margin of 11.7%, an increase of 62% from the 26 million reais in second quarter of 2024.

Speaker #6: Mainly due to the growth in core content and B2G net revenue. On the right side, we see that adjusted EBITDA in 2025 sales cycle increased by 8.1%, to reach 462 million reais, with a margin of 31.1%.

Speaker #6: Let's now move on to the next slide and explain the breakdown of the adjusted EBITDA margin. In slide number six, we can see that the adjusted EBITDA margin achieved 31.1% in the sales cycle.

Speaker #6: 1.6% points lower than the same period of 2024. Our gross margin reached 62%, a decrease of 2.4% points. From 64.4% in the 2024 sales cycle, due to a lower revenue in B2G and a different product mix.

Speaker #6: Provisions for Delta accounts achieved 3.1% in relation to net revenue, showing an improvement of 0.9 percentage points when compared to 2024. This indication has been demonstrating improvement throughout the year.

Speaker #6: Despite the very challenging history to credit environment for non-premium brands, and we still have foreseen some challenge in the credit scenario for the next month.

Speaker #6: As a percentage of net revenue, our commercial expense increased by 0.6% points. Driven by higher expense related to business expansion of the commercial cycle of 2026.

Speaker #6: And remain stable in the year 17%. And finally, adjusted G&A expense is improved by 0.5% points. Mainly driven by workforce optimization, budget added, discipline measures.

Speaker #6: Moving to slide number seven, we show the justed net profit. In second quarter of 2025, adjusted net losses totaled minus 29 million reais, showing an improvement from the adjusted net loss of minus 37 million reais in the same quarter of 2024.

Speaker #6: In the sales cycles cycle, adjusted net profit reached 111 million reais, and there has been a slight increase of 1% from an adjusted net profit of 110 million in 2024.

Speaker #6: Moving to slide number eight, we show the free cash flow evolution. In the second quarter of 2025, the free cash flow totaled 8 million reais.

Speaker #6: Representing a relevant increase compared to 38 million reais in the same period of 2024. And in the 2025 sales cycle, our free cash flow reached 223 million reais, an increase of 147 percent from 2024.

Speaker #6: The cash flow generation in this cycle has an outstanding performance and achieved the highest level of conversion related to the adjusted EBITDA in the last years, achieving 57 point 7%.

Speaker #6: This is 26% better than the same indicator as last year. This improvement is explained by certain measures that the has been implementing and they are showing results.

Speaker #6: We can mention some of these measures. In our collection process, we implemented automatized processes like remarinders and requests to notification to the customers. We created a customer classification measure to make a faster renegotiation of overdue receivables.

Speaker #6: On the payment side, we implemented several initiatives to enhance discipline in payments. Such as Heroes Financial Planning centralized payments scheduling and negotiation negotiating longer payment terms with suppliers.

Speaker #6: Additionally, the first semester of 2025 benefited from early collections of the 2025 sales cycle, which are expected to be normalized throughout the next quarters of the year.

Speaker #6: Is it worth mentioning that for the year, expect that we will achieve a conversion rate of about 50% in the 2025 fiscal year at the end of the year.

Speaker #6: This will represent a relevant increase from 41.8% compared to the same indicator in the last year of 2024. Moving to slide number nine, we show the provision for Delta accounts.

Speaker #6: Total expenses with PDA in the second quarter of 2025 totaled 11 million reais, representing 3.1% of net revenue, an improvement from the comparable quarter in 2024, when the PDA achieved 3.4% of net revenue.

Speaker #6: In the sales cycle of 2025, the PDA amounted to 45 million reais, compared to 52 million reais in 2024. Provision for Delta accounts represents 3.1% of net revenue.

Speaker #6: In 2024, sorry, 2025, an improvement of 0.9% points in comparison 2024. As explained before, we still foresee some difficulties in the credit scenario, mainly for the school-related mainstream brands.

Speaker #6: Moving to the next slide, we observe that the average payment terms of Vasta's account receivable portfolio was 153 days in the second quarter of 2025.

Speaker #6: Which is one day higher than the comparable quarter in line with the business model seasonality. Moving to the next slide, let's take a closer look at the net debt ement.

Speaker #6: In the second quarter of 2025, Vasta had a net debt position of 917 million reais. 46 million lower than the previous quarter. This achievement is due to the positive cash flow generated during the periods in the amount of 80 million reais, which surpassed the impact of interest accrual of 34 million reais.

Speaker #6: Moving to the right side of the slide, the net debt position decreased by 123 million reais in the sales cycle to date. This decrease was driven also by the free cash flow generated in 2025, which was partially offset by the financial interest costs.

Speaker #6: I will conclude my part of this presentation with slide 12, explaining some more details about our net debt composition, which represents R$917 million at the end of the quarter.

Speaker #6: This amount is composed of 717 million reais on the ventures issued to the parent company, in addition to 462 million reais on account payables for business combination.

Speaker #6: Mainly related to live acquisitions. These numbers were offset or were offset by 315 million reais, on cash. That the company owns. In the lower left part of this slide, we can see that in the second quarter of 2025, the net debt to last 12 months adjusted PDA ratio has decreased 0.16 times.

Speaker #6: From the last quarter, it now extends at 1.98 times. We would like to reinforce our commitment to continuing to generate free cash flow and leverage the company.

Speaker #6: Having said that, I finish our presentation and invite you all to the Q&A session.

Speaker #7: As a reminder to ask a estion, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again.

Speaker #7: Our first question comes from Marcelo Santos from JP Morgan. Please go ahead, your is open.

Speaker #8: Hi, good evening. Thanks for the presentation and the opportunity to make questions. I wonder if you could comment a bit on the commercial cycle and the comparative environment.

Speaker #8: And focus on core and complementary, how the two are going. And the second question is regarding the outlook for B2G contracts for new states and if the election year is a good year or is a bad year to close this kind of contracts.

Speaker #8: Thank you y much.

Speaker #4: Thank ou, Marcelo, for your estions. Let me give you some flavor about the commercial cycle. We are keeping the pace in our commercial cycle for 2026.

Speaker #4: We are seeing a very positive outlook for complementary products. The penetration in our school-based offerings continues to improve. There is definitely demand for bilingual social-emotional and maker products.

Speaker #4: We have been growing with more than 20% on complementary, and we don't see that changing a lot for the next cycle. In terms of renewals contracts, I would say so far it's had it had been a very good year.

Speaker #4: So we keep a very positive outlook. For 2026, and but that mainly because we have a very strong portfolio, a very complementary to the school needs, and I think we reached a very unique position to keep the growth.

Speaker #4: The market is very competitive, but we are moving ahead on that. In terms B2G, we our strategy to keep growing on B2G has been performance.

Speaker #4: We have around 10 new customers in the year to date. Totaling 15 million reais in new contracts year to date. So we are working also in retail in B2G.

Speaker #4: Now we are having we have municipalities on our base benefiting from the learning recomposition and CIB preparatory. We still have the second semester of Para contract to be booked.

Speaker #4: We start receiving the orders. And we expect at least one new state by year end. And that's pretty much the outlook. It's very positive for B2G also.

Speaker #8: Thanks. And just follow up. Conceptually, is an election year a normal year, a good year, a bad year? Like I know, of course, you don't have a crystal ball, but what can you say about the differences between selling during an election year and not selling in a election year?

Speaker #4: Yeah. We don't have much history on that. Since it's a very it's a quite new business, and I pretty much give my guess that if you are doing an important if you are helping the state or the client probably election year wouldn't be such a problem to keep the contract.

Speaker #4: And definitely, with elections, you have a new governor's and mayors. Willing to do new things on their mandate. So let's wait and see. So far, we have a positive outlook.

Speaker #8: All right. Thanks a lot.

Speaker #7: Our next question comes from Fabio Yoshida from Bank of America. Please go ahead, your line is open.

Speaker #9: Hi. Good evening, everyone. I have two questions on my side. The first one is on the EBITDA margin. Which came in in very good shape.

Speaker #9: Helped by lower provisions, right? So I would like to understand if the premium schools, the fact that premium schools are gaining share on the mix, helped the strength and also if we should expect these provisioning levels to continue improving going forward.

Speaker #9: And then my second question is also on B2G. So I was wondering if you guys could share with us the B2G expectations for the second half of this year.

Speaker #9: If could expect a similar level from last year or. Could expect some growth compared the same period of last year. Thank you.

Speaker #4: Thank you, Fabio. Talking about margins, yes, the margin is a reflect of premium products that we are selling. We are and also the growth.

Speaker #4: The growth has been a very important driver for margins. Since it dilutes a very significant fixed cost that we have. And we expect Q4 to be a very important quarter because we recognize all the growth for 2026.

Speaker #4: And revenues and margins should be slightly above the 30% level. In terms B2G, yes, we do have a very positive outlook for second semester.

Speaker #4: We expect to record the second half of the biggest contract that we had that we have, which is Para. We booked first semester in Q4 2024.

Speaker #4: And we are receiving the orders for the second semester of 2025. On top of that, we have 10 new customers. With more shipments in Q3 and Q4.

Speaker #4: And we expect to have new customers in municipalities which are smaller contracts, but is enhancing our base. And we expect to grow in a state for Q4 2025.

Speaker #4: So that's the outlook. It's a positive trend.

Speaker #8: Okay. That's very clear. Thank ou.

Speaker #7: Our next question comes from Lucas Nagano from Morgan Stanley. Please go ahead, your line is open. Lucas Nagano from Morgan Stanley, your line is open.

Speaker #7: Please go head.

Speaker #10: Hi. Can you hear me? Sorry, I was on mute. So yeah, thanks. And good evening. We have two questions. The first is related to start angle.

Speaker #10: From the contract, you already signed. Do ou expect all of them to be in operations already in 2026? And the second question is related to the non-subscription revenue.

Speaker #10: If you could provide some more color on this line. Because you mentioned that the performance was kind seasonal, but even when you look at the cycle to date growth, it's growing pretty decently.

Speaker #10: So what's driving this? Thank ou.

Speaker #4: Thank you. Thank ou, Lucas. No, the new contracts we have around 50 new contracts for start angle. We are already operating seven schools. Two flagships and five franchisees.

Speaker #4: We expect to have more eight new units in 2026. And the remaining will be open in 2027 and 2028. With a huge concentration in 2027.

Speaker #4: Regarding the non-subscription, yes, we have a seasonality in terms of revenue recognition in Q2. We have more recognitions, but the growth, when you look at the cycle to date, is mainly driven by the tuitions that we have on our two flagships upstarts.

Speaker #4: Some of you said Rio Pereira, Twinly Cell Pasteur, in São Paulo. Together with the prep courses, the angle prep courses that also grew. So the cycle to date reflects best the trend of this business.

Speaker #4: Which now accounts for tuitions from our two flagship schools and that's pretty much the the trend for the non-subscription.

Speaker #8: Very clear. Thank you, Melega.

Speaker #7: We have no further questions. I'd ike to turn the call back over to our CEO, Guilherme Melega, for closing remarks.

Speaker #4: Thank you all for participating in our call. The 2025 sales cycle to date continues reflecting Vasta's solid execution and strategic focus. Our consistent revenue growth, strong cash flow generation, and expansion in core business and complementary products.

Speaker #4: Together with the two growth avenues upstart angle and B2G, reflect the commitment to delivering long-term value for our stakeholders. So thank you all. To continue supporting us, we look forward to see you on the next call.

Speaker #4: Thank you all.