Vasta Platform Q3 2024 Earnings Call Transcript

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November 7, 2024

Key Takeaways

  • Subscription net revenue grew 12.5% to BRL 1.358 billion in the 2024 sales cycle, driving a 6% net revenue increase through strong ACV conversion.
  • Adjusted EBITDA in the 2024 sales cycle soared 90% to BRL 449 million with a 29.4% margin, boosted by premium product expansion and cost efficiency.
  • Q3 total net revenue fell 14.6% year-on-year to BRL 220 million, primarily due to no new B2G contracts this quarter and seasonal volume declines.
  • Free cash flow remained stable at BRL 146 million for the sales cycle, with expectations for double-digit growth by year-end as seasonal payment timing normalizes.
  • Strategic growth initiatives include signing 34 Start Anglo franchise contracts with over 200 prospects and rolling out an intelligent AI assistant across all schools in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Vasta Platform Q3 2024
00:00 / 00:00

Transcript Sections

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Operator

Thank you for standing by. My name is Novi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vasta Platform Third Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements.

Operator

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. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and their related benefits, and our expectations regarding the market. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These risks include those set forth in the press release that we are issuing today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today.

Operator

You should not rely on them as predictions of the future events. And we disclaim any obligation to update any forward-looking statements except as required by law. In addition, management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. I would now like to turn the call over to Cesar Silva, CFO.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's Third Quarter of 2024 results. I'm Cesar Silva, Vasta CFO, and today we have the presence of Guilherme Mélega, Vasta CEO, who will be joining me on the call. Let me now hand over the floor to Guilherme Mélega, our CEO, to make his opening statements.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Thank you, Cesar. Thank you all for participating in our earnings release call. I would like to cover slide number three with some highlights of our 2024 sales cycle. As we approach the end of the current cycle, we are pleased to report that in the 2024 sales cycle, our subscription net revenue has achieved a growth of 12.5%, reaching BRL 1,358 million. Vasta concluded the 2024 sales cycle with a 6% net revenue growth over the last sales cycle, mostly due to the conversion of ACV into revenue. Complementary solutions continue to present the highest growth rate among our B2B segment, with a 21% expansion in the cycle compared to the same period last year. Moving to the company's profitability, in the 2024 cycle, our adjusted EBITDA experienced a growth of 9%, reaching BRL 449 million, while increasing an adjusted EBITDA margin to 29.4%.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

This increase was mainly driven by improvement in gross margin benefit from premium products expansion, gains in operating efficiency, and cost savings. Finally, we have seen some stability in our cash flow for this sales cycle. In the 2024 cycle, free cash flow totaled BRL 146 million, a slight increase from 2023, which achieved BRL 145 million. In Q3, we had above-average payments related to paper and printing, which will be reduced to Q4. Moving to slide number four, the Annual Contract Value (ACV) bookings for the 2024 sales cycle achieved BRL 1,358 million, a growth of 12.5% compared to the 2023 sales cycle. This amount represented the conversion of our expected sales based on contracts into revenue during the sales cycle and was slightly higher than previously disclosed. Our top performers continue to be premium brands and our complementary products.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

It's worth mentioning that our CAGR for the last five cycles was 18.5% of growth, showing our resilience and capacity to keep growing in a higher double digit for several years. I will now turn back to Cesar, who will talk about the financial results of the quarter.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Thank you, Mélega. In this slide, we present the composition of Vasta's net revenue. On the left side, you can observe the organic year-on-year growth in total net revenue for the third quarter, which decreased by 14.6%, reaching BRL 220 million. Vasta's subscription revenue achieved in the third quarter of 2024 was BRL 260 million, a 6% increase compared to the third quarter of 2023, in line with the expectation for the sales cycle. Remembering, the second and third quarter of the year is always the lowest in volume during the year. Non-subscription, which now represents only 6% of the total revenue, dropped 36% to BRL 14 million. And in the other segment in this quarter, we did not generate new revenue. And as you can see in this slide, it represented BRL 41 million in the third quarter of the last year.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

However, in the sales cycle, considering the net revenue performed in the first quarter of the year, we achieved BRL 69 million of revenues, which means a decrease of 15% compared to 2023. Moving to the right side of the slide, we analyze the net revenue for the 2024 sales cycle. We achieved an organic net revenue growth of 6% in the sales cycle, amounting to BRL 1,529 million. The main factors to this exceptional performance were, firstly, the subscription revenue has increased 12.5%, reaching BRL 1,358 million, and continues to be the major contributor to our total revenue, representing 89% of the total revenue share. Non-subscription revenue, as expected, dropped 31% to BRL 102 million, and the net revenue of B2G achieved BRL 69 million, represents 5% of our overall revenue in this sales cycle.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Moving to slide number six. In this quarter, our adjusted EBITDA amounted to BRL 21 million, a decrease of 45% from the BRL 39 million in the third quarter of 2023, mainly due to lower revenue in this quarter related to the B2G segment. On the right side, we see that adjusted EBITDA in the 2024 sales cycle increased by 9% and reached BRL 449 million, with a margin of 29.4% or 0.8 percentage points above the 2023 sales cycle. Let's now move on to the next slide and explain the breakdown of the adjusted EBITDA margin. In slide number seven, we observe that the EBITDA margin achieved 29.4% in the 2024 sales cycle, and there has been an increase of 0.8 percentage points from 28.6% in the 2023. Our gross margin has increased 2.3 percentage points, benefiting from better premium product expansion, synergy gains, and cost-efficient initiatives.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Provision for Doubtful Accounts was stable between the years, despite having a difficult credit landscape in this sales cycle. As a percentage of net revenue, our commercial expenses increased by 2.3 percentage points, driven by higher expenses related to business expansion to the commercial cycle of 2025. Adjusted G&A expenses improved by 0.8 percentage points, mainly driven by workforce optimization and budgetary disciplinary measures. Moving to slide number eight, we show the adjusted net profit that totaled in the third quarter of 2024 BRL 48 million, a 59% decrease compared to adjusted net losses of BRL 30 million in the same quarter of 2023. On the right side of the slide, in the 2024 sales cycle, adjusted net profit reached BRL 16 million, BRL 62 million. There has been an increase of 71% from an adjusted net profit of BRL 36 million in the 2023 sales cycle.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Moving to slide nine, we show the Free Cash Flow evolution. In the third quarter of 2024, the Free Cash Flow totaled BRL 55 million, representing a decrease of 5% compared to BRL 58 million in 2023. On the right side of the slide, in the 2024 sales cycle, our Free Cash Flow reached BRL 146 million, an increase of BRL 1 million from the BRL 145 million in 2023, showing stability in the performance of the year. The cash flow was negatively impacted by a higher seasonal volume of payments related to purchase of paper and printing in the second and third quarters that compared to the previous cycle, where part of these payments occurred in the last quarter of the year.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

It's worth mentioning that we foresee a lower volume of production-related payments in the following quarters and, consequently, we expect to achieve a double-digit growth in the free cash flow for the year-end of 2024 compared to last year. Moving to the next slide, we show the provision for doubtful accounts. Total expenses with PGA in the third quarter of 2024 totaled BRL 7 million, representing 3.6% of net revenue compared to an expense of BRL 15 million in the comparable quarter. For the sales cycle, the total amount of PGA was BRL 60 million compared to BRL 560 million in 2023. The provision for doubtful accounts represents 3.9% of the net revenue for both cycles. PGA, despite showing stability in the number, was built in a very challenging and restrictive credit landscape for non-premium brand business.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Moving to the next slide, we observe that the average payment terms of Vasta's account receivable portfolio was 112 days in the third quarter of 2024, which is six days lower than the comparable quarter and in line with the seasonality of our business model. Moving to slide number 12, let's take a closer look on the net debt movement. As of the third quarter of 2024, Vasta had a net debt position of BRL 1,040 million, a BRL 23 million decrease from the previous quarter. Free cash flow was higher than financial interest costs, and this made possible the reduction in the total net debt in this quarter. In comparison to the third quarter of 2023, the beginning of this cycle, the net debt position increased BRL 42 million from BRL 998 million.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

This increase was driven also by the financial interest costs and the second repurchase program, which were partially offset by the positive free cash flow of BRL 146 million in the period. I will conclude my part of this presentation with slide 13, explaining some more detail about our net debt composition, which represents BRL 1,040 million at the end of this quarter. This amount is composed by the debentures issued to the parent company in the amount of BRL 765 million and accounts payable for business combinations, which total BRL 630 million, reduced by our cash availability, which represents BRL 355 million. In the lower left part of this slide, we can see that in the third quarter of 2024, the net debt to last 12 months adjusted EBITDA ratio has increased just 0.04 times from the last quarter, showing stability and now stands at 2.32 times.

Cesar Silva
Cesar Silva
CFO at Vasta Platform

Compared to the third quarter of 2023, the indicator has improved from 2.43 times and decreased of 0.11 times. With that being said, I pass the word to our CEO, Guilherme Mélega.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Thank you, Cesar. I will give some updates about our growth avenues in our platform Plural. Starting with Start Anglo, our initiative to launch this new model of franchise combining bilingualism with academic excellence continues to ramp up and signifies a strategic expansion in our new revenue streams. We keep the pace of signing new contracts every month, and we have already signed 34 contracts as of this date, and we have over 200 prospects. This strong pipeline underscores the robust potential for further growth and market penetration of Start Anglo. Last quarter, we launched the revitalization project of the Liceo Complex, and this project, besides creating an operating unit with 1,000 student capacity, will preserve the entire historical architecture design, and we expect to commence our flagship operation in São Paulo in 2025.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

In 2025, we're going to have five new units in operation: the Liceo Pasteur Complex, our flagship in São Paulo, Jardim Marajoara, Granja Julieta, Piracicaba, and Luis Eduardo Magalhães, all franchised units, and together with São José do Rio Preto and Alphaville, we will achieve the total of seven units running and provide a high-quality education service for our students. After launching this important avenue of growth of Vasta in 2023, we already can see expressive results and look forward to seeing the next years. Moving to slide 16, I'll talk about the exceptional SAEB result in Pará. Firstly, I would like to explain what is SAEB, and in a simple way, I can say that it is a large-scale assessment system for basic education in Brazil.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Such that the last SAEB result showed an exceptional improvement of the state of Pará in the national ranking, moving from the 26th position in the 2021 exam to the 6th place in the 2023 exam for high school students. The scores of these students increased by 43% compared to the last exam, and besides, students from elementary years got excellent results as well. To remember, at the beginning of 2023, we were contracted by the state of Pará to implement a customized solution aiming to learn recomposition core skills and preparation for SAEB. We used our Plural technology as the platform, and throughout the use of large-scale tests and teaching training, we managed to help over 340,000 students to achieve this impressive result. Pará's performance was highlighted in the most important media, and with this significant achievement, we were able to validate our value proposition.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Moving on to slide 17, finally, I would like to remember that starting in 2025, all our schools will have at their disposal the Intelligent Assistant, Plural AI, integrated in our platform. We launched this innovation at Bett Educar at the beginning of the year with great success and high receptivity. In the recent months, we have trained employees, school managers, and teachers, and conducted several demonstrations validating and presenting the implemented tools. In summary, we gathered all our excellent content from our basic education systems, and Plural AI itself divides, classifies, and prepares the content, creating several knowledge bases separated by brand and material, which each interaction Plural AI understands your requests, searches, or related knowledge, and decides its best response. Building on this preparation, generative AI enables teachers to create supplementary lesson plans, generate images, scripts for presentation, question lists, and help students develop study guides.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

This innovation aims to empower teachers in the teaching process and enhance students' learning. This groundbreaking truth is reshaping how educators and learners engage, offering a more dynamic and efficient education experience. Having said that, I finish our presentation and invite you all to the Q&A session.

Operator

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Lucca Marquezini with Itaú BBA.

Lucca Marquezini
Equity Research Associate at Itaú BBA

Hey, good evening, everyone, and thank you for taking our question. We have actually two questions from our side. First one would be regarding the B2G unit. So we saw another quarter of no revenue coming from this unit. So if you could just provide more color on the schedule for the upcoming quarters to help us try to project this line going forward, this will be very helpful. And also, regarding the G&A and commercial expenses, we saw an increase in the quarter. So if you could help us better understand the reasons behind this increase and also what would be the normalized level going forward, this will be very helpful. Thank you.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Thank you very much, Lucca. Let me start with the B2G. Yes, B2G, we did not secure new contracts yet. Given municipal elections in Brazil in October, the contract was postponed, but we have a very healthy pipeline, and we expect to recognize revenues in B2G in Q4 for calendar 2025. As we mentioned earlier, B2G is a very important avenue for growth. The contracts are very sizable, but since we did not sign anyone yet, I will postpone any guidance for now, but I can guarantee we have a very healthy pipeline on that. Regarding your second question about commercial expenses, we increased the commercial expenses because we are increasing growth. We have also a very sound 2025 sales cycle boosted by premium learning systems and complementary products. Since we are growing fast, we are investing more on commercial expenses.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

But we believe we are reaching a very good level of commercial expenses to secure double-digit growth for the next coming years. We have been expanding around 18% of our revenues on commercial expenses, and this probably will be our level going forward.

Lucca Marquezini
Equity Research Associate at Itaú BBA

That's very helpful. Thank you.

Operator

Your next question comes from the line of Marcelo Santos with JPMorgan.

Marcelo Santos
Marcelo Santos
Senior Sell-side Equity Analyst at JPMorgan

Hi, good evening. Thanks for taking my questions. The first question I wanted to ask is about the competitive environment. Was there any significant change in the environment since one of your main competitors went private? Did that change, or did any other thing change that would be worth highlighting? And if you could give us a color of how the GMV, sorry, GMV, no, the ACV is shaping up for the next cycle. I know you're not going to report it now, but maybe some directional indicator.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Hi, Marcelo. Thanks very much for your questions. We didn't see any change in the competitive environment. It's definitely a competitive industry, but we are having, and I will comment on our second question as well on the ACV. We have a very strong portfolio with premium brands, and this year, we are leveraging on our technology since we launched the Plural AI, and we are launching it for the entire platform, all the brands, and we are pricing it for the next ACV. So we have a very robust pricing for 2025, plus a very good premium learning system commercial cycle together with the complementary products that keep the high double-digit growth. So putting all together, we definitely expect a higher growth from the previous cycle. We just recorded 12.5 growth from our last cycle. We are definitely forecasting a higher double-digit for the next cycle.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

I think for now, that's the best color I can give you.

Marcelo Santos
Marcelo Santos
Senior Sell-side Equity Analyst at JPMorgan

Okay, higher double-digit. Thank you very much.

Operator

Again, if you would like to ask a question, press star one on your telephone keypad. I will now turn the call back over to Guilherme Mélega, CEO, for closing remarks.

Guilherme Mélega
Guilherme Mélega
CEO at Vasta Platform

Thank you all very much for participating on Vasta's Q3 earnings call. We are very pleased to share with you the good momentum that we are living in the company. Our business units are performing strong. B2B is about to deliver very significant growth for 2025. And B2G also delivered great results on the academic side from the Pará contract, and that definitely is helping us a lot on our prospects. And we have a very heated pipeline, and we are close to securing new contracts, and we do expect revenues for Q4. Start Anglo reaching 34 contracts signed, two operating units in 2024, moving to seven operating units in 2025. So we're up to a very good momentum and creating a very robust platform for 2025. Looking forward to talking to you on our next earnings call. Thank you very much for participating.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Executives
    • Guilherme Mélega
      Guilherme Mélega
      CEO
    • Cesar Silva
      Cesar Silva
      CFO
Analysts
    • Marcelo Santos
      Senior Sell-side Equity Analyst at JPMorgan
    • Lucca Marquezini
      Equity Research Associate at Itaú BBA
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