Vasta Platform - Earnings Call - Q1 2025

Transcript

Operator (participant)

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines will remain on music hold. Thank you for your patience. Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vasta Platform First Quarter 2025 financial results. 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 draw your question, press the star one again. Before we begin, I would like to read a forward-looking statement. 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. 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 benefit, 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 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 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. Thank you. I would like to turn the call over to Cesar Silva, CFO. Please go ahead.

Cesar Silva (CFO)

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's first quarter of 2025 results. I'm Cesar Silva, Vasta CFO, and today we have the presence of Guilherme Mélega, Vasta CEO, who will be joining on the call. Let me now hand over the floor to Guilherme Mélega, our CEO, to make his opening statements.

Guilherme Mélega (CEO)

Thank you, Cesar. Thank you all for participating in our earnings release call. I'd like to cover slide number three with some highlights of our 2025 sales cycle. I'm pleased to share our progress and achievements made so far. This first quarter also represents halfway through the 2025 commercial cycle, which runs from October 2024 to September 2025. In this quarter, we have continued delivering strong economic and financial results, with a particular highlight in our free cash flow. In the 2025 cycle to date, our net revenue increased by 11% to reach BRL 1,129 million. This growth was primarily driven by the successful conversion of our annual contract value, ACV, into revenue and achieved BRL 1,019 million, a 17% increase compared to the 2024 cycle to date.

Complementary solutions continue to present the highest growth rate among our business segments, with a 24% expansion in the cycle to date compared to the same period last year. Moving to the company's profitability, our focus on operational efficiency and cost saving continued to bring results. Adjusted EBITDA for the 2025 cycle to date was BRL 420 million, with a margin of 37.2%. It has been an increase of 5% from BRL 402 million performed in the last cycle. These gains were driven by a favorable sales mix, benefiting from the growth of our subscription products. Finally, our cash flow generation was the main highlight of the quarter, totaling BRL 144 million in the 2025 sales cycle, which represents 176% higher than the same period in 2024. The last 12 months' free cash flow to adjusted EBITDA conversion rate improved from 42.5% to 50.8%, reflecting our sustainable efficiency measures.

These measures include improvements in the collection process, such as process automation, reminders and past due notifications, customer segmentation, and faster renegotiation of delayed receivables. Additionally, we implemented several initiatives to achieve better discipline on the payment side, including rigorous financial planning, centralization of payments on single monthly dates, and negotiating longer payment terms with suppliers. In addition to the financial highlights, I would like to emphasize our continuous development of our technological platform, Plural, which enables us to provide better service to our customers. Starting in 2026, our schools will use Plural AI with many new tools, focusing on the concepts of inclusion, diversity, and equity in continuous education. Plural AI advances towards creating a welcoming educational environment for all students, with the creation of an individualized education plan.

The AI generates personalized pedagogical recommendations and assists teachers and schools in inclusive practice, providing an innovative solution to help educators transform challenges into opportunities for growth. I'll now turn back to Cesar Silva, who will talk about the financial results of the quarter and the sales cycle to date.

Cesar Silva (CFO)

Thank you, Mélega. In this slide, number four, we present the composition of Vasta's net revenue. On the left side, you can observe the organic year-on-year growth in the total net revenue for the first quarter, which decreased by 6.6%, reaching BRL 430 million. Vasta's subscription revenue achieved in the first quarter of 2025, BRL 400 million, a 12% increase compared to the same quarter of 2024. Non-subscription decreased by 27% to BRL 25 million, as expected. In the government segment, in this quarter, we generated BRL 5 million revenues, coming from five new contracts. Compared to BRL 69 million in the first quarter of 2024, when the totality of para-contracts, first and second semester, was booked all at once. In the 2025 cycle, the first semester of para-contracts was booked in the fourth quarter of 2024, and the second semester is expected to be performed throughout the year.

Moving to the right side, we analyze the net revenue for the 2025 sales cycle to date. We achieved an organic net revenue growth of 11.3% in the 2025 sales cycle to date, amounting to BRL 1,129 million. The main factors for this performance were, firstly, the subscription revenue has increased 17%, reaching BRL 1,019 million, and continues to be the major contributor to our total revenue, representing 90% of the revenue share. Non-subscription revenue dropped 6% to BRL 69 million, and the net revenue of B2G reached BRL 41 million, a decrease of 40% compared to the 2024 sales cycle. Moving to slide number five, in this quarter, our adjusted EBITDA amounted to BRL 121 million, with a margin of 28.2%, a decrease of 25% from BRL 162 million in the first quarter of 2024, mainly due to a lower revenue volume in this quarter and a different product mix.

On the right side, we see that adjusted EBITDA in the 2025 sales cycle increased by 5% to reach BRL 420 million, with a margin of 37.2%. Let's now move on to the next slide and explain the breakdown of the adjusted EBITDA margin. In this slide, in number six, we can observe that the adjusted EBITDA margin achieved 37.2% in the 2025 sales cycle, 3.2 percentage points lower than the same period of 2024. Firstly, our gross margin achieved 63.7%, a decrease of 3.2 percentage points from 66.9% in the 2024 sales cycle, due to a lower revenue in the sales cycle and a different product mix. Provisions for doubtful accounts, PDA, achieved 3% in relation to the net revenue and have an improvement of 1.2 percentage points when compared to 2024.

Quite showing improvement in this indicator, the year has been performing a very challenging and restrictive credit landscape for non-premium brand business, and we still foresee some challenges in the credit scenario for the next month. As a percentage of net revenue, our commercial expenses increased by 1.2 percentage points, driven by higher expenses related to business expansion of the commercial cycle of 2025. Finally, adjusted G&A expenses improved by 0.8 percentage points, mainly driven by workforce optimization and budgetary discipline measures. Moving to slide number seven, we show the adjusted net profit. In this first quarter of 2025, adjusted net profit totaled BRL 26 million, a 49% increase compared to adjusted net profit of BRL 50 million in the same quarter of 2024. On the right side of the slide, in the 2025 sales cycle, adjusted net profit reached BRL 140 million.

That has been a decrease of 4.4% from adjusted net profit of BRL 146 million in 2024, as a result of the topics commented before. Moving to slide number eight, we show the free cash flow evolution. We continue to observe the growth of the company's cash flow generation. In the first quarter of 2025, the free cash flow totaled BRL 74 million, representing a relevant increase compared to BRL 52 million in the same period of 2024. On the right side of the slide, in the 2025 sales cycle, our free cash flow reached BRL 144 million, an increase of 176% from 2024. This quarter and the first semester of 2025 will benefit from early collections regarding the 2025 sales cycle, which will be normalized throughout the year, together with consistent efficient measures implemented in the collection process and the payments balance outright detailed by Guilherme in his initial remarks.

On another metric, our last 12 months' free cash flow to Adjusted EBITDA conversion rate increased from 42.5% in the 2024 sales cycle to 50.8% in 2025. Despite having expressive results in this sales cycle to date, we expect to keep this conversion rate in the following quarters. Moving to slide number nine, we show the provision for doubtful accounts. Total expenses with PDA in the first quarter of 2025 totaled BRL 12 million, representing 2.9% of net revenue, the same level as the comparable quarter. Moving to the right side of the slide, the PDA for the 2025 sales cycle amounted to BRL 34 million compared to the BRL 42 million in 2024. Provisions for doubtful accounts represent 3% of net revenue in the 2025 sales cycle, an improvement of 1.2 percentage points in comparison to 2024.

As explained before, we still foresee some difficulties in the credit scenario, mainly for the school related to mainstream brands. Moving to the next slide, we observe that the average payment terms of Vasta's account receivables portfolio was 108 days in the first quarter of 2025, which is eight days higher than the comparable quarter and in line with the business model seasonality. Moving to slide number 11, let's take a closer look at the net debt movement. In the first quarter of 2025, Vasta had a net debt position of BRL 963 million, BRL 40 million decreased from the previous quarter. This achievement is due to the positive cash flow generated during the period in the amount of BRL 74 million, which surpassed the impact of interest accrual of BRL 34 million. Moving to the right side of the slide, the net debt position decreased by BRL 77 million since last year.

This decrease was driven also by the free cash flow generated in the 2025 sales cycle, which was partially offset by financial interest costs. I will conclude my part of this presentation with slide 12, explaining some more detail about our net debt composition, which represents BRL 963 million at the end of the quarter. This amount is composed of BRL 77 million on the ventures issued to the parent company, in addition to BRL 149 million on account payable for business combinations, mainly related to off-and-lab acquisition, offset by BRL 257 million on cash and cash equivalents that the company owns. In the lower left of this slide, we can see that in the first quarter of 2025, the net debt to last 12 months adjusted EBITDA ratio has increased 0.09x from the last quarter.

This slight increase was expected when compared to the fourth quarter of 2022 or the first quarter of 2024, indicating a relevant downward trend, and now stands at 2.06 times. We would like to reinforce our commitment to continuing to generate free cash flow and deleverage the company. Having said that, I finish our presentation and invite you all to the Q&A session.

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue. Your first question comes from the line of Jessica Mehler of J.P. Morgan. Please go ahead.

Jessica Mehler (Equity Research Associate)

Hello, good evening, everyone. Thank you for taking my question. Actually, I have two. First, how do you see margins for 2025 comparing to 2024? This is my first question. Second, what is the strategy in terms of mix? What is the expectation for the B2G business? How much this business can expand going forward? Thank you.

Guilherme Mélega (CEO)

Thank you, Jessica. I'll take your questions. I will start with the margins. We expect stable margins for 2025, so we ended 2024 slightly above 30%. We forecast similar margins, although Q1 and Q2 will have lower margins due to some concentration in marketing spending and mix. We expect mix to catch up in Q2. I will jump to the second question about strategy mix and B2G because it also compounds with the margins. We have last year in 2024, we had a concentration in B2G because the para-contract was entirely recognized in Q1. This contract this year on the sales cycle of 2025 was partially recognized in Q4 2024, and we expect to perform the remaining of the contract in Q2 and Q3. Additionally, we already noticed new contracts in B2G.

We have five new contracts in Q1, and we have definitely more contracts to pile up in Q2. This will enhance mix in terms of segment mix. In terms of B2B product mix, we expect to be very similar to last year, with complementary products growing in high double digits, actually above 20%, and core content in double digits. That is what we expected and we expected to have similar margins in 2025.

Jessica Mehler (Equity Research Associate)

Very clear. Thank you.

Operator (participant)

Again, if you would like to ask a question, please press star one to join the queue. We'll pause for just a moment to compile the Q&A roster. Your next question comes from the line of Lucas Nagano of Morgan Stanley. Your line is now open.

Lucas Nagano (Equity Research Associate)

Hi, good evening, Mário Ghio, Cesar. Thanks for taking our questions. I have just one, and it's related to the B2G. You mentioned that part of the contract was booked last year. Do you expect a lower B2G revenue this year, or should there be a seasonality? The seasonality of the para-contract should be kind of the same, in which part of it is booked on the fourth quarter of the previous year. Just a question to assess the potential growth of B2G this year. Thank you.

Guilherme Mélega (CEO)

Thank you very much, Lucas. Yeah, I really would like to have more data to have a confident seasonality in terms of B2G. This year, I would say that, for instance, in Pará, we are having a more normal seasonality because the first semester should be recognized in late Q4. When we start classes in January and February, you already have the material. It is quite similar to the B2B distribution process. We expect to have the same distribution in 2025. We do not expect any difference in terms of fiscal year in 2025. Additionally, we have a very heated pipeline. We are prospecting several new contracts that will pile up in the contracts that we already signed. We expect growth in the B2G. We will not give guidance about that, but we are working to have a sound growth for 2025.

Lucas Nagano (Equity Research Associate)

Very clear. Thank you.

Operator (participant)

There are no further questions at this time. I will now turn the conference back over to Mr. Guilherme Mélega, our CEO, for closing remarks.

Guilherme Mélega (CEO)

Thank you all very much for participating in the Vasta Platform Q1 conference call. We are very happy with the beginning of the year, with the ACV recognition, with the start of the sales campaign of ACV for 2026. We just finalized the batch at Ducat Fair last week that generated a significant pipeline for us in B2B and B2G. Both segments with a heated pipeline. Additionally to that, we already see very positive signs in free cash flow that we will remain performing positively throughout the year. Thank you very much. Looking forward to seeing you on our Q2 earnings release call. Thank you.

Operator (participant)

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