Vasta Platform - Earnings Call - Q4 2024

Transcript

Operator (participant)

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/or 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 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. Please go ahead.

Cesar Silva (CFO)

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's Q4 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 statement.

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 the 2024 fiscal year. I'm pleased to share our progress and achievements we have made. 2024 has been marked by significant milestones across our business, reflecting our unwavering commitment to delivering value to our customers, students, shareholders, and stakeholders. In 2024 fiscal year, our net revenue increased by 13% to reach BRL 1,674 million. This growth was primarily driven by the successful conversion of our annual contract value, ACV, into revenue and achieved BRL 1,462 million, a 14% increase compared to 2023. It is worth mentioning the good performance of our B2G business unit and the continuity of our complementary solution expansion with a 20% growth over 2023. Our focus on operational efficiency and cost savings has yielded results.

The adjusted EBITDA for the 2024 fiscal year grew by 13% to BRL 580 million, with a margin of 30.4%. These gains were driven by a favorable sales mix, benefiting from the growth of our subscription products. Our cash flow generation has achieved BRL 215 million, a 14% increase from 2023. The last 12 months' free cash flow to adjusted EBITDA conversion rate improved from 41.8% to 42.4%, reflecting our sustained efficiency measures. Besides the results in the financial area, I would like to highlight some commercial and strategic achievements from this year. Our B2G segment continues to be a significant growth avenue, generating BRL 105 million in revenue for the year, a 29% increase compared to 2023. We remain confident in our strategy to positively impact public education, as evidenced by the improvement in 2023 SAEB scores for the state of Pará.

The Start Anglo Bilingual School franchise launched in 2023 has also shown impressive progress. We ended the year with 40 signed contracts and 7 operational units, with a strong pipeline of over 350 prospects. This growth reinforces the value generation capacity of our brand and our strategic expansion into new revenue streams. Our technology platform, Plurall, has reached a new stage of development. Starting in 2025, it features an intelligent assistant powered by AWS, named Plu. This assistant will provide personalized learning experiences for students and streamline activities for teachers, enhancing the overall educational experience. I will now turn back to Cesar Silva, who will talk about the financial results of the quarter in the 2024 fiscal year.

Cesar Silva (CFO)

Thank you, Mélega. In this slide before, 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 Q4, which increased by 26.1%, reaching BRL 699 million. Vasta's subscription revenue achieved in the Q4 of 2024 was BRL 619 million, a 20% increase compared to the same quarter of 2023. This increase included some additional revenue anticipated from the Q1 of 2025, with earlier orders coming from our partner schools in the commercial cycle. Non-subscription revenue increased 12% to BRL 44 million, and in the government segment, in this quarter, we generated BRL 36 million revenues. Moving to the right side of the slide, we analyze the net revenue for the 2024 fiscal year. We achieved an organic net revenue growth of 12.6% in this fiscal year, amounting to BRL 1,674 million.

The main factors for this exceptional performance were: first, the subscription revenue has increased 14%, reaching BRL 1,462 million, and continues to be the major contributor to our total revenue, representing 87% of the revenue share. Non-subscription revenue, as expected, dropped 16% to BRL 107 million, and the net revenue of B2G achieved BRL 105 million, an increase of 29% compared with the 2023 fiscal year and represents 6% of our overall revenue.

Moving to slide number five, in this quarter, our adjusted EBITDA amounted to BRL 299 million, with a margin of 42.8%, an increase of almost 25% from BRL 240 million in the Q4 of 2023. Mainly due to a higher revenue volume in this quarter in all lines of revenue, as presented before. On the right side, we see that the adjusted EBITDA in the 2024 fiscal year increased by almost 13% and reached BRL 508 million, with a margin of 30.4%.

Let's now move on to the next slide to explain the breakdown of the adjusted EBITDA margin. In slide number six, we can observe that the EBITDA margin achieved 13.4% in 2024, 0.1 percentage points higher than 2023. Firstly, our gross margin achieved 61%, a decrease of 0.6 percentage points from the 61.6% in 2023, showing stability in this percentage. Provisions for doubtful accounts achieved 3.2% in relation to the net revenue and had an improvement of 0.6 percentage points when compared to 2023. Despite showing improvement in this indicator, the year was built in a very challenging and expensive credit landscape for non-premium brands. Business and we still foresee some challenges in the credit scenario for the next month. As a percentage of net revenue, our commercial expense increased by 0.3 percentage points, driven by higher expenses related to the business expansion of the commercial cycle of 2025.

Unadjusted G&A expenses improved by 0.5 percentage points, mainly driven by workforce optimization and budget adjustment measures. Moving to slide number seven, we show the adjusted net profit. In the Q3 of 2024, adjusted net profit totaled BRL 114 million, an 18.9% increase compared to adjusted net profit of BRL 96 million in the same quarter of 2023. On the right side of the slide in 2024, adjusted net profit reached BRL 8 million. There has been an increase of 34.6% from adjusted net profit of BRL 60 million in 2023. Moving to slide number eight, we show the free cash flow evolution. In this Q4 of 2024, the free cash flow totaled BRL 69 million, representing a relevant increase compared to minus BRL 0.1000 in the Q4 of 2023.

On the right side of the slide, in the 2024 fiscal year, our free cash flow reached BRL 250 million, an increase of 14.2% above 2023. This quarter benefited from a different payment settlement agreed with our customers that generated a higher collection different from previous years. Our last 12 months' free cash flow to adjusted EBITDA conversion rate increased from 41.8% to 42.4% in 2023. As we have mentioned, in the last quarter, we achieved a double-digit growth in the free cash flow and consequently improved our conversion rate.

Moving to slide nine, we show the provision for doubtful accounts. Total expense with PDA in the Q4 of 2024 totaled BRL 22 million, representing 3.1% of net revenue compared to an expense of BRL 29 million in the comparable quarter. Moving to the right side, the PDA for 2024 amounted to BRL 53 million, compared to BRL 56 million in 2023.

Provision for doubtful accounts represented 3.2% of the net revenue, an improvement of 0.6 percentage points in comparison to 2023. As explained before, we still foresee some difficulties in the credit scenario, mainly for the schools related to mainstream brands. Moving to the next slide, we observe the average payment terms of Vasta's accounts receivable portfolio was186 days in the Q4 of 2024, which is seven days higher than the comparable quarter and in line with the business model seasonality. Besides, consider revenue generated in the B2G business and not received yet. Moving to slide 11, let's take a closer look at the net debt movement. As of the Q4 of 2024, Vasta had a net debt position of BRL 1.3 billion, a BRL 37 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. Moving to the right side of the slide, the net debt position decreased by BRL 61 million since last year. This decrease was driven also by the free cash flow generated in 2024, which was partially offset by financial interest costs and the second buyback program. I will conclude my part of this presentation with slide 12, explaining some more detail about our net debt composition, which represents BRL 1.3 billion at the end of the quarter. The amount is composed by debenture issued to the parent company, accounts payable for business combinations, mainly related to off-and-lab acquisitions, and almost BRL 200 million cash that the company owns.

In the lower left part of the slide, we can see that in the Q4, the net debt to last 12 months adjusted EBITDA ratio has decreased 0.35 times from the last quarter, showing a relevant downward and now stands at 1.97 times. We would like to enforce our commitment to continuing to generate free cash flow and deleverage the company. With that being said, I pass the word to our CEO, Guilherme Mélega.

Guilherme Mélega (CEO)

Thank you, Cesar. I will give you some exciting updates about Start Anglo on slide 13. Start Anglo Bilingual School, our franchise launched in 2023, which combines bilingualism and academic excellence, keeps the pace of signing new contracts every month. We have already signed 40 contracts as of this date and we have over 350 prospects in negotiation. This strong pipeline underscores the robust potential for further growth and market penetration of Start Anglo. In 2024, we concluded the revitalization project of the Liceu Complex. Besides creating an operating unit with more than 1,000 students' capacity, we will preserve the entire historical architecture design, and we already started our flagship operation in São Paulo. This year, we have five new units in operation: the Liceu Pasteur Complex, our flagship in São Paulo; Jardim Marajoara, Granja Julieta, both in the city of São Paulo; Piracicaba, and Luiz Eduardo Magalhães.

Together with São José do Rio Preto and Alphaville, we will achieve the total of seven units running and providing a high-quality education service for our students. After launching this important avenue of growth in 2023, we already can see solid results and are looking forward to seeing the next years. Having said that, I finish our presentation and invite you all to the Q&A session.

Operator (participant)

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 Luca Marquezini with Itaú. Please go ahead.

Luca Marquezini (Analyst)

Hey, good evening, everyone. Thank you for taking our question. We saw a significant decrease in PDA expenses as a percentage of net revenue in the quarter. Can you please comment on the initiative that led to this decrease? Also, if we should consider this level as recurring for the next month, please.

Guilherme Mélega (CEO)

Thank you, Luca, for your question. We come, serving this quarter, our reduction of the PDA achieving the 3.2%. However, despite having improved this indicator, we foresee a little difficulty in the next month. We cannot provide a guide for this number, but we expected some things higher than this 3.2%. Probably the historical figure is closest to the forthcoming provision.

Luca Marquezini (Analyst)

Thank you very much.

Operator (participant)

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

Marcelo Santos (Senior Sell-side Equity Analyst)

Good evening, Mélega. Cesar, thanks for the opportunity for asking questions. I have two on my side. The first one, I wanted to ask about the ACV. Maybe I missed it, but I couldn't find. I saw that you increased the core students by some, I think, 12%, and the complementary students by 22%, much more than you increased previous year. Could you give us a range or maybe a better view on what that could be, if possible? The second question is regarding the margin outlook for 2025. I mean, in 2024, the margin was EBITDA, adjusted EBITDA margin was mostly relatively flattish, I think 10 basis points up. What could we expect for the coming year? Thank you very much.

Guilherme Mélega (CEO)

Hi, Marcelo. Thanks for your question. Let me give you some color about ACV. ACV growth in the Q4 was 20%. Considering the fiscal year of 2024, we recorded a 14% increase. We expect a similar level for 2025. We are increasing market share. We measured price increase, and complementary products keep moving fast. The same growth in 2024 is expected for 2025, keeping the same strategy of growing in complementary products and premium learning systems. Regarding margins, we are operating on the target of 30%. Every year, we expect to have slight improvements due to the fast growth and dilution that it brings and the better sales mix. We are already performing on our target level, and you can expect a slight increase.

Marcelo Santos (Senior Sell-side Equity Analyst)

Thank you. Just one follow-up. On the first, sorry, my phone did not work so well. You said ACV growth was 20% in the Q4. It was 14% up in 2024. I could not hear. You said we should expect the same number for 2025. That would be 14 or 20?

Guilherme Mélega (CEO)

No, the 14. The same level of 2024-2025 year, fiscal year.

Marcelo Santos (Senior Sell-side Equity Analyst)

Okay. You said something about price. Sorry, do you mind repeating? Sorry about that.

Guilherme Mélega (CEO)

Sure. I said that we had a high single-digit price increase. We expect to gain market share with the volume growth. The remaining part of the ACV growth comes from the complementary products that grew 20%.

Marcelo Santos (Senior Sell-side Equity Analyst)

Okay, perfect. Thank you very much.

Operator (participant)

Your next question comes from the line of Mirela Oliveria with Bank of America. Please go ahead.

Mirela Oliveira (Equity Research Analyst)

Good evening, Cesar, Mélega, and everyone. Thank you for the space to make questions. I have one on G&A. We understand that this line is virtually flat during the year, but when we exclude the effects of the contingency reversal, we see a 20% year-on-year growth in the Q4. Could you please give us some color on what happened there, if we should expect higher G&A going forward, or if it's just a one-time expense?

Guilherme Mélega (CEO)

Hi, Marilla. Thanks for your question. When we see SG&A, when you see the G&A as a percentage of sales, we actually see pretty flat. Our G&A around 27%-28% in terms of G&A. We did have a slight increase in the commercial expenses following the growth of revenues. In terms of sales percentage, we grew on commercial expenses from 16.6% to 16.9%. Besides that, G&A remained flattish.

Operator (participant)

Okay, thank you. Your next question comes from the line of Lucas Nagano with Morgan Stanley. Please go ahead.

Lucas Dai Nagano (Equity Research Associate)

Hey, Mélega, Cesar, thanks for taking our questions. We have two questions. The first is related to B2G. Do you expect the contract with Vasta to be similar as last year's, I think it was around BRL 70 million to 80 million? If you could provide some color on the pipeline of other projects in B2G. The second question is about Start Anglo. Roughly, how much revenue do you expect to generate in 2025, if it's material or not yet? Thank you.

Guilherme Mélega (CEO)

Hi, Lucas. Thanks for your question. Giving some color about B2G, we knew with the Pará contract, which is around BRL 80 million. This is so far the current contract that we are operating. We have a very heated pipeline in B2G. The prospection is lowered a little bit in January and February as the schools and the government are engaged in the back-to-school season. Now, we do expect to have March and April as a very heated season. Keep in mind that this year is SAEB year, so we do have an examination of SAEB in October. Due to the results in Pará, we are bringing lots of discussions to the table, and we expect to have new contracts soon in the pipeline. Regarding Start Anglo, Start Anglo is a reality. We have around 1,000 students enrolled in our seven schools.

500 students out of the 1,000 are proprietary students, students in Liceo Pasteur and São José do Rio Preto, the two flagships that we have. The remaining 500 students are franchise students. In terms of revenues, we have around BRL 25 million of the entire operation of Start Anglo. It is not yet that significant, but in terms of growth for the coming cycle and also in Q4, when we make the shipments for the teaching materials for the new opening units in 2025, that can generate a significant increase in this business unit.

Lucas Dai Nagano (Equity Research Associate)

Okay, very clear. Thank you.

Operator (participant)

I will now turn the call back to Guilherme Mélega for closing remarks.

Guilherme Mélega (CEO)

Thank you all to participate in the Vasta Q4 conference call. 2024 was a very important year for us. Not only we grew our operation, we already delivered significant results in B2G with the contracts that we secured, and Start Anglo also grew fast. This keeps us confident that 2025 will have a very interesting year and significant for all our stakeholders. Thank you all for supporting Vasta. Looking forward to seeing you back in the next call.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you and have a great day.