Vasta Platform Limited
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Vasta Platform Fourth Quarter 2020 Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question and answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Bruno Giardino, Investor Relations Manager. Please go ahead.

[Bruno Giardino:]

Good morning, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's fourth quarter 2020 results. With me on the call today, we have Mario Ghio, Vasta CEO; Clovis Poggetti, our CFO; and Guilherme Melega, Vasta COO.

[Mario Ghio:]

Thanks, Bruno. Thanks very much for participating in our earnings release call. I would like to start on Slide number 5 with some highlights of the year. The annual contract value, ACV for 2021 commercial year totaled BRL 850 million, 23% higher then the amount of subscription revenues recognized in 2020 commercial year, obtaining exclusively by organic mix. The growth of traditional learning system was even higher, 26%, highlighting the strength of the brands and assertive commercial strategy that knew how to make the best of the technological and quality features as competitive hedges in order to increase market share. Complementary solutions experienced a 65% annual increase in the number of deals closed in the ACV for 2021, and accounted for 8% of the total ACV this year and the expectation is that they will further increase their significance as we move forward in terms of the portfolio of solutions offer. On top of that, we also announced three acquisitions so far.

[Clovis Poggetti:]

Thank you, Ghio. Good morning, everyone. Moving to next Slide number 7. On this slide, we present the main financial highlights for the fourth quarter as well as for the whole year. Despite the fourth quarter being slightly below the same period '19 in terms of revenues, what we can see is that we performed better than the same period in '19 in almost all the other lines, with a gross profit growing 14%, adjusted EBITDA 14% as well. This better performance or this solid year-over-year growth against '19 is also clear in the accumulated 12-month figures of the year. Regarding the numbers themselves, we can see that the accumulated revenue for the whole year reached BRL 998 million, a slight increase of 1% when compared to the previous year, which is fair enough, considering all the impacts of COVID-19 in our society and economy. With a gross profit of approximately BRL 620 million, 14% increase when compared to '19, and adjusted EBITDA of BRL 296 million, in line with the market consensus for the year and a robust 17% growth when compared to '19. In terms of adjusted EBITDA margin, a sound improvement of 4 percentage points during the year moving from the 26 we had in '19 to 30% in 2020. With regards to the net income, worth it to mention that these figures for 2020 are impacted by the nonrecurring events we had during the year, the IPO, as an example. Without such impact, net income would be growing 48% in the quarter and we will be close to breakeven in the year. And one last info that is also worthy to highlight was our free cash flow of almost BRL 134 million during 2020, and adjusted EBITDA-to-cash conversion of 45.2%.

[Guilherme Melega:]

Thank you, Clovis. Moving on to Slide 11, we present here three growth cycles that will guarantee a healthy and sustainable performance for the coming years. The first step is to increase the student base, both organically and through acquisitions. The second growth cycle will come from the increase in the penetration of complementary solutions that have already experienced a 65% annual increase in the volume of -- in the 2021 ACD. Finally, the third cycle will come from growth through new technologies and digital transformation. Going a little further into the details of our organic growth, we can see on Slide 13 that the competitive advantage presented by Vasta throughout 2020 ensured solid growth for both the main products which, despite being a more mature solution, showed an increase of 11% in the numbers of school and 14% in the total numbers of students served. As well, as in complementary solutions that experienced a much higher growth due to the still low penetration in our base, presenting an increase of 75% in the numbers of school and 64% in the total numbers of students.

[Mario Ghio:]

Thanks, Melega. Moving on to the Slide number 16. In addition to the organic growth, Vasta also made progress in its M&A front in core education by announcing the acquisition of the level learning system, the fifth largest in the country, which is a learning system with a strong premium brand and our operation with high margins that will enable scale gains and operational synergies by adding more than 177,000 students to our base. In addition, Vasta has signed a commercial agreement with Aleva's Proprietary Schools for the next 10 years. Moving to Slide number 18. If the first stage seems to be well underway and already delivering a solid growth rate, we still have many other levers to be unlocked. In this sense, we want to take this opportunity to present a new way of exploring our platform with new solutions that we started to operate as of this year.

[Operator:]

Our first question comes from Diego Aragão with Goldman Sachs. You may proceed with your question.

[Diego Aragão:]

Thank you. Good morning Ghio and Diego Aragão with Goldman. Look, the first question, if I may, is related to the overall results of your complementary solution. And also the plus for quite interesting, by the way, it was interesting to see how fast the compare business is expect to grow this year despite the fact that the schools are still facing a quite challenge environment and dealing with this reopening process of their facilities. So I was wondering if you guys can give us some colors on the opportunity you see for complementary solutions? And how fast this business segment can grow on spin stabilized in Brazil and hopefully, the pandemic crises is behind us? So this is my first question.

[Mario Ghio:]

Diego, this is Ghio. Thank you for your question. Actually, Diego, at -- in the middle of the last year, we were very concerned about the behavior of complementary solution in the middle of pandemic. But then we realized that if we could offer digital solutions, I mean, 100% digital solutions, because in a digital solution, doesn't matter if the school is open, if the school is hybrid or if the school is closed, right? So realizing that we started to develop the Plurall Store concept, right? So the best way to understand how we are dealing with this tough moment is offering Plurall Store, 100% digital content for proprietary or third-party contents, right? And they are also very affordable if compared to many other solutions in the market, right? So that was super important to the ACV building for this year. But important to comment that all the revenues that we are going to come from Plurall Store, Plurall My Teacher and so on, they are not included in the ACV. We are only considering ACV, the stack of the contract signed by the schools. Regarding to the second part of your question, Diego, we are considering that in the second semester, we can see -- we are expecting to see schools and families coming to the normal, to a more traditional education, to a more traditional school year. That's what we are expecting. In our case, I guess, the worst is behind. All the factors we had, especially in the textbooks in the non-subscription part of the business. And also in part, they are only occurring in the fourth quarter of any given year in the first quarter of the following year, right? So the worst part of this year is behind, and we are expecting to see everything coming to normal in the second semester, okay?

[Diego Aragão:]

So look, my second question it's related to the current stock price and liquidity. Are you concerned about these two things? And if so, what are the options that you and the company are analyzing to eventually address? What is also a growing investment concern?

[Mario Ghio:]

Yes. Diego, likewise, we are also concerned with that. And we are steady and analyzing all the solutions we can have for this problem. And in the near future, we can choose one of the options we have, and we'll keep everybody posted about it.

[Operator:]

I would now like to turn the call back over to Bruno Giardino.

[Bruno Giardino:]

So we have here a question from Pedro Mariani, Bank of America. Thank you very much Pedro for the questions. Actually, he has three questions. First one, is Mind Makers included in the ACV guidance? And how much does that represent? Second, does the ACV already includes potential cancellations from COVID-19 in 2021? And third, he asks for more details on the receivables on the fourth quarter. These are the questions.

[Mario Ghio:]

Okay. So Pedro, this is Ghio. I will answer the first two questions, and Clovis will cover your last question. Regarding to Mind Makers, yes, it's included in the ACV because we bought Mind Makers in January last year, right? So with this new go-to-market, coding and robotics that are the services Mind Makers is provided and is included in our complementary solutions. Regarding to the second question, yes, evolutions, cancellations, everything, it's included in the ACV. And by that, I mean, the ACV is net of the evolutions, cancellations and so on. If the behavior of the curve of the evolutions and cancellations are the same of the historical behavior we know, right? So when we build the ACV, we always deduct from the ACV, any kind of impact that we know, okay? So the answer to your second question is yes. Now I'll pass the floor to Clovis.

[Clovis Poggetti:]

Pedro, with regard to receivables, we do see an increase, let's say, of 37 days when compared to the fourth quarter '19. And I think it's important to highlight this increase is directly related to, let's say, company renegotiating and extending terms with our customers, okay, trying to support them in this period of short and tight cash flow. And with regard the comparison between the fourth quarter and the third quarter last year, we see a higher increase of almost 90 days. This is completely normal, considering the seasonality of the business, okay? We are, let's say, in part of the peak season. This may vary from almost 200 days in the peak going to 60 days, let's say, when we are in the of the season in terms of sales. So should be no concern on this regard. And the seasonality, again, related to the fact that in the fourth quarter and first quarter, we have close to 70% of the revenues of the company, okay?

[Mario Ghio:]

Yes. Maybe I could just add, Pedro, that -- in a certain moment last year, we had the opportunity or to offer a discount to our clients facing more problems or to give them more oxygen, more working capital to pass-through the pandemic. So we decided to offer discounts. We decided to offer more time for paying their debts with us. And we believe that was the best way to deal with the situation. And as Melega mentioned in the presentation, the churn we had this year was a benchmark, a benchmark, not only for us, for the market, okay?

[Bruno Giardino:]

Just a clarification here. In the ACV, we include returns and cancellations as if it was a normal year, right? What is regarding COVID? Is out of the ACV, we are in --

[Mario Ghio:]

If COVID brings impacts that are different from the previous year that will impact the -- not the ACV, but the recognition of revenues coming from the ACV.

[Operator:]

And I'm not showing any further questions at this time. I would now like to turn the call back over to Mario for any further remarks.

[Mario Ghio:]

Thanks again for participating in our earnings release. I hope you all stay safe and also hope to see you again in our next call. Bye-bye.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.