Vitru Limited
Q4 2020 Earnings Call Transcript

Published: 1 Apr 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Vitru Limited Fourth Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I will now like to hand the conference over to your speaker for today Carlos Freitas, you may begin.

[Carlos Freitas:]

Thank you, operator. Good afternoon everyone. Thanks for joining us. It’s a real pleasure to be here with you all for our first quarter as a public company, after the full year results. Hope all are doing well and healthy at the same time. A slide presentation has been made available for us for today's webcast, which is available, as you know, in our Investor Relations website, which is investors.vitru.com.br. I trust you all have this presentation in front of you. And of course, before we begin, I like to make note that as detailed on Page 2 of the presentation Safe Harbor is in effect for this call.

[Operator:]

Thank you. Our first question comes from the line of Thiago Bortoluci with Goldman Sachs. Your line is open.

[Thiago Bortoluci:]

Yes. Hi, Carlos and team. Thanks for taking question. Moving to the forward, one question that we're currently getting here in our broad retail coverage is the financial health of the franchisees. In this sense, I would like to hear from you guys an update on the accelerated rebate curve, especially if you have been able to apply the higher fees as per original plan, and if so far you saw any changes in terms of churn regarding the owners of the hubs. That’s the question. Thank you very much.

[Carlos Freitas:]

Thank you for the question. No, there was no change in churn, no change in the satisfaction level of our partners. Our churn is quite small. It's around 3% per year, every year. It did not change in the last month. So the partners, they make money with us. That is very important. We always try to make them make money with that. And that's why we created this, I'd say – the clients definitely are incentivized as well to expand with us and to look for the gains of scale. So that's what they've been doing, and that's – and we have been opening, again, more than 150 hubs, most of them with partners. In fact, in our most recent opening of hubs that we are doing in the beginning of this year, more than 90% of them are with partners. If you remember that historically, our number was around 84% with partners. Now already this year and hope that we are opening in the fourth quarter of this year, more than 90% are with partners for 2021, in fact, for the whole year. So just to show and to prove that they are happy with us, and they are making money with us.

[Thiago Bortoluci:]

That’s clear, Carlos. Thank you very much.

[Carlos Freitas:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Javier Martinez with Morgan Stanley. Your line is open.

[Javier Martinez:]

Thank you. Thank you. Hi, Carlos. One of the key debates we have with investors during the IPO and after the IPO was about prices, the capacity to keep the good historical performance of prices. That was quite impressive. Once again, you are increasing prices and above our expectation, in my view, quite impressive, given that the weight of newcomers is increasing. So maybe – you mentioned that part of that is mix, but if you could give us a little bit more color how much of that is mix, how much of that is like-for-like prices? And if those dynamics – if you expect those dynamics to continue going forward?

[Carlos Freitas:]

Hi, Javier. Thanks for your question. Price is a mix of several things. First, it's a mix of when the student or the newcomer joined us, as I explained before. That is a matter of what is the runway ticket that this guy will pay in the beginning of the second semester, for example. It is also a net of mix of courses and a matter of the annual adjustment that we make on seniors on a yearly basis. So far, we have been able, first, to invest – actually, to have a nice performance. The mix contribution here last year was not that important because it is still – I mean the engineering and health courses are new, so it in terms of base, they're still growing. So going forward, they will be a more important contributor. But frankly, 2020, there was not that much contribution from that. It's a really – I think the contribution was, first, the discipline in the ticket for newcomers, and we are participating on that. And this is, I think, one very important thing that we do to try to maintain this balance between growth and ticket. The second important thing that – especially important last year and this year will be different is the profile of the intake. The profile of the intake this quarter is different from what we have seen and does not yield for everybody. For last year, we had a very start – some start in the beginning of the year, and for this year, the profile has changed a little bit, so it’s a bit more delayed, the intake. We have now a stronger intake. So far, we have grown our intake in high teens, high teens until today, until the 31 of March. And all that before – and then, of course, for us, in principle, not that relevant, but in fact, it is. It's okay because it is when people are looking to – for production. So we have seen already in the last two days, a very important increase in interest and in new course. So last year, the curve was very, very, I'd say, normal, very strong in the beginning of the year in January, for example, which helped in the average ticket. And finally, it's also very important. Throughout the course, we increased the price for student administration. We did this year as well, as we have been doing in the last years. And this is, I'd say, a very, very important sustained sector for the average ticket because the price of the seniors are very, very important to sustain the overall ticket. So going forward, I think the only thing that will change, or the most relevant thing that will change, in fact, this year – or, in fact, this intake cycle is the curve, is the profile of newcomers, which is more back-ended. So in terms of revenue recognition, this quarter, we will always see this change. But the numbers are good. As I mentioned already, we are already in high teens. It increased year-over-year so far. And it should take the same tier up to 31 of March of last year or part of this year. And remember that last year, – with the competitor the intake cycle was very poor, for example. So we are confident that we will still deliver a nice growth ahead of us for the intake.

[Javier Martinez:]

Carlos, if I may follow with another one. So obviously, your retention rate was good and improved. At this point, it's still probably a little early, but maybe talking about the seniors, you mentioned about the seniors, you already have some information on the re-enrollment, so how is that moving? Is that – is next year – is 2021 going to be another good year in retention rates?

[Carlos Freitas:]

So far, the re-enrollment is good. It is as expected, which may be slightly smaller than what we had last year. And that's being the clear difference between the pre-pandemic and post-pandemic reality. It is a good number so far, but it is slightly more than what we had last year.

[Javier Martinez:]

Understood. Thank you, Carlos.

[Carlos Freitas:]

You are welcome.

[Operator:]

Thank you. I am showing no further questions in the queue. I’ll turn the call back to you Carlos.

[Carlos Freitas:]

Thank you, operator. So I'd like to wrap up now on Page 20, please, with the key takeaways from it all. We had a very solid quarter and a very solid year, which positioned us quite well for future growth. As you know, we are based on the – still in a centric model, hybrid model, which emphasizes flexibility – combined with the flexibility and affordability, with, as I mentioned before, a sense of belonging and handholding and the support from a tutor. So this is proving to be an efficient and a confident way to grow over time. We delivered this growth prospect, as discussed with you, during previous quarter, and we remain focused on this long-term shareholder value creation by keep expanding top line and bottom line, and margins, of course. Enrollment and student base are increasing, as I mentioned before. And we do believe that we can further build on this momentum to keep expanding and keep maturing the hubs, which is an important way to grow the numbers. All of that, together with M&A expansion that I mentioned already to you, and we hope to announce to you soon as opportunities arise. So we are in Vitru very excited about the future, and we believe we are in the right path for growth. So with that, I leave you. Thank you very much for the interest about our company. We look forward to meeting with you all. Thank you.

[Operator:]

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