Ladies and gentlemen, thank you for standing by, and welcome to the Vasta Platform Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, [ Pedro Gomez ]. Thank you.

And Please go ahead, sir. .

Okay. Thank you very much, and good morning, everyone, and thank you for joining us in this conference call to disclose Vasta Platform's third quarter 2020 results. With me on the call today, we have Mario Ghio, Vasta CEO; Clovis Poggetti, our CFO; Guilherme Melega, Vasta's COO; and Bruno Giardino, Cogna's IR Officer. .

During today's presentations, our executives will make forward-looking statements.

Forward-looking statements generally related 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, the 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. .

Today, risks include those set forth in the press release that we issued today as well as those more fully described in these filings with the Securities and Exchange Commission. The forward-looking statement in these presentations are based on the information available to us and the date thereof. .

You should not rely on them as predictions of the future events. We disclaim any obligations to update any forward-looking statements except as required by law. .

In addition, management may refer to non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolations or adjusted for the results prepared in accordance with the IFRS. .

Let me now give the call over to Mario Ghio to make his opening statement. .

Thank you all. I would like to start on Slide #5, where we present the main highlights of the 2020 sales cycle, which ended on September. It is always worth stressing that our business cycle does not coincide with the fiscal year, instead from the fourth quarter of 1 year until the third quarter of the following year.

Thus, when we refer to 2020 sales cycle, we are talking about the cycle starting on the first quarter '19 and up to the result of this quarter. .

Among the main highlights of the sales cycle, we have the subscription revenue that showed a strong growth above 18%, even in a year as turbulent as 2020, where we had to cope with the impacts of the pandemic and the migration of the on-site activities to the digital world. .

Another highlight of this slide is the strong adjusted EBITDA performance that grew 41%, due not only to the increase of the share of subscription revenues that has higher margins, but also the efficiency initiatives employed by the company, leading to gain in the adjusted EBITDA margin of 4.1 percentage points in the year. .

Now I'll pass the floor to our CFO, Clovis Poggetti. .

Thank you, Ghio. Hi, everyone. Moving to the next slide, #6. As important as observing the results of the fiscal year, which presents strong seasonality between the quarters, is to look at the sales cycle as a whole. Here, we can see all the growth that we were able to deliver in this sales cycle.

The net revenue was 16.5% higher than the one seen in '19 sales cycle. And it is important to remember that this growth of 16.5% is the consolidated one, which means the combination of 18.4% growth in the subscription revenues with a growth of 12.7% in the nonsubscription revenue. .

On the other hand, gross profit increased by 21%, while the adjusted EBITDA was even better with an upturn of 41%. The net loss, in turn, had a significant improvement of 64% in the period, highlighting the solid performance we had in all indicators. .

Moving on to Slide 7. We also present the subscription revenue for 2020, but from a different perspective. In addition to showing the 18% growth in the subscription revenue referred to on the previous slide, we also show a comparison with the annual contract that we announced for 2020.

The difference between the ACV and the subscription revenue is that ACV shows all contracts signed, which is a good indicator for the subscription revenue expected to be recognized in the following sales cycle. .

That is, it is based on a future perspective. In normal years, the subscription revenue tends to behave very similarly to the announced ACV since contracts are signed and the ACV already considers churn, historical returns, price increase, cross-sell, up-sell and new clients. That's why it is the best proxy for subscription revenues we have. .

In 2020, we had a disruptive event like the pandemic but even with all the pressure brought by the pandemic, the impact on our revenue was only 3% in relation to our initial expectations, which reinforce all the soundness and resilience of our operation.

This was only possible because we offer an extremely efficient digital platform for schools, managing to reduce the impact of the migration from classrooms classes to the digital environment and enabling the maintenance of the academic calendar. .

Notwithstanding, the stability of the operation was so good in this period that we were able to deliver a subscription revenue of BRL 692 million, very close to our initial expectation. .

The purpose of Slide #8 is just to reinforce the message that despite the different seasonality that we have between the quarters of the year with a recognition of results more concentrated in the fourth and first quarters, the result recognition curve in 2020 is very similar to the one in 2019, which lead us to believe that keeping the current perspectives, there is no reason to believe in a curve for this year that would be pretty much different than the one we had last year, plus/minus a couple of percentage points.

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What we have seen until now in relation to our sales campaign for 2021 is that the result of obtained so far is very sound, with a strong pace of closing new contracts, which gives us confidence that the fourth quarter this year will continue with the expectation of another being another very strong one. .

On Slide 9, we present the main financial highlights of this quarter, and we can see that, although the third quarter is still seasonally weak, we performed better than the same period in '19 in all lines. This is clear both in the quarter's performance and in the accumulated 9 months of the year. .

Regarding the number themselves, we can see that the accumulated revenue for the 9 months reached BRL 654 million with a gross profit of approximately BRL 376 million, and EBITDA BRL 138 million and a net loss of BRL 68 million, well below the net loss of BRL 101 million in the same period last year. .

Now I return the floor to Ghio to continue with the final -- with this presentation. .

Thank you, Clovis. Going to the Slide 11, we can see the importance of having a strong and engaging digital platform such as Plurall, which has been an intention pillar for the company to ensure the stability of its operation and growth for the following year.

Since the beginning of the pandemic, Plurall has registered more than 8 million accumulated live classes with an average of 72,000 classes transmitted live per day. .

Currently, Plurall accounts for about 50% of all educational web traffic Brazilian private educational platforms, showing that is not only a tool with high levels of engagement and satisfaction, but also an extremely important tool for schools. .

In this sense, Plurall has been essential for partner schools to be able to continue with their school activities and have seen an increasingly active participation of teachers and students.

The platform previously used as a direct support for students, gained a key role in the digital school as it was called the transition of classes from analog to virtual environment, and this has had an extremely positive effect on contracts renewals.

But Plurall has not only operated as a platform for retention and engagement, but also as an important hub to attract new schools.

And we could observe throughout the commercial campaign that many students were left helpless during this year, and we were unable to follow the school -- and were unable to follow the school activities plan at the beginning of the school year. .

With this, we have been able, for the first time, to capture schools from historic competitors, which started to see Plurall as a way to go through the next year without major problems, thus ensuring the sustainability of their businesses. .

But our work is not restricted to supporting the digital transformation in schools. We want to be more and more a full partner of the Brazilian private schools. So I invite you all to move to the next slide. .

We are now developing a new concept for partner schools to further explore the offer of complementary solutions in a form of similar to iTunes. This is the Plurall store, a marketplace for the sale of third-party digital solutions, with usually international solutions in a revenue share model exclusively for the Brazilian market.

Fully digital solutions are affordable and aligned with this new hybrid school. .

A model that requires low investment and ensures high return. And with the free trial model, we further believe that we'll be able to capture more and more the interest of the schools providing sustainable growth for this business.

Therefore, there is no doubt that from now on, complementary solutions will gain more and more materially in next to business cycles. And this is why we are striving to add and bring even more options to our partners. .

But let's go to a little deeper to see what we are the solutions that we are already available on our new platform Plurall store. .

On Slide 13, we presented the offers. And as I mentioned on the previous slide, we have international solutions with very strong reputation and brands. In the field of STEAM, we have 3 highly desired solutions, which are Discovery Education with a range of interactive materials and content of science, math and social studies.

Matific, which has been available on our platform since the beginning of the year with solutions of math games for early Childhood education. And Cloud Labs, which is a virtual environment that facilitates this fermentation and development of scientific skills. .

In the field of educational Olympics, we have now available our platform Plurall Olímpico, which encourages children to participate and improve their performance in Education Olympics.

In the field of financial education, we have Tindin, which is a super interesting platform for children, financial education, enabling them to learn financial concepts. .

In the field of project methodology, we partner with Dreamshaper, which is an online tool that guides students to practical and motivating learning experiences and problem solving. .

Finally, in the field of languages, we offer the Carnegie Speech and Geppetto, 2 great solutions for the practice of English. .

Moving to the next slide. In addition to all these solutions, we are building a digital platform that will support the transition of the Brazilian school to this new concept of hybrid schools, which increasingly digital skills and activities.

That is why we are making a series of investments in bringing neuroscience to improve the effectiveness and results of our solutions. .

The head band that you can see in the image is extremely important for this because it can do to the analysis of the brand in real time, measuring the concentration level of each student and proposing a content more adapted to the student's attention levels. .

In other words, what we are proposing today for our partners in relation to the use of technology, it's not just a mere palliative to assist the schools in going through this difficult pandemic period, but the whole range of solutions that will help with the migration and disruption from the analog model, which is still very much rooted in the academic environment.

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Moving to the next slide. And for all this content to be delivered and used efficiently, it's essential that each student has their own study tool. What we saw during the pandemic was that most families were not prepared to face a long period of social isolation and had, in many cases, to share the same computer with all its members. .

That is why this partnership we made with Lenovo is extremely important for this new life we are leading today, as it allows to deliver the computers with all the academic content already integrated with no cost of acquisition or maintenance, facilitating family planning and children education.

We already have -- more than 20,000 students who have adhered to the learning book model, and we believe that such number will only grow in the time ahead. .

Moving to the next slide.

To end this part of the presentation, I would like to show how efficient is this platform model we were able to build because the beauty of the platform concept is that the day after signing an additional service contract, you have this service available for sale to more than 4,000 partner schools that we have on our platform today. .

And this additional service can be added through development of a solution by purchasing a solution or by partners, as shown in the Plurall store slides. .

In some cases, it's more advantageous and strategic to purchase a product, as we did at the beginning of the year with Mind Makers, our robotics and coding solutions for children.

The day after the contract was entered, Mind Makers solution was already available for all of our farmers and hunters to make their sales and their results achieved in just 1 commercial cycle was extraordinary. .

In less than a year, we have already managed to increase the number of new contracts by 80%, and we have more weeks to go in our commercial campaign, evidencing the success of this strategy. .

Now I'll pass the floor to Guilherme Melega, our COO. .

Thank you, Ghio. And to the end of this presentation, I would like to invite you all to see Slide 18. To date, we have already entered into a total of contracts that account for an ACV of BRL 835 million for the 2021 sales cycle, which represents a 21% growth compared to the subscription revenue recorded in the 2020 sales cycle.

This comparison is made in relation to the 2020 ACV that is for what we expected for this year before the impacts of COVID-19. The number already contracted for 2021 shows a growth of 17%. .

In other words, we already have a sound result regardless of the metric that is analyzed. Considering the 21% ACV growth, 80% of this growth is from traditional learning systems and complementary solutions and 20% from par. But it's also important to mention that the commercial process only ends in late December, early January.

And we are confident that this figure could increase until the end of the sales campaign. .

Now heading back to Ghio. .

Thanks, Melega. Now we finish our presentation and open the Q&A section. Thank you very much. .

[Operator Instructions] And our first question comes from the line of with [ Roberto Atterro ] with Bank of America. .

So two questions from my side. The first one is regarding the sales cycle. I wanted to understand how do you analyze the effectiveness of the more digital sales campaign in terms of lease conversion? This is a very important change in the way the industry adds new contracts.

So curious to understand how you think schools adapted to that? And in that sense, given the partial reopening of schools in Brazil, do you expect the coming weeks to be relevant in terms of new contracts for next year?.

And the second question is regarding the accounts receivable. We saw an increase in accounts receivable year-over-year in terms of amount and also days of receivables that I suspect are mostly related to renegotiations with existing schools given COVID.

But how do you expect this line next year to reflect the 2021 sales campaign? So those are the questions. .

Thanks for your question. This is Melega here. I will take the first one, then I will turn to Clovis for the accounts receivable. Our sales cycle definitely was completely different from anyone before. Digital played a very, very important role, especially at the beginning of the cycle. .

In the first semester, 100% of all the commercial initiatives were digital. And not only the approach was digital, but the offering was digital. We're offering boarding on our Plurall platform to help these schools. So I would say it was twice digital as it used to be.

And that was very important at the beginning, and that create a funnel -- a sales funnel that now we are closing new contracts in the second half of the year. .

And in the next coming weeks, we are working already in a hybrid mode. We are having physical interactions with our schools. And this is actually speeding up the closings that were already on the pipeline. So we still have -- we are confident that the weeks ahead, we should still perform well on the sales campaign. .

[ Atterro, ] with regards to the accounts receivable, you are correct, okay? The increase that you realize is directly related to the negotiations with the customers because of COVID, okay? That's why in terms of the average accounts receivable term comparing to previous year, you see an increase of 20 days, something like this, okay?.

For the next sales cycle, of course, with everything related to COVID going back to normal, we should go back to what we had in '19. One observation only.

Given the seasonality that we know regarding our business with the fourth quarter and in first quarter in terms of revenues much stronger, please don't forget that from October to March, we can say the average term, in terms of receivables, goes up. And then from April to September, it goes down. .

So in a -- when you analyze in a sequential basis, we had these fluctuations, okay? But nothing that is already not expected. .

Great. No, that's super helpful.

And if I may, just a follow-up to the first question? Regarding the -- I mean, the changes and now the larger portfolio of complementary products, how are you designing the go-to-market strategy for the next sales cycle? I believe -- I expect this probably should be more levered on cross-sell, but given the number of products and the LTV of those products, just wondering how you're designing the go-to-market strategy for complementary exclusively?.

Actually, the -- we changed the go-to-market strategy on this sales campaign. We are already relying a lot on the complementary products. We have much more products this year than we have on the previous cycle. And part -- a significant part of our ACV growth already comes from the complementary products. That plays a very important role on the growth.

And we expect the next GTM campaign will be pretty much the same. We already tailored our GTM to focus on cross-sell of these products on our base. So we have events for that, we have sales speech for that, we have bundles for that, and it's already customized up and running. .

This is Ghio speaking.

I would like to add that with the Plurall store, besides the pushing initiatives we have to sell our complementary solutions, Plurall story is the way of pulling the demand from the schools, right? So after -- I agree with Melega, but we are also trying to make this trial versions as a way to the school to use a new service, to like a new service and then pull this new service to the school.

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Our next question comes from the line of Diego Aragão with Goldman Sachs. .

Yes. The first question is more like a follow-up on question and related to your ACV bookings guidance.

I understand that the schools are being somewhat delaying some of their decisions, given the very challenging environment related to the school reopening process, right? And in the sense, can you give us a sense on the upside potential that we could expect in the case that some of those schools would get back to you with, let's say, a kind of final decision only in the beginning of next year? And also, any colors on the growth performance for the learning I mean what was the year-on-year growth in each one of those segments when compared to the 2020 ACV?.

we have lower churn because of that, but we have a more difficult campaign regarding new clients also, new schools also. .

We do expect more to come. We have several schools on our pipeline that we have been very close to reaching agreement with them.

And we do expect some schools to make the last decision only in January, depending on their expectations about the class -- the physical classroom, how it will work or not? We still see some schools waiting to see, this could be converted in contracts later on on the process. So this is a completely new year in terms of sales campaign.

And we cannot predict much about the last mile of it, although we have very -- lots of heated discussions in the pipeline. And more disclosure about what is within the ACV, we'll be able to give later on in the fourth quarter. .

Yes.

Adding on that, Diego, I guess we are going to complement this ACV in the beginning of the next year, right? And we will show the breakdown of all the factors that combined ACVs such as churn, cross-sell, up-sell and new contracts we are planning to give the information with the fourth quarter release, okay?.

Okay. Sounds good. And I guess my second question is regarding your pipeline of new products. I know Ghio mentioned a couple of and products that were recently launched and are available for your customers.

But can you comment about the 2021 and touch also on your expectations for M&As, if any?.

Sure. Yes. As we've shown here in this release, we already have a robust number of services and products to the beginning of the next go-to-market. But we are working in acquisitions in core education and also in complementary solutions, right? I can say that we are in advanced of steps with some of the some of the players we are planning to acquire.

Actually, we are in a due diligence process with a few of them, and we believe that until the end of this year, we will be able to announce an acquisition in core education and a few acquisitions in Complementary Solutions, right?.

In Complementary Solutions, especially, we are planning to acquire companies that will complement our technology in Plurall. So we need more technology and adaptive assessment. We need more technology in writing skills or essays, right? So that's the kind of acquisition we are looking for this moment, Diego. .

And our next question comes from the line of Vinicius Ribeiro with UBS. .

Two, actually, from our side, both on the ACV, and I'm sorry for being repetitive.

So first of all, I would like to understand if this 21% increase already accounts for the recovery of the COVID-19 dropouts, so to speak, that you showed during 2020?.

And the second would be on the competitive scenario, we understand that this shift -- so this new kind of go-to-market with a more virtual aspect, does it -- did you guys see any change when it comes to the competition in terms of prices? Or do you attribute this positive result to a more greater -- more efficient execution from your end on the conversion of the lease? That'll be it.

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This is Melega here. Going to your first question, the 21%, this account for the dropout last year. We do not expect the pre-K and K students remain without an enrollment for 2 school years. So we do account for that on the 21%. .

Regarding your second question about the virtual execution and how it changes. I think we were really happy to have plural because plural leverage a lot our sales. We're selling digital products through digital inside sales channel. That helped us a lot to bring schools to the sales funnel. But I wouldn't say that per se closed contracts.

What closed contracts is that once we are serving the school, we can get more closer to the school, either in terms of sales, but also pedagogically speaking and then we convert this school. So it's still hybrid conversion in terms of contracts. .

And I agree with you, I think we have a good execution because -- first, because we have Plurall to offer; secondly, because we have an inside sales already working digitally for the last 3 years. So I think this gave us some leverage or some ground speed on the very beginning.

And later on in the process, the engagement and the cross-sell, I think, made the rest. And we are still waiting for the final results in the upcoming weeks. .

This is Ghio. Adding a little bit here.

I guess the way we are bringing new services to our portfolio is also important to the school in this next period, right? We have, for instance, in English, we have English Stars, which is a premium product aiming high school with serving high-end, high-income families, but we are also bringing to our portfolio, more digital solutions that are more aligned with this new hybrid moment, hybrid period to the schools.

And also, because the target price of those products are lower than the traditional products.

So we are really confident that we have a robust portfolio, not only because the quality of the services are super important, but also because they are more digital than they were in the past, and the target prices are more affordable for the period the families are facing here in Brazil. .

And our last question comes from the line of with Marco [indiscernible] Neuberger Berman. .

Just in terms of the -- what you're seeing in terms of student enrollment kind of on a like-for-like basis at the schools as you look to next year? I'm just curious for a given school, have they seen -- I know they saw dropouts kind of at the kindergarten level, but any comments you can give on our schools seeing a 5% drop in the upper grades, 10%, nothing, increase? Just to see what's happening at the individual school level, and how that's impacting? And to what extent that's a driver of this increase in accounts receivable?.

Marco, this is Guilherme here. Let me give you what we have heard from our partner schools. Definitely in 2020, they face the dropouts for especially pre-K and K at Q2 and Q3. They do -- the majority of them do expect that those enrollments will return. And we are right now on the enrollment season. So I would say, no school right now knows 100%.

There is this student base for next year. They are right in the middle of the process. They normally starts late October. So we're very early on this stage. .

But what I can share with you is the sensation. There's sensation that these schools are getting back, they are calling back the schools, they are very positive for the next year. Moreover, we had another positive trend that we see. We had several places where the public education was not as bad as the regular public education in Brazil.

And many of the medium-class parents, they have their kids on public schools. But the service on the public school during the pandemic was terrible, pretty much nobody could deliver any service. .

So some of our partners are reporting, they are gaining students from the public side, from the public schools. But right now, I don't have figures. It's very early on this, but we are seeing a positive trend here in Brazil due to the expectations of our partner schools. .

And do you have any -- I know it's extremely early, but what impact, if any, do you think a vaccine to the extent that it's available in Brazil kind of in a wide spread manner toward the second quarter of next year, any thoughts on how that might impact your business, if at all?.

Marco, we are still waiting to see when the vaccine actually will be widespread here in Brazil. I'd say our scenario right now is that the schools will remain hybrid. I would anticipate more here the expectations of a second wave rather than a COVID vaccine. So I would say, schools are more prepared to remain on the current trends. They are.

Some are hybrids, some are 100% digital. But the second wave is still uncertain here. And I would say these schools are really partnering with strong service providers to be able to face whatever is yet to come. .

And if the vaccine comes, it will be great for everybody. And we strongly believe that digital services will keep on because there are some changes that are cultural changes.

And we believe there is a digitalization for K-12, not only Brazil, but worldwide, but will be great for our business and for the country and for everybody to get rid of the COVID-19. .

Marco, this is Ghio speaking. Great talking to you. I guess this is super important.

We see that the next year, we have -- we are the best well positioned -- we are very well positioned to face the new year not only because we have our products and our services for the full reopening of the school, but also because we can provide our services and products to the schools if they are closed, if they are partially open or if they are completely open, right?.

I guess the most important step we did at the end of this year was creating all these new opportunities for the school to teach English in digital, with digital services such as Carnegie. And I guess, we are very well positioned to face what is going to be the next year. .

Personally, I believe the vaccine only will be available in Brazil in the second semester of the next year, right? So having said that, I guess, we are best positioned than any other player to face '21. .

And our next question comes from the line of Susan [indiscernible].

with [indiscernible].

We had two. The first one is relating to the price dynamic. If you could little bit elaborate on the renewal of the schools, how was the dynamic of increasing price if that was able to make the price to above inflation that is usually there? That will be our first question..

And the second question is related to the M&A competitive space. It's not only us that's going after the -- some solutions, digital solutions and complementary content.

So just was wondering if the target going after versus the leader or there is some kind of competitive process going on?.

Susan, this is Guilherme here. Thanks for your question. I will take your pricing question and Ghio will take the M&A question. Regarding prices, yes, we were able to pass pricing above inflation as we normally do. So in this trend -- so in this fashion was a regular year. We priced our products, especially with throughout a little bit above inflation.

But another important effect in terms of average ticket is that we had a positive mix, if I can say that. We have new products in Anglo and PH for the high school. So we have the new high school, and more than 50% of our school base adopted the new products, and this has also a price increase embedded in this new mix. .

And as Ghio presented, we also have the learning book impact -- effect, which enhances our mix. We have much higher prices for the learning book, although it's only 20,000 students so far, it's at a much higher price. So when you combine the pricing per se, plus the positive mix impact. I would say we have a very sound price/mix increase for next year.

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Susan, could you repeat, please, your second question?.

It's related to the M&A targets.

If [indiscernible] for targets of today's competitive process going on any of the targets that you are pursuing?.

Yes. Well, we are -- when we talk about acquisitions, we must remember that we are doing 2 kinds of acquisitions, right? The first one is trying to buy players in the core education, okay? And we have a target that we are in the due diligence period.

This specific target we are studying now, that is a complementary footprint compared to ours and also we believe there is an excellent brand and excellent reputation, right?.

In the Complementary Solutions, we are planning to acquire or the kind of acquisition we are planning to do.

It's -- now it's the acquisitions that will bring a new dimension in terms of technology, right? With Plurall store, and also with all the complementary services we already have in our portfolio, we believe that we are very well positioned to offer to the partner schools everything they need in the next year. .

But we know that we have some gaps in terms of technology. And to fulfill these gaps, we are looking for these acquisitions in Complementary Solutions, okay? And again, we are in advanced steps with some of them. And I guess, in the next 3 weeks or at most at the end of this year, we will announce a few acquisitions also in Complementary Solutions. .

I'm not showing any further questions on the phone lines, so I will now turn the call back to [ Pedro Gomez ] for any closing remarks. .

Well, I'd like to thank for everyone for participating on this call and I put myself available for any follow-up questions. Thank you, and have a good day. Bye-bye. .

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