Ladies and gentlemen, thank you for standing by, and welcome to the Vasta Platform's First Quarter 2022 Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Bruno Giardino, CFO. Sir, please go ahead..

Good evening, everyone, and thank you for joining me in this conference call to discuss Vasta Platform's first quarter 2022 results. With me on the call today, we have Mário Ghio, Vasta's CEO. 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 the 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. These risks include those set forth in the press release that we issued 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 the date hereof. 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 refer 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. Let me now give the call over to Ghio to make his opening statements..

Thank you, Bruno. Thank you all for participating in our earnings release. I would like to start on Slide 3 with some highlights of this quarter that has a special meaning for us. Vasta's first quarter results confirm the recovery trend on operational results.

After a long period of results being hit by the COVID-19 pandemic, numbers finally attest that the business is back to the high-growth field. 2022 ACV for school year totaled R$1 billion, which represents a growth of 35% over the subscription revenue for the last cycle -- for the 2021 cycle.

And the 2022 ACV shows a richer mix in sources of revenue as we managed to increase growth in our premium brands and to initiate the migration from textbook paper-based products, PAR, to digital subscription products, Textbook as a Service. Therefore, excluding PAR, the ACV grew 48%.

Complementary solutions had the highest growth rate over 70% year-over-year among the business segments as we accelerated ramp-up of these solutions. In 2022 cycle, from fourth quarter '21 to first quarter '22, the net revenue grew 25% due to the recognition of 68% of the ACV.

Non-subscription segment revenue, as expected, was stable compared to the previous cycle. Adjusted EBITDA grew more than 100% in the quarter and 41% in the 2022 cycle as a result of the net revenue growth, operating leverage gains and cost savings with margins increased up 430 basis points.

For the second quarter of 2022, we expect that the ACV recognition to range between 16% and 18%, reiterating our belief that 2022 will be able to collect 100% of the ACV. Moving to the Slide 4, we detail the ACV growth composition.

2022 ACV is less concentrated in the first two quarters than in the previous years due to the different seasonality of new products such as Eleva, Mackenzie and Textbook as a Service platform.

That means that although the first two quarters continued registering the largest part of the ACV revenue, there was less revenue captured in the first half of this cycle when compared to the previous year, being 68% in the first half of 2022 cycle versus 71% in the same period of 2022 cycle.

In this first quarter, the net revenue increased 36% year-on-year to R$381 million, exceeding the R$370 million guidance. Subscription revenue totaled R$334 million, an increase of 37%, driven by the 2022 ACV recognition also exceeding the guidance, and then also description came in line with the guidance.

For the following quarter, as I mentioned, we expect the ACV recognition to range between 16% and 18%. I will now pass the floor to Bruno Giardino, our CFO..

Thank you, Ghio. In the Slide 5, we present the composition of Vasta's net revenue in the first quarter of 2022. As Ghio commented, our total net revenue increased 36% year-on-year, exceeding the R$370 million guidance. Moving from the center of the slide to the right, we see the components of revenue growth.

Excluding PAR, subscription revenue increased 48% year-on-year, reflecting the superior quality of revenue mix in the 2022 ACV. PAR net revenue fell 12%, which is aligned with our strategy of shifting revenue from textbooks to learning systems and digital platforms. Textbooks in this first quarter represented 14% of total sales only.

In total, subscription revenue jumped at 37% and continued to gain relevance in the mix, reaching 88% of total net revenue. Non-subscription revenue increased 25%, offsetting the decline registered in the fourth quarter '21. Moving to Slide 6. We analyze the net revenue for the 2022 cycle to date, fourth quarter '21 plus first quarter '22.

Net revenue grew 25% in this year. And again, from the center to the right, we see subscription ex-PAR revenue jumping 41%, while PAR revenue fell 12%. In total, subscription revenue grew 29%, making 68% of total 2022 ACV, while nonsubscription was stable in the period.

In the Slide 7, adjusted EBITDA more than doubled in the quarter, reaching R$141 million, not only due to the growth in net revenue, but also as a result of operating leverage gains and cost savings.

The margin expanded from 24% to 37.1%, driven mostly by gross margin up 660 bps, also helped by commercial expenses and adjusted G&A expenses down 500 bps and 280 bps, respectively. The first quarter adjusted EBITDA margin of 37.1% is the highest of our recent history.

In the first half of the 2022 cycle in the chart on the right, adjusted EBITDA grew 41%, reaching R$302 million, with a margin increase of 450 percentage points. This is definitely an evidence that Vasta's profitability is now standing in a much higher level than in 2021 and is closer to the company's potential.

In Slide 8, our comments on adjusted net profit, which in the first quarter increased to R$51 million from R$21 million in the first quarter of 2021, following the growth in operating profit.

In the 2022 cycle to date, adjusted net profit increased 4% as the increased operating profit was partly offset by the company's higher financial leverage and the higher interest rates in the country. Moving to Slide 9, we show the operating cash flow evolution.

In the first quarter, operating cash flow -- fourth quarter 2021, operating cash flow totaled R$51 million, benefited by the anticipation of accounts receivable amounting to R$52 million. In the first quarter 2022, operating cash flow totaled R$13 million, impacted by the early payment of royalties to content providers.

Therefore, on a normalized basis, the operating cash flow increased from nearly zero in the first quarter '21 to R$33 million in first quarter 2022. It is noteworthy that our operating cash flow generation would have been even higher if we excluded the upfront CapEx for the acquisition of Chromebooks that are part of our 100% digital solutions.

Likewise, the normalized operating cash flow was negative R$45 million in the 2022 cycle to date, up from a negative R$104 million in the same period of 2021.

We observed that the operating cash flow generation is usually negative in the first half of the cycle as we invest in the production of materials in preparation for the school year, but we received the payments from customers in arrears along the cycles. Next, in the Slide 10, I'll give more details on the provisions in our accounts receivable.

As you know, over the last quarters, we have recognized higher provision for doubtful accounts, PDA, due to the challenging business environment for our school partners as well as our decision to support them by extending payment terms, which increases the aging of the receivables portfolio.

While we have seen an improvement in the delinquency rate in the first quarter, the higher provision standards adopted in the second half of 2021 have increased the need for provisions in this quarter. That's why we have the PDA flat in terms of net revenue in the cycle to date.

Finally, the average days of accounts receivables was 198 days in the first quarter '22, the same level as of first quarter '21. By adding last 12 months' net revenue in the denominator, the average time of receivables decreases to 188 days, 10 days less. I will conclude my speech in the Slide 11 with our net debt.

Vasta ended the first quarter with a net debt position of R$939 million. From the fourth quarter '21, the increase was related to the acquisition of Phidelis and by the accrual of interest rates, which more than offset the operating cash flow generation in the period.

In the right chart, we see that our leverage, measured as net debt to last 12 months' adjusted EBITDA, has started to decline, reaching 3.67 in the first quarter, or 3.28, including Eleva's last 12-month EBITDA in full in the denominator. We expect this downward trend to continue over the coming quarters as our adjusted EBITDA base increases.

With that being said, I'll pass the floor back to Ghio..

Thank you, Bruno. Moving to Slide 12. We are proud to say that Vasta's brands maintain the leadership in numbers of approval in the most competitive admission tests in the Brazilian best universities. The performance of our premium brand was particularly notable in Medicine, the most competitive career in the country.

Our top-of-mind brand, Anglo, expanded its leadership in admissions for Medicine at the University of Sao Paulo, the best university in Latin America according to the higher education ranking with an increase of 64% in admitted students compared to the last year.

The top performance at Brazil's best universities is among the key attributes considered by the K-12 schools when choosing a content partner. Moving to Slide 13. Let's talk a little bit about ESG. By the end of April, Vasta issued its first sustainability report available in our IR portal.

Vasta's ESG report was elaborated according to the highest standards available. We hope this report will help the investor community to understand how serious we are about ESG standards at Vasta. Having said that, I finish our presentation and now I open the Q&A session. Thank you very much..

[Operator Instructions] We have the first question comes from the line of Marcelo Santos of JPMorgan. Your line is now open. You may ask your question..

Thanks for the opportunity to asking questions. The first question is if you could comment a bit on your B2B2C initiatives. You have Plurall, I think, My Teacher, Maestro, Plurall Tutor, and there was also the recently launched Plurall Therapy. So if you could comment how these are going, it would be interesting.

And the second question is more to Giardino regarding the margin outlook for the calendar year 2022. In the previous call, you said that you expected at least to recover the levels of 2020.

Could you make the same comment now, or could you say a renewed outlook?.

Thanks for your question, Marcelo. This is Ghio speaking. Actually, we call those initiatives you mentioned more B2C2B, right? Because we offer Plurall My Teacher, Plurall Adapta, and Plurall Therapy, that we are in the piloting period. Now we are not offering for sales, but we consider that our B2C2B.

And by that, I mean that we offer to the student the opportunity to connect with the teacher and then we give to the school a rebate of the class just to keep schools engaged with the process. We are happy with the first results in this first quarter.

Of course, the revenues still does not represent -- they are not meaningful in the total revenues of the cycle, right? But I can tell you that we are selling, for instance, private classes every day, right? On a daily basis, we are selling private classes all over the country. The NPS of students regarding this new service is very high.

And we are also selling adaptive programs on a daily basis for students from the secondary school on, right? We are not offering adaptive programs for primary school or preschool.

So in short, Marcelo, we are considering that the pace of the revenues we are generating with these new services is in line with our business plan, right? And we also know that this kind of product will be more important for students, even more important in the second semester, right? When many students, they must recover grades and that generates more demand for this kind of product and service, okay?.

Marcelo, regarding your second question, yes, we reiterate our view that 2022 fiscal year will have adjusted EBITDA margins closer to the 2020 level, right, higher than what we had in 2021. So this is a renewed outlook. Eventually, we can surpass what we posted in 2020.

The thing is that, as you know, the inflationary environment in Brazil is getting difficult. So we have some challenges ahead. Nothing that will compromise the delivery of this higher level of adjusted EBITDA, but it makes it a bit hard for us to make any kind of forecast more precise right now.

But definitely, we will be close to 2020 levels and eventually, we will surpass that level in terms of adjusted EBITDA margin..

Next, we have the line of Emiliano Flores of Scotiabank. Your line is now open. You may ask your question..

Thanks for taking my question. It's only one. If you could share your thoughts on the outlook for the 2023 cycle. How are you seeing the K-12 recovery in this period? That will be it..

Great. Thanks for the question.

Well, we are in the beginning of the book building for the next year, right? So we have just finished, by the end of April, we finished the first commercial -- or the first marketing quarter for the next ACV, right? What I can share with you is that we are super motivated with the results of this first quarter, right? We finished the quarter above our targets for that period of the commercial year, right? And we are also expecting to see kids, especially in the preschool, we are not seeing this year the full potential of preschool.

And by that, I mean that in the number of students, we are happy, we are okay, we are positive to deliver 100% of the ACV, but we will still see some gaps in number of students in the preschool, right? So we are expecting that in this year, more students will come back to preschool, and that means that for the next year, besides building a good ACV, we can see more returns in terms of students for preschool to the schools.

And this type of students, they are not so important in terms of revenues, because the cheaper prices we have are regarding preschool, but they are super important in terms of the life cycle in a school, right? Student entering in the preschool will stay in the school for at least 15 years, right? So that's so important for us and for the market as a whole to bring all the kids back to the school in the preschool, okay? So we are positive with the first results in our marketing campaign for the next cycle, and maybe we can have this positive trend of kids in the preschool again coming for the schools..

It's important to remember here, Emiliano, -- this is Giardino speaking -- that we have the first year of Eleva with us for the 2023 cycle in the go-to-market, also Mackenzie with us in the commercial process. So we will probably....

Also, Fibonacci, that will be one asset..

So with the brands incorporated into our go-to-market, which we think is a great strength we have. And we also have a lot of cross-sell opportunities within the base of Eleva and Mackenzie, in which the penetration of complementary services is relatively small.

So I think we have a good potential here to bring another very good sales cycle in 2023, okay?.

Next question we have from the line of [indiscernible] of Itau. Your line is open. You may ask your question..

Thank you for taking the question. So regarding PDA, we saw a strong increase, which the company associated with the extended payment terms in schools.

Now that we should have a more normalized year in terms of ACV grade, what should be the dynamics for the PDA throughout the year?.

Thank you for the question, [indiscernible]. Yes, it's always difficult to predict the coming quarters, but we definitely expect some improvements ahead, right, as we see the beginning of a normalization in the payment cycle. So gradually, we should see a recovery, let's say, in the PDA level to the historical levels.

Historically, we had an effective loss of 1%, a little bit higher than 1% of our receivables portfolio. And this is the level where the PDA should converge to. So gradually, we should come back to this level.

It's very difficult to make predictions for the coming quarters, but this is definitely the trend we see ahead, okay?.

[Operator Instructions] We have the question comes from the line of Lucas Nagano of Morgan Stanley. Your line is now open. You may ask your question..

Thanks for taking my question.

Also about the 2023 cycle, could you comment a bit on the pricing considering this extended inflation plateau we're facing? Do you expect to price above inflation and maybe close the gap from last year from the current year?.

Great question, Lucas.

Yes, we are going to pass to our price list the gap of inflation we left last year, right, when we released our price list last year around, if I'm not wrong, by the end of July or the beginning of August, because schools need the price list prior to the enrollment period, right? So when we released our price list last year, the inflation in Brazil was around 6%, and we decided to increase our prices around 7.5%, 7%, right? And then we saw that spike in terms of inflation here.

And if I'm not wrong, again, we ended last year with inflation around 10%, okay? So now we are aware of this phenomenon.

So we are expecting to pass to the prices the gap of the inflation we left on the table last year plus the inflation of this year, right? Which means that we are not planning to pass above inflation, but we are planning to correct the gap of inflation we left last year and to pass the whole inflation for this year..

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the conference back to Mr.

Mário Ghio, sir?.

Thank you all for participating in our earnings release, and I hope to see you all healthy and well in our next quarter..

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