Good day, everyone and welcome to the Vasta Platform Fourth Quarter 2023 Financial Results Call. Before we begin, I would like to read 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 facts that may cause our actual results to differ materially from those contemplated by those 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 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 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 the 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'll now turn the call over to Marcelo Werneck, Investor Relations. Please go ahead..

Good evening, everyone. Thank you for joining us in this conference call to discuss Vasta Platform’s fourth quarter and full year of ‘23 results. The fourth quarter also represents the first quarter of the 2024 sales cycle, which goes from October ‘23 to September ‘24.

I am Marcelo Werneck, Vasta’s Investor Relations and today we have the presence of Guilherme Melega, Vasta’s CEO and Cesar Silva, Vasta’s CFO, who will be joining me on the call. Let me now hand over to floor to Guilherme Melega to make his opening statement..

Thank you, Marcelo. Thank you all for participating in our earnings will call. I would like to cover slide number 3 with some highlights of 2023 fiscal year. Vasta concluded this year with 18% net revenue growth over the same period of last year, mostly due to the conversion of ACV into revenue and the performance of the B2G business units.

Vasta subscription revenue has reached R$1,278 million. Our complementary solution segment continues to stand out showcasing the highest growth rate among our business segments with a 34% increase compared to 2022 and with an accelerated increase in both student base and market penetration.

Moreover, as mentioned in the last quarter, in 2023, Vasta started to offer its products and service to the Brazilian public sector, and we generated R$81 million in revenue from the B2G sector in 2023 fiscal year.

The expansion into the public sector marks a momentous opportunity for Vasta, allowing us to contribute to advance education in Brazil while creating new revenue strengths. Moving to the company's profitability, in 2023, our adjusted EBITDA experienced a growth of 20%, reaching R$451 million, while increasing an adjusted EBITDA margin to 30.3%.

This increase was mainly driven by gains in operating efficiency, cost savings and sales mix that benefited from the growth of subscription products. Finally, this was another year of significant improvement in our cash flow. In 2023, free cash flow total R$189 million, a R$100 million increase from R$89 million in 2022.

The free cash flow to adjusted EBITDA conversion rate improved from 24% to 42% as a result of faster growth and implementation of efficiency measures. I will turn back to Marcelo to talk about the financial results on the quarter in 2023 fiscal year..

Thank you, Melega. In this slide, we present the composition of Vasta net revenue. On the left side, you can observe the grand key year on year growth in total net revenue for the fourth quarter, which increased by 10%, reaching R$554 million. On the right side, let's take the key components of this revenue growth.

Total subscription revenue had an increase of 16%, reaching R$515 million and representing 93% of our total revenue for this quarter. Far, our textbook subscription products also increased by 16% amounted to R$70 million, R$80 million benefiting from the migration of non-subscription.

Non-subscription dropped to 35% to R$39 million, and as expect we did not record B2G revenue in this quarter. Moving to slide number 5, we analyzed the net revenue for the ‘23 fiscal year. In 2023, we achieved an organic net revenue growth of 18% amounting to R$1,486 million.

As you can see on the right, our total subscription revenue increased by 14% on our organic basis to R$1,278 million. Subscription revenue were excluding PAR had an increase of 16% reaching R$1,155 million. In PAR, our textbook subscription products declined by 3% in the year amounting to R$123 million.

Subscription revenue continues to be the major contributor to our total revenue, representing 86% of the revenue share. The B2G contributed to 5% of our overall revenue in ‘23 and generated R$81 million in revenue. Non-subscription revenue now comprises only 9% of total revenue and as expected drop, 11% to R$127 million.

Moving to slide number 6, in this quarter, our adjusted EBITDA amounted to R$240 million and with a margin of 43.2%, an increase of 20% from the R$200 million in the fourth quarter of '22. This positive performance distributed to several factors, including strong sales risks, cost dilution and operational efficiency.

On the right side, we see that adjusted EBITDA in '23 also increased by 20% and reached R$451 million with a margin of 30.3%. Let's now move to the next slide and explain the breakdown of the adjusted EBITDA margin. In slide number 7, we observed that EBITDA margin improved 60 basis points from 29.7% in '22 to 30.3% in '23.

Firstly, our gross margin declined 1 percentage point as 2023 was a year that the industry faced higher inventory costs caused by the rising inflation on paper and production costs. Provision for doubtful accounts, PDA, declined 0.2 percentage points between the years, in line with the revised credit landscape.

As a percentage of the net revenue, our commercial expenses increased by 1.2 percentage points, driven by higher expenses related to business expansion and marketing investments. And adjusted cash G&A expenses improved by 2.9 percentage points, mainly driven by workforce optimization and budgetary discipline.

Slide number 8, in the fourth quarter of 2023, adjusted net profit totaled R$96 million, a 32% increase compared to adjusted net profit of R$73 million in the fourth quarter of '22. In 2023 fiscal year, adjusted net profit reached R$60 million, a 55% increase from an adjusted net profit of R$39 million in '22.

Finance costs in a scenario of the spike of interest rate continues to impact our bottom line. However, we have remained committed to the deleveraging as you see further in this presentation. Moving to slide number 9, we show the free cash flow evolution. Our cash flow generation was one of the main highlights of the year.

In the fourth quarter of '23, the free cash flow totaled negative R$100,000, representing an increase compared to negative R$43 million in the fourth quarter of '22.

Now on the right side, in 2023, our free cash flow reached R$189 million, a R$100 million increase from the R$89 million in '22, as a result of Vasta's growth implementation of efficiency measures.

Another important metric, our free cash flow to EBITDA conversion rate improved from 23.8% to 41.8%, reinforcing the message that cash generation continues to be a key focus of our business. Moving to slide number 10, we show the provision for doubtful accounts.

Total expenses with PDA in the fourth quarter of '23 totaled R$29 million, representing 5.2% of net revenue compared to an expense of R$29 million in the comparable quarter. Moving to the right side of the slide, we can observe that PDA in '23 fiscal year grew from 3.6% to 3.8% of net revenue.

In '22, PDA had an impact of the provision of 100% of the accounts receivable from a large retail companies undergoing to debt recovery.

In '23, PDA is linked to a credit scenario review tied to the refinement of our customer base strategy, where we have chosen to cease financing mainstream school with low-value contracts and we're increasingly putting emphasis on premium schools.

This shift is promoting growth in high-quality education systems such as Anglo, Pega, [Amplia], Mcinnis and Fibonacci. These brands show higher average ticket values, lower default rates and greater adoption of complementary solutions and foster long-term relationships.

Moving to the next slide, we observed that the average payment terms of Vasta's accounts receivable portfolio was 169 days in the fourth quarter of '23, which is 16 days lower than the fourth quarter of '22. Moving to slide number 12. Let's take a closer look at the net debt movement.

As of the end of '23 fiscal year, Vasta had a net debt position of R$1.064 billion, a R$66 million increase compared to the third quarter of '23, mainly due to impacts of financial interest costs and the share repurchase program.

In comparison to the fourth quarter of '22, the net debt position increased R$22 million from R$1.042 billion, driven also by the financial interest costs, the share repurchase program and M&A expenses, which were partially offset by the positive free cash flow of R$189 million in '23.

I will conclude my presentation with slide number 13, where we can observe that as of the fourth quarter of '23, the net debt to adjusted EBITDA ratio stands at 2.36x, which marks an improvement of 0.07x compared to the third quarter of '23 and an improvement of 0.4x when compared to the fourth quarter of '22.

With that being said, I'll pass the word to our CEO, Guilherme Melega..

mind maker, leader and Edward and finally, consistently with our strategy, we continue to invest in the migration from PAR, paper-based products to PAR digital subscription products. Our textbook as a service platform offered on a fee per student values. Moving to Slide 15. Let me provide you with an exciting update on our significant avenue of growth.

As mentioned last quarter, the launch of Start Anglo franchise combining by bilingualism with academic excellence signifies a strategic expansion in our quest for new revenue. And we are happy to report that we currently have two fully operational units in 2024. The first is our flagship in San Jose de Rupert, which is operating with 300 students.

And additionally, our inaugural franchise and [Alpah] is exceeding expectations, boosting over 170 students, surpassing our target of 120 students. Furthermore, we have secured a contract with the prestigious institution for a new flagship in Sao Paulo, planned to commence operations under the start Anglo brand in 2025.

With 15 contracts already in place, we are optimistic that this franchise model will play a total role in the successful execution of our business strategy. Moving to Slide 16. And finally, let me provide you an update on another growth avenue, our B2G initiative.

2023 marked the year when we expanded our products and service to serve the Brazilian public sector. We generated R$81 million in revenue from the B2G sector in 2023, and we have already renewed this contract for 2024.

We are very optimistic about the possibilities this development presence and are committed to deliver high-quality education solutions tailored to the unique needs of the public sector. With all of these accomplishments in mind, 2023 was an extraordinary year and another milestone in our journey.

These achievements position us favorably to face the future challenges. We have the confidence that we are on the right path to continue delivering outstanding results for our shareholders, solidify partnerships and make a significant contribution to education in our country.

Having said that I finish our presentation and invite you all to the Q&A session..

[Operator Instructions] We will take our first question from Marcelo Santos with JPMorgan..

I have actually two. The first question is on the ACV. Could you discuss the evolution of ACV that you have up to like the 2024 cycle, in terms of volume, price churn, could you give an idea of how these things moved versus the previous year? Just to understand the dynamics.

Sorry if that was on the slide, but I couldn't really get the presentation so far. And the second question is regarding the margin outlook for 2024. So now that you have the cost pressures behind, what kind of evolution -- I mean, it looks like it's going to be a good evolution in terms of margin for 2024.

Is that the case? What are the moving parts here to understand the outlook of margin for 2024?.

Let me give you some color about ACV. And now since we are the only player delivering details about the results, we will consider to reduce a little bit the disclosure about the ACV details, but I can give you some color about that. We are pretty much breakeven in terms of volume and our ACV growth relies on pricing and better mix.

That's pretty much the major drivers of growth on our ACV. And in terms of margins, I would say we already reached the 30% margin that we aimed for. Cost pressures are definitely behind us and we had a very good year in terms of savings and reducing redundancy in process with SG&A savings. But we intend to spend commercially in acquiring new contracts.

So we do not forecast major improvements in the margin. So they should be around the 30% level..

[Operator Instructions] We'll take our next question from Maria Oliver with Bank of America..

I have one question on the growth perspective. The ACV for the next year implies a slight deceleration from the past years.

Could you comment a little bit on the -- if this deceleration is driven more the traditional learning system or if it's lower growth on the complementary solutions, so a little bit of the mix here? And a second question, could you provide any more details on the B2G contract that you just renewed?.

So in terms of ACV, complementary keep boosting the growth is the most fasting product that we have. We grew more than 30% less cycle and we intend to keep the pace is definitely where we have more room to grow. In terms of products of learning system, we have a slower growth from learning system is a more penetrated market.

And our strategy is to focus on premium brands. So we will focus on premium schools on focusing on Anglo, Pega and [Amplia] and Mcinnis this will be the major focus for our learning system growth. But complementary is the main lever for the group.

And regarding B2G, we renewed our contract with [Para], pretty much in the same terms that we had last year. So it's already a huge accomplishment. So our business will keep the same -- we'll start the growth from the same level that we left on 2023. And we are very confident to book new contracts very soon. We have a very heated backline.

And on Q1, we already have the sales for the [Para] contract, and we expect to have new contracts in Q2. But for the time being, we don't have anyone signed it yet. So I can just share with you our positive sensation about the business..

[Operator Instructions] And there are no further questions at this time. I'd like to turn the call back over to Guilherme Melega for closing remarks..

Thank you all very much for attending the Vasta Q4 conference call. We are very proud to deliver the results that we reached in 2023. Just to mention a few, our revenue grew 18%, our EBITDA 20%, our free cash flow grew 112%, so very solid results. And we opened our 2024 year at a very good momentum.

We launched it last year, they start Anglo and we are seeing the new franchisees piling up, new contracts being signed, very positive for the company. And also B2B with a very significant pipeline for new contracts, we are a major states and huge municipalities. So we definitely expect to have new contracts very soon. Thank you all very much.

Looking forward to see you in the Q1 conference call..

Thank you. That does conclude today's presentation. Thank you for your participation and you may now disconnect..