Hello, and thank you for standing by. At this time, I would like to welcome you to the Vasta Platform Second Quarter 2024 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session.

[Operator Instructions] Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements.

Forward-looking statements generally relate to future events, 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 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. This will increase 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 future events, and we disclaim any obligations 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 substitute for results prepared in accordance with IFRS. With that being said, I would now like to turn the conference over to Cesar Silva, Vasta's CFO. Please go ahead..

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's second quarter of 2024 results. I'm Cesar Silva, Vasta's CFO; and today, we have the presence of Guilherme Melega, Vasta's CEO, who will be joining me on the call.

Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statements..

Thank you. Thank you, Cesar. Let's start on slide number 3. As we approach the end of the current cycle, we are pleased to report that in 2024 cycle-to-date, our subscription net revenue has achieved a growth of 14% to reach €1.152 billion.

Vasta concluded the 2024 cycle-to-date with 11% net revenue growth over the same period of last sales cycle, mostly due to conversion of ACV into revenue and to the performance of the B2G business.

Vasta subscription revenue achieved in the second quarter of 2024, R$280 million, a 32% increase compared to the second quarter of 2023 due to the previously disclosed shift in product deliveries, which were deferred to this quarter.

As a result of the significant second quarter revenue number, the subscription revenue has reached €1.152 billion, a 14% increase compared to 2023. This accumulated figure represents an 85% of the annual contract value estimated for 2024 commercial cycle in BRL1.35 billion, which represents 12% organic growth compared to the previous sales cycle.

Inflammatory Solutions continue to present the highest growth rate among our B2B segment with a 20% expansion in the cycle-to-date compared to the second period last year.

Moving to the company's profitability in 2024 cycle-to-date, our adjusted EBITDA experienced a growth of 15%, reaching BRL428 million, while increasing an adjusted EBITDA margin to 32.7%. This increase was mainly driven by improvement in gross margin, benefiting from better margin products, a reduction in the product cost, and operating efficiencies.

Finally, we continue to see improvement in our cash flow. In 2024, cycle-to-date, free cash flow totaled BRL9 million. As you can see, free cash flow increased by 4% from BRL87 million in 2023.

In the last 12 months, free cash flow and adjusted EBITDA conversion rate improved from 26% to 32% as a result of Vasta's growth and implementation of efficiency measures. I will now turn back to Cesar Silva, who will talk about the financial results of the quarter in the 2024 cycle-to-date..

Thank you, Milligan. In this slide, we present the composition of Vasta's net revenue. On the left side, you can observe the organic year-on-year growth in total net revenue for the second quarter, which increased by 8.5%, reaching BRL294 million.

Total subscription revenue achieved in this quarter, BRL208 million on revenues, mainly due to seasonality affect mentioned before. This number represents a 32% growth compared to 2023. Non-subscription which now represents only 7% of the total revenue, dropped 26% to BL15 million.

And in the government sector in this quarter, we did not generate new revenue as you can see in this slide, it represented BRL4 million in the second quarter of the last year. However, in the sales cycle-to-date, considering the revenue performing this -- in the first quarter of the year, we already achieved a 71% growth in this line of business.

Moving to the right side of the slide, we analyzed the net revenue for the 2024 sales cycle to date. We achieved organic net revenue growth of 11% in the sales cycle-to-date, amounting to BRL1.309 billion. The main factors should this exceptional performance work.

Firstly, the subscription revenue has increased 14% reaching BRL1.152 billion and continues to be the major contributor to our total revenue, representing 88% of the revenue share.

Non-subscription revenue, as expected, dropped 30% to BRL8 million, and the net revenue of B2G achieved $69 million and represents 5% of our overall revenue in these sales cycle-to-date. In this line of business, there has been an increase of 71% compared to last year. Moving to Slide number 5, we can talk about adjusted EBITDA.

In this quarter, our adjusted EBITDA amounted to BRL26 million, a decrease of 36% from the BRL41 million in the second quarter of 2023, mainly due to a higher commercial costs and non-recurring positive effects in the second quarter of 2022 of a reduction of a provision for doubtful accounts related to a large retail customer.

On the right side, we see that adjusted EBITDA in 2024 sales to date increased by 15% and reached BRL 428 million with a margin of 32.7% or 1.1 percentage points above the 2023 cycle to date. Let's now move on to the next slide and explain the breakdown of the adjusted EBITDA margin.

In Slide number 6, we observed that the EBITDA margin achieved 32.7% in 2024 sales side to date, and there has been an increase of 1.1 percentage points from 31.6% in 2023.

Firstly, our gross margin has increased 2.3 percentage points, benefiting from better product mix and reducing impact of product costs as 2023 was a year that the industry faced higher inventory costs caused by global inflation on paper and production costs.

Provision for doubtful accounts was stable between the years in line with our revised credit landscape on the fourth quarter of 2023. As a percentage of net revenue, our commercial expenses increased by 2.3 percentage points, driven by higher expense related to business pension and marketing investments.

And adjusted G&A expenses improved by 1.7 percentage points, mainly driven by workforce optimization and budgetary discipline measures. Moving to Slide 7, we show the adjusted net profit. In this second quarter of 2024, adjusted net losses totaled BRL 37 million, a 14% decrease compared to adjusted net losses of BRL 32 million in 2023.

On the right side of the slide, in the 2024 sales cycle to date, adjusted net profits reached BRL 110 million. There has been an increase of 66% from adjusted net profit of BRL 66 million in 2023 sales cycle to date. Moving to Slide 8, we show the free cash flow evolution.

You can see that in the second quarter of 2024, the free cash flow totaled BRL 38 million, representing a decrease of 59% compared to BRL 94 million in 2023.

This quarter was negatively impacted by two main effects, the anticipation of marketing expenses and increased payments related to 2023 production costs owing to a seasonal effect of paper and print printing purchase.

Considering these effects, we foresee a lower volume of production-related payments in the following quarters, and consequently, we expect to maintain and improve the free cash flow for the year-end.

On the right side of the slide, in the 2024 sales cycle to date, our free cash flow reached BRL 90 million, an increase of BRL 3 million from the BRL 8 million in 2023.

On another important metric, our last 12-month free cash flow to adjusted bid-day conversion rate improved from 26% to 32%, reinforcing the message that cash generation continues to be a key focus area of our business.

Moving to Slide 9, we show the Provision for doubtful accounts and total expenses with PDA in the second quarter of 2024, totaled R$10 million represented 3.4% of net revenue compared to an expense of $1 million in the comparable quarter.

The second quarter of 2022 was positively impacted by a nonrecurring effect of a reversion of a provision for doubtful accounts related to a larger retail.

And if we normalize this effect in order to calculate a comparable PDA for the second quarter, we achieved at 2.5% and compared to 3.4% in -- of this quarter, we had an increase of 0.9 percentage points. Moving to the right side of the slide, the PDA for 2024 cycle to date amounted to R$52 million compared to R$4 million in 2023.

The provision for doubtful accounts represents a 4% of the net revenue and compared to 2023 sales cycle there has been an increase of 0.6 percentage points. This increase in the provision for doubtful accounts is related to more restrictive credit landscape and as we explained before, we keep our strategy focusing on contracts in premium brands.

Moving to the next slide. We observed that the average payment terms of Vasta's accounts receivable portfolio was 152 days in the second quarter of 2024, which is 3 days higher than comparable quarter and in line with the seasonality of our business model. So moving to Slide 11, let's take a closer look on the net debt movement.

As of the second quarter of 2024, Vasta had a net debt position of R$1.063 billion R$6 million decrease from the previous quarter and the financial interest costs and the free cash flow in the quarter, among almost the same in broad stability for the total net debt in this quarter.

In comparison to the third quarter of 2023, the beginning of 2024 sales cycle, the net debt position increased R$65 million from R$998 million, driven also by the financial interest costs in the second repurchase program, which were partially offset by a positive free cash flow of R$90 million in the period.

And I will conclude my part of this presentation with Slide 12, explain some more detail about our net debt composition, which represents R$1.063 billion at the end of this quarter.

So month is composed by debentures issued in the month of R$70 million – R$68 million in accounts payable for business combinations with total R$60million – R$ 618 million [ph] R$680 million reduced by our cash flow availability, which represented R$324 million.

In the lower left part of this slide, we can see that in the second quarter of 2024, the net debt to last 12 months adjusted EBITDA ratio has increased just 0.06 times from the last quarter, showing stability after having four consecutive quarters of decrease, and now it stands at 2.28 times.

And compared to second quarter of 2023, the indicator has improved from 2.57 times, a decrease of 0.29 times.

Moving to the right side of the slide, we present the net debt maturities for the coming years, substantially related to the accounts payables in the acquisition of Eleva to be carried out over the next three years and our debentures with related parties, which will take place in 2025, 2027 and 2028 on.

Additionally, on June, we have mentioned that we issued a new debenture not convertible in shares with an amount of R$500 million, accruing the rest at -- rate equal to 100% of CDI plus a spread of 1.46% per annum average for the two series of these debentures.

The debentures to strengthen the company's capital structure to the prepayment of certain existing debt and expansion of the company's debt mature profile. The debentures final payment date is currently set at 59 months from June.

It's worth to highlight that this action, we can manage to reduce the total average interest rate of our net debt by 50 basis points. With that being said, I pass the word to our CEO, Guilherme Melega..

Thank you, Cesar. Let's move to the final slide, slide 13. Let me provide you with an exciting update on our significant avenue of growth of Vasta. As mentioned last quarter, the launch of Start Anglo franchise, combining by [indiscernible] with academic excellence continues to ramp up and signify the strategic expansion in our new revenue streams.

Since the last earnings release, we have signed 10 new contracts, and we now have 30 contracts as of this date. Security distributed across 11 states in Brazil and over 300 prospects in negotiation. This broad geographic presence and strong pipeline underscore the robust potential for future growth and market penetration of Start Anglo.

In this quarter, we launched the digitalization project of the [indiscernible] complex, which will be our start annual flagship in Sao Paulo. The sites creating an operating unit with 1,000 students capacity. The entire historical architecture design will be preserved. We are pleased to inform the inauguration event will take place on August 27.

And also on this date, we'll be launching our enrollment campaign for 2025. Having said that, I finish our presentation and invite you all to the Q&A session..

Thank you. [Operator Instructions] Our first question comes from Luca Markeshi from ITA [ph]..

Good afternoon, everyone. Thank you for taking our question. We noticed that the B2G business unit did not contribute to your consolidated revenue in the quarter. So can you please provide more color on the seasonality of the segment and what we should expect for the second semester of this year for this vertical? Thank you..

Thank you, Luca. Thanks for your question. Yes, we did not record any new contracts of B2G. As we mentioned before, we prospect only large public schools network, so those contracts takes time. And I would like to reinforce that we have a heated pipeline for B2G and we maintain a very positive view for this business.

We -- last year, we recorded BRL 80 million in revenue for B2G. We do expect growth for this year. And we are expecting new contracts to come up in Q3 and Q4. That's the update for B2G..

That’s very clear. Thank you..

Our next question comes from Mirela Oliveira from Bank of America..

Good evening, everyone. A quick question on my side on the commercial expenses. Could you guys give us some clue here on why this has been increasing? And also on the ACV for next year, I know it's still soon to have a feeling around that. But if there is anything you could comment on the commercial cycle, that would be great. Thank you..

Thank you very much, Mirela, for your questions. Let me give you some color about our sales cycle. We are very excited with our first semester. We are definitely growing significantly from the same season last year. But – as you all know, the first semester normally represents between 35% and 40% of the total sales cycle. So far, we are really excited.

We are growing rapidly, but we'll give the guidance for 2025 sales cycle at this year-end. So far, so good. And going to your question about commercial expenses, we definitely are investing more on this season. We have a new GPM for 2025, we are investing in key accounts in regional expenses to grow fast learning systems and complementary products.

So we are investing in gain market share and learning systems and keep the good momentum of the complementary products. So you can expect higher commercial expenses for 2024, since we are harvesting the 2025 sales cycle, we do expect a significant growth for 2025, and we are investing in 2024..

That's perfect. Thank you..

Our next question comes from Lucas Nagano from Morgan Stanley..

Hey, good morning. Thanks for taking our question. I have two questions. The first is a follow-up on the ACV for the next year.

If you could break down on what -- what is driving this better growth, how competition is behaving if it's the same of last year's? Or if it's -- it's more behaved now because we are reaching -- like we know that we're like -- the penetration of lens increasing.

And what is driving this faster growth for this year? And the second question is related to start Anglo. Your main competitor announced a similar investment. And we wanted to get some perspective on how this interfere in your business plan? And where do you see your competitive advantages? Thank you..

Thank you very much. Let me give you a little bit more color about the ACV growth. Our growth is based on regional focus. We are focusing on very heavily owned regions that we do not have the market share of Vasta. So we do focus on we cannot give you more color about that.

But we do have a strategy to grow market share market share, thinking about regional opportunities and complementary products keep having a very good momentum. Schools need to differentiate themselves and complementary has been shown as a very good way for the schools to enhance their offer to their community.

So I would say that in the past, complementary products used to be a cross sale on our base but now it has its own market. We sell to new schools that does not belong to our base. So the growth comes from regaining market share and from complementary products on ACV. Regarding start, we are very confident about our business model.

We launched it last year. And we have been investing on it for two years. So we do believe that we have a very strong base to keep growing. Our competitive advantage definitely comes from our brands.

It's based on the Anglo brand, which has a very strong academic results and the billing with that we developed with Macmillan that has shown exceptional results on our partner schools. So we do -- we are very -- we strongly believe that we have all the way to grow on start.

And additionally, we are investing on a very sound flagship here in São Paulo, Lisle, which is a very traditional school more than 100 years old that are switching to start. And we'll be launching it this month of August. So we are -- we do believe that stock has a very a great future in our business and is a growth avenue for Vasta..

Very clear. Melega, thank you..

There are no further questions at this time. So I'll turn the call back over to Guilherme Melega, Vasta's CEO..

Thank you all to participate on Vasta Q2 conference call. Let me reemphasize that in our B2B business, we are very pleased with the sales campaign for 2025. Our GTM strategy is showing great results. So we'll give more color at the year-end about that. And our -- both our growth opportunities, B2G, we have a heated pipeline.

And we do expect to have new contracts very soon and when we start kids growing ahead on our expected curve. And we also have great expectations on that. So our core business is doing good and our both growth strategy avenues are also doing growth and performing ahead of our curves.

So that's for Q2, looking forward to see you all in Q3 conference call. Thank you all..

The meeting is now concluded. You may now disconnect..