Earnings call transcript: Vasta Platform Q4 2024 shows strong revenue growth

Vasta Platform Ltd (VSTA), with a market capitalization of $273.79 million, reported robust financial results for Q4 2024, with net revenue rising 13% to BRL 1.674 billion, driven by a 14% increase in subscription revenue. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations. The company’s financial performance and strategic initiatives have positively impacted investor sentiment, leading to a 20.24% rise in aftermarket trading, with shares reaching USD 3.98.

Key Takeaways

• Net revenue increased by 13% year-over-year.
• Subscription revenue grew by 14%.
• Stock price surged by 20.24% in aftermarket trading.
• Launch of new technology and educational products.

Company Performance

Vasta Platform demonstrated strong performance in Q4 2024, with significant growth in both revenue and profitability. The company capitalized on its subscription model, which saw a 14% increase, contributing to a 13% rise in net revenue. InvestingPro data reveals impressive gross profit margins of 64.2%, with 11 additional ProTips available to subscribers. This growth is indicative of Vasta’s effective market strategies and its ability to capitalize on the increasing demand for educational technology solutions.

Financial Highlights

• Net Revenue: BRL 1.674 billion, up 13% year-over-year.
• Subscription Revenue: BRL 1.462 billion, a 14% increase.
• Adjusted EBITDA: BRL 580 million, up 13%, with a 30.4% margin.
• Free Cash Flow: BRL 215 million, a 14% increase from 2023.
• Adjusted Net Profit: Increased 34.6% to BRL 8 million.

Market Reaction

Following the earnings announcement, Vasta’s stock price increased by 20.24% in aftermarket trading, closing at USD 3.98. This significant rise reflects investor confidence in the company’s ability to sustain growth and expand its market presence. The stock has shown remarkable momentum with a 67.5% year-to-date return, though InvestingPro technical indicators suggest the stock is currently in overbought territory. The stock is now approaching its 52-week high of USD 4.10, suggesting strong market optimism. Discover more detailed insights and Fair Value analysis in the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Vasta Platform expects to maintain a 14% growth in annual contract value (ACV) for 2025, with a continued focus on achieving a 30% EBITDA margin. The company plans to expand its complementary products and premium learning systems, positioning itself for sustained growth in the educational technology sector. InvestingPro analysts expect net income growth this year, supported by a strong free cash flow yield of 12%.

Executive Commentary

CEO Graeme Melega remarked, "2024 has been marked by significant milestones across our business," highlighting the company’s achievements in product innovation and market expansion. CFO Cesar Silva added, "We are increasing market share," emphasizing Vasta’s competitive position in the industry.

Risks and Challenges

• Currency exchange fluctuations could impact financial results.
• Competitive pressures in the educational technology market.
• Dependence on government contracts in the B2G segment.
• Potential challenges in scaling new product offerings.
• Maintaining high growth rates in a competitive market environment.

Q&A

During the earnings call, analysts focused on Vasta’s reduction in provisions for doubtful accounts and the drivers behind ACV growth. The company also provided insights into its B2G contracts and revenue potential from the Start Anglo franchise, highlighting strategic areas for future growth.

Full transcript - Vasta Platform Ltd (VSTA) Q4 2024:

Conference Operator: 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 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 their related benefit and our expectations regarding the market. Forward looking statements are based on our management’s beliefs and or 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 would now like to turn the call over to Cesar Silva, CFO. Please go ahead.

Cesar Silva, CFO, Vasta Platform: Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform’s fourth quarter of twenty twenty four results. I’m Cesar Silva, Vasta’s CFO and today he has the presence of Graeme Melega, Vasta’s CEO, who will be joining on the call. Let me now hand over the floor to Graeme Melega, our CEO, to make his opening statement. Thank you, Sarver. Thank you all for participating in our earnings release call.

I’d like to cover Slide number three with some highlights of the 2024 fiscal year. I’m pleased to share our progress and achievements we have made. 2024 has been marked by significant milestones across our business, reflecting our unwavering commitment to delivering value to our customers, students, shareholders and stakeholders. In 2024 fiscal year, our net revenue increased by 13% to reach BRL1.674 billion. This growth was primarily driven by the successful conversion of our annual contract value, ACV, into revenue and achieved BRL1.462 billion $4.06 $2,000,000,000 a 14% increase compared to 2023.

It is worth mentioning the good performance of our B2G business unit and the continuity of our complementary solution expansion with a 20% growth over 2023. Our focus on operational efficiency and cost savings has yielded results. The adjusted EBITDA for 2024 fiscal year grew by 13% to BRL580 million with a margin of 30.4%. These gains were driven by a favorable sales mix benefiting from the growth of our subscription products. Our cash flow generation has achieved BRL215 million, a 14% increase from 2023.

The last twelve months free cash flow to adjusted EBITDA conversion rate improved from 41.8% to 42.4%, reflecting our sustained efficiency measures. Besides the results in financial area, I would like to highlight some commercial and strategic achievements from this year. Our B2G segment continues to be a significant growth avenue, generating BRL105 million in revenue for the year, a 29% increase compared to 2023. We remain confident on our strategy to positively impact public education as evidenced by the improved in 2023 PIAIDI scores for the state of Farah. The Startango Bilingual School franchise launched in 2023 has also shown impressive progress.

We ended the year with 40 signed contracts and seven operational units with a strong pipeline of over three fifty prospects. This growth reinforce the value generation capacity of our brand and our strategic expansion into new revenue streams. Our technology platform, Purell, has reached a new stage of development. Starting in 2025, it features an intelligent assistant powered by AWS named Blue. This assistant will provide personalized learning experience for students and streamline activities for teachers, enhancing the overall educational experience.

I will now turn back to Sadler Silva, who will talk about the financial results of the quarter and 2024 fiscal year. Thank you, Malaga. In this slide, before we present the composition of Vazto’s net revenue. On the left side, you can observe the organic year and on year growth in total net revenue for the fourth quarter, which increased by 26.1%, reaching BRL $699,000,000. Fastest subscription revenue achieved in fourth quarter of twenty twenty four, BRL ’6 ’19 million, a 20% increase comparing to the same quarter of 2023.

This increase included some additional revenue anticipated from the first quarter of twenty twenty five, which earlier orders coming from our partner schools in the commercial cycle. Non subscription revenue increased 12% to $44,000,000 And in the government segment, in this quarter, we generated $36,000,000 revenues. Moving to the right side of the slide, we analyze the net revenue for the twenty twenty four fiscal year. We achieved an organic net revenue growth of 12.6% in this fiscal year, amounting to BRL 1 point The main factors for this exceptional performance were: firstly, the subscription revenue has increased 14%, reaching BRL1.462 million and continues to be the major contributor to our total revenue, representing 87% of the revenue share. Non subscription revenue, as expected, dropped 16% to BRL107 million.

And the net revenue of B2G achieved BRL105 million, an increase of 29% comparing with twenty twenty two fiscal year and represents 6% of our overall revenue. Moving to Slide number five. In this quarter, our adjusted EBITDA amounted to BRL299 million with a margin of 42.8%, an increase of almost 25% from BRL240 million in the fourth quarter of twenty twenty three, mainly due to higher revenue volume in this quarter in all lines of revenues as presented before. On the right side, we see that adjusted EBITDA in 2024 fiscal year increased by almost 13% and reached BRL502 million with a margin of 30.4%. Let’s now move on to the next slide, explain breakdown of the adjusted EBITDA margin.

In Slide number six, we confirm that the EBITDA margin achieved 30.4% in 2024, zero point ’1 percentage points higher than 2023. Firstly, our gross margin achieved 61%, a decrease of 0.6 percentage points from the 61.6 percentage in 2023, showing stability in this percentage. Provisions for doubtful accounts achieved 3.2% in residential and natural revenue and had an improvement of 0.6 percentage points when comparing to 2023. Despite showing improvement in these indicators, the year was built in a very challenging expressive wetland scale for non premium brands business and we’re still foreseeing some challenges in the credit scenario for the next month. As a percentage of net revenue, our commercial expense increased by 0.3 percentage points, driven by higher expenses related to the business expansion of the commercial cycle of 2025.

Adjusted G and A expenses improved by 0.5 percentage points, mainly driven by workforce optimization, budget and discipline measures. Moving to Slide seven, we show the adjusted net profit. In the third part of ’20 ’20 ’4, adjusted net profit totaled BRL 114,000,000, a 18.9% increase compared to adjusted net profit of BRL 96,000,000 in the same quarter of 2023. On the right side of the slide in 2014, adjusted net profit reached $8,000,000 there has been increase of 34.6% from adjusted net profit of $16,000,000 in 2023. Moving to Slide number eight, we show the free cash flow evolution.

In this fourth quarter of twenty twenty four, the free cash flow totaled BRL 69,000,000, representing a relevant increase compared to minus BRL 100.0 in the fourth quarter of twenty twenty three. On the right side of the slide, in the 2024 fiscal year, our free cash flow reached BRL250 million, an increase of 14.2% above 2023. This quarter benefited from a different payment installment with our customers that generated a higher collection difference from previous years. Our last twelve months free cash flow to adjusted EBITDA conversion rate increased from 41.8 to 42.4% in 2023. And as we have mentioned in the last quarter, we achieved a double digit growth in the free cash flow and consequently improved our conversion rate.

Moving to Slide nine, we show the provision for doubtful accounts. Total expense with PGA in the fourth quarter of twenty twenty four totaled $22,000,000 representing 3.1% of net revenue compared to an expense of $29,000,000 in the comparable quarter. Moving to the right side, the PGA for 2024 amounted $53,000,000 comparing to EUR 56,000,000 in 2023. Provision for doubtful accounts represent a 3.2% of the net revenue, an improvement of 0.6 percentage points in comparison to 2023. As explained before, we still foresee some difficulties in the credit scenario, mainly for the excludes related to mainstream brands.

Moving to the next slide, we observe the average payment terms of Vasta’s accounts receivable portfolio was one hundred and eighty six days in the fourth quarter of twenty twenty four, which is seven days higher than the comparable quarter and in line with the business model seasonality. Besides consider revenue generating the B2G business and not received yet. Moving to Slide 11, let’s take a closer look on the net debt movement. As of the fourth quarter of twenty twenty four, Vasta had a net debt position of BRL1.3 billion, a BRL37 million decrease from the previous quarter. Free cash flow was higher than financial interest cost and this made possible the reduction in the total net debt in this quarter.

Moving to the right side of the slide, the net debt position decreased by $61,000,000 since last year. This decrease was driven also by the free cash flow generated in 2024, which was partially offset by financial interest costs and the second buyback program. I will conclude my part of this presentation with Slide 12, explaining some more detail about our net debt composition, which represents BRL1.3 billion, at the end of the quarter. Zamonte is composed by debentures issued to the company BRL2.5 billion accounts payable for business combinations mainly related to Aflac acquisition and almost BRL200 million cash that the company owned. In the lower left part of the slide, we can see that in the fourth quarter, the net debt to last twelve months adjusted EBITDA ratio has decreased 0.35 times from the last quarter, showing a relevant downward and now stands at 1.97 times.

And we would like to enforce our commitment to continuing generate free cash flow and deliver the company. With that being said, I’ll pass the word to our CEO, Guilherme Malaga. Thank you, Sezer. I will give you some exciting updates about StartStanglou on Slide 13. Sartre Stanglou bilingual school or franchise launched in 2023, which combines bilingual and academic excellence keeps the pace and of signing new contracts every month and we have already signed 40 contracts as of this date.

And we have over three fifty prospects in negotiation. This strong pipeline underscore the robust potential for further growth and market penetration of Staatango. In 2024, we concluded the revitalization project of the Liceo complex. And besides creating an operating unit with more than 1,000 students capacity, will preserve the entire historical spectacular design and we already started our flagship operation in Sao Paulo. This year we have five new units in operation.

The Liceo Pasteur Complex, our flagship in Sao Paulo, Jardim Marajoara, Granje Giulieta, both in the city of Sao Paulo, Pirasicaba and Luis Eduardo Magallanes. And together with San Jose, Rodrigo, Prieto and Alphavile, we will achieve the total of seven units running and providing a high quality education service for our students. After launching this important avenue of growth in 2023, we already can see solid results and looking forward to see the next years. Having said that, I finish our presentation and invite you all to the Q and A session.

Conference Operator: Your first question comes from the line of Luca Marcheseini with Itau. Please go ahead.

Luca Marcheseini, Analyst, Itau: Hey, good evening everyone and thank you for taking our question. So we saw a significant decrease in PDA expenses as a percentage of Netravnia in the quarter. So can you please comment the initiatives that latched this decrease? And also if we should consider this level as recurring for the next month, please?

Cesar Silva, CFO, Vasta Platform: Thank you, Luca, for your questions. We confirmed in this quarter our reduction of the PGA, achieving the 3.2%. However, despite having improving this indicator, we foresee a little difficult in the next month. So we cannot provide a guide for this number, but we expected something higher than this 3.2%. Probably the historical figure is closest to the forthcoming provision.

Luca Marcheseini, Analyst, Itau: Thank you very much.

Conference Operator: Your next question comes from the line of Marcelo Santos with JPMorgan. Please go ahead.

Marcelo Santos, Analyst, JPMorgan: Good evening, Elegas, and thanks for the opportunity for asking questions. I have two on my side. The first one, I wanted to ask about the ACV. Maybe I missed it, but I couldn’t find. But I saw that you increased the core students by some, I think, 12% and the complementary students by 22%, much more than you increased previous year.

So could you give us a range or maybe better view on what that could be, if possible? And the second question is regarding the margin outlook for 2025. I mean, in 2024, the margin was EBITDA just the EBITDA margin was mostly relatively flattish, I think 10 basis points up. What could we expect for the coming year? Thank you very much.

Cesar Silva, CFO, Vasta Platform: Hi, Marcelo. Thanks for your question. Let me give you some color about ACV. ACV growth in the fourth quarter was 20%, but considering the fiscal year of 2024, we recorded a 14% increase. This is we expect similar level for 2025.

We are increasing market share. We have a price increase and complementary products keep moving fast. So the same growth in 02/2004 is expected for 02/2005, keeping the same strategy of growing in complementary products and premium learning systems. Regarding margins, we are operating on the target of 30%. Every year, we expect to have slightly improvements due to the fast growth and dilution that it brings and the better sales mix.

So we are already performing on our target level and you can expect slight increase.

Marcelo Santos, Analyst, JPMorgan: Thank you. So just one follow-up. On the first sorry, my phone didn’t work so well. So you said ACV growth was 20% in the fourth quarter. It was 14% up in 2024.

And then I couldn’t hear you said we should expect the same number for 2025 that would be ’14 or 2020?

Cesar Silva, CFO, Vasta Platform: No, the ’14, the same level of 2025, ’20 ’20 ’4 year fiscal year.

Marcelo Santos, Analyst, JPMorgan: Okay. And you said something about price. Do you mind repeating? Sorry about that.

Cesar Silva, CFO, Vasta Platform: Sure. I said that we had high single digit price increase. So we expect to gain market share with the volume growth. And the remaining parts of the ACV growth comes from the complementary products that grew 20%.

Marcelo Santos, Analyst, JPMorgan: Okay, perfect. Thank you very much.

Conference Operator: Your next question comes from the line of Marila Olivero with Bank of America. Please go ahead. Good evening, Cesar, Marila, again, everyone. Thank you for the space to make questions. I have one on G and A.

We understand that this line is virtually flat during the year, but when we exclude the effects of the contingencies reversal, we see a 20% year on year growth in the fourth quarter. Could you please give us some color on what happened there if we should expect higher G and A going forward or if it’s just a one time expense?

Cesar Silva, CFO, Vasta Platform: Hi, Mirela. Thanks for your question. When we see SG and A when you see the G and A as a percentage of sales, we actually see pretty flat our G and A around 27%, twenty eight % of in terms of G and A. We did have a slight increase in the commercial expenses following the growth of revenues. In terms of percentage sales percentage, we grew on commercial expenses from 16.6% to 16.9%.

But besides that, G and A remained flattish.

Conference Operator: Okay. Thank you. Your next question comes from the line of Lucas Lugano with Morgan Stanley. Please go ahead.

Luca Marcheseini, Analyst, Itau: Hey, Malaga, Sazer, thanks for taking our questions. We have two questions. The first is related to B2G. Do you expect the contract with Para to be similar as last year as I think it was around R70 million or R80 million? And also can you if you could provide some color on the pipeline of other projects in B2G?

And And the second question is about Start Anglo. Like roughly how much revenue do you expect to generate in 2025 if it’s material or not yet? Thank you.

Cesar Silva, CFO, Vasta Platform: Hi, Lucas. Thanks for your question. Giving some color about BTG, so we renewed the Para contract, which is around $80,000,000 So this is so far the current contract that we are operating. We have a very heated pipeline in B2G. The gross action is lowered a little bit in January and February as the schools and the government is engaged in the back to school season.

But now we do expect to have March and April very heated season. Keep in mind that this year is Sahib year, so we do have an examination of Sahib in October. And due to the results in Para, we are bringing lots of discussions to the table and we expect to have new contracts soon in the pipeline. Regarding Start Anglo, Start Anglo is a reality. We have around 1,000 students enrolled in our seven schools, 500 students out of the 1,000 are proprietary students, students in Nicel Pasteur and San Joseo Repreto, the two flagships that we have.

The remaining 500 students are franchise students. So in terms of revenues, we have around BRL25 million of the entire operation of Start Anglo. It’s not yet that significant, But in terms of growth for the coming cycle and also in Q4 when we make the shipments for the teaching materials for the new opening units in 2025 that can generate a significant increase in this business unit.

Luca Marcheseini, Analyst, Itau: Okay. Very clear. Thank you.

Conference Operator: I will now turn the call back to Guillermo Melega for closing remarks.

Cesar Silva, CFO, Vasta Platform: Thank you all to participate in the Vasta Q4 conference call. Twenty twenty four was a very important year for us. Not only we grew our operation as we already delivered significant results in B2G with the contracts that we secured and start Anglo also real fast. This keep us confident that 2025 will have a very interesting year and significant for all our stakeholders. Thank you all for supporting Vasta.

Looking forward to see you back in the next call.

Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you and have a great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.