Vasta Announces Fourth Quarter 2022 Results

SÃO PAULO–(BUSINESS WIRE)–Vasta Platform Limited (NASDAQ: VSTA) – “Vasta” or the “Company” announces today its financial and operating results for the fourth quarter of 2022 (4Q22) ended December 31, 2022. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

HIGHLIGHTS

• The Annual Contract Value (ACV) for the 2023 sales cycle totaled R$1,230 million, which represents an organic growth of 20% over the subscription revenue for the 2022 sales cycle (from 4Q21 to 3Q22). Nearly 100% of our new sales have come from traditional learning systems and complementary solutions, with a higher growth observed in our premium brands and complementary solutions. Traditional learning system ACV grew 20% in 2023 compared to 2022, while complementary solutions ACV grew 39% in comparison to 2022.
• Vasta’s accumulated subscription revenue during the 2022 fiscal year totaled R$1,121 million, a 39.5% increase compared to the 2021 fiscal year. Subscription revenue, excluding our hybrid subscription textbook products (PAR), increased 46% and total net revenue increased 33.4%.
• In the fourth quarter, subscription revenue grew 28% compared to 4Q21, representing 36.1% of the 2023 ACV, compared to 33.9% of the 2022 ACV in 4Q21. This growth in subscription revenue was mainly driven by (i) the growth in our complementary solutions portfolio (with more participating schools, and more solutions per school), (ii) increased participation of premium labels in the ACV mix and (iii) migration from PAR to subscription revenue. We intend to continue to seek ACV and revenue growth based on these factors.
• As guidance for 1Q23, we expect a net revenue from R$ 395 million to R$ 415 million, to be comprised of R$ 350 million to R$ 360 million from subscription products (29% of 2023 ACV) and R$ 45 million to R$55 million from non-subscription products. We expect the 2023 sales cycle to be slightly less concentrated in the first two quarters in 2023 (expected 65% in the mid-range) than in the previous year (66.5%), due to the different seasonality and mix of our products.
• In the 2022 fiscal year, Adjusted EBITDA grew 106%, to R$375 million, with a margin increase of 10.5 p.p., to 29.7%. In 4Q22, Adjusted EBITDA totaled R$200 million, a 25% increase compared to R$161 million in 4Q21. This increase was mainly driven by gains in operating efficiency, cost savings and a sales mix that benefited from the growth of subscription products. The Adjusted EBITDA and Adjusted Net Profit were negatively impacted by the R$15.0 million in provisions for doubtful accounts (PDA), relating to the entirety of Vasta’s receivables for products in inventories of a large retail company undergoing judicial recovery.
• Vasta recorded Adjusted Net Profit of R$39 million in 2022, compared to an Adjusted Net Loss of R$10 million in 2021. This increase in our Adjusted Net Profit was partially offset by the R$15.0 million in provisions for doubtful accounts (PDA), relating to the entirety of Vasta’s receivables for products in inventories of a large retail company undergoing judicial recovery.
• Free cash flow (FCF) totaled R$92million in 2022 (or R$112 million on a normalized basis), a R$206 million increase from negative R$94 million in 2021.
• In 2022, we took the decision to promote effective and innovative bilingual education through a unique solution that uses our existing products to combine two elements in high demand: bilingual education and performance in entrance exams. In the first quarter of 2023 we became partners of Start-Anglo, a school focused on promoting bilingual education with high performance, which will be a model institution for the franchise project that we expect to launch in the first semester of 2023 to partner with Anglo in responding to an increasingly strong demand from families and students for academic excellence, bilingual education and innovation.
• Vasta also announces today the transition period of its chief executive officer. With 36 years dedicated to education, as a teacher, entrepreneur, and executive, Mr. Mario Ghio has chosen to step down from his executive role at the company. Mr. Guilherme Mélega, current chief operating officer of the company, will assume as CEO after Mr. Ghio’s departure on April 30, 2023. Mr. Ghio will assist Mr. Mélega in the transition of the CEO role until April 30, 2023 and will continue to act as a member of the company’s Management Board and play a role in the company’s long-term strategy. Mr. Ghio will also continue to represent Vasta as President of Abraspe, the Brazilian Association of Education Systems and Platforms, an entity that brings together the main companies in the sector.
• Since 2Q22, Vasta has reported updates on its ESG standards, including a panel of key ESG indicators aligned with the topics identified during materiality review process. The highlights include: (i) the Afro Internship Program, which created exclusive internship positions for black people in the organization; (ii) the launch of the first Greenhouse Gas (GHG) Emissions Compensation Program for its operations and the increased use of renewable energy sources in our day-to-day activities; and (iii) the achievement of targets for diversity in leadership and board of directors. Furthermore, in December, Vasta signed the ten principles of the UN Global Compact on human rights, labor, environment and anti-corruption. The movement reinforces the Company’s commitment to sustainable development and the best ESG practices.

MESSAGE FROM MANAGEMENT

The fourth quarter of 2022 continues to show a positive trend after strong results in the last quarter when we concluded the 2022 sales cycle (4Q21 to 3Q22), exceeding our 2022 ACV guidance of R$1.0 billion by 2.4%. Vasta’s accumulated subscription revenue during the 2022 fiscal year totaled R$1,121 million, a 39.5% increase compared to the 2021 fiscal year.

The fourth quarter of 2022 sales cycle represents the first quarter of the 2023 sales cycle, where subscription revenue grew 28% compared to 4Q21, or 8% above the ACV guidance. This growth in subscription revenue was mainly driven by (i) the growth in our complementary solutions portfolio (with more participating schools, and more solutions per school), (ii) increased participation of premium labels in the ACV mix and (iii) migration from PAR to subscription revenue. We intend to continue to seek ACV and revenue growth based on these factors. We expect the 2023 sales cycle to be slightly less concentrated in the first two quarters in 2023 (expected 65.1%) than in the previous year (66.5%), due to the different seasonality of new products and lower PAR revenue.

The 2023 ACV totaled R$1,230 million, representing an organic growth of 20% over the subscription revenue for the 2022 cycle, which comprised a more varied mix in sources of revenue as we had higher growth in our premium brands such as Anglo, Eleva and Mackenzie. We continue to believe that quality and reputation remain decisive in our business. Consistently with our strategy, we continue to invest in the migration from paper-based products (PAR) to digital subscription products (Textbook as a Service platform) offered on a fee-per-student basis. Complementary solutions is expected to have the highest growth rate among our business segments in 2023 (with a 39% increase compared to 2022 cycle subscription revenue) continuing its trend of increasing adoption by our client base. Traditional learning systems (including Textbook as a Service platform) are expected to grow 18% in 2023 compared to the 2022 cycle subscription revenue, driven by upsell & cross sell and price adjustments.

Moreover, we continue to see the normalization of the company’s profitability and cash flow generation. In 4Q22, Adjusted EBITDA totaled R$200 million, a 25% increase compared to R$161 million in 4Q21. We attribute this increase to the normalization of our business and improvement in gross margin due to a greater participation of premium products in our sales mix, increased sales of complementary solutions and cost dilutions combined with lower commercial and G&A expenses following operating efficiency gains and cost savings implemented in 2022. In the 2022 fiscal year, Adjusted EBITDA has grown 106%, to R$375 million, with a margin increase of 10.5 p.p. to 29.7%. Both Adjusted EBITDA and Adjusted Net Profit were partially offset by the R$15.0 million in provisions for doubtful accounts (PDA), relating to the entirety of Vasta’s receivables for products in inventories of a large retail company undergoing judicial recovery.

Vasta’s operating cash flow in 2022 totaled R$ 92 million, or R$ 112 million excluding the early payment of royalties (R$20 million) to content providers, from a negative R$94 million in the same period of 2021. This increase in operating cash flow reduced the net debt/adjusted EBITDA ratio to 2.78x, which maintained a downward trend for the fourth consecutive quarter.

During the 2022 fiscal year, we have announced the acquisition of a minority interest in Educbank, the first financial ecosystem dedicated to K-12 schools, which delivers to educational institutions services such as management and financial support by providing payment guaranty for tuitions. We have also announced the acquisition of Phidelis, a complete enterprise resource planning (ERP) software for K-12 schools with both academic and managerial features. The combination of Educbank and Phidelis, our academic and financial ERPs, proved a powerful tool to provide schools the critical information they need to be more efficient, adding key advantages to our platform as a service for K-12 schools. Since its acquisition, Educbank has increased its student-base 4.5x, totaling 62 thousand students as of December 31, 2022. Educbank delivers a frictionless business model and has a Net Promoter Score (NPS) of 85 out of 100. Educbank was the only representative from Latin America at the SXSW Innovation Awards, one of the main international innovation awards, during which Educbank became the first Brazilian company to receive the People’s Choice Awards. Other awards and recognitions of Educbank include its selection for Endeavor’s Scale-Up acceleration program and its TOP 3 ranking in the Education category of CNN’s 2022 Brazil Notable Awards.

Following our practice in past quarters, we have dedicated a section of our earnings release for Environmental, Social and Governance (ESG) matters, including a panel of key indicators that will be updated on a quarterly basis, reinforcing our commitment to the highest ESG standards.

Finally, we have announced Vasta´s CEO transition plan. Mr. Guilherme Mélega, the Company’s current chief operating officer, will assume the CEO role and Mr. Mario Ghio, who has chosen to step down from his executive role with the Company, will continue to serve as a member of the Company’s Board of Directors and play a role in the Company’s long-term strategy. Mr. Ghio will also continue to represent the Company in his role as the President of ABRASPE, the Brazilian Association of Education Systems and Education Platforms, an organization of leading companies in the sector. Mr. Ghio and Mr. Mélega have worked very closely in recent years, which is expected to promote a smooth transition in leadership and continuity in the management of Vasta.

2023 ACV COMPOSITION

The Annual Contract Value (ACV) for the 2023 sales cycle totaled R$1,230 million, which represents growth of 20% over the subscription revenue of the 2022 cycle (“2022 subscription revenue”, collected from the fourth quarter of 2021 to the third quarter of 2022). Complementary solutions has had the highest growth rate among our business segments (with a 39% increase compared to 2022 cycle subscription revenue). Traditional learning systems (including the Textbook as a Service platform) grew 20% compared to the 2022 subscription revenue cycle, driven by upsell & cross sell and price adjustments. PAR paper-based ACV declined 1% compared to 2022 subscription revenue, in line with the Company strategy in focusing in Traditional learning systems.

As in previous years, a combination of new clients, cross-sell/up-sell and price adjustments were key drivers of the growth in ACV. New clients represented 9% of the ACV growth, which offset the 9% increase in the rate of lost clients (or churn). The combined effect of cross-sell/up-sell and price adjustments contributed to a 20% growth in ACV (with the price adjustments above consumer price inflation (IPCA) of the last twelve months ended in December 31, 2022).

The churn rate was 1 p.p. higher than in previous years. While the churn rate of our premium brands remained low, there was an upward trend in the churn rate in the mainstream segment and PAR clients, both likely affected by unfavorable macroeconomic conditions.

OPERATING PERFORMANCE

Student base – subscription models

The fourth quarter of 2022 marks the beginning of the 2023 business cycle for Vasta. It is in this quarter that the first deliveries of content to students and partner schools regarding the 2023 ACV are made.

Overall, we observed a stability in the number of partner schools and students in core content. Aligned with the company´s strategy to focus on improving our client base in 2023 through a better mix of schools and growth in premium education systems (Anglo, PH and Fibonacci), brands with higher average ticket, lower defaults, greater adoption of complementary solutions and longer-term relationships. On the other hand, the reduction of our client base was concentrated on the low-end segment and PAR (paper-based), which have higher number of students on average, and a lower margin. Average ticket price of schools that remain in our client base in 2023 is 11% higher than that of schools that are no longer our clients.

FINANCIAL PERFORMANCE

Net revenue

In the fourth quarter of 2022, net revenue increased 27% year-on-year, to R$505 million. Subscription revenue grew 28%, driven by the recognition of 36% of 2023 ACV in 4Q22, mainly driven by the increase in traditional learning systems, complementary solutions, and textbook subscription products (“PAR”). As guidance for 1Q23, we expect a net revenue from R$ 395 million to R$ 415 million, to be comprised of R$ 350 million to R$ 360 million from subscription products (29% of 2023 ACV) and R$ 45 million to R$55 million from non-subscription products. We expect the 2023 sales cycle to be slightly less concentrated in the first two quarters in 2023 (expected 65.1%) than in the previous year (66.5%), due to the different seasonality and mix of our products.

EBITDA

In the fourth quarter, Adjusted EBITDA totaled R$200 million, a 25% increase compared to R$161 million in 4Q21. This increase was mainly driven by operating efficiency gains, cost savings and sales mix that benefited from the growth of subscription products. In the 2022 fiscal year, Adjusted EBITDA has grown 106%, to R$375 million, with a margin increase of 10.5 p.p. to 29.7%.

Consistent with the trend observed in our net revenue, gross margin grew from 58.1% in 2021 to 62.6% in 2022, a 4.5 p.p. increase resulting from the consistent implementation of our business strategy, which includes: (i) expansion of complementary solutions offered to our partner schools; (ii) migration of customers from non-subscription to subscription products, which affords greater loyalty, profitability and results predictability; and (iii) sale of upgrades to premium education systems, to partner schools within our existing client base.

Moreover, adjusted G&A expenses and commercial expenses decreased 4.2 p.p. and 2.0 p.p. respectively, driven by workforce optimization and budgetary discipline. We believe that the reduction in expenses highlight the operational scalability of Vasta’s educational solutions business model and digital platform.

Reported provisions for doubtful accounts (PDA) has no significant variation between the years 2022 and 2021, however, it grew 3 p.p. in 4Q22 compared to 4Q21. This increase in PDA was due to the provisioning of 100% of accounts receivable from retail companies undergoing judicial recovery, in the amount of R$ 15.0 million. Excluding this factor, the participation of PDA in relation to Vasta’s Net Revenue remains stable between 4Q21 and 4Q22 (2.7% in both quarters) and reduced by 1 p.p. as between the years 2021 and 2022 (3,5% to 2.5%).

Finance Results

In the fourth quarter of 2022, finance income totaled R$32 million, from R$13 million in 4Q21, mainly due to the impact of higher interest rates on financial investments and marketable securities. In the 2022 fiscal year, finance income increased 149% to R$89 million. Finance costs in 4Q22 increased 45% (quarter-on-quarter), to R$74 million, driven by higher interest rates applicable to bonds and financings, accounts payable on business combination and provision for tax, civil and labor losses. In the 2022 fiscal year, finance costs increased 125% to R$270 million.

Net profit (loss)

In the fourth quarter of 2022, adjusted net profit totaled R$72.5 million, a 35% increase compared to R$ 53.7 in 4Q21. In the 2022 fiscal year, adjusted net profit reached R$ 38.5 million, from a loss of R$ 10 million in 2021.

Accounts receivable and PDA

The average payment term of Vasta’s accounts receivable portfolio was 187 days in the 4Q22, 5 days lower than the same quarter of the previous year.

Free cash flow

In 4Q22, Free Cash Flow (FCF) totaled negative R$ 39 million, compared to a negative R$78 million FCF in 4Q21. In the 2022 fiscal year, FCF totaled R$ 92 million, or R$ 112 million excluding the early payment of royalties (R$20 million) to content providers, up from a negative R$94 million in the same period of 2021.

Contacts

Investor Relations

ir@vastaplatform.com

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