Ânima Holding S.A. (ANIM3) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to this web call about such an important moment for all of us. Thank you all for your presence. I will now hand over to Daniel Castanho. Daniel, you may proceed.

Good morning, Marina. Good morning, everyone. It is a pleasure and an honor to be here to talk about this historical moment. And we believe this is a historical moment, not just for Ânima, but also for Brazil, for education in Brazil. This is the greatest transformation that we are seeing in education all over the world. I always say that this is the greatest transformation since Gutenberg. This is a reinvention of education. And the challenges that we will be facing in the next decade are the greatest that we have faced maybe in the past 500 years. And Ânima is now consolidating its role as the largest high-quality education player in Brazil. We often ask ourselves, what is the value of an educational group? What is the value of a university? The value of these institutions is in the difference that you make for your students times the number of students that you have. And Ânima now, with its number, with its students being everywhere and understanding the difference that we make, if we take this area under the curve, perhaps we are the most relevant group in the country. So this is a historical day for Ânima, and I am sure that it is also a historical day for the transformation of education in this country, which is our utmost purpose. So I would like to welcome all of you. It's a pleasure to be here. We have always believed that Ânima and Laureate are the 2 groups that if they were to combine their efforts, they would have the best fit and not just because of their history of being a family-owned company and traditional brands, but also because of the cultural aspect. The groups have the same DNA, they have the same mindset. And in Ânima, some of the things that we have been doing in past years gave us the condition for us to take this leap. I know that many of you know what we have been doing for the past 2 years. We have restructured Ânima's governance, which allowed us for, at the same time, having a much more efficient management and excellent management and agile management, so we became a much faster and streamlined company. And also, we have the ability to anticipate trends, anticipate the future and reinvent education and the pioneers in this transformation in education, which is taking place all over the world and in Brazil. So we have a management board or an executive board thinking about the strategy and integrated with the executive management with all its capacity and agility and excellent execution capacity. And this allows us to have both a very structured, robust and strong group to make a difference in Brazil and also to have a group that looks forward and can anticipate trends and understands what hybrid learning is and understands what are the challenges related with technology, data intelligence, data analytics, artificial intelligence and all these things, what they can add to what we do. So this is a historical moment, and we have been preparing for it in the past years, so that together, in a very integrated manner, we can walk towards this transformation of education in Brazil and materializing this educational transformation in Brazil by becoming the most relevant group in Brazil, one that Brazil cannot do without. So welcome, everyone. Once again, we are here to talk about this historical moment for us. And now I will hand over to Marcelo. Marcelo is the one who has been leading Ânima as the CEO of Ânima. And we are going to start the presentation, and then we're going to open for questions. Marcelo, it's a great pleasure to have you here. And it's a pleasure to be with you to live through this moment with you. We have been partners since '96. And I could even joke that, well, training is training and playing is playing, right? So now we are effectively starting this new journey I heard from you. Well, we have always thought about Ânima as a company that is going to be around for 200, 300 years, and this is certainly the step that will consolidate Ânima's future history, so -- and we will become a perennial company after this transaction.

Thank you, Daniel. Good morning, everyone. Good morning, Marina. Good morning, André Tavares and the rest of the team. Yes, this is a historical day. I had the honor on May 6, 2003, to found Ânima with my partners and I ran it for 12 years with all the M&As. And I always said publicly that the greatest merger and the greatest value gain in Brazil was what we did. And today, we are making this dream come true. It's a dream coming true for Laureate, for Ânima and for Brazil. We relied on the work and competence of a wonderful team after the acquisition of São Judas, UniBH. And now this is truly a milestone that will put Ânima in the position that it has always deserved. So I'd like to congratulate the team, the wonderful team that we have. And now let's all work together to make a difference. We had the honor to continue the legacy of many families, brands, stories, and Laureate had major acquisitions over the years. And all these assets combined, it's as if all of the Catholic Universities, the PUCs in Brazil, would disappear. I know that would come together and delivering synergies and the huge potential of all these combinations in terms of synergies. And the reinforcement of our assets in the medical field by combining Laureate's assets with ours, we now have a health care and medical network that is unprecedented in Brazil in the major cities in Brazil with the best private brands, which is a huge differentiator for us. And this is a strategic move for us, and we will now start the works and form our integration team and we will conduct this onboarding process, like we always do it. We will try to work with Laureate to build the highest quality network in Brazilian education. We will gain scale and cover 75% of the Brazilian territory with unique assets, which will certainly create huge value gain opportunities and profitability opportunities for our stakeholders. So now I went over these indicators and the quality position that we have now. I talked about each of the brands. We have UNIFACS in Salvador. We have Anhembi Morumbi in São Paulo. We have the second largest private brand in the state of São Paulo. We have UNISUL in the south of the country. So all these brands, which put us in a great position to become the most relevant player providing high-quality education in Brazil. With the pandemic, we potentiated our hybrid education offer, so we have really been able to put Ânima in a very differentiated position. So we will learn from each other. We will combine the teams. And Laureate is a nursery forming very high-quality professionals, a lot of people who have been with us for many years. We even have people working with us who came previously from Laureate. So the numbers are really impressive. The numbers for the combined operation. And this is all excluding FMU because we brought a solution to CADE so that we could have a simplified and fast closing of the deal. So here are the numbers of the combined companies, the number of students. We will certainly learn from their distance learning. They have a very relevant distance learning effort, and congratulations for that. We will certainly learn a lot from you, Guilherme. As I said, 1,700 medical seats in the best cities in Brazil, which is certainly a very robust operation and a revenue of BRL 3.29 billion, with an adjusted EBITDA of BRL 675 million. So this is certainly a company that will add a lot to what we do and put us in a very outstanding position. So these are the medical seats and the different cities in Brazil. So this network will certainly make a huge difference in the education of thousands of doctors in Brazil within the lifelong learning strategy. Now I turn over the conference to [ Carlos Coutinho ]. Carlos, welcome, and we -- I will come back for the Q&A afterwards. Thank you.

Good morning. I am also very glad and proud to be here and to be part of this new era of the education in the country. I had the opportunity to work with Laureate for many years, and now I work with the Ânima Group. And I'm very happy to see these 2 large educational groups that have always prioritized quality, now working together. So adding to what Marcelo said, here, we have some important levers of value creation for the combination of the 2 groups. Of course, we are talking about sizable groups and in a transaction like this, of course, it will result in scale gains that are very relevant. Now about the growth contracted. When we talk with investors, of course, we have new projects and there are challenges for implementation, but there are some projects that are already within the plans of both groups. And now combined, they will certainly increase the level of assertiveness in their delivery. Here, the highlight is for the medical assets. Potential is huge. For the 3 first levers, here, we're quantifying at BRL 230 million of recurring EBITDA at maturity. And this is deflated without including FMU and the 2 potential upsides that we wanted to highlight the results from the Ânima management model, which has been really successful. And we're going to show you how this is reflecting in our numbers. If you've followed Ânima's evolution quarter-after-quarter, you see that we have some very expressive results. And now we are joining the Laureate Group in distance learning. It's a particular area in which Laureate has invested a lot in the past years, and we're going to show you the results. So next chart, this is some of the data that we have been consistently showing in our presentations to the market. When we talk about maturity of a transaction, looking into a horizon of 6, 7 years after the transaction, here we have some examples of what the Ânima model was able to achieve with institutions that had their margins and their scale with some constraints. But after they joined the Ânima ecosystem, here, we see their margins increasing significantly and the scale also increasing significantly in Unimonte, UniBH and São Judas. So we are more and more prepared to conduct integrations efficiently and to deliver the results promised. Here, when we talk about efficiency gains, I think we have 3 main levers that we can identify and the joining of the 2 groups. The first one is about the corporate structures, both from the standpoint of CSC and optimization of structures that are concentrated. And in this sense, Ânima has been doing some very robust and consistent work throughout the years. And Laureate in the past few years has accelerated its corporate concentration curve. We understand that there's a lot of work to do. There's a long way ahead. But in the extremities, we also have an Ânima model and by combining the efforts of Laureate in the past few years with our efforts, we have a huge opportunity here. And we have a model that has been proven very efficient and very powerful for students, which is our E2A model. So the implementation and the synergy of this ecosystem in Laureate institutions, we think this will be an important lever. And also, there's an important work that has been conducted, which is the continuity of the optimization work of the campuses of Laureate. Many of the campuses have already been completed or are at final stages of development, then this will optimize the rental expenses. So there's a programmed gain for the coming years. So here's what I just said. Both groups had very clear targets and very organized programs in recent years to improve their efficiency and quality. In Laureate, since 2019, they started -- they had -- did work with McKinsey, a very robust work with McKinsey, to elevate the level to increase the margin. They have been able to increase the margin by 5 points since 2019. In turn, we have been working with the E2A model for consistent value creation for our students working through squads, which also generated a 2.2 point gain in our margin in recent periods. And these 2 initiatives are not even matured. So we have an expected gain for the coming years with maintenance of these programs, both in terms of quality and also efficiency gains. The next chart shows a very important lever of growth, both of revenue growth and margin growth and this is also a plan for both operations. Marcelo talked about how powerful this group will become, and we will become the second group -- the second largest group in Brazil in terms of the number of medical seats with very important strategic locations and this shows the potential growth of the group. We are moving from a base of 4,200 students. And when we combine our operations with Laureate, we increased that to nearly 9,000 students. And considering the maturation of already existing operations, we have a contracted growth of nearly 50%. And after the resolution of some pending situations and after the expansion foreseen for Mais Médicos, in the near future we can reach more than 16,000 students, combining Laureate and Ânima. So it's a nearly 50% growth in the base of medicine students, which is very representative. This is an illustration of the work Ânima has been doing of the seeds we have planted, and now we're reaping the benefits of this focus on quality and this focus on our students. And when we look at the indicators in the market and the indicators of our competitors and we compare them with ours, this can quantitatively show how much we have in terms of untapped opportunities. We have an untapped potential in the near future, which is huge. When we compare the first half of last year and the first half of this year, even with all the difficulties resulting from the pandemic, we had growth whereas the rest of the market didn't. And quarter-after-quarter, we have been showing consistent growth and accumulated growth of 10%. And among the groups in the state, today, we have the highest average ticket in our industry. And this is because of our quality, our portfolio, because of our investment in our students and how much we value the quality of our programs. This is a quick overview of a new frontier that we are exploring now after this deal with Laureate. If you know Ânima, you know that we work with a hybrid model, and we truly believe in this high-quality hybrid model. And what we learned from Laureate, Marcelo's team and Guilherme's team since the end of 2018, although it was effectively implemented in 2018 -- in 2019, is that there was an important change in Laureate's position about distance learning. And this is in terms of delivery, execution and resulted -- and it resulted in a not so high satisfaction level and financial results that posed many challenges. So they had to completely reinvent their process, their delivery, their product, their portfolio and they are now reaping the benefits of this investment. So we can see that in results in terms of the average ticket and the perception of their students. And we want to learn from them from this journey. We want to incorporate the findings of this journey to our hybrid model, so that Ânima can work with this model of go-digital and go-future to become an important player in this new mode of delivery of education in Brazil. So this is a new frontier that we are exploring now and that we plan to cross together with the Laureate Group, which is now part of Ânima. So now let me turn it over to André and he's going to explain some of the aspects of the deal to close the presentation, so that we can answer your questions afterwards. Thank you.

Thank you, [ Coutinho ]. Good morning, everyone. I cannot go without mentioning how proud I am to be part of this historical moment in our company, to be part of this company specifically, to be a part of Ânima, a company that has a mission to transform our country through education, to be part of this team with everyone one who works so hard so that this could become a reality. So being here in this historical moment in the company and working with this team. So let me just give you some more clarity about some aspects of the deal. It's not just -- it's not about clarity, I just want to review some of these topics. This was an acquisition that was 100% in cash and 100% funded, and we understood that this was an important competitive edge in this proposal and that it would be seen as a differentiator by Laureate's management. The total price of acquisition was BRL 4.4 billion, BRL 3.77 million in equity value and BRL 623 million of net debt of Laureate, which is taken on after CADE's approval for this operation. We also have an earn-out of BRL 203 million related to 175 medical seats, which are still pending approval. And I would just like to stress that the mechanism defined since the beginning by Laureate's management was a locked box mechanism, which means that the cash generation after the first quarter of this year belongs to the buyer to Ânima in this case. This operation was funded with a strong partnership with 4 banks. Bradesco, Santander, Itaú and UBS Banco do Brasil, which allowed us to be fully funded with a commitment from the banks at BRL 3.8 billion. We have a cash position available of nearly BRL 800 million, and we have a contract signed with Farallon for the sale of FMU. So you see that this is effectively an operation with minimal cash consumption, which is fully funded in the acquisition financing structure, which is very interesting. The only precedent conditions are the regulatory and antitrust approvals from CADE and also approval by Anima's shareholders in the assembly meeting, which will take place as soon as possible. We have some divestitures planned related with the company's leverage. So there's the agreement between Ânima and Farallon for the future sale of FMU and an agreement between Ânima and Ser regarding the potential future sale of some selected assets, and I'm going to give you more details about this through a put and call option structure. And we have the breakup fee of BRL 180 million, which is totally transparent to the market. This is associated with the termination of the original agreement between Laureate and Ser. And Ser will have the option until tomorrow to instead of receiving the BRL 180 million in cash to receive in kind the right to the future acquisition of FPB and UniFG in markets where they already have a relevant share in the states of Pernambuco and Paraiba. And this should take place after the transaction between Ânima and Laureate is closed after the approvals. On the next chart -- next chart, please. Here, we see the evolution of Anima's capital structure related with its M&A strategy. So when we look at 2019, we made acquisitions, which are showing more and more benefits. And here, we mean AGES, UniCuritiba, Unisul. And at the time, we reached a net debt and a high leverage. And in the beginning of this year, in January 2020, we were able to conduct a follow-on, which brought the company to a level 0 or even below 0 in terms of leverage, allowing us to continue our M&A process of 2 relevant brands this year, Faseh and UniFG. And now we are at a very comfortable leverage level, which allowed us to take this very transformational step for the company, acquiring the assets of Laureate in Brazil. This is certainly a transformational deal for the company, which brings the company to a new level, taking us to a leverage -- a superior leverage level than usual. And that is why we have a very well mapped strategy for an expedited deleverage process. And that is based on 4 work fronts. The first front is the maturation of existing operations. You all know that Ânima is now going through a very strong ramp-up of our revenues and margins. So the generation of additional EBITDA that we have been delivering in the past quarters is an important lever in this deleveraged strategy. And added to this strategy, we have all the ongoing initiatives, already ongoing in Laureate. The second work front are the operational synergies and the expansion of Ânima scale, I think [ Coutinho ] went over that. Also the divestiture of FMU and the agreement with Ser are also seen by us as interesting deleverage strategies. And, of course, we are also looking into other alternatives, which will help this expedited deleverage of the company. And we know that one of the greatest factors that gives us -- that give us the confidence with the recent M&As and the contracted growth that we already have in Ânima, both from the maturation of our greenfield projects, also maturation of our acquisitions and, most importantly, the maturation of our medicine programs. This year, our medicine programs, which we will close the year with medicine accounting for about 15% of our revenues. And at maturity, this number will increase to 27%. So this number will nearly double. And this will bring very positive effects to our margin, as we all know. We know that health care and, particularly, medicine assets have that power. So all this contracted growth, plus the sale of FMU to Farallon, which is explained here, here's the rationale of this transaction, and Marcelo already explained in the beginning. This was actually a very creative move, in my opinion, so that we could increase the agility of the CADE approval process, simplifying CADE's review of this transaction, using the sale of FMU to Farallon simultaneously or right after the transaction with Laureate. So this transaction has an equity value of BRL 500 million plus the net debt that goes with FMU and plus net FMU's balance. The transaction will also be settled 100% in cash in the same closing date or right after the approvals of the deal between Ânima and Laureate. And one thing that I find really interesting is that Ânima will keep its 2 major brands in São Paulo, Anhembi Morumbi and São Judas, both really in line with our long-term view and enforcing our focus in medical courses in the state. Of course, FMU is also -- these are the indicators of FMU, and I'm sure that it will be very well-managed by Farallon. Now a little bit about the agreement with Ser. As you heard from our relevant fact that was published last week, we closed an agreement with Ser with a put and call option structure and option #1 and, say, we'll have to choose until by tomorrow. So option #1 is to offer FPB and UniFG and the payment of the fee, the breakup fee of BRL 180 million. And what is the percentage foreseen for 2020 coming from these brands? And of course, this adds robustness to this operation, particularly, in terms of the certainty of closing. And now we have no legal pending issues or any arbitrage proceedings against Laureate. So this was a very important agreement so that this could become an even more robust deal. And it's worth mentioning that if they choose option 1 or option 2, Ânima is preserving 73% of the total EBITDA of Laureate Brazil, and certainly, these assets, FADERGS, IBMR and UniRitter are very valuable assets. And if Ser chooses to buy them or if they choose the other option, I'm sure that they will be a reason for a lot of pride for any of the groups. So by November 4, they have to choose. Ser will have to define the option they choose, the criterion they will use for option 1. And then starting on the date of signing of the agreement, they have 60 days and 15 additional days to choose whether they will exercise option 2 integrally or partially. There are 4 major benefits of this agreement with Ser. The first one, the main one, is the certainty of closing. So with this agreement, Ser has withdrawn all arbitrage and legal proceedings against Laureate. So this gives us a higher level of confidence about the transaction for all the parties involved. And this even eliminates the possibility of this legal battle prolonging -- and prolonging the closing of the deal. We also have deleverage as an interesting factor here, particularly, if Ser chooses to exercise options 1 and 2 with the assets. Ânima preserves its focus on medical programs, which is a pillar for us. Medical seats of Laureate are concentrated in 3 brands, Anhembi Morumbi, Universidade Potiguar, and we also have strategic assets with relevant scale and located in strategic areas and in line with our long-term vision of being the most relevant player of high-quality, higher education in Brazil. Now I turn to our Board -- the Chairman of the Board, Daniel Castanho, for his final remarks. And then we can open for questions. Thank you.

Thank you, André. So as we heard today, this is the fourth transformational transaction of Ânima. We started with Anhembi Morumbi and UniBH. So these were the most important turning points in the history of Ânima. And we have to be really prepared, and this is what we have been doing in the past years. We have been preparing for this moment. And now we are effectively becoming the most relevant group for the country and the most relevant in terms of the value that we add for our students. We have the most valuable brands in Brazil. Just to give you an idea, I talked with the founder of Anhembi Morumbi, the founder of UNIFACS and Potiguar. All of them are really happy. And what I mean to say is that we are now consolidating as the group that will carry on the history, carry on the legacy and the heritage of quality of these very traditional institutions, very renowned institutions in Brazil. And at the same time, we are consolidating our position in the field of medical education as one of the most relevant groups in the country. So you see how huge this step is for us, and this was only possible because our very good governance allows us to be a very agile company with an exponential vision. And at the same time, we are very confident and we understand short-term innovation, long-term innovation, execution capacity and reinvention capacity. And this structure will also allow us for an expedited deleverage, allowing us to continue this history of growth in the near future. Let me take this opportunity to bank our Board. You were all very important. The support that you provided us with was very important so that we could integrate everyone in one single team, and also in the negotiation with Farallon represented by [indiscernible] and all the banks that helped us. And now I turn over to Marina. And we will open any questions you may have. You had seen this presentation. So the idea of this call -- this web call was to give you the opportunity to ask questions and to better clarify this transformational moment that Ânima is going through.

Thank you, Daniel. I forgot to mention that you could submit your questions through the Q&A window, but I know that you already did that. So the first question is from Samuel Alves, BTG Samuel. Samuel, thank you for participating. He has 3 questions. The first question is what is the time line for the CADE approval and the closing of the transaction? The second question is about the multiple implicit and the valuation of FMU and what is the value of the asset? And the third question is whether we already have the determination of the valuation for the sale of UniRitter, FADERGS and the other brands to Ser? André, could you answer these ones? [ Coutinho ]?

So very briefly, for your first question, we think that the CADE process will be a simple one. The horizon is 3 to 4 months until the closing. We only have intersection in São Paulo. And with the transaction, we are decreasing our concentration in São Paulo. So IMV plus FMU have a greater concentration then São Judas plus IMV. So I don't think we'll have any challenges in terms of the CADE approval. It will be an ordinary approval process. We just have to provide them with all the information they need and head to the closing. The second question, I can give you an estimation in terms of FMU's EBITDA this year. We're talking about BRL 40 million -- more or less BRL 40 million. This is what I can tell you today. And maybe we can discuss this in another occasion with Farallon.

And now André is going to answer your question #3.

Yes. Regarding the other assets, the other brands, UniRitter, FADERGS, these are very renowned brands and the 60 days that Ser has to choose their options -- to exercise their options, if possible, I think we should reach an interesting agreement in terms of valuation of these 3 brands. And of course, we have to look at this deal based on a combination of an interesting valuation versus a greater deleverage speed. I think we have some additional time to be able to reach evaluation, which is interesting for both. But we will certainly be looking at the 2 sides of this coin, the price of the assets versus the expedition of our deleverage process.

Thank you, André and [ Coutinho ]. The next questions come from Leandro Bastos from Citibank.

Congratulations for this deal. I have 2 questions. First, how should we think about the company's capital structure after the acquisition? Can you divide the leverage level that you find appropriate post-deal? And the next question is, could you elaborate more about the decision-making process about the assets that will be de-invested? UniRitter, FMU, could you please explore the rationale for that?