Yduqs Participações S.A. (YDUQ3) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for waiting. Welcome to this event. We are going to talk about a relevant fact today, which is the acquisition of Qconcursos. We're going to listen to the presentation of the company now, and then we're going to have a Q&A session where further instruction will be provided. [Operator Instructions] Now, Mr. Eduardo Haiama, please take it over.

Good morning, everyone. First of all, I would like to say thanks. Thank you for being present here. This is a conference about the acquisition of Qconcursos. We are very happy with this event. We are very happy with this investment. And what we are doing here, we expect to be of great help. It's definitely going to be helpful to our digital platform and it's going to complement our portfolio. And it's going to be of great help to accelerate things that we had outlined already and things that we are planning for the next few years, and it's going to anticipate 2 or 3 years' worth of investment in the future. And so moving on, getting to the first slide. What is Qconcursos? Well, this is a company that has been in the market for over 10 years. We've been helping those that participate in these processes all over Brazil. Couple of -- in the last few years, this became a 100% digital company. This is a company that we can call an edtech. It's completely cloud-based, completely digital in its content. There are over 400,000 students that are paying students and a further 1.4 million students that have free access in the freemium model. And one other interesting point about the company is that in terms of people that have gone through the company, we have roughly 17 million students that have been through the company somehow. But one thing that really jumped to our attention was not only these figures, which are quite good. When it comes to digital technologies, they developed some very adaptive technologies. And we believe strongly in that. We feel that this is going to really accelerate and fast track our work towards the same direction we've been heading to. We -- this is going to enable us to have a high-quality customized teaching. And so in summary, just to summarize the gist of what we expect, obviously, we expect to expand our base. It will be a further 400,000 paying students and 1.4 million in freemium. We expect to strengthen our vertical to strengthen our digital vertical. And with that acquisition, YDUQS is going to surpass the threshold of 1 million students. So just to explain a little more in further detail about what this idea of concursos or literally conquers means we have the CEO, Caio of Qconcursos, and let's hear it from him. So please, Caio, take it over.

Thank you, Haiama. I'm very happy to be here with you. I'm very happy to be a part of this acquisition of this partnership between Qconcursos and YDUQS. Well, to introduce myself, I am Caio Moretti. I'm the CEO of Qconcursos, and I am here to explain to you what the company is all about, where we come from and what are the few next steps for us. So Qconcursos is a complete platform for our -- for these processes. Basically, what we do is we integrate different process of selection process of different parts of the selection process into one platform, and we create a completely modern and integrated environment and especially customized for each student. As a highlight, the first point that we can touch, just like Haiama said, we have over 420,000 subscribers and the growth of 80,000 subscribers in 2020 alone. Despite the difficulties, revenue has grown 8.5x since 2014, over 15 million single accesses per month. Our NPS is out of the charts. One of our major concerns is to keep hundreds of thousands of students very satisfied, and the NPS gives us that certainty. We are on the right track, but these students need support a lot of the times. That's why we are really focused on our NPS, and we want to keep it between 96%, our sort of satisfaction rather in 90%. We talk a lot about technology, and we talk a lot about the figures. We have up to 60 million exam questions solved per month. We had 1.8 billion exam questions solved, 20,000 orders per minute. And as an acknowledgment, we had the iBest 2020 Award as the best online education service in Brazil besides the label RA1000 or the stamp. And we have the largest traffic in the education sector and the 14th largest traffic of all sectors in Brazil. But what do we do actually, right? In practical terms, what do we do? Why do we exist? We are there to make learning more accessible to everyone. This is at the core of our mission. And when we understand how we can make this purpose a reality, we have 4 house. And the first one is to integrate different steps of study. So the student doesn't have to look for different solutions in different places. And the second, how is to create scalable solutions or solutions that can grow exponentially at a linear cost. And so these are solutions that we can provide more and more at a lower cost and technologies. We create technologies to accelerate learning. And so we use artificial intelligence as well as other pieces of technology so we can fast track student learning and understand -- we understand that everyone has a limited amount of time. So how can we accelerate this process. And fourth, constant feedback. We have a very strong exchange with our students, teachers and stakeholders, and we are always trying to improve and fine tune our process. And our NPS shows that. So this creates a product and a solution that we understand it is practical, accessible and modern. It is practical because it's very easy to use, especially due to the integration. It's accessible because you are very concerned about having a scalable solution, and you want to make sure that most people can -- a lot of people can access that at a lower cost and modern because we integrate all of the steps. And especially, we use technology to fast track student learning. So what is our business model? It could be no different, right? If our purpose is to make education accessible, how can we translate that into a business model? It wouldn't make sense for our purpose to go one side and our model to go another. So we work at a -- in a freemium model, which means that basically, anyone can sign up for free in the platform and make use of a great deal of our services free of charge until they understand that there is a moment to make a purchase. And so we use our product to accelerate the need of purchase from a user perspective. So we have some solutions that are scalable. So first, you learn about the solution especially with the organic traffic. As it was said, we are one of the largest traffics in the country. So we have a lot of organic traffic, which makes for a low acquisition cost. People learn about the product, start using the product, they test it out and see a necessity to get engaged and they make a purchase. So this purchase is much more precise, and our retention for this reason is quite higher because people effectively know the product. They have tested it, and they trust the brand because it enables people to test the services before you pay for them. So this is our business model from the get-go and it has been quite successful, irrespectively, especially -- I mean, this is one of the factors that we credit the most when it comes to the 2020 pandemic. We were able to grow and expand our base in 80,000 people because people can effectively try out our product and they can really test it.

We lost the audio. We lost the audio, trying to get it fixed. Please standby. [Technical Difficulty] Speakers, please proceed.

Well, so let's just continue here. When it comes to the study experience, the study experience in a traditional sense, it is completely divided, right? So there's a number of tools that don't communicate amongst each other. You'll go from offline to online and vice versa. So you have to toggle between different tools so you can study. And at Qconcursos, our focus is to provide tools within the same environment in an integrated fashion for every stage of your study. So community. When it comes to studying for selection processes, it is complicated. In the market, a lot of people don't feel the pride to say that they are part of a selection process. They don't know if they are going to get approved or not. So a great distinguishing factor of ours is our community is a collaboration from student to student. And so a lot of those distinguishing factors, like I said, they have an impact on our pricing. So the business model in most of the market ensures that the product is usually expensive and the cost of acquisition is much higher. So that is a major distinguishing factor for us. We were created as a technology company, and we focus on scalability from the get-go. When we -- when it comes to accessibility, we are talking accessibility on a price level, on the access level and accessibility to make sure that even people that live in the countryside of the state with an unstable Internet connection is able to access and study and also acquisition. The market today is completely addicted to paid media and paid advertisement. So for 12 years, we've been investing in our own technology to bring what we call organic traffic, which reaches the website in a much more focused way, and it reaches the website because people really on our product. They want our service, not because they weren't necessarily impacted by advertisement. From a product perspective, like I said, today, we have 3 free plans and 1 paid for. We have the basic plan, which is part of the freemium model. But if the students want to acquire a product, we have 3 options on our shelf. The first one is freemium for those that want to practice intensively and to improve their performance. This is a product for our core, which is the practice questions. We have 4,000 to 5,000 questions and see per minute in our peak. Freemium plus is a recent line of ours, which came in the late 2020, which was when we understood how we can bring some customization, how we can bring a unison for these students in a way that is accessible, financially speaking. So it was a major technology effort, machine learning. And we deployed a number of tools, especially when it comes to study about learning experiences so we can present a plan that really focuses and directs student learning without having a teacher behind it. Of course, we have teachers that guide us and help us with using the technology, but the technology enable us to scale up and we have our top product, which is unlimited. It's right here. It's available for those that are looking for a focused approval. So the unlimited subscription option it complements all the previous products in a partnership with a different player. We make available some ultra-focused materials for specific selection processes. So if you are interested, you can use our unlimited subscription. When you look at the -- in hindsight since 2010 to this moment, our user base hasn't stopped growing. So in 2021, even though this is the middle of the year, we already have 17.5 million users registered. So that's the growth we are having in our base, and we see a great singularity with growth in the paid users. So in this slide, we can actually see the 2 sides. First, we have a machine that generates traffic and subscriptions, and there is a social aspect which enables people to study. And on the other side, we convert those users into paying users. And of course, that generates our revenue. So today, we have 17.5 million people subscribed, which is a relevant portion of the Brazilian population and 420,000 students studying with us every month, which is also a substantial volume. And why are we unique? I'm talking about different aspects of it, but why Qconcursos is unique? First, because we have the most practical way to study in the market, and this is not us saying that. This is not us saying it about our own product. It's our customers. When we ask why they chose Qconcursos? Over 80% of the answers, and we have a lot of answers, they revolve around practice. It's practical. There's a lot of practicality. So we really zeroed in on how to make the learning process more practical. Usually it's a tough process, right? So on the other hand, we are a freemium product at an affordable price. So we learn how to deal with this issue because charging affordable prices is not a problem. You can have an extremely high-quality product at an affordable price. And third, but not least, we have the biggest collaborative study community in Brazil. So we have tens of thousands, actually hundreds of thousands, not only clients, but free users as well that contribute to each other study. So that's extremely relevant because it shows just how powerful it is to have a community, and users are motivated. And of course, they stay with us for longer. And our growth strategy, which is a summary is we have an aggressive price made possible by a scalable product. We are easy to use. We have a lot of focus on that, and we are impossible to lead due to our major focus on retention, on quality and quality products and service. So the more we focus about servicing a student well and listening to our students and fulfilling our mission, the more we are able to execute our strategy, which produces a sustainable growth, and it has been sustainable out of the gate. Our performance, this is an outlook of 2014 to 2020, which grew 8.5x in the last 6 years. So that shows that in parallel with all of our growth, despite all the investment and all the adversities in 2020, our strategy and our sustainable growth has proven to be very successful.

Good morning, everyone. I want to tell you a little bit about the background of our digital solution and our ecosystem. Very briefly, from 2006 to 2009, that was the early stages. 2010 -- in 2009, more precisely, we started to actually do distance learning courses and from '10 to '18, we maintained that focus, and we started growing. We grew very fast in our partners' network as well. In 2019, we consider that to be our major transformative year. There was yet a new generation to in part content in ADUA, and that was the biggest leap that we took in our platform. And our focus was very much on quality. So we came away from the physical structure, and we hired the best teachers to work in the online platform. And with that, we are able to offer the very best in education in the market. So that was a very intensive year. At that point, we had 600 centers. Our current focus today is we focus on customization of teaching. So a great deal of our brands. They are institutions, which provide an extremely quality study for a lot of people. And our stack now -- the step to be taken now is to provide a very high-quality teaching and great academic content with a lot of people -- to a lot of people. So we know the best way for students to learn, and we know what they have to learn, and that's where it comes in. This year, as we have said before, we are concluding the year with 2,500 centers, which is great capillarity by 2022. We are able to reach every small towns. And in the next year, we are going to hit that mark, 2,500. Our digital learning process, we already started since 2006, even when we were dealing with in-person training, we already focused a lot on the Internet. We were not focused on analog teaching tools. We started with the Internet. Even though we did some acquisitions through our history, we worked with some more analog institutions. But very quickly, we went back to this track because we were focusing on the future. So a very high-quality teaching, like I said, richness of objects that was really important. That was important in the past, and it's going to be important in the future. Students learn it in a different way. So when it comes to learning objects, just like we work with podcast, with video, we work with text as well. We work with interaction teacher-student and student-student interaction. This is key to make sure we have a customized teaching in the future. We have a modular and flexible learning process, which is really important for us to work with new brands and different brands. Our product is completely done by us. So we are able to include other brands in our portfolio. We are able to quickly launch new products, which are definitely in line with our teaching style and the next few steps. We want to have an adaptive and personalized teaching with a lot of technology, and that entails on having a teaching that is adapted to each student. And the next step after that is to have success-oriented teaching processes for students. Today, we need to know what is the impact of our learning process for the future of students, whether it's to get approved in tests or for professional success. So with everything that we have here, we have to make sure that every student can learn in his or her own way in the most adaptive way possible, that is most in line with their personality. And with that, we can predict what is going to be the future in terms of automation and the learning process overall. How are we going to get there? In part by doing what we are already doing and to win it better and in part by adapting ourselves to some new ways of working, but we still have academic rigor. We have quality and flexibility, like I said before. A lot of technology and innovation is coming into play. I touched on the selection process and the teaching part, and we focus on the comprehensive education for people in their adult life not only post-grad courses, free courses and public examinations, but we also have digital teaching. And there are many aspects to it. We have a relationship team. We have a learning team, and we are now thinking about students' lives with selection processes and public examinations. We always talk about delivering teaching, but the expansion of our centers is really, really important. This local relationship in smaller towns is really key, but also in major urban centers as well. To have a close relationship with the student physically in person is also important. So public examination or selection processes are come into play at this moment because we contribute to technology and innovation, as we see in this picture here. But in the previous slide, when we were talking about the personalization or the customization of teaching and a prediction of the future success of students. In our distance learning process, we have learned in the last 11 years, if you think about distance learning really 15 years, we've been thinking about those distance learning disciplines. And with that, we have learned to have the best content available in the market, the best experience for students to learn this content, and we are getting together and learning quite a bit when it comes to the public examinations because public examinations are much more than a mere selection process is a way to evaluate people. And we believe that we can only have the best customization in the market and actually know the best way for students to learn, if we do a proper assessment of these students. And so we are going to learn with the public examinations, how to assess these students, and we also use a lot of technology to know that right away and to know what is the selection process that students are going to be best capable to learn. So we can do that in different environments. We can do that for grad students, post-grad students, whatever course we offer. So having public examinations in different selection processes in our ecosystem is a major step and to keep track on the success of our students in the future. So we are going to know what the students are doing with us, how they are doing overall? We're going to know if they are employed and what their future is in like. So yes, like I said, public examinations and selection processes are going to be a major lead for us, and that growth for the future is going to be really important. And it's also going to be a great learning opportunity for us in our ecosystem. So that's what I had to share with you. Thank you, Eduardo, you can take it away.

Hello, everyone. Good morning. Good morning to you all. We are at YDUQS. We are here with the folks from Qconcursos. It's great for those that are -- we are completing our 50th anniversary, and it's great to see what is happening here. My generation is actually the first generation that is learning with the following generation. It's not only father or mother to son and daughter anymore. And it's been a fantastic experience to us. So this business, considering the size of it, this is something that wouldn't be in and of itself, it's already a relevant fact. And we wanted to do this because we feel that there is a huge impact to our business and how we are going to do coming down the road and moving forward. When we decided to do that, we were wondering, but we are sure of it now. And since we have another different negotiations in between, we are now absolutely sure. And as you know -- you know our discipline, right? And I'm sure that this is an interesting business in and of itself. And just to add on to my colleagues that spoke before me, this business is very interesting stand-alone from a financial perspective. Here's a company that is growing quite a bit, and we have all the indicators and we have all the conviction that is going to continue to grow. But the surrounding, the add-ons, the additional aspects to the business is also what made us -- that convinced us to move forward. Qconcursos is a company that has many things that are similar to our DNA, and I think the main thing that we have been talking about as a company is that they have an ability to be the most affordable prices in the market and still provide a very quality service at a cheaper price. So just like us, they were able to break this mold, this false vision that good has to be expensive necessarily and there is a great expansion that is happening now. And that's where the educational market is moving towards. Also from a social perspective, how does our country have to grow? We have to grow in our classes, our C, D and E classes. And for that much, we need affordable prices, and that's the mindset that folks have here. So from a main business perspective, I think this is quite good. We have absolutely no intention of interfering on the management of the business. This is something that we were talking about this morning. They have to continue to think the way they do. They have to focus on their products and their customers. And down the road, we can assess the monetization tool. I mean it has worked in an outstanding way. It's fantastic. Nobody reaches the 14th largest traffic on the Internet, if you don't have a very customer-centric mindset. So when it comes to this point, when it comes to the customer or the clients or the product, this is something that is absolutely essential for all the companies in this sector to work on. This is something that we touch on a lot. We have a great ability to compete "protected" by a diploma. And when it comes to getting out there in the jungle, the world is absolutely competitive. So I think these folks are teaching us, and they are teaching the rest of the market in this sense. We have great expectations to come here and learn myself as a member of the Board to sit with them once a month to see how things are developing and perhaps bring some ideas to this environment and you have the mindset that is really customer-centric. And speaking on the short term, they have a great vision of analyzing questions and feedback to the students and keeping track on student development, and we know that this is a very precarious situation in the country overall. There is a great journey that is one step ahead of the business learning market. There is a lot of things that are happening. We are being copied by the competition, which we appreciate, not only as a feedback form, but also to make some important improvements in this sector. And if everyone does those improvements, if everyone uses the technology, we are going to be able to have more access. So I'm sure we're going to have a best country. Our challenges to continue moving on, and then we can actually get to the challenges. And then as I've told you, we are looking at other things. If somebody was disappointed that we are not announcing value, well, there is a very strategic issue here and that's why we're not talking about this. Thank you very much for everyone. Thank you. And I've seen that there is a sense of pride and joy, and it has been working with all the acquisitions that we've done and there is I always say that, well, we're going to do the M&A. I'm going to do -- well, answer the Q&A, and we are going to invest. We are going to invest in the M&A. We're going to invest into the remote learning, looking at education, and we are looking at well, continuous learning, lifelong learning, digital learning. Thank you very much.

[Operator Instructions] Our first question is from JPMorgan.

Well, we are talking about, at the end of the presentation, the asset in and itself seems very interesting, but what are the points for synergy with all the other assets for your lifelong learning. If you can give us a little bit more idea how this new M&A that Qconcursos is actually working with your lifelong learning program?

Marcelo, once again, we're taking a lot. If you're looking at cost and synergy, we are not seeing in the short-term anything very relevant. Of course, we are very tempted to say, "well, we have 17 million users registers. We have 4 million or 5 million users per month, 2 million fixed, 400,000 students. We can use that as a platform, for example, announcing our courses. But within the idea of protecting the business and letting it flow in a way that it's working, which is their success, we, at the first time, we are not considering that hypothesis. It might be that we are changing that overview that without really causing any problem for the client and the customers actually. This is a business that in and itself, we are looking at it. And it's very valuable to actually invest from the financial standpoint, if it wasn't. Well, this is a business where YDUQS I would say they have a great track record, great success. And we have to look at the positioning here in the market. That is very important. That is key. We can see that they are charging a fraction of the competition, and that's a trend. So when you ask me if the remote learning will -- the price will drop, we are always challenging ourselves to making things cheaper, and this is our mindset. So from the standpoint of the business, it's interesting, of course, if we look at -- well, this is something that this is different. We are not talking about interest. This is very important in terms of investment, how much can we learn and how much can we bring, we're thinking about the course. We have a distance remote learning, digital learning that is very good. We have different orders of magnitude. These are things that we have to take a look at it, and we need to focus on the customer. We have lines of code that will allow us to take the next step in front of the competition. It's not an idea of looking at cost and synergies. I was talking around with the people, and I want people to know their address and vice versa. These are independent operations, and we have to make it grow and not hinder our operations and vice versa. It will be a different even company, let's just say, CNPJ number company. So you're going to capture ideas, different portfolios of solutions, and we will have different knowledge in different technologies, yes, exactly. Aroldo is here. He is Chairman of the Board, and I'm also in the Board or other 2 directors are in the Board. But the idea is that, to follow-up, on the idea here, the idea is and, of course, something that is very important. In YDUQS, well, Aroldo has already commented on that. We are organizing all of the digital vertical learning, the digital learning, the lifelong learning, they have to have independence. They have the different squads working in a way that we have a group of people that are only thinking about the future of education.

Next question from Itaú BBA Bank.

In your comment on the -- you have the base of operations on YDUQS, how does this company fit in your base of operations?

Okay. Let me give you Caio. So cohort of the students at Qconcursos, and can you repeat the question? Cross-selling. Yes, Cross-selling, okay. Let me go over cross-selling and that you can talk to my colleague. Cross-selling, well, we have master education, we have the team also works with the NM level exam. We are interested in improving the level of the students. And if you ask me what is -- the big issue here is to improve secondary education. This is something that we want to do. I don't think -- well, we're looking at the short term, we are not really having an opportunity for cross sell. It's on the table. Well, we have a lot of things to analyze here and we have 2 analyze this with Caio. Thank you.

Well, the champion cohort, 90% of the sales, when we are talking about the cohort, I am bringing all of these sales that were executed at the end of the month. What is the turnover of the sales 12 months, that's about 40%. When you look at a specific cohort. That 40% is regarding the 12 previous months because even though we are offering monthly options, we also have annual plans because it's easier to pay this reimbursement. So we have the cohorts of monthly and annual clients, and we can compare them.

Mr. Andres Coello from Scotiabank.

Well, let's see how we can work with the courses and how can we train the professors, the teachers. Well, first of all, we have to look at the minimum unit of learning. So how can we reduce the content in a video or a text for so that it is enough to be digested and makes sense. So we can have a class, for example, a pool of classes. We have several thousands of video classes and text content about, for example, different types of works, lines of work, and we are updating that. On the other hand, to structure the courses, we have the database of Qconcursos. We don't know what it's going to be said in a test. So we use our database for questions to understand for every test what is the probability of a subject matter to actually be taken into consideration. And we use that massive data so we use that information to have a direct study based on what we have records and predictability for that call of tender or public content. We have a lot of availability available, and we have the predictability of what's going to be on the test. And we can direct the students so that, for example, in a pre-digital world, when nobody knows what will be said and Qconcursos can look at the past, and we will see the -- we can prepare for this -- for the publicly examination courses and we can look at the previous tests and then we can see what will be -- we can estimate what will be the theme of the next test. The -- we are updating the pool of teachers that are always updating that content, and we are using that library to -- and we are continuously updating that library.

Next question. Lucca Brendim from Bradesco.

Hello. Good morning. My question is you mentioned that these students actually use the annual plan. How many of these students are actually recurring students for the second and third years?

The average time of the student at Qconcursos is about 26, 27 months. So we understand that after the first year, they actually stay for 2 -- maybe a little bit over 2 years. So they return a lot. Once again, they are preparing for the public examination and the retention numbers and engagement numbers, we have a number that is higher than the average of the market. We are keeping 70%, 75% of our students engaged. It's very difficult to keep the students studying and using the product. So effectively, our rate of retention for these studies is about 26 months after the first purchase.

Very clear.

Since we don't have any more questions, we return the floor to Mr. Eduardo Haiama for his final thoughts.

Well, folks, I hope we are able to impart how excited we are with this new group that is joining the family now. We feel this is going to have a huge impact, especially on the short term when it comes to our operations. This is a new beginning. This is a very clear new beginning. There's not going to be a lot of fireworks, but we are getting into the edtech world. We are already seeing a huge growth, and we are acquiring an edtech company that is very solid with a huge track record and with a lot of capabilities that is very similar to us as well. So that is it. Thank you so much for your attention. Thank you for bestowing us with your trust, and have a great day ahead.

The YDUQS audio conference is now concluded. Thank you for your participation, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]