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

Good morning, ladies and gentlemen. Welcome to Yduqs conference to discuss the results for the first quarter of 2023. This video conference is being recorded, and the replay will be available at the company's website at www.yduqs.com.br. The presentation will also be available for download. We would like to inform you that all will only be watching the video conference during the presentation. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Yduqs Executive Board and the current information available to the company. Those statements may involve risks and uncertainties as they relate to future events and, therefore, depends on circumstances that may or may not occur. Investors, analysts and journalists should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at today's video conference, we have Mr. Eduardo Parente, CEO of Yduqs; and Mr. Rossano Marques Leandro, CFO and Investor Relations Officer. I would like to hand the floor over to Mr. Eduardo Parente, who will begin the presentation. Please, Mr. Eduardo, you may proceed.

Good morning, everyone. Thank you very much for attending, again, our presentation. I think that what you're going to be seeing here is the numeric presentation of something we've been telling you all along the robustness of our portfolio that generates good results and good growth in BioTime and excellent results when you see slight positive changes in the economy, which is the situation that we're seeing now. Passive always immune to prices, but plus the CND are seeing the light on the end of the tunnel or growing in terms of confidence and economic situation is still way below what we expect the future to be. But that has a clear impact in our business that is what we're going to be showing you today, okay? So moving on to the first page. Page #3, actually, on the left-hand side of the page, what we see on the business as a whole is a very important growth in terms of revenue, 10% versus same quarter last year, 21% growth in EBITDA. We had a guidance of between 10% and 20%, we went 21%. The margin growing as well. I think this is a clear reflect of the operational leverage that we have on our own site and our business and net income coming back, a number that's twofold of what we saw in the same quarter last year, okay. Bottom result of that is a big evolution of free cash flow to firm, a growth of almost BRL 80 million. And I think above all, what we see to our shareholders, free cash flow to equity above BRL 100 million more than BRL 30 million on top of last year. Moving on to the right-hand side of the page, I'd like to highlight very positive numbers all across the 3 business units. On premium, no surprises here. We keep on growing strongly both student base of revenue, 15% above last year, 23% of revenues. EBITDA also following growing 21% versus last year, which are numbers that we currently show here. On digital, what happened, we were coming from a year that we saw very little elasticity in prices. So we prefer to go on with higher prices, and we saw this elasticity right after the elections coming back. We talked about this last quarter. So we went a little bit more aggressive in terms of pricing, but we see the reflects here on a very strong growth in terms of [indiscernible] intake and revenue and an even stronger growth in terms of EBITDA here, reflects of the higher intake but also, a clear impact on our operational leverage on the digital business. On campus, we had an abnormal strong year in '22. We believe that's a reflect of us coming back to classes after the pandemic earlier than most of our competitors. We see this growth versus the first half of '21, which was a half that we had very, very aggressive discounts going on. We believe that this growth is an important and positive news. But more than that, the ticket of people that have been with us for more than a year, which means that people have gone through all the discounts and different campaigns that we make -- this ticket growing 6%. We believe this is very positive news as the increased margin of 1% at this point on EBITDA as well. So all that leading to our record -- all-time record EBITDA, BRL 489 million, bear in mind that 1 year ago, this BRL 400 million was our time record. We had another record in the third quarter of BRL 408 million. This added to the fact that we generated more cash allowed us to move to this 1.74 leverage from 1.96 at the end of the last quarter and somewhere last year we were above 2.0 here. So again, very excited with the moment that we're living. Let me go on to the detail of each business units. So moving on to Page #4 here, talking about the premium business unit. This is the consistent growth that used to. Net revenue grew 23%, very important here, it was an important growth in medicine, but also resuming the growth in IBMEC, very important for us. The total EBITDA went up 21%. The margins stayed flattish. This is what we expect to see all along this year, flattish margins on the premium business unit. Student based grew 15% as, again, the ticket for the students with more than one in-house. I noticed that the different -- not such a big difference on premium, on site and online, you will see more. We are more sensitive towards discounts in the premium is less so. But because of consistency, we prefer to mention it here as well. On IBMEC, we have a new campus and [ Farianima ], right beside the financial district in Sao Paulo. This is going really well above the business plan that we made. Also, an important news, the 53 additional seats that we got for medicine. We announced this in Alagoinhas the first quarter of this year. This green box here is a reference to the guidance that we gave. We said double digits in terms of intake. We did -- this is excluding the external transfers are important that we had a renewal last year that was below this year. So we had to bring in some additional students non-freshmen in the third, fourth and fifth year. This year, because the renewal was greater, this schedule didn't do so like non-comparable. All in all, on pressure and we had a 12% intake increase versus last year. And the average ticket, some guys follow this. Again, we don't think this is a good indicator of trends. The more than a year, student is a better indicator, but we mentioned that this would grow single digit, and it has for medicine and a little bit above that for IBMEC. So moving on to Page 5 of digital learning, we have a strong revenue increase of 23% versus same quarter last year. But I'd like to highlight the evolution in terms of EBITDA, both in terms of the absolute number, growing 41%, but also in the margins. Now, the margins I'm currently telling you that they should stay put or flat that's what we've been practicing in the past. We see slightly difference happening this year. The operational leverage is having a positive impact here. So we see this margin evolving a little bit, maybe 1 percentage point or a little bit more than that versus last year for the total of 2023 due to this operational leverage. The base we have surpassed 1 million students on this business unit, which we celebrated here, 0.5 million in each one of lifelong and undergraduate. We see this as extremely positive. Beyond the grade average ticket, again, these are the students that have been with us for more than a year. We see this as an indicator of trend. Despite the fact that our ticket efforts that we did a lot in the past year, especially in the second half, are not reflected here fully. But we see this as a positive evolution, very close to inflation. But perhaps, we will see a number even slightly better than this in the second half. Renewal coming in very strong. Intake, we mentioned double digits on the guidance. We had a 20% growth. And the average ticket, again, this is very sensitive to kind of DIS adherence. This is very sensitive to the kind of offer that we made. So -- but some people care a lot for this number. This is a 15% rise versus last year. Again, do you prefer as an indicator of trends with the guys above 1 year, I think this is way more solid than this number. But all know very positive numbers for the digital learning. We're very excited with the year that we're going to have ahead of us in 2020 for the digital learning. Okay. Moving on to the on-campus, I think that's the great news years around tickets, we've been doing, even before the on-site work here and making sure that seventh months and 13 month tickets have a positive trend, this is one of the reasons we are moving sideways, both in terms of net revenue and EBITDA. This 1 percentage point in terms of margins, we see this as very positive, a good start for the year. But I think the highlight of the page is the 6% evolution in terms of tickets for the students with us above 1 year. Renato came in very strong, again, very positive versus the intake far positive versus the first half of 2021. And again, the average ticket that we said on 1 percentage, single-digit increase is what we delivered on this, again, not the best measurement but some people take into consideration. So all in all, what we see here, premium coming in, as usual, very strong, distance learning resuming on intake very positive and coming in again, as an important source of growth for us. The on-site moving inside ways with a lot of effect, positive effect of us being able to command higher tickets for the medium term, which, again, is the opposite effect that we had in the past. So we had in the past in the fact of classes that joined in '17 and '18 with higher ticket graduating. We have classes that joined 2021 with lower tickets, graduating -- generating a positive effect that we see moving on with the tickets for the next quarter here. Moving on to Rossano, he show you the effect on our numbers of all this that I just showed you.

Thanks a lot, Eduardo. So good morning, everybody. So we move on for -- to discuss revenues. So we presented a 10% revenue growth year-over-year in this quarter. This number is carried by strong performance of both our premium digital business units. For this quarter, we'd like to highlight definitely the expansion of our digital business unit growing 23% year-over-year, getting back to a very positive growth track that we expect to be sustained along the year. The revenue share of those business units already accounting for a total of -- almost 60% of our revenue. So [indiscernible] a share of those most profitable business are still increasing, and this is asserting our margin expansion potential and also the resilience of our portfolio. Good. So looking now into expenditure, once again, we present a quarter in which our efficiency shows up, the operational discipline of the business, growing up our costs slightly below inflation once again. Breaking down, we can see the bad debt, still on a very positive trend. That's the result of the renewal numbers from our operational performance. They are very positive as discussed by Eduardo in the previous slides. Along the last quarters, we have improved a lot also in our collection process. We believe those things, the improvement in our collection and also the renewal cycle of both results of our investments that we have made in the previous years in technology, that has really created very intuitive, effective and stable platforms and that we know that makes a big difference in our students experiencing that's very key in their retention. On the next slide, we see sales and marketing operating in a very positive level of efficiency lower than the previous year, but maintaining very good results in the end. Our intake is still very efficient, even though we're having a much more efficient marketing strategy, which is also based on the strength of our brands across the country. The cost block also continues to deliver efficiency through operational research process, which is considered a mortgage benchmark in Brazil. On the lease line, even with the accumulated inflation still pressuring those numbers are meticulous process of space optimization, the contract renegotiation, the closing of some of our units, the optimization of some of our company is keeping that number as a percentage of revenue still below last year. We continue to dedicate a lot of time to the optimization of the resources, seeking the best possible adaptation of our physical presence to the current market scenario. All of that, leads us to the next slide, where we show an EBITDA growth of 21% year-over-year. That surpasses our previous guidance of double-digit growth, and that brings us to a very relevant margin expansion, reaching 37% margin in this quarter against 34% last year. We'd like to highlight the expansion of the digital business. That's a result of a better operational and administrative efficiency in addition to the reduction in bad debt, as discussed in the previous slide. The digital business continues to demonstrate great operational leverage and positioning those with the reference in production and also in the center management operations of our business. On our campus, even without the operational leverage that we see in digital, we have posted margin expansion. That's a result of our continuous efficiency efforts and our more conservative effort on pricing, as Eduardo discussed before. And regarding premium business, continues a very stable margin, which positions it as a reference in this market. Moving on to net income, we presented a very strong growth of 97%, almost double the numbers from the previous year. That is 62% in adjusted [indiscernible]. This growth reflects both our positive operational results and also our actions on tax efficiency front. That overcomes a very negative impact on the financial results that arises from the large difference in the basic interest rate in the country. That brings us to a very strong number in our cash generation. We are growing the free cash flow in 42%, reaching BRL 263 million this quarter. That leads to a free cash flow to equity of BRL 109 million that helps us a lot on the cash position and the net debt as you're going to see in the next slide. This is both, as we said, fruit of our very positive results, operationally speaking, but also in the management of our working capital, as you can see in the average term of receivables going down 3 days compared to the previous year. We reinforce here the guidance that we gave for the year, BRL 450 million CapEx. That would be an 8% decrease year-over-year. This quarter, we have a slightly higher CapEx, but that is due to a flatter curve compared to the previous year. We still maintain our guidance of lower CapEx in the full year view. So this continues demonstration of cash generation potential of our business and the results we have presented in the previous years brings us to this picture right here where we decreased our leverage, 1.74x our adjusted EBITDA. That's an important reduction in net debt and an expansion in our EBITDA that brings us to this position. And this is becoming more and more comfortable. As you can see, we're sitting on BRL 1.1 billion in cash. For the short term, it is important to highlight that you no longer have any debt maturing in 2023. And this give us the peace of mind continuing monitoring the market opportunistically to keep the duration of our debt in line with our future perspective of cash generation and also reducing your cost of capital that is now on 1.97% above CDI. As you can see, once again, on the graph, no maturity by the end -- to the end of 2023 and a very adjusted debt profile for the next following years. Having said that, I now turn to Eduardo, who will talk about our achievements in ESG and our future plans.

Thank you, Rossano. I hope that you had the chance to watch our ESG forum, what happened 2 weeks ago. If you hadn't here's QR code that you could [indiscernible]. On that day, we also launched our sustainability report. The first one that we had shared by PWC, an important evolution for us. Another important evolution for us, we had a renewed rating of A, the NCI rating. We have also finished mapping our greenhouse gas emissions. And we finished also accounting for the social impact that we had last year with more than 700,000 people benefited from our extension activities in social projects. Also, very important all of us in the top management here have targets regarding ESG. We have already fulfilled in the first quarter, 41% of our targets for the year. So this is, again, very important for us. We're very happy that we've been doing this for 52 years now, but we're able to get our -- together in communicating this to the market 1 year ago. And we've been having a very, very positive feedback on this, especially with a few shareholders that are ESG-only related funds joining our base here and what is [indiscernible]. Thank you very much for your trust and for your feedback. Moving on to Page 14, our final remarks here, very good quarter, indicating allowing us to be very optimistic with the rest of the year coming ahead of us. We've had more than half a million students and the distance learning. Tickets evolving for all the businesses for the students with more than 1 year. All the tickets evolving, but this one which we consider the most important indicator evolving for all the businesses had a more than 10% increase in revenue, more than 21% increase in EBITDA, margins evolving, 37%, 3 percentage points above what we were 1 year before. Very important number here, you see that the margins, but we assure you see the business units that we have that fast [indiscernible], they have margins that are higher than the on-campus, which pushes naturally the margins up. On the right-hand side here, we had an important evolution of net income. This is something that we have a very big focus on and we've reached more than twice or roughly twice what we had last year. Free cash flow also to equity more than BRL 130 million above last year, more than BRL 100 million. That, together the reduction in net debt, all of this allowed us to reduce our leverage to 1.74, a number that was above last year at some point in time. When we look to the future, we mentioned between 130 to 160 new medicine seats for the year. We have already approved 53 seats on the first quarter. The student base for on the undergrad medicine, we mentioned 8.0 to 8.2 [indiscernible] in the year. We have already surpassed 8,000 students. So we are upgrading this to 8.2% -- to 8.3% as a guidance. Now, digital learning intake, we often see an end of quarter that's kind of slower and then the next quarter starts slow. That's not what we're seeing today. We see -- we saw the end of first quarter very strong, and the start of the second quarter also very strong. So this is giving us the confidence, give you the guidance of this 2-digit growth in the second quarter. But [indiscernible] business learning, we have quarterly intake on-site and premium have dates by semester. So the intake for the second semester study now for the on-site, we again, very early in the process, but the first numbers allowing us to feel excited and optimistic about what's coming next. Also, April is by, we have already seen the numbers, and we're very comfortable giving you a guidance of 2-digit growth in EBITDA for the second quarter as well. Bear in mind what's happened in the recent past, we had in the third quarter last year, we said that we should have about a single-digit decrease and EBITDA what happened was I see the big increase in EBITDA. We mentioned double digits for the fourth quarter. We had 19% decrease. We mentioned double digit for the first quarter. We had again, a 21% increase in EBITDA were mentioning now for the second quarter, a double-digit increase for EBITDA versus last year. CapEx, I'm just repeating myself, we already mentioned this, the BRL 450 million for the year. And for the long term or medium term or even we've seen this number going down to 7% to 8% of net revenues. All in all, guys, we like to take -- we would like to plan that we will be very transparent along the way with you guys when we saw dark clouds in the horizon. We talked about them. What we're seeing now is a very positive outcome for 2023. Of course, it's very comfortable to say that in the first quarter is 5. This is the major intake for the year. That's when we create numbers, prices and tickets for the upcoming months as well. So again, we're looking positively to this year. And I'd like to share this with you, and thank you very much for your interest and for being with us.

Yduqs video conference is now closed. If you have any questions, please send an email to [email protected]. We thank you for your participation, and wish you a very good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]