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

Good morning, ladies and gentlemen. Welcome to Yduqs' video conference to present the details of the transition in the direction of the company announced yesterday. Before proceeding, we would like to clarify that any statements that may be made during this event regarding the company's business prospects, projections and operational and financial goals are beliefs and assumptions of Yduqs' Board of Directors and Management and the current information available to the company. Those statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. It is important to highlight that for a better viewing of the presentation, we recommend the enable full screen mode. Present at this video conference, we have Mr. Eduardo Parente, CEO of Yduqs; Mr. Rossano Marques Leandro, CFO and IR Officer; and Mr. Bernardo Augusto Lobão dos Santos Investor Relations Officer. I would now like to give the floor to Mr. Eduardo Parente. Please, Mr. Parente, you may proceed.

Good morning, everyone. I hope you are all doing well as you saw yesterday and today in the communication media and reports of various analysts. We are announcing a transition at Yduqs. I'm passing the baton to Rossano. I think this transition is extremely positive for the company. From time to time, companies change leadership. It's more or less time as CEO for 16 years. I'm a Board member of other companies. I've been a Board member of other companies. I've been a consultant for many years. I've seen many transitions, but I haven't seen such a smooth, well-planned and well-performed transition as this one. We have an opportunity of oxygenating, taking a leap even further of what we have done. I think there is a recognition of the Board, the market that is clear regarding this leadership team. So to bring Rossano is a natural movement. Those of you who follow us in the market for a long time, you've seen how much we have been moving hand in hand, how much we are aligned in terms of values of what we want, both for Yduqs and for education in Brazil and a process that has been planned for a while. It has been envisaged that it should take place, and we've worked very well on this. I think it is a transition that obviously, the change is important. We want to make the change. Companies change all the time and a new person that arrives has even more ability of changing those that are in the position. This is very important. And Rossano is a person that not only has financial experience that you know well, has operational background that is strong in technology. That is a challenge for all companies, but particularly in education. And we are proud to lead this initiative, thanks to Rossano's work for many years. In addition, he has very strong leadership. He is a person that knows how to be tough at right times when you're dealing with budget and finance. And sometimes, you have to be tough, and you have to be very respectful and very caring for our 16,000 employees. Okay. Are you getting the shivers?

Yes, I'm happy. So experience transition, giving continuity to our strategy reassures us. This is the main message. We are proceeding or continuing, and this reaffirms the strategy of the company. Transition that does not highlight the change -- the strength of the strategy in the past 7 years. We were together in the beginning. I told the market about it. I defended all our strategy. I'll keep on defending it. So there's great things to be done. We don't change values, beliefs and the strategic positioning of the company. I'm very happy to transition in this way. Well, I'd like to openly thank you for the whole process of 7 years building together. It's a great joy to have been part of this winning team and your leadership has been very inspiring throughout the time, gave us the North Star at hard times, very happy times and the tough times, you see the good leaders as a good seaman. You've shown that rough seas build good sailors. And we are here with our new IR Director. Most of you know him. We can tell you anything. We're open to any questions that may come up. But once again, I'm very happy to take this position. I humbly happy and proud to be able to take on this position, but humble because I know that everything that we have been building is the work of everyone, professors with students, we are mere managers here, but those that actually make Yduqs to shine in all its brands are our teachers, professors, the service team, the customer service team, people prepared to this audience that we work with. Before we open up for questions, I'd like to say that this is a time for breathing and opening breathing room for the market. We have acknowledgment of the market of this leadership team at Eduardo, Silvio, Marcel, Claudia, Camilla and others, many of you know that are spread throughout the management of the company as a whole, but this is very important. And I have been invited to continue collaborating here as Board member. I was appointed yesterday, so I'll still be around offering a little that I know and a lot of my energy in this process. Well, this is the best way of making a transition. We know that you keep supporting us and our Board, very strong, very well prepared. It will be even stronger with your presence. So I feel very comfortable with it. Do you have any questions? There will be.

[Operator Instructions] Our first question comes from Mr. Marcelo Santos from JPMorgan.

Congratulations, Rossano, on your new position. Congratulations [indiscernible] for the work performance. Congratulations to all of you. I'd like to focus on some aspects that you've mentioned of generating different goals, breathing, creating breathing room. I'd like to know about your priorities. The different from the previous first question, what are you going to focus on, especially on the differences where you plan to innovate? And perhaps zooming in, in some comments that were on the press. I don't know if there was an interview with Parente or both of you. It's a bit -- I felt a tone there was a bit more expansionist when I read it on the Brazil journal, yes, moving to different regions, expanding. I'd like to hear from you from the source. How do you see that?

Thank you, Marcelo, for your question. Marcelo has followed us at least throughout my whole journey, always following this industry. Again, thank you for your question and for being here. I took the freedom of starting with the answer again, to reinforce that the change in management does not change the strategic positioning. What we are reinforcing is our strategy, and we're going to continue with it. And indeed, it is a constant innovation strategy and expansion of our capabilities. We are at a challenging market time as several others we faced over the 7 years of the company. And at this time, we always seek the new avenues, the capabilities we have. This will continue happening in a fast way. The story mentioned very well the pathway of growth that we thought, we have been seeking, and we're going to keep on doing that with the discipline we've always had our strategy of capital allocation. We actually disclosed on our Yduqs Day keeps being the same. The focus of the company is a focus on cash generation. We have the capability to keep on supplying its ability to grow, find our growth pathways, continuing what we've done in the past 7 years. This is 10x more complex and capable that was 7 years ago. It was a mono brand, mono business, well, distance learning very beginning. So we had medicine that was quite new. And today, we have a very -- a much more complex company today. We acquired Ibmec and it's a multi-business company, and we have lots of dynamics. Marcelo, one of the great strengths of Yduqs is this diversified portfolio that helps us actually stay on different stays. So certain industries or sectors are on a hype. They may be weaker in the future. So each one is thinking about their business strategy. Well, [indiscernible] he knows he will keep on leading with it and dealing with all the challenges now in my seat, my task is to help him invest and ensure that the opportunities will be winning one and keep on leading our business with the same discipline as we've always had there. We have no news of change. The news is of continuity, but our continuity brings lots of changes all the time. That's what we'll keep on doing.

Our next question from Samuel Alves, BTG Pactual.

I take the opportunity to wish you success, both professional and personal to you. And I have a point that I'd like to delve into. Parente's management has been sort of marked by 3 mantras. He's been very vocal during your calls regarding medicine, M&A and distance learning. And there's always been great focus on these 3 main avenues. The question to Rossano is perhaps one of those 3 verticals may have a bit less focus from now on. If not in the previous press or statement, also mentioned that continues, she may bring changes. Just to explore this topic of those 3 main or great mantras. And again, I wish you great success.

Well, I can start. Well, distance learning, medicine and distance learning have been our priority. If you look at 82% of our EBITDA of 2024 came from Distance Learning, medicine and the acquisitions we made. So we had ex government revenue of BRL 2 billion in 2017, and we moved to BRL 5 billion is great growth with those levers. In the last Yduqs Day, we talked less about this, this 2-digit growth that we saw in distance learning and medicine and quite loose or 11 and there was a different reality. So we worked a lot on gaining levels of freedom with great cash generation, controlling our debt. And obviously, we are going to cash generation that is quite strong. You write quite well about it and are having different freedom. So the growth are different. The opportunities perhaps are not so gigantic as those 3 were very obvious. There with M&A is quite different with the interest rates that we have today and the level of indebtedness that we have. So the focus is different from what it has been. The mantra actually worked very well until last year's Yduqs Day when we understood the potential. All of you complained with us when we changed the guidance discussion from EBITDA to net income. But we not only did that, but also the cash generation that ultimately is what matters, and we'll keep on delivering that a lot. Well, I'm reinstating that this is the mantra. We had been adjusting those focus on Yduqs Day and the last one did not bring those 3 verticals priorities of the company. When we launched the mantra in 2019, medicine was small in the group and today, it's very relevant. [indiscernible] have to move from almost nothing to a lot of things. We have challenges and opportunities there. M&A was in last year's Yduqs Day that was focusing on opportunities. We'll keep on observing opportunities that may arise. Obviously, the ability that we have for cash generation will place us in a time of great opportunities ahead when we obviously have more adjusted cost of capital and a lower indebtedness level, we certainly will be better positioned for the right market conditions to resume this position. Brazil is not so uniform as that we have to react to the current market conditions. So specifically answering your question, well, we have some adjustment there because of what's happening, it's not because we're changing the CEO seat that will change strategies. As Edu mentioned, if I would change the strategy, that would be electoral with you. And so we fully -- I am fully part of the strategy. I've been part of it, and we'll keep reinforcing our beliefs and values. Well we have to adapt very quickly. And this is the future of Yduqs. This will keep on being. This is a very innovative company in all its moves, very bold, but conservative in its capital strategy, manages to do things correctly. So we'll keep the identity of the company.

Our next question is from Mr. Caio Moscardini from Santander.

First, congratulations, Parente, Rossano. I wish you success in this new journey. I have a brief question on my side. In my view, Parente was very successful in transforming Estácio into a multi-brand company that marked an important cycle to build those 3 pillars, distance learning in person or on campus and premium, very well consolidated. I'd like to know what will be the next cycle of transformation in the company in your journey as CEO.

Thank you, Caio, for your question. The next cycle -- well, I hope -- then in the next cycle, we have the same number of victories that we have had over this period that we've had Eduardo with us. I hope -- it is similar to what we've had with Eduardo. To forecast what will be, it's very difficult. So I can tell you what we see, what made us very excited about the future. We're very excited about technological evolution in the world, especially speaking more generically when we talk about artificial intelligence. We are certain that Yduqs will be one of the leaders in this process, not a mere agent in everything that is happening. And we've done in several times in the development or progress of Yduqs. We're going to be the North Star, the in terms of AI as a great transforming agent of education globally. We have 3 success aspects that I'd like to talk about now, Caio. One, what are the best ways of teaching students, AI as a booster of this way. How should I teach students? How can AI help me in this process of teaching? How can I prepare our students for this new world? What is the social agent that should come out from the Yduqs institutions better prepared for this new world? How can I use AI to improve the company's operations? How can I be a company that is more capable of making changes, generating more efficiencies in its structure with AI. We have several fronts in each one of those verticals. We have this feature that was Eduardo -- not only of Eduardo, but the whole management team of first doing and then talking. But that's why we don't talk so much about it. It's a great focus of the company. I'm sure that it will be one of the factors that will apply the story of the company in the next years.

Next question from Andre Salles, UBS.

Congratulations, Rossano, for your recognition, new challenge. Congratulations for the new cycle ahead of the company. I have 2 questions on my side. First, how should we look at the financial goals that the company has shared -- outlined and shared with the market for the next years in light of this change? I'm thinking about the structured succession process that you've commented with us, the new attributions of the job, Rossano, what took most of your time, Rossano, in the past few months?

It's up to you. Well, your question was a bit of the guidance in light of this change, what impacts? No, nothing. No changes to the guidance. What we believed in the past is not impacted by the change. The guidance will -- is impacted over the year based on what happens in and outside the company. That's why we have the commitment of updating you every time we have our earnings calls. Well, we keep on performing within the plan that we've always had. As I said, nothing changes. The transition has nothing to do with our guidance. I don't know if I quite understood your question, but what has taken up my schedule in the past years to prepare me for the transition. Yes, that's it. Well, very little has changed. I've gone more deeply. I was actually involved in strategic planning, looking at that allows me to be closer to all kinds of businesses. I spent a long time with Eduardo talking about Estacio, and Silvio talking on medicine and also Ibmec to give more depth. Eduardo knows every business in depth. This is super important, obviously, in this position. We have a multi-brand business, the owner of Estacio is Eduardo, of medicine is Silvio and Ibmec is Reginaldo. We help them a bit to actually lead those businesses. This has been the main focus in the recent times in my previous position, it was -- so I have to be closer to them. And finance, you are a bit more further away from the day-to-day of students. That's something I love to be at the forefront. And looking at the reality of our students, I've tried to do a bit of that. But now while it's been a bit harder in the past few weeks with the new schedule, I hope I managed to do that.

Let me add something here, Andre. It's important -- well, something important is that Rossano has been -- has taught here, has been face-to-face with students. We shared a class together, and he was -- I was kind of busy and he actually led the team. He's been in-house for 7 years, background in operations, technology and finance. He is a tripod we require here. And we have a world of very skilled people in the organization. And just to exemplify, Alexandre, our new CFO, is a guy that has been at [indiscernible] McKinsey Financial, and Vale. He's been here for 5 years, as you see as our P&A that we have the ability to say, well, our bad debt, it was a bit like this in the second quarter. Well, when you see personnel costs, this accuracy we've gained in the past 2, 3 years to have very open dialogue with you or even more open to you comes from Aquino's work. Actually, the number of times you've seen myself and Rossano together, you probably maybe you have never seen us separate. It comes from a cautious planning and of great sound governance that we have within the group with that. We were talking yesterday, Rossano was joking that we should call it Bebeto and Romário in the internal communication. Well, to [indiscernible] support us, it was a bit difficult for us. We have been moving hand-in-hand all the time. We sit side by side. So we have this affinity of thought and value that is great with opportunities being open for people in the company and to -- well, go back to what he said in the beginning, to keep on changing a new guidance to make more changes, technology is extremely relevant. Rossano is bringing it up along with marketing, growth people so that we can look at integrated products in a different way of delivering content to students. So there are many cool things coming ahead. So what have you done in the past 6 months? He spent time with me. Well, we have been together for a long -- well, 6 months. Well, no, actually 2 years. Well, Bebeto and Romario too sort of have this sort of analogy of Vasco team.

Next question from Vinicius Figueiredo from Itau BBA.

First of all, congratulations. Congratulations on the migration of Parente. Success to both of you in your respective positions. It's been very clear that most of the questions that I had have kind of been answered. But I'd like to address this whether there's any specific role of Parente in the Board? What is the priority? Also when we think about the first days of migration? I think there's a challenge in regulations that actually requires great attention of the company. How can you ensure that this migration ends up not swerving or changing focus when you think, well, buy side has asked us regarding whether this somehow changes the willingness of the company of more transformation. Parente has been very active on this, the opportunities that have existed within the industry, if this changes anyhow.

So we have a Board that is exceptional if you don't know it. [indiscernible] the Board members, very high level with different backgrounds from very profound knowledge in education, finance market, technology. So it's a team that I have to make an effort to be there along with them. Great advantage that I have deep knowledge of the business and now need to disconnect and give some room for those that are arriving, [indiscernible] and the rest of the team, all of them growing in their positions to perform. Obviously, I'm close. I have one call the distance. So I have important relationship with the government. So I follow regulations closely. So it will be a bit being available as the team needs to support them specifically. As to great transformation, clearly, haven't been very successful. It was a desire we had. We tried to do business with practically all our competitors, and we have been not successful. We did not reach an agreement that was a win-win in both -- on both sides. So I think it's an important opportunity. It's a little consolidated business. There's nothing at site that we're even starting to negotiate now. So it's kind of cold moment for that. Perfect. You've answered precisely that very well. Well, you asked about regulation, changes chances of moving away the focus when you make a transition in-house, one of the strengths is -- advantages is this. We don't change our focus on anything. We keep on working the same way. This is the message about the organization. There's no strategic change. We keep on the same focuses that we had. We are prepared for the new regulation. This is still one of our priorities. We are in a regulated industry. So changes will be made in regulation. So we've been an agent in the transformation process. So direction is better quality for our students and our task to adapt in the best way possible to keep on fulfilling our mission. So the focus is 100% on those missions. Nothing changes as it been programmed. As Eduardo mentioned on the opportunities, we keep on believing. We did believe I think it's important for the industry of future consolidation. This changes nothing. Well, actually, nothing is in the pipeline. Well, just on regulation, we face it as something extremely positive, the regulation that came up. Specifically, there are adjustments here and there. We've been very vocal on this as we have the legal framework approved. So many practices that are part of the framework have been part of what we have in-house and somehow we were commercially hindered by other companies that did not have the same practices. Somehow, the intent of the government is clear, as Rossano said. We want to provide better quality to our students. We have more uniform practices and higher deliverables practices. And the legal framework can be seen as something negative, a source of concern. It is not. It is positive. We have adjustments to make. But from the financial standpoint, a lot has been done based on practices that we already had with Yduqs.

[Operator Instructions] The Q&A session is now closed. We would like to give the floor to Mr. Eduardo Parente to make the company's final remarks.

Thank you, everyone. Thank you for the trust you've had on us, keep on having in the past 7 years and keep on having in the future. Thank you very much to those of you who have invested in us, those that have believed in us. We have a very strong trajectory of delivering what matters from the shareholder standpoint, which is cash flow. We keep on strong dividend payers. We had a buyback program that was very successful last year of deleveraging that allows us to have options to be the owners of our destiny and tap into the best moments of the market. We have a very strong tradition here over the 7 years of making capital allocation in a very responsible way, very good businesses. We are moving into a time that is very interesting for the market, difficult year 2025, but building 2026 that is positive and increasingly more, as I said, well, we are responsible for our future cash generation and generating better profits for our shareholders. Rossano, welcome. Congratulations. It's an honor to be with you here. You're the guy, and I'll keep my eye on the baby. Well, thank you all very much for being here. It's a great honor to take on this position, keep on the same strategy, discipline and capital allocation to tap into our growth and leading this technological transformation world we've always had. We've always been a winning team, and we'll keep on being. Thank you very much.

The video conference of Yduqs is now closed. We thank you very much for your participation and wish you all a very good day.