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Good morning. Welcome, everyone, to Anima's First Quarter 2018 Results Conference Call. Today with us we have Mr. Marcelo Battistella Bueno, Executive Vice President; Gabriel Correa Ribeiro, Strategy and IR Vice President; and Mr. André Tavares, Chief Financial Officer. [Operator Instructions] After Anima's remarks, there will be a question-and-answer session for investors and analysts when further instructions will be given. [Operator Instructions] Today's live webcast may be accessed through Anima's website at www.animaeducacao.com.br/ir and [ NZIQ ] platform.
Before proceeding, we would like to mention that during this conference call, forward-looking statements may be made related to Anima's business prospects, operational and financial investments and goals, based on the beliefs and assumptions of Anima's management and on information currently available. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, sector conditions and other operational factors could also affect Anima's future results and could cause these results to differ materially from those expressed in such forward-looking statements.
Now, I will turn the conference over to Mr. Marcelo Battistella Bueno who will begin the presentation. Mr. Marcelo Bueno, you may begin your conference.
Good morning, everybody. It's always a great pleasure to be here with you this morning. The first point I would like to tell is that 15 years ago, on May 6, 2003, Daniel, myself, Escobar and our partners, we were found in Anima. So after 15 years of success, it's a great honor and a very positive thing to be celebrating. So there's no doubt we are celebrating a lot. And I'd like to point out 3 important events that are related to our quality position that we can see with a very important point.
The first is that, last month, we did the Singularity Brazil Summit through [ Asia Sam ] in part with Singularity University. It was a huge success here in Brazil. So we are very proud of that. The second point is that this week, especially, we launched the [indiscernible] institute, [indiscernible] institute here in SĂŁo Paulo with a huge success, reinforcing our quality position as well. And this week also, we are doing 2 very important programs. One, [indiscernible] universities and the other one with Stanford University and Lehrman Institute and Lehrman foundation. So this is very important to train our teachers in Brazil and train the Brazilian teachers. So we are very proud of that. So this is everything related to our celebration [ of our position ] delivering quality for our institutions and students.
Related to our presentation, I would like to point out two important points. The first is our discount policies that, especially in this quarter, we can see almost 10% of [indiscernible] in our results. This is related to the strategy that we are using to attract our students, which will give them a sense of opportunity to come and join us and study with us. So this is a point that we can -- we have to consider to, and we are going to see that in the next quarters and see our results. Secondly is our SG&A. So if you compare the numbers in this quarter with the numbers in the first quarter last year, it's still comparable. So if you compare this number -- this quarter number with the last quarter of the last year, so this is comparable and the number is stabilizing. So this was a very important point for us to point out and to discuss. So after that, I'll ask Gabriel to pass through the presentation. And then we'll go to Q&A. Thank you.
Thank you, Marcelo. Good morning, everyone. Thank you for attending the first quarter '18 call.
We're using the presentation that was made available in our website. And I'll start continuing with the highlights of the quarter as Marcelo started. We see this year as a very important year to consolidate some of the achievements that we started to collect the results since last year. So a lot of things that we planted are now bearing fruits. And so this year is a very important year, as I said, to consolidate this.
When we look at the financial figures, we started, as already reported, with a very, very good intake in this first half, reaching 30,000 students altogether, a record-high intake for us, which translated into a 25% growth. That number by itself is already very good, but also the other thing that we're celebrating is the fact that we were able to grow 11% on the same-campuses basis. So the expansion brand that is underway is very important to drive growth, but also the commercial team efforts to resume growth on a same-campuses basis is also driving good results. This is translated into a student-base growth of about 5%. So we're definitely leaving behind the process of declining student base that we faced all the way up to the first half of last year. And if we look, specifically, at the undergraduate base, which is growing almost 9%, it's also a great result. And we managed to do that despite the increase in discounts that Marcelo mentioned, keeping our average tuition basically flat versus the same period of last year. And I'm going to talk a little bit more about that in a minute.
The other important thing is the roll out of the new academic model, which we started in the second half of last year with a few programs. But all of the intakes -- almost all of the intakes this year is already under the competence model. It's still too early to call victory, but the early results tell us or confirm us that we are on the right track. And despite the fact that in the first year whenever you change the academic model, you lose some efficiency because if you were not able to combine all the classes, we're still seeing some gross margin improvements in the quarter of 1.2 percentage points.
Margins are not up in the quarter. It's slightly down. As we already -- we were already expecting. And two main reasons for that. One is the additional marketing spending related to the new campuses. And as Marcelo pointed out, an increase on a quarter-to-quarter basis on the corporate expenses and, again, that we were already expecting, given the fact that we did a lot of things throughout last year in terms of our centralization and increasing some of the things, like the commercial team that impact the quarter-to-quarter comparison.
If we open up the numbers on the education segment, you see progress both on -- in our base business as we were able to sustain margins, despite the fact that we're giving a little bit more discounts. Acquisitions continue to make progress as well. So we see a 3.2 percentage points improvements in the -- when we isolate the acquisitions, and the organic expansion is also driving positive results in the quarter, delivering BRL 4.6 million in operating results. So that to say that -- despite the fact that we started the quarter with a big line in our EBITDA margin, we're still looking for the total year to continue to make progress as we did last year.
So moving on, on the presentation. Looking at the consolidated results on Slide 5. You see revenue growing 3.9%, basically driven by the education segment as the other business declined 22.5%. It's not a relevant quarter in terms of revenues for this other business segment. And the decline is basically driven by the discontinuation of some activities at Sociesc, at the Innovation and Technology segments.
As I mentioned, gross margins is up 1.2, but not enough to offset the increase in marketing expenses and the corporate expenses to end up at about 2.4 percentage points decline in the quarter.
Moving forward on Slide 7. Looking at education and business in more detail, as I mentioned, our student base is growing 4.8%, reaching slightly north of 100,000 students. And again, if we isolate just the undergraduate students, it's a significant growth of 8.9% on a quarter-to-quarter basis. This was driven, as I mentioned, through a good intake cycle of growth of 25%. And also, on Slide 8, you see the dropouts are pretty much under control at 9.4%, basically the same rate that we had on same period last year.
Tuition, on Slide 9, is BRL 837 per month. Net tuition -- net average tickets, which is 0.3 percentage points decline, basically the same of last year. And it's important to highlight here that given the fact that we changed the commercial strategy, basically in the second half of last year, concentrating on more discounts in the first and second tuition, so this got very concentrated in the first quarter. And then it gets diluted as we move on the semester. So we should expect some improvements in our net average tuition in the second half because of the good intakes, and again, the fact that the discounts do not apply for the full semester, just for the first and second tuition.
Moving on to Slide 10. Those impacts drove net revenue growth in the education segment of 4.5%, being driven by 4.8% student base growth and a slight decline, as I mentioned, in the average net tuition. Overall, margin is pretty much flat in the segment, just 0.3 percentage points below. Again, driven by positive gross margin improvements but, again, not enough to offset the additional marketing spending that we -- related to the new campuses.
On Slide 11, we breakout these education segments through 3 main blocks. Being the first one, the more mature brands, basically our brands in Minas Gerais and [ Saojudas ]. And you see that we're pretty much in line in terms of the top line, and also in terms of margins in the quarter.
Acquisitions continue to make progress. And this is basically the combination of Sociesc and the countryside of Minas Gerais acquisitions of last year. And the organic growth, which is basically the 15 campuses that we opened over the last 18 months continue to provide growth on the top line and are delivering also improvements in terms of margins.
So when we look forward, we see that we still have some efficiency gains to capture all the base business. But most of the margin improvement should come from both the acquisitions and the new campuses, the new academic units that still operate under a significantly lower efficiency level compared today, the more mature business.
Moving forward to other business. Again, as I mentioned in the beginning, this is not a relevant quarter in terms of results in terms of revenues. And the decline that we see, the 22.5% decline, is basically driven by -- again, by the fact that we decided to discontinue some activities, some secondary activities that happened in the Innovation and Technology business down in Sociesc.
We're simplifying the operation. We still have some contracts that we have to deliver all the way to the end. But we stopped the sale of new contracts in those divisions. And the remaining activities that happened there are being transferred to the -- our institute, our nonprofit institute, and they will start to be consolidated as we go through that process.
So looking at a -- still looking at the consolidated numbers, we see a slight improvement in operating results for basically HSM and [ Ebradi ]. Again, remembering that there's seasonality in the first quarter with not enough revenues compared to the total year numbers and also, some loss -- expected loss given the seasonality.
On Slide 15, you see the evolution of the corporate expenses. As Marcelo mentioned in the beginning, we started the year with BRL 80 million -- last year was BRL 80 million, and ended up with BRL 26 million driven basically by the fact that we centralized a lot of the activities that were still happening at the front ends. And also, invested in other areas, like the commercials teams that I mentioned. All this process happened throughout the year on a quarter-by-quarter basis, slight increases. So we're basically comparing this first quarter to the last quarter -- the second half of last year. So you see a stable number and that should be the case looking forward.
On the next slide, you see the nonrecurring items. We're basically excluding 2 main items from this quarter's results. First of all, the restructuring expenses, which is basically concentrated in severance packages for people that we have, unfortunately, to dismiss in the quarter. And a lot of that or almost half of that is concentrated in the outsourcing decision that we took earlier this year for some of cleaning and maintenance activities in our campuses.
The other one is basically the results of these remaining contracts on the innovation and technology department at Sociesc. But again, given the fact that we are gradually discontinuing these activities, we are excluding the numbers to have a more clear picture of our results.
Moving to accounts receivable and cash. On Slide 18, we see the accounts receivable. Total days outstanding coming down 16 days compared to last year. There was a slight increase versus December -- the position in December. And compared to last year, the decline is basically driven by [ FIES ], as expected, as we are receiving the installments from the [ FIES 23 ]. And the increase in [ FIES ] numbers compared to the first quarter of -- the last quarter of last year is basically driven by the fact that we received one tuition, one competence more of FIES in December, and then the government delayed some of the contract revenue process. So -- but that should convert into cash now in the second half.
And the non-FIES receivable was up a little bit compared to last year, 8 days up. But this is mostly concentrated in undue receivables and a lot of that concentrated in credit card receivables, which we don't have any issues so far with our credit [ risk ] looking forward.
So looking at cash, we start -- we ended last year at BRL 115 million cash position. And we were -- ended this quarter compared with the 100,000 or BRL 100 million in cash position, driven by slightly north of BRL 60 million cash generation. Some -- still some consumption in terms of working capital, again, related to the FIES receivables in the quarter. And a slight increase in our CapEx related to the expansion process as well.
With that, we ended the quarter with a net debt, basically, flat versus the position reported in December with a -- close to BRL 240 million of net debt, which translates into a leverage of 1.4 net debt-to-EBITDA ratio.
So just to conclude, our return on invested capital is slightly -- is basically flat versus the position closed last year. And as we continue making progress on the margin looking forward on the year, we should see those numbers resuming the trend that we saw last year. So before I open back to questions, again, highlighting the message from the beginning. This is an important year to consolidate and continue to make progress in all the key metrics that we're tracking: quality, revenue growth, EBITDA growth, cash generation and return on invested capital. And as Marcelo highlighted, while we do have some events and celebrations related to our 15th anniversary.
So with that, I'll open for questions.
[Operator Instructions] Our first question comes from Susana Salaru, ItaĂş.
The first one, would you please elaborate a bit about the key initiatives that are in place to unlock the synergies from the acquired companies? If you could separate between actually the organic growth and the inorganic, what are the key levers that we should see to narrow the gap between the margins of those operations and the margins of the mature operations? That would be our first question. And the second question, if you could elaborate a bit about what you are seeing in the competitive landscape? We saw an uptick in discounts. Of course, that's a reflect of having a commercial department rate, but also, we would imagine that there was the duration on the competitive landscape. Just want to know what are your -- what you have been seeing.
Thank you, Susana, for the questions. Let me start answering. The first one, as we -- we've been in the acquisition and integration process since 2016, and we're basically talking about integration of Sociesc, and then the acquisitions of [ Una ] in the countryside of Minas. There are different stories there. But on the first one, on Sociesc, which, I think is the biggest opportunity to narrow the margin gap versus the more mature operations. We -- the first synergies that were captured basically throughout last year were basically the integration of back offices and management teams. Then we started to -- and then we started to roll out the academic model, the new academic model. And the new academic model, it takes about 3 to 5 years to fully capture the synergies. So we should continue to gradually see improvements in the number of students per class at Sociesc as we roll out the program, the new academic model there. So I think this is one of the major initiatives there. And then on the second, as a second point, Sociesc had already made a big footprint expansion, opening sites throughout Santa Catarina. But many of them were lacking, still lacking scale. So throughout '17 -- '16 and '17, we basically expanded the portfolio of programs in those campuses, and they are gradually gaining scale to improve margins. So the combination of our new academic model plus gaining scale or improving the portfolio offering to obtain better margins in those sites, I think, are the main levers to continue closing the gap between Sociesc and the -- and our more mature brands.
In the countryside of Minas, margins were already much better at [indiscernible]. But there, we also have some expansion of opportunities. So, the get there is much smaller compared to the more mature brands.
To the second question on the competition in competitive environment, I think that, as we have talked throughout this -- as when we released the intake results, we do see that the competitive environment is tough, it's still tough. But it's pretty much in line with what we have seen in the last few intake cycles. More so -- we don't see a significant deterioration there. It's been as aggressive as always. And obviously, this semester was impacted by the delays in FIES. But for the other pocket of students, it's pretty much similar to what we had seen in the previous years. And we're being more effective now, given that we do have a commercial strategy in place and a commercial team fully in place. But as I mentioned, discounts have shift in terms of strategy, no? So the discounts are more comparable to the first half of -- for the second half of last year than the first half of last year, given the fact that we changed the strategy, reducing community scholarships, 50% scholarships in the -- as part of the commercial strategy, which at the end of the day, impacts the whole program and concentrated more on the first and second tuition.
The next question comes from Rodrigo Gastim, BTG Pactual.
Two questions from my side today. The first one regarding margins. We saw margin contractions this first quarter. So just trying to understand, what's the best, of course, qualitative message that you can send towards now with Q1 numbers in hands? How margins should behave during the year? Should we start seeing an inversion in this trend already in the second quarter? That's the first question. And the second one, I'm just trying to understand what happened with the deterioration in non-FIES receivables, all right? We've been -- you mentioned a little bit during the presentation, but we have been seeing it improving over the last couple of quarters. So trying to understand if this was a measure to make the renegotiation profits likely more flexible for students during this cycle? Or what really happened here? And how it should behave? How non-FIES receivables, they should behave during the year? These are my two questions.
Thank you, Rodrigo, for your questions. So on the margin, on the first one, on -- in terms of margins, I mean, there are a lot of moving parts in this first quarter margin results. And again, the base of comparison from last year, the change in commercial strategy, the fact that the corporate expenses were growing gradually throughout last year. So -- and behind all that, there is also the fact that our business is more on a semester cycle versus a quarterly cycle or a monthly cycle like others businesses. So we don't look at -- I understand you guys have to look at the quarter to try to anticipate what's going to happen to the total year. But on a qualitative basis, what we can say is that we are working to continue improving our margins throughout the year. And again, we were already expecting that -- those numbers in the quarter, so there was no surprise there for us. Again, given all the moving parts in the comparison basis that we have. So as tuition improves in the second half and a lot of the things that we're working, like the economic model rollouts which is inefficient in the first -- in the very beginning, but drives a lot of efficiency across the implementation rollout. So everything put together, we continue looking positively in terms of margins for this year and the next ones.
On the first-- on the non-FIES receivables, we do see the -- that the -- our receivables have been fluctuating between 50 and 60 days throughout a pretty much long period of time. And in this last quarter, it went up a little bit more, which is 63 days. I honestly don't see that as an issue, as when we breakout what drove those -- that increase was basically the undue receivables, no? And as I mentioned, a lot of that was credit cards renegotiations in which the credit risk is no longer ours. So I think it's -- on one side, yes, it reflects the fact that more students got through the reenrollment process with some debt and that requires more renegotiation efforts, but at the same time, I think we are managing it well in terms of keeping up with the strict rules about, not reenrolling students with debts. Only using renegotiation tools, like credit cards, and that we reduce our risk, not giving discounts to -- incentives to students with debt to reenroll. So we're keeping the discipline there despite the fact that the number went a little bit up in this quarter.
[Operator Instructions] The next question comes from Marcelo Santos, JP Morgan.
The first question is about a comment you made in your release about hiring professors, coordinators and service providers for the new units during the quarter, which -- you did a temporary impact on the results of the new units. Just wanted to get some quantification or some idea of what would have been the cost of the new unit if you had these guys hired -- these professionals hired from day one? So that would help us to forecast margins going forward. And then, the second question is regarding the effects of the academic model. I think in the prepared remarks, you mentioned that most of the margin gains should come from the recent M&A and the new units going forward. But I mean, I just wonder if the new economic model shouldn't also boost margins from the legacy units, from the more established units, given -- especially in the second and third years of implementation? These are the two questions.
Yes, I mean, starting from the last part of your question. You are right. I mean, we are rolling out the academic model for all of our brands, and in all of our programs. So we -- it should impact not only the new acquired units but also the more mature. But the gap is much smaller, not because the efficiency -- when you compare the legacy models from the acquisitions and our previous academic model, the delta is not the same. So that's why I say that most of the margin comes from the integration of the new acquisitions, but that is -- you're right, there is also gains coming from the more mature business.
And to your first question, when we look at the results from organic expansion, obviously, it's driving top line growth as expected. But the results are coming -- the operating results for those units, specifically in this quarter were very good. Those reaching 24 -- almost 25% margin when you have so many new units starting in this quarter. So when we did a deep dive in those results, we realized, first, there are two types of new units there. Know that there's about 8 new units that were open through '16 -- July 16 and December 17. And then the 7 units that were opened in January [ 5 ] this year. So when we split the two, it's expected that the first group will gradually grow the base by looped fixed cost and improve margins. But then the second one, and this is where the impact that we mentioned in the release happened. We started the enrollments, obviously, in January but we were only hiring some of the professors and staff throughout the semesters. So we didn't have the full cost, the 3 months cost on the quarter. This is very temporary. The second quarter should already drive a full picture in terms of our costs for this specific unit. But then as you have other units that are already reaching -- getting closer to maturity, these get diluted. So I don't think it's something that is extremely material. But it's an important point to say that the second quarter results will be impacted by that impact -- by that effect.
[Operator Instructions] The next question comes from [indiscernible] of [indiscernible].
Just wanted to clarify something. In this intake cycle, how -- what percentage of the new freshmen are already studying under the new academic model? And also, you mentioned that in the first quarter of recent initial phase of this implementation of this new model, gains are not so relevant in terms of efficiency. Can you give us a sense of -- from when can we expect further gains from the presentation of the new model?
Basically, I mean, almost all of the students are in -- under the new model already. The other students that are not under the competence model were specialty programs that are specifically to one unit or the other, the educational programs, like the biology and medicine. So these are the only programs that have not been -- where the competence model has not been rolled out yet as we are still working on those programs, and they should happen in the second half of '18 and first half of '19. So I think it's fair to say that, basically, almost all of the students are under the new model. And so you understand the dynamic in terms of efficiency, I think there are two main effects. First one is that once you change the academic model, you do lose some efficiency because you cannot combine the classes of this new freshmen students with the existing student bases in a few programs, no? The ones that are coming. So the model structure does not fully work when you do that -- those type of changes. From the second half forward, you're already able to combine classes from both the freshmen from the first half and second half of '18. So you kind of see some of that inefficiencies. It's part of the cost of that transition. The other elements that we -- it's good to highlight is that if you remember the module structure, it's not very different from the previous model in the first year of implementation. Most of the efficiencies come from the second and third year of implementation where the module structure is more efficient, more -- provides more class combinations than the previous one. So the efficiencies that we are seeing this quarter are met by those impacts that I mentioned, but still, we are graduating students from legacy programs. And increasing the penetration of these new models, both the competence and the current one on the total student base. So that's why we're still seeing some margin gains despite the fact of those inefficiencies.
This concludes today's question-and-answer session. I would like to turn the floor back to Mr. Marcelo Battistella Bueno.
I would like to close saying thanks to our partners, employers, faculty members, investors and all stakeholders for those 15 years of great success and say that we are ready for the next 15 years and all the challenges that will come. Thank you very much.
Thank you. Anima's first quarter results conference call is over. Have a nice day.