Anima Holding SA

BOVESPA:ANIM3

Earnings Call Transcript 2024-Q1

[Marina Gelman, executive]

[Interpreted] So welcome. This is our results webinar, the first quarter of 2024 of Ânima Holding S.A. So we have Marcelo Bueno, myself, CEO and IR Officer, speaking to you directly from New York and the learning [indiscernible] Sao Paulo, we have Atila, our CFO; and Guilherme Colin Soarez, our interim CFO. Marcelo, it's up to you.

[Marcelo Bueno, executive]

[Interpreted]Good morning, Marina, and Guilherme, and good morning, everyone. It is a great honor to be with you at such a special moment, a very important moment for our company. I believe that the results speak for themselves. But we should acknowledge the hard and disciplined work that we've carried out that is demonstrated in our results. We have reduced our net debt by BRL 100 million. We attained the covenants 1 quarter beforehand, cash generation, 1.6% cash generation over the first quarter 2023. So they are very strong numbers that show the courage and discipline of our team. Revenue with quality. We made a difficult choice, which we decided to opt for increasingly looking into revenue, quality revenue, and do what was within our reach and what we could do for the company we hear in the long term. So we want to increasingly generate value and make our company increasingly more sustainable in its value proposal. So you see the results on screen. Our focus is to grow to increasingly looking into quality of our revenue to generate value to our students so that we can move forward in a consistent way, always focusing on our results. And now more focusing on growth. The company is ready for that. It is -- we had to make decisions with discipline and we're ready for our growth. I turn over to Atila so that we can move on with our earnings results webinar.

[Átila da Cunha, executive]

[Interpreted] Thank you very much, Marcelo. As you said, I make a point about just like you to thank all the ecosystem educators, and all our brands represented here by Guilherme, and all the schools that follow our organization, thousands of people that today, we have the opportunity to represent here that are behind those figures. The people are those who deliver the value proposal we propose to our students. And I like to start before speaking of numbers, I'd like to talk about people and thank the work of all our educators. Now let's move on to our numbers. This earnings results webinar shows significant ticket growth that consequently significant margin growth. On the right-hand side, we have our famous Botafogo chart. Botafogo promise is constant debt. So we have a chart that is always rising. So it is great to show the numbers result of the quarter. We can deliver a ticket, a significant ticket growth, and without a quality of revenue strategy that has turned into margin growth in a significant way. And the chart upwards in this quarter. I believe this is a great point, right, Marcelo, of our results, cash generation that is quite significantly deriving from our choices. This has to be made clear. We have a chart on the right. First, to try to imagine what has been the work that we've been talking about since the beginning of the intake cycle, which several times, we said that we are not here to look only into price and volume. We're here to look at price, volume, and revenue quality, the speed it generates, the cost it brings less intensive use of our balance sheet through more assertive policies and stronger ones to bring better quality revenue. And this has had a [indiscernible] margin, higher EBITDA, and more cash generation. But Marcelo, I think it's important to say that this is not necessarily a choice to let go volumes, much on the contrary. We understand that this strategy will also bring volume over time because it brings let's drop out and higher ability to generate ticket students that arise better prepared, ready to move on in their academic trajectory from the financial standpoint, they have a higher lifetime value. So we are actually creating a student higher PV. And it generates a positive spiral and we have the feedback and we generate more price and more volume and consequently more margin, more EBITDA, more cash generation, and having as the backdrop, radar increasingly stronger and our students acknowledge their value resulting at the end of the day, this chart, the net margin, EBITDA and cash generation growth. This is the strategy that is actually earnings release opens up broadly and a low to you. Consequently, we have brought a significant debt reduction. We reduced by BRL 100 million in net debt in the quarter. We dropped leverage, as you always say, you have to fulfill contracts, and we have done so. We delivered leverage. We proved the cash generation in the quarter, a result of all our choices and everything that we have shown over the past 2 years. So this is a statement that is quite clean. So behind it, we have BRL 400,000 or nonrecurring that shows the quality of our results shown in the previous slides, we see EBITDA being transformed into cash generation. We see back there 83% conversion result of a clean financial statement or income statement. We have gained in almost all the items. So here, we have a number that is quite significant in terms of growth. And it arises from results in all segments. In Ânima core, we have our main segment with significant margin gains despite volume drops, we've offset smaller volume with greater tickets. And we had revenue practically stable. This by itself brings operating leverage that is very important in the results that along with all the measures of efficient control of costs, we have brought this margin gain, and the same happening in the digital segment, considering its dynamic has a different growth, top line. It grows just in volume despite a drop in intake. We grow in volume because we are able to improve our retention rates. And we're able to improve tickets. We had double-digit ticket growth that is very important in this segment. Consequently, any margin and results improvement. Guilherme?

[Guilherme Colin Soarez, executive]

Greetings to you, Marina, and Marcelo in New York, I'd just like to stress some points regarding the quarter, starting with the communication that we made the previous week of rolling out the Espeland Jet, which has been yet another steady step to turn Espeland in an increasingly more independent and clean company regarding its controls and governance. In addition, this new debenture brings a significant reduction in its cost, 100 basis points below the previous one, and we have almost doubled the payment term. In addition to firm step and the trajectory in spiral brings important fundaments to allow our growth, that is our CSI highlights the intake cycle of the attraction despite longer Fiesturbs, we keep full occupation with results still to come in the next quarter. with the extension as is mature, our controls and our governance and our numbers complementing with greater maturity of our costs, it is only to be expected to have a reduction in the fluctuation of results with greater balance between quarters, and we bring very sound results for the first quarter of 2024, which is an indicator as to how we're going to give maintenance results in the forthcoming quarters. Well, I'd like to highlight lifelong medical education, another quarter of growth, and take the opportunity to create the team of IBC Med lifelong medical education with headquarters in Portola and actually show our sympathy to over [indiscernible] that are heading this operation in Portalegre and we share our solidarity. The result of all the forward that we see consolidated cash flow with strong cash generation in which cash reduction has been used to pay debt. And we've also been able to reduce to actually work more in debt reduction, as Gillian mentioned quite well. Brian's work led by Thiago. Next to me, CFO with Bralialong with the whole Anima team, Marcelo Bueno as well. They have brought important results. You see here on the chart on the right, this renegotiation has been translated into a very different amortization volume for the forthcoming 3 years, making the company to be very reassured to manage its cash in a totally healthy way. As a consequence, the renegotiation helped us reduce the debt spread and with constant drops in the interest rates and debt rates, we have lower financial expenses. We had an important reduction in this area that's being translated into the growth of the net income of the company in a very robust and healthy way.To finalize, I'd like to turn over to Marcelo.

[Marcelo Bueno, executive]

[Interpreted] Thank you all very much that have trusted that trust that work for this project to grow and to be growing increasingly more, thank you. I'm going to ask Eleni to be with me in this closing and everyone how proud we are in terms of having the highest net income of BRL 104.7 million. This makes us very proud, a company that has been able to show that it is possible to deliver quality education with scale and to turn the country through education, generating value to all our stakeholders. With this, I'd like to close and congratulate everyone, but I have to mention our solidarity to Rio Grande do Sul, all the Gauchos reinforce the commitment our ecosystem has with the state in our country. Our ecosystem is totally mobilized to provide immediate service to our schools. So when Hetero, Vader, BSM, and all the ecosystem mobilized to provide solidarity and support the cultures that need so much at the moment. So I have to acknowledge the teams and this inclusively creates commitment of our ecosystem. As Daniel Castelo said, our dear partner, founder, and there are many things that we can teach. For all the others, we go to school and university teaching solidarity, compassion, and love for others. With those close to love for our land, this is what we have seen. We have felt on our skins and as days, and I'd like to share our solidarity. And I'd like to turn it over to Guilherme to talk about the support of the medical schools. Guilherme , tell us a bit so that we can close with this. Tell us about the support to the teams to Rio Grande do Sul and Brazil.

[Guilherme Colin Soarez, executive]

[Interpreted] Thank you, Marcelo. -- as Anima ecosystem and Inspirali Anima mobilized the team of 40 doctors and medical students in a bit over 24 hours after the heavy rainfalls, we started helping the communities that have suffered so much with this calamity, this strategy. And I'd like to extend the commitment of Inspirali Anima, an ecosystem we are mobilizing so that this humantarians support mission only 1 week of action. This team has saved about 5,000 people in need. And unfortunately, there's a trend of increase in diseases once the waters lower and we intend to keep a team on site for the next 3 months, providing humanitarian support, which is part of our obligation and responsibility towards the good of the people from [indiscernible]. The Inspirali Anima ecosystems will not leave the people from [indiscernible]. I should do that to close. I do that to you, Marina, an example [indiscernible] leading a certain team and pretty to all of you. And well, I wish all great support and power force to [indiscernible]. Well, let's move on to questions.

[Guilherme Colin Soarez, executive]

[Interpreted] [Operator Instructions]The first person that has enrolled for a question is Mirela Rodrigues from Bank of America.

[Mirela Rodrigues de Oliveira, analyst]

[Interpreted] I have 2. The first is regarding dropout, you see a bit of on-campus dropout, [indiscernible] talk a bit about this effect leading to dropout. So if you could make a few comments regarding that? And the second question is regarding the ticket. If you could talk a bit more about the composition sustainability of the ticket now ahead if this has an effect of product mix or freshmen, if you could give some more details on that.

[Marcelo Bueno, executive]

[Interpreted] I'm going to start with the second question, Atila, then you move on. Thank you, Mirella. I've been insisting that education has no price has value. We have to care for our value proposal recognition of our value proposal that has materialized on the ticket. We don't have a silver bullet. It is a change of culture, decisions that are difficult to be made many times. The easier path is the path that has been called scope been working firmly in the mid, long-term projects, and the results showed the difficult choices that we have made that bring results. And after all, our brands have great strength and our value proposal is highly differentiated. So this is our belief, and that is where we're going to work day after day, all the time -- all the teams to generate increasingly more value.

[Átila da Cunha, executive]

[Interpreted] Thank you, Marcelo. I think this is it. We have to try to spread through our product and student segments. On dropout rates, we've naturally been doing some work of making the value for students actually comply with their commitments, and we have been doing some work and taking out -- well, having scholarships and having certain concessions. This has an impact on dropout. We've been quite strict on REIT enrolment negotiations have to be done for real. Everybody has to pay interest and fines. There is no agreement or an agreement so people have to make an agreement and pay cash. So this is the set of things that is translated into a greater revenue quality that has an impact to dropout rates, certainly. But it's been an impact we've seen of lower relevance. We had an increase of 1% in dropout rates in light of everything that we have done, it's a much smaller impact compared to the benefit it brings. So we are totally confident about the assertiveness of this strategy.

[Guilherme Colin Soarez, executive]

[Interpreted] The next person in the role is Samuel Alves, BTG.

[Samuel Alves, analyst]

[Interpreted] I have 2 questions on our side. The first is a bit more on the dynamics on the base in the Anima core segment. This was very clear with the presentation, the positioning of the ticket strategy the company has adopted. How do you imagine from now onwards, you imagine things according to the plant resulting in a smaller base and higher tickets for the remainder of the year? Is that more or less what would you think about? I'd like to relate this point to a second question as to what would be the average occupancy in campuses of the company if you visage space to for leasing of areas. So if the company intends to follow the strategy.

[Marcelo Bueno, executive]

[Interpreted] Thank you for the question. So we are focusing on growth, resuming company growth, and this goes through revisiting the whole portfolio. Education is cyclic. People only talk about medicine, but law is not over. Engineering is not over, IT, it's not over so core, is firm. We actually made a heavy overhaul there, and we have to grow the base with sustainability. So I think this is the main message here. Atila tell us a bit more about leasing.

[Átila da Cunha, executive]

[Interpreted] And I've been saying whenever I can, today, for our company, we cover 75% of the national territory. We have approximately 82 units in our campuses apart from the centers Brazil has 5,500 [indiscernible] you take spells with higher GDP HDI. So we have space for growth. And now we have to look at it once we have done all the grounding and routing and foundation work. Within that chart is an important element, which is the strengthening of our brands. Today, we have teams that are working on intake midyear and teams working on intake early years. They are totally different processes that have as a backdrop of strengthening of our brands. Everything we do is not isolated. It's actually an assemble or is part of a strategy to make our brands to be increasingly more acknowledged for their value. So when we look ahead, we look at this work yielding results, not only with lower dropout rates that will be consequently translated into greater volume. So we should not lose track that dropout is focused mostly on freshmen. If we have freshmen that arrive in a healthier and more prepared way, we will have a lower dropout and consequently, a student-based evolution that will be quite healthy. In addition, all the work that we've done to strengthen our brands as is ready to grow volumes, but with quality and high ticket disciplined use of our balance sheet. Now onwards, you say, "Well, are we going to return our properties, the properties we have are those that we need to deliver our quality offer." If you look to our campuses that we have here in Sao Paulo and outside Sao Paulo. So we have many some. They are very well positioned to capture increasingly more the growth that we'll derive from our brands. The more or the stronger they are, the healthier will be our growth and the healthier will have our bottom line. This is our philosophy. This is our thinking.

[Guilherme Colin Soarez, executive]

[Interpreted] Our next question enrolled is Lucas Nagano from Morgan Stanley.

[Lucas Nagano, analyst]

[Interpreted] We also have 2 questions. The first is regarding leverage. Being below 3 months and 1 month before the quarter closes. 1.5 months. Do you see any risky environment or a pessimistic scenario that you view? So what level of leverage do you think about pursuing? The second question is going back to the core on that equation that you come price volume and delinquency or default -- that has not prioritized revenue so much. Thinking about the season, do you see some space in improving the debt cash cycle, thinking about the next 2 or 3 years?

[Marcelo Bueno, executive]

[Interpreted] Very good. Let me start here. Well, thank you, Lucas, for your question. We're focusing on organic leverage to deleverage faster, being always very cohesive. We have to focus on taking harsh measures that are not nice to be taken, but they are necessary. We've done that. We've implemented them. We focused our energy in renegotiation and reprofiling of our debt to make it more optimal and more accessible at a lower cost. We are about to conclude this initiative and now we're focusing our energy on growth. As I said, the top line for the previous question and also how to deleverage inorganically faster to put the debt at lower levels for the company at healthier leverage levels, okay, precisely. I think just to -- is not initiate delinquency assertive cost of our balance sheet, of our having the financing in a conscious and balanced way. With this, we show it in a given place in our earnings release. If you see the intake with use of financing, it hasn't dropped 19%, but actually a number close to 4%, well below our ticket growth. So there, Lucas, the eye is for that. It's not as a use of the funds, the better quality of the revenue, and how it comes into the company cash. This is what we've been trying to maximize for some time. The results show a bit of this work. If it is going to reflect into a lower delinquency or bad debt. So we have these things mature over time. We believe that this is translated over time with lower dropout rates, and less delinquency at the end of the day. The students take spending longer periods of time with us.

[Lucas Nagano, analyst]

[Interpreted] Very good, actually. And of course, sorry, is there any kind of level of leverage that you consider optimum at the moment?

[Marina Gelman, executive]

[Interpreted] Sure, Lucas. It's not that we have a target, but our -- well, traditionally, our leverage history has been 2x, 2.5x. That's where we were able to expand and continue growing, which is the strength of our G&A, as everybody knows here. So that's where we can think about those levels. And I think it's important to say that our metrics are always the old-fashioned way so that everything is clear. Yes. IFRS, the debt is not leasing an EBITDA with rent or leasing and expenses, very clear. Thank you, Lucas.

[Guilherme Colin Soarez, executive]

[Interpreted] The next person in the road is Marcelo Santos from JPMorgan.

[Marcelo Santos, analyst]

[Interpreted]. I'd like to ask 2 questions as well on our side. First, regarding Distance Learning. You've had over the various past quarters, a change in the focus. It seems focusing where brands are strong with higher ticket, generating good impact. How much room do you see? Is this correct? And how much room do you see to growth in this area of influence where your brands are stronger? How much can you gain there? The second question is on Inspirali of the students in the student base of Inspirali has been reduced a bit. Do you have -- should we imagine a sustainable level for the margin '24 is a level that we could think for the next years? Or will we wait for some maturing for the future? I'd just like to have some more perspective on that.

[Marcelo Bueno, executive]

[Interpreted] Let me talk about Inspirali. Marcelo, we believe we have seen entities as an important day for making this tangible that education in Brazil is regional. Education in Brazil is local. The strength of the brand makes a difference. And we have the greatest portfolio of the greatest brands of higher education covering 75% of the national territory. The brands that have been 70 up to 90 years delivering quality education. This is a great differential digital and on-campus. This is our belief, and this is what we have been doing. And we provide digital that comes from Laureate that is delivered to the north. This is not something that happens overnight. As you put it well. We do it constantly and it is possible to deliver digital with quality. It's something that we can actually sleep quietly at and knowing that we're providing appropriate quality services to our students. I believe that digital is the gateway for millions of Brazilian people that have no access to higher education that can through digital into the NMI ecosystem and improve and better the lives and flight, they will never stop studying. They can do more and more. It is a gateway to our ecosystem.

[Átila da Cunha, executive]

[Interpreted] Marcelo, thank you for your question. We have, in the past quarter, we disclosed an increase[indiscernible]that came at a time that was not possible to be filled in this quarter. We have some strategies for the second quarter and expectations of the approval of ONAP, we have the expectation of being able to open the calls in the second semester. So there are some facts that may proportionately, obviously, smaller regarding the current student base, but they may bring organic growth that is quite significant. But as I said in my comments, as the seats mature, we attain this maturity, it's only to be expected less fluctuation between quarters less stress seasonality between quarters, and healthy levels as we have presented in the first quarter for 2024. So we have much sounder governance much more confidence and clearer, this has brought better tools to manage the day-to-day of our results.

[Guilherme Colin Soarez, executive]

[Interpreted] The next person in the Ronan Prata from Citi.

[Renan Prata, analyst]

[Interpreted] Well, Actually, as a brief follow-up on some comments that have already been made and [indiscernible] intake of core funding that should have dropped much more. I'd like to know whether the strategy continues for you to use less debt funding from [indiscernible] facility in next waves of intake. And a brief question to Marina, do you have any update on the regulatory environment? Actually, we had the judgment of the medical or the ordinance. I don't like to know if you have any updates on this topic.

[Marina Gelman, executive]

[Interpreted] Yes. So, Renan, we had one piece of news. I don't know if everybody has followed, which was the [indiscernible] asking for the suspension of our processes. Just to remind you, according to [indiscernible] decision, the processes should continue those that are post phase of document analysis initial document alive. So the Ministry of Education cannot keep those proceedings to they've asked a -- so the general Chinese Office of the unit. So they've asked the processes to be on hold. They understand that if they have one or another out, it may cause some kind of losses and not be the most fair decision. So we don't have that, and it's there. So what you're talking about, the 24th, that's a 90-day term of the request to review by lifetimes. And we should have some news of the last week of May when the time or the term is completed. So apart from that, we are following very closely all of that, and we are waiting to see what will happen a bit. As to distance learning, you've asked about regulatory issues. We don't yet have any New Jersey ordinance getting the report of CNA has not come yet, and they have the 30-day term to manifest themselves regarding medical schools. But so far, we have no normalcies, but thanks for asking.

[Marcelo Bueno, executive]

[Interpreted] Thank you, Marina. To add to your question or other funding for higher education is key. We understand that thousands were able to access higher education and managed to get strategic positions that it was important for them, not only for but for the country. So funding is fundamental. So what we understand is that financing has to be something that is used in an assertive way by those that need, those that understand and know the value of that service that will be financed or funded. They believe that choosing a better school, more expensive one will bring benefits to themselves and consequently are willing to carry the debt and pay for it because it will deliver more value in the long term. The financing cannot be used as an intake by those that do not acknowledge the value at any price. Bringing home and counting volume. This kind of financing is what we do not like. The other financing, we like, we understand as valuable for society, present our business, and we'll continue seeking exquisitely more mechanisms that may bring the challenge from Brazil in-house and give conditions for those people to grow in life.

[Guilherme Colin Soarez, executive]

[Interpreted] Now the next person in line is Lucca Marquezini from Itaú BBA.

[Vinicius Figueiredo, analyst]

[Interpreted] Marketing expenses, we've seen an increase in this quarter that I understand is because of growth in the odd number quarters of this expense. We've seen a strong increase in competitors. I think we'd like to know what should be the level from now onwards. If you have some strategy on your side, marketing spending. I'd like to know your view in this sense, please.

[Marcelo Bueno, executive]

[Interpreted] Thank you, Luca. I think your question is important. We made a point about making it clear in our release. We explain the reason of our increase. So we have reclassed we had the third-party services. Now we change. We have grade concentration or number a quarter and the other part of the investment in our distance learning investment also in spiral. -- we make it clear that yes, what should we wait? There are similar levels that we had second quarter last year, we'll naturally see a greater volume of marketing in the odd number of quarters and less volume in the even number of quarters, similar to what we've reached in terms of recent past in terms of the percentage of net debt, sorry, net revenue.

[Guilherme Colin Soarez, executive]

[Interpreted] The next person enrolled is Caio Moscardini from Santander.

[Caio Moscardini, analyst]

[Interpreted] I have a question on my side. Just briefly, I'd like to know what was the ticket increase that you gave for freshmen.

[Marcelo Bueno, executive]

[Interpreted] At all, we don't open it because we understand this is a strategy of the company should be kept inside in-house that actually, we live in a competitive environment. So we disclosed the consolidated ticket because this actually satisfies investors and does not put our commercial strategies at risk.

[Guilherme Colin Soarez, executive]

The next person in road is Pedro Oliveira from [indiscernible].

[Unknown Analyst]

[Interpreted] I just like to understand how do you intend to be in terms of leveraging your subsidiaries, you're paying out this mission at Inspirali. I'd like to understand the level of leverage you want to keep in your subsidiaries.

[Marcelo Bueno, executive]

For Inspirali, it has cash-generating operation. It today has -- considering the numbers, you can check. We have quite a sound statement. And as we intensify its growth, if there is a need. This is at the service of a project, not as a leverage goal. We are in the positioning and with the re-profiling of the venture, we're quite comfortable with this level. Just to add, Inspirali today's quality medical school ecosystems are extremely differentiated with privileged locations. The only one that generates cash. We've chosen DNA capital, a key partner that has brought to health ecosystem to be highly differentiated. And actually, this company has shown the robustness it has. Our partners invested BRL 1 billion cash into the company for the company to grow. It has to grow, has to move forward in its mission. So the money has to move forward. And as Gelani said, it's not so much a discussion of leverage, but actually project growth, quality medical education to more people. This is the view we have to make the company to prosper increasingly more.

[Guilherme Colin Soarez, executive]

We have a last question here. The person has written down on the Q&A, Bernard Fosado, congratulations on your results. My question is on digital learning. So how have you observed competitive dynamics in this segment as the ACO students increased regarding past years, what is the direction you should continue over the next 2 years?

[Marcelo Bueno, executive]

I will start here. Your question, the government has shown direction there, we believe, in terms of quality, increasing quality, the belief for quality. This goes through all teaching areas or including digital. This is our belief will be positioned in this direction. As I said in the beginning, the digital is a gateway for the ecosystem for people that have no conditions to have access, but we have this belief for quality and sooner or later, quality will prevail. Price struggle, we know where it ends. Everybody loses. As we are a partnership, we're here for the long term. We should not go into price struggles, and we should keep our value proposal for our brands and our experiences and products.

[Átila da Cunha, executive]

That's it, Marcelo. As Marina said, digital education cannot be diminished or satanize people that cannot have the level of on-campus and the demand -- well, we have great value for the country. We believe in that, we would understand that this segment will keep on growing with increasingly more quality, and that is the bet and we believe it's an important product for us to offer in our ecosystem always under our principle, there are children studying at our schools. So it has to be with good quality.

[Marina Gelman, executive]

Excellent. I believe we have answered all the questions. We have given the space for everybody that has enrolled. Now I'd like to turn over the floor back to Marcelo so that he can finalize, and then we'll close within our time. I thank you all for your presence. So we e had over 160 people with also very good.

[Marcelo Bueno, executive]

Well, Marina, I leave the wrapping up with you. Thank you very much, everyone. Have an excellent day, Marina.

[Marina Gelman, executive]

Thank you, Marcelo. This is it. Well, thank you. I think the messages have all been conveyed. Atila and Marcelo have been talking a lot, reinforced by Guilherme that we are at the moment of reaping what we have owned in the past few years with robustness, superiority, and confidence in our project. So thank you all very much for being with us, and that's it. Let's go to work. Have a good day. Thank you very much.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]