Anima Holding SA

BOVESPA:ANIM3

Earnings Call Transcript 2021-Q4

[Marina Gelman, executive]

So welcome, everybody. We are here for earnings results webinar, the earnings results of Anima regarding year 2021 or Q4 also. Today with us are Eduardo Garcia, our IR Manager; André Tavares, that is our CFO and our Finance Director; and Marcelo Bueno, that is our CEO.

I hope you can make the best of this presentation. [Operator Instructions] And at the end of the presentation, we will read all the questions in this icon. Thank you very much. And now I will hand it over to Marcelo Bueno for his introduction.

[Marcelo Bueno, executive]

Good morning, Marina. Good morning, everybody. It is excellent to be here in this important moment. This is a moment that we have waited for this -- since the end of 2020, we have been waiting to go back to our life in person. And I always say that 4, 5 years ago, inspired by the movement of other sectors, especially the retail sectors, we went from the dichotomy of online sales. And though we chose hybrid education and we thought that in the future, students would choose like a joystick when they want to use technology when it comes to their individual education. And we thought that it would be like this in the future.

4 years ago, we started a digital transformation journey, a journey -- a long-term journey starting from the conventional model going to squad model with agile technology. And with these 2 models, on Friday, 13th of 2020, in 5 day, we were able to allow our 140,000 students to study at home and receive quality education. We've prepared ourself to come back since the end of 2020. We didn't go back because of the correct decisions. And we thought that we were going to come back after Carnival of 2021.

We had the second wave. We were prepared, and now we are working in rotations since March 7. This is a magical moment. Many thought that everything was going to turn into digital learning and in-person learning will not be the same after the pandemic. Therefore, we are prepared for this moment, which is very important. So with the main message and in our ecosystem, we've carried out a number of transformational movements. One would be the acquisition of the Laureate asset, including it in Anima, creating the biggest ecosystem, the biggest network of higher education in Brazil.

And we've mentioned that we have presented since the first moment the integrated company so that you can have an idea of what this company is about, the power that we generate, the discipline and the integration of results. This company has been collecting synergies and changing lives and allowing hundreds of thousands of youngsters to materialize their dreams.

So now Eduardo Garcia will start with the presentation.

Here, we have the highlights. This is a integrated company with over 321,000 students, a strong net revenue of $2.6 billion (sic) [ BRL 2.6 billion ]. And here, we have the EBITDA of BRL 802 million, and this is an EBITDA that generates an important net cash generation.

I always like to highlight this point. And through cash generation, we will deleverage the company. There are other agendas as well to deleverage the company, but it is through cash generation that we will have a long-lasting company. The EBITDA margin, we have been gaining margin even in the middle of a pandemic, even though facing economic -- an economic problem in the country. This is not a moment for celebration because we cannot celebrate. Nothing because of the pandemic, but we should see with proud our results and to see our discipline and how we will deliver more results in the future.

Here, we have Inspirali, our medical vertical, with almost 10,000 students, 1,742 additional seats and a strategic partnership with DNA Capital that was announced on November last year. And this year, we will conclude this deal. You must also remember when we announced our transaction with Laureate, there were 5 main synergy avenues: 3 of them, we provided a guidance; then we reviewed the guidance, and 2 of them would be the upside. Per one with them, there would be the ticket management of the revenue. And second one would be Distance Learning. We had robust distant learning. We have learned and we're still learning with this. And we can see here an important avenue of growth, an important gateway to come in the Anima ecosystem. This is a market that hadn't been serviced. And now we can offer quality education through the digital channel.

These are our highlights, and I would like to give the floor to Edu Garcia, our RI Manager.

[Eduardo Garcia, executive]

Thank you very much. Thank you very much, everyone. Good morning. Now speaking about the operating results of 2021 with great transformational movement throughout the year. When we bought the Laureate assets, we have grown 110,232 students to 321,021 students. This is the increase in our student base. Great part of this growth is because of the acquisition that we highlighted. And here, we've created a new avenue of growth, as Marcelo highlighted, that is digital learning.

Laureate has a robust platform. And here, we have a strong growth from the third quarter to the fourth quarter. And we -- and with 75,700 students in undergraduate students in long-distance learning. Another point regarding our student base would be dropouts. And when we see dropouts, fourth quarter of 2021, fourth quarter of 2020, there was an increase of 1 percentage points -- 1.1 percentage points because of the Laureate acquisition. And while we saw this through the third quarter and we compare the same units between Laureate's acquisition, we would have a drop of 1.1 percentage points. So it is important to highlight this message that dropout is something that is being controlled, and it is an opportunity to focus on when we see the Laureate assets that we bought out.

Another important point to highlight in our results that we are focusing on would be our average ticket. Here, we can see the ticket year-on-year. There was a slight growth during Q4 of [ 2020 -- ] goes to 1,010 to 1,024. When we include the Laureate assets that had a ticket inferior to that of Anima, here, we can see a drop of this ticket year-on-year.

Now when we uniquely assess in person throughout 2021, we maintained our ticket base stable. Although even with the Laureate acquisitions throughout this period and another important point in the ticket would be the growth since Q2 of the DL ticket. And this ticket is growing. And together with the increase of volume presents as an opportunity of growth in digital learning, and this is an important lever for 2022.

Now the growth of Digital Learning ticket is because of the expansion of portfolio and the mix during Q4, and we will follow this very closely throughout the upcoming cycles. Now when we see the academic quality, here, we are trying to demonstrate we are bringing you information of what was announced in 2019 in the IGC. Unfortunately, we did not receive the updated information of 2020 to update this information.

Here we have new data connected to the concept. Of course, they were the courses requested since 2018 that already had the E2A methodology. And in addition to the operational efficiency, it has been recognized by the Ministry of Education as a highly efficient course, full of quality as well. So we are highlighting the quality of this learning. So these 375 courses requested since 2018 receive grades of 4 or 5 and very few with grade 3. This strengthens our quality. And you can see that we have made progress in this model.

Now with this, I give the floor to André Tavares, our CFO, to talk about our financial results.

[André Tavares, executive]

Edu, thank you very much. Good morning to everyone. Once again, it's a great honor. I'm very proud to be here to talk about Anima's results. We ended this year that was a very special year and a transformational year for our company. So we end 2021 consolidating, materializing, as Marcelo mentioned at the beginning, the biggest higher education ecosystem of quality. And the results show how important the company's scale is. We have net revenue here of BRL 2.650 billion with a net and operating results above to 41% and with BRL 1.1 billion with a gross profit of 62.6%. The digital is growing even more.

Here, if we see the next slide, you will see that fourth quarter is even more important regarding the importance of digital, the fourth quarter. Well, 6 -- this accounts 6.8% of our revenue. And our expectation here is to gain more representation throughout this year of 2022. And this is an important avenue of growth as we announced in our release.

Our next slide here. We have to remember how we break out our results and the different blocks of lifelong learning, academic learning. Here, we have the acquisitions. And number one, we would like to highlight the acquisition block, that is the block that is on the bottom part, in -- with an operating margin of practically 50%. And this is the main driver of growth of our company and net revenue and operating results, synergy gains. This block as well has a strong representation from medicine. We have Inspirali. This is not only a strong growth as well totaling an operating margin, which is very robust.

Now on the base segment, we've seen a number of effects throughout the quarter, which impacted us a little bit more. Here, we can see a net revenue slightly below, that is 7%. And this is despite the biggest difficulties to intake students in these mature units, we continue with a stable ticket and an improvement of dropouts. Nonetheless, we have a lower student base, and we had an effect of reclassification of financial discounts that is detailed in our release and especially influences the base block.

Another factor that affected our base was our PDD. We will talk about this subsequently, but also the harmonization of the PDD criteria from the integrated units, the ones that had been working Anima and the integration and the technology that prevailed is -- was closer. This becomes more prudent, a more conservative methodology, and this impacted our PDD basically in our -- especially in our base block this year.

We implemented the methodology, but we implemented the collection model from the integrated unit that is more efficient than the one that we had. This gave us -- this provided us a positive learning curve. And this is a positive chapter, but afterwards, we can talk more about this during the Q&A.

Our next slide, we're talking about Lifelong Learning. This is a segment that -- where we are building the future of the company. Therefore, please let's pay attention to the growth of the net revenue because of the level of the new graduate courses and HSM Expo. Although this result was strongly impacted in 2021, all of these elements and the strong growth of revenue shows that we are taking strong strides in the growth of new avenue or in the development of new growth avenues for the company. And I believe here that it's much more important to see the revenue than the margin itself because we are in a moment of sowing this, sowing the seed.

Now we will see digital or distal learning. It is a new avenue of growth, a strong new avenue of growth when we compare it to the figures during Q4 of 2020 when they were part of Laureate Brazil. But when we carry out this comparison in order to better visualize what happened, we see a growth that practically doubled. And after the acquisition from -- a figure from 60,000, we went to 114,000 students. We have almost 120,000 students, which is a very significant scale. There is still room for improvement. We know this. But this is not something insignificant.

For distance learning, here, we totaled a net revenue of BRL 58 million and an operating margin of 33%. This business grows, and it presents a very significant margin and contributing strongly to our trajectory -- the positive margin trajectory. We expect greater growth in 2022, and there is no doubt that we still feel the additional effect of guidance and synergies that we will talk about later on.

I would like to highlight the evolution of our ticket in distance learning. We started reporting the distance learning ticket during Q2 with BRL 192. And now during Q4, it is BRL 240. There is no doubt that this strengthening the quality -- the differentiated quality of our digital learning.

Here, we are -- you can see an important avenue of growth, that is Inspirali. We also can see a significant growth in student base in 2021, and Inspirali already represents 1/4 of our net revenue. Now obviously, here, we had -- we were impact by the Laureate acquisition. This was in the middle of the year. And Inspirali has a net revenue of BRL 679 million with an operating margin before corporate expenses of 66% -- 65%.

The strategic partnership with DNA Capital was announced last year. This is a strategic step to strengthen Inspirali, connecting the academy with health care, broadening and providing new experience of employability to our students, accelerating the expansion of Inspirali and driving the growth of Inspirali in the lifelong learning platform. Now the closing of this operation was announced in November of 2021. And this week, on March 31, we want to conclude the deal as soon as we receive the approval by the Board that is scheduled for tomorrow, our extraordinary general assembly scheduled for tomorrow.

Here, we can see the growth that was materialized of student base and annual base. Here, we have a CAGR above 128% in terms of seats and students. And for the upcoming years, we are projecting a significant growth of seats that we will still announce.

During the next slide, we especially talk about our synergies. This is a chapter that is -- this is a chapter, a side of 2021. As all of you know, when we carried out the Laureate acquisition, we announced the acquisition of the institutions that were part of Laureate Brazil. And we announced the incremental EBIT expectation of BRL 350 million. And after all the effort from our office of transformation, of integration, a granular effort where we identified and we organized the synergy-capturing process, we have an incremental EBIT of BRL 350 million year 5 post-integration. We're talking about 2025.

And we are reassured -- we really feel reassured to announce what we have achieved that after only 7 months of integration, we have already captured set -- over BRL 78 million in terms of synergies, and the annualized effect is BRL 134.9 million. This is practically 40% of the synergies that were announced after 5 years. So these are the synergies of digital learning weren't even considered in this figure when we gave this forecast of synergy capturing. There is no doubt that the integration of Laureate's units are making strong strides so that we have one company, one Anima and so that we're able to capture all the synergies that we anticipated in the past.

This year, we have a strong road map that started during the end of the year, integrating systems, and we expect to end 2022 with all the systems integrated within our plan spearheaded by our Vice President of Digital Transformation. And throughout this year, the system integration will be an important driver in order to capture the different synergies that we reported within the BRL 350 million.

Here, we can see the total effect of all of these initiatives. This is a growth of our EBITDA of BRL 375 million to BRL 802 million, but even more important or as important is the evolution of our margin going from 26.4% to 30.3%, exceeding the 30% of adjusted EBITDA with an evolution of practically 4 percentage points throughout 2021.

On our next slide, we can see as well the evolution and the profile change of our CapEx during the -- 3, 4 years ago, we had a CapEx focused on works and improvements. And now with the strategic decision to prioritize the movement of digital transformation, we saw how the CapEx profile changed. Today, it is more concentrated in systems and technology and in the different pillars of our digital transformation process. Despite the important increase in digital transformation, we see a dropping trajectory of CapEx regarding net revenue. Here, we have the CapEx going from 8.5% of revenue in 2020 to 6.8% now in 2021.

Now here at the end of our presentation, you can see this is something that we have to highlight because it is very important in our result of 2021, that was the strong cash flow generation. We had a key -- a free cash flow of BRL 638 million, totaling almost 80% of conversion of the adjusted EBITDA. And this clearly strengthens the company's financial soundness, and we are very reassured to face the margin gain process, the process of gaining additional cash and also the deleveraging process of the company.

This is so that here you can observe, everybody knows that here, the bar before the last, we have a buyback program. Our shares today at our -- are a level much lower than during our follow-on. And as we saw after the first follow-on that was carried out in January of 2020, we generated great value to our shareholders in our buyback program. We believe that this buyback program, in effect, will give more value to our shareholders, strengthening our confidence in the future.

So the next slide, you can see a cash position that is comfortable, but with a leverage scenario, which is still challenging. We end with a leverage of 4.5x above. This is above a comfortable level, but this is within our plan, within our expectation of cash generation and our expectation of deleverage. What we announced with DNA Capital will take our leverage to 3.2x. Today, we have an adjusted net debt of BRL 3.3 billion. And we are strongly committed and prioritizing our leverage agenda because of the evolution of our operational margins and cash generation, be it through realizations of new investments together what we did with 2021. And we are paying attention to opportunities that may provide more value to our shareholder and to our company.

So with this, I bring the main highlights of the company to an end. And I would like to hand it over back to Marcelo so that he can make his final remarks, and then we can continue with our Q&A session.

[Marcelo Bueno, executive]

Thank you, André. Well, I would just like that to strengthen that as we have delevering as a priority in our agenda and where we will constantly assess our asset always paying attention to adding value. This shows how solid, how sound our company's here after mentioning this priority and transmitting that we are analyzing all our alternatives, and Inspirali has been a successful initiative here.

It is important to highlight that the Anima ecosystem, the biggest higher education network with quality, is focused on making the difference and mainly during this unique moment to go toward digital learning now with an in-person teaching, which is different that started on March 7 of 2022, the use of technology to improve the relationship of learning and not only reduce cost.

I would like to thank you for your trust. I would like to thank our employees, to thank our Board, our committees, to salute our partners from DNA Capital that strategically chose Inspirali as a differentiated platform for medical teaching. I would like to say hello to [indiscernible] and family that this week received [ Nicolas, ] their second kid; and Guilherme Soarez, to Inspirali. I salute Marina, André, Edu, everybody from the IT team, that enabled this experience; all of our investors, our partners. And I wish all of you an excellent week and an excellent day.

Now we will initiate our Q&A session.

[Marina Gelman, executive]

Thank you, Marcelo. Thank you very much participants. Let's go to our Q&A session. We have a number of questions here already. André, there's a question for you here, and I'm going to merge 2 questions from 2 different people because these questions complement themselves. Yan Cesquim from BTG. Yan, thank you very much for participating and for your questions. Yan asks, what about the liability management initiative and if we should expect something new. And brief, at the same time, [ Carlos Herrera ] asks for 2022, if the focus of the company would be to increase synergies and deleverage the company. And what is the level of net debt EBITDA that we believe to be ideal?

And then afterwards, [ Beatriz Shining ] just came in. In the same type of question, could you please update your double leverage -- your deleverage process? Could you start talking about deleveraging? And we can already answer these 3 people.

[André Tavares, executive]

All right, Marina. Thank you, Yan. Thank you, [ Carlos Herrera, ] and thank you, [ Beatriz ], for your questions. Yan, yes, we are strongly focused on liability management. There is no doubt that with DNA and Inspirali, well, this has strengthened us. And we will announce in the upcoming days good news regarding this point. This is what I can say for the time being. But undoubtfully, we feel strength, and we are counting with our partnerships that come from different financial institutions in order to provide not only in the cost of the third debenture, that is the debenture that we issued in order to buy the large institutions, so we are fully committed in reducing this cost. And I believe that in a short period of time, we will provide you good news regarding these points.

Now regarding the deleveraging scenario. Well, internally, we see deleveraging, which is a strong priority for us. And there is a consensus in-house. But especially, we are analyzing 3 major blocks. The first project would be operating cash generation. And I believe that in 2021, we were able to be successful in this front. This is a very important front where we continue focusing on. And this is a very important source of deleveraging for the company.

On the other side, we do have divestment operations. We carried out some in 2021 like [ Uscampi ] and [ UniRitter, ] when we sold the international schools to the group [ BYMA. ] And there are other initiatives that are underway and are being negotiated right now. Basically, as it is normal in this process, we need -- they are confidential. But in a short period of time, we will announce to the market what we have done with our divestments.

And the third block would be operations that generate value to the company, looking at the future for sustainability and should match with our deleveraging process. And I would like to draw your attention to the business of DNA Capital with Inspirali. This strengthens the base of growth and sustainability and perennity of the company, and this brings a positive effect in our deleveraging process. So if we see these 3 fronts, although our leverage is still at a high level here, we see something closer to 2x. Nonetheless, we feel reassured that if we focus strongly on these 3 fronts, we will be able very quickly to achieve a level that we believe is a comfortable level.

[Marina Gelman, executive]

Thank you very much, André. We have a number of participants asking André, asking about PDD. Mr. Cesquim, why we have a higher level of PDD? What can we expect in 2022? Let's see, another question. Caio Moscardini also, could you elaborate on the PDD? In the release, you say that you expect improvements in 2022. What level of PDD can we expect this year? Renan Prata, could you elaborate on the PDD expectation for 2022? In Q3 of 2021, you had a reversal. If you expect an increase, can you comment the impact on the last quarter? And Vinicius Figueiredo as well, well, you -- there was a leap during Q4. Why did this happen? And what can we expect during the upcoming quarters?

[André Tavares, executive]

Okay. Marina. Thank you very much, Yan, Caio, Renan and Vinicius for your questions, there is no doubt that it is important that in the education and higher education sector, we have the see PDD on semester basis or annual basis than quarterly basis because our cycle, our renegotiation and payment cycles are every 6 months. So it's better -- it's easier to understand. It's much more stable when we see a semester or a year.

And here, we had 2 main effects during Q4 that are result of a harmonization of process, procedures and good practices amongst the integrated units from Anima and the integration units from Laureate. Now during the first moment, we observed that we had a methodology of PDD that was more conservative, I could say. And the integrated units practically absorbed the methodologies from the integration units, and this was accountable for 80% of the factor -- we saw here the increase of PDD on Q4. Most of it comes from the harmonization of practices and methodologies.

Now from the other -- now on the other side, we also implemented the collection and management model of default that comes with the integrating units. And here, we have to recognize that the integrated unit has had a collecting model and default management that was much better than what we had in the integrated unit. So therefore, we harmonized the methodology, but we also implement a much more efficient model of default management in such a way that within the integrated units, we became more stringent in the negotiations and in the payment of tuition of 2022 without affecting -- without increasing dropout. As we adopted this model that is more efficient and more nimble, with this, we expect in 2022 to have a PDD level below what we reported in 2021, although with a more conservative methodology that is better, so if we are more conservative in our methodology.

Nonetheless, we are more efficient in our models, so we believe that we will be able throughout 2021 to take this PDD to a much lower level than what we reported in 2021. And this is an additional positive effect of our integration and the transformational acquisition that we carried out in 2021.

[Marina Gelman, executive]

Thank you very much, André, for your answer. Now our last question from Yan. There are other questions, but Yan's last question would be, could you please update in intake? And I am going to tell you that we are not talking about intake because we are in a period of silence because this is -- we are at the end of this process. So we will have to wait some time to talk about this matter.

We have another question that is for Edu. Just a minute. Edu? Caio Moscardini. Was it Caio? Exactly. Caio Moscardini asks more about the integrated brand ticket that came from Laureate. What is the evolution of this ticket like? What kind of price transference could we carry out? And any information that could show us this process qualitatively? He thanks us.

[Eduardo Garcia, executive]

Thank you, Marco. It is important to highlight that our integration is advanced, and we are joining synergies. And with this the ticket trends for movement is being assessed and discussed within the entire ecosystem. As Marcelo mentioned, we are not separating the results from Laureate-Anima because this is just one company for us.

What I would like to highlight here is something that we've mentioned. We transfer the inflation to the veteran tickets during 2021 to 2022 to all the students of the Anima ecosystem with no distinction, and we are making progress in the strategy. And we are analyzing the ticket evolution together with Anima's strategy that is strongly defined. This is what I can say for the same time.

[Marina Gelman, executive]

Thank you, Edu. Thank you very much. We have a question here, André, from [ Carlos Herrera. ] This is a different question about the gain of -- in synergies. You stated this, but he wants to see if the gains are according to what you expect or if there is pressure from students. And then Vinicius also asks regarding synergies. We talked about revenue management that was affected by stronger inflation. If we can see any benefits in 2022, and we believe that the benefits will come in 2023.

[André Tavares, executive]

Well, thank you. Thank you for your questions. Well, the synergies are totally aligned with what -- with our projections. And I said, when we were able to embark thanks to our integration offices, when we were able to work in details with our synergies, we updated the -- our EBITDA to BRL 230 million to BRL 320 million. And the capture of synergies, that is in cost and synergies, is in line with what we expected and at a pace according to our projections, which is a strong projection.

In addition to this, we can see that there are still opportunities that are not within this number that would be the growth of digital and also the revenue management opportunities. It is clear that inflation of 2021, that is an inflation of 2 digits, it poses additional challenges for high growth of our ticket when we compare it to inflation. In 2022, there is no doubt. But our revenue management implementation process is much more micro. We are analyzing the competitive dynamic of each course, of each campus. Of course, we cannot underestimate the inflation of 2021, and we have to say that this was a major challenge to go beyond what the inflation imposes on us in terms of ticket evolution.

But here, we continue -- confident we're not only analyzing 2022. The process to reposition and to manage our ticket is a process that takes more or less 4 years. As you do things, as you work with new intakes, you carry out certain adjustments. These are very specific one-off adjustments in veteran students. Nonetheless, the main factor to improve our ticket is with our intake, and higher education has a cycle that takes 4 or 5 years.

From one side and the other, you do have the effect. You have the carryover of the base when you work in the ticket with the former years that was lower -- the ticket was low or high. So we feel confident that our revenue management will give us good results in the mid and long run and especially in the integrated units. Of course, being aware that during 2022, we have a major challenge, but it is not -- but it -- we will be able to overcome this.

[Marina Gelman, executive]

We have a last question for Marcelo. It is a question -- it's an anonymous question. If Inspirali an IPO could -- with this, wouldn't the company be able to leverage? Marcelo?

[Marcelo Bueno, executive]

IPO is always a means, not an end. And this is the way we see things. The arrival of DNA Capital will allow us to place Inspirali strategically and place it in a place where it belongs and that it deserves to be. We have seen that there is a growth capital that hasn't come to Brazil through conventional avenues. And this is a possibility. And all of this depends on certain moments and certain windows. And yes, this would allow us a certain deleveraging of the company.

[Marina Gelman, executive]

Thank you very much, Marcelo. So with this, we bring our Q&A session to an end. I would like to thank all of you for your participation. And we have had an event full of participants. Thank you for your time. Thank you, Marcelo. Thank you, André. Thank you, Edu. And the IR team is at your disposal to clarify any questions, questions from investors, partners and friends. Thank you very much, and have an excellent day. Thank you very much. Have an excellent week.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]