Allegro Microsystems Inc

NASDAQ:ALGM

Before we begin, I would like to read a forward-looking statement. During today's presentation, our executives will make forward-looking statements. Forward-looking statements generally relate to future events or future financial or operating performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements. Forward-looking statements in this presentation include, but are not limited to, statements related to our business and financial performance, expectations for future periods, our expectations regarding our strategic product initiatives and their related benefits and our expectations regarding the market.

Forward-looking statements are based on our management's beliefs and/or assumptions and information currently available to our management. These risks include those set forth in the press release that we are issuing today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on the information available to us as of today. [indiscernible] not rely on them as predictions of the future events, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, management may reference non-IFRS financial measures on this call. The non-IFRS financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with IFRS. I would now like to turn the call over to Cesar Silva, CFO. Please go ahead.

Good evening, everyone, and thank you for joining us in this conference call to discuss Vasta Platform's fourth quarter of 2024 results. I'm Cesar Silva Vasta's, CFO; and today, we have the presence of Guilherme Melega Vasta's CEO, who will be joining me on the call. Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statement.

Thank you, Cesar. Thank you all for participating in our earnings release call. I'd like to cover Slide #3 with some highlights of the 2024 fiscal year. I'm pleased to share our progress and achievements we have made. 2024 has been marked by significant milestones across our business, reflecting our unwavering commitment to delivering value to our customers, students, shareholders and stakeholders.

In 2024 fiscal year, our net revenue increased by 13% to reach BRL 1.674 billion. This growth was primarily driven by the successful conversion of our annual contract value, ACV, into revenue and achieved BRL 1.462 billion, a 14% increase compared to 2023. It is worth mentioning the good performance of our B2G business unit and the continuity of our complementary solution expansion with a 20% growth over 2023. Our focus on operational efficiency and cost savings has yielded results. The adjusted EBITDA for 2024 fiscal year grew by 13% to BRL 580 million, with a margin of 30.4%. These gains were driven by a favorable sales mix, benefiting from the growth of our Subscription products.

Our cash flow generation has achieved BRL 250 million, a 14% increase from 2023. The last 12 months free cash flow to adjusted EBITDA conversion rate improved from 41.8% to 42.4%, reflecting our sustained efficiency measures. Besides the results in financial area, I would like to highlight some commercial and strategic achievements from this year. Our B2G segment continues to be a significant growth avenue, generating BRL 105 million in revenue for the year -- for the year, a 29% increase compared to 2023. We remain confident on our strategy to positively impact public education as evidenced by the improvement in the 2023 SAEB scores for the state of Pará. The Start Anglo bilingual School franchise launched in 2023 has also shown impressive progress. We ended the year with 40 signed contracts, and 7 operational units with a strong pipeline of over 350 prospects.

This growth reinforces the value generation capacity of our brand and our strategic expansion into new revenue streams. Our technology platform, Plurall, has reached a new stage of development. Starting in 2025, it features an intelligent assistant powered by AWS, named [ Blue ]. This assistant will provide personalized learning experience for students and streamline activities for teachers, enhancing the overall educational experience. I will now turn back to Cesar Silva, who will talk about the financial results of the quarter and 2024 fiscal year.

Thank you, Melega. In this Slide 4, we present the composition of Vasta's net revenue. On the left side, you can observe the [indiscernible] year on year growth in total revenue for the fourth quarter, which increased by 26.1% reaching BRL [ 699 million ]. Vasta's subscription revenue achieved in the fourth quarter of 2024, BRL 690 million, a [ 20% ] increase compared to the same quarter of 2023. This increase included some additional revenue that stated from the first quarter of 2025, [indiscernible] earlier orders coming from our partner schools in the commercial cycle.

Non-subscription revenue increased 12% to [ BRL 540 ] million, and in the Government segment in this quarter, we generated BRL 36 million revenues. Moving to the right side of the slide, we analyzed the net revenue for the 2024 fiscal year. We achieved an organic net revenue growth of 12.6% in this fiscal year, amounting to BRL 1.674 billion. The main factors for this exceptional performance were: Firstly, the Subscription revenue has increased 14%, reaching BRL 1.462 billion, and continues to be the major contributor to our total revenue, representing 87% of the revenue share.

Non-subscription revenue, as expected, dropped 16% to [ BRL 170 million ]. And the net revenue of B2G achieved BRL 105 million, an increase of 29% compared with 2023 year and represents 6% of our overall revenue.

Moving to Slide #5. In this quarter, our adjusted [indiscernible] amounted to BRL 299 million with a margin of 42.8% an increase of almost 25% from [ BRL 240 million ] in the fourth quarter of 2023, [indiscernible] due to were higher revenue volume in this quarter in all lines of revenues as presented before. On the right side, we see that adjusted EBITDA in 2024 fiscal year increased by almost 13% and reached BRL 508 million, with a margin of 3.4%.

Let's now move on to the next slide, expect breakdown of the adjusted EBITDA margin. In Slide #6, we can observe that the EBITDA margin achieved 13.4% in 2024. 0.1 percentage points higher than 2023. Firstly, our gross margin achieved 61%, a decrease of 0.6 percentage points from the 61.6% percentage in 2023, showing stability [indiscernible] percentage. Provisions for [indiscernible] accounts achieved 3.2% in relation to the net revenue and has an improvement of 0.6 percentage points when compared to 2023. Besides showing improvement in this [indiscernible], the year was due a very challenging expressive landscape for non-premium brands, and we still foresee some challenges in the credit scenario for the next month.

As a percent of net revenue, our commercial expense increased by 0.3 percentage points, driven by higher expenses related to the business expansion of the commercial [indiscernible] of 2025. Adjusted G&A expenses improved by 0.5 percentage points, mainly driven by workforce optimization and budget and disclipned measures. Moving to Slide #7, we show the adjusted net profit. In the third quarter of 2024, adjusted net profit totaled BRL 114 million, up 18.9% increase compared to adjusted net profit of BRL 96 million in the same quarter of 2023. On the right side of the slide, in 2024, adjusted net profit reached BRL 8 million there has been an increase of 34.6% from an adjusted net profit of BRL 60 million in 2023.

Moving to Slide 8. We show the free cash flow evolution. In this fourth quarter of 2024, the free cash flow totaled BRL 69 million, representing a relevant increase compared to minus [ BRL 0.1000 ] in the fourth quarter of 2023. On the right side of the slide, in the 2024 fiscal year, our free cash flow reached BRL 250 million, an increase of 14.2% above 2023. This quarter benefited from a different payment installments with our customers that generated a higher collection difference from previous years. Our last 12 months free cash flow to adjusted EBITDA conversion rate increased from 41.28% to 42.4% in 2023. And as we have mentioned in the last quarter, we achieved a double-digit growth in the free cash flow and consequently improved our conversion rate.

Moving to Slide 9, we show the provision for [indiscernible]. Total expense with PDA in the fourth quarter of 2024 totaled BRL 22 million representing 3.1% of net revenue compared to an expense of BRL 29 million in the comparable quarter. Moving to the right side, the PDA for 2024 amounted BRL 53 million, comparing to BRL 56 million in 2023. Provision for doubtful accounts represented 3.2% of the net revenue, an improvement of 0.6 percentage in comparison to 2023. As explained before, we still foresee some difficulty in the credit scenario, [indiscernible] for the schools related to mainstream brands.

Moving to the next slide. We observed the average payment terms of Vasta's accounts receivable portfolio was 186 days in the fourth quarter of 2024, which is 7 days higher than the comparable quarter in line with the business model seasonality, besides considerable revenue generated in the B2G business and not received yet.

Moving to Slide 11. Let's take a closer look on the net debt movement. As of the fourth quarter of 2024, Vasta had a net debt position of BRL 1.3 billion, a BRL 37 million decrease from the previous quarter. Free cash flow was higher than finance interest costs, and [ delayed possible ] debt reduction in the total net debt in this quarter. Moving to the right side of the slide, the net debt position decreased by BRL 61 million since last year. This decrease was driven also by the free cash flow generated in 2024 which was partially offset by the financial interest costs and the second buyback program.

I will conclude my part of this presentation with Slide 12, explaining some more detail about our net debt composition, which represent [ BRL 1.003 ] billion at the end of the quarter. The amount is composed by the [ ventures issue ] to the private company, accounts payable for business combinations mainly related to [indiscernible] acquisitions and almost BRL 200 million cash that the company owned. In the lower left part of the slide, we can see that in the fourth quarter, the net debt to last 12 months adjusted EBITDA ratio has decreased 0.35x from the last quarter, showing a relevant downwards and now it stands at 1.97x and we would like to enforce our commitment to continuing to generate free cash flow and deleverage the company.

With that being said, I pass the word to our CEO, Guilherme Melega.

Thank you, Sade. I will give has some exciting updates about Start Anglo on Slide 13. Start Anglo Bilingual School franchise launched in 2003, which combined by bilingual and academic excellence keeps the pace and of signing new contracts every month, and we have already signed 40 contracts as of this date, and we have over 350 prospects in negotiation. [ This strong ] pipeline underscore the robust potential for further growth and market penetration of Start Anglo.

In 2024, we concluded the revitalization project of the Liceu Complex. And besides creating an operating unit with more than 1,000 students capacity, we'll preserve the entire historical architecture design, and we already start our flagship operation in Sao Paulo. This year, we have 5 new units in operation. The Liceu Pasteur Complex, our flagship in Sao Paulo, Jardim Marajoara, Granja Julieta, both in the city of Sao Paulo, Piracicaba and Luis Eduardo Magalhães. And together with São José do Rio Preto, we will achieve the total of 7 units running and providing a high-quality education service for our students.

After launching this important avenue of growth in 2023, we already can see solid results and looking forward to see the next years. Having said that, I finish our presentation and invite you all to the Q&A session.

[Operator Instructions] Your first question comes from the line of Lucca Marquezini from Itau.

So we saw a significant decrease in PDA expenses as a percentage of the revenue in the quarter. So can you please comment the initiatives that led this decrease. And also, if we should consider this level as recurring for the next months, please?

Thank you, Luca, for your questions. We can observe in this quarter, a reduction of the PDA, achieving the 3.2%. However, despite having improving this [indiscernible] -- we foresee a little difficult in the next month. So we cannot provide a guide for these numbers, but we expected something higher than this 3.2%.

And probably the historical figure is closest to the forthcoming provision.

Your next question comes from the line of Marcelo Santos with JPMorgan.

I have two on my side. The first one, I wanted to ask about the ACV. Maybe I missed it, but I couldn't find. But I saw that you increased the core students by some, I think, 12% and the complementary students by 22% much more than an increase in previous years. So could you give us a range or maybe a better view on what that could be if possible?

And the second question is regarding the margin outlook for 2025. I mean in 2024, the margin was [indiscernible] -- adjusted EBITDA margin was relatively flattish, [ 10 basis points]. What could we expect for the coming year?

Marcelo, thanks for your question. Let me give you some color about ACV. ACV growth in the fourth quarter was [indiscernible] price increase and complementary products keep moving fast. So the same growth in 2004 is expected for 2015. -- keeping the same strategy of growing in complementary products and premium learning systems. Regarding margins, we are operating on the target of 30%. Every year, we expect to have slightly improvements due to the fast growth and dilution that it brings and the better sales mix. So we are already performing on our target level, and you can expect a slight increase.

So just one follow-up, on the first -- my phone didn't work so well. So you said ACV growth was 20% in the fourth quarter? It was 14% up in 2024. And then I couldn't hear you said we should expect the same number for 2025 that would be 14% or 20%?

No, the 14%, the same level of 2025, '24 year, fiscal year.

And you said you said something about price. Do you mind repeating, sorry about that?

Sure. I said that we had a high single-digit price increase -- so we expect to gain market share with the volume growth. And the remaining part of the ACV growth comes from the complementary products that grew 20%.

Your next question comes from the line of Mirela Olivero with Bank of America.

[indiscernible]. I have one on G&A. We understand that this line is virtually flat during the year. But when we exclude the effects of the contingencies reversal, we see a 20% year-on-year growth in the fourth quarter. Could you give us some color on what happened there if we should expect higher G&A going forward? Or if it's just a onetime expense?

Mirela, thanks for your question. When we see SG&A. When you see the G&A as a percentage of sales, we actually see pretty flat our G&A around 27%, 28% of -- in terms of G&A. We did have a slight increase in the commercial expenses following the growth of revenues -- in terms of percentage sales percentage, we grew on commercial expenses from 16.6% to 16.9%. Besides that, G&A remained flattish.

Your next question comes from the line of Lucas Vigano with Morgan Stanley.

Melega. We have two questions. The first is related to B2G. Do you expect the contract with Pará to be similar as last year as I think it was around BRL 70 million or BRL 80 million. And also, if you could provide some color on the pipeline of other products in B2G?

And the second question is about Start Anglo -- like roughly how much revenue do you expect to generate in 2025, if it's material or not yet?

Lucas, thanks for your question. Give you some color about B2G. So we renewed the Pará contract, which is around BRL 80 million. So this is so far the current contract that we are operating, we have a very heated pipeline the prospection is lowered a little bit in January and February as the -- as the schools and the government is engaged in the back-to-school season. But now we do expect to have March and April, very heated season. Keep in mind that this year is SAEB year, so we do have an examination of SAEB in October. And due to the results in Pará, we are bringing lots of discussions to the table, and we expect to have new contracts soon in the pipeline.

Regarding Start Anglo, Start Anglo is a reality. We have around 1,000 students enrolled in our 7 schools, 500 students out of the 1,000 [indiscernible] students in Liceu, Pasteur and São José do Rio Preto, the two flagships that we have. The remaining 500 students are franchise students. So in terms of revenues, we we have around BRL 25 million of the entire operation of Start Anglo. It's not yet that since [indiscernible] -- but in terms of growth for the coming cycle and also in Q4, when we make the shipments for the teaching mature for the the new opening units in 2025 that generate a significant increase in this business unit.

I will now turn the call back to Guilherme Melega for closing remarks.

Thank you all to participate in the Vasta Q4 conference call. 2024 was a very important year for us. Not only we grew our operation as we already delivered significant results in B2G with the contracts that we secured and Start Anglo also grew fast. This keeps us confident that 2025 will have a very interesting year and significant for our stakeholders. Thank you all for supporting Vasta. Looking forward to see you back in the next call.

Ladies and gentlemen, that concludes today's call. Thank you, and have a great day.