Vasta Platform Limited (NASDAQ:VSTA) Q2 2025 Earnings Call Transcript

Vasta Platform Limited (NASDAQ:VSTA) Q2 2025 Earnings Call Transcript August 7, 2025

Operator: Good afternoon, and welcome to Vasta Platform’s Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] 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 the related benefits and our expectations regarding the market.

Forward-looking statements are based on our management’s beliefs and assumptions and on 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. You should not rely on them as predictions of 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, Chief Financial Officer. Thank you. Please go ahead.

Cesar Augusto Silva: Hello, everyone. Good evening, and thank you for joining us in this conference call to discuss Vasta Platform’s second quarter of 2025 results. I’m Cesar Silva, Vasta’s CFO, and today, we have the presence of Guilherme Melega, Vasta’s CEO, who will be joining on the call. Let me now hand over the floor to Guilherme Melega, our CEO, to make his opening statements.

Guilherme Alves Melega: Thank you, Cesar. Thank you, all, for participating in our earnings call. Let’s move to Slide #3 with some highlights of 2025. We are now entering the final portion of 2025 sales cycle, which runs from October 2024 to September 2025. I’m pleased to report that in the second quarter, we continued to deliver solid financial and operational performance with consistent growth across both our core and complementary solutions. A particular highlight this quarter was our free cash flow. Subscription revenue reached BRL 1.340 billion in the cycle to date, a 16% increase compared to the same period of 2024. This result demonstrates our ability to sustain double-digit growth in our core business for the fourth consecutive year.

Our complementary solutions business grew 24%, supported by accelerated expansion in both student base and market penetration. As a result, net revenue in 2025 cycle to date reached BRL 1.488 billion, a 14% increase compared to the same period in 2024. This growth was driven by the successful conversion of ACV bookings into revenue along with the strong performance of complementary business. In the B2G segment, we recorded BRL 9 million in revenue from new customers, totaling BRL 50 million in the cycle to date. Over the last 2 quarters, we generated BRL 14 million from new customers, mainly municipalities who began using our product and service, confirming that our strategy is on the right track and diversifying our B2G portfolio into states and municipalities.

In the 2024 sales cycle, we booked BRL 69 million in revenue from the Pará contract, which was recognized all at once, covering the first and second semester. And in the current cycle, the first semester of Pará was booked in Q4 2024, and the second semester is expected to be performed in the second half of 2025. On the profitability front, adjusted EBITDA reached BRL 462 million, an 8% increase compared to the previous cycle. The EBITDA margin was 31.1%, reflecting a different product mix, lower year-to-date B2G revenue and higher marketing expenses related to business expansion. In Q2 alone, adjusted EBITDA was BRL 42 million with a margin of 11.7%, up 2.9 percentage points from Q2 2024. Free cash flow remains a key strength. In the cycle today, free cash flow totaled BRL 224 million, an increase of BRL 133 million year-over-year.

In Q2 2025, free cash flow reached BRL 80 million, a 108% increase compared to Q2 2024. Our last 12 months free cash flow to EBITDA conversion rate improved to 57.7%, driven by growth and sustained efficiency measures. These results reflect our ongoing efforts in operational discipline from automation and collection process to centralized payment, scheduling and renegotiation of supplier terms. We also continue to make progress in deleveraging with net debt to EBITDA last 12 months at 1.9x, down from 2.28x in Q2 2024. Turning to Start-Anglo bilingual school, another important growth avenue, we can say that our operations continue to expand. We implemented 5 new operating units this year, and together with our 2 flagship schools, we now have 7 units in operation.

Closing this quarter, we have signed over 50 contracts, and we are actively working to deliver another strong growth cycle in this business line. Finally, we remain committed to innovation and inclusion as we prepare for 2026. Through AI, we’ll introduce new tools focusing on equity and personalized learning. The individualized education plan, IEP will empower educators with tailored pedagogical recommendations, supporting inclusive practice and transforming challenges into opportunities for growth. We are confident in our strategy and proud of the progress made so far. I’ll now turn back to Cesar Silva, who’ll walk us through the financial results.

Cesar Augusto Silva: Thank you, Melega. In Slide #4, we present the composition of Vasta’s net revenue. On the left side, you can observe the organic growth for the second quarter in total net revenue, which increased by 21.8%, reaching BRL 358 million. Vasta subscription revenue achieved in the second quarter of 2025, BRL 320 million, a 15% increase comparing to the same quarter of 2024. Non-subscription revenue increased 98% to BRL 29 million due to a seasonal effect between the first and second quarters related to delivery of books. And in the Government segment in this quarter, we generated BRL 9 million in revenues, and together with this BRL 5 million booked last quarter, we totaled BRL 14 million in new customers. So in the sales cycle, we achieved BRL 15 million, a decrease of 28% in compared to BRL 69 million of 2024 as was explained by Guilherme before.

Moving to the right side, you have the numbers of the net revenue for the 2025 sales cycle to date. We achieved an organic growth revenue of 13.6% in the 2025 sales cycle to date, amounting to BRL 1.488 billion. The main factors for this performance were: firstly, the subscription revenue had increased 16%, reaching BRL 1.340 billion and continues to be the major contributor to our total revenue, representing now 90% of the revenue share. Non-subscription revenue increased 11% to BRL 98 million. This growth is mainly driven by 2 effects: the new revenue for our flagship Start-Anglo Liceu in São Paulo that did not exist in 2024; and the growth in the number of students in the Anglo pre- university course, which enrolled 21% more students than last year.

Moving to Slide #5. We can say that in this quarter, our adjusted EBITDA amounted to BRL 42 million with a margin of 11.7%, an increase of 62% from BRL 26 million in the second quarter of 2024 mainly due to the growth in core content and B2G net revenue. On the right side, we see that adjusted EBITDA in 2025 sales cycle increased by 8.1% to reach BRL 462 million with a margin of 31.1%. Let’s now move on to the next slide and explain the breakdown of the adjusted EBITDA margin. In Slide #6, we can see that the adjusted EBITDA margin achieved 31.1% in the sales cycle, 1.6 percentage points lower than the same period of 2024. Our gross margin reached 62%, a decrease of 2.4 percentage points from 64.4% in the 2024 sales cycle due to a lower revenue in B2G and a different product mix.

Provisions for doubtful accounts achieved 3.1% in relation to the net revenue and have an improvement of 0.9 percentage points when compared to 2024. This indication has been showing improvement during the year despite the very challenging competitive credit environment for non-premium brands. And we still have foreseen some challenge in the credit scenario for the next month. As a percentage of net revenue, our commercial expense increased by 0.6 percentage points, driven by higher expense related to business expansion of the commercial cycle of 2026 and remain stable near 17%. And finally, adjusted G&A expenses improved by 0.5 percentage points, mainly driven by workforce optimization and budgetary discipline measures. Moving to Slide #7, we show the adjusted net profit.

In the second quarter of 2025, adjusted net losses totaled minus BRL 29 million, showing an improvement from the adjusted net loss of minus BRL 37 million in the same quarter of 2024. In the sales cycle, adjusted net profit reached BRL 111 million, and there has been a slight increase of 1% from the adjusted net profit of BRL 110 million in 2024. Moving to Slide #8, we show the free cash flow evolution. In the second quarter of 2025, the free cash flow totaled BRL 8 million (sic) [ BRL 80 million ] representing a relevant increase compared to BRL 38 million in the same period of 2024. And in the 2025 sales cycle, our free cash flow reached BRL 224 million, an increase of 147% from 2024. The cash flow generation in the cycle has an outstanding performance and achieved the highest level of conversion related to the adjusted EBITDA in the last years, achieving 57.7%.

This is 26% better than the same indicator as last year. This improvement is explained by certain measures that the company has implemented and they are showing results. We can mention some of these measures. In our collection process, we implemented automatized process like reminders and pass- through notification to the customers. We created a customer classification measure to make a faster renegotiation of overdue receivables. On the payment side, we implemented several initiatives to enhance discipline in payments, such as rigorous financial planning, centralized payment scheduling and negotiating longer payment terms with suppliers. Additionally, the first semester of 2025 benefited from early collections of the 2025 sales cycle, which are expected to be normalized throughout the next quarters of the year.

It is worth mentioning that for the year, we expect that we will achieve a conversion rate of about 50% in the 2025 fiscal year at the end of the year. This will represent a relevant increase from 41.8% compared to the same indicator in the last year of 2024. Moving to Slide #9, we show the provision for doubtful accounts. Total expansion of PDA in the second quarter of 2025 totaled BRL 11 million, representing 3.1% of net revenue, an improvement from the comparable quarter in 2024 when the PDA achieved 3.4% of net revenue. In the sales cycle of 2025, the PDA amounted to BRL 45 million compared to BRL 52 million in 2024. Provision for doubtful accounts represent 3.1% of net revenue in 2024 — sorry, 2025, an improvement of 0.9 percentage points in comparison to 2024.

As explained before, we still foresee some difficulty in the credit scenario, mainly for the school related to mainstream brands. Moving to the next slide, we observed that the average payment terms of Vasta’s accounts receivable portfolio was 153 days in the second quarter of 2025, which is 1 day higher than the comparable quarter and in line with the business model seasonality. Moving to the next slide, let’s take a closer look at the net debt movements. In the second quarter of 2025, Vasta had a net debt position of BRL 917 million, BRL 46 million lower than the previous quarter. This achievement is due to the positive cash flow generated during the period in the amount of BRL 80 million, which surpassed the impact of interest accrual of BRL 34 million.

Moving to the right side of the slide, the net debt position decreased by BRL 123 million in the sales cycle to date. This decrease was driven also by the free cash flow generated in 2025, which was partially offset by the financial interest costs. I will conclude my part of this presentation with Slide 12, explaining some more detail about our net debt composition, which represents BRL 917 million at the end of the quarter. This amount is composed of BRL 770 million on debentures issued to the parent company in addition to BRL 462 million on accounts payables for business combination, mainly related to Eleva acquisition. These numbers were offset by BRL 315 million of cash that the company owns. In the lower left part of this slide, we can see that in the second quarter of 2025, the net debt to last 12 months adjusted EBITDA ratio has decreased 0.16x from the last quarter and now stands at 1.9x.

We would like to reinforce our commitment to continuing to generate free cash flow and deleverage the company. Having said that, I finish our presentation, invite you all to the Q&A session.

Q&A Session

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

Marcelo Peev dos Santos: I wonder if you could comment a bit on the commercial cycle and the competitive environment, and focus on core and complementary, how these 2 are going? And the second question is regarding the outlook for B2G contracts for new states, and if the election year is a good year or is a bad year to close this kind of contract.

Guilherme Alves Melega: Thank you, Marcelo, for your questions. Let me give you some flavor about the commercial cycle. We are keeping the pace in our commercial cycle for 2026. We are seeing a very positive outlook for complementary products. The penetration in our school base keeps running, keeps improving. There is definitely demand for bilingual, social, emotional and maker products. We have been growing with more than 20% on complementary and we don’t see that changing a lot for the next cycle. In terms of renewed contracts, I would say so far, it has been a very good year. So we keep a very positive outlook for 2026. But that’s mainly because we have a very strong portfolio, very complementary to the school needs. And I think we reached a very unique position to keep the growth.

The market is very competitive but we are moving ahead on that. In terms of B2G, our strategy to keep growing on B2G is being performed. We have around 10 new customers in the year-to-date, totaling BRL 15 million in new contracts year-to-date. So we are working also in retail, in B2G. Now we are — we have municipalities on our base, benefiting from the learning recomposition and SAEB preparatory. We still have the second semester of Pará contract to be booked. We start receiving the orders. And we expect at least 1 new state by year-end. And that’s pretty much the outlook. It’s very positive for B2G also.

Marcelo Peev dos Santos: Just a follow-up. Conceptually, is an election year a normal year, a good year or a bad year? Like I know, of course, you don’t have a crystal ball, but what can you say about the differences between selling during an election year and not selling during an election year?

Guilherme Alves Melega: Yes. We don’t have much history on that since it’s a quite new business. And I pretty much give my guess that if you are doing an important — if we’re helping the state or the client, probably election year wouldn’t be such a problem to keep the contract. And definitely, with elections, you have new governors and mayors willing to do new things on their mandate. So let’s wait and see. So far, we have a positive outlook.

Operator: Our next question comes from Flavio Yoshida from Bank of America.

Flavio Yoshida: I have 2 questions on my side. The first one is on the EBITDA margin, which came in very good shape, helped by lower provisions, right? So I would like to understand if the premium schools, the fact that premium schools are gaining share on the mix helped this trend. And also if we should expect these provisioning levels to continue improving going forward? And then my second question is also on B2G. So I was wondering if you guys could share with us the B2G expectations for the second half of this year, if we could expect a similar level from last year or could you expect some growth compared to the same period of last year?

Guilherme Alves Melega: Thank you, Flavio. Talking about margins, yes, the margin is a reflect of premium products that we are selling and also the growth. The growth has been a very important driver for margins since it dilutes a very significant fixed cost that we have. And we expect Q4 to be a very important quarter because we recognize all the growth for 2026, and revenues and margins should be slightly above the 30% level. In terms of B2G, yes, we do have a very positive outlook for second semester. We expect to record the second half of the biggest contract that we have, which is Pará we booked first semester in Q4 2024, and we are receiving the orders for the second semester of 2025. On top of that, we have 10 new customers with more shipments in Q3 and Q4. And we expect to have new customers in municipalities, which are smaller contracts but is enhancing our base. And we expect to grow in a state for Q4 2025. So that’s the outlook. It’s a positive trend.

Flavio Yoshida: Okay, that’s very clear.

Operator: Our next question comes from Lucas Nagano from Morgan Stanley.

Lucas Dai Nagano: Can you hear me? Sorry, I was on mute. We have 2 questions. The first is related to Start-Anglo. From the contracts you already signed, do you expect all of them to begin operations already in 2026? And the second question is related to the non-subscription revenue, if you could provide some more color on this line because you mentioned that the performance was kind of seasonal, but even when you look at the cycle-to-date growth, it’s growing pretty decently. So what’s driving this?

Guilherme Alves Melega: Thank you, Lucas. The new contracts, we have around 50 new contracts for Start-Anglo. We are already operating 7 schools, 2 flagships and 5 franchisees. We expect to have more 8 new units in 2026, and the remaining will be opened in 2027 and 2028 with a huge concentration in 2027. Regarding the non-subscription, yes, we have seasonality in terms of revenue recognition in Q2. We have more recognitions, but the growth when you look at the cycle to date is mainly driven by the tuitions that we have on our 2 flagships of Start, São José do Rio Preto and Liceu Pasteur in São Paulo, together with the prep courses, the Anglo prep courses that also grew. So the cycle to date reflects best the trend of this business, which now accounts for tuitions from our 2 flagship schools. And that’s pretty much the trend for the non-subscription.

Operator: We have no further questions. I’d like to turn the call back over to our CEO, Guilherme Melega, for closing remarks.

Guilherme Alves Melega: Thank you, all, for participating in our call. The 2025 sales cycle to date continues reflecting Vasta’s solid execution and strategic focus. Our consistent revenue growth, strong cash flow generation and expansion in core business and complementary products, together with the 2 growth avenues of Start-Anglo and B2G reflect the commitment to delivering long-term value for our stakeholders. So thank you, all, to continue supporting us. We look forward to see you on the next call. Thank you, all.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.