Cogna Educacao SA
BOVESPA:COGN3
Earnings Call Analysis
Q3-2023 Analysis
Cogna Educacao SA
The company is intensively focused on integrating artificial intelligence, machine learning, and automation across its operations, both administrative and educational. With a decentralized approach, the leadership at all levels is encouraged to adopt AI and automation tools, leading to enhanced engagement, performance rates, and teaching quality. This proactive stance on technology application is complemented by strong project management and personal involvement of executive figures in strategic discussions and initiatives.
The company has experienced an impact on Kroton's net revenue amounting to BRL 8 million for the quarter, a trend which is expected to persist into the fourth quarter. This figure is tied to a specified limit, suggesting a controlled financial impact that the company is openly addressing and managing proactively within its financial strategy.
With a history of strong compound annual growth rate (CAGR) of 20.5% over the last four cycles, the company holds a positive outlook for maintaining this momentum, banking on low penetration in its main growth vectors, thus offering substantial room for expansion. Concrete growth guidance will be provided in the upcoming Cogna Day, underscoring the importance of transparent and forward-looking communication with investors.
The company has been in negotiations seeking to reduce paper costs, which is a significant operational expense for its publishing activities. Current expectations indicate a single-digit reduction, which contrasts the previous year's 20% increase. This reduction applies to both Saber and Somos segments, underlining an effective cost management approach.
With a solid receivables cycle, benchmarked at 47 days from the due date, the company holds a competitive position in the market. Efforts to further improve this cycle are underway, exhibiting fiscal prudence. Furthermore, by leveraging new distribution channels, expanding its educational portfolio, and targeting efficiency improvements in its operations, the company sees substantial opportunities for growth, even in the generally modest growth environment of the higher education market.
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[Audio Gap]We reached BRL 653 million with the same growth of 36%. And it's worth mentioning that in the 12 months, I mean, the 12 months of last year, we had a cash generation of BRL 540 million. So we overcame that in about 21% operational cash of the whole year last year, which reinforces our commitment in having operational cash generation for the fourth quarter in a strong way and our commitment to deliver the guidance for '24 of BRL 1 million, as we said in 2020.Now going to Slide 23, about the net profit and the adjusted net profit. We had the adjusted one positive of BRL 85 million versus a loss in the 9 months that lasted in '22. And the net profit we had last year, in the 9 months of last year, losses of BRL 325 million. And now by the end of this year, we had -- we reduced this loss to BRL 95 million. And this difference between the net profit is basically the amortization of tangibles that is BRL 180 million.Now going to the final part of the presentation, talking about leverage and debt. This is a topic that we are paying a lot of attention, especially due to the macroeconomic situation of the Brazilian market and the international markets with high interest rates. But the important message is that we reduced the net debt of the second quarter -- from the second quarter to the third quarter, we reduced BRL 55 million. And our leverage reduction, we reached in the net debt EBITDA 1.88x, an improvement regarding the second quarter of '23 and a recurrent improvement since '21.And I'll go to Slide 25 to have my final part here. I'll show you that we keep committed. And more than that, we are delivering results in expenses reduction. We have a debt of BRL 4.4 million minus the cash amount in September 30 of BRL 1.3 million, a debt of BRL 1.3 million. We rebought in debt [Indiscernible] about BRL 1 million with a positive impact in 9 months of about BRL 11 million. We reduced the net debt BRL 35 million or 1.7%. And the company keeps its ability to generate operational cash. And we don't need to have fundraising -- new fundraising unless the ones that we've been having in our pipeline to pay our future debt.With that, I finish the wonderful results that we present here in our business units and which even include Cogna. And I pass on the floor to Roberto Valerio.
Thank you, Fred. Well, as final considerations in Slide 26, in Kroton, it was the 5th consecutive cycle of growth in revenue and volume. And we believe that with all that we are doing, we'll keep growing in a consistent way. We have a lot of initiatives being implemented, the relaunch of Anhanguera brand, new distribution channels, the launch of new courses. We have a lot of interesting points here in this funnel of digital market. So we still believe that the initiatives and opportunities that we see ahead of us will support the growth in the revenue and volume of fundraising cycle-after-cycle.You also see in the gross margin, the thesis that we've been defending for 3 years that hybrid and digital courses as domains and course improved the gross margin due to the important leverage and the quality of the fundraising is reflected in dropout and PCLD, we have no reason not to believe that we'll keep delivering this result. So being assertive in fundraising and enrollment and dealing with students will make us improving the results in terms of margin.And obviously, as I mentioned in other moments, today, we have 112 companies, many of them with long-term contracts. As the contracts are finishing, we change the addresses, reduce the size and gain in efficiency and reducing costs. And it doesn't impact EBITDA directly, but it helps the cash generation, and we'll keep doing that over the years. So from the point of view of Kroton, we are very sure that we'll deliver the growth that we've been having over the last 3 years.Vasta, as Guilherme mentioned, the net revenue is still growing with wonderful initiatives and good opportunities for growth, increase in the penetration of the premium and complementary systems. B2G, we have a lot of new things being appearing. So we are quite sure that we'll grow in this business unit. And if this year that we had a lot of pressure in terms of cost we could gain in March, then we understand that the margin gain will be relevant again next year when the main costs will be recomposed.Saber, as Fred mentioned, is also very positive in this market share gain that we have in [Indiscernible] will allow consistent purchase for the next year. So the revenue we'll be receiving a lot. And obviously, it makes us very aware of the growth capacity and the value generation with Cogna with 90% of growth in the semester, which shows the potential of the company assets. And if well coordinator and complementary, they can generate a lot in the year with a growth in EBITDA and cash generation, bringing a lot of value to the company. We are reducing the leverage, which generates even more cash so that we can reinvest or if we have a net profit, then we will start distributing that to our shareholders.And from the point of view of liability and management, the team is constantly having a lot of liability and management actions to reduce the cost, and we'll keep doing that with quality. So I reinforce here my optimism regarding the company, it's not only in my words, but the results are here to show the quality of the team and the asset and how much we can deliver in terms of value to society, having quality products for education and helping many Brazilians to grow.With that, I finish my presentation. And I invite you for the Q&A session.
[Operator Instructions] So now let's go to the first question from Lucca Marquezini from Itau BBA.
We have 2 questions. First, we have heard that in the competitive scenario, it's more aggressive in the second quarter for fundraising. Please tell me how you see that and is it high or low? And the second question regarding the PCLD in Kroton. With a big drop that may be is not recurrent, but I would like you to comment on sustainability and PCLD and what would be the recurrent level, it would help a lot?
Lucca, thank you for the question. So I'll answer the one about the competitive scenario and Fred will respond the PCLD. I think the higher education market is competitive by natural -- by nature with many players that are structured big and with resources. I wouldn't say that it's more aggressive. I would say that the aggressiveness is the same as the last 2 or 3 years if we compare with the first cycle, maybe a little bit more aggressive, but I wouldn't say that we are back to the high aggressive scenario.My direct answer would be that from the point of view of competitive scenario, it's stable, but it has always been quite competitive. I reinforce that we try not to enter in the price wars mainly in terms of offer because it disturbs the ticket and end up bringing poor quality students, and we focus on revenue growth. So obviously, if we were more aggressive from the point of view of offer, we would bring more volume, but we are very focused on growing the revenue. Fred?
Thank you, Lucca, for the question. About the coverage rate, historically and analyzing what would be PCLD overall, we've always been saying about 2% this quarter would have the seasonality effect. And what is this effect? Well, it happens in the third quarter because this is a period of renegotiation of the students, re-enrollment of students. And we had a positive effect in the cash, which takes into consideration and reflects the PCLD, and our PCLD reached 9.5%. What I understand that is the most correct way to analyze the future is think about 10.5%, 11%, Roberto mentioned that before. But in fact, if in the fourth quarter, we have the positive cash effect, then PCLD will have a reduction in this behavior. But today, analyzing and adding plans and what happened in October, I believe it will be in 10.5% and 11%. This is the best way to look at it.
The next question is from Jessica [ Meller ] from JPMorgan.
Sorry, my mic was off. We have 2. First, how do you see the regulatory environment in online education? Are there relevant restrictions in this segment? And what would be the impact to Cogna? And the second question would be related to the marketing line. How do you see this line in '24? I mean, will we see a high level or a reduction in this line?
Jessica, thank you for the questions. I'll answer the first one about the regulatory environment in online education and then I pass on the floor to Fred. Regarding online education, we've been following the discussions that are made, especially some ideas of the minister. I would divide my answer in 2 parts. Well, Brazil has 5,500 cities, less than 1,001. I guess, not even 700 cities have the courses being discussed in the public consultation that are especially in the health courses. Just a few cities offer the courses on site, which means that if we include online education, we would consider about 2,000 seats a little bit more maybe.So try to give a simple explanation. We have 5,500 cities and a little bit more than 2,000 offering the courses. If there is a restriction, the courses are forbidden, maybe we would have 600 cities offering the same course on site and I think it's very bad for society and for Brazil. We need these professionals, especially in the countryside where the healthcare system and even the open companies are building hospitals and clinics. And in my understanding, and this is how we believe, the discussion should be much more related to how to carry out that. I mean, if the Ministry of Education understands that we have -- we need to have more quality and not only Cogna, but the system as a whole.So we need to discuss the rules, I mean, more presential labs or other things than simply blocking the courses. And to the Brazilian considering that the courses, when the student is graduated, they have a good payment above the average. So I think it has a social impact in terms of healthcare and in terms of payment and even tax for government that is quite relevant. So it should be taken into consideration. I think this is the point that we have to present as an argument. And in the end, I believe that we should go towards the regulation in a different way from the point of view of having the courses instead of forbidding them. This is my belief, what I defend and what we've been defending here. But I think the public consultation is open, people are giving their opinions and we'll keep participating in this discussion.And then to respond from the point of view of impact, I would separate that in 2 parts. I mean, online education is part of our strategy. So it deals with an important item to us, but our company is diverse. So we've been a company 100% in higher education. Today, 65% of our business is higher education. And part of it is distance education and part is the healthcare courses. So it obviously has an impact, but it's less relevant than in the past. But I'll reinforce, Jessica, that society and associations and even the ministry should think about how to regulate the courses and how they can have quality instead of simply preventing them. I mean, maybe they can be a little bit more expensive, but they don't make the business unviable.I guess, my answer took too long because the topic is complex. But I would like to pass on to Fred.
Okay. Jessica, thank you for your question that is about what would be the predictability of expenses in marketing. Well, in the third quarter, we printed sales in BRL 256 million with a growth of 45%. This growth happens mainly due to the investments that we are having in market -- brand consolidation and the investment to bring better students to our base. So I don't believe that this is how we model our business to '24. We believe in new growth. We modeled a lot in line with expenses in marketing '24 and '25 in our forecast. And what we are showing what we have in '23. And as Roberto mentioned, we prefer to invest in market to have good students instead of giving discounts. And I think the strategy is quite correct because we delivered that in EBITDA and in operational cash. So it shows that the strategy in fact is the correct one.
The next question is from Lucas Nagano from Morgan Stanley.
We also have 2. The first one regards the fact that has a concentrated impact in the third quarter with BRL 8 million in revenue reduction and BRL 14.5 million in [Indiscernible]. And looking ahead with the 27.5, what would be the recurrent impact from now on? Would it be BRL 18 million?And the second question is regarding a more strategic topic, but regarding the spread of technologies of artificial intelligence. If you -- I mean, what is your approach regarding that? Did you map where it can be used to improve internal productivity or improve the product? Did you quantify the potential of this technology in terms of cost and revenue?
Lucas, I'll start responding and then I'll pass on to Fred for him to continue the answer. Well, I can say that we are very engaged in understanding, studying and applying not only regeneration, but artificial intelligence and machine learning and automation in many of our processes, not only the administrative ones, but also the educational ones. We have constant meetings in the agenda.We also have an agenda of education with our leadership to discuss the opportunities of using artificial intelligence and the tools that are being developed for the leaders to use so that they can learn how to use and implement to their processes so that we don't have a centralized AI team, but the competence and the interest is used by every leader in every part of our business and every stage and every system and every capability that we have.We like to allocate project manager. When we have a project, we have a project manager to lead the initiative and we believe this is very important. And I tend to say that I am the business manager of this topic in the company. I dedicated a good part of this -- of my time to talk about it and discuss with the teams. I have regular meetings with the group of work here.I wouldn't like to talk about the initiatives to strategic topic, but we have back office initiatives and also an automation processing and also initiatives in studies about how to apply that to education to generate more engagement, higher rates of performance and better training of the students and even greater competence on how to teach the content and produce content because a company -- education company just like us produce a lot of content. We have publishing houses. We have opportunities for that and to use content for images and texts and objects of learning. So without giving strategic information, this is a topic that we are very well engaged, and I participate on that personally.Fred, FGTS, now you can talk about it.
Yes. Regarding that, we made it quite clear in the release, the impact on the revenue, the net revenue in Kroton that happened of BRL 8 million in the quarter. This way, the same impact of BRL 8 million will also happen in the fourth quarter. That's it, fewer and simple.
And it reflects the limit of 27.5 or not?
I'm sorry, I had a problem -- an operational problem here. Yes, with the limit of 27.5 to the same BRL 8 million.
The next question is from Yan Cesquim from BTG Pactual.
I would like to make 2 questions, one about Vasta and one about Saber. About Vasta, I imagine that maybe you talk a little bit deeper on the perspectives of the new cycle during the Cogna Day, but I would like to know if you can share some perspective, even a qualitative one about how the sales process was in this new cycle when a little bit of the process of what you have in perspective to B2G as it is a new initiative and we are still trying to understand a little bit of the revenue dynamics of this initiative. This is about Vasta.And about Saber, I would like to understand a little bit of your perspective on the impact of paper costs for the fourth quarter and to next year? What do you have in terms of perspective?
Well, Yan, thank you for your question. I'll let Guilherme answer and then Fred can answer too.
Well, Yan, let me give you the perspective. We are quite happy with the commercial situation for '24. Remember that the last 4 cycles our CAGR was 20.5%. So I think 20% is always our growth boom. We still see the same possibilities of keeping this growth and complementaries that are quite fast also have a very low penetration at school. So the main growth vectors still has a lot of penetration space. And in Cogna Day next month, we'll give the guidance, but November is still a very important month. And we don't expect any change in this trend that we have in performance of the last 4 cycles.And regarding B2G, in fact, it is new to everyone, even to us. We are quite happy with the beginning of this new segment. But it is a segment that we hope to have great news next year, but the contracts with the public area are in the year, they are performed differently from the private sector that we celebrate the contracts the previous year. In the public sector, we signed the contract as we won the bidding and it is for the same year. So it's very difficult to have this in advance with this visibility. But we hope that what we built this year are renewable in the new baseline so that we can grow next year. So as we have the news and new contracts, we'll tell you that.
Okay, Fred here. I'll talk about the paper costs, but it's important to remember that it reflects in Saber, but it also reflects in Somos in terms of books. We are negotiating over the last 2 months about the paper costs. And today, our perspective is a reduction in the paper costs. It's still a single-digit, but different from last year in which we had the growth in the paper cost of about 20%. And so here we are foreseeing cost reduction in both companies, Saber and Somos.
Our last question is from Mirela Rodrigues de Oliveira from Bank of America.
I would like you to talk a little bit about the receivables because it's an indicator that was improving in the last quarters, but this one was flat. So we would like to understand better if there is something special in this dynamic. And the second question that is a little bit more about '24. How you believe the opportunities of growth may come from considering this is a stronger year in '23, specifically for the Kroton demand?
Well, Mirela, thank you for the questions. Regarding the receivables, I think we have a very efficient level of receivables. We are adding 47 days -- this is basically 45 days from the due date, especially for the high education audience that deals with Kroton. I guess, we potentially are able to keep receiving and improving. But this drop is lower because we are at a good level, especially if we compare to the other players on the market. When we talk about a business that we have in many schools, maybe the due date, the deadline is shorter, but we don't have the schools, especially the premium ones, we have parents paying well, but we believe that this indicator is quite healthy and having 1 day less is quite positive.Regarding Kroton, I think the market of higher education is a market that grows in not so big rates and Kroton is gaining efficiency and productivity in the polls and the units and being able to have new distribution channels, bringing new students, not only digitally, but also in channels like [Indiscernible] that is our affiliate program that is quite similar to what [ Natura ] does and [ Avon ] do in Brazil. And we have an autonomous team of people knowing the families they are close to the families and they end up having new enrollments and we have a better portfolio, not only because we have graduation, post-graduation and professional courses and technical courses, but we believe that the increase in the portfolio, the diversity of the distribution channels, they gain inefficiency in the posts that are still maturing. I would say that 50%, not even mature yet. So we see an opportunity for growth despite the sector as a whole doesn't have so big increased raises. We see a lot of opportunities. That's why we trust our ability to grow in the fundraising for the next years.
So the Q&A session is over. And now I would like to pass on the floor to Mr. Roberto Valerio, CEO, for his final words.
Well, I thank you all for your participation in this meeting. I would like to congratulate our whole team for the hard work for us to take quality education to all Brazilians. Congratulations to you with wonderful results that are a reflection of our effort. We are a big team, congratulation to us. Our IR team is available for anything that you need. Bye, bye.
So the teleconference of results regarding the third quarter of '23 of Cogna Education is over. The Department of Relations with Investors is available to answer any other questions or doubts that you might have. Thank you all participants, and have a good afternoon.