Vasta Platform (US:VSTA)2025-04-17 20:02PART I Key Information The company faces significant risks from competition, technology dependence, seasonality, Brazilian macroeconomic instability, and a controlling shareholder structure Risk Factors - The company faces substantial competition and the risk of new entrants, which could lead to loss of market share and reduced profitability63 - Operations are highly dependent on IT systems and subject to risks from technological change, where failure or security breaches could negatively impact revenue and reputation6566 - The business is subject to seasonal fluctuations, with revenues concentrated in the first and fourth quarters, impacting liquidity and cash flow8182 - As of December 31, 2024, the company had R$762.0 million in total outstanding bonds, and this significant debt could limit resources for operations and growth120 - The Brazilian government's influence over the economy, along with political instability, inflation, and fluctuating interest rates, could adversely affect the company's business197205 - Parent company Cogna controls 97.6% of the voting power through its ownership of all Class B shares, limiting the influence of Class A shareholders227 - Material weaknesses in internal controls over financial reporting were identified as of December 31, 2024, particularly related to general information technology controls (GITCs)155157 Information on the Company Vasta operates as a leading K-12 education platform in Brazil, formed through acquisitions by its parent Cogna, with a Platform-as-a-Service (PaaS) business model History and Development of the Company - The company was formed by consolidating K-12 businesses from Somos Educação and Pitágoras under Vasta after Cogna acquired Somos in 2018261 - Vasta expanded its portfolio through strategic acquisitions, including Mind Makers, Editora Eleva, Phidelis, and a 51% stake in Escola Start266273274276 - A share repurchase program concluded on March 31, 2024, with 2,965,791 Class A shares repurchased for R$62.5 million (US$12.5 million)277 - The company began offering products to the public sector (B2G) in 2023, which grew to serve over 290,000 students and represented 6.2% of total revenue in FY 2024278 Business Overview - Vasta operates a Platform-as-a-Service (PaaS) for K-12 schools, comprising a Content & EdTech Platform and a Digital Platform284372 Key Operational Metrics (as of Dec 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Partner Schools | 4,744 | 5,032 | 5,274 | | Enrolled Students (thousands) | 1,432 | 1,539 | 1,589 | - The company's revenue is primarily subscription-based, accounting for 87.3% of total net revenue from sales and services in FY 2024289325 - Growth strategies include converting customers to subscription models, increasing service penetration, expanding into the public school market, and acquiring new technologies334336340342 - The Plurall digital platform is a key offering with over 2.2 million registered student users by the end of 2024392435 Organizational Structure - Vasta Platform Limited is a Cayman Islands holding company with its main operational subsidiary, Somos Sistemas, based in Brazil505506507 Property, Plants and Equipment - The company protects its intellectual property through trademarks and copyrights, owning approximately 581 trademark registrations for key brands510511 - Vasta occupies 14 properties, mostly leased, with property rental and condominium expenses amounting to R$15.7 million in FY 2024513514 Operating and Financial Review and Prospects The company achieved a net profit of R$486.4 million in FY 2024, a significant turnaround driven by a tax contingency reversal, despite a decrease in enrolled students Operating Results FY 2024 vs. FY 2023 Financial Performance | Metric (R$ millions) | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 1,674.2 | 1,486.2 | 13% | | Gross Profit | 1,020.7 | 915.3 | 12% | | Profit/(Loss) for the Year | 486.4 | (83.0) | N/A | - The significant increase in profit for 2024 was primarily due to a reversal of tax contingencies, which positively impacted expenses, finance income, and income tax580583586 Key Business Metrics Evolution | Metric | 2024 School Year | 2023 School Year | 2022 School Year | | :--- | :--- | :--- | :--- | | Enrolled Students (thousands) | 1,432 | 1,539 | 1,589 | | ACV Bookings (R$ millions) | 1,350 | 1,230 | 1,000 | | Revenue Retention Rate | 92.8% | 91.4% | 90.7% | Non-GAAP Financial Measures (R$ millions) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | 508.4 | 450.6 | 375.3 | | Adjusted Net Profit | 80.3 | 59.6 | 38.6 | Liquidity and Capital Resources Statement of Cash Flows Summary (R$ millions) | Cash Flow | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | From Operating Activities | 175.4 | 218.9 | 174.8 | | From Investing Activities | 30.9 | 44.6 | (394.9) | | From Financing Activities | (217.7) | (213.4) | (44.0) | - Net cash from operating activities decreased by R$43.4 million in 2024, mainly due to higher interest payments and an increase in trade receivables590 - As of December 31, 2024, total outstanding indebtedness was R$762.0 million, and the company issued R$500 million in new debentures to refinance existing debt600603 - Capital expenditures in 2024 totaled R$128.3 million, mainly invested in software, IT equipment, and digital education solutions610 Trend Information - The company's performance is materially affected by Brazilian macroeconomic conditions, including economic growth, interest rates, inflation, and political instability614615 Directors, Senior Management and Employees The company is led by a seven-member board and an executive team, with aggregate leadership compensation of R$12.5 million in 2024 and a total of 1,808 employees Directors and Senior Management - The Board of Directors consists of seven members, including Chairman Rodrigo Calvo Galindo and three independent directors who serve on the Audit Committee619621 - The executive leadership team includes Guilherme Alves Mélega as Chief Executive Officer and Cesar Augusto Silva as Chief Financial Officer631632633 Compensation Aggregate Compensation of Directors and Executive Officers | Year | Aggregate Compensation (R$ millions) | | :--- | :--- | | 2024 | 12.5 | | 2023 | 19.3 | | 2022 | 20.4 | - The company utilizes a Restricted Share Unit (RSU) plan and a Performance-based Restricted Share (PSU) plan as long-term incentives641642 Board Practices - The Board of Directors has one standing committee, the Audit Committee, which consists of three independent directors648649 Employees Employee Distribution by Function (as of Dec 31, 2024) | Function | Number of Staff | % of Total | | :--- | :--- | :--- | | Customer Relations | 225 | 12.4% | | Content Production | 242 | 13.4% | | Educational Technology | 204 | 11.3% | | Operations | 187 | 10.3% | | Pedagogical | 454 | 25.1% | | Administrative Support | 496 | 27.4% | | Total | 1,808 | 100% | Major Shareholders and Related Party Transactions Parent company Cogna holds 97.6% of voting power, and Vasta engages in numerous financial and operational transactions with Cogna and its subsidiaries Major Shareholders Beneficial Ownership (as of Dec 31, 2024) | Shareholder | Class B Shares | % of Class B | % of Total Voting Power | | :--- | :--- | :--- | :--- | | Cogna | 64,436,093 | 100.0% | 97.6% | - The dual-class structure, with Class B shares carrying 10 votes each, ensures Cogna's control over the company668669 Related Party Transactions - In June 2024, subsidiary Somos Sistema issued R$500 million in debentures which were fully subscribed by parent company Cogna to refinance existing debt673 - An indemnification agreement with Cogna covers Vasta for up to R$153.7 million in cash outflows related to historical contingencies675 - The company has a cost-sharing agreement with Cogna for back-office, IT, administrative, and logistic expenses676 - Vasta has multiple trademark assignment and license agreements with Cogna subsidiaries for key brands such as "Pitágoras" and "Somos Educação"680681 Financial Information The company has no formal dividend policy and maintains a provision of R$157.1 million for various legal and administrative proceedings Consolidated Statements and Other Financial Information - The company has not adopted a formal dividend policy and its ability to pay dividends is dependent on receiving cash from its operating subsidiaries in Brazil697698 Provision for Losses (as of Dec 31, 2024) | Category | Provision (R$ millions) | | :--- | :--- | | Tax and Social Security | 110.9 | | Civil Matters | 24.0 | | Labor Related Matters | 22.3 | | Total | 157.1 | - A significant legal dispute involves an administrative proceeding concerning indemnities, for which an indemnification asset of R$150.3 million was recorded704 Additional Information The company operates as a Cayman Islands entity with a dual-class share structure that concentrates control with Cogna and contains anti-takeover provisions Memorandum and Articles of Association - The company has a dual-class share structure: Class A shares with one vote and Class B shares with ten votes per share, all held by Cogna721728 - Class B shares automatically convert into Class A shares upon transfer or if their total number falls below 10% of total outstanding shares734 - Holders of Class B shares have the right to maintain their proportional ownership interest by purchasing additional Class B shares if new Class A shares are issued733 - The Articles of Association contain anti-takeover provisions, including the board's authority to issue preferred shares without shareholder approval777781 Taxation - The Cayman Islands currently does not levy taxes on profits, income, gains, or appreciation, and there are no withholding taxes792 - For U.S. Holders, distributions on Class A common shares are generally treated as dividends and may be taxed as "qualified dividend income"803 - The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2023 taxable year, but its status is subject to annual review807 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is exposure to Brazil's CDI interest rate, with a hypothetical 15% rate increase projected to cause a negative impact of R$137.6 million - The company's main market risk is interest rate risk, as its financial instruments are primarily exposed to fluctuations in Brazil's CDI interest rate822 Interest Rate Sensitivity Analysis (as of Dec 31, 2024) | Scenario | Impact on Net Exposure (R$ thousands) | | :--- | :--- | | Base Scenario | (114,670) | | Scenario I (+15% rate increase) | (137,604) | | Scenario II (+30% rate increase) | (160,538) | Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of year-end 2024 due to material weaknesses in internal IT controls - Management concluded that the company's disclosure controls and procedures were ineffective as of December 31, 2024837 - The ineffectiveness is due to material weaknesses in internal control over financial reporting, specifically related to general information technology controls (GITCs)157839 Corporate Governance and Other Disclosures As a foreign private issuer, the company follows home country governance practices, completed a share repurchase program, and maintains an integrated cybersecurity strategy Principal Accountant Fees and Services Audit and Non-Audit Fees (KPMG) | Fee Type | 2024 (R$ million) | 2023 (R$ million) | | :--- | :--- | :--- | | Audit | 5.7 | 2.3 | | Total | 5.7 | 2.3 | Purchases of Equity Securities by the Issuer and Affiliated Purchasers - A share repurchase program was completed on March 31, 2024, with 2,965,791 Class A shares repurchased for R$62.5 million (US$12.5 million)849 - As of December 31, 2024, the company held 3,447,864 Class A common shares in treasury, valued at R$74.6 million850 Corporate Governance - As a foreign private issuer, Vasta follows its home country (Cayman Islands) practices in lieu of certain Nasdaq governance requirements, such as not having a majority-independent board853856 Cybersecurity - Cybersecurity risk management is integrated into the enterprise risk program and overseen by the audit committee, in conjunction with the parent company, Cogna893894898 - As of December 31, 2024, the company had not identified any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business897 PART III Financial Statements The company's audited financial statements show total assets of R$7.21 billion and a net profit of R$486.4 million for 2024, a significant improvement from a loss in 2023 Consolidated Statement of Financial Position (R$ thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | 7,205,155 | 7,402,880 | | Total Current Assets | 1,466,325 | 1,456,821 | | Total Non-current Assets | 5,738,830 | 5,946,059 | | Total Liabilities | 2,211,844 | 2,882,089 | | Total Current Liabilities | 1,244,172 | 1,447,292 | | Total Non-current Liabilities | 967,672 | 1,434,797 | | Total Shareholder's Equity | 4,993,311 | 4,520,791 | Consolidated Statement of Profit or Loss (R$ thousands) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net revenue from sales and services | 1,674,191 | 1,486,273 | 1,264,280 | | Gross profit | 1,020,742 | 915,366 | 791,145 | | Profit (loss) for the year | 486,354 | (82,978) | (54,573) | - A significant event in 2024 was the reversal of tax contingencies related to the deductibility of goodwill, resulting in a substantial positive impact on the income statement929930931 - The company recorded an impairment loss of R$8.3 million in 2024 on its non-controlling interest in Flex Flix Limited932