Cogna Educação S.A. (COGN3) Earnings Call Transcript

Good morning, everyone, and thank you for waiting. Welcome to the Cogna Education conference call to discuss the second quarter 2026 results. [Operator Instructions] Please note that this conference call is being recorded and will be made available on the company's website, www.ri.cogna.com.br, where the complete materials for our earnings release are also available. [Operator Instructions] Before proceeding, we would like to clarify that any statements made during the conference call regarding Cogna's business outlook projections and operational and financial goals constitute the beliefs and assumptions of the company's management as well as information currently available to Cogna. Forward-looking statements are not guarantees of performance and involve risks and uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operational factors may affect Cogna's future and may lead to results that differ materially from those expressed in such forward-looking statements. I would like now to turn the floor to Mr. Roberto Valério, CEO of Cogna, who will begin the presentation. Please, Mr. Roberto, you may proceed.

Good morning, everyone. I would like to thank you all for joining the conference call to discuss our first quarter 2026 results. So joining me on this call are Frederico Villa, our Chief Financial Officer; Guilherme Melega, our Vice President of K-12 Education; and Jeferson Ortiz, our Vice President of Higher Education; and Rodrigo Cavalcanti as well. So this call is expected from the last -- different from the last call. So we have some introductions from the market, and we will do it a little bit differently. So it will last about 1 hour composed of 20 minutes of presentation and 40 minutes for Q&A. Therefore, you have more opportunities to ask questions, and then we can have a fire chat. So be welcome. I would like to begin highlighting that this semester, this quarter of 2026 was very good results, very positive results with the 2 BUs really growing, obviously, with highlight to the BU of Basic Education, which is growing along all its business lines. So the B2B and B2G -- but reinforcing, and I always like to say that this quarter is a very good example that shows the quality of our strategy to act in a very diverse segment, not only with higher education, but also in basic education and the diversification of the portfolio within all these different segments and no doubt the quality of its execution since we began the turnaround of the company in 2021. So I believe that the whole market recognized. So the consistency of all deliveries in some quarters, one BU performing a little bit better than the others. So we have the seasonality of all the different businesses, but showing a very strong strength. So last year, the higher education was very good in this quarter and obviously, the second quarter, the basic education performing really well. So the composition made the company to grow at a very high rate. So talking a little bit about the financial highlights. So our net revenue grew almost 18%, boosted by the basic education. And the semester is even stronger. We grew almost 25% year-over-year. So the EBITDA is growing 6.8% on the quarter and almost 14% in the semester. So I'd like to highlight the semester because in the business of higher education, the semester brings a neutrality that may be not a big difference between semester, including the enrollment. I also highlight the margin pressures in relation to the new regulatory framework, we would have a pressure on the margins. And that wouldn't mean the reduction of growth in EBITDA and generation of cash because we replaced EAD with a percent of margin with insight and hybrid courses that have a higher percent of margin, but the growth is steady. And this is very clear, even though we are losing 3 points in the margin in the quarter and 2.7 in the semester. So the EBITDA, both for the higher education and also Cogna as a whole keeps growing in the semester, almost 15%. So in relation of the free cash flow, so we are considering the free cash flow with almost 88% of growth. So we generated a free cash flow of BRL 504 million. So as a reference, last year, the whole entire year, we generated BRL 716 million. So in the first semester, we reached [ BRL 4 million ] which is a very important growth. And the net profit also 23% in the quarter and 35% in the semester. So once again, this quarter was a quarter of reducing debt. We reduced it, BRL 21 million in debt. So I will explore this a little bit more in the specific slide that we talk about capital allocation and how -- what we are thinking and what we've been executing in a very constant fashion in terms of capital allocation. So moving to the next slide, the one that talks about the revenues. So I believe that this is very clear the diversity of our business. And I would like to highlight the growth of basic education. You see that we are growing 50% in the quarter and 60% in the semester. And for those who had the opportunity to read our report, so you see that all lines are growing if we get basic education and segmented B2B and B2G, so within B2B, so the subscription grew 22% in the quarter and 18% in the semester. So the non-subscription, so in refer to the textbooks, 33% in the semester and 17% in the semester as much as our language that we have Red Balloon and others that have important growth, growing 31% in the quarter and 20% in the semester, meaning that the lines of B2B growing in a very strong way and steady way. So I know that B2G and the solutions for the government had an extraordinary growth in the semester, but I would like to highlight that was not only due to the B2G that we grew strongly and the revenue in the basic education. So our lines and our products, B2B meeting the demand to schools, partners and franchise and growing very steadily. And talking about basic education, so an important highlight to the PNLD growing 450%. So it's important to highlight the 3 things. So there is a displacement in the revenue from the PNLD that generally is in the fourth quarter and the first semester. Everybody knows and had this information, there was a displacement on the revenue to the first and the second quarters. So this is one of the reasons of the PNLD growing so much. But it's important to highlight as well that the program of mid education, it was bigger than the initial expectation. And then so that's why we had more revenue. And the company achieved 8 points of market share. So we moved from 22% in the last program to 30% in the textbooks. So the program was much bigger, and we achieved more market share. Also, there was a displacement for the second cycle and that benefit the results for the second semester on PNLD, but a strong result even without the displacement. So in the B2G, our line of solutions, specific solutions with the Secretariat of Education in the states and municipalities, we follow the growth, 45% of the growth in the quarter and 35% in the semester. It's a line of business that's not too far away less than BRL 41 million of revenue 4 years ago and last year. So we -- the revenue was BRL 100 million, and we still have a lot of opportunities to grow. Speaking briefly about the higher education, it grew 6.3% in the quarter and more in the semester. So our business B2C 6.3% and 8.5% in the semester. And then there was a transitional moment and the change of the regulation with the change in the profile of more insight than hybrid, but continues growing in a consistent way. And as I say, I'd like to look at the semester because it's more stable and a growth of 8.5% on revenue. So moving to the next slide, I'm talking about EBITDA and margin. So it wouldn't be different like stronger education -- strong growth in the basic education brings results in the EBITDA of the basic education growing 62.7% in the quarter and 6.5% (sic) [ 65.6% ] in the semester, and we have an expansion in the margin. We are achieving a better margin. And it's important to remind you that the PNLD has less mean growth than the B2B. So it ends up pulling our margin a little bit downwards even with concentrated growth on the PNLD, our margin grew and shows the quality of the basic education in terms of portfolio and also services offered to our clients. So basic education, actually higher education. So the EBITDA grew a little bit less, but 1.8% in the quarter and 2.5% in the semester. So we are losing margin, as we've mentioned, due to the mix. However, we understand that this is a transitional moment and it's natural that it occurs. And we are continually looking at a growth in terms of nominal and absolute both in the revenue and EBITDA looking ahead. So when we move to the net profit, so we grew 18% in the quarter and 23% in the semester. I think that the highlight here is due to the operational results, vary -- financial discipline. I'm talking about the GCL. It's a highlight in the company like our capacity of making important investments that we have been investing in CapEx and making our investments, both in expansion and also related to technology use. And so following this investment, we are still growing with the GCL. So the leverage -- so we got to 1.63 in EBITDA. And I would like to highlight that it's the smallest leverage since 2017, but it did not fall more because we had other levels that we are going to explore, and then I can clarify some of your questions. Otherwise, the leverage would have fallen even more. And then on the chart, the yellow line, you see the cost of the debt. There was an increase of the mean cost. And then in the second quarter, so we have the incorporation of the Educbank that we have credit lines that are more expensive than the Cogna average. We understand that there is this mean cost, this is going to reflect in the numbers. So moving to the last slide before the questions and answers, I'm talking about the allocation of capital. So it's noticeable, and we've been talking for the past 3, 4 years that our priorities in terms of capital allocation are financial expenses, the reduction of financial expenses and the reduction of debt. And in our case of basic education, reducing the withdrawn that has a risk above our mean average. So the risk is BRL 36.7 million, and we have the responsibility to reduce our expenses in the line and also the reduction of the net debt, BRL 21.8 million. So fully aligned with everything that we've been saying, looking to reduce the debt, not only through leverage since we have this optimum leverage, but to reduce the financial expenses, which is quite heavy due to the interest rate in the market. So we did it, but not -- so we are still giving a good return to our shareholders. So we pay BRL 28.5 million in dividends, adding to the BRL 120 million paid in February and distributed BRL 148 million in dividends to our shareholders. And as we always say, so M&As -- strategic M&As are part of our strategy. So last year, we had an acquisition of a medical school at a cost per seat, very positive. So around BRL 750 million, and we bought an EdTech to strengthen our other business Instituto Mauá and many other clients. And now in this quarter, we have the acquisition. We were already investors in the Educbank. We had 43% of the start-up, and now we bought 47% for BRL 46 million. So you see that this is an important and well-balanced capital allocation, looking for the reduction of financial expenses, but we have small and important strategy acquisitions that are important to generate value. The same thing that we did when we created our B2G business. It began small and now it's quite important. And the same thing for Start-Anglo, and now we have 70 contracts celebrated with schools already working. So we move on with this vision of balancing capital allocation, but without giving up the future of the company. So having said that, I would now want to pass on to Q&A. And as your request, we left more room for questions and clarify the questions that you may have.

[Operator Instructions] So let's go to our first question Marcelo Santos from JPMorgan.

Congratulations of the new format. So the first question is in relation to the vestibular in the second half of the year. So how do you see the demand and the ticket in the higher education? The second question, so please, if you could tell us about the commercial cycle 2027.

Thank you for your questions. In relation to the vestibular, so it's important to say that everybody knew that this cycle would be very challenging due to some specific factors, the same one because in the same date last year, we had an increase of the demand because the market knew that the rules would change. So a lot of people speed up and made their enrollments, and we observed that. So we had a growth that was very fast, both in the enrollment for the presence and also the hybrid with a growth in volume, single digit very high, which made it very clear in a competitive base and an important challenge. So this is the first important aspect to bring. The second one, so we have this dynamic of the World Cup. And we observed that during the World Cup, the enrollment did not follow the same pattern. And then at the end of the World Cup, they speed up, and we noticed that this was kind of clogged and our classes began recently. So our in-person began on Monday this week and the hybrid began last week. We know that the very first 3 weeks, there is a lot of new enrollment. So we've been seeing the seasonality of the enrollment a little bit different than the big challenge that we have in relation to the base comparing to last year. And having said that, including the vestibular is very challenging from the perspective of volume, we are not growing. Generally speaking, obviously, the dynamic among modalities between in-person and hybrid performed better than the EAD. But among the modalities, we are following the same dynamic of the first cycle of collections. So that's what I said. So EAD decreasing around 30% and insight and hybrid growing. So on the point of view of the tickets, we see some aggressiveness in the offering. We've increased our prices through the month of June. Imagine that the market would pretty much do the same, and that didn't happen. So what is going on now in a slower fashion than what we anticipated before. And then we reduced the price more towards the end of the World Cup, and we speed up our enrollment. So I know that I end up passing a lot of information, but I tried to make the explanation a little bit simpler. So we knew that the scenario was going to be challenging due to the comparative basis. And after this year and the basis are the same after next year, the percentage growth will become more clear. But as we are speeding up in the past few weeks, we understand that we still have a lot of things to move forward. But today, the reduction of enrollment year-over-year without creating any harm for the future revenue because the average tickets are higher and this cycle of collection is smaller, affecting very little the student base. So we are continuously growing. And looking at our forecast, we see a growth in the revenue in the third and fourth quarter. So I ended up answering all the questions. And now we can move on to somebody else.

So thank you, Roberto. Thank you, Marcelo. So let me just give a little bit of flavor in our commercial cycle for 2027, reminding you that this commercial cycle for 2027 is composed by 2 segments based. One is the maintenance of the renewal of our base schools and the other one is the commercial harvest of new contracts, both coming from new schools and also contracts coming from the current schools. So in relation to the renewal, we've been having a very positive behavior in our base, we have to be ahead of the renewals that we had last year and pulling by the premium brands. So we have a renewal cycle very robust until this very moment. So when it comes back to the commercial harvest of our contracts, we had a first quarter very heated up, different from other sectors in the economy that had the effect of the World Cup and so on, we did not see the same. So we saw a constant flow of new contracts significantly above the previous year, including new schools, and also contracts of the form -- of the base contracts. But reminding you that the first semester, historically speaking, corresponds to 20% of the total. So the trend of the first 20% is quite positive. And if it remains the same, we get a much better harvest than we had last year. But the whole entire game is going to be played in the second semester, but we are very strong and very, very heated up. So thank you very much for your question, Marcelo.

The next question is from Lucca Marquezini analyst from the Itaú.

So the first one is related to the average ticket. I was doing a follow-up in relation to Roberto's answer. So what caught our attention in the second quarter is that you showed a growth of the average ticket in all modalities, different from what we had seen in the other companies. So considering the second semester that you talked about the competition is a little bit more challenging, and we had a reduction in price recently. So I want to know if it makes sense that this average ticket in the second semester to make it a little bit more clear. And second is the PNLD. We know that it is a stronger driver for growth in the revenue in the first semester and I understand if this level of the growth in the revenue for the second semester could be repeated in the second semester. So I want you to comment on that.

So I'll get the first question. And then the second, we will pass to Melega. So it's important to say that in the segment, we are -- we can keep -- so well, let me rephrase it. So a good part of the increase of the average ticket comes from this strategy of repassing the prices for the student space. It is important to say. So we have to -- we've done it historically for many years. We can repass it above the inflation rate. So that help us with the average ticket, including the base. In the specific case of the comment that I made in the terms of the capital allocation, so it doesn't have a trend to impact negatively the average ticket because we try to increase and not reduce from the point where we were. So there was an average point for the insight and EAD. So our intention is that given our new regulatory framework, we try to pull the price up, assuming that additional cost, the market would do the same movement. And in fact, it did, not in the same dimension and all the portfolio that we've had. So we had to make adjustments to down because of the process. I thank you. It's not that we are reducing the average ticket vis-a-vis the previous movements. We try to make it go up and then we had to make adjustments. So I think that the explanation is clear now.

So thank you, Lucca. I'll give a little bit more flavor to that. So in the first semester, so we recognized BRL 431 million of PNLD, which basically -- the PNLD for the basic -- in the previous cycle, the PNLD that historically, it is recognized taking the previous year as the basis. So we have to look at this year, and we recognized BRL 431 million in the first semester. So this number when compared to the first semester of 2025 correspond of [ 1,400 ] growth. And this is not typical and reflects with most of the problem with basic education, meaning that this is concentrated in the first semester. And already -- we had already did a lot and what is still missing for the second semester in the PNLD, some repurchases that are done from one [ Fundo ] and the program of the Fundo II. Well, the repurchase of Fundo II and the program of the Fundo I, which is the program that is being announced now. So if we have the same procedures that we had with the other segment, we will have a small percentage in the second semester. So just to give you an idea of the values. So what -- in terms of repurchase that had already been formed by the PNLD, we would have something around BRL 56 million of revenue in the second semester because this is already orders placed to us. So in relation to the Fundo I, it's a much smaller program, basically half. And that depends on the amount the government will buy in 2026 and then how much this is going to be transferred to 2027. So keeping the same ratio. We should have a recognition of Fundo II of something around BRL 20 million that historically, if it's the same percentage of the previous year, depending on our market share, which is unknown. So these are the grandeurs that you can expect for the PNLD for the second semester.

Next question comes from Maria Eduarda Resende from BTG.

So the last call, so you talked about 120 follows in operational margins appear for the second semester. If I'm not mistaken, so it was like close to like our base 30 million students according to the regulatory framework. So my question is how many of this 120 are already authorized? And what is your expectation to recover part of this volume? And my second question, so we had some months for the integration. I would like to understand so you began seeing like the benefits and be it in the like cross-selling or cost reduction of others. And specifically on the B2G, do we have any evidence in terms of like the average ticket of relation to the contract?

Maria Eduarda, thank you very much for your question. So Jeferson will answer related to the polls with nursing and Melega will get the second question.

Thank you, Maria Eduarda. Thank you very much for your question and the perspective of our polls. We had like 120, and we received the authorization for 113, all of them structured to operate. So they began operating like the cycle of fundraising in a very positive way, according to the regulatory demands. So this is important for the higher education. So when we look at the cycle of our fundraising, the dynamic, we have already talked about it, and it is quite important to understand that most of all the operations represent the cycle has a different dynamism, but all polls have enrollment, and we have 1 cycle that even though it is short, basically, it's very favorable when we look ahead with the number of enrollment. So we have a very positive growth with the interaction since the beginning of the operation, and the expectation is even more favorable for 2027.

Thank you, Maria Eduarda. So let me talk a little bit about integration. Yes, we are already talking about a lot of synergies, and I will talk about the most relevant, most important one, the commercial synergy that we are acting together with an integrated team. So the B2G market is now one, and we integrated the portfolio. So we had complementarity of products, and we could segment better those products and the result, you will see, by means of the sales and year-to-date, we have like 30% of more sales on the B2G. So this is very clear, a synergy of a joint activation. So we are quite optimistic with this business line. So the main synergy and one of the main motivators of integration was that we could act with much more robust in the public area, which is this important market that we are acting. But considering like the synergies that we had already captured. So we are listed as we no longer have the same expenses in terms of councils and TMO and governance and auditing. And so, now we have an important reduction of costs and synergy that we've captured. So when you look at our operational expenses, we've been working, absorbing inflation, both on the side of the expenses as much as on the side of the revenue. So the synergies are here and on the first semester.

Next question comes from Renan Prata.

So I have 2 questions on our side. So the first one, I would like you to talk about the equation, and I would like to get this CapEx ahead considering for the end of 2026 and 2027. Second question is related to the reef of tariff. So what's the strategy in terms of -- when it comes to the reef of tariffs? Because last year we had an acceleration, an upcycle of those products. So I want to understand a little bit your perception in the product offering when it comes to the reef of tariffs.

Renan, so your first question related to CapEx. As we have mentioned before, we are having more investment in CapEx. And as we've said before, had an impact in the maturation of our courses in the medical field and other CapEx that we are doing, we already have some return. And in this quarter, we had a CapEx of BRL 150 million. So the growth versus the second semester of 2025, BRL 50 million, as I've mentioned. So when I look at last year, 2026, in relation to 2025, I had already talked about that we wouldn't have a growth in CapEx in infrastructure and technology that would be around last year, BRL 500 million, and now a little bit above like BRL 600 million. And for the next year, looking at the following years, we should be keeping this CapEx close to 2026, different from what 2025 was. However, this is not the reason for a changing of regulatory framework, because in the regulatory framework, as you know, the effect of nursing and the polls, but the polls that make a whole lot of investments in the polls. So these are all related to our medical courses. And some CapEx that we are making that we do have return for our shareholders, giving the example that what we are doing, investing in the medical field and some of our [ campi ], they are not that big, but we understand that these investments can increase the average ticket of gap collection in our units of medical schools. Second question is the reef of tariffs. We are working with the same of the previous cycle. Comparatively speaking, is in line, no increment. So reminding you that this is a parcel of the installments of the payments. So the descendant that is joining now in August should have paid the July. So we make installments throughout the entire course. So we are doing the same thing of installments that we did last year. We are not projecting any huge impact of receivables in relation to the step-by-step.