VTRU Vitru Ltd

 

 

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 6-K/A

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES

EXCHANGE ACT OF 1934

 

For the month of September 2023 

Commission File Number: 001-39519

 

Vitru Limited 

(Exact name of registrant as specified in its charter) 

Rodovia José Carlos Daux, 5500, Torre Jurerê A, 

2nd floor, Saco Grande, Florianópolis, State of 

Santa Catarina, 88032-005, Brazil 

+55 (47) 3281-9500 

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

Form 40-F

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes

No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes

No

X

 

 

EXPLANATORY NOTE

 

We are amending our Report of Foreign Issuer on Form 6-K filed with the U.S. Securities and Exchange Commission on August 10, 2023 (the “Original Filing”) to provide a revised version of our unaudited interim condensed consolidated financial statements for the six months periods ended June 30, 2023 and 2022 included in the Original Filing to make the financial statements more understandable to the end user, as described in Note 2 “Basis of preparation of the unaudited interim condensed consolidated financial statements.” Other than the set forth above, this Form 6-K/A does not, and does not purport to, amend, update or restate the information in any other item of the Original Filling.

 

TABLE OF CONTENTS

 

Exhibit No.	Description
99.1	Unaudited interim condensed consolidated statements for the six months periods ended June 30, 2023 and 2022.

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				Vitru Limited
				By:	/s/ Carlos Henrique Boquimpani de Freitas
				Name:	Carlos Henrique Boquimpani de Freitas
				Title:	Chief Financial and Investor Relations Officer

 

Date: September 5, 2023

 

 

Exhibit 99.1

 

 

 

Vitru Limited 

Unaudited interim condensed consolidated statements of financial position at 

(In thousands of Brazilian Reais)

 

 

						June 30,				December 31,
		Note				2023				2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents			6				83,540				47,187
Short-term investments			6				254,431				26,389
Trade receivables			7				280,411				224,128
Income taxes recoverable							9,724				6,994
Prepaid expenses			9				36,150				20,010
Receivables from hub partners			10				40,824				31,979
Other current assets							29,687				14,853
TOTAL CURRENT ASSETS							734,767				371,540
NON-CURRENT ASSETS
Trade receivables			7				46,831				47,012
Indemnification assets							11,478				9,853
Deferred tax assets			8				254,138				203,043
Receivables from hub partners			10				47,603				48,117
Other non-current assets							23,755				6,903
Right-of-use assets			11				341,045				350,393
Property and equipment			12				194,453				194,575
Intangible assets			13				4,391,817				4,427,643
TOTAL NON-CURRENT ASSETS							5,311,120				5,287,539
TOTAL ASSETS							6,045,887				5,659,079

 

 

Vitru Limited 

Unaudited interim condensed consolidated statements of financial position at 

(In thousands of Brazilian Reais)

Consolidated Balance Sheet

 

						June 30,				December 31,
		Note				2023				2022
LIABILITIES
CURRENT LIABILITIES
Trade payables							92,555				99,697
Loans and financing			14				229,187				131,158
Lease liabilities			11				51,053				51,310
Labor and social obligations			15				77,437				43,105
Payables from acquisition of subsidiaries			16				526,826				-
Taxes payable							16,966				16,006
Prepayments from customers							59,616				43,606
Other current liabilities							1,938				7,484
TOTAL CURRENT LIABILITIES							1,055,578				392,366
NON-CURRENT
Trade payables							2,305				-
Loans and financing			14				1,563,373				1,489,088
Lease liabilities			11				266,092				272,029
Payables from acquisition of subsidiaries			16				-				507,361
Taxes payable							11,713				-
Provisions for contingencies			17				31,957				29,182
Deferred tax liabilities			8				752,144				773,394
Share-based compensation			5				12,001				19,805
Other non-current liabilities							22,428				1,465
TOTAL NON-CURRENT LIABILITIES							2,662,013				3,092,324
TOTAL LIABILITIES							3,717,591				3,484,690
EQUITY			18
Share capital							8				8
Capital reserves							2,065,158				2,054,527
Retained earnings							263,130				119,854
TOTAL EQUITY							2,328,296				2,174,389
TOTAL LIABILITIES AND EQUITY							6,045,887				5,659,079

 

 

Vitru Limited 

Unaudited interim condensed consolidated statements of profit or loss and other comprehensive income for the three and six months periods ended June 30 2023 and 2022. 

(In thousands of Brazilian Reais, except earnings per share)

 

 

						Three Months Ended								Six Months Ended
						June 30,								June 30,
		Note				2023				2022				2023				2022
NET REVENUE			22				521,495				308,017				965,719				485,806
Cost of services rendered			23				(175,582	)			(117,902	)			(326,855	)			(183,050	)
GROSS PROFIT							345,913				190,115				638,864				302,756
General and administrative expenses			23				(60,692	)			(70,883	)			(115,059	)			(84,713	)
Selling expenses			23				(78,732	)			(41,842	)			(168,871	)			(89,798	)
Net impairment losses on financial assets			7				(79,674	)			(38,613	)			(127,351	)			(64,333	)
Other income (expenses), net			24				(1,023	)			713				(710	)			978
Operating expenses							(220,121	)			(150,625	)			(411,991	)			(237,866	)
OPERATING PROFIT							125,792				39,490				226,873				64,890
Financial income			25				13,191				14,458				24,667				29,478
Financial expenses			25				(77,318	)			(62,722	)			(163,307	)			(76,740	)
Financial results							(64,127	)			(48,264	)			(138,640	)			(47,262	)
PROFIT BEFORE TAXES							61,665				(8,774	)			88,233				17,628
Current income taxes			8				(13,232	)			(4,788	)			(17,302	)			(7,644	)
Deferred income taxes			8				38,632				34,421				72,345				34,813
Income taxes							25,400				29,633				55,043				27,169
NET INCOME FOR THE PERIOD							87,065				20,859				143,276				44,797
Other comprehensive income							-				-				-				-
TOTAL COMPREHENSIVE INCOME							87,065				20,859				143,276				44,797
Basic earnings per share (R$)			19				2.58				0.82				4.24				1.84
Diluted earnings per share (R$)			19				2.44				0.76				4.02				1.72

 

Vitru Limited 

Unaudited interim condensed consolidated statement of changes in equity for the six months period ended June 30, 2023 and 2022. 

(In thousands of Brazilian Reais)

 

 

						Capital reserves
		Share capital				Additional paid-in capital				Share-based compensation				Treasury Shares				Retained earnings				Total
DECEMBER 31, 2021			6				1,030,792				8,796				-				26,534				1,057,332
Profit for the period			-				-				-				-				44,797				44,797
Issuance of shares for business combination			2				560,544																560,546
Employee share program																							-
Capital contributions							13,285																13,285
Issue of shares to employees							13,548				(13,548	)			-								13,548
Value of employee services			-				-				15,729				-				-				-
JUNE 30, 2022			8				1,618,169				10,977				-				71,331				1,689,508
DECEMBER 31, 2022			8				2,041,564				12,963				-				119,854				2,174,389
Profit for the period			-				-				-				-				143,276				143,276
Treasury Shares			-				-				-				(3,644	)							(3,644	)
Employee share program			-				-				-				-				-				-
Capital contributions			-				8,614				-				-				-				8,614
Issue of shares to employees			-				5,317				(5,317	)			-				-				-
Value of employee services			-				-				5,661				-				-				5,661
JUNE 30, 2023			8				2,055,495				13,307				(3,644	)			263,130				2,328,296

 

Vitru Limited 

Unaudited interim condensed consolidated statement of cash flows for the six months period ended June 30 2023 and 2022. 

(In thousands of Brazilian Reais)

 

 

						Six Months Ended June 30,
		Note				2023				2022
Cash flows from operating activities
Profit before taxes							88,233				17,628
Adjustments to reconcile income before taxes to cash provided on operating activities
Depreciation and amortization			11 / 12 / 13				105,942				46,107
Net impairment losses on financial assets			7				127,351				64,333
Provision for revenue cancellation			7				686				352
Provision for contingencies			17				2,660				1,152
Accrued interests							149,690				62,532
Share-based compensation			20				(1,425	)			7,833
Loss on sale or disposal of non-current assets			12 / 13				121				310
Modification of lease contracts							-				(257	)
Changes in operating assets and liabilities:
Trade receivables							(171,888	)			(110,526	)
Prepayments							(16,140	)			(133	)
Other assets							(38,491	)			(5,063	)
Trade payables							(4,837	)			30,567
Labor and social obligations							34,332				18,548
Other taxes payable							960				(108	)
Prepayments from customers							16,010				(1,755	)
Other payables							15,417				(1,094	)
Cash from operations							308,621				130,426
Income tax paid							(20,032	)			(10,339	)
Interest paid			11 / 14 / 16				(147,073	)			(10,268	)
Contingencies paid							(3,088	)			(1,918	)
Net cash provided by operating activities							138,428				107,901
Cash flows from investing activities
Purchase of property and equipment			12				(15,165	)			(9,268	)
Purchase and capitalization of intangible assets			13				(39,353	)			(15,836	)
Payments for the acquisition of interests in subsidiaries, net of cash			16				-				(2,080,236	)
Acquisition of short-term investments, net							(228,042	)			105,383
Net cash used in investing activities							(282,560	)			(1,999,957	)
Cash flows from financing activities
Payments of lease liabilities			11				(12,443	)			(6,414	)
Proceeds from loans and financing , net of transaction costs							187,958				1,905,851
Costs related to future issuances			9				-				16,824
Capital contributions net of treasury shares							4,970				13,285
Net cash provided by financing activities							180,485				1,929,546
Net increase (decrease) in cash and cash equivalents							36,353				37,490
Cash and cash equivalents at the beginning of the period							47,187				75,587
Cash and cash equivalents at the end of the period							83,540				113,077
							36,353				37,490

 

See Note 26 for the main transactions in investing and financing activities not affecting cash.

 

  

1.

Corporate information

 

Vitru Limited (“Vitru”) and its subsidiaries (collectively, the “Company” or “Group”) is a holding company incorporated under the laws of the Cayman Islands on March 05, 2020 and whose shares are publicly traded on the National Association of Securities Dealers Automated Quotations exchange (NASDAQ) under the ticker symbol “VTRU”.

 

Until the contribution of Vitru Brasil shares to Vitru Limited, in September 2020, Vitru Limited did not have commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, Vitru Limited’s consolidated financial information substantially reflect the operations of Vitru Brasil after the corporate reorganization.

 

Vitru is a holding company jointly controlled by Vinci Partners, through the investments funds “Vinci Capital Partners II FIP Multiestratégia”, “Agresti Investments LLC”, “Botticelli Investments LLC”, Caravaggio Investments LLC”, Raffaello Investments LLC”, the SPX Carlyle Group, through the investment fund “Mundi Holdings I LLC”, “Mundi Holdings II LLC”, Neuberger Berman, through the investment fund “NB Verrochio LP”, and Crescera, through the investment fund “Crescera Growth Capital Master V Fundo de Investimento em Participações Multiestratégia”, and “Crescera Growth Capital Coinvestimento III Fundo de Investimento em Participações Multiestratégia”.

 

The Company is principally engaged in providing educational services in Brazil, mainly undergraduate and continuing education courses, presentially through campuses, or via distance learning, through 2,301 (December 31, 2022 –2,170) learning centers (“hubs”) across the country.

 

These unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on August, 10th, 2023.

 

As of June 30, 2023, the Company short-term liabilities are R$ 320,811 higher than its short-term assets, hence presenting a negative net working capital position. The Group's capital structure was impacted by its growth strategy, both organically and through acquisitions, in particular the acquisition of Unicesumar.

 

The Company is confident in its ability to keep serving its operational and financial responsibilities, given the resilience of its business model, the robust generation of operational cash flow, the strength of its credit capacity and its strong relationship with top-tier banks, including approved and available credit lines.

 

1.1.       Significant events during the period

 

a)

Seasonality

 

The distance learning undergraduate courses are structured around separate monthly modules. This enables students to enroll in distance learning courses at any time during a semester. Despite this flexibility, generally a higher number of enrollments in distance learning courses occurs in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, there is a higher number of enrollments at the beginning of the first semester of each year than at the beginning of the second semester of each year. In order to attract and encourage potential new students to enroll in undergraduate courses later in the semester, the Group often offers discounts, generally equivalent to the number of months that have passed in the semester. As a result, given revenue from semiannual contracts are recorded over the time in a semester, revenue is generally higher in the second and fourth quarters of each year, as additional students enroll in later in the semester. Revenue is also higher later in the semester due to lower dropout rates during that same period.

 

b)

Share-based compensation (Note 20)

 

In the period between February and June 2023, Stock Options Program (SOP) participants exercised 121,304 share options. The impact caused by this operation was a reversal of R$ 7,804 in liabilities and a constitution of reserve in equity of R$ 2,554, which is included in the amount of R$ 5,317 on the Statements of Changes in Equity.

 

c)

Issuance of debenture(Note 14)

 

On May 5^th, 2023, the Company issued a new series of debentures through its subsidiary Vitru Brasil, in the amount of R$ 190,000 comprising 190,000 bonds maturing between May 2025 and May 2028 The nominal value of the bonds is R$ 1,000.00.

 

 

2.

Basis of preparation of the unaudited interim condensed consolidated financial statements

 

The unaudited interim condensed consolidated financial statements of the Group as of June 30, 2023, and for the six months ended June 30, 2023 have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The information does not meet all disclosure requirements for the presentation of full annual consolidated financial statements and thus should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2022, prepared in accordance with International Financial Reporting Standards (“IFRS”).

 

The accounting policies adopted are consistent with those of the previous fiscal year and corresponding interim reporting period. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

 

There were no changes since December 31, 2022 in the accounting practices adopted for consolidation and in the direct and indirect interests of the Company in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements.

 

The Company reviewed its recently published unaudited consolidated interim financial statements in order to perform an F4 filing and found some amendments in the accompanying notes to make the financial statement more understandable to the end user.

 

2.1.       Significant accounting estimates and assumptions

 

The preparation of unaudited interim condensed consolidated financial statements of the Group requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the reporting date. Actual results may differ from these estimates.

 

In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2022.

 

2.2.       Financial instruments risk management objectives and policies

 

The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual consolidated financial statements; they should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2022. There have been no changes in the risk management department or in any risk management policies since the year-end.

 

3.

Business combinations

 

On August 23, 2021, we entered into a purchase agreement with the shareholders of CESUMAR - Centro de Ensino Superior de Maringá Ltda, or “Unicesumar”, to acquire the entire share capital of Unicesumar transaction. The transaction was closed on May 20, 2022 (transaction date), when the consideration provided for in the purchase and sale agreement was transferred and control of Unicesumar was transferred to the Company, after usual precedent conditions, which included appreciation by a antitrust regulatory agency and other regulatory approvals.

 

Unicesumar is a leading and fast-growing higher education institution in Brazil focused on the distance learning market, founded 30 years ago in Maringá - Paraná. At acquisition date Unicesumar had 999 hubs and approximately 331 thousand students, of which 314 thousand are in digital education. Unicesumar also has significant on-site courses in the health area, mainly Medicine, with more than 1,600 students in the 348 courses.

 

The acquisition was accounted for using the acquisition method where the consideration transferred and the identifiable assets and liabilities acquired were measured at fair value, while goodwill is measured as the excess of consideration paid over those items.

 

 

ASSETS			494,439
Cash and cash equivalents			62,017
Trade receivables			78,929
Financial assets			62,385
Income taxes recoverable			3,617
Prepaid expenses			3,918
Deferred tax assets			17,580
Other assets			4,984
Right-of-use assets			170,980
Property and equipment			78,096
Intangible assets			11,933
LIABILITIES			357,389
Trade payables			70,067
Lease liabilities			171,829
Labor and social obligations			37,781
Income taxes payable			11,556
Prepayments from customers			17,731
Dividends			30,000
Provisions for contingencies			12,510
Other liabilities			5,915
Total acquired net assets at book value			137,050
Total identifiable net assets at fair value			1,516,987
Purchase consideration			3,210,373
Goodwill arising on acquisition			1,556,336

 

Purchase consideration

 

The total of consideration transferred was calculated based on the terms of the agreement with the former owners of Unicesumar shares, they received cash and Vitru Ltd shares just like determined in the terms of the business combination agreement.

 

The consideration consists of R$ 2,688,181 paid in cash, 7,182 thousand Vitru’s Shares, of which 5,387 thousand were issued on the Closing Date and 1,795 thousand of which 898 thousand have been retained for a period of 3 years and 897 thousand have been retained for a period of 6 years (“holdback period”), and a contingent consideration where an additional of R$ 1,000 will be paid for each new license to operate medical courses get in the next 5 years, with a maximum value of R$ 50,000:

 

Purchase consideration			3,210,373				%
Cash payable at the acquisition date			2,162,500				67.36	%
Payable after 12 months (i)			456,721				14.23	%
Contingent consideration (ii)			30,608				0.95	%
Payable through the issuance of new Vitru shares			560,544				17.46	%

 

(i) In September, 2022, there was a contractual amendment in the amount of R$ 73,134 and the payment period was changed from 12 months to 24 months.

 

(ii) The contingent consideration was estimated through a technical analysis by an education professional in the area of medicine, which concluded that it is possible to authorize 40 additional licenses by the MEC according to the proportion of new license to operate medical courses available in the region of Corumbá in the period of 5 years. The amount of 30,608 recognized corresponds to the present value of the authorization of 40 additional license in the next 5 years.

 

 

Goodwill allocation

 

Fair value adjustments			1,516,987
Customer relationships (i)			294,525
Brand (ii)			352,189
Non-compete agreement (iii)			272,416
Software (iv)			33,379
Teaching-learning material (TLM) (v)			26,584
Operation licenses for distance learning (vi)			1,206,641
Leasing contracts (vii)			57,278
Licenses to operate medical courses (viii)			55,454
Deferred taxes on temporary differences			(781,479	)
Goodwill			1,556,336
Total acquired net assets at book value			137,050
Total fair value of the identifiable net assets + goodwill			3,210,373

 

The assumptions, critical judgments, methods and hypotheses used by the Company to determine the fair value of the intangible assets identified in the business combination were as follows:

 

i.

Customer relationships: Valued using the MEEM method (“Multi-period Excess Earnings Method”), which is based on a calculation of discounting cash flows from future economic benefits attributable to the customer base, net of eliminations of the implied contribution obligations. The remaining useful life of the customer base was estimated by analyzing the average duration of courses of each segment.

The main assumptions used in assessing the customer relationships were:

a.

Revenue: Projected in accordance with historical data obtained by the Company, and expectations observed in competition tendencies related to course offering and geographic coverage.

b.

Costs and expenses: Projected in accordance with historical data obtained by the Company and expectations of normalization of the operating margin in the long term and operating synergies to be realized by the merger of Unicesumar’s operations within the Company.

c.

Tax rate: 34%, pursuant to Brazilian tax legislation; and

d.

After-tax discount rate: the after-tax discount rate was applied properly on each Cash Generating Unit (“CGU”), due to their differences in regards to risk assessment and each CGU’s discount rate.

 

ii.

Brand: Valued using the Relief from Royalty method. The method determines the value of an intangible asset based on the value of hypothetical royalty payments that would be saved through owning the asset, compared to licensing the asset to a third party. It involves the estimation of generating future cash flows to the business for the greatest possible deadline.

The main assumptions used in assessing the brand were:

a.

Remaining useful life: Adopted as the point where the discounted cash flows reach 90% of the total projected value.

b.

Royalties’ percentage: Estimated as 3.48%, but applied for each segment, depending on the expected margin of each CGU.

 

iii.

Non-Compete Agreement: Valued using the With-or-Without method. This method uses the profit or loss originated from the projection of the business as a whole.

The main assumptions used in assessing the brand were:

a.

Revenue: Considers a revenue loss for the first 4 years. For the following years, it’s expected that the sellers are already part of the market.

b.

Competition probability: Different assumptions for each CGU:

• Digital and Continuing Education – 85% due to the relative easiness to reach the student (virtually). 

• On-Campus Undergraduate Courses – 50%, due to the necessity of a more robust physical structure to accommodate the students.

 

iv.

Software: Valued using the Replacement Cost method. Management estimated the costs related to the development of systems with similar characteristics using providers external to Unicesumar. Because it is an auxiliary asset in generating cash from other intangible assets when applying the MEEM approach (in this case, only Customer Relationships), through the Costs of Contributing Assets.

The main assumptions used in assessing the software were:

a.

Remaining useful life: 5 years.

b.

Taxes: Applied the effective average rate of income taxes for the Company.

 

 

v.

Teaching-Learning Material: Valued using the Replacement Cost method. Management estimated the costs related to the development of similar products, as well as the degree of obsolescence (75)%. Because it is an auxiliary asset in generating cash from other intangible assets when applying the MEEM approach (in this case, only Customer Relationships), through the Costs of Contributing Assets.

The main assumptions used in assessing the teaching-learning material were:

a.

Remaining useful life: 3 years.

b.

Taxes: Applied the effective average rate of income taxes for the Company.

 

vi.

Operation licenses for distance learning: Valued using the With-or-Without method. This method uses the profit or loss originated from the projection of the business as a whole.

The main assumptions used in assessing the operation licenses for distance learning were:

a.

Discount rate: The applied discount rate was WACC for each CGU.

b.

Estimated useful life: It’s assumed that the effects of not relying on the operation licenses from the beginning, having the need to construct the network, will be seen indefinitely.

c.

Operation: The operating licenses is given through authorization, that gives to Unicesumar the right to operate in a determined geographical area, which, in some cases, comes through a local partner. However, each authorization allows Unicesumar to change partner in each area, if necessary, substituting the structure for an equivalent one. Partners are not attached to the authorizations.

 

vii.

Leasing contracts: Valued using the Cost Savings method, that consists of calculating the savings measured by the Company, corrected by the duration of the contract by a discount rate.

The main assumptions used in assessing the leasing contracts were:

a.

After-tax discount rate: the after-tax discount rate was applied properly on each Cash Generating Unit (“CGU”), due to their differences regarding risk assessment and each CGU’s discount rate.

b.

Remaining useful life: Based on the duration of the leasing contract: 20 years.

 

viii.

Licenses to operate medical courses: Valued using the Income Approach method, with an emphasis on marginal fluctuations to the projected CGUs.

The main assumptions used in assessing the licenses to operate medical courses include the initial process of enrolling a student (duration, new students, evasion, graduation), amount of the course, profitability, investments and working capital, as well as growth in perpetuity.

 

The goodwill amount is based mainly on the workforce and its synergies from academic, commercial, and costs perspectives, considering that we are adding up the 15-year experience and track-record of both institutions as leading players in Digital Education, which is allowing us to improve even further the high-quality services to our students and to sustain our differentiated academic delivery.

 

Acquisition of Rede Enem

 

On September 1, 2022, the Company acquired 100% of the share capital of Rede Enem Serviços de Internet Ltda through its subsidiary Vitru Brasil Empreendimentos, Participações e Comércio e S.A. or “Vitru Brasil”. Rede enem it’s a platform that provides free content through an ecosystem that includes blogs, free preparatory courses, and social media profiles. The aggregate purchase price of R$ 1,400 was paid in cash at the closing date. The following table presents the assets acquired and liabilities assumed at book value in the business combination:

 

ASSETS			90
Cash and cash equivalents			23
Trade receivables			32
Other assets			7
Property and equipment			28
LIABILITIES			97
Loans and financing			12
Labor and social obligations			41
Prepayments from customers			25
Other liabilities			19
Total acquired net assets at book value			(7	)
Purchase consideration			1,400
Goodwill arising on acquisition			1,407

 

These are preliminary disclosure, the effects on the financial statements are in review process for issue of the purchase price allocation report that is in progress and in the measurement period, as described in IFRS 3.

 

 

4.

Segment reporting

 

Segment information is presented consistently with the internal reports provided to the Senior management team, consisting of the chief executive officer, the chief financial officer and other executives, which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Company's operating segments, and making the Company’s strategic decisions.

 

In reviewing the operational performance of the Company and allocating resources, the CODM reviews selected items of the statement of profit or loss and of comprehensive income, based on relevant financial data for each of the Company’s operating segments, represented by the Company’s main lines of service from which it generates revenue, as follows:

 

·

Digital education undergraduate courses

 

·

Continuing education courses

 

·

On-campus undergraduate courses

 

Segment performance is primarily evaluated based on net revenue and on adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA). The Adjusted EBITDA is calculated as operating profit plus depreciation and amortization plus interest received on late payments of monthly tuition fees and adjusted by the elimination of effects from share-based compensation plus/minus exceptional expenses. General and administrative expenses (except for intangible assets’ amortization and impairment expenses), finance results (other than interest on tuition fees paid in arrears) and income taxes are managed on a Company’s consolidated basis and are not allocated to operating segments.

 

There were no inter-segment revenues in the period ended June 30, 2023 and 2022. There were no adjustments or eliminations in the profit or loss between segments.

 

The CODM do not make strategic decisions or evaluate performance based on geographic regions. Currently, the Company operates solely in Brazil and all the assets, liabilities and results are located in Brazil.

 

a)

Measures of performance

 

		Digital
		education				Continuing				On-campus
		undergraduate				education				undergraduate
Three Months Ended June 30,		courses				courses				courses				Total allocated
2023
Net revenue			384,989				28,724				107,782				521,495
Adjusted EBITDA			188,544				6,414				41,794				236,752
% Adjusted EBITDA margin			48.97	%			22.33	%			38.78	%			45.40	%
2022
Net revenue			243,931				16,332				47,754				308,017
Adjusted EBITDA			113,347				10,641				16,023				140,011
% Adjusted EBITDA margin			46.47	%			65.15	%			33.55	%			45.46	%

 

 

		Digital
		education				Continuing				On-campus
		undergraduate				education				undergraduate
Six Months Ended June 30,		courses				courses				courses				Total allocated
2023
Net revenue			705,649				49,624				210,446				965,719
Adjusted EBITDA			316,082				16,519				101,045				433,646
% Adjusted EBITDA margin			44.79	%			33.29	%			48.01	%			44.90	%
2022
Net revenue			399,897				28,177				57,732				485,806
Adjusted EBITDA			163,462				17,532				20,055				201,049
% Adjusted EBITDA margin			40.88	%			62.22	%			34.74	%			41.38	%

 

 

The total of the reportable segments’ net revenues represents the Company’s net revenue. A reconciliation of the Company’s income / (expense) before taxes to the allocated Adjusted EBITDA is shown below:

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Income/(expenses) before taxes			61,665				(8,774	)			88,233				17,628
(+) Financial result			64,127				48,264				138,640				47,262
(+) Depreciation and amortization			53,636				31,234				105,942				46,107
(+) Interest on tuition fees paid in arrears			6,318				4,771				13,562				10,646
(+) Share-based compensation plan			(1,499	)			13,328				(1,425	)			7,833
(+) Other income (expenses), net			1,023				(713	)			710				(978	)
(+) Restructuring expenses			11,367				5,078				13,523				11,504
(+) M&A and Offering Expenses			5,837				23,818				11,811				24,352
(+) Unallocated Operational expenses			34,278				23,005				62,650				36,695
Adjusted EBITDA allocated to segments			236,752				140,011				433,646				201,049

 

 

b)

Other profit and loss disclosure

 

		Digital
		education				Continuing				On-campus
		undergraduate				education				undergraduate
Three Months Ended June 30,		courses				courses				courses				Unallocated				Total
2023
Net impairment losses on financial assets			65,582				4,153				9,939				-				79,674
Depreciation and amortization			26,161				503				18,688				8,284				53,636
Interest on tuition fees paid in arrears			5,144				356				818				-				6,318
2022
Net impairment losses on financial assets			31,303				1,654				5,656				-				38,613
Depreciation and amortization			14,162				135				8,208				8,729				31,234
Interest on tuition fees paid in arrears			3,676				232				863				-				4,771

 

		Digital
		education				Continuing				On-campus
		undergraduate				education				undergraduate
Six Months Ended June 30,		courses				courses				courses				Unallocated				Total
2023
Net impairment losses on financial assets			110,630				7,382				9,339				-				127,351
Depreciation and amortization			53,301				1,755				37,071				13,815				105,942
Interest on tuition fees paid in arrears			11,722				568				1,272				-				13,562
2022
Net impairment losses on financial assets			53,836				4,189				6,308				-				64,333
Depreciation and amortization			25,034				357				10,957				9,759				46,107
Interest on tuition fees paid in arrears			8,750				460				1,436				-				10,646

 

 

5.

Fair value measurement

 

As of June 30, 2023, the Company has only Share-based compensation liabilities measured at fair value, in the amount of R$ 12,001, which are classified in Level 3 of fair value measurement hierarchy given significant unobservable inputs used.

 

There were no transfers between Levels during the six months ended June 30, 2023.

 

The following table presents the changes in level 3 items for the six months ended June 30, 2023 and 2022 for recurring fair value measurements:

 

		Share-based compensation
		2023				2022
At the beginning of the year			19,805				52,283
Adjusted through profit and loss – general and administrative			(7,804	)			(8,296	)
As of June 30,			12,001				43,987

 

The Company assessed that the fair values of financial instruments at amortized cost such as cash and cash equivalents, short-term investments, current trade receivables and trade payables approximate their carrying amounts largely due to the short-term maturities of these instruments. Non-current trade receivables, lease liabilities, accounts payable from acquisition of subsidiaries and loans and financing have their carrying amount adjusted by their respective effective interest rate in order to be presented as close as possible to its fair value.

 

6.

Cash and cash equivalents and short-term investments

 

		June 30,				December 31,
		2023				2022
Cash equivalents and bank deposits in foreign currency (i)			15,090				12,057
Cash and cash equivalents (ii)			68,450				35,130
			83,540				47,187
Investment funds (iii)			254,431				26,389

 

(i) Short-term deposits maintained in U.S. dollar.

 

(ii) Cash equivalents are comprised of short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value, readily convertible into cash.

 

(iii) Short-term investments, increased by the proceeds from the debentures, correspond to financial investments in Investment Funds, with highly rated financial institutions. As of June 30, 2023, the average interest on these Investment Funds is 12.93% p.a., corresponding to 94.73% of CDI. Despite the fact these investments have high liquidity and have insignificant risk of changes in value, they do not qualify as cash equivalents given the nature of investment portfolio and their maturity. Due to the short-term nature of these investments, their carrying amount is the same as their fair value.

 

7.

Trade receivables

 

		June 30,				December 31,
		2023				2022
Tuition fees			470,889				410,393
FIES and UNIEDU Guaranteed Credits			45,399				27,710
PEP - Special Installment Payment (i)			12,920				22,365
CREDIN - Internal Educational Credit (ii)			39,236				29,170
Provision for revenue cancellation			(7,198	)			(6,512	)
Allowance for expected credit losses of trade receivables			(234,004	)			(211,986	)
Total trade receivables			327,242				271,140
Current			280,411				224,128
Non-current			46,831				47,012

 

(i)

In 2015, a special private installment payment program (PEP) was introduced to facilitate the entry of students who could not qualify for FIES, due to changes occurred to the program at the time. These receivables bear interests of 1.34% and, given the long term of the installments, they have been discounted at an interbank rate of 2.76%.

 

(ii)

CREDIN is an installment payment program from Unicesumar where the undergraduate students receive a deduction from gross “tuition” The deduction is based on a fixed percentage determined at the beginning of the contract and, after graduation, the students pay back the deduction applied during the student’s undergraduate program, by applying the same percentage on the current value of tuition.

 

 

The aging list of trade receivables is as follows:

 

		June 30,				December 31,
		2023				2022
Receivables falling due			163,433				99,088
Receivables past due
From 1 to 30 days			59,957				59,718
From 31 to 60 days			43,822				44,827
From 61 to 90 days			46,285				47,174
From 91 to 180 days			79,966				85,358
From 181 to 365 days			174,981				153,473
Provision for revenue cancellation			(7,198	)			(6,512	)
Allowance for estimated credit losses			(234,004	)			(211,986	)
			327,242				271,140

 

Cancellations consist of deductions of the revenue to adjust it to the extension it is probable that it will not be reversed, generally related to students that have not attended classes and do not recognize the service provided or are dissatisfied with the services being provided. A provision for cancellation is estimated using the expected value method, which considers accumulated experience and is updated at the end of each period for changes in expectations.

 

Changes in the Company’s revenue cancellation provision are as follows:

 

		2023				2022
At the beginning of the year			(6,512	)			(4,191	)
Additions			(11,895	)			(8,489	)
Reversals			11,209				8,137
As of June 30,			(7,198	)			(4,543	)

 

The Company records the allowance for expected credit losses of trade receivables on a monthly basis by analyzing the amounts invoiced in the month, the monthly volume of receivables and the respective outstanding amounts by late payment range, calculating the recovery performance. Under this methodology, the monthly billed amount and each late payment range is assigned a percentage of probability of loss that is accrued for on a recurring basis.

 

When the delay exceeds 365 days, the receivable is written-off. Even for written-off receivables, collection efforts continue, and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.

 

Changes in the Company’s allowance for expected credit losses are as follows:

 

		2023				2022
At the beginning of the year			(211,986	)			(113,934	)
Write-off of uncollectible receivables			105,333				55,275
Reversal			6,185				13,971
Business combinations			-				(74,616	)
Allowance for expected credit losses			(133,536	)			(78,304	)
As of June 30,			(234,004	)			(197,608	)

 

 

8.

Current and deferred income tax

 

a)

Reconciliation of income tax in the statement of profit or loss

 

Income taxes differs from the theoretical amount that would have been obtained by using the nominal income tax rates applicable to the income of the Company entities, as follows:

 

		Six Months Ended June 30,
		2023				2022
Earnings before taxes			88,233				17,628
Statutory combined income tax rate - %			34	%			34	%
Income tax at statutory rates			(29,999	)			(5,994	)
Income exempt from taxation - ProUni benefit (i)			89,897				34,908
Unrecognized deferred tax asset on tax losses (ii)			(1,037	)			(812	)
Difference on tax rates from offshore companies (iii)			(2,142	)			1,254
Non-deductible expenses			(1,346	)			(2,019	)
Other			(330	)			(168	)
Total income tax and social contribution			55,043				27,169
Effective tax rate - %			(62	)%			(154	)%
Current income tax expense			(17,302	)			(7,644	)
Deferred income tax income			72,345				34,813

 

(i) The University for All Program - ProUni, establishes, through Law 11,096, dated January 13, 2005, exemption from certain federal taxes for higher education institutions that provide full and partial scholarships to low-income students enrolled in traditional undergraduate and technological undergraduate programs. The Company's higher education companies are included in this program.

 

(ii) The Company had unused tax loss carryforwards and temporary differences previously unrecognized. Given the continuous growth in Continuing Education activities and changes to the structure of its operations, the Company reviewed previously unrecognized tax losses and temporary differences, determining that it is now probable that taxable profits will be available, the tax losses can be utilized, and temporary differences can be realized, and that are now expected to be used and realized until 2035.

 

(iii) Considering that the Company is domiciled in Cayman and there is no income tax in that jurisdiction, the combined tax rate of 34% demonstrated above is the current rate applied to all Company’s subsidiaries, operating entities in Brazil.

 

b)

Deferred income tax

 

		Balance sheet								Profit or loss
		June 30,				December 31,				June 30,				June 30,
		2023				2022				2023				2022
Tax loss carryforward			140,915				93,242				47,673				26,535
Allowance for expected credit losses			79,561				59,739				19,822				3,807
Labor provisions			4,080				2,303				1,777				(3,173	)
Lease contracts			8,126				7,147				979				225
Provision for revenue cancellation			2,447				990				1,457				119
Provision for contingencies			6,963				923				6,040				183
Other provisions			12,046				38,699				(26,653	)			1,935
Total			254,138				203,043				51,095				29,631
Deferred tax assets			254,138				203,043
			Balance sheet								Profit or loss
			June 30,				December 31,				June 30,				June 30,
			2023				2022				2023				2022
Intangible assets on business combinations			(752,144	)			(773,394	)			21,250				5,182
Total			(752,144	)			(773,394	)			21,250				5,182
Deferred tax liabilities			(752,144	)			(773,394	)

 

The above deferred taxes were recorded at the nominal rate of 34%. Under Brazilian tax law, temporary differences and tax losses can be carried forward indefinitely, however tax loss carryforwards can only be used to offset up to 30% of taxable profit for the year.

 

 

9.

Prepaid expenses

 

		June 30,				December 31,
		2023				2022
Costs related to future issuances			17,432				8,514
Prepayments to employees			641				-
Prepayments to suppliers			7,105				4,303
Prepayments to hub partners			7,346				5,109
Software licensing			2,555				389
Insurance			56				208
Others			1,015				1,487
Prepaid expenses			36,150				20,010

 

10.

Receivables from hub partners

 

The receivables from hub partners are amounts of cash transferred to hub partners centers as follows:

 

		June 30,				December 31,
		2023				2022
Credit to hub partners – distance learning centers			94,131				82,650
Allowance for expected credit losses			(5,704	)			(2,554	)
Receivables from hub partners			88,427				80,096
Current			40,824				31,979
Non-current			47,603				48,117

 

11.

Leases

 

Set out below, are the carrying amounts of the Company’s right-of-use assets related to buildings used as offices and hubs and lease liabilities and the movements during the period:

 

		Right-of-use assets				Lease Liabilities
		2023				2023
As of December 31, 2022			350,393				323,339
Re-measurement by index (i)			6,249				6,249
Depreciation expense			(15,597	)			-
Accrued interest			-				17,347
Payment of principal			-				(12,443	)
Payment of interest			-				(17,347	)
As of June 30, 2023			341,045				317,145
Current			-				51,053
Non-current			341,045				266,092

 

(i) Lease liabilities and right-of-use assets were incremented with respect to variable lease payments that depend on an index or a rate, as a result of annual rental prices contractually adjusted by market inflation rate General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M.

 

The Group recognized rent expense from short-term leases and low-value assets of R$ 4,116 for three and six months ended June 30, 2023 (2022 - R$ 2,801), mainly represented by leased equipment.

 

 

12.

Property and equipment

 

		IT equipment				Furniture, equipment and facilities				Library books				Vehicles				Lands				Construction in progress				Leasehold improvements				TOTAL
As of December 31, 2022
Net book value			33,287				79,990				4,208				1,160				4,566				10,648				60,716				194,575
Cost			90,947				156,004				37,719				5,215				4,566				10,648				85,432				390,531
Accumulated depreciation			(57,660	)			(76,014	)			(33,511	)			(4,055	)			—				—				(24,716	)			(195,956	)
Purchases			2,958				6,927				188				—				—				4,789				303				15,165
Transfers			49				618				—				—				—				(5,324	)			4,657				—
Disposals			—				(4	)			—				—				—				(10	)			—				(14	)
Depreciation			(4,913	)			(6,108	)			(778	)			(154	)			—				—				(3,320	)			(15,273	)
As of June 30, 2023
Net book value			31,381				81,423				3,618				1,006				4,566				10,103				62,356				194,453
Cost			93,954				163,545				37,907				5,215				4,566				10,103				90,392				405,682
Accumulated depreciation			(62,573	)			(82,122	)			(34,289	)			(4,209	)			—				—				(28,036	)			(211,229	)

 

The Group performs its impairment test when circumstances indicates that the carrying value may be impaired or annually when required. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2022.

 

As of June 30, 2023, there were no indicators of a potential impairment of goodwill. Additionally, there are no significant changes to the assumptions used for the impairment test in the annual consolidated financial statements for the year ended December 31, 2022. Also, there has been no evidence that the carrying amounts of property and equipment and finite-life intangible assets exceed their recoverable amounts as of June 30, 2023.

 

 

13.

Intangible assets

 

		Software				Internal project development				Trademarks				Operation licenses for distance learning				Licenses to operate medical courses				Non-compete agreements				Customer relationship				Teaching/ learning material - TLM				Goodwill				TOTAL
As of December 31, 2022
Net book value			60,071				64,721				393,863				1,458,209				55,454				250,378				261,190				21,168				1,862,589				4,427,643
Cost			141,237				97,306				437,390				1,458,209				55,454				283,242				395,220				33,928				1,930,042				4,832,028
Accumulated amortization and impairment			(81,166	)			(32,585	)			(43,527	)			—				—				(32,864	)			(134,030	)			(12,760	)			(67,453	)			(404,385	)
Purchase and capitalization			17,566				21,787				—				—				—				—				—				—				—				39,353
Transfer			20,786				(20,786	)			—				—				—				—				—				—				—				—
Disposals			(62	)			(45	)			—				—				—				—				—				—				—				(107	)
Amortization			(8,824	)			(7,569	)			(8,943	)			—				—				(18,031	)			(27,275	)			(4,430	)			—				(75,072	)
As of June 30, 2023
Net book value			89,537				58,108				384,920				1,458,209				55,454				232,347				233,915				16,738				1,862,589				4,391,817
Cost			179,520				98,262				437,390				1,458,209				55,454				283,242				395,220				33,928				1,930,042				4,871,267
Accumulated amortization and impairment			(89,983	)			(40,154	)			(52,470	)			—				—				(50,895	)			(161,305	)			(17,190	)			(67,453	)			(479,450	)

 

Impairment test of indefinite-lived intangible assets

 

Goodwill and licenses for distance learning operation are tested annually, and the last test was performed in January 2023, referring to the year ended December 31, 2022.

 

No evidence of the need to carry out a new test was identified during the first semester ended on June 30, 2023.

 

 

14.

Loans and financing

 

On May 19, 2022, the company issued through its subsidiary Vitru Brasil, two series of debentures, the first series containing 500,000 bonds maturing between November 2023 and May 2024, and the second series containing 1,450,000 bonds maturing between May 2025 and May 2027. The nominal value of each bond of both series is R$ 1,000.00. The costs of transaction of this issue were R$ 44,149, the debentures are not convertible into shares.

 

On May 5, 2023, the Company granted, through its subsidiary Vitru Brasil, another series of debentures, containing 190,000 bonds maturing between May 2025 and May 2028. The face value of each bond is also R$ 1,000.00. The costs of transaction of this new issue were R$ 2,271, the debentures are not convertible into shares.

 

a)

Breakdown

 

									June 30,				December 31,
Type			Interest rate		Maturity				2023				2022
Debentures			CDI +2.9% and CDI +3.2% p.a			Nov/23 to May/28				1,792,560				1,620,246
Current										229,187				131,158
Non-current										1,563,373				1,489,088

 

b)

Variation

 

		Loans and
		financing
As of December 31, 2022			1,620,246
New issuances			187,958
Accrued interest			114,082
Payments			(129,726	)
As of June 30, 2023			1,792,560

 

c)

Maturity

 

		Loans and
		financing
Maturity
2023			128,318
2024			100,869
2025			603,865
2026			603,865
2027			328,788
2028			26,855
As of June 30, 2023			1,792,560

 

15.

Labor and social obligations

 

		June 30,				December 31,
		2023				2022
Salaries payable			23,338				10,374
Social charges payable (i)			14,869				15,675
Accrued vacation			24,879				6,883
Accrual for bonus			13,638				9,522
Other			713				651
Total			77,437				43,105

 

(i) Comprised of contributions to Social Security (“INSS”) and to Government Severance Indemnity Fund for Employees (“FGTS”) as well as withholding income tax (“IRRF”) over salaries.

 

 

16.

Accounts payable from acquisition of subsidiaries

 

		2023
At the beginning of the year			507,361
Accrued Interest			19,465
As of June 30			526,826
Current			526,826
Non-current			-

 

On May 20, 2022, the Company completed the acquisition of 100% of Unicesumar and the amount paid in cash was R$ 2,162,500. The outstanding amount will be paid in one last installment, payable on May 20, 2024, and adjusted by the IPCA inflation rate in the first year and CDI + 3% in the second year.

 

17.

Contingencies

 

a)

Provision for contingencies

 

The provisions related to labor and civil proceedings whose likelihood of loss is assessed as probable are as follows:

 

Liabilities		Civil				Labor				Total
As of December 31, 2022			4,539				24,643				29,182
Additions			1,981				4,676				6,657
Accrued interest			4				48				52
Payments			(2,669	)			(419	)			(3,088	)
Reversals			(140	)			(706	)			(846	)
As of June 30, 2023			3,715				28,242				31,957

 

b)

Indemnification assets

 

Assets		Civil				Labor				Total
As of December 31, 2022			1,540				8,313				9,853
Additions			221				2,999				3,220
Accrued interest			1				-				1
Realized			(1,248	)			(278	)			(1,526	)
Reversals			(70	)			-				(70	)
As of June 30, 2023			444				11,034				11,478

 

c)

Possible losses, not provided for in the balance sheet

 

No provision has been recorded for proceedings classified as possible losses, based on the opinion of the Company's legal counsel. The breakdown of existing contingencies as of June 30, 2023 and December 31, 2022 as follows:

 

		June 30,				December 31,
Possible losses		2023				2022
Civil			18,997				23,210
Labor			32,415				28,284
Tax			56,391				59,916
Total			107,803				111,410

 

18.

Equity

 

a)

Authorized capital

 

The Company is authorized to increase capital up to the limit of 1 billion shares, subject to approval of the Administration.

 

b)

Share capital

 

As described in Note 1, on September 2, 2020, each of Vitru’s shareholders had agreed to contribute their respective shares on Vitru Brazil to Vitru Limited, exchanging thirty-one common shares into one ordinary share of Vitru Limited.

 

As a consequence of this reverse share split, the share capital previously represented by 522,315,196 common shares, was reduced to 17,058,053 common shares. As a result of the share split, the Company’s historical financial statements have been revised to reflect number of shares and per share data as if the share split had been in effect for all periods presented.

 

Additionally, on September 22, 2020, the share capital of the Company was increased by 6,000,000 Class A shares through the proceeds received as a result of the IPO of US$ 96,000 thousand (or R$ 521,558). The net proceeds from the IPO were US$ 90,672 thousand (or R$ 492,612), after deducting share issuance costs amounting R$ 47,582.

 

On September 27, 2022, the Company announced the investment agreement with Crescera, a leading asset manager with accomplishments in the education sector in Brazil. On November 10, 2022 Crescera subscribed for 3,636,363 new common shares in a fully primary capital increase in the amount of R$328,728, equivalent to US$58,260.

 

On November 22, 2022, the Company announced the settlement of its previously announced rights offering (the “Rights Offering”). The Rights Offering resulted in the issuance of 926,206 common shares of Vitru (which, upon issuance, amount to approximately 2.8% of Vitru's outstanding common shares) and raised gross proceeds of approximately US$14,800.

 

In 2023, the Company recognized the amount of R$ 8,614 and transferred the amount of R$ 5,317 from shared-based compensation reserves due to the issuance of 121,304 new shares regarding the exercise of SOP options.

 

As of June 30, 2023, the Company’s share capital is represented by 33,808,517 common shares of par value of US$ 0.00005 each. The Company has issued only common shares, entitled to one vote per share.

 

c)

Capital reserve

 

Additional paid-in capital

 

The additional paid-in capital refers to the difference between the purchase price that the shareholders pay for the shares and their par value. Under Cayman Law, the amount in this type of account may be applied by the Company to pay distributions or dividends to members, pay up unissued shares to be issued as fully paid, for redemptions and repurchases of own shares, for writing off preliminary expenses, recognized expenses, commissions or for other reasons. All distributions are subject to the Cayman Solvency Test which addresses the Company’s ability to pay debts as they fall due in the ordinary course of business.

 

Share based compensation

 

The capital reserve contains the reserve for share-based compensation programs, classified as settled with equity instruments, as detailed in Note 20.

 

The share-based payments reserve is used to recognize:

 

•

the grant date fair value of options issued to employees but not exercised.

 

•

the grant date fair value of shares issued to employees upon exercise of options.

 

Treasury shares:

 

Buyback program

 

On May 11, 2023, the Company’s board of directors approved a share buyback program. The Company may repurchase up to 500,000 of its outstanding common shares in the open market, based on prevailing market prices, beginning on May 11, 2023, until the earlier of the completion of the repurchase, depending upon market conditions.

 

During the six-month period ended June 30, 2023, the Company repurchased 46,802 shares with a cash outflow of R$ 3,644.

 

d)

Dividends

 

The Company currently intends to retain all available funds and any future earnings, if any, to fund the development and expansion of the business and did not pay any cash dividends in the six months ended June 30, 2023, and do not anticipate paying any in the foreseeable future.

 

 

19.

Earnings per share

 

19.1.

Basic

 

Basic earnings per share is calculated by dividing the net income attributable to the holders of Company’s common shares by the weighted average number of common shares held by stockholders during the year.

 

The following table contains the earnings (loss) per share of the Company for three and six months ended June 30, 2023 and 2022 (in thousands except per share amounts):

 

		Three Months Ended June 30,								Six Months Ended June 30,
Basic earnings per share		2023				2022				2023				2022
Net income attributable to the shareholders of the Company			87,065				20,859				143,276				44,797
Weighted average number of outstanding common shares (thousands)			33,793				25,504				33,756				24,323
Basic earnings per common share (R$)			2.58				0.82				4.24				1.84

 

19.2.

Diluted

 

As of June 30, 2023, the Company had outstanding and unexercised options to purchase – 1,880 thousand (2022 –- 1,725 thousand) common shares which are included in diluted earnings per share calculation.

 

		Three Months Ended June 30,								Six Months Ended June 30,
Diluted earnings per share		2023				2022				2023				2022
Net income attributable to the shareholders of the Company			87,065				20,859				143,276				44,797
Weighted average number of outstanding common shares (thousands)			35,636				27,613				35,636				26,048
Diluted earnings per common share (R$)			2.44				0.76				4.02				1.72

 

20.

Shared-based compensation

 

The Group offers to its managers and executives two Share Option Plans with general conditions for the granting of share options issued by the Company to the participants appointed by the Board of Directors who, at its discretion, fulfill the conditions for participation, thereby aligning the interests of the participants to the interests of its stockholders, so as to maximize the Group's results and increase the economic value of its shares, thus generating benefits for the participants and other stockholders. It also provides participants with a long-term incentive, increasing their motivation and enabling the Group to retain quality human capital.

 

Participants from both plans have the right to turn all vested options into shares upon payment in cash, paying the Option Exercise Price as defined in the respective program that each participant is associated. The difference between the stipulated price in the program and the fair value of the share at the measurement date is recorded as equity.

 

Participants from the first plan shall have the right to require the Company to acquire all shares under its ownership to be held in treasury or for cancellation, upon payment, in cash, of the Put Option Exercise Price, for a given period as from the last Vesting Date, provided that no exit event has occurred up to the end of said period.

 

When all conditions applicable to the buyback of shares provided for in applicable laws and/or regulations are met, the Company shall pay the Participant the price equivalent to a certain amount of multiples of the Company's EBITDA minus the Net Debt, as set forth in each grant program, recorded as a liability.

 

The expense recognized for employee services received during the period is as follows:

 

		Six Months Ended June 30,
Expense arising from share-based payment transactions		2023				2022
Cash-settled - first plan			(8,342	)			(8,296	)
Equity-settled - first plan			2,554				13,548
Equity-settled - second plan			4,363				2,581
Total			(1,425	)			7,833

 

The fair value of cash-settled transactions was calculated based on discounted cash flows. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.

 

 

21.

Related parties

 

The Company has related parties relations with the following relationships and companies. All the presented companies are an indirect related party.

 

		Balance Sheet								Profit or loss
		June 30,				December 31,				Six months ended june 30,
		2023				2022				2023				2022
Joint operations
Ivai Artefatos de Cimento Ltda											(1	)
WWW Comunicação Visual			(10	)							(52	)
Campustores Livraria Ltda											(111	)
Leases
SOEDMAR - Sociedade Educacional De Maringa Ltda.
Right-of-use assets			164,195				160,230
Depreciation expense											(4,298	)			(5,054	)
Lease liabilities			(169,294	)			(165,089	)
Interest on lease											(9,477	)			(13,061	)
WM Administração e Participações Ltda
Right-of-use assets			2,903				2,845
Depreciation expense											(165	)			(255	)
Lease liabilities			3,076				2,942
Interest on lease											(177	)			(268	)
Insurance
Austral Seguradora S/A
Prepaid expenses
General and administrative expenses															(75	)
Donations
ICETI - Instituto Cesumar de Ciência, Tecnologia e Inovação
Other income (expenses), net			(386	)							(1,260	)
Payables from acquisition of subsidiaries
Accounts payable to selling shareholders			152,990				147,338
Interest											5,653				1,458

 

 

22.

Revenue

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Gross amount from services provided			678,397				393,590				1,255,024				625,846
(-) Cancellation			(25,185	)			(4,165	)			(45,512	)			(8,137	)
(-) Discounts			(42,766	)			(22,827	)			(81,709	)			(34,629	)
(-) ProUni scholarships (i)			(71,670	)			(48,577	)			(129,771	)			(81,595	)
(-) Taxes and contributions on revenue			(17,281	)			(10,004	)			(32,313	)			(15,679	)
Net revenue			521,495				308,017				965,719				485,806
Timing of revenue recognition
Transferred over time			516,112				304,651				954,585				475,288
Transferred at a point in time (ii)			5,383				3,366				11,134				10,518
Net revenue			521,495				308,017				965,719				485,806

 

(i) Scholarships granted by the federal government to students under the ProUni program are based on a fixed percentage approved by the government upon each student’s request and deducted from tuition gross amount from services provided during the entire duration of such student's undergraduate studies (regardless of the tuition fee set out in the service contract) and as long as the student continues to comply with the scholarship requirements imposed by the government for each semester during the undergraduate course. The Group recognizes the economic benefits from the ProUni scholarships as tax deductions, as applicable, following the policies described in Note 7.

 

(ii) Revenue recognized at a point in time relates to revenue from student fees and certain education-related activities.

 

The Company`s revenues from contracts with customers are all provided in Brazil.

 

In six months ended June 30, 2023, the amounts billed to students for the portion to be transferred to the hub partner, in respect to the joint operations, are R$ 246,962 (2022 – R$ 149,853). As of June 30, 2023, the balance payable to the hub partners is R$ 40,367 (December 31, 2022 - R$ 43,676).

 

23.

Costs and expenses by nature

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Payroll (i)			139,081				110,177				266,062				157,686
Sales and marketing			46,347				30,037				117,558				74,255
Depreciation and amortization (ii)			53,636				31,234				105,942				46,107
Consulting and advisory services			33,093				29,243				42,385				37,118
Material			12,252				9,584				19,706				12,230
Maintenance			10,403				8,567				17,672				12,398
Utilities, cleaning and security			17,173				3,825				22,217				5,643
Other expenses			3,021				7,960				19,243				12,124
Total			315,006				230,627				610,785				357,561
Costs of services			175,582				117,902				326,855				183,050
General and administrative expenses			60,692				70,883				115,059				84,713
Selling expenses			78,732				41,842				168,871				89,798
Total			315,006				230,627				610,785				357,561

 

(i) Payroll expenses include for six months ended June 30,2023, was R$ 267,487 (2022 – R$ 149,853) related to salaries, bonuses, short-term benefits, related social charges and other employee related expenses, and R$ (1,425) (2022 – R$ 7,833) related to share-based compensation.

 

		Three Months Ended June 30,								Six Months Ended June 30,
Depreciation and amortization (ii)		2023				2022				2023				2022
Costs of services			19,779				17,268				39,430				30,221
General and administrative expenses			19,982				7,839				39,000				9,759
Selling expenses			13,875				6,127				27,512				6,127
Total			53,636				31,234				105,942				46,107

 

 

24.

Other income (expenses), net

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Deductible donations			-				(367	)			-				(442	)
Contractual indemnities			-				(8	)			2				(24	)
Modification of lease contracts			168				-				168				257
Other revenues			375				1,353				375				1,465
Other expenses			(1,566	)			(265	)			(1,255	)			(278	)
Total			(1,023	)			713				(710	)			978

 

25.

Financial results

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Financial income
Interest on tuition fees paid in arrears			6,318				4,771				13,562				10,646
Financial investment yield			5,155				7,273				8,223				14,946
Foreign exchange gain			1,645				2,381				2,633				3,722
Other			73				33				249				164
Total			13,191				14,458				24,667				29,478
Financial expenses
Interest on accounts payable from acquisition of subsidiaries			(6,743	)			(14,159	)			(19,465	)			(19,266	)
Interest on lease			(7,076	)			(6,129	)			(15,427	)			(10,268	)
Interest on loans and financing			(55,376	)			(33,371	)			(114,082	)			(33,371	)
Foreign exchange loss			(1,283	)			(1,450	)			(2,204	)			(3,774	)
Other			(6,840	)			(7,613	)			(12,129	)			(10,061	)
Total			(77,318	)			(62,722	)			(163,307	)			(76,740	)
Financial results			(64,127	)			(48,264	)			(138,640	)			(47,262	)

 

26.

Other disclosures on cash flows

 

Non-cash transactions

 

In the six months ended June 30, 2023:

 

·

The amount of R$ 6,249 (2022 - R$ 18,040) regarding additions (new contracts and re-measurement by index) on right-of-use assets, was also added in the lease liabilities line item.

 

***

 

 

---