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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☐ |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-39519
Vitru Limited
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande,
Florianópolis, State of Santa Catarina,
Brazil
88032-005
(Address of principal executive offices)
Carlos Henrique Boquimpani de Freitas
Chief Financial and Investor Relations Officer
Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande,
Florianópolis, State of Santa Catarina, Brazil
88032-005
+55 (47) 3281-9500
ir@vitru.com.br
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Copies to:
Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Phone: (212) 450-4000 / Fax: (212) 450-6858
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common shares, par value U.S.$0.00005 per share |
VTRU |
The NASDAQ Global Select Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding shares as of December 31, 2023 was 33,826,199 common shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-accelerated Filer ☐ Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report: ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐U.S. GAAP
☒International Financial Reporting Standards as issued by the International Accounting Standards Board
☐Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐No ☒
VITRU LIMITED
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Material Modifications to the Rights of Security Holders and Use of Proceeds |
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Unless otherwise indicated or the context otherwise requires, all references in this annual report to “Vitru” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to (1) prior to the UniCesumar Business Combination (as defined below), Vitru Limited and its consolidated subsidiaries, and (2) after the UniCesumar Business Combination, Vitru Limited and its consolidated subsidiaries, including UniCesumar (as defined below).
All references to “Vitru Brazil” refer to Vitru Brasil Empreendimentos, Participações e Comércio S.A., our Brazilian principal operating subsidiary.
The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Brazilian Central Bank” refers to the Brazilian Central Bank (Banco Central do Brasil). References in the annual report to “real,” “reais” or “R$” refer to the Brazilian real, the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “U.S.$” refer to U.S. dollars, the official currency of the United States.
All references to the “Companies Act” are to the Cayman Islands’ Companies Act (As Revised) as the same may be amended from time to time, unless the context otherwise requires.
All references to “IFRS accounting standards” are to International Financial Reporting Standards, as issued by the International Accounting Standards Board, or “IASB”.
Financial Statements
Vitru was incorporated on March 5, 2020, as a Cayman Islands exempted company with limited liability, under incorporation number 360670, duly registered with the Cayman Islands Registrar of Companies. Vitru became the parent company of Vitru Brasil Empreendimentos, Participações e Comércio S.A., or Vitru Brazil, through the corporate reorganization described under “—Corporate Events—Group Restructuring and Migration of Listing,” “Item 4. Information on the Company—C. Organizational Structure”.
Until the contribution of Vitru Brazil’s shares to us, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Subsequent to the completion of the corporate reorganization, we began to consolidate financial information in order to reflect the operations of Vitru Brazil. As a result, the audited consolidated financial statements prepared by Vitru subsequent to the completion of the reorganization are presented “as if” Vitru Brazil is the predecessor of Vitru. Accordingly, our audited consolidated financial statements included elsewhere in this annual report reflect: (i) the historical operating results of Vitru Brazil prior to such reorganization; (ii) the consolidated results of Vitru and Vitru Brazil following the reorganization; and (iii) the assets and liabilities of Vitru Brazil at their historical cost.
The consolidated financial information of Vitru contained in this annual report is derived from our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, together with the notes thereto. All references herein to “our financial statements,” “our audited consolidated financial information,” “our consolidated financial statements” and “our audited consolidated financial statements” are to Vitru’s consolidated financial statements included elsewhere in this annual report.
The audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, together with the notes thereto, included in this annual report supersede any financial statements for the same years previously filed with or furnished to the United States Securities and Exchange Commission, or the SEC.
Vitru is a holding company, and as such, the primary source of revenue derives from its interest on its operational companies in Brazil. As a result, Vitru’s functional currency as well as of its subsidiaries is the Brazilian real. We prepare our annual consolidated financial statements in accordance with IFRS accounting standards, as issued by the IASB.
1
This financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements, including the notes thereto, included elsewhere in this annual report.
Our fiscal year ends on December 31. References in this annual report to a fiscal year, such as “fiscal year 2023,” relate to our fiscal year ended on December 31 of that calendar year.
Corporate Events
We are a Cayman Islands exempted company incorporated with limited liability on March 5, 2020 for purposes of effectuating our initial public offering. Prior to the consummation of our initial public offering, our shareholders, Mundi Holdings I, L.L.C. (which is controlled by The Carlyle Group), or Mundi I, Mundi Holdings II, L.L.C. (which is now controlled by SPX Capital), or Mundi II, funds and accounts advised by Vinci Partners, or Vinci Partners, and funds and accounts advised by Neuberger Berman, or Neuberger, held 522,315,196 shares of Vitru Brazil. Prior to the consummation of our initial public offering, our shareholders contributed all of their shares in Vitru Brazil to us. In return for this contribution, we issued new common shares to our shareholders in a one-to-31 exchange for the shares of Vitru Brazil contributed to us, or the Share Contribution. Until the contribution of Vitru Brazil shares to us, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments.
UniCesumar Business Combination
On May 20, 2022, we completed the UniCesumar Business Combination. As the UniCesumar Business Combination was only completed recently, it may be difficult for you to evaluate our business, financial condition, results of operations and prospects. Investors may also have limited financial information on which to evaluate us, their investment decision and our prior performance. Our results of operations for the years ended December 31, 2023 and 2022, are not directly comparable to our results of operations for the year ended December 31, 2021, due to the effects of the UniCesumar Business Combination.
Group Restructuring and Migration of Listing
On September 5, 2023, we announced a corporate restructuring proposal, subject to shareholder approval to merge us into our wholly owned subsidiary, Vitru Brazil, pursuant to which Vitru Brazil would be the surviving entity and would become the new holding company for the Vitru group (the “Proposed Transaction”).
The Proposed Transaction is intended to modify the Vitru group’s current holding structure, by replacing the holding company, Vitru Limited, a Cayman Islands incorporated company that has its shares publicly traded on Nasdaq, with a Brazilian incorporated company that is registered with the CVM and which will have its shares listed on B3 S.A. — Brasil, Bolsa, Balcão, or the B3, the Brazilian stock exchange after the completion of the Proposed Transaction. The goal of this transaction is to align the jurisdiction of the stock exchange on which the shares of the Vitru group are traded, with the jurisdiction in which the principal business activities of the Vitru group are conducted, thereby aiming to (i) attract investors and coverage by analysts that have greater interest and familiarity with the business and industry, and (ii) increase stock liquidity. As part of the Proposed Transaction, it is proposed that Vitru Limited will be merged into Vitru Brazil. Following the completion of the Proposed Transaction, the outstanding shares of Vitru Brazil will be directly owned by all shareholders of Vitru Limited as of immediately prior to the completion of the Proposed Transaction and the shares of Vitru Brazil will be listed under the Novo Mercado segment of the B3.
On March 6, 2024, the registration statement filed by Vitru Brazil relating to the Proposed Transaction was declared effective by the SEC. The Proposed Transaction was approved at the extraordinary general meeting of shareholders held on April 19, 2024 and is expected to close in June 2024.
2
Additional Information
For more details about our organizational structure and additional information on our subsidiaries, please see “Item 4. Information on the Company—C. Organizational Structure” and refer to Note 2.2 to our audited consolidated financial statements included elsewhere in this annual report.
Financial Information in U.S. Dollars
Solely for the convenience of the reader, we have translated some of the real amounts included in this annual report from reais into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated or any other rate. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. The rate at December 31, 2023, which is the rate used for currency translations of certain amounts in this annual report, may differ materially from the exchange rate as of the date of this annual report or any other date.
Special Note Regarding Non-GAAP Financial Measures
This annual report presents our Adjusted EBITDA, Adjusted Net Income, Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations information for the convenience of investors, which are non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.
We calculate Adjusted EBITDA as net income (loss) for the year plus:
| ● | deferred and current income tax, which is calculated based on our income, adjusted based on certain additions and exclusions provided for in applicable legislation. The income taxes in Brazil consist of corporate income taxes (Imposto de Renda Pessoa Jurídica), or IRPJ, and, social contribution taxes (Contribuição Social sobre o Lucro Líquido), or CSLL; |
| ● | financial results, which consists of interest expenses less interest income; |
| ● | depreciation and amortization; |
| ● | interest on tuition fees paid in arrears, which refers to interest received from students on late payments of monthly tuition fees and which is added back; |
| ● | impairment of non-current assets, which consists of impairment charges associated with our on-campus undergraduate courses segment, given the deterioration in the prospects of this business; |
| ● | share-based compensation plan, which consists of non-cash expenses related to the grant of share-based compensation, as well as fair value adjustments for share-based compensation expenses classified as a liability in our consolidated financial statements; |
| ● | other income (expenses), net, which consists of other expenses such as contractual indemnities and deductible donations among others; and |
| ● | M&A, pre-offering expenses and restructuring expenses, which consists of adjustments that we believe are appropriate to provide additional information to investors about certain material non-recurring items. Such M&A, pre-offering expenses and restructuring expenses comprise: (i) mergers and acquisitions, or M&A, and pre-offering expenses, which are expenses related to mergers, acquisitions and divestments (including due diligence, transaction and integration costs), as well as the expenses related to the preparation of offerings; and (ii) restructuring expenses, which refers to expenses related to employee severance costs in connection with organizational and academic restructurings. |
3
We calculate Adjusted Net Income as net income (loss) for the year plus:
| ● | share-based compensation plan, as defined above; |
| ● | M&A, pre-offering expenses and restructuring expenses, as defined above; |
| ● | impairment of non-current assets, as defined above; |
| ● | amortization of intangible assets recognized as a result of business combinations, which refers to the amortization of the following intangible assets from business combinations: software, trademark, digital education operation licenses, non-compete agreements, customer relationship and teaching-learning material. For more information, see Note 16 to our audited consolidated financial statements, each included elsewhere in this annual report; |
| ● | interest accrued at the original effective interest rate (excluding restatement as a result of inflation) on the accounts payable from the acquisition of subsidiaries, related to the acquisition of our operating units from Kroton in 2016 and 2017. See Note 19 to our audited consolidated financial statements, each included elsewhere in this annual report; and |
| ● | corresponding tax effects on adjustments, which represents the tax effect of pre-tax items excluded from adjusted net income (loss). The tax effect of pre-tax items excluded from adjusted net income (loss) is computed using the statutory rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. |
We calculate Adjusted Cash Flow Conversion from Operations as Adjusted Cash Flow from Operations (which we calculate as cash from operations plus income tax paid) divided by Adjusted EBITDA (as defined above but without taking M&A, pre-offering expenses and restructuring expenses into consideration).
Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations are the key performance indicators used by us to measure the financial performance of our core operations and we believe that these measures facilitate period-to-period comparisons on a consistent basis. As a result, our management believes that these Non-GAAP financial measures provide useful information to investors and shareholders. The non-GAAP financial measures described in this annual report are not a substitute for the measures of earnings under IFRS accounting standards. Additionally, our calculations of Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations may be different from the calculations used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies. For a reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations to the most directly comparable measure under IFRS accounting standards, see “Item 3. Key Information—A. Selected Financial Data—Non-GAAP Financial Measures—Reconciliations for Non-GAAP Financial Measures.”
Market Share and Other Information
This annual report contains data related to economic conditions in the market in which we operate. The information contained in this annual report concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Market data and certain industry forecast data used in this annual report were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the SEC website) and industry publications. We obtained the information included in this annual report relating to the industry in which we operate, as well as the estimates concerning market shares, through internal research, reports published in November 2019 and February 2020 by Educa Estudos de Mercado S.A., or Educa Insights, commissioned by us, public information and publications on the industry prepared by official public sources, such as the Brazilian Central Bank, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, the United Nations Educational, Scientific and Cultural Organization, or UNESCO, the Organisation for Economic Cooperation and Development, or OECD, the Brazilian Ministry of Education (Ministério da Educação), or the MEC, the Anísio Teixeira National Institute of Educational Studies and Research (Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira), or the INEP, the Secretariat of Specialized Modalities in Education (Secretaria de Modalidades Especializadas de Educação), or Semesp, as well as private sources, such as Educa Insight, consulting and research companies in the Brazilian education industry, the Brazilian Economic Institute of Fundação Getúlio Vargas (Instituto Brasileiro de Economia da Fundação Getúlio Vargas), or FGV/IBRE, among others.
4
Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, we have not independently verified it. Governmental publications and other market sources, including those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified by an independent source. Except as disclosed in this annual report, none of the publications, reports or other published industry sources referred to in this annual report were commissioned by us or prepared at our request. Except as disclosed in this annual report, we have not sought or obtained the consent of any of these sources to include such market data in this annual report.
Rounding
We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this annual report can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “is designed to,” “may,” “predict,” “continue,” “estimate” and “potential,” or the negative of these words, among others.
Forward-looking statements appear in a number of places in this annual report and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this annual report. These risks and uncertainties include factors relating to:
| ● | general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on our business, including the impact of the ongoing war between Russia and Ukraine and of Israel’s war against Hamas, as well as wider tensions in the Middle East; |
| ● | the downgrading of Brazil’s investment ratings; |
| ● | fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future; |
| ● | our ability to implement our business strategy; |
| ● | our ability to adapt to technological changes in the educational sector; |
| ● | the availability of government authorizations on terms and conditions and within periods acceptable to us; |
| ● | our ability to continue attracting and retaining new students; |
| ● | our ability to maintain the academic quality of our programs; |
| ● | our ability to maintain the relationships with our hub partners; |
| ● | our ability to collect tuition fees; |
| ● | our ability to grow our business; |
| ● | the availability of qualified personnel and the ability to retain such personnel; |
5
| ● | changes in the financial condition of the students enrolling in our schools in general and in the competitive conditions in the education industry, or changes in the financial condition of our schools; |
| ● | our capitalization and level of indebtedness; |
| ● | changes in government regulations applicable to the education industry in Brazil; |
| ● | government interventions in education industry programs, that affect the economic or tax regime, the collection of tuition fees or the regulatory framework applicable to educational institutions; |
| ● | a decline in the number of students enrolled in our programs or the amount of tuition we can charge; |
| ● | our ability to compete and conduct our business in the future; |
| ● | the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors; |
| ● | changes in consumer demands and preferences and technological advances, and our ability to innovate to respond to such changes; |
| ● | changes in labor, distribution and other operating costs; |
| ● | our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us; |
| ● | our ability to realize the anticipated benefits of our UniCesumar Business Combination; |
| ● | our ability to realize the anticipated benefits of our corporate reorganization (see “Presentation of Financial and Other Information—Corporate Events—Group Restructuring and Migration of Listing”); |
| ● | developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally; |
| ● | other factors that may affect our financial condition, liquidity and results of operations; and |
| ● | risk factors discussed under “Item 3. Key Information—D. Risk Factors.” |
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
6
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A.Directors and Senior Management
Not applicable.
B.Advisers
Not applicable.
C.Auditors
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
A.Offer Statistics
Not applicable.
B.Method and Expected Timetable
Not applicable.
7
ITEM 3. KEY INFORMATION
A.Selected Financial Data
You should read the following selected financial data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this annual report.
The following tables set forth our summary financial data as of December 31, 2023, 2022 and 2021 and statement of operations for the years ended December 31, 2023, 2022 and 2021. The summary consolidated statements of financial position as of December 31, 2023 and 2022 and the summary consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2023, 2022 and 2021 have been derived from our audited consolidated financial statements included elsewhere in this annual report, prepared in accordance with IFRS accounting standards.
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For the Year Ended December 31, |
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2023 |
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2023 |
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2022 |
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2021 |
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U.S.$(1) |
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R$ |
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(in millions) |
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Statement of Profit or Loss Data |
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Net revenue |
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405.4 |
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1,962.5 |
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1,317.3 |
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631.1 |
Revenue from digital education undergraduate courses |
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292.2 |
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1,414.5 |
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998.2 |
|
531.7 |
Revenue from on-campus undergraduate courses |
|
92.2 |
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446.2 |
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251.1 |
|
47.0 |
Revenue from continuing education courses |
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21.0 |
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101.8 |
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68.1 |
|
52.4 |
Cost of services rendered |
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(138.3) |
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(669.5) |
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(502.3) |
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(240.9) |
Gross profit |
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267.1 |
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1,293.0 |
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815.0 |
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390.2 |
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Selling expenses |
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(74.4) |
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(360.4) |
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(244.9) |
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(111.5) |
General and administrative expenses |
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(53.5) |
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(259.1) |
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(179.3) |
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(89.3) |
Net impairment losses on financial assets |
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(54.4) |
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(263.5) |
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(187.5) |
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(110.7) |
Other income (expenses), net |
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(1.8) |
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(8.5) |
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(2.3) |
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0.1 |
Operating expenses |
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(184.3) |
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(891.5) |
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(614.0) |
|
(311.4) |
Operating profit |
|
82.9 |
|
401.6 |
|
201.0 |
|
78.8 |
|
|
|
|
|
|
|
|
|
Financial income |
|
12.6 |
|
61.0 |
|
64.6 |
|
45.5 |
Financial expenses |
|
(75.7) |
|
(366.5) |
|
(264.4) |
|
(74.9) |
Financial results |
|
(63.1) |
|
(305.5) |
|
(199.9) |
|
(29.4) |
Profit before taxes |
|
19.7 |
|
96.0 |
|
1.1 |
|
49.4 |
|
|
|
|
|
|
|
|
|
Current income taxes |
|
(11.1) |
|
(53.6) |
|
(18.0) |
|
(11.3) |
Deferred income taxes |
|
13.7 |
|
66.4 |
|
110.2 |
|
32.6 |
Income tax |
|
2.6 |
|
12.8 |
|
92.2 |
|
21.3 |
Net income for the year |
|
22.4 |
|
108.8 |
|
93.3 |
|
70.7 |
Basic earnings per share—R$ (unless otherwise indicated)(2) |
|
|
|
|
|
|
|
|
Common Shares |
|
0.67 |
|
3.23 |
|
3.52 |
|
3.08 |
Diluted earnings per share—R$ (unless otherwise indicated)(3) |
|
|
|
|
|
|
|
|
Common Shares |
|
0.61 |
|
2.97 |
|
3.23 |
|
2.89 |
(1) |
For convenience purposes only, amounts in reais as of December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
(2) |
Calculated by dividing the profit attributable to the shareholders by the weighted average number of common shares outstanding during the year. |
(3) |
Calculated by dividing the profit attributable to the shareholders by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all potential common shares with dilutive effects. |
8
|
|
As of December 31, |
||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
U.S.$(1) |
|
|
|
R$ |
||
|
|
(in millions) |
||||||
Statement of Financial Position Data |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
4.4 |
|
21.3 |
|
47.2 |
|
75.6 |
Short-term investments |
|
45.5 |
|
220.3 |
|
26.4 |
|
253.0 |
Trade receivables |
|
48.7 |
|
235.6 |
|
224.1 |
|
140.6 |
Income taxes recoverable |
|
0.5 |
|
2.4 |
|
7.0 |
|
7.7 |
Prepaid expenses |
|
4.1 |
|
19.7 |
|
20.0 |
|
35.0 |
Receivables from hub partners |
|
8.1 |
|
39.4 |
|
32.0 |
|
— |
Other current assets |
|
8.4 |
|
40.5 |
|
14.9 |
|
2.9 |
Total current assets |
|
119.6 |
|
579.1 |
|
371.5 |
|
514.8 |
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
Trade receivables |
|
14.3 |
|
69.1 |
|
47.0 |
|
5.9 |
Indemnification assets |
|
5.9 |
|
28.4 |
|
9.9 |
|
8.6 |
Deferred tax assets |
|
46.9 |
|
227.0 |
|
203.0 |
|
— |
Receivables from hub partners |
|
11.8 |
|
57.3 |
|
48.1 |
|
83.4 |
Other non-current assets |
|
2.3 |
|
11.1 |
|
6.9 |
|
1.6 |
Right-of-use assets |
|
72.2 |
|
349.7 |
|
350.4 |
|
136.1 |
Property and equipment |
|
42.5 |
|
205.9 |
|
194.6 |
|
106.8 |
Intangible assets |
|
897.0 |
|
4,342.2 |
|
4,427.6 |
|
670.2 |
Total non-current assets |
|
1,092.9 |
|
5,290.6 |
|
5,287.5 |
|
1,012.6 |
Total assets |
|
1,212.5 |
|
5,869.7 |
|
5,659.1 |
|
1,527.4 |
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade payables |
|
23.2 |
|
112.1 |
|
99.7 |
|
41.7 |
Loans and financing |
|
31.2 |
|
151.1 |
|
131.2 |
|
— |
Lease liabilities |
|
10.7 |
|
51.6 |
|
51.3 |
|
27.2 |
Labor and social obligations |
|
18.7 |
|
90.4 |
|
43.1 |
|
25.0 |
Taxes payable |
|
3.6 |
|
17.4 |
|
16.0 |
|
3.3 |
Prepayments from customers |
|
9.4 |
|
45.3 |
|
43.6 |
|
10.3 |
Payables from acquisition of subsidiaries |
|
— |
|
— |
|
— |
|
149.8 |
Other current liabilities |
|
5.1 |
|
24.6 |
|
7.5 |
|
2.1 |
Total current liabilities |
|
101.8 |
|
492.6 |
|
392.4 |
|
259.4 |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Loans and financing |
|
419.5 |
|
2,030.7 |
|
1,489.1 |
|
— |
Lease liabilities |
|
57.1 |
|
276.2 |
|
272.0 |
|
134.3 |
Payables from acquisition of subsidiaries |
|
— |
|
— |
|
507.4 |
|
— |
Taxes Payable |
|
1.3 |
|
6.1 |
|
— |
|
— |
Provisions for contingencies |
|
8.7 |
|
41.9 |
|
29.2 |
|
14.9 |
Deferred tax liabilities |
|
151.0 |
|
730.9 |
|
773.4 |
|
— |
Share-based compensation |
|
0.4 |
|
2.0 |
|
19.8 |
|
52.3 |
Other non-current liabilities |
|
1.0 |
|
4.7 |
|
1.5 |
|
0.4 |
Total non-current liabilities |
|
638.8 |
|
3,092.4 |
|
3,092.3 |
|
201.9 |
Total liabilities |
|
740.6 |
|
3,585.0 |
|
3,484.7 |
|
461.3 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Share capital |
|
0.0 |
|
0.008 |
|
0.008 |
|
— |
Capital reserves |
|
424.7 |
|
2,056.1 |
|
2,054.5 |
|
1,039.6 |
Retained earnings (accumulated losses) |
|
47.2 |
|
228.6 |
|
119.9 |
|
26.5 |
Total equity |
|
471.9 |
|
2,284.7 |
|
2,174.4 |
|
1,066.1 |
Total liabilities and equity |
|
1,212.5 |
|
5,869.7 |
|
5,659.1 |
|
1,527.4 |
(1) |
For convenience purposes only, amounts in reais as of December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
9
Non-GAAP Financial Measures
This annual report presents our Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations information for the convenience of investors, which are non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. See also “Presentation of Financial and Other Information—Special Note Regarding Non-GAAP Financial Measures.”
|
|
For the Year Ended December 31, |
|||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
|
U.S.$(1) |
|
|
|
R$ |
|||
|
|
(in millions, except percentages) |
|||||||
Net Revenue |
|
405.4 |
|
1,962.5 |
|
1,317.3 |
|
631.1 |
|
Net Income for the Year |
|
22.5 |
|
108.8 |
|
93.3 |
|
70.7 |
|
Cash Flow from Operations |
|
136.9 |
|
662.6 |
|
376.0 |
|
155.5 |
|
Adjusted EBITDA(2) |
|
148.4 |
|
718.4 |
|
447.1 |
|
182.4 |
|
Adjusted Net Income(3) |
|
52.5 |
|
254.0 |
|
214.5 |
|
91.5 |
|
Adjusted Cash Flow from Operations(4) |
|
126.8 |
|
613.6 |
|
358.7 |
|
155.5 |
|
Adjusted Cash Flow Conversion from Operations(5) |
|
96.3 |
% |
96.3 |
% |
96.0 |
% |
82.9 |
% |
(1) |
For convenience purposes only, amounts in reais as of December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
(2) |
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our loss for the year, see “—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Adjusted EBITDA from Net Income (Loss) for the Year.” |
(3) |
For information on how we define Adjusted Net Income, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Net Income from Net Income (Loss) for the Year, see “—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Adjusted Net Income from Net Income (Loss) for the Year.” |
(4) |
For information on how we define Adjusted Cash Flow from Operations, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Cash Flow from Operations, see “—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations.” |
(5) |
For information on how we define Adjusted Cash Flow Conversion from Operations, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations, see “—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations.” |
10
Reconciliations for Non-GAAP Financial Measures
The following tables set forth reconciliations of Adjusted EBITDA and Adjusted Net Income to our net income for the years ended December 31, 2023, 2022 and 2021, as well as a reconciliation of Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations to our cash flow from operations for the years ended December 31, 2023, 2022 and 2021, our most recent directly comparable financial measures calculated and presented in accordance with IFRS accounting standards.
For further information on why our management chooses to use these non-GAAP financial measures, and on the limits of using these non-GAAP financial measures, please see “Presentation of Financial and Other Information—Special Note Regarding Non-GAAP Financial Measures.”
Reconciliation of Adjusted EBITDA from Net Income for the Year
The following table below sets forth a reconciliation of our Adjusted EBITDA to our Net Income (Loss) for each of the years indicated:
|
|
For the Year Ended December 31, |
||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
U.S.$(1) |
|
R$ |
||||
|
|
(in millions) |
||||||
Net Income for the Year |
|
22.5 |
|
108.8 |
|
93.3 |
|
70.7 |
(+) Deferred and current income tax |
|
(2.6) |
|
(12.8) |
|
(92.2) |
|
(21.3) |
(+) Financial results |
|
63.1 |
|
305.5 |
|
199.9 |
|
29.4 |
(+) Depreciation and amortization |
|
43.9 |
|
212.7 |
|
150.0 |
|
54.5 |
(+) Interest on tuition fees paid in arrears |
|
5.0 |
|
24.1 |
|
26.5 |
|
17.4 |
(+) Share-based compensation plan |
|
(1.9) |
|
(9.4) |
|
(6.0) |
|
14.7 |
(+) Other income (expenses), net |
|
1.8 |
|
8.5 |
|
2.3 |
|
(0.1) |
(+) M&A, pre-offering expenses and restructuring expenses(2) |
|
16.7 |
|
80.9 |
|
73.3 |
|
17.1 |
Adjusted EBITDA(3) |
|
148.5 |
|
718.4 |
|
447.1 |
|
182.4 |
(1) |
For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
(2) |
M&A, pre-offering expenses and restructuring expenses for the year ended December 31, 2023 and 2022 includes remuneration regarding the UniCesumar Business Combination. |
(3) |
We calculate Adjusted EBITDA as net income for the year plus deferred and current income tax plus financial results plus depreciation and amortization plus interest on tuition fees paid in arrears plus impairment of non-current assets plus share-based compensation plan plus other income (expenses), net, plus M&A, pre-offering expenses and restructuring expenses. Adjusted EBITDA is a non-GAAP measure. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” |
11
Reconciliation of Adjusted Net Income from Net Income for the Year
The following table below sets forth a reconciliation of our Net Income from Adjusted Net Income for each of the years indicated:
|
|
For the Year Ended December 31, |
||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
U.S.$(1) |
|
|
|
R$ |
||
|
|
(in millions) |
||||||
Net Income for the Year |
|
22.5 |
|
108.8 |
|
93.3 |
|
70.7 |
(+) M&A, pre-offering expenses and restructuring expenses(2) |
|
16.7 |
|
80.9 |
|
73.3 |
|
17.1 |
(+) Share-based compensation plan |
|
(1.9) |
|
(9.4) |
|
(6.0) |
|
14.7 |
(+) Amortization of intangible assets from business combinations |
|
26.0 |
|
125.7 |
|
77.8 |
|
4.8 |
(+) Interest accrued on payables from the acquisition of subsidiaries |
|
3.1 |
|
14.9 |
|
18.6 |
|
12.9 |
(+) Corresponding tax effects on adjustments |
|
(13.9) |
|
(67.1) |
|
(42.5) |
|
(28.7) |
Adjusted Net Income(3) |
|
52.4 |
|
254.0 |
|
214.5 |
|
91.5 |
(1) |
For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
(2) |
M&A, pre-offering expenses and restructuring expenses for the year ended December 31, 2023 and 2022 includes remuneration regarding the UniCesumar Business Combination. |
(3) |
We calculate Adjusted Net Income as net income for the year plus share-based compensation plan plus M&A, pre-offering expenses and restructuring expenses, plus impairment of non-current assets plus amortization of intangible assets recognized as a result of business combinations plus interest accrued at the original effective interest rate (excluding restatement as a result of inflation) on payables from the acquisition of subsidiaries plus corresponding tax effects on adjustments. Adjusted Net Income is a non-GAAP measure. Our calculation of Adjusted Net Income may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” |
Reconciliation of Adjusted Cash Flow from Operations and Adjusted Cash Flow Conversion from Operations
The following table below sets forth a reconciliation of our Adjusted Cash Flow Conversion from Operations for each of the years indicated:
|
|
For the Year Ended December 31, |
|||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
|
U.S.$(1) |
|
|
|
R$ |
|||
|
|
(in millions, except percentages) |
|||||||
Cash Flow from Operations |
|
136.9 |
|
662.6 |
|
376.0 |
|
155.5 |
|
(+) Income tax paid |
|
(10.1) |
|
(49.0) |
|
(17.3) |
|
(18.5) |
|
Adjusted Cash Flow from Operations |
|
126.7 |
|
613.6 |
|
358.7 |
|
137.0 |
|
Adjusted EBITDA(2) |
|
148.4 |
|
718.4 |
|
447.1 |
|
182.4 |
|
(-) M&A, pre-offering expenses and restructuring expenses(3) |
|
(16.7) |
|
(80.9) |
|
(73.3) |
|
(17.1) |
|
Adjusted EBITDA excluding M&A, pre-offering expenses and restructuring expenses |
|
131.7 |
|
637.5 |
|
373.8 |
|
165.3 |
|
Adjusted Cash Flow Conversion from Operations(2)(4) |
|
96.3 |
% |
96.3 |
% |
96.0 |
% |
82.9 |
% |
(1) |
For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
(2) |
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our net income for the year, see “—Reconciliation of Adjusted EBITDA from Net Income for the Year.” |
(3) |
M&A, pre-offering expenses and restructuring expenses for the year ended December 31, 2023 and 2022 includes remuneration regarding the UniCesumar Business Combination. |
(4) |
We calculate Adjusted Cash Flow Conversion from Operations as Adjusted Cash Flow from Operations (which we calculate as cash from operations plus income tax paid) divided by Adjusted EBITDA (as defined above but without taking M&A, pre-offering expenses and restructuring expenses into consideration). Adjusted Cash Flow Conversion from Operations is a non-GAAP measure. Our calculation of Adjusted Cash Flow Conversion from Operations may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” |
12
B.Capitalization and Indebtedness
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
This section is intended to be a summary of more detailed discussions contained elsewhere in this registration statement. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our common shares could decline.
Summary of Risk Factors
Summary of Risks Relating to Our Business and Industry
| ● | If we are unable to enter into agreements and maintain good relationships with, and/or increase the number of, our hub partners, our business and growth may be adversely affected. We derive a significant portion of our revenue from partnerships with education centers. We enter into these partnerships through contracts with hub partners who provide centers with infrastructure for our students, which may include private schools, and to whom we provide teachers and materials, teaching methodologies, as well as pedagogical, administrative and marketing advice. Failure by our hub partners to comply with the terms of those agreements, and any failure by us to enforce such terms, may also adversely affect us. In addition, failure by our hub partners to maintain their existing levels of profitability may result in changes in their view about the advantages of continuing their relationships with us. |
| ● | We are subject to various federal laws and extensive government regulation, and changes in such laws and regulation, including tax laws, could have a material adverse effect on our business and our growth strategy. Any significant changes to the regulatory framework within which we currently operate could have a material adverse effect on us. Furthermore, any change or review of the tax treatment of our activities, or the loss or reduction in tax benefits on the sale of books (including digital content) may materially adversely affect us. |
| ● | We face significant competition in each program we offer and each geographic region in which we operate. If we fail to compete effectively, we may lose market share and our profitability may be adversely affected. To compete effectively, we may be required to reduce our tuition or increase our operating expenses in order to retain or attract students or to pursue new market opportunities. As a result, our revenue and profitability may decrease. We cannot assure you that we will be able to compete successfully against our current or future competitors. |
| ● | Our business depends on the continued success of our brands “Uniasselvi” and “UniCesumar,” and if we fail to maintain and enhance recognition of our brands, we may face difficulty enrolling new students, and our reputation and operating results may be harmed. Failure to maintain and enhance our brand recognition could have a material and adverse effect on our business, operating results and financial condition. |
| ● | Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results. We may face risks related to public health threats or outbreaks of communicable diseases. The outbreak of communicable diseases could result in a widespread health crisis that could adversely affect the global economy and our ability and our business partners’ ability to conduct business in Brazil for an indefinite period of time. |
Summary of Risks Relating to Brazil
| ● | The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and |
13
| the price of our common shares. Uncertainty over whether the Brazilian federal government will implement certain reforms or changes in policy or regulation in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on our activities and consequently our operating results. |
| ● | Economic uncertainty and political instability in Brazil may harm us and the price of our common shares. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities offered by companies with significant operations in Brazil. |
| ● | Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our common shares. |
| ● | Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, as well as the recent ongoing wars between Russia and Ukraine and between Israel and Hamas, as well as the wider tensions in the Middle East, may harm the Brazilian economy and the price of our common shares. Crises and political instability in other emerging market countries, the United States, Europe or other countries, including increased international trade tensions and protectionist policies, could decrease investor demand for securities offered by companies with significant operations in Brazil, such as our common shares. These developments, as well as potential crises and forms of political instability arising therefrom or any other yet unforeseen development, may harm our business and the price of our common shares. |
| ● | The use of cash and short-term investments and the incurrence of significant indebtedness in connection with the financing of the UniCesumar Business Combination may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions. We have funded the UniCesumar Business Combination using our cash and cash equivalents, short-term investments and new indebtedness consisting of the issuance of debentures. We have issued the following debentures: (i) in May 2022, our first issuance of debentures consisting of secured, nonconvertible debentures in two series, being (a) a first series of debentures, in an amount of R$500.0 million, maturing on May 15, 2024, and (b) a second series of debentures, in an amount of R$1,450.0 million, maturing on May 15, 2027, (ii) in May 2023, our second issuance of debentures consisting of secured, nonconvertible debentures in an amount of R$190.0 million, maturing on May 5, 2028, and (iii) in December 2023, our third issuance of debentures consisting of unsecured, nonconvertible debentures in an amount of R$500 million, maturing on November 16, 2028. |
As of December 31, 2023, we had indebtedness of R$2,509.7 million, cash and cash equivalents of R$21.3 million and short-term investments of R$220.3 million.
Summary of Risks Relating to Our Common Shares
| ● | Our Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and adversely affect the rights of holders of our common shares. These provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions. |
| ● | As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), we have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies. If some investors find our common shares less attractive as a result of our reliance on exemptions applicable to foreign private issuers or emerging growth companies, there may be a less active trading market for our common shares and the price of our common shares may be more volatile. |
| ● | Our common shares may not be a suitable investment for all investors, as investment in our common shares presents risks and the possibility of financial losses. Each potential investor in our common shares must therefore determine the suitability of that investment in light of its own circumstances, for instance, evaluating if such investor has sufficient knowledge and experience to make a meaningful evaluation of our common shares; has access to, and knowledge of, appropriate analytical tools to evaluate an investment in our common |
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| shares; and have sufficient financial resources and liquidity to bear all of the risks of an investment in our common shares. |
Risks Relating to Our Business and Industry
We are subject to various federal laws and extensive government regulation, and changes in such laws and regulation, including tax laws, could have a material adverse effect on our business and our growth strategy.
We are subject to several federal laws and to comprehensive government regulation enacted by the MEC. The most relevant legislation is the following: Federal Law No. 9,131/1995 (The National Education Council Act), Federal Law No. 9,394/1996 (The National Education Directives and Bases Act), Federal Law No. 9,870/1999 (The Tuition Act) and Federal Law No.10,861/2004 (National System for Higher Education Quality Evaluation – SINAES Act). Additionally, there are a series of further laws and regulations which establish a framework for the provision of educational services, in particular relating to (i) undergraduate education and related regulatory proceedings; (ii) online education; (iii) post-graduation; (iv) quality assurance and evaluation; and (v) penalties.
The Brazilian government may review and change the laws and regulations to which we are subject at any time. In addition, the MEC may also promulgate additional rules and regulations applicable to postsecondary education institutions, particularly with respect to digital education programs. Any significant changes to the regulatory framework within which we currently operate could have a material adverse effect on us, in particular changes relating to:
| ● | any revocation of accreditation of private educational institutions; |
| ● | the imposition of controls on monthly tuition payments or restrictions on profitability of private educational institutions; |
| ● | faculty credentials; |
| ● | academic requirements for courses and curricula, including bans on offering certain subjects in a digital education format; |
| ● | changes to the situations in which digital education is authorized, requirements to be met to open new digital education educational hubs or in the accreditation requirements to operate digital education educational hubs; |
| ● | changes to the evaluation criteria of private educational institutions; and |
| ● | infrastructure requirements applicable to campuses and/or hubs, such as libraries, laboratories and administrative support. |
The postsecondary education sector is highly regulated, and our failure to comply with existing or future laws and regulations could have a material adverse effect on our business.
The offer of postsecondary education is subject to the prior issuance of an authorization by the MEC. The authorizing acts issued by the MEC for postsecondary education are: accreditation and re-accreditation, authorization, recognition and renewal of recognition. Accreditation and re-accreditation refer to the educational institution; while authorization, recognition and renewal of recognition refer to the courses offered by the institution.
Brazilian education regulations define three types of postsecondary education institutions: (i) colleges; (ii) university centers; and (iii) universities. Each of these requires prior accreditation from the MEC to operate. Courses offered by colleges depend on prior authorizations from the MEC to be implemented, while courses offered by university centers and universities are not subject to such requirements, except for courses in law, medicine, psychology, nursing and dentistry, which do require the prior authorization from the MEC. For courses in law and medicine, prior to the authorization from the MEC, it is necessary to obtain a formal opinion issued by Federal Council of the Brazilian Bar Association or the National Health Council, respectively.
In addition to the authorization, courses must be recognized by the MEC. Pursuant to article 101 of Ordinance No. 23/2017, issued by the MEC, courses may be considered valid even if the recognition request is not formally recognized by the MEC until the date that the first class has concluded the course and as long as the educational institution has filed a request for accreditation within the established legal deadline.
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Lastly, all postsecondary education institutions must be accredited by the MEC.
The MEC must authorize our campuses located outside our headquarters before they can start operating and providing programs. Any authorization to open new digital education educational hubs is contingent on our Institutional Concept (Conceito Institucional), or CI. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulatory Overview.” Digital education programs, as well as on-campus learning programs, are also subject to strict accreditation requirements for their implementation and operation. We must comply with all such requirements in order to obtain and renew all authorizations.
We cannot assure you we will be able to comply with these regulations and maintain the validity of our authorizations, recognition and accreditations in the future. If we fail to comply with these regulatory requirements, the MEC could place limitations on our operations, including cancellation of programs, restrictions on the number of enrollments we offer to students, termination of our ability to issue degrees and certificates and revocation of our accreditation, any of which could adversely affect our reputation, financial condition and results of operations. We cannot assure you that we will obtain accreditation or re-accreditation of our postsecondary education institutions, or that our courses will receive authorization or recognition and renewal of recognition as scheduled, or that such courses will have all of the accreditations, re-accreditations, authorizations, recognition and renewal of recognition required by the MEC. The absence of such authorizations and recognitions or any delays in obtaining them could adversely affect our financial condition and results of operations. We may be materially adversely affected if we are unable to obtain authorizations, accreditations and course recognitions in a timely manner, if we cannot introduce new courses as quickly as our competitors or if we are not able to or do not comply with any new rules or regulations promulgated by the MEC.
If we are unable to enter into agreements and maintain good relationships with, and/or increase the number of, our hub partners, our business and growth may be adversely affected. Failure by our hub partners to comply with the terms of those agreements, and any failure by us to enforce such terms, may also adversely affect us. In addition, failure by our hub partners to maintain their existing levels of profitability may result in changes in their view about the advantages of continuing their relationships with us.
A significant portion of our revenue is derived from partnerships with education centers. Our net revenue was R$1,962.5 million for the year ended December 31, 2023 and R$1,317.3 million for the year ended December 31, 2022 and R$631.1 million for the year ended December 31, 2021, most of which was derived from students who study in hubs managed by our hub partners. We enter into these partnerships through contracts with hub partners who provide centers with infrastructure for our students, which may include private schools, and to whom we provide teachers and materials, teaching methodologies, as well as pedagogical, administrative and marketing advice. As of December 31, 2023, 94.0% of our hubs are partner hubs. We typically enter into contracts with our hub partners for indefinite terms. In the event of termination, in order to minimize the impact of early termination of these contracts on our students, hub partners are required to carry out their obligations under the applicable contract until the end of the semester during which the termination of the contract is initiated.
We also rely in part on existing partner referrals to attract new hub partners. Accordingly, maintaining a good relationship with our hub partners and developing new relationships and expanding our network of hub partners are essential to the success of our business. As of December 31, 2023 and December 31, 2022, we had 676 and 675 hub partners, respectively. Additionally, we may not be able to renew our contracts with our hub partners, due to, among others, changes in the leadership composition of our hub partners and their decisions to discontinue existing relationships with us. In addition, our hub partners are independent entities, and we cannot guarantee that our hub partners will be able to maintain their existing levels of profitability and, therefore, that they will continue to view their relationships with us as valuable.
Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses.
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In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment.
However, we cannot assure you that our hub partners will continue to work with us if their profitability declines as the hubs mature. Any deterioration in our relationship with our hub partners, and any early termination of, or a failure to renew, our contracts with our hub partners (including as a result of our hub partners no longer viewing those relationships as advantageous, as a result of a decrease in their profitability or otherwise) may harm our image, impair our ability to pursue our growth strategy, and materially adversely affect our business, our operating and financial results and our cash flows. Given that our existing hub partners usually also open new hubs, any deterioration in our relationship with our hub partners, or any failure to renew such relationships, could also affect our ability to expand further.
Furthermore, we cannot guarantee that our hub partners will always comply with the terms of our agreements with them. Failure to abide by such terms may include breaches of obligations not to solicit students, misuse of our brand, creation of unsanctioned classes, default in payment obligations under the applicable agreements and other matters, which may result in the applications of fines and/or penalties and, in certain circumstances, trigger our right to terminate the agreement. We may not always be able to enforce our agreements with hub partners effectively or at all. Any such breaches of agreements by our hub partners, and any failure on our part to enforce such agreements, may result in negative publicity, tarnish our reputation, deter prospective students from enrolling in our courses and deter prospective hub partners from entering into relationships with us, which may have a material adverse effect on our reputation as well as on our business, financial condition and results of operations.
If we are not able to attract and retain students, or are unable to do so without decreasing our tuition fees or increasing tuition discounts, our revenues may decline. Any increase in the drop-out rates of students in our education programs may adversely affect our results of operations.
The success of our business depends primarily on the number of students enrolled in our programs and the tuition fees that they pay. Our ability to attract and retain students depends mainly on the tuition fees we charge, the convenience of the locations of our facilities, the infrastructure of our hubs and campuses, the quality of our programs as perceived by our existing and potential students and our sales and marketing strategies. These factors are affected by, among other things, our ability to (i) respond to increasing competitive pressures; (ii) develop our educational systems to address changing market trends and demands from schools and students; (iii) develop new programs and enhance existing programs to respond to changes in market trends and student demands; (iv) adequately prepare our students for careers in their chosen professional occupations; (v) successfully implement our expansion strategy; (vi) manage our growth while maintaining our teaching quality; and (vii) effectively market our programs to a broader base of prospective students. If we are unable to continue to attract new students to enroll in our programs and to retain our current students without significantly decreasing tuition or increasing tuition discounts, our revenues and our business may decline and we may be adversely affected.
We believe that our drop-out rates are primarily related to the personal motivation and financial situation of our current and potential students, as well as to socioeconomic conditions in Brazil. Significant changes in projected drop-out rates and/or failure to re-enroll students once the semester is over may affect our enrollment numbers, as well as our ability to recruit and enroll new students, each of which may have a material adverse effect on our projected revenues and our results of operations.
An increase in delays and/or defaults in the payment of tuition fees, as well as students canceling their course registration, may adversely affect our income and cash flow.
We depend on the full and timely payment of the tuition we charge our students, including tuition payments we receive through Student Financing Program (Programa de Financiamento Estudantil), or FIES, the Social Student Financing Fund (Fundo de Financiamento Estudantil Social), or FlES Social, University Scholarship Program of the State of Santa Catarina (Programa de Bolsas Universitárias do Estado de Santa Catarina), or Santa Catarina Free University, and State Fund to Support the Maintenance and Development of Postsecondary Education (Fundo Estadual de Apoio à Manutenção e ao Desenvolvimento da Educação Superior), or FUMDES, and other funded scholarships.
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An increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration, may have a material adverse effect on our cash flows and our business, including our ability to meet our obligations. Student delays and/or defaults in the payment of tuition fees and student cancellations of their course registrations may occur for a variety of reasons over which we have no control, including a student’s personal, financial and academic situation. Any increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration may have a material adverse effect on us.
Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our results of operations.
Changes in tax laws, regulations, related legal interpretations applicable to our activities and accounting standards in Brazil may result in a higher effective tax rate on our earnings, which may significantly reduce our profits and cash flows from operations. In addition, our results of operations and financial condition may decline if certain tax incentives are not retained or renewed. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to customers, our financial condition, results of operations and cash flows could be seriously harmed. Our digital education activities are also subject to a Municipal Tax on Services (Imposto Sobre Serviços), or ISS. Any increases in ISS rates or differing legal interpretations applicable to our activities would also harm our profitability.
In addition, tax rules in Brazil, particularly at the local level, change regularly, and it is common for taxpayers to challenge such changes, which may result in additional tax assessments and penalties for our company. The Brazilian federal government is currently seeking to reform Brazil’s tax system to improve Brazil’s economic performance. We cannot assure you that these proposed reforms will be successful or, if they are successful, that they will not result in an increase in our overall tax burden.
We are involved in tax proceedings based on differences of interpretation between us and the Brazilian tax authorities regarding tax laws and regulations. For further information, see “Item 10. Additional Information—E. Taxation.”
Recently the Supreme Court of Brazil, or the STF, reversed an earlier position in relation to the treatment of taxes collected on an ongoing basis that have been subject to a legal determination by the court. The court determined that an earlier final decision (res judicata) dealing with taxes collected on ongoing basis, for example, the CSLL, will lose its effects if the STF later determines otherwise in a contrary decision. As a result, companies will need to evaluate and, when necessary, adjust the amounts recognized in their financial statements. This could include in the recognition of expenses and provisions related to taxes collected on an ongoing basis. This new determination may impact our results if new decisions on taxes collected on an ongoing basis are determined which are contrary to those that we have previously adopted, including, as an example, in relation to the CSLL exemption for joining PROUNI. For more information, see “Item 4. Information on the Company—B. Business Overview—Financing Alternatives for Students: Incentive Programs—University for All Program (PROUNI)”.
Any changes in tax laws, incentives, benefits or in the interpretation of tax laws, or decisions adverse to us in tax proceedings could have a material adverse effect on our business, financial condition and our results of operations.
Any change or review of the tax treatment of our activities, or the loss or reduction in federal tax exemptions provided under the PROUNI program, may materially adversely affect our business, financial condition and results of operations.
If the Brazilian government or any Brazilian municipality or tax authority decides to change or review the tax treatment of our activities, including tax exemptions available to us as a result of our participation in certain governmental programs relating to education, and we are unable to pass on any cost increase to our hub partners and/or to our students, our business, financial condition, as well as our results of operations may be materially adversely affected.
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In particular, some of our students participate in the University for All Program (Programa Universidade para Todos), or the PROUNI program. PROUNI was created in 2005, through Law No. 11,096, of January 13, 2005. Its purpose is to provide full and partial scholarships to low-income students in undergraduate courses and sequential courses (cursos sequenciais), in private educational institutions. In return, the Brazilian federal government offers tax exemptions to educational institutions that participate in PROUNI. Private institutions may join PROUNI by executing a “commitment term,” with a 10-year term (renewable for another 10 years), setting the number of scholarships to be offered in each program, campus and course. Through the PROUNI program, the Brazilian federal government grants a number of full and partial scholarships to low-income postsecondary education students. As a result of our participation in the PROUNI program, we benefit from certain federal tax exemptions relating to bachelor’s and associate’s degree programs, such as (i) IRPJ, (ii) Social Contribution Tax on Gross Revenue (Programa de Integração Social), or PIS; (iii) Social Security Financing Tax on Gross Revenue (Contribuição para o Financiamento da Seguridade Social), or COFINS; and (iv) CSLL regarding our revenues from undergraduate and associate programs.
We may be disqualified from the PROUNI program and lose the benefit of any related tax exemptions if we do not comply with certain requirements, such as providing total or partial scholarships for a percentage of students who paid their tuition in the previous year, granting partial scholarships, submitting to the MEC semi-annual records of attendance, achievement and drop-out of students receiving scholarships, among others. For further information, see “Item 4. Information on the Company—B. Business Overview—Regulatory Overview.” If we lose the benefit of these tax exemptions or are unable to comply with other, more stringent requirements that may be introduced in the future, our business, financial condition and results of operations could be materially adversely affected.
Additional changes in tax legislation may result in a risk related to the prohibition, interruption, or even modification in invoking pre-existing tax exemptions. As such, we cannot assure you that we would be able to maintain the standard taxes and other benefits related to PROUNI in case of further amendments to tax legislation. Any suspension, accelerated default, repayment, or inability to renew our tax exemptions may have an adverse effect on our results of operations. Furthermore, our business, financial condition, and the operation results may be significantly affected in a scenario where (i) we lose our tax exemptions and/or benefits, (ii) we are unable to comply with future requirements or even (iii) in case of amendments to legislation which limit our ability to maintain these tax benefits.
Any change or review of the tax treatment of our activities, or the loss or reduction in tax benefits on the sale of educational materials may materially adversely affect us.
We started selling educational materials in March 2020. Accordingly, we expect to benefit from tax Law No. 10,865/04, as amended by Law No. 11,033/04, which currently establishes a zero rate for PIS and COFINS on the sale of books. The Brazilian constitution exempts the sale of books from the Brazilian tax on the circulation of goods, interstate and intercity transportation and communication services (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação), or ICMS. If the Brazilian tax authorities decide to reduce the scope or discontinue this tax exemption, the resulting increase in the tax rate applicable to sales of books may adversely impact our business and results of operations.
We face significant competition in each program we offer and each geographic region in which we operate. If we fail to compete effectively, we may lose market share and our profitability may be adversely affected.
Our competitors may offer programs or courses similar to or better than those offered by us, have access to more funds, be more prestigious or well-regarded within the academic community, have more conveniently located hubs with better infrastructure or charge lower tuition (or no tuition, in the case of public institutions). To compete effectively, we may be required to reduce our tuition or increase our operating expenses in order to retain or attract students or to pursue new market opportunities. As a result, our revenues and profitability may decrease. We cannot assure you that we will be able to compete successfully against our current or future competitors.
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We compete with various public and private postsecondary education institutions, some of which are nonprofit organizations and exempt from various taxes. Additionally, we may become subject to greater competition in the digital education market due to the implementation of Decree No. 9,057/2017 and MEC Ordinance No. 11/2017, which now permits the accreditation of postsecondary education institutions exclusively for digital education in lato sensu undergraduate and postgraduate courses. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share, our profits may decrease and we may be adversely affected.
Our success depends on our ability to monitor and adapt to technological changes in the education sector and maintain a technological infrastructure that works adequately and without interruption.
Information technology is an essential factor of our growth, especially in the digital education business line. Our information technology systems and tools may become obsolete or insufficient, or we may have difficulties in following and adapting to technological changes in the education sector. Moreover, our competitors may introduce better products or service platforms. Our success, and especially the success of our digital education business, depends heavily on our ability to efficiently improve our current products while developing and introducing new products that are accepted in the marketplace.
Additionally, a failure to upgrade our technology, features, content, security infrastructure, network infrastructure, or other infrastructure associated with our platform could harm our business. Adverse consequences could include disruptions, slower response times, bugs, degradation in levels of customer support, impaired quality of users’ experiences of our educational platform and delays in reporting accurate financial information.
Furthermore, broad changes in culture, habits and customs in consumer populations and the work environment, with respect to both economic and technological factors, may also affect the attractiveness and registration rates of our courses with our target market.
Our business, particularly our digital education business line, depends on our information technology infrastructure functioning properly and without interruptions. Several problems regarding our information technology structure, such as viruses, hackers, system interruptions and technical difficulties regarding our satellite transmissions of data, sound and image may have a material adverse effect on us and our business.
In addition, we face risks associated with unauthorized access to our systems, including by hackers and due to failures of our electronic security measures. These unauthorized entries into our systems can result in the theft of proprietary or sensitive information or cause interruptions in the operation of our systems. As a result, we may be forced to incur considerable expenses to protect our systems from electronic security breaches and to mitigate our exposure to technological problems and interruptions. Furthermore, our insurance coverage may not be sufficient to cover any damage we may suffer as a result of unauthorized access to our systems and other cybersecurity risks (see also “—We are not insured against all of the risks to which our business is exposed, and the insurance coverage we have may be inadequate to cover all losses and/or liabilities that we may incur in the course of our operations”).
See “—Failure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations.”
Difficulties in identifying, opening and efficiently managing new hubs (whether operated by us or by third parties) and/or campuses on a timely basis as part of our organic growth strategy may adversely affect our business.
Our strategy includes expanding organically by opening new hubs (whether operated by us or third parties) and campuses and integrating them into our educational network. This growth plan creates significant challenges in terms of maintaining our teaching quality and culture, as a result of the complexity and difficulty of effectively managing a large number of hubs, campuses and programs. If we are unable to maintain our current quality standards, we may lose market share and be adversely affected.
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Establishing new hubs and campuses poses important challenges and requires us to make significant investments in infrastructure, marketing, personnel and other preoperational expenses, mainly identifying if the city or location is economically sustainable for the opening of a new hub and/or a campus, identifying new hub partners and sites for lease, as well as identifying potential new partners where applicable. We prioritize identifying strategic sites, negotiating the lease of properties, building or refurbishing facilities (including libraries, laboratories, study rooms and classrooms), obtaining local permits, hiring and training faculty and staff and investing in administration and support.
If we do not succeed in identifying and establishing our hubs in a cost-effective manner, or if the MEC imposes conditions for the opening and operating of new hubs, our business may be adversely affected.
We may not be able to successfully expand our presence and performance in the digital education market.
We may face difficulties in successfully operating our digital education program and in implementing and investing in the technologies necessary to operate a successful digital education program, where the technological needs, the expectations of our customers and market standards change rapidly. We have to quickly modify our products and services to adapt to new digital education technologies, practices and standards. We may be adversely affected if current or future competitors introduce products or service platforms that are superior to those we offer, or if our resources are not adequate to develop and adapt our technological capabilities rapidly enough to maintain our competitive position.
In addition, the success of our digital education programs depends on the general population having easy and affordable access to the internet, as well as on other technological factors that are outside of our control. If the internet becomes inaccessible or access costs increase to levels higher than current prices, or if the number of students interested in digital education educational methods does not increase, we may be unable to successfully implement our digital education program strategy, which would have an adverse effect on our growth strategy.
Moreover, students graduating from digital education may not be able to obtain proper registration with professional associations (conselhos profissionais). Some professional associations have already expressed that they do not recognize digital academic courses and will not register graduates of these courses. This may generate some uncertainty for graduates of digital academic courses as failure to register with a professional association may, depending on the profession, preclude the graduate from exercising the profession for which they have studied. If professional associations are not willing to register students who have completed digital academic courses, demand for our digital education services may decrease, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to update, improve or offer the content of our existing programs to our students on a cost-effective basis.
To differentiate ourselves and remain competitive, we must continually update our courses and develop new educational programs, including through the adoption of new technological tools. Updates to our current courses and the development of new educational programs may not be readily accepted by our students or by the market. Also, we may not be able to introduce new educational programs at the same pace as our competitors or at the pace required by the labor market. If we do not adequately modify our educational programs in response to market demand, whether due to financial restrictions, unusual technological changes or otherwise, our ability to attract and retain students may be impaired and we may be materially adversely affected. Any such developments may have a material adverse effect on us.
We may face difficulties in effectively integrating and managing a growing number of hubs and campuses.
Our number of hubs and campuses has grown significantly since we began our operations and we may face significant challenges in the process of integrating the operations of any new hubs with our existing hubs, such as the inability to manage a greater number of geographically dispersed employees and create and implement efficient uniform controls, procedures and policies, in addition to the incurrence of high integration costs. The anticipated benefits of the expansion we may pursue will not be achieved unless we successfully integrate the new hubs into our operations and effectively manage, market and apply our business strategy to them. We may also be unable to integrate faculty and personnel with different professional experience and from different corporate cultures, and our relationship with current and new employees, including tutors and professors, may be impaired.
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In addition, we may face challenges in entering into successful collective bargaining arrangements with unions due to differences in the negotiation procedures followed in the different geographic regions of the new hubs. See “—We could be adversely affected by the terms and conditions of collective bargaining agreements with the labor unions representing our tutors and professors and administrative employees or by strikes and other union activity.” If we are not able to manage our growth effectively, our business could be materially adversely affected.
A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.
Prior to our initial public offering, we were a private company with limited accounting personnel and other resources to address our internal control over financial reporting and procedures. In connection with the audit of our consolidated financial statements, we identified a material weakness in our internal control over financial reporting as of December 31, 2023, which is described below. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS accounting standards and the SEC. Specifically, we identified deficiencies in our controls over (i) the segregation of duties across business processes and the general information technology environment controls; (ii) the financial reporting closing process, invoicing and accounts receivable, purchasing and accounts payable, revenue recognition, as well as calculations, processes and provisions related to payroll; and (iii) the procedures in place to maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions. As a result, considering these factors in the aggregate, we identified a material weakness in our internal control over financial reporting as of December 31, 2023.
This material weakness did not result in a misstatement to our consolidated financial statements included herein. However, the material weakness described above could have resulted in a misstatement of one or more account balances or disclosures that could result in a material misstatement to the annual or interim condensed consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute a material weakness. In order to address this material weakness, we will adopt remediation plans, which we expect will contribute to improving our processes and internal controls environment. Despite the fact that we are focused on implementing robust internal controls over financial reporting, we cannot assure you that our efforts will be effective or prevent any future material weakness or significant deficiency in our internal control over financial reporting.
We are subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Testing of our internal controls may reveal deficiencies that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. We expect to incur significant accounting and auditing expenses and to spend significant management time in complying with these requirements. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our common shares may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, or other regulatory authorities.
Our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act for purposes of identifying and reporting any weakness or significant deficiency in our internal control over financial reporting, as our independent registered public accounting firm will be required to do once we cease to be an emerging growth company. Had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control weaknesses may have been identified.
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In addition, our obligations as a public company also require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business. These cost increases compared to the periods prior to our initial public offering and the diversion of management’s attention could materially and adversely affect our business, financial condition and operation results.
As acquisitions or business combinations we have undertaken or may seek to undertake in the future, additional material weaknesses in our internal control over financial reporting may be identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be adversely affected.
In connection with the audit of our consolidated financial statements, we and our independent registered public accounting firm may identify material weaknesses, which are deficiencies, or combinations of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Our management has assessed the effectiveness of our internal control over financial reporting and we identified a material weakness in our internal control over financial reporting as of December 31, 2023. For more information on this material weakness, see “―A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.”
Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations.
Our revenues, expenses and, consequently, our operating results normally fluctuate as a result of seasonal variations in our business. Specifically:
| ● | Our digital education undergraduate courses are structured around separate monthly modules. This enables students to enroll in digital education courses at any time during a semester. Despite this flexibility, we generally experience a higher number of enrollments in digital education courses in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, we generally experience 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. This is due to the high school calendar in Brazil in which classes conclude in December. In order to attract and encourage potential new students to enroll in our undergraduate courses later in the semester, we often offer discounts, generally equivalent to the number of months that have passed in the semester. As a result, we usually record higher revenue in the second and fourth quarters of each year. Revenue is also higher later in the semester due to lower dropout rates during that same period. See “Item 4. Information on the Company—B. Business Overview—Our Business—Our Products and Services—Seasonality.” |
| ● | A significant portion of our expenses are also seasonal. Due to the nature of our business cycle, a significant amount of selling and marketing expenses are required to cover costs in connection with the first semester intake, which in Brazil is typically in December, January and February. |
As a result, we expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our performance, liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our results of operations.
Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.
We may face risks related to public health threats or outbreaks of communicable diseases. The outbreak of communicable diseases could result in a widespread health crisis that could adversely affect the global economy and our ability and our business partners’ ability to conduct business in Brazil for an indefinite period of time.
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For example, the outbreak of COVID-19 across the globe, resulted and continues to result in a global and regional economic slowdown, a disruption of production and supply chains and a disruption of international trade, all of which may negatively impact the postsecondary education industry.
For example, disruptions in public and private infrastructure, including communications and financial, could materially and adversely disrupt our normal business operations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our hub partners, our students or other third-parties. See “—Failure to prevent or detect a malicious cyberattack on our systems and databases could result in a misappropriation of confidential information or access to highly sensitive information.”
If our growth rate decelerates significantly, our future prospects and financial results would be adversely affected, preventing us from achieving profitability.
We believe that our growth depends on a number of factors, including, but not limited to, our ability to:
| ● | attract and retain students, thus increasing the number of students of our educational programs; |
| ● | continue to introduce our educational programs to new markets; |
| ● | provide high quality support to students and hub partners using our products and services; |
| ● | expand our business and increase our market share; |
| ● | compete with the products, services, offers, prices and incentives offered by our competitors; |
| ● | develop new educational programs, products, services, offerings and technologies; |
| ● | identify and acquire or invest in businesses, products, offerings or technologies that we believe may be able to complement or expand our operations; and |
| ● | increase the positive perception of our brands, especially the “Uniasselvi” and “UniCesumar” brands. |
We may not be successful in achieving the above objectives. Any slowdown in the demand from students or hub partners for our services caused by changes in customer preferences, failure to maintain our brands, inability to expand our portfolio of products or services, changes in the Brazilian or global economy, taxes, competition or other factors may lead to a decrease in revenue or growth and our financial results and future prospects could be negatively affected. We expect that we will continue to incur significant expenses as a result of our efforts to continue growing, and if we cannot increase our revenue at a faster rate than the increase in our expenses, we will not be able to achieve profitability.
We may fail to meet any publicly announced quarterly and annual financial guidance, which would cause the price of our common shares to decline in value and our shareholders’ equity to be adversely affected.
Our management may publicly announce quarterly and annual guidance related to our operating and financial results, and cash generation estimates based on management’s expectations and assumptions. To the extent that it does, we cannot guarantee that we will meet any such publicly announced quarterly or annual estimates, and our operating and financial results and cash generation in any one quarter should not be relied upon as indicative of our future performance. Our ability to meet our estimates may be affected by certain factors, including: (1) poor business performance due to flaws in our information technology, our operations or management; (2) competition from existing and future competitors that operate in the same sectors in which we operate and that may offer technological solutions, products and/or services that are more attractive than ours; (3) the absence of qualified professionals to execute our strategies in the short, medium and long term; and (4) other risks to which we are exposed to, as disclosed elsewhere in this annual report. If our actual operating, financial and cash generation results fail to meet any public guidance that we announce, the price of our common shares could decline in value and our shareholders’ equity may be adversely affected.
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Our working capital needs have increased, and may continue to increase for the near future.
We have historically relied on our cash flow generation to satisfy our working capital needs. If we do not increase our cash flow generation or gain access to additional capital, whether through a line or credit or other sources of capital, which may not be available on satisfactory terms or in adequate amounts, then our cash and cash equivalents may decline, which will have an adverse impact upon our liquidity and capital resources. We expect our working capital needs to increase as our business expands. If we do not have sufficient working capital, we may not be able to pursue our growth strategy, respond to competitive pressures or fund key strategic initiatives, which may harm our business, financial condition and results of operations.
If we are unable to attract, recruit, develop, retain or replace our key personnel or are unable to attract, retain and develop other qualified employees, our business, financial situation and operating results may be adversely affected.
We are dependent upon the ability and experience of a number of our key personnel who have substantial experience with our operations. Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their industry experience. It is possible that the loss of the services of one or a combination of our senior executives or key managers could have a material adverse effect on our business, financial condition and results of operations. As of December 31, 2023, we do not carry any key man insurance against such risks.
In addition, in order for us to successfully compete and increase the number of customers, we need to attract, recruit, retain and develop talented employees generally, who can provide the required expertise across the entire spectrum of our needs for high quality products, services and educational content, including for sales and marketing. A number of our key employees have significant experience in our operations, and we must develop adequate succession plans to maintain continuity amidst the natural uncertainties of the labor force. The market for skilled staff is competitive, and we may not be successful in recruiting or retaining staff or we may not be able to effectively replace key employees who leave. We must also continue to hire additional staff to execute our strategic plans. Our efforts to retain and develop personnel may also result in significant additional expenses that could adversely affect our business and results of operations.
We cannot guarantee that qualified employees will remain in our employment or that we will be able to attract and retain qualified personnel in the future. In particular, we may not be able to achieve the anticipated revenue growth by expanding our sales and marketing teams if we are not able to attract, develop and retain qualified sales and marketing personnel in the future. Any failure to retain or hire key personnel could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, although we have entered into noncompetition agreements with our key personnel, they may nevertheless go work for our competitors, or create new competing businesses, after leaving us if we are unable to enforce such noncompetition agreements for any reason. Any such departure by key personnel may adversely affect us.
Increases in the price of certain inputs and in the fees of our third-party printer providers may result in an increase in our costs, which we may not be able to pass on to our students by adjusting our monthly tuition fees.
Our primary source of income is the monthly tuition payments we charge to our students. For the year ended December 31, 2023, payroll and social charge expenses represented 44.9%, sales and marketing represented 19.8%, materials represented 7.5%, and utilities, cleaning and security costs represented 3.3% of our total costs and expenses, respectively. Personnel costs, lease values and the cost of electricity are adjusted regularly using indices that reflect changes in inflation levels. In addition, increases in the price of the inputs used for editing and publishing the printed materials related to our educational platform, particularly the price of paper, the cost of printing services and publishing, as well as increases in the fees of our third party printer providers, which produce our printed educational materials, could adversely affect our results if we are not able to fully pass these cost increases on to our students.
Paper and postage prices are particularly difficult to predict and control. Paper is a commodity and its price may be impacted by fluctuations in foreign exchange rates and commodities prices, and can be subject to significant volatility.
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Our third-party printer providers have adjusted their fees to account for changes in prevailing market prices of their inputs, especially paper. Though we have historically been able to obtain favorable pricing through volume discounts, particularly as a result of our significant recent growth, no assurance can be provided that we will be able to continue to obtain favorable printing and publishing pricing. We cannot predict with certainty the magnitude of future price changes for paper, postage, and printing and publishing in general.
The tuition fees charged by our competitors, and the contractual arrangements and Brazilian legislation to which we are subject, may prevent us from passing on cost increases to our students by adjusting our monthly fees in a timely manner. If we are not able to transfer any increases in our costs to students by increasing the amounts of their monthly tuition fees, our operating results may be adversely affected.
For further information about our costs and expenses by nature, see Note 26 to our audited consolidated financial statements included elsewhere in this annual report.
We are subject to supervision by the MEC and, consequently, we may suffer sanctions as a result of noncompliance with any regulatory requirements.
Brazilian Federal Law No. 10,861/2004, regulated by Decree No. 9,235/2017, implemented the activities of supervision of postsecondary education entities and courses in the Brazilian federal education system. The Secretariat for Regulation and Supervision of Postsecondary Education (Secretaria de Regulação e Supervisão da Educação Superior), or SERES, of the MEC is responsible for the regular and special supervision of the corresponding courses and programs.
Regular supervision derives from complaints and allegations by students, parents and faculty members, as well as by public entities and the press. These complaints and allegations involve specific cases of entities with courses showing evidence of irregularities or deficiencies. We are subject to those complaints and representations. Special supervision, on the other hand, may be commenced by the MEC itself, based on its postsecondary education regularity and quality standards, and involves more than one course or entity, grouped according to the criteria chosen for the special supervision. These criteria may include unsatisfactory results in the National Exam for the Assessment of Student Performance (Exame Nacional de Desempenho de Estudantes), or ENADE, and the Difference Indicator between Expected and Actual Performance (Indicador de Diferença entre os Desempenhos Observado e Esperado), among other quality indicators, the history of course evaluations by the INEP, as well as compliance with specific legal requirements such as, for example, the minimum ratio between faculty members with master’s and doctorate degrees.
Administrative irregularities can include, among others: (i) unlicensed or irregular postsecondary courses; (ii) any outsourcing of postsecondary education activities; (iii) the failure to file a re-accreditation or recognition or renewal request with respect to postsecondary education courses within the time periods enacted by the MEC pursuant to Decree No. 9,235/2017; (iv) failure to comply with any penalties imposed by the MEC; and (v) failure to comply with educational legislation when offering postsecondary education courses.
If the MEC concludes, as part of its supervisory activities, that an irregularity constitutes an imminent risk or threat to students or the public interest, it may impose the following measures on the relevant educational institution for a period to be determined by the SERES: (i) suspend the admission of new students; (ii) suspend the offering of undergraduate or postgraduate lato sensu courses; (iii) suspend the institution’s discretionary ability to, among other things, create new postsecondary courses and establish course curricula, if applicable; (iv) suspend the license to establish new digital education programs; (v) override any ongoing regulatory requests filed by the institution and prohibit new regulatory requests; (vi) suspend participation in the New FIES; (vii) suspend participation in PROUNI; and (viii) suspend or restrict participation in other federal education programs. The educational institution can contest the MEC’s findings by filing motions with the MEC or with Brazilian courts.
Upon completion of the supervisory process and to the extent the MEC concludes that there are administrative irregularities, SERES may apply the penalties provided for by Law No. 9,394/1996, namely (i) discontinue courses; (ii) directly intervene in the educational institution; (iii) temporarily suspend the institution’s discretionary ability to, among other things, create new postsecondary courses and establish course curricula, if applicable; (iv) disqualify the institution as an educational institution; (v) reduce the number of student vacancies; or (vi) temporarily suspend new student enrollments.
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We are also subject to regulation by certain programs of the State of Santa Catarina that provide scholarships for students to attend universities. If we do not comply with such regulations, we may be disqualified and stop receiving funding for corresponding programs, which may adversely affect our business, results of operations and financial condition.
We could be adversely affected by the terms and conditions of collective bargaining agreements with the labor unions representing our tutors and professors and administrative employees or by strikes and other union activity.
Our payroll and social charge expenses account for the majority of our total costs and expenses, which accounted for 44.9% and 46.2% of our total costs and expenses for the year ended December 31, 2023 and the year ended December 31, 2022, respectively. Our faculty and administrative employees are represented by labor unions with a strong representation in the higher education sector and are covered by collective bargaining agreements or similar arrangements negotiated by associations representing employers and labor unions representing employees. Such collective bargaining agreements determine the length of the school day, the length of the school year, minimum compensation, raises for cost-of-living, vacations and fringe benefits, among other terms. These agreements are subject to annual renegotiation and may be so modified. We are not members of an association representing employers and we do not therefore participate in collective bargaining agreements negotiations. Typically, inflation rates have been used as a reference for annual wage increases; however, certain collective bargaining agreements may also provide for adjustments in excess of inflation for our faculty and administrative employees. We could also be adversely affected if we fail to achieve and maintain cooperative relationships with our tutors, professors’ or administrative employees’ unions or face strikes, stoppages or other labor disruptions by our tutors, professors or employees.
In addition, we may not be able to pass on any increase in costs arising from the renegotiation of collective bargaining agreements to the monthly tuition fees paid by students, which may have a material adverse effect on our business.
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We operate in markets that are dependent on Information Technology (IT) systems and technological change. Failure to maintain and support customer-facing services, systems, and platforms, including addressing quality issues and execution on time of new products and enhancements, could negatively impact our revenues and reputation.
We use complex IT systems and products to support our businesses activities, including customer-facing systems, back-office processing and infrastructure. We face several technological risks associated with online product service delivery, information technology security (including virus and cyber-attacks), e-commerce and enterprise resource planning system implementation and upgrades. Our plans and procedures to reduce risks of attacks on our system by unauthorized parties may not be successful. Thus, our businesses could be adversely affected if our systems and infrastructure experience a failure or interruption in the event of future attacks on our system by unauthorized parties.
We rely upon a third-party data center service provider to host certain aspects of our platform and content and any disruption to, or interference with, our use of such services, could impair our ability to deliver our platform, resulting in customer dissatisfaction, damaging our reputation and harming our business.
We utilize data center hosting facilities from a global third-party service provider to make certain content available in our platform. Our operations depend, in part, on our provider’s ability to protect its facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The occurrence of spikes in user volume, traffic, natural disasters, acts of terrorism, vandalism or sabotage, or a decision to close a facility without adequate notice, or other unanticipated problems at our provider’s facilities could result in lengthy interruptions in the availability of our platform, which would adversely affect our business.
We may not be able to identify and acquire new acquisition targets, or realize the benefits of business divestitures, or otherwise meet our strategic and financial goals in connection with any business acquisitions and divestitures we seek to undertake, and difficulties in effectively integrating and managing a growing number of acquisitions, or separating from divested businesses, may adversely affect our strategic objectives.
We expect to continue to acquire other businesses, including digital education institutions, education companies or other targets active in this field, such as UniCesumar, as part of our strategy to expand our operations, including through acquisitions that may be material in size and/or of strategic relevance. We cannot assure you that we will continue to be able to identify targets responsive to these criteria that provide suitable acquisition opportunities, or to acquire such targets on favorable terms or at all. In addition, we may engage from time to time in divestments of businesses or assets, and we cannot assure you that we will able to find suitable purchasers or to complete any such divestment on favorable terms or at all.
In addition, our previous and any future acquisitions (including that of UniCesumar) and divestitures involve a number of risks and challenges that may have a material adverse effect on our business and results, including the following:
| ● | the acquisition or divestment may not contribute to our commercial strategy or the image of our institution; |
| ● | a future acquisition or divestment may be subject to approval by Brazil’s Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica) or other regulatory authorities, which may deny the necessary approvals for, or impose conditions or restrictions on, the transaction; |
| ● | we may face contingent and/or successor liabilities (either currently known or unknown to us) in connection with, among other things, (i) judicial and/or administrative proceedings of the acquired institutions, including but not limited to, regulatory, tax, labor, social security, environmental and intellectual property proceedings, and (ii) financial, reputational and technical issues, including with respect to accounting practices, financial statement disclosures and internal controls, as well as other regulatory matters, all of which may not be sufficiently indemnifiable under the relevant acquisition agreement; |
| ● | the acquisition and divestiture process may require additional funds and/or may be time-consuming, and past and future acquisitions or divestments and the subsequent integration or separation of new assets and businesses |
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| require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have a material adverse effect on our business operations; |
| ● | our investments in acquisitions may not generate the expected returns, and we may mismanage administrative and financial resources as part of the integration process; |
| ● | the business model of the institutions we acquire may differ from ours, and we may be unable to adapt them to our business model or do so efficiently; |
| ● | we may not be able to integrate efficiently and successfully the operations of the institutions we acquire, including their personnel, corporate cultures, financial systems, distribution or operating procedures; |
| ● | certain acquisitions may impact our financial reporting obligations and the preparation of our consolidated financial statements, resulting in delays to such preparation; |
| ● | the acquisitions may generate goodwill, the impairment of which will result in the reduction of our net income and dividends, and our financial statements may be affected as a result of the application of our accounting policies to the results of our acquisitions; |
| ● | the transfer of management of the target institution resulting from a change of control or corporate restructuring must be notified to the MEC, within 60 days from the consummation of the acquisition, and MEC may impose additional restrictions on its reaccreditation; and |
| ● | we may be unable to provide the acquired company with the necessary resources to support its operations and if, by the time of the reaccreditation of the acquired company with the MEC, the MEC finds that we have failed to meet any applicable reaccreditation requirements, it may impose additional restrictions or conditions on the reaccreditation of the acquired company. |
We may from time to time assess divestment opportunities and conduct divestments where we believe such transactions would be beneficial to our business strategy. Divestments may require us to expend significant time, funds and other resources, and may not always be completed within the expected time frame or on the terms and conditions that we expect. We may also be unable to reap the benefits of any divestments we undertake. Our asset base, total revenue, cash flows and net income may also be reduced significantly following a divestment, which could adversely affect our business, financial condition and results of operations as well as our ability to make distributions to our shareholders and result in a decrease in the price of our common shares. Any divestiture, whether we are able to complete it or not, may involve a number of risks, including diversion of management’s attention, a negative impact on our customer relationships, costs associated with maintaining the business of the targeted divestiture during the disposition process, and the costs of closing and disposing of the affected business or transferring remaining portions of the operations of the business to other facilities. Furthermore, to the extent that we are not successful in completing desired divestitures, as such may be determined by future strategic plans and business performance, we may have to expend substantial amounts of cash, incur debt, or continue to absorb the costs of loss-making or under-performing assets.
The success of any acquisition, business combination, divestment or other strategic transaction depends to a significant extent on our ability to accurately assess valuation, business operations, growth potential, integration and other factors relating to the company or business in question. Such assessments may not be accurate and such transactions may not be completed on terms and conditions or within a time frame favorable to us, or that we will be able to reap the benefits of any such transaction either in full or at all.
We may require additional funds to continue our expansion strategy. If we are unable to obtain adequate financing on favorable terms to complete any potential acquisition or other significant transaction and implement our expansion plans, our growth strategy may be materially and adversely affected.
We may face significant challenges in the process of integrating the operations of UniCesumar or any other acquired companies with our existing business, such as the inability to manage a greater number of geographically dispersed employees and create and implement efficient uniform controls, procedures and policies, in addition to the incurrence of high or unexpected integration costs. As of the date hereof, we are in the process of integrating the operations of UniCesumar with our existing business.
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The anticipated benefits of the UniCesumar Business Combination and of any acquisitions we may pursue will not be achieved unless we successfully and efficiently integrate the relevant acquired companies into our operations and effectively manage, market and apply our business strategy to them. We may also be unable to integrate faculty and personnel with different professional experiences and from different corporate cultures, and our relationship with current and new employees, including tutors and professors, may be impaired. In addition, we may face challenges in entering into successful collective bargaining arrangements with unions due to differences in the negotiation procedures followed in the different geographic regions of the acquired companies. If we are not able to manage our expanded operations and these integrations effectively, our business and growth strategy could be materially adversely affected.
We may not be able to appropriately manage the expansion of our business and staff or the increased complexity of our software and platforms, or grow in our addressable market.
As of December 31, 2023, we experienced a period of significant expansion and are facing a number of expansion-related issues, such as the acquisition and retention of experienced and talented personnel, cash flow management, corporate culture and internal controls, among others. These issues and the significant amount of time spent on addressing them may result in the diversion of our management’s attention from other business issues and opportunities. In addition, we believe that our corporate culture and values are critical to our success, and we have invested a significant amount of time and resources building them. If we fail to preserve our corporate culture and values, our ability to recruit, retain and develop personnel and to effectively implement our strategic plans may be harmed.
We must constantly update our software and platform, enhance and improve our billing and transaction and other business systems, and add and train new software designers and engineers, as well as other personnel, to accommodate the increased use of our platform and the new solutions and features we regularly introduce. This process is time-intensive and expensive, and may lead to higher costs in the future. Furthermore, we may need to enter into relationships with various strategic partners, other online service providers and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenues, and operating margins.
We cannot assure you that our current and planned platform and systems, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational and financial resources, and this strain is expected to continue. Our failure to manage growth effectively could seriously harm our business, results of operations and financial condition.
The ability to attract, recruit, retain and develop qualified employees is critical to our success and growth.
In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. We must also develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors. We must continue to hire additional personnel to execute our strategic plans. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. We cannot assure you that qualified employees will continue to be employed, that we will manage them successfully, or that, in the future, we will be able to attract qualified personnel with similar skills and expertise at equivalent cost and retain them. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
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We utilize third-party logistics service providers for the shipping of all of our collections of printed teaching materials. The successful delivery of our materials to our students depends upon effective execution by our logistics team and such service providers. Any material failure to execute properly for any reason, including damage or disruption to any service providers’ facilities, would have an adverse effect on our business, financial condition and results of operations.
The delivery of printed books to our hubs and campuses is a seasonal activity, with a cycle beginning with the creation and revision of content generally from April to July, the purchase of printing services from August to October, and delivery from November to January. We have expanded our operations rapidly since our inception. As our size increases, so does the size and complexity of our logistics operation.
There is a high volume of deliveries in November and December, requiring significant involvement in inventory/demand management and relationship and planning alongside the printers. In an industry where one of the most valued indicators is the timely delivery of printed materials, failure to meet deadlines, inadequate logistical planning, disruptions in distribution centers, deficient inventory management, and failure to meet client requirements may damage our reputation, increase returns of our materials or cause inventory losses, and negatively impact our gross margins, results of operations and business.
Substantially all of the inventory for our printed teaching materials is located in warehouse facilities leased and operated by us and then delivered by a third-party shipping company that handles shipping of all physical learning materials. If our logistics service providers fail to meet their obligations to deliver teaching materials to partner schools in a timely manner, or if a material number of such deliveries are incomplete or contain assembly errors, our business and results of operations could be adversely affected. Furthermore, a natural disaster, fire, power interruption, work stoppage or other unanticipated catastrophic event, especially during the period from August through October when we are awaiting receipt of most of the curriculum materials for the academic year and have not yet shipped such materials to our hubs and campuses, could significantly disrupt our ability to deliver our products and operate our business. If any of our material inventory items, warehouse facilities or distribution centers were to experience any significant damage, we would be unable to meet our contractual obligations and our business would suffer.
The interests of our management team may be focused on certain considerations which may not coincide with your interests. In addition, our shareholders may suffer dilution of their interests in our issued share capital and in the value of their investments due to new stock option grants.
Our directors, officers and members of our senior management, among others, own shares in the Company and/or are beneficiaries under our share-based incentive plans. We implemented our first share-based incentive plan in 2017 and a second share-based incentive plan in 2020. Due to the issuance of stock options to members of our management team, a significant portion of their compensation is closely tied to our results of operations (as measured by our Adjusted EBITDA) or the price of common shares, which may lead such individuals to direct our business and conduct our activities with an emphasis on certain considerations which may not coincide with the interests of our shareholders. As a result of these factors, the interests of our management team may not coincide with the interests of our other shareholders.
Our share-based incentive plans provide for the granting of stock options to participants. Once the options have been exercised by the participants, our board of directors will authorize a share capital increase by means of the issuance of new shares to be subscribed by participants. Our shareholders will suffer dilution of their interests in our issued share capital and in the value of their investments.
In case of new stock option grants, whether under existing plans or new plans that may be approved by our shareholders at the shareholders’ meeting, our shareholders will be subject to additional dilution. For additional information on our stock option plan, see “Item 6. Directors, Senior Management and Employees—B. Compensation” for additional information.
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We may be held liable for extraordinary events that may occur at our hubs and/or campuses, which may have an adverse effect on our image and, consequently, our results of operations.
We may be held liable for the actions of principals, coordinators, tutors, professors, employees or other persons connected to us or to third-party service providers, at our hubs and campuses, including allegations of noncompliance by principals, coordinators, tutors, professors or other employees, connected to us or to our hub partners, as the case may be, with specific legislation and regulations implemented by the MEC relating to our programs. In the event of accidents, injuries or other damages affecting students at our campuses or hubs, we may face claims alleging that we were negligent, provided inadequate supervision or were otherwise liable for the injury. We may also be subject to claims alleging that tutors, professors or other employees committed moral or sexual harassment or other unlawful acts. Our insurance coverage may not cover certain indemnifications we may be required to pay, be insufficient to cover these types of claims, or may not cover certain acts or events, and we may also not be able to renew our current insurance policies under the same terms. Such liability claims may affect our reputation and harm our financial results.
We are not insured against all of the risks to which our business is exposed, and the insurance coverage we have may be inadequate to cover all losses and/or liabilities that we may incur in the course of our operations.
We are not insured against all of the risks to which our business may be exposed. Furthermore, the insurance coverage we have may be inadequate or insufficient to cover all losses and/or liabilities that we may incur in the course of our operations. Our existing insurance coverage may also impose conditions for claims with which we may not be able to comply, as a result of which our insurance providers may refuse coverage for losses and/or liabilities that we may incur in the course of our operations. In addition, we may not be able to renew our existing insurance coverage on favorable terms or at all. Accordingly, if we incur a significant liability or loss for which we are not fully insured, our business, financial condition and results of operations could be adversely affected.
We may face restrictions and penalties, and may be subject to proceedings, under the Brazilian Consumer Protection Code in the future.
Brazil has a series of strict consumer protection laws, referred to collectively as the Brazilian Consumer Protection Code (Código de Defesa do Consumidor), or the Consumer Protection Code. These laws apply to all companies in Brazil that supply products or services to Brazilian consumers. They include protection against misleading and deceptive advertising, protection against coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations.
These penalties are often levied by the Brazilian Consumer Protection Agencies (Fundação de Proteção e Defesa do Consumidor), or PROCONs, which oversee consumer issues on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as from the National Secretariat for Consumers (Secretaria Nacional do Consumidor), or SENACON. Companies may settle claims made by consumers via PROCONs by paying compensation for violations directly to consumers and through a mechanism that allows them to adjust their conduct, called a conduct adjustment agreement (Termo de Ajustamento de Conduta), or TAC.
Brazilian public prosecutors may also commence investigations of alleged violations of consumer rights and require companies to enter into TACs. Companies that violate TACs face potential enforcement proceedings and other potential penalties such as fines, as set forth in the relevant TAC. Brazilian public prosecutors may also file public civil actions against companies who violate consumer rights or competition rules, seeking strict adherence to the consumer protection laws and compensation for any damages to consumers. In certain cases, we may also face investigations and/or sanctions by the CADE, in the event our business practices are found to affect the competitiveness of the markets in which we operate or the consumers in such markets.
In addition, we may also be subject to legal proceedings by current and/or former students alleging breaches of rights granted by the Consumer Protection Code. Even if unsuccessful, these claims may cause negative publicity, reduce enrollment numbers, increase drop-out rates, entail substantial expenses and divert the time and attention of our management, materially adversely affecting our results of operations and financial condition.
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We may be adversely affected if we are unable to maintain consistent educational quality throughout our network, including the education materials of our campuses and hubs, or keep or adequately train our faculty, or ensure that our hub partners will maintain their facilities, equipment and team compatible with our required standards at all time.
Our teaching faculty, including tutors and teachers at our hubs and campuses, is essential for maintaining the quality of our programs and the strength of our brand and reputation. We promote training in order for our faculty to attain and maintain the qualifications we require and for us to provide updating programs on trends and changes in their areas. Due to shortages in the supply of qualified professors or tutors, competition for hiring and retaining qualified professionals has increased substantially. We cannot assure you that we will succeed in retaining our current professors or tutors or recruiting or training new professors or tutors who meet our quality standards, particularly as we continue to expand our operations in new regions.
The quality of our academic curricula and the infrastructure of our hubs and campuses are also key elements of the quality of the education we provide. We cannot assure you that we will succeed in identifying facilities with adequate infrastructure for our new hubs, develop adequate infrastructure in properties we acquire or have enough resources to continue expanding through acquisitions or development of new projects. In addition, we cannot assure you that we will be able to develop academic curricula for our new programs with the same levels of excellence as existing programs and meeting the standards set forth by the MEC. Shortages of qualified tutors and professors, adequate infrastructure or quality academic curricula for new programs according to our business model and the parameters set forth by the MEC, may have a material adverse effect on our business.
Furthermore, the success of our commercial strategy depends on our strategic alliances with our network of hub partners, and on our ability to cooperate effectively with our hub partners. This cooperation depends, in part, on our partners having facilities, equipment and personnel compatible and otherwise able to cooperate with our own. Our partners are independent entities, each of which is responsible for their own installations, the maintenance of adequate equipment and the training of personnel. We may not be able to ensure that our partners will maintain adequate facilities and equipment or that their teams will be sufficiently trained to cooperate effectively with us.
See also “—If we are not able to maintain our current MEC evaluation ratings and the evaluation ratings of our students, we may be adversely affected.”
Our business depends on the continued success of our brands “Uniasselvi” and “UniCesumar,” and if we fail to maintain and enhance recognition of our brands, we may face difficulty enrolling new students, and our reputation and operating results may be harmed.
We believe that market awareness of our brands “Uniasselvi” and “UniCesumar” has contributed significantly to the success of our business. Maintaining and enhancing our brands are critical to our efforts to grow student enrollments. We rely heavily on the efforts of our sales force and our marketing channels, including online advertising, search engine marketing, social media and word-of-mouth. Failure to maintain and enhance our brands recognition could have a material and adverse effect on our business, operating results and financial condition. We have devoted significant resources to our brands promotion efforts in recent years, but we cannot assure you that these efforts will be successful. Additional efforts to promote our brands, or increases in the costs we incur to promote our brands may also result in significant additional expenses, which could adversely affect our profitability. Our ability to attract new customers and retain our existing customers depends on our investments in our brands, on our marketing efforts and the success of our sales team, and the perceived value of our services in comparison with our competitors. If customers fail to distinguish our brands and the content we offer from our competitors, this may lead to decreased sales and revenue, lower margins or a decline in the market share of our brands. If our marketing initiatives are unsuccessful or become less effective, if we are unable to further enhance our brands recognition, if we incur excessive marketing and promotion expenses, if the image of our brands is negatively impacted by any negative publicity, or if our customers or third parties misuse our brands in a way that results in a poor general perception of our brands, our business and results of operations could be materially and adversely affected. In addition, if any of our hub partners engages in unlawful activities, the general public may associate such hub partner’s behavior with our brand, generating negative publicity that may adversely affect our reputation.
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Our reputation may be negatively influenced by the actions of other for-profit and private institutions.
In recent years, there have been a number of regulatory investigations and civil litigation matters targeting postsecondary for-profit education institutions in Brazil and private higher education institutions in other countries. These investigations and lawsuits have alleged, among other things, deceptive trade practices, noncompliance with MEC regulations, and breach of the requirement that universities be operated as not-for-profit institutions. These allegations have attracted adverse media coverage and have been the subject of federal and state legislative hearings and investigations in the Brazil and in other countries. Allegations against the postsecondary for-profit and private education markets may affect general public perceptions of for-profit and private educational institutions, including institutions in our network and us, in a negative manner. Adverse media coverage regarding other for-profit or private educational institutions or regarding us directly or indirectly could damage our reputation, reduce student demand for our programs, materially adversely affect our revenues and operating profit or result in increased regulatory scrutiny.
If we are not able to maintain our current MEC evaluation ratings and the evaluation ratings of our students, we may be adversely affected.
We and our students are regularly evaluated and rated by the MEC. If our hubs, campuses, programs or students receive lower scores from the MEC than in previous years in any of its evaluations, including the General Courses Index (Índice Geral de Cursos), or IGC, the CI, and the ENADE, we may experience a reduction in enrollment and be adversely affected by perceptions of decreased educational quality, which may negatively affect our reputation and, consequently, our results of operations and financial condition.
The number of new digital education educational hubs which are able to open each year is contingent on our CI: (i) a CI equal to 3 allows us to open 50 new digital education educational hubs per year; (ii) a CI equal to 4 allows us to open 150 new digital education educational hubs per year; and (iii) a CI equal to 5 allows us to open 250 new digital education educational hubs per year. In case of noncompliance with the requirements by the MEC or unsatisfactory evaluation, our rating may be lower and the authorization to open new hubs may be reduced. Such reduction may adversely affect our growth strategy. Finally, in the event that any of our programs receive unsatisfactory evaluations, the higher education institution offering the programs may be required to enter into an agreement with the MEC setting forth proposed measures and timetables to improve the program and remedy the unsatisfactory evaluation. Noncompliance with the terms of the agreement may result in additional penalties on the institution. These penalties could include, but are not limited to, suspending our ability to enroll students in our programs, denial of accreditation or reaccreditation of our institutions or prohibiting us from holding regular class sessions, all of which can adversely affect our results of operations and financial condition.
Our success depends on our ability to operate in strategically located property that is easily accessible by public transportation.
We believe that urban mobility, public transportation systems and transportation costs in many Brazilian cities make the location and accessibility of hubs a decisive factor for students choosing an educational institution. Therefore, a key component of the success of our business consists in finding, renting and/or buying strategically located property that meets the needs of our students. We cannot guarantee that we will be able to keep our current property or acquire new property that is centrally located in the future. In addition, acquisition costs, costs associated with improvements, construction, and repairs of existing properties and rental values for the properties we use might increase in the future and could have a material adverse effect on our business. Finally, due to demographic and socioeconomic changes in the regions in which we operate, we cannot guarantee that the location of our hubs will continue to be attractive and convenient to students.
The quality of the pedagogical content we deliver to our students is significantly dependent upon the quality of our editors, publishers and purchased content.
The educational materials we provide are a combination of content developed by our internal production team and content purchased from certain publishers in our market. Our editorial team is responsible for producing our materials, working in conjunction with our technology team, to implement additional features and technology delivery. Our content production process requires significant coordination among different teams as well as qualified personnel with appropriate skill sets to ensure the quality of our pedagogical content is maintained.
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We may not be able to retain, recruit or train qualified employees to produce pedagogical content that meets our standards. Delays in the delivery of content purchased from authors may have a severe impact on our annual content creation schedule. Additionally, a shortage of qualified editors, employees, publishers or suitable purchased content or a decrease in the quality of produced or purchased content, whether actual or perceived, or a significant increase in the cost to engage or retain qualified personnel or acquire content, would have a material adverse effect on our business, financial condition and results of operations.
Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business and financial condition and results of operations.
We rely and expect to continue to rely on a combination of trademark, copyright, patent and trade secret protection laws, as well as confidentiality and intellectual property license and assignment agreements with our employees, consultants and third parties with whom we have relationships to protect our intellectual property and proprietary rights. As of the date of this annual report, we did not have issued patents or patent applications pending in or outside Brazil. We are party to several agreements with third party authors with respect to educational content, for indefinite terms. As of December 31, 2023, we owned 51 trademarks. As of the date of this annual report, we owned 178 registered domain names in Brazil. Our brand is not a registered trademark in the U.S. From time to time, we expect to file additional patent, copyright and trademark applications in Brazil and abroad. Nevertheless, these applications may not be approved or otherwise provide the full protection we seek. Any dismissal of our “Uniasselvi” or “UniCesumar” trademark applications may impact our business. Third parties may challenge any patents, copyrights, trademarks and other intellectual property and proprietary rights owned or held by us. Third parties may knowingly or unknowingly infringe, misappropriate or otherwise violate our patents, copyrights, trademarks and other proprietary rights and we may not be able to prevent infringement, misappropriation or other violation without substantial expense to us.
Furthermore, we cannot guarantee that:
| ● | our intellectual property and proprietary rights will provide competitive advantages to us; |
| ● | our competitors or others will not design around our intellectual property or proprietary rights; |
| ● | our ability to assert our intellectual property or proprietary rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; |
| ● | our intellectual property and proprietary rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; |
| ● | any of the patents, trademarks, copyrights, trade secrets or other intellectual property or proprietary rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned; or |
| ● | we will not lose the ability to assert our intellectual property or proprietary rights against, or to license our intellectual property or proprietary rights to, others and collect royalties or other payments. |
If we pursue litigation to assert our intellectual property or proprietary rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property or proprietary rights, limit the value of our intellectual property or proprietary rights or otherwise negatively impact our business, financial condition and results of operations. If the protection of our intellectual property and proprietary rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused in the marketplace and our ability to attract customers may be adversely affected.
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We may in the future be subject to intellectual property claims, which are costly to defend and could harm our business, financial condition and operating results.
Because of the large number of authors that participate in our publications, from time to time, third parties may allege in the future that we or our business infringe, misappropriate or otherwise violate their intellectual property or proprietary rights, including with respect to our publications. We cannot guarantee that we are party to enforceable agreements with all the counterparties that have purportedly assigned copyrights or other intellectual property rights to us. If any such agreements are found to be void or are otherwise unenforceable, we could be subject to legal proceedings and the payment of significant fines for unauthorized use of intellectual property. In addition, many companies, including various “non-practicing entities” or “patent trolls,” are devoting significant resources to developing or acquiring patents that could potentially affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched patents related to our technology. In addition, the publishing industry has been, and we expect in the future will continue to be, the target of counterfeiting and piracy. We may implement measures in an effort to protect against these potential liabilities that could require us to spend substantial resources. Any costs incurred as a result of liability or asserted liability relating to sales of unauthorized or counterfeit educational materials could harm our business, reputation and financial condition.
Third parties may initiate litigation against us without warning. Others may send us letters or other communications that make allegations without initiating litigation. We may in the future receive such communications, which we will assess on a case-by-case basis. We may elect not to respond to the communication if we believe it is without merit or we may attempt to resolve disputes out-of-court by electing to pay royalties or other fees for licenses or out-of-court settlements for unforeseeable amounts. If we are forced to defend ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, inability to use our current website or inability to market our service or merchandise our products. As a result of a dispute, we may have to develop non-infringing technology, including partially or fully revise any publication that infringes intellectual property rights, enter into licensing agreements, adjust our merchandising or marketing activities or take other actions to resolve the claims. These actions, if required, may be unavailable on terms acceptable to us or may be costly or unavailable. If we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices, as appropriate, on a timely basis, our reputation or our brands, our business and our competitive position may be affected adversely and we may be subject to an injunction or be required to pay or incur substantial damages and/or fees and/or royalties.
Most of our services are provided using proprietary software, and our software is mainly developed by our employees, who do not specifically assign to us their copyrights over the software and we are unable to assure you that we have adequate agreements with all of our employees to provide for the assignment of software rights. While applicable law establishes that employers shall have full title over rights relating to software developed by their employees, we could be subject to lawsuits by former employees claiming ownership of such software. As a result, we may be required to obtain licenses of such software, incurring costs relating to payments of royalties and/or damages and we may be forced to cease the use of such software. If we are unable to use certain of our proprietary software as a result of any of the foregoing or otherwise, this could have a material adverse effect on our business, financial condition and results of operations.
In addition, we use open source software in connection with certain of our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the ownership of open source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute or use open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations.
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We may lose bargaining power with our hub partners if they organize themselves into negotiating blocs, which could have an adverse effect on our business.
Although our hub partners are spread across the country and the education market in Brazil is extremely fragmented, which reduces the capacity of the hub partners to organize themselves and reduces the bargaining power of individual hub partners, groups of hub partners could organize as blocs or syndicates in an attempt to negotiate greater contractual benefits. If our hub partners organize themselves as blocs in an attempt to negotiate greater contractual benefits, we would be required to devote additional resources to contract negotiations and could face additional challenges in dealing with our hub partners. We could be forced to offer higher percentage over the tuition fee collected by us from students to hub partners or provide other contractual benefits in an effort to maintain and expand our market share. If we lose bargaining power with our hub partners, we cannot guarantee that we will be able to charge students at profitable prices, which would adversely affect our business, financial condition and results of operations.
Unfavorable decisions in our legal or administrative proceedings may adversely affect us.
We are party to legal and administrative proceedings arising from the ordinary course of our business or from nonrecurring corporate, tax or regulatory events, involving our suppliers, hub partners, students and faculty members, as well as tax authorities, especially with respect to civil, tax and labor claims. We, or our Principal Shareholders, directors or officers may, in the future, be party to legal and administrative proceedings, involving the same or other aspects of our business. We cannot guarantee that the results of these proceedings will be favorable to us or that we have made sufficient provisions for liabilities that may arise from these or other proceedings. Even if we adequately address issues raised by any inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by such proceedings or those lawsuits or claims. Adverse decisions in material legal, arbitration or administrative proceedings, even if such proceedings are without merit, may adversely affect our reputation, results of operations and the price of our common shares.
We and our hub partners are periodically required to obtain or renew local licenses and permits, including licenses from the fire department, for some of the properties we use. Failure to obtain renewals of these licenses and permits in a timely manner may result in penalties, including closures of certain hubs.
The use of our and our hub partners’ buildings is subject to the successful obtaining of an occupancy permit (Habite-se), or equivalent certificate, issued by the municipality where the property is located, certifying that the building has no deficiencies and has been built in accordance with the project specifications approved by such municipality. In addition, nonresidential properties are required to have a use and operations license and/or permit, issued by the competent municipality, and a fire department inspection certificate, issued by the fire department, prior to being used regularly. Such licenses typically expire and must be renewed, occasionally with an associated renewal fee. We and our hub partners may be unable to obtain or duly renew the required licenses and authorizations for the future operation of facilities. In addition, our hub partners are independent entities, and we cannot guarantee that our hub partners will duly obtain or renew local licenses and permits.
The absence of such licenses may result in penalties ranging from fines to forced demolition of the areas that were not built in compliance with applicable legislation or, in a worst case scenario, closure of the hubs lacking the licenses and permits. Any penalties imposed, and in particular the forced closure of any of our hubs, may result in a material adverse effect on our business. Moreover, in the event of any accident at our hubs, the lack of such licenses may result in civil and criminal liability, as well as cause the cancellation of eventual insurance policies for the respective hub. Any such developments may have a material adverse effect on us and on our reputation.
Student protests and strikes may disrupt our ability to hold classes as well as our ability to attract and retain students, which could materially adversely affect our operations.
Political, social and economic developments in Brazil may cause protests and disturbances against such conditions, including policies relating to the operation and funding of higher education institutions. These disturbances may involve protests on university campuses, including the occupation of university buildings and the disruption of classes. We are unable to predict whether students at hubs and campuses in our network will engage in various forms of protest in the future.
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Should we sustain student strikes, protests or occupations in the future, it could have a material adverse effect on our ability to attract and retain students as well as on our results of operations and on our overall financial condition. Further, we may need to make additional investments in security infrastructure and personnel on our campuses in order to prevent future student protests from disrupting the ability of our hubs and campuses to hold classes. If we are required to make substantial additional investments in security, or if we are unable to identify security enhancements that would prevent future disruptions of classes, that could cause an adverse effect on our results of operations and financial condition. In addition, we may need to pay overtime compensation to certain of our faculty and staff, which may increase our overall costs.
We are currently in the process of registering and annotating certain lease agreements or amendments to lease agreements relating to some of the properties we use.
The lease agreements regarding certain properties we use are currently in the process of being registered and annotated on the respective enrollment certificates registered in the real estate registry offices. We may be delayed in registering and annotating our lease agreements or may not be successful in registering our lease agreements due to unforeseen obstacles which may be outside of our control.
Pursuant to Brazilian law, lessees have a right of first refusal in the event that the occupied property is to be transferred. However, the lessee will only be able to enforce such right against third-parties if the lease agreement is annotated in the property’s enrollment certificate. If the lease is not annotated, the lessee is only entitled to pursue indemnification for losses and damages against the lessor/seller. Brazilian law also provides for a special regime applicable to the leases of real estate properties used for educational purposes that are authorized and inspected by the public authorities, which limits the range of causes of action for eviction of the lessee to the following cases: (i) mutual agreement; (ii) breach of contract or legal violation; (iii) default in the payment of rent and other charges; (iv) need of urgent repairs determined by the public authorities that cannot be regularly completed with the presence of lessee; or (v) in the event the former landowner, the committed purchaser or the committed assignee (upon the payment in full of the purchase price or otherwise expressly authorized by the former landowner and as long as the title is registered in the enrollment certificate of the leased property) requests the eviction of the property for purposes of demolition, edification, license or renovation that results in the increase of at least 50% of the useable area of the property.
In the event the eviction is based on items “iv” and “v” above, the eviction order may only be enforced one year of after it is made (except in the event the eviction lawsuit takes longer than one year between summons and sentence, in which case the eviction order shall only be enforced after six months of its decree). Specifically with regard to leased properties where educational services are provided, the eviction order may only be enforced in six up to twelve months from the eviction order and must coincide with the school holidays.
Any areas of the leased property used for activities other than educational services (such as administrative buildings, offices, parking lots, among others) are subject to the regular treatment under Brazilian law. If any such areas are sold to third parties during the term of the lease and the lessee does not exercise its right of first refusal, the new owner will be entitled to terminate the lease upon a 90-day prior written notice, counted as from the date of such acquisition, and the lessee will be required to vacate the real estate property, unless (i) the term of the lease is specified in the lease agreement; (ii) the lease agreement contains an effectiveness clause that provides for the maintenance of the terms and conditions of the lease in the event of a transfer of the leased property; and (iii) the lease agreement is duly registered in the enrollment certificate of the leased property. If the new owner does not require the lessee to vacate the property within 90 days from the acquisition, the new owner will have to abide by the lease until its termination.
If we fail to register our lease agreements and one of the properties we occupy is sold to third parties without the lessor respecting our right of first refusal, we will not have the right to buy the real estate property and will solely be able to pursue an action for damages and/or indemnification. In addition, regarding the properties that are used for activities other than educational services, if their respective lease agreements are not registered in the enrollment certificate, the new owner will be entitled to terminate the lease upon a 90-day prior written notice and, in such case, we will be forced to vacate such property and our business may be adversely affected.
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We may not be able to renew the lease agreements for hubs and campuses.
As of the date of this annual report, we and our hub partners lease all the properties in which activities are conducted.
According to Brazilian law, a lessee has the right to renew existing leases for subsequent terms equal to the original term of the lease. In order for a lessee to enforce this right, the following criteria must be met: (i) the non-residential lease agreement must have a fixed term equal to or greater than five consecutive years, or, in the event there is more than one agreement or amendment thereto regarding the same property, the aggregate term in any such agreement and amendment must be equal to or greater than five consecutive years; (ii) the lessee must have been using the property for the same purpose for a minimum period of three years; and (iii) the lessee must claim the right of renewal at the most one year and at least six months prior to the end of the term of the lease agreement by filing a renewal lawsuit.
Lease agreements with terms lasting less than five years are not entitled to a right of renewal and, as a result the lessor has the right to refuse renewal of the lease upon expiration of its term. Certain lease agreements relating to some of our hubs and campuses have terms lasting less than five years.
If we or our hub partners are forced to close any hubs or campuses due to the termination of a lease agreement and are unable to renew the lease, our business and results of operations may be adversely affected.
Some of the properties in which we operate are owned by companies controlled by certain of the former shareholders of UniCesumar (including our current CEO and two Vitru directors). We may therefore be exposed to conflicts of interest, since the administration of such properties may conflict with our interests, those of such shareholders and those of our other shareholders.
Some of the properties in which we operate, including properties where some of our campuses are located, are owned and operated, directly or indirectly, by certain of the former shareholders of UniCesumar (including our current CEO and two Vitru directors). Specifically, on May 20, 2022, UniCesumar entered into a lease agreement with Soedmar Sociedade Educacional de Maringá Ltda., or Soedmar, pursuant to which Soedmar agreed to lease to UniCesumar certain properties at (i) Campus Maringá located in the State of Paraná, (ii) Campus Ponta Grossa, located in the State of Paraná, (iii) Campus Londrina, located in the State of Paraná, (iv) Campus Curitiba, in the State of Paraná, (v) and Terreno Londrina. The lease agreement is for an initial term of 20 years, subject to certain provisions set out in the lease agreement. The monthly rent payable by us under the lease agreement for all the properties is approximately R$1.8 million.
The interests of those shareholders in the administration of such properties may conflict with our interests and those of our other shareholders. We cannot assure you that we will be able to manage any conflicts of interest, which may arise successfully or at all. Failure to manage such conflicts of interest may have a material adverse effect on our business, financial condition and results of operations, as well as on our reputation and the market price of our common shares.
If we and our hub partners are unable to upgrade our respective hubs and campuses, they may become less attractive to students and we may fail to grow our business.
All of our hubs and campuses, as well as those of our hub partners, require periodic upgrades to remain attractive to students. Upgrading the facilities at our hubs and campuses or those of our hub partners could be difficult for a number of reasons, including the following:
| ● | the applicable properties may not have the capacity or configuration to accommodate proposed renovations; |
| ● | construction and other costs may exceed the funds available and/or we or our hub partners may be unable to obtain financing to fund such costs; |
| ● | it may be difficult and expensive to comply with local building and fire codes; and |
| ● | we or our hub partners may not be able to negotiate reasonable terms with our landlords or developers or complete the work within acceptable time frames. |
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Failure by us or our hub partners to upgrade the facilities of our hubs and campuses or those of our hub partners, as applicable could lead to lower enrollment and could cause a material adverse effect on our business, financial condition and results of operations.
Our indebtedness may adversely affect our businesses.
As of December 31, 2023, and December 31, 2022, our total consolidated indebtedness (consisting of lease liabilities and accounts payable from acquisition of subsidiaries and loans and financing) was R$2,509.7 million and R$2,450.9 million, respectively.
In addition, as of December 31, 2023, our current assets were R$579.1 million, and our current liabilities were R$492.6 million. Based on these amounts we can determine that our current liabilities are lower than our current assets.
Our consolidated indebtedness may:
| ● | limit our capacity to obtain new credit facilities; |
| ● | require that we dedicate a substantial portion of our cash flow to service debt payments, which may affect our ability to use our cash flow for working capital, capital expenditures and other general corporate purposes, in addition to complying with our obligations; |
| ● | limit our flexibility to plan and react to changes in our businesses and in the sector in which we operate; |
| ● | put us at a disadvantage with our competitors, who may have lower levels of indebtedness; and |
| ● | increase our vulnerability to negative economic and industrial conditions, including variations in interest rates or stagnation of our business results or of the economy as a whole. |
Additionally, certain restrictions applicable to us, such as limits on incurring indebtedness and new credit may result in the early termination of certain of our financial agreements in the event of changes to our indebtedness.
As a result of our strategy of growing through acquisitions of new entities, we may need additional funds to implement our strategy. If we cannot obtain adequate financing to conclude any potential acquisition and implement our expansion plans, for example as a result of financial institutions declining to extend credit to us on favorable terms or at all due to our existing levels of indebtedness, our growth strategy will be affected and this could have a material adverse effect on our business, financial condition and results of operations.
For further information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
In certain circumstances, acquisitions of educational institutions must be approved by CADE.
Brazilian legislation provides that acquisitions of educational institutions must be approved by CADE prior to the completion of the acquisition if the following threshold is met: one of the companies or group of companies involved has gross annual revenues in Brazil of at least R$750.0 million in the year immediately prior to the acquisition and any other party has gross income of at least R$75.0 million in that same period. As part of this process, CADE must assess the competitive impacts of the specific transaction in markets where the companies and their economic groups are active. CADE may not approve our future acquisitions or may condition approval of our acquisitions on our disposal of some of the operations of the target of the acquisition, or impose restrictions on the operations and commercialization of the target.
The UniCesumar Business Combination is subject to review and approval by CADE. See “—If we are unable to complete the UniCesumar Business Combination in a timely manner or at all, our business and the price of our common shares may be adversely affected.”
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Failure to obtain approval for future acquisitions or any conditional approvals of future acquisitions may result in expenses that may adversely affect our results of operations and financial condition.
We depend on dividends being distributed to us by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive or if the Brazilian government imposes taxes or restrictions on the distribution of dividends or interest on shareholders’ equity by subsidiaries to parent companies.
We control a number of subsidiary companies that carry out the business activities of our corporate group. Our ability to comply with our financial obligations and to pay dividends to our shareholders depends on our ability to receive distributions from the companies we control, which in turn depends on the cash flow and profits of those companies. There is no guarantee that the cash flow and profits of our controlled companies will be sufficient for us to comply with our financial obligations and pay dividends to our shareholders.
Additionally, changes in Brazilian tax legislation affecting our Brazilian subsidiaries have historically been frequent and may become more frequent as a result of the weakened financial position of the Brazilian federal and state governments. Although no recent changes regarding the taxation of dividends have been enacted as of the date hereof, it is not possible to determine at this time what changes might eventually become law, and how any such changes could impact the taxation applied to dividends. If changes are enacted, these measures could increase the tax expenses associated with any dividend or distribution from our Brazilian subsidiaries, which could have adverse effects on our ability to receive dividends or cash distributions from our subsidiaries in Brazil, impacting our results, as well as our ability to pay any future dividends or cash distributions. A tax reform in Brazil or any change in the laws and regulations that affects the taxes or tax incentives applicable to our Brazilian subsidiaries may directly or indirectly adversely impact our business and results of our operations.
Moreover, the payments, dividends and distributions from our subsidiaries to us for funds to pay future cash dividends or distributions, if any, to holders of our common shares, could be restricted under financing arrangements that we or our subsidiaries may enter into in the future and we and such subsidiaries may be required to obtain the approval of lenders to make such payments to us in the event they are in default of their repayment obligations. Furthermore, we may be adversely affected if the Brazilian government imposes legal restrictions on dividend distributions by our Brazilian subsidiaries. In addition, exchange rate fluctuations will affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests in those subsidiaries.
Our first issuance of debentures is secured by the share capital of UniCesumar and its relevant economic rights pursuant to a fiduciary assignment (alienação fiduciária em garantia), and certain receivables of UniCesumar from the provision of educational services, as well as being guaranteed by Sociedade Educacional Leonardo da Vinci Ltda., UniCesumar, Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda. and Fair Educacional Ltda. If there were to be a default or event of default under our first issuance of debentures, upon enforcement against that collateral we may lose our economic and voting rights over UniCesumar, which would have a material adverse effect on our business, financial condition and results of operations. Our second issuance of debentures is secured by a fiduciary assignment of receivables from education services provided by UniCesumar, as well as being guaranteed by Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda., Fair Educacional Ltda. and UniCesumar. Our third issuance of debentures is guaranteed by Sociedade Educacional Leonardo da Vinci Ltda. and UniCesumar. If there were to be a default or event of default under such issuances of debentures, our aforementioned guarantors are contractually required to pay outstanding amounts due by Vitru Brazil in relation to the issuance of debentures which they guarantee, which could adversely impact our financial condition and the results of our operations. See “—Risks Relating to Brazil—Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares,” “—Risks Relating to Brazil —Economic uncertainty and political instability in Brazil may harm us and the price of our common shares” and “Item 8. Financial information—A. Consolidated statements and other financial information—Dividends and Dividend Policy.”
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We and our subsidiaries may be held directly or indirectly responsible for labor claims pursuant to contracted services.
To meet the needs of our students and offer greater comfort and quality in all areas and aspects of our activities, we depend on hub partners, service providers and suppliers, engaged by us or by our hub partners, for services such as cleaning, call center, maintenance, reception, IT, construction and security. We may be adversely affected if these third-party service providers, hub partners and suppliers do not meet their obligations under Brazilian labor laws. In particular, according to Brazilian law we may be liable to the employees of hub partners, these service providers and suppliers for labor obligations of these service providers and suppliers, and may also be fined by the relevant authorities. If we are held liable for such claims, we may be adversely affected.
Climate change can create transition risks, physical risks and other risks that could adversely affect us.
Climate risk is as a transversal risk that can be an aggravating factor for the types of traditional risks that we manage in the ordinary course of business, including without limitation the risks described in this “Risk Factors” section. We consider climate change may impact our market share through physical and transition. Risks associated with climate change are gaining increasing social, regulatory, economic and political relevance, both in Brazil and globally.
Physical risks resulting from climate change can be event-driven (acute) or long-term shifts (chronic, such as changes in precipitation patterns or temperatures). Acute physical risks include extreme weather events, such as drought, hurricanes, or floods. Such events may, for example, prevent us or our hubs partners from operating normally, including through direct damage to assets and indirect impacts from supply chain disruption and market volatility.
Transition risks refer to actions brought on to address mitigation and adaptation measures related to climate change, and they can fall into various categories such as market, technology, and policy changes. Climate change policy and requirements are continuing to evolve at regional, national, and international levels, and political and economic events, as well as related public attention, may significantly affect the scope and timing of new climate change-related measures that are ultimately imposed on economic sectors. In particular, policy actions (including those that attempt to constrain actions that contribute to the adverse effects of climate change and those that seek to promote adaptation to climate change), could result an increase in the regulatory environmental requirements to which we are subject, as detailed under “—We are subject to environmental laws and regulations, which may become more stringent in the future and increase our obligations and capital investments with respect to their compliance.” Although it is not possible at this time to predict how new laws or regulations would impact our business, any future requirements imposing carbon pricing schemes, carbon taxes, emission control, or emission reduction obligations on our operations or activities performed by third parties hired to support our business may significantly impact our activities, such as increased compliance costs, impact on supply chain, implications for our employees’ health, among others, which could limit our ability to pursue certain business opportunities and provide certain products and services, each of which could adversely affect our business, financial condition and results of operations. Additionally, failure to comply with such laws and regulations could result in liabilities or penalties that could significantly impact our operation and financial condition.
Increased regulatory compliance risk may result from the increasing focus, pace, breadth and depth of regulatory expectations requiring implementation in short time frames across multiple jurisdictions and from changes in public policy, laws and regulations in connection with climate change and related environmental sustainability matters.
We are subject to environmental laws and regulations, which may become more stringent in the future and increase our obligations and capital investments with respect to their compliance.
We are subject to several environmental municipal, state and federal laws. Compliance with these laws and regulations is monitored by governmental agencies and bodies that may impose, among others, administrative sanctions on us. These sanctions may include, among other consequences, penalties, such as fines, revocation of our licenses and authorizations, and the temporary or permanent suspension of our activities. In addition, governmental agencies or other authorities may also significantly delay or deny the issuance of permits and authorizations required for our operations, preventing us from making constructions and improvements in our hubs and/or campuses.
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The enactment of more stringent laws and regulations or more stringent interpretations of existing laws and regulations may force us to increase our capital expenditures relating to environmental compliance, therefore diverting funds from previously planned investments. These changes could have a material adverse effect on us.
Brazilian legislation establishes that individual or legal entities that conduct activities deemed harmful to the environment will be subject to administrative and criminal liabilities in case of environmental infractions or crimes. In addition, when the misconduct of individuals or legal entities causes environmental damage, such legal entities or individuals are required to remedy it, as a civil environmental liability consequence. In this regard, civil environmental liability pursuant to environmental legislation is strict, joint and several, pursuant to which anyone whose activity may be linked to the environmental damage may be held liable. Nonetheless, the right of redress is guaranteed against the legal entities/individuals that actually caused such damages.
Any delay or denial by environmental agencies of the issuance or renewal of our licenses, as well as our inability to meet the requirements of the environmental agencies during the licensing process, or any environmental liability we may be subject to in the future, may materially adversely affect our reputation, our business and our results of operations.
Our business could be negatively impacted by social impact and sustainability matters.
There has been an increased focus by certain investors, customers, consumers, employees, and other stakeholders on environmental, social and governance, or “ESG,” social impact and sustainability matters. From time to time, we may announce certain initiatives, including goals and commitments, regarding environmental matters, social investments and inclusion and diversity, among other topics. In case we announce such initiatives, we could fail, or be perceived to fail, in our achievement of such initiatives, or in accurately reporting our progress on such initiatives. Such failures or perceived failures could be due to changes in our business.
Moreover, the standards by which corporate citizenship, sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time. While our sustainability strategy and practices and the level of transparency with which we are approaching them are important to our business, they expose us to several risks, including:
| ● | that our current or future disclosures related to ESG may result in heightened scrutiny of our ESG performance, activities and decisions from stakeholders or other third parties; |
| ● | that a failure or perception of a failure to disclose metrics and set goals that are rigorous enough or in an acceptable format, a failure to appropriately manage the selection of goals, a failure or perception of a failure to make appropriate disclosures, stakeholder perception of a failure to prioritize the “correct” ESG goals or an unfavorable ESG-related rating by a third party could negatively impact our brands, reputation and business; |
| ● | that certain metrics we may utilize receive limited assurance from and/or verification by third parties, may involve a less rigorous review process than assurance sought in connection with more traditional audits, and such a review process may not identify errors and may not protect us from potential liability under applicable law; |
| ● | that (1) ESG or sustainability standards, norms or metrics, which are constantly evolving, change in a manner that impacts us negatively or requires us to change the content or manner of our disclosures, and our stakeholders or third parties view such change(s) negatively, (2) we are unable to adequately explain such changes or (3) we are required to expend significant resources to update our current or future disclosures, any of which could negatively impact our brands, reputation, and business; and |
| ● | that our brands, reputation and business could be adversely affected if any of our current or future disclosures are inaccurate, perceived to be inaccurate, or alleged to be inaccurate. |
Furthermore, if our practices do not meet investor or other stakeholder expectations and standards (which are continually evolving and may emphasize different priorities than the ones we choose to focus on), or if our practices do not live up to our own values or ESG- and sustainability-related goals, then our brands, reputation and employee retention may be adversely affected. Any such matters, or related social impact and sustainability matters, could have a material adverse effect on our business.
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We may be adversely affected if the Brazilian government changes its investment strategy with respect to education.
According to Law No. 9,394/96, providing education is a duty of the government and of the family, and private education is allowed, in accordance with the terms set forth in applicable law. Historically, direct public investments by the Brazilian government in postsecondary education have been limited to specific schools that are centers of excellence and research. The limited number of positions available and the competitive nature of the admission process to these institutions significantly restrict access to these institutions by students. However, the Brazilian government may change its policy and increase the competition we face by (i) increasing the level of public investment in basic education and postsecondary education in general, opening a higher amount of positions and increasing the quality of education offered by public entities; and (ii) shifting resources from schools that are centers of excellence and research to public higher education institutions accessible to middle- and low-income working adults, who are our target students. The introduction and extension of affirmative action admission policies by federal and state schools based on income, race or ethnicity criteria could also heighten the level of competition in the industry. In addition, the Brazilian government could reduce investment in public primary and secondary schools, which would diminish the number of students seeking postsecondary education and, in turn, demand for the courses we offer. Any policy change affecting the level of public investment in education may adversely affect us.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations. In particular, we are subject to the Brazilian Anti-corruption Law No. 12,846/2013, the Brazilian Federal Decree No. 11,129/2022, the Brazilian Decree-Law No. 2,848/1940, the Brazilian Law No. 9,613/1998, the Brazilian Law No. 8,666/1993, the Brazilian Law No. 14,133/2021, the Brazilian Law No. 8,137/1990, the Brazilian Law No. 8,429/1992, the Brazilian Federal Decree No. 3,678/2000, the Brazilian Federal Decree No. 4,410/2002, to the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, to the United Kingdom Bribery Act of 2010, as well as economic sanction programs, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC.
The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities and employees which are considered foreign officials for purposes of the FCPA. In addition, economic sanctions programs restrict our dealings with certain sanctioned countries, individuals and entities.
Although we have internal policies and procedures designed to ensure compliance with applicable anti-fraud, anti-bribery and anti-corruption laws and sanctions regulations, potential violations of anti-corruption, anti-bribery and anti-money laundering laws may be identified on occasion as part of our compliance and internal control processes. When such issues arise, we will attempt to act promptly to learn relevant facts, conduct appropriate due diligence and take any appropriate remedial action to address the risk. Given the size and complexity of our operations, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, directors, officers, partners, agents and service providers or that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible.
Violations of anti-corruption, anti-bribery and anti-money laundering laws and sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may be subject to one or more enforcement actions, investigations and proceedings by authorities for alleged infringements of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability and could have a material adverse effect on our reputation, business, financial condition and results of operations.
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Government agencies, the MEC and third parties may conduct inspections, file administrative proceedings or initiate litigation against us.
Because we operate in a highly regulated industry, government agencies, the MEC or third parties may conduct inspections, file administrative proceedings or initiate litigation for noncompliance with regulations against us or the institutions we purchase. If the results of these proceedings or litigations are unfavorable to us, or if we are unable to successfully defend our cases, we may be required to pay monetary damages or be subject to fines, limitations, injunctions or other penalties. Even if we adequately address issues raised by an inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by these proceedings or to those lawsuits or claims. Administrative proceedings or court actions brought against us may damage our reputation, even if such lawsuits or claims are without merit.
Failure to prevent or detect a malicious cyberattack on our systems and databases could result in a misappropriation of confidential information or access to highly sensitive information.
Cyberattacks are becoming more sophisticated and pervasive. Across our business we hold large volumes of personally identifiable information including that of employees, hub partners, students, parents and legal guardians. Individuals may try to gain unauthorized access to our data in order to misappropriate such information for potentially fraudulent purposes, and our security measures may fail to prevent such unauthorized access. A breach could result in a devastating impact on our reputation, with significant adverse effects on customer confidence and loyalty that could adversely affect our financial condition and the student experience. In addition, if we were unable to prove that our systems are properly designed to detect an intrusion, we could be subject to severe penalties under applicable laws and loss of existing or future business.
Any illegal or improper uses of our educational platform, as a result of cyberattacks or otherwise, could expose us to additional liability and harm our business.
Our educational platform is susceptible to unauthorized use, copyright violations and unauthorized copying and distribution (whether by students, schools, hub partners or otherwise), theft, employee fraud, and other similar breaches and violations, whether resulting from cyberattacks or otherwise. Our copyrights may also be challenged by third parties, and we may encounter difficulties in enforcing our copyrights. These occurrences may potentially harm our business and consequently negatively impact our results of operations. Additionally, we may be required to employ a significant amount of resources to combat such occurrences and identify those responsible.
Failure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations.
The nature of our business exposes us to risks related to possible shortcomings in data protection. Any perceived or actual unauthorized disclosure of personally identifiable information, whether through breach of our network by an unauthorized party, employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract and retain our customers, or subject us to claims or litigation arising from damages suffered by individuals.
The laws regulating privacy rights and data protection have considerably evolved over recent years, providing for more restrictive provisions on the means through which processing of personal data by organizations is regulated. As of August 2018, when the Brazilian Law No. 13,709/2018 (Lei Geral de Proteção de Dados), or the LGPD, was enacted, practices involving the processing of personal data were ruled by certain sectorial laws, such as Law No. 8,078/1990 the Consumer Defense Code, and Law No. 12,965, or the Brazilian Civil Rights Framework for the Internet.
In 2018, the LGPD, a comprehensive data protection law was enacted establishing the general principles and obligations that apply across multiple economic sectors and contractual relationships. The LGPD lays down detailed rules for the collection, use, processing and storage of personal data, regardless of whether data is collected in a digital or physical environment. As a result of enactment of Provisional Measure No. 959 (Medida Provisória No. 959), or MP 959, dated April 29, 2020, the LGPD came into force on September 18, 2020, except for Articles 52, 53 and 54 of the LGPD, which address administrative penalties, and which came into force on August 1, 2021.
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On November 6, 2020, the Brazilian Decree No. 10,474 of August 26, 2020, which regulates the organizational structure of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD, came into force, and ANPD’s first board of directors was appointed. This is the entity responsible for regulating and supervising the application of the LGPD as well as imposing sanctions in the event of noncompliance with the legal rules and obligations.
The LGPD provisions which create administrative penalties came into effect on August 1, 2021 and, on October 29, 2021, the regulation on supervision and sanctioning procedures approved by the ANPD was published. This regulation governs, among other things, how the administrative sanctions provided for in the LGPD should be applied. On February 27, 2023, the ANPD published the a regulation on the calculation and application of administrative sanctions, which aims to (i) regulate the application of Articles 52 and 53 of the LGPD, (ii) define criteria and parameters for the application of administrative sanctions by the ANPD in case of breach of the LGPD, as well as the methodology for the calculation of the fines, and (iii) amend certain provisions to improve the administrative supervision and sanctioning process.
We may incur penalties due to violation of the LGPD. If we are not able to adapt our processes and implement the measures required for full compliance with the LGPD, we may in the future be subject to administrative penalties by the ANPD, as set forth in the law, including, but not limited to (i) legal notices and the required adoption of corrective measures, (ii) fines up to 2% of the company’s or group’s revenues up to a limit of R$50.0 million per infraction, (iii) publication of the infraction after the confirmation of its occurrence, and (iv) blocking and erasing the personal data involved in the infraction. In the event of repeated violations, more severe penalties may be imposed on us, such as suspension of the operation of the database or personal data processing to which the violation refers for a maximum period of six months, which may be extended for an equal period of time, until the error giving rise to the violation is rectified by the controller and prohibition in whole or in part from carrying out data processing activities. The administrative sanctions became effective in August 2021. Prior to August 2021, other authorities in Brazil could still apply the LGPD through administrative procedures or lawsuits. The PROCON or the Public Ministry responsible for consumer rights and individuals and non-governmental or private associations, for example, could have filed complaints or brought lawsuits based on violations of the LGPD that have caused or may cause harm to individuals. In this sense, we may be liable for property, moral, individual or collective damages caused by us, including by third party providers that process personal data for us, and jointly liable for property, moral, individual or collective damages caused by our subsidiaries, due to non-compliance with the obligations established by the LGPD. If we are unable to use sufficient measures to protect the personal data we manage and store or to maintain compliance with the LGPD, we may incur material costs which could have an adverse effect in our reputation and results of operations. In addition, we could incur significant costs in complying with relevant laws and regulations regarding the unauthorized disclosure of personal information, which may be affected by any changes to data privacy legislation at both the federal and state levels.
Pursuant to the LGPD, security breaches that may result in significant risk or damage to personal data must be reported to the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD, the data protection regulatory body, within a reasonable time period. The notice to the ANPD must include: (a) a description of the nature of the personal data affected by the breach; (b) the affected data subjects; (c) the technical and security measures adopted; (d) the risks related to the breach; (e) the reasons for any delays in reporting the breach, if applicable; and (f) the measures adopted to revert or mitigate the effects of the damage caused by the breach. Once the LGPD becomes effective, the penalties and fines for violations include: (i) warnings, with the imposition of a deadline for the adoption of corrective measures; (ii) a one-time fine of up to 2% of gross sales of the company or a group of companies or a maximum amount of R$50.0 million per violation; (iii) a daily fine, up to a maximum amount of R$50.0 million per violation; (iv) public disclosure of the violation; (v) the restriction of access to the personal data to which the violation relates, until corrective measures are implemented; and (vi) deletion of the personal data to which the violation relates. Any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could seriously harm our business, financial condition or results of operations.
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The scope of data privacy and security regulations continues to evolve, and we believe that the adoption of increasingly restrictive regulations in this area may be likely within the jurisdictions in which we operate. Compliance with data privacy and security restrictions could increase the cost of our operations and failure to comply with such restrictions could subject us to criminal and civil sanctions as well as other penalties.
Further, a significant portion of our employees are working remotely from home. Based on thorough assessments of the well-being and performance of our workforce, our management announced the company-wide adoption of a hybrid model whereby employees will work both remotely and in the office. This may cause increases in the unavailability of our systems and infrastructure, interruption of telecommunication services, generalized system failures and heightened vulnerability to cyberattacks. Accordingly, our ability to conduct our business may be adversely impacted.
We may be unable to comply with the financial covenants applicable to us under our financing agreements.
Our growth depends on investments that we have financed, in part, through loans and financing from third parties. These financial commitments may affect our ability to react to changes in the economy, in the sector in which we operate or our ability to take advantage of new business opportunities. As of December 31, 2023 and 2022, our total loans and financing was R$2,181.8 million and R$1,620.3 million, respectively.
We are subject to restrictive covenants under our debentures that limit our access to new financing or refinancing of our existing indebtedness. In addition, the agreements contain restrictions on new funding under certain conditions, for example, in the event that new funding prohibits us from being able to maintain certain financial metrics that are contractually established under the debentures. Accordingly, we may not be able to enter into new debt to finance our expansion strategy or for any other capital necessities without the prior authorization of our current creditors.
In addition, pursuant to the debentures, we must comply with certain financial covenants. In the event that we are not able to comply with these financial covenants, the debentures may be subject to an event of default, which would cause a material impact on our business and financial situation.
If we (i) are unable to comply with the covenants due to adverse condition in our business environment, (ii) are unable to obtain waivers or the necessary approval of our creditors in relation to the agreements that might be defaulted, or (iii) do not have sufficient resources to pay our debts in a timely manner, our obligations under the debentures may be accelerated, which could trigger defaults under, and/or the acceleration of, other financing agreements. Any such developments may materially affect our capacity to comply with our commitments and have a material adverse effect on our business, financial condition and results of operations.
The use of cash and short-term investments and the incurrence of significant indebtedness in connection with the financing of the UniCesumar Business Combination may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions.
We funded the UniCesumar Business Combination using our cash and cash equivalents, short-term investments and new indebtedness. We have issued debentures between May 2022 and December 2023, which mature between May 15, 2024 and November 16, 2028. As of December 31, 2023, we had indebtedness of R$2,509.7 million, cash and cash equivalents of R$21.3 million and short-term investments of R$220.3 million. As of December 31, 2022, we had indebtedness of R$2,450.9 million, cash and cash equivalents of R$47.2 million and short-term investments of R$26.4 million.
Our first issuance of debentures is secured by the share capital of UniCesumar and its relevant economic rights pursuant to a fiduciary assignment (alienação fiduciária em garantia), and certain receivables of UniCesumar from the provision of educational services, as well as being guaranteed by Sociedade Educacional Leonardo da Vinci Ltda., UniCesumar, Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda. and Fair Educacional Ltda. If there were to be a default or event of default under our first issuance of debentures, upon enforcement against that collateral we may lose our economic and voting rights over UniCesumar, which would have a material adverse effect on our business, financial condition and results of operations. Our second issuance of debentures is secured by a fiduciary assignment of receivables from education services provided by UniCesumar, as well as being guaranteed by Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda., Fair Educacional Ltda.
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and UniCesumar. Our third issuance of debentures is guaranteed by Sociedade Educacional Leonardo da Vinci Ltda. and UniCesumar. If there were to be a default or event of default under such issuances of debentures, our aforementioned guarantors are contractually required to pay outstanding amounts due by Vitru Brazil in relation to the issuance of debentures which they guarantee, which could adversely impact our financial condition and the results of our operations.
Our operating history as a consolidated company, our recent acquisition of UniCesumar and the comparability of our results may make it difficult for investors to evaluate our business, financial condition, results of operations and prospects.
We completed the UniCesumar Business Combination on May 20, 2022. As the UniCesumar Business Combination was completed very recently, it may be difficult for you to evaluate our business, financial condition, results of operations and prospects. Investors may have limited financial information on which to evaluate us, their investment decision and our prior performance. Our results of operations for the years ended December 31, 2023 and 2022 are not directly comparable to our results of operations for the year ended December 31, 2021 due to the effects of the UniCesumar Business Combination. Our ability to forecast our future operating results, including revenue, cash flows and profitability, as well as the operational inefficiencies that we may face as we continue to integrate UniCesumar, is limited and subject to a number of uncertainties. Moreover, past performance is no assurance of future returns.
Since the consummation of the UniCesumar Business Combination, we are exposed to risks affecting UniCesumar.
Following the UniCesumar Business Combination, we are the sole shareholders of UniCesumar. Accordingly, our business, results of operations and financial condition in future periods will be affected by any risks to which UniCesumar is exposed. Important factors that could cause UniCesumar’s actual results of operations and financial condition to materially differ from those indicated in the forward-looking statements include, among others, the following:
| ● | health epidemics, pandemics and similar outbreaks, including the COVID-19 pandemic and measures taken in response; |
| ● | the passing of any municipal, state or federal laws or regulations and the outcome of legal proceedings requiring the mandatory discount of tuition fees during the COVID-19 pandemic; |
| ● | UniCesumar’s ability to implement its business strategy; |
| ● | changes in government regulations and legislation applicable to the education industry in Brazil, both in the traditional and distance learning segments, including tax regulations and/or legislation; |
| ● | government interventions, including changes in, or termination of, education industry programs such as FIES and PROUNI both in the traditional and distance learning segments, that affect the economic or tax regime, the collection of tuition fees or the regulatory framework applicable to educational institutions; |
| ● | changes in the financial condition of the students enrolling in UniCesumar’s institutions in general and in the competitive conditions in the education industry, both in the traditional and distance learning segments, or changes in the financial condition of UniCesumar’s institutions; |
| ● | UniCesumar’s ability to adapt to technological changes in the educational sector, including in relation to distance learning programs; |
| ● | the availability of government authorizations on terms and conditions and within periods acceptable to us; |
| ● | UniCesumar’s ability to continue attracting and retaining new students; |
| ● | UniCesumar’s ability to maintain the academic quality of its programs; |
| ● | UniCesumar’s ability to compete and conduct its business in the future; |
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| ● | the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and UniCesumar’s competitors; |
| ● | changes in consumer demands and preferences and technological advances, and UniCesumar’s ability to innovate to respond to such changes; |
| ● | the availability of qualified personnel and the ability to retain such personnel; |
| ● | UniCesumar’s capitalization and level of indebtedness; |
| ● | a decline in the number of students enrolled in UniCesumar’s programs or the amount of tuition UniCesumar can charge; |
| ● | changes in labor, distribution and other operating costs; |
| ● | UniCesumar’s compliance with, and changes to, government laws, regulations and tax matters that currently apply to us; |
| ● | UniCesumar may not be in compliance with applicable labor and tax laws, which may result in significant contingencies; |
| ● | general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on UniCesumar’s business; |
| ● | fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future; |
| ● | UniCesumar’s ability to protect its intellectual property; |
| ● | other factors that may affect UniCesumar’s financial condition, liquidity and results of operations; and |
| ● | the effectiveness of UniCesumar’s risk management policies and procedures, including its internal control over financial reporting. |
Our international operations expose us to political and economic risks in other countries.
As a result of the completion of the acquisition of UniCesumar, we have added several international hubs to our portfolio, including in Japan, Switzerland, the United Arab Emirates and the United Kingdom. These international activities expose us to risks not faced by companies that operate solely in Brazil. Risks associated with our international operations include: (i) foreign exchange controls; (ii) changes in the political or economic conditions in a specific country or region; (iii) potentially negative consequences resulting from changes to regulatory requirements; (iv) difficulties and costs associated with our compliance with different laws, treaties and complex international regulations; (v) tax rates that may exceed those applicable in Brazil or gains that may be subject to withholding regimes and an increase in repatriation taxes; (vi) the imposition of trade barriers; and (vii) limitations on the repatriation of undistributed profits. The realization of any of these risks may materially adversely affect our business, results of operations or financial condition.
The timing and completion of the merger with Vitru Brazil is subject to uncertainties and we may not be able to realize the anticipated benefits of such merger.
Any delay in completing the merger between Vitru Limited and Vitru Brazil, as described under “Presentation of Financial and Other Information—Corporate Events—Group Restructuring and Migration of Listing,” or failure to complete such merger, could cause the combined company not to realize some or all of the benefits that the parties expect the combined company to achieve if the merger is successfully completed within the expected timeframe. Furthermore, even if the merger is successfully completed within the expected timeframe, we cannot assure you that we will be able to realize the anticipated benefits of the merger between Vitru Limited and Vitru Brazil.
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Risks Relating to Brazil
The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our common shares.
The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases or decreases in interest rates, changes in fiscal policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls, and import and export restrictions. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:
| ● | growth or downturn of the Brazilian economy; |
| ● | interest rates and monetary policies; |
| ● | exchange rates and currency fluctuations; |
| ● | inflation; |
| ● | liquidity of the domestic capital and lending markets; |
| ● | import and export controls; |
| ● | exchange controls and restrictions on remittances abroad and payments of dividends; |
| ● | modifications to laws and regulations according to political, social and economic interests; |
| ● | fiscal policy and changes in tax laws; |
| ● | economic, political and social instability, including general strikes and mass demonstrations; |
| ● | the regulatory framework governing the educational industry; |
| ● | labor and social security regulations; |
| ● | energy and water shortages and rationing; |
| ● | commodity prices; |
| ● | changes in demographics, in particular declining birth rates, which will result in a decrease in the number of enrolled students in education in the future; |
| ● | developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally; and |
| ● | other political, diplomatic, social and economic developments in or affecting Brazil. |
Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on our activities and consequently our operating results, and may also adversely affect the trading price of our common shares. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our common shares. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Brazilian Macroeconomic Environment.”
We are not able to fully estimate the impact of Brazilian political and macroeconomic developments and economic regulatory policy changes on our business, nor are we able to predict how current or future measures implemented by policymakers and regulators may impact our business.
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In addition, due to the inauguration of a new Brazilian federal administration, there is substantial uncertainty regarding future economic policies and we cannot predict what policies will be adopted by the Brazilian government and whether these policies will negatively affect the Brazilian economy or our business or financial performance. Any changes in policies, regulations, or continued political uncertainty may materially adversely affect our business, financial condition and results of operations.
Economic uncertainty and political instability in Brazil may harm us and the price of our common shares.
Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities offered by companies with significant operations in Brazil.
The recent economic instability in Brazil caused, among others, by the COVID-19 pandemic, the increase in inflation recorded in recent years, the slowdown in GDP and the uncertainty about whether the Brazilian federal government will be able to enact the economic reforms necessary to improve the deterioration of public accounts and the economy, has led to a decline in market confidence in the Brazilian economy and a crisis in the government, generating an adverse effect on the valuation of Brazilian assets, which culminated in the need for the Brazilian stock exchange (B3 S.A. — Brasil, Bolsa, Balcão) to trigger the circuit-breaker eight times in March 2020. The Brazilian government may be subject to internal pressure to change its current macroeconomic policies in order to achieve higher rates of economic growth. We cannot predict what policies will be adopted by the Brazilian government. Uncertainty regarding the implementation of changes by the Brazilian government in policies or regulations may contribute to economic uncertainty in Brazil and greater volatility for the Brazilian securities markets and securities issued abroad by Brazilian companies.
Investigations into allegations of money laundering and corruption conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigations, known as “Operação Lava Jato,” “Operação Zelotes,” “Operação Greenfield,” “Operação Eficiência,” adversely affected the Brazilian economy and political environment and new investigation may occur. The potential outcome of these investigations is uncertain, but they the aforementioned investigations had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy.
In October 2022, Luiz Inácio Lula da Silva was elected President of Brazil, for a four-year term, starting in 2023. It is uncertain whether the government will gather the necessary support in the Brazilian Congress to approve reforms and efficiently implement its government plan. In particular, the Brazilian federal government has committed itself and has been discussing and adopting measures to stimulate economic growth through public spending and greater government participation in the economy, which have been which been generating uncertainty about the government's ability to meet the fiscal goals established by itself and expected by the market, as well as about the growth of public debt. Furthermore, members of the Brazilian federal government and influential political figures related to it came into conflict with the Brazilian Central Bank, even questioning its legal independence and the basis for maintaining the basic interest rate at a level considered undesirable by the Brazilian federal government. The current governor of the Brazilian Central Bank was appointed by the previous federal government, which had more strict fiscal goals than the current government, and his term will end in December 2024. We cannot assure you that any future governor of the Brazilian Central Bank will have the same profile of the current one and or whether they will be subject to political pressure.
Uncertainties regarding the implementation, by the current government, of changes relating to monetary, fiscal and social security policies, as well as the relevant legislation, may contribute to economic instability. These uncertainties and new measures may increase the volatility of the Brazilian capital markets.
The President of Brazil has the power to determine policies and issue governmental acts relating to the conduct of the Brazilian economy and, consequently, affect the operations and financial performance of companies, including our business. We cannot predict which policies the President of Brazil will adopt, and such policies or changes to current policies may have a material adverse effect on our business, financial condition and results of operations and the Brazilian economy.
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Any of the above factors may create additional political uncertainty, which could harm the Brazilian economy and, consequently, our business, and could adversely affect our financial condition, our results of operations and the price of our common shares.
Economic, health, political and environmental crises or any other type of crises capable of impacting the Brazilian economy may affect the purchasing power of the population, which may result in a decrease in the number of our students and/or an increase in payment delinquency.
Economic, health, political and environmental crises or any other type of crises capable of impacting the Brazilian economy may affect the purchasing power of the population, which, may result in a decrease in the number of our students, as well as in an increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration.
The market value of securities of Brazilian issuers is affected to varying degrees by economic and market conditions in other countries, including developed countries such as the United States and certain European and emerging market countries. Investors’ reactions to developments in these countries may adversely affect the market value of securities of Brazilian issuers, including our common shares. Trading prices on the B3, for example, have been historically affected by fluctuation in interest rates applicable in the United States and variation in the main U.S. stock indices. Any increase in interest rates in other countries, especially the United States, may decrease global liquidity and the interest of investors in the Brazilian capital markets and/or Brazilian issuers, adversely affecting our common shares. Moreover, crises or significant developments in other countries and capital markets may diminish investors’ interest in securities of Brazilian issuers, including our common shares, and their trading price, limiting or preventing our access to capital markets and to funds to finance our future operations at acceptable terms. The financial crisis that originated in the United States in the third quarter of 2008, for example, resulted in the appreciation of the U.S. dollar against the real, the restriction of credit in the domestic market, an increase in unemployment rates, an increase in credit defaults and, consequently, a reduction of consumption in Brazil. Likewise, the political-economic crisis experienced in the country between 2015 and 2016 had a material impact on unemployment rates, reducing the population’s purchasing power and, consequently, general consumption in the country. In addition, uncertainty about the Brazilian government’s policies or regulations may contribute to economic instability in Brazil and increase the volatility of securities issued abroad by Brazilian companies, including our securities.
Furthermore, in Brazil’s most recent presidential election, held in October 2022, a new administration was elected for a four-year term that commenced on January 1, 2023. The uncertainties regarding the new government’s ability to implement its agenda, considering that the majority of the elected federal legislature is from opposition parties, changes related to monetary, fiscal and social security policies, as well as the political climate established after the elections, with massive demonstrations or strikes, can contribute to economic instability. In addition, in the aftermath of the presidential election, there were significant demonstrations and protests against the new administration, including riots in the capital, Brasília, on January 8, 2023, during which the presidential palace, the Brazilian Congress and Brazil’s Supreme Federal Court (Supremo Tribunal Federal) were invaded and depredated by protesters. Any deterioration of the political environment may affect the confidence of investors and the general public in the Brazilian economy and the securities of Brazilian issuers.
While the COVID-19 pandemic has been substantially suppressed in Brazil, if there were to be a resurgence of the pandemic, Brazilian authorities may once again impose a lockdown of our on-campus activities for an undefined extended period of time, among other measures, all of which are outside of our control and have materially adversely affected our business and results of operations. In 2020, 2021 and 2022 we experienced declines and delays in new enrolments as a result of the COVID-19 pandemic and governmental measures to suppress the spread of COVID-19. A resurgence of the COVID-19 pandemic and a reinstatement of governmental measures to suppress the pandemic could have a material adverse effect on our business, financial condition and results of operations.
Interest rates in Brazil have risen significantly in recent years, from 9.25% as of December 31, 2021 to 13.75% as of December 31, 2022 and 10.75% as of the date of this annual report. High interest rates restrict credit availability, increase the cost of capital, reduce economic growth and adversely affect the purchasing power of our students and prospective students, each of which could have a material adverse effect on us and our indebtedness.
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Conversely, interest rate decreases have triggered and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.
Furthermore, high inflation, increases in interest rates, supply chain disruptions and ongoing economic and political instability in Brazil have also contributed to a deterioration of confidence in Brazil and are expected to continue doing so during 2024. Unfavorable economic conditions as a result of these events may reduce the disposable income of Brazil’s population, which could result in a decrease in our number of students, and an increase in default and drop-out rates.
On February 24, 2022, Russia launched a large-scale military action against Ukraine, triggering an ongoing humanitarian crisis in Europe as well as volatility in financial markets globally, heightened inflation, shortages and increases in the prices of energy, oil, gas and other commodities. In response, several countries, including the United States, the European Union member states, the United Kingdom and other members of the United Nations, have imposed severe sanctions on Russia and Belarus. The continuance or escalation of the conflict, including the extension of the conflict to other countries in the region, could lead to further increases in energy prices and heightened inflationary pressures, which in turn could lead to further increases in interest rates. In addition, the conflict has exacerbated supply chain problems, particularly to those businesses most sensitive to rising energy prices. While we do not have a presence in Russia and Ukraine, the impact of the ongoing war between Russia and Ukraine and the sanctions imposed on global markets and institutions, the impact on macroeconomic conditions generally, and other potential future geopolitical tensions and consequences arising from the conflict remain uncertain and may lead to a deterioration of macroeconomic conditions globally and in Brazil, as well as increased volatility in financial markets. Episodes of economic and market volatility and pressure on supply chains, energy and commodity prices as well as on inflation may continue to occur and could worsen if the war persists or increases in severity. As a result, our businesses, results of operations and financial position could be adversely affected by any of these factors, directly or indirectly, arising from the ongoing war between Russia and Ukraine. As a result, our businesses, results of operations and financial position could be adversely affected by any of these factors, directly or indirectly.
In addition, on October 7, 2023, Hamas launched an attack on Israel killing hundreds of Israeli civilians. In response, Israel declared war against Hamas, targeting the Gaza Strip. The war is causing a humanitarian crisis and could lead to an escalation of the conflict in the region, rise in oil and gas prices, more inflationary pressures and market volatility, among others. Since then, tensions have spread throughout the Middle East, including an increase in tensions between Israel and Iran. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
Any such developments could have a material adverse effect on our business, financial condition and results of operations.
Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our common shares.
In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets.
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Inflation has increased recently in Brazil, as a result of supply shocks that affected the price of foodstuff, climate events that hit electricity generation and led to an increase in energy prices, disruption in supply chains and the depreciation of the real, among others. These inflationary pressures persisted in 2022 and 2023, and through the date of this annual report. As a result, inflation as measured by the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, which is published by the IBGE, was 4.6%, 5.8%, and 10.1%, for the years ended as of December 31, 2023, 2022 and 2021, respectively.
Inflation directly affects most of our current operating costs and expenses, adjusted by reference to indexes that reflect the inflation rate such as the IGP-M or IPCA. For instance, our most important cost component is personnel, which accounted for 44.9%, 46.2%, and 49.9% of our total costs and expenses in the years ended December 31, 2023, 2022 and 2021, respectively, and is clearly impacted by inflation rates. Historically, inflation has been offset by our ability to adjust our tuition fees in rates that are typically above the variation of inflation indexes, due mostly to the increase in the content density and complexity over the course; however, this may not necessarily continue to be the case in the future.
In 2022, 2023 and early 2024, the military conflict between Russia and Ukraine contributed to further increases in the prices of energy, oil, gas, fertilizer, basic materials and other commodities and to volatility in financial markets globally, as well as a new landscape in relation to international sanctions. The global economy was also adversely affected by the ongoing war between Israel and Hamas in the second half of 2023, which has continued in 2024, as well as tensions in the Middle East. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
Inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our common shares. One of the tools used by the Brazilian government to control inflation levels is its monetary policy, specifically in regard to interest rates. An increase in the interest rate restricts the availability of credit and reduces economic growth, and vice versa. During recent years there has been significant volatility in the base interest rate (Sistema Especial de Liquidação e Custódia), or SELIC rate target, which ranged from 14.25%, on December 31, 2015, to 2.00% on December 31, 2020. This rate is set by the Monetary Policy Committee of the Brazilian Central Bank (Comitê de Política Monetária), or COPOM. The COPOM reconfirmed the SELIC rate target of 6.50% throughout the first half of 2019 and then began decreasing the rate to 6.00% on July 31, 2019, to 5.50% on September 18, 2019, to 5.00% on October 30, 2019 and to 4.50% on December 11, 2019. The COPOM subsequently decreased the SELIC rate target to 4.25%, 3.75%, 3.00%, 2.25% and then 2.00%. The SELIC rate remained at that level until mid-March 2021, when it reached 2.75%. As a result of inflationary pressures that arose in Brazil and globally in late 2021 and have continued throughout 2022 and early 2023 through the date of this annual report, the Brazilian Central Bank started tightening monetary policy: the SELIC rate then reached 6.25% p.a. in late September 2021, 7.75% p.a. in late October 2021, and reached 9.25% p.a. in December 2021. As of December 31, 2022, the SELIC rate had reached 13.75%. Starting in the third quarter of 2023, Brazil’s official interest rate began to decrease: to 13.25% on August 3, 2023, to 12.75% on September 21, 2023, to 12.25% on November 3, 2023, to 11.75% on December 14, 2023, to 11.25% on February 1, 2024 and to 10.75% on March 20, 2024. As of the date of this annual report, Brazil’s official interest rate was 10.75%.
Inflation, government measures to curb inflation, and speculation related to possible measures regarding inflation may significantly contribute to uncertainty regarding the Brazilian economy and weaken investors’ confidence in Brazil. Future Brazilian governmental actions, intervention in the foreign exchange market, and actions to adjust or fix the value of the real, may trigger increases in inflation and adversely affect the performance of the Brazilian economy as a whole. Furthermore, Brazil’s high rate of inflation, compounded by high and increasing interest rates, declining consumer spending and increasing unemployment, may have a material adverse impact on the Brazilian economy as a whole, as well as on us.
Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares.
The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.
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Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.031 per U.S.$1.00 on December 31, 2019, which reflected a 4.0% depreciation of the real against the U.S. dollar during 2019. From May 2020, the real depreciated significantly against the U.S. dollar as a result of the adverse macroeconomic effects of the COVID-19 pandemic. In 2020, the real finished the year at R$5.20 per U.S.$1.00. In 2021 and 2022, the fallout of the COVID-19 pandemic continued to weigh on the performance and prospects of the Brazilian economy. The adverse economic effects of the COVID-19 pandemic led to pressure on the Brazilian government to increase its support for the economy, which has led it to increase its already high indebtedness. Along with an ongoing perception that the Brazilian government could continue such support and further increase its indebtedness, this led to a depreciation of the real in 2021. As of December 31, 2021, the exchange rate was R$5.581 per U.S.$1.00. However, by the end of 2022, the worse effects of the COVID-19 pandemic had begun to subside and inflation in Brazil was trending downwards. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.218 per U.S.$1.00 on December 31, 2022, which reflected a 6.5% appreciation in the real against the U.S. dollar during 2022. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.841 per U.S.$1.00 on December 31, 2023, which reflected a 7.2% appreciation in the real against the U.S. dollar during 2023.There can be no assurance that the real will not appreciate or depreciate against the U.S. dollar or other currencies in the future.
A depreciation of the real relative to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would also reduce the U.S. dollar value of our results of operations. Restrictive macroeconomic policies could reduce the stability of the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.
On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts. Depending on the circumstances, either devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy and affect our business, results of operations and profitability.
Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.
Our performance depends on the overall health and growth of the Brazilian economy. Brazilian gross domestic product, or GDP, growth has fluctuated over the past few years, with growth in 2019 (1.2%), followed by a contraction of 3.3% as a result of the effects of the COVID-19 pandemic and despite the significant economic support measures put in place by the Brazilian government. In 2021 and 2022, Brazilian GDP increased by 4.8% and 3.0%, respectively. In 2023, Brazilian GDP increased by 2.9%.Growth has been limited by the lack of private and public investments, resulting in potential energy shortages and deficient transportation, declining logistics and telecommunication sectors and a lack of a qualified workforce. In addition, the growth and performance of the Brazilian economy may be impacted by other factors such as civil unrest, nationwide strikes, epidemics, natural disasters or other disruptive events. Additionally, travel restrictions or potential impacts on personnel due to the COVID-19 pandemic may disrupt our business and the expansion of our client base. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth, increase delinquency rates and ultimately have a material adverse effect on us.
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Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, as well as the recent ongoing wars between Russia and Ukraine and between Israel and Hamas, as well as the wider tensions in the Middle East, may harm the Brazilian economy and the price of our common shares.
The market for securities offered by companies with significant operations in Brazil is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. To the extent the conditions of the global markets or economy deteriorate, the business of companies with significant operations in Brazil may be harmed. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility, and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to companies with significant operations in Brazil and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.
Crises and political instability in other emerging market countries, the United States, Europe or other countries, including increased international trade tensions and protectionist policies, could decrease investor demand for securities offered by companies with significant operations in Brazil, such as our common shares. In June 2016, the United Kingdom had a referendum in which the majority voted to leave the European Union (so-called “Brexit”). The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations. The United Kingdom formally withdrew from the European Union on January 31, 2020. On December 24, 2020, the United Kingdom and the European Commission reached an agreement on the terms of its future cooperation with the European Union. The UK-EU Trade and Cooperation Agreement was signed on December 30, 2020, between the European Union, the European Atomic Energy Community and the United Kingdom. It has been applied since January 1, 2021, when the transition period ended. Nevertheless, there continues to be significant political and economic uncertainty remains about whether the terms of the future relationship between the United Kingdom and the European Union. We have no control over and cannot predict the effect of Brexit nor over whether and to which effect any other member state will decide to exit the European Union in the future. There have also been concerns over conflicts, unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets.
In 2022, 2023 and early 2024, the military conflict between Russia and Ukraine contributed to further increases in the prices of energy, oil and other commodities and to volatility in financial markets globally, as well as a new landscape in relation to international sanctions. This military conflict has also led to increasing tensions between the United States and Russia, an escalation of which could adversely affect the global economy including Brazil, such as increased inflation and interest rates, which ultimately could have a negative impact on us. In addition, on October 7, 2023, Hamas launched an attack on Israel killing hundreds of Israeli civilians. In response, Israel declared war against Hamas, targeting the Gaza Strip. The war is causing a humanitarian crisis and could lead to an escalation of the conflict in the region, rise in oil and gas prices, more inflationary pressures, and market volatility, among others. Tensions have increased in the Middle East as a result of this ongoing conflict, including tensions between Israel and Iran. The United States and China have also been involved in disputes regarding Taiwan, rights to navigation in the South China Sea, alleged human rights abuses in China, as well controversies related to trade barriers in China that have threatened a trade war between the countries, which have implemented or proposed to implement tariffs on certain imported products. Tensions have also arisen between the United States and China over the future of Taiwan. Sustained tension between the United States and China over these and other matters could significantly undermine the stability of the global economy. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term.
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The COVID-19 pandemic has had a significant effect on the share prices of companies listed on stock markets globally. The resulting volatility in share prices has triggered circuit-breakers (i.e., mechanisms which interrupt the trading of securities for a period of time following a significant fall in the aggregate market capitalization of the stock exchange affect) repeatedly in stock exchanges across the world, including the Nasdaq. The price of our common shares may be affected by this volatility. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.”
These developments, as well as potential crises and forms of political instability arising therefrom or any other yet unforeseen development, may harm our business and the price of our common shares.
Any further downgrading of Brazil’s credit rating could reduce the trading price of our common shares.
We and the trading price of our common shares may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign credit ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.
The rating agencies began to review Brazil’s sovereign credit ratings in September 2015. Subsequently, the three major rating agencies downgraded Brazil’s investment grade status:
| ● | In 2015, Standard & Poor’s initially downgraded Brazil’s credit rating from BBB-negative to BB-positive and subsequently downgraded it again from BB-positive to BB, maintaining its negative outlook, citing a worse credit situation since the first downgrade. On January 11, 2018, Standard & Poor’s further downgraded Brazil’s credit rating from BB to BB-negative. The BB-negative rating was reaffirmed on February 7, 2019 with a stable outlook, which reflects the agency’s expectations that the Brazilian government will be able to implement policies to gradually improve the fiscal deficit, as well as a mild economic recovery, given improvements in consumer confidence. |
| ● | In December 2015, Moody’s reviewed and downgraded Brazil’s issue and bond ratings from Baa3 to below investment grade, Ba2 with a negative outlook, citing the prospect of a further deterioration in Brazil’s debt indicators, considering the low growth environment and the challenging political scenario. In April 2018, Moody’s reaffirmed its Ba2 rating, but altered its outlook from “negative” to “stable,” also supported by the projection that the Brazilian government would approve fiscal reforms and that economic growth in Brazil would resume gradually. In May 2020, Moody’s confirmed Brazil’s long-term foreign currency sovereign credit rating at Ba2 maintaining the stable outlook. On May 25, 2021 and April 12, 2022, Moody’s further reaffirmed Brazil’s rating at Ba2 with stable outlook. |
| ● | In 2016, Fitch downgraded Brazil’s sovereign credit rating to BB-positive with a negative outlook, citing the rapid expansion of the country’s budget deficit and the worse-than-expected recession. In February 2018, Fitch downgraded Brazil’s sovereign credit rating again to BB-negative, citing, among other reasons, fiscal deficits, the increasing burden of public debt and an inability to implement reforms that would structurally improve Brazil’s public finances. The BB-negative rating was reaffirmed in May 2019. |
| ● | On April 7, 2020 and May 6, 2020, S&P and Fitch, respectively, changed their outlook on sovereign credit risk rating of Brazil to negative. |
| ● | On July 14, 2022, Fitch revised Brazil’s outlook to stable from negative and reaffirmed the credit rating to BB-. |
| ● | In 2023, two of three major rating agencies upgraded Brazil’s investment grade status. On July 26, 2023, Fitch upgraded Brazil’s credit rating to BB and maintained its outlook on Brazil’s credit rating as stable. On December 19, 2023, S&P upgraded Brazil’s credit rating to BB and changed their outlook on sovereign credit risk rating of Brazil to stable. |
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Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities offered by companies with significant operations in Brazil have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign foreign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our common shares to decline.
Risks Relating to Our Common Shares
Our Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and adversely affect the rights of holders of our common shares.
Our Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. These provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could decline.
The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts may stop publishing research on our company. If no or too few securities or industry analysts cover our company, the trading price for our common shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the price of our common shares and trading volume to decline.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the operation of our business and future growth. We do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only source of gain on an investment in our common shares.
We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association (as may be amended and restated from time to time) and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) a duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) a duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not improperly fetter the exercise of future discretion; (iv) a duty to exercise powers fairly as between different sections of shareholders; (v) a duty to exercise independent judgment; and (vi) a duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
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Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Item 16G. Corporate Governance—Principal Differences between Cayman Islands and U.S. Corporate Law.”
Furthermore, the Cayman Islands has recently enacted the International Tax Co-operation (Economic Substance) Act (As Revised), or the Cayman Economic Substance Act. We are required to comply with the Cayman Economic Substance Act. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any relevant activities and if so, whether we have satisfied economic substance tests to the extent required under the Cayman Economic Substance Act. As it is a new regime, it is anticipated that the Cayman Economic Substance Act will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments and may have to make changes to our operations in order to comply with all requirements under the Cayman Economic Substance Act. Failure to satisfy these requirements may subject us to penalties under the Cayman Economic Substance Act.
As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), we have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.
As a foreign private issuer and emerging growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules, which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
We will follow Cayman Islands laws and regulations that are applicable to Cayman Islands exempted companies. However, Cayman Islands laws and regulations applicable to Cayman Islands exempted companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Cayman Islands laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB (unless the SEC determines otherwise), and our auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company.
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As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual revenues of at least U.S.$1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds U.S.$700.0 million as of the most recently completed second fiscal quarter, or (2) the date on which we have issued more than U.S.$1.0 billion in nonconvertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company. We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds U.S.$700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year-end). We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our common shares.
Section 5605 of the Nasdaq equity rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. See “Item 16G. Corporate Governance—Principal Differences between Cayman Islands and U.S. Corporate Law.”
We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (a) more than 50% of our common shares must be either directly or indirectly owned of record by nonresidents of the United States or (b)(i) a majority of our executive officers or directors may not be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will incur as a foreign private issuer.
Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.
Our corporate affairs are governed by our Articles of Association, by the Companies Act and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.
While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient.
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However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.
Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside the United States.
Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any State of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.
Judgments of Brazilian courts to enforce our obligations with respect to our common shares may be payable only in reais. The exchange rate in force at the time may not offer non-Brazilian investors full compensation for any claim arising from our obligations.
Most of our assets are located in Brazil. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our common shares, we may not be required to discharge our obligations in a currency other than the real. Under Brazilian exchange control laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares.
Our common shares may not be a suitable investment for all investors, as investment in our common shares presents risks and the possibility of financial losses.
The investment in our common shares is subject to risks. Investors who wish to invest in our common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our common shares, us, the sector in which we operate, our shareholder structure and the general macroeconomic environment in Brazil, among other risks.
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Each potential investor in our common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
| ● | have sufficient knowledge and experience to make a meaningful evaluation of our common shares, the merits and risks of investing in our common shares and the information contained in this annual report; |
| ● | have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in our common shares and the impact our common shares have on its overall investment portfolio; |
| ● | have sufficient financial resources and liquidity to bear all of the risks of an investment in our common shares; |
| ● | understand thoroughly the terms of our common shares and be familiar with the behavior of any relevant indices and financial markets; and |
| ● | be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. |
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for any taxable year, which could subject United States investors in our common shares to significant adverse U.S. federal income tax consequences.
Under the Internal Revenue Code of 1986, as amended (the “Code”) we will be a PFIC for any taxable year in which, after the application of certain look-through rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, “passive income.” Passive income generally includes dividends, interest, certain non-active rents and royalties, and capital gains. Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the price of our common shares, we do not believe we were a PFIC for our 2023 taxable year. However, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion. In addition, whether we will be a PFIC in any future year is uncertain because, among other things, our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our common shares, which could be volatile). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year.
If we are a PFIC for any taxable year during which a U.S. investor holds common shares, we generally would continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds common shares, even if we ceased to meet the threshold requirements for PFIC status. Such a U.S. investor may be subject to adverse U.S. federal income tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. We do not intend to provide the information that would enable investors to make a qualified electing fund election, or a QEF Election, that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC. A “mark-to-market” election may be available, however, if our common shares are regularly traded on a qualified exchange. For further discussion, see “Item 10. Additional Information—E. Taxation.”
ITEM 4. INFORMATION ON THE COMPANY
A.History and Development of the Company
We are a Cayman Islands exempted company incorporated with limited liability. We were incorporated as Vitru Limited on March 5, 2020. Our legal name is Vitru Limited and our commercial name is “Vitru,” “Uniasselvi” or “UniCesumar.” Our principal executive offices are located at Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, in the State of Santa Catarina, 88032-005, Brazil. Our telephone number at our principal executive offices is +55 (47) 3281-9500. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is https://investors.vitru.com.br. The information contained in, or accessible through, our website is not part of, and is not incorporated into this annual report.
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The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http:// www.sec.gov.
Our History
We have more than 20 years of history of growth among the largest digital education players in Brazil, throughout which we have been able to consistently improve our hybrid education model in several phases.
Uniasselvi was founded in 1999 as a college in Indaial, in the State of Santa Catarina, in the southern region of Brazil. Up until 2004, we operated primarily in the surrounding region as a local group of integrated institutions that provided traditional on-campus postsecondary education courses. In that year, we were granted the status of university center, a credential given by the MEC to postsecondary education institutions, which provided us with greater academic autonomy to offer new courses and research programs in multiple academic subjects.
We were accredited by the MEC to offer digital education courses in 2006. Since then, our student-centric model has been taking advantage of technology to make the postsecondary education learning process more accessible and affordable. As a consequence of our differentiated value proposition, we were able to achieve a regional leadership position in the south of Brazil and become a well-recognized brand nationwide.
In 2016, we were acquired by The Carlyle Group and Vinci Partners and we appointed a new executive team with extensive experience and a strong track record in the education industry. Our strategic focus was fully directed to the expansion of our digital education operations across Brazil.
Our expansion strategy was accelerated by the new regulatory framework for digital education in 2017, which is centered on postsecondary education institutions’ achievements in a quality index. This new regulatory framework has made it easier to open new hubs, thereby unlocking a major market opportunity. In that year, we worked together with a well-recognized consulting firm to develop a robust expansion plan, which mapped several opportunities to be captured in the following five years. In addition, we have created a new business intelligence unit to support intake cycles and our marketing strategy.
Since 2018, we have been a leading pure-player in the private postsecondary digital education market in Brazil, considering only players with at least 95% of students engaged in digital education with as reported in the most recent available data of the INEP.
In September 2020, we completed our initial public offering on the Nasdaq, through which we raised U.S.$96 million in total gross proceeds. The proceeds of our initial public offering were primarily intended to fund inorganic growth opportunities, and were applied to the UniCesumar Business Combination. Immediately prior to our initial public offering we undertook a corporate reorganization as described under “Item 4. Information on the Company—C. Organizational Structure.”
On July 16, 2021, we announced that MEC assessed and granted the highest grade (concept 5) in connection with the authorization process to allow us to offer a digital undergraduate course in law. The next steps in the process for us to become authorized to offer undergraduate courses in law are: (i) the review of such evaluation process by the Secretariat for Regulation and Supervision of Higher Education (Secretaria de Regulação e Supervisão do Ensino Superior), or SERES; and (ii) the publication of the ordinance related to completion of the legal regulatory procedures of MEC in connection with the authorization process for the digital undergraduate course in law.
On August 6, 2021, we announced that SERES issued ordinance No. 802 on August 5, 2021, related to the completion of the legal and regulatory procedures for MEC to authorize us to offer a digital undergraduate course in nursing. Uniasselvi achieved the highest grade (concept 5) in the authorization process and is therefore authorized to offer the course to 11,100 students annually.
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On May 19, 2022, our subsidiary Vitru Brazil completed its first issuance of debentures, issuing two series of simple, secured, nonconvertible debentures, in the total amount of R$1,950.0 million, comprised of a first series of debentures in an amount of R$500.0 million and a second series of debentures in an amount of R$1,450.0 million. The debentures from this first issuance of debentures mature on May 15, 2024 in the case of the first series of debentures and May 15, 2027 in the case of the second series of debentures.
On May 20, 2022, we closed our business combination with UniCesumar. The closing purchase price (subject to certain post-closing adjustments) amounted to R$3.21 billion, payable as follows: (i) 65.9% in cash on the closing date; (ii) 17.0% in stock through the issuance of 7,182,385 new common shares (5,144,383 common shares issued and delivered on the closing date and 2,038,002 common shares to be withheld for a specified term as an indemnification guarantee); and (iii) 16.0% in cash, to be paid 12 months after the closing date (subsequently extended to 24 months), as adjusted by the IPCA inflation rate beginning from the closing date, or the “UniCesumar Sellers’ Financing”. We have also entered into a five-year non-compete agreement with the Matos family, one of the former shareholders of UniCesumar, in connection with which we paid a total of R$180.0 million on the closing date. Other related payments may include an earn-out payment of R$1.0 million per additional medical seat approved within 36 months after closing, a performance earn-out payment of up to R$50.0 million up to two years after the closing date. Integration of the activities and results of operations of UniCesumar began on the closing date.
On September 2, 2022, we announced the acquisition of Rede Enem, a platform that provides free content through an ecosystem that includes blogs, free preparatory courses, and social media profiles. Rede Enem offers services designed to improve the performance of secondary education students, mainly coming from public schools, in the National Secondary Education Examination (Exame Nacional do Ensino Médio, or ENEM). The ENEM result is part of the criteria for the selection process in the University for All Program (Programa Universidade para Todos, or PROUNI), Student Financing Program (Fundo de Financiamento Estudantil, or FIES), and scholarships in private educational institutions. Rede Enem also provides preparatory course with free content for the National Certification of Skills for Young People and Adults Examination (Exame Nacional para Certificação de Competências de Jovens e Adultos, or Encceja). The purchase price was R$3.0 million, of which R$1.5 million was paid in cash on the closing date, with the balance of R$1.5 million subject to an earn-out which will be paid within 24 months, subject to the fulfillment of certain obligations and the satisfaction of certain results.
On September 27, 2022, we announced that we had entered into a definitive investment agreement with Crescera, pursuant to which Crescera agreed to subscribe for 3,636,363 new common shares for a total consideration of R$300 million, equivalent to US$58.3 million based on the agreed exchange rate, or approximately US$16.02 per common share as part of the Crescera Investment. The initial investment pursuant to the Crescera Investment closed on November 8, 2022. The common shares acquired by Crescera are subject to a lock-up until November 20, 2023, subject to customary exceptions. Furthermore, pursuant to the board appointment rights contemplated by our Amended and Restated Memorandum and Articles of Association, Crescera has the right to appoint up to two directors to our board of directors until our annual general meeting in 2024, provided that Crescera does not transfer one or more of our common shares between November 20, 2023 and our annual general meeting in 2024. If Crescera so transfers any of our common shares during that period, its right to appoint two directors shall cease.
On October 24, 2022, we distributed nontransferable subscription rights to each holder of our common shares as of 5:00 p.m., Eastern Time, on October 21, 2022, or the “record date.” The subscription rights were exercisable at any time during the subscription period, which commenced on October 24, 2022, and ended at 5:00 p.m., Eastern Time, on November 17, 2022. Subscription rights that were not exercised during the subscription period expired and have no value. One subscription right was distributed for each six common shares held as of the record date, with each subscription right exercisable for one common share at an exercise price of US$16.02 per full common share. Pursuant to the exercise of subscription rights in the rights offering, or the “Rights Offering,” we issued 926,206 common shares for US$16.02 per common share, raising gross proceeds of US$14.8 million. Settlement of the rights offering occurred on November 21, 2022.
On September 26, 2022, we entered into an agreement with the former shareholders of UniCesumar, though which the maturity date of the UniCesumar Sellers’ Financing in connection with the UniCesumar Business Combination was postponed from 12 months to 24 months after the closing date.
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After the 12th month, the UniCesumar Sellers’ Financing will be adjusted by the monthly variation of the Brazilian base interest rate (the SELIC rate) plus 3.0% per year.
On December 5, 2022, we issued 215,903 common shares to Crescera, pursuant to the exercise of an option granted to Crescera in connection with its investment and the rights offering, and raised aggregate gross proceeds of US$3.5 million. Pursuant to the investment agreement entered into on September 27, 2022 described above, Crescera was granted an option to purchase additional common shares not subscribed for by Vitru’s minority shareholders in the rights offering, for up to a maximum amount equivalent to R$100 million less the total amount received by Vitru from subscriptions for new common shares by minority shareholders.
On May 5, 2023, we announced that Vitru Brazil completed its second issuance of debentures, issuing simple, secured, nonconvertible debentures in an aggregate principal amount of R$190 million maturing on May 5, 2028, in a public offering directed solely to professional investors in Brazil, in compliance with Rule No. 160 of the CVM.
On August 25, 2023, we announced that certain of our shareholders, Vinci Capital Partners II J Beta Fundo de Investimento em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC, and Raffaello Investments LLC (together, “Vinci”) entered into a share purchase agreement with Dboat I Fundo de Investimento em Participações Multiestratégia (“23S”) pursuant to which Vinci agreed to sell 1,875,000 (or, approximately 5.5% of our outstanding share capital) to 23S, subject to certain conditions. One condition to this transaction was that we would amend and restate our Amended and Restated Memorandum and Articles of Association in order to grant 23S certain director appointment rights similar to those granted to Crescera, Carlyle SPX and the Vinci Group. Such amendment was approved at our annual general meeting held on October 23, 2023.
On September 5, 2023, we announced a corporate restructuring proposal, subject to shareholder approval to merge us into our wholly owned subsidiary, Vitru Brazil, pursuant to which Vitru Brazil would be the surviving entity and would become the new holding company for the Vitru group. The Proposed Transaction is intended to modify the Vitru group’s current holding structure by replacing the holding company, Vitru, a Cayman Islands incorporated company that has its shares publicly traded on Nasdaq, with a Brazilian incorporated company that is registered with the CVM and which will have its shares listed on B3, the Brazilian stock exchange after the completion of the Proposed Transaction. The goal of this transaction is to align the jurisdiction of the stock exchange on which the shares of the Vitru group are traded with the jurisdiction in which the principal business activities of the Vitru group are conducted, thereby aiming to (i) attract investors and coverage by analysts that have greater interest and familiarity with the business and industry, and (ii) increase stock liquidity. As part of the Proposed Transaction, it is proposed that Vitru will be merged into Vitru Brazil. Following the completion of the Proposed Transaction, the outstanding shares of Vitru Brazil will be directly owned by all shareholders of Vitru as of immediately prior to the completion of the Proposed Transaction and the shares of Vitru Brazil will be listed under the Novo Mercado segment of the B3. On March 6, 2024, the registration statement filed by Vitru Brazil relating to the Proposed Transaction was declared effective by the SEC. The Proposed Transaction was approved at the extraordinary general meeting of shareholders held on April 19, 2024 and is expected to close in June 2024.
On December 5, 2023, we announced that Vitru Brazil completed its third issuance of debentures, issuing simple, unsecured, nonconvertible debentures in a private offering directed solely at professional investors in Brazil, in compliance with Resolution 160 of the CVM. The aggregate principal amount of the debentures is R$500 million comprised of a single series that will mature on November 16, 2028.
On March 1, 2024, we announced the conclusion of our chief executive officer transition period, ending our co-CEO structure where we were led by both William Matos and Pedro Graça. As of March 1, 2024, William Victor Kendrick de Matos Silva took over as the sole chief executive officer of the Vitru group.
On March 28, 2024, we announced that our Chief Financial Officer, Carlos Henrique Boquimpani de Freitas, resigned from his position, to be effective April 30, 2024. We are currently searching for a replacement for Mr. Freitas. If a replacement is not found in time, Willian Victor Kendrick de Matos Silva is expected assume the role of Chief Financial and Investor Relations Officer on an interim basis.
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B.Business Overview
Our Mission
Our mission is to democratize access to education in Brazil through a digital ecosystem and empower every student to create their own success story.
We believe that the future of postsecondary education consists of a combination of quality, engagement, flexibility, affordability, technology and innovation. We believe that by incorporating all these elements into our value proposition, we not only provide a differentiated learning experience for our students in their academic journey, but also help them to increase their professional opportunities, which translates into higher employability levels and wages.
Although we focus on undergraduate digital education courses, we also offer digital continuing education and certain on-campus undergraduate courses.
Our Business
We provide a complete pedagogical system focused on a hybrid or exclusively digital education experience for undergraduates and continuing education students. We offer a differentiated digital education experience to our students through hybrid model, which emphasizes flexibility, affordability and a strong relationship with all stakeholders engaged in our platform. Our hybrid and technology-enabled content is delivered both digitally and through in-person weekly meetings led by trained tutors throughout our extensive hub network. We believe that our tutor-centered learning experience sets us apart, creating a stronger sense of community and belonging while contributing to higher engagement and retention rates among our student base.
Our digital education centers, or “hubs,” are the core of our system, which offer in-person tutoring, supported by virtual mentoring. We operate our hubs mainly through joint operations in a scalable partnership model based on symbiotic, financially aligned and self-reinforcing relationships with our hub partners, who manage day to day operations and financial planning. We have built and maintained strong relationships with our 676 hub partners, who play a key role in our growth strategy.
We have one of the largest nationwide digital education footprints in Brazil, driven by an asset-light and scalable business model that is resilient through macroeconomic cycles. Our learning methodology and online educational platform enable us to deliver affordable content digitally and through hubs with in-person and virtual mentoring. Our hybrid platform and unique offerings lead to higher retention rates than our competitors and support our growth strategy. We expect our system to include a lifelong postsecondary education journey with a growing offering of undergraduate and continuing education programs, in which we leverage students’ learning methods, performance, and interests as data to drive tailored and engaging educational solutions.
Our revenue is driven primarily by tuition fees charged for digital education undergraduate courses. Although we focus on undergraduate digital education courses, we also offer digital continuing education and certain on-campus undergraduate courses. We operate mainly through joint operations in a scalable partnership model with strong cash flow generation. Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each partner on the service contract. This percentage is basically similar across all our partnership agreements within the same brand (Uniasselvi or UniCesumar) and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, in the case of Uniasselvi, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of lower tuition share allocated to our hub partners.
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We believe that the features of our platform, together with proven academic outcomes, a differentiated student experience, and the highest quality standards measured by the Institutional Concept score, or “CI score,” have significantly contributed to our growth, allowing us to capture a leading position in digital education in Brazil.
Vitru completed the UniCesumar Business Combination on May 20, 2022, creating a growing player in the post-secondary digital education market and the largest player in terms of digital education enrolled students in Brazil according to the most recent INEP data available. UniCesumar was founded in 1989 by a group of teachers led by Professor Wilson de Matos Silva and has become one of the 10 largest education groups in Brazil by number of enrolled students, according to the INEP census published by the MEC in February 2022.
The following is a summary of our key operational and financial highlights:
|
|
As of December 31, |
|
CAGR(1) |
|
|||||
|
|
2023 |
|
2022 |
|
2021 |
|
|
2023-2021 |
|
Number of Hubs |
|
2,499 |
|
2,170 |
|
939 |
|
|
63.1 |
% |
Total enrolled students |
|
883,646 |
|
768,384 |
|
365,433 |
|
|
55.5 |
% |
Digital education to total enrolled students |
|
97.5 |
% |
97.3 |
% |
98.3 |
% |
|
- |
|
(1) |
Compound annual growth rate, or CAGR. |
For more information, see “Item 5. Operating and Financial Review–A. Operating Results-Key Business Metrics.”
|
|
For the Year Ended December 31, |
|
Variation |
|||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2023 vs. 2022 |
|
2022 vs. 2021 |
|
||||
|
|
R$ |
|||||||||||||
|
|
(in millions, except percentages) |
|||||||||||||
Net Revenue |
|
1,962.5 |
|
1,317.3 |
|
631.1 |
|
645.2 |
|
49.0 |
% |
686.2 |
|
108.7 |
% |
Net Income for the Year |
|
108.8 |
|
93.3 |
|
70.7 |
|
15.5 |
|
16.6 |
% |
22.6 |
|
32.0 |
% |
Adjusted EBITDA(1) |
|
718.4 |
|
447.1 |
|
182.4 |
|
271.3 |
|
60.7 |
% |
264.7 |
|
145.1 |
% |
Adjusted Net Income(2) |
|
254.0 |
|
214.5 |
|
91.5 |
|
39.6 |
|
18.4 |
% |
123.0 |
|
134.4 |
% |
(1) |
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our loss for the year, see “Item 3. Key Information—A. Selected Financial Data— Non-GAAP Financial Measures—Reconciliation of Adjusted EBITDA from Net Income (Loss) for the Year.” |
(2) |
For information on how we define Adjusted Net Income, see “Presentation of Financial and Other Information —Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Net Income from Net Income (Loss) for the Year, see “Item 3. Key Information—A. Selected Financial Data— Non-GAAP Financial Measures—Reconciliation of Adjusted Net Income from Net Income (Loss) for the Year.” |
For information on how we define Adjusted EBITDA and Adjusted Net Income, see “Presentation of Financial and Other Information.” For a reconciliation of Adjusted EBITDA and Adjusted Net Income, see “Item 3. Key Information—A. Selected Financial Data—Non-GAAP Financial Measures—Reconciliations for Non-GAAP Financial Measures.”
Our Student-Centric Model
We believe that by incorporating quality, engagement, flexibility, affordability and innovation into our value proposition, we provide a differentiated learning experience to our students. In this context, postsecondary education students in Brazil need alternatives that are not only more affordable and flexible, but also provide a quality education with real-person interactions throughout the learning process. This is why our goal is to democratize access to education in Brazil through a digital ecosystem and empower every student to create their own success story.
Our value proposition differentiates us from other competitors in the Brazilian market, as we seek to address what students value the most by providing a personalized student experience which combines the advantages of digital education and on-campus education. We believe our hybrid model incorporates the flexibility of online learning whenever and wherever appropriate, while also giving students the opportunity to build connections and to experience a sense of belonging through frequent interactions with tutors, teachers and other classmates during weekly meetings.
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Our digital education undergraduate courses follow an academic structure based on modules, with each module consisting of five subjects that last a month (or four weekly meetings). We ensure that every student has a thoughtful, personalized and full academic experience with networking opportunities, a sense of belonging and flexibility, which allows maximum engagement, performance and development. Our modular structure also allows for better classroom utilization between different semesters and courses, resulting in a more efficient management of our student/class ratio.
Our flipped classroom methodology gives the best of both in-person and virtual resources to our students to facilitate the learning process. Students have access to all the course materials online in multiples formats (videos, eBook, podcasts and html text, among others), as well as to online tutors. The in-person meetings provide an opportunity for students to improve their understanding of the subject through discussion, activities and explanations from the local dedicated tutor.
Additionally, we give our students the opportunity to take 100% online cross-disciplinary courses offered from the fourth module onwards. These courses enhance our students’ skills beyond the classroom and help prepare them for the labor market, by focusing on soft and 21st century skills, current global topics and support for tests needed for government procurement jobs in Brazil. We have been developing our methodology not only to support our students in their academic journey, but also increasingly in their professional endeavors.
Given that most of our students attended low-quality public secondary schools, we offer support to help them compensate for possible learning deficiencies with online classes. We make available modules covering basic school subjects, such as the Portuguese language and mathematics, which can be taken concurrently with the undergraduate course.
Technology-Enabled Platform
Our technology-enabled platform empowers the entire ecosystem. We have developed an integrated suite of technology platforms which provides data intelligence for all stakeholders involved in the education process. This enables us to differentiate our hybrid digital education model in the market, manage all of our hubs, conduct all of our commercial activities and operate efficiently across Brazil. We believe digital education is the best option for those who do not have time to go to class every day and need flexibility in their schedule, but want to have access to quality postsecondary education. Through our virtual learning environment, or VLE, we offer features that benefit students, tutors, hub partners and our management.
| ● | Students’ Portal, which is an online portal that contains all of our academic content, as well as student information, such as grades, deadlines, attendance and financial information. It also allows students to access online after-class support from tutors. In December 2020, to improve the academic experience of Uniasselvi’s students, we launched a brand-new version of our in-house platform, Gioconda, our digital platform, which now includes adaptive learning concepts. In the same way, UniCesumar’s students have access to Studeo, which enables our students to study where and when they prefer. Accordingly, in addition to students being able to study when and where they choose through our VLE, which is intuitive and dynamic, students can ask and have their questions answered in-person by a tutor, as well as perform group work and interact with other students. This creates network opportunities and a sense of belonging. |
| ● | App Leo and Studeo, which is a mobile application where students can find content relating to all course subjects; simulators and 3D laboratories; all student services, including a WhatsApp center; online support with tutors; course learning results and learning activities; student and class benchmarks; as well as academic and financial information. |
| ● | Tutor’s Portal, which is an online tool available to all of our tutors that tracks general performance indicators relating to the classes to which they are assigned. This allows tutors to keep track of their students’ development by understanding their individual characteristics and following their engagement, as well as to monitor their classes’ progress. It also gives them access to data that they can use to improve their planning methods and teach their classes effectively. |
| ● | Teacher’s Portal, which allows teachers in charge of content production to monitor content delivery and quickly change, update and add new content to support all students or students from a certain region who have |
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| specific difficulties. We also develop our own academic content internally, which allows us to continuously improve it according to students’ feedback and achieve superior satisfaction levels. |
| ● | Manager’s Portal, which supports all of our hub partners and our management team by providing financial and operational performance indicators relating to our hubs, on an individual and consolidated basis, and information about our competitive landscape. It allows partners to monitor the hub’s progress and plan their decision-making based on performance and data. Our partners can also use this platform to create their own advertising campaign with a standardized visual identity and centralized support. |
| ● | Sales Management System, which is a platform that allows us and our hub partners to execute a dynamic pricing strategy adapted to each of the geographic markets in which we operate with enhanced discount and promotion controls. We believe that this tool helps us maximize our revenue from each hub and in each market by giving us and our partners across Brazil access to a complete sales interface. This system also provides georeferenced technology through a “heat map” that helps us choose the right place to open a new hub based on an analysis of data on potential students. |
The COVID-19 pandemic in Brazil posed a series of challenges to companies across different economic sectors, including as a result of social distancing measures imposed by governmental authorities. While restrictions were imposed on in-person meetings which affected our business, our operations were not materially affected during the pandemic. We migrated our weekly in-person meetings with students to weekly virtual meetings conducted through the Microsoft Teams platform.
In this context and in a seamless adaptation to the pandemic, we have accelerated the delivery of digital content, like social media tools to interact with our students and prospective students. We also provided additional training sessions to our tutors using Microsoft Teams and supported them with methodologies to keep the student engaged. Since we already delivered most of our services remotely, we did not experience a significant disruption to our business from the adaptation of our learning model.
Data-Driven Student Experience
Our students’ experience is evaluated based on a continued improvement process. Our students assess all of their contact points with us on a periodic basis (eight times per year). We call this internal evaluation process “CPA”. It is designed to support our and our partners’ decision-making based on the data collected. We ask students to assess their experience with us based on three aspects:
| ● | Infrastructure: the quality of infrastructure of our hubs, such as classrooms, common spaces, practice laboratories, computer laboratories, library and virtual learning environment. |
| ● | Course: the quality of the course, subjects and content. The assessment questions are related to the teaching organization; teaching materials such as textbooks, video classes, learning objectives and interactive learning tools; academic and professional training, course coordinator’s performance and tutor performance, both online and during the weekly in-person meetings. |
| ● | Institution: the perception of the quality of the academic service, institution management and the institution’s values. |
We have an extensive database from the abovementioned pool of information that guides our analysis and shapes our plans to constantly improve the student experience. Below are three of the most frequently followed KPIs:
| ● | Tutor: this assessment takes place on a monthly basis and is available for monitoring by the coordinator and the tutor. |
| ● | Student Service: this is a tool used to evaluate our efficiency in addressing administrative issues. This assessment takes place semiannually and is available for monitoring by our hub partners. Our team keeps in contact with the administrative staff of our hubs, host training sessions, and share the best practices to improve service delivery. |
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| ● | Infrastructure: this assessment takes place semiannually, and we share this KPI with our hub partners in order to support them. |
Tutor-Centered and Mediator-Teacher Hybrid Model
We believe our dedicated tutors and mediators are a key part of the success of our educational model. They are available not only during the weekly meetings, but also online to assist each student individually with their learning, to provide close guidance and activities and answer any questions that students may have.
Our tutors are local experienced professionals who work in their areas of expertise. We believe that the fact that our tutors and mediators with experience in professions relating to the subject that they teach gives the students practical business insights (e.g., an accountant who takes a part-time job as a tutor to support undergraduate accounting students). We believe that the relationship between the student and the tutors and mediators is very important.
Each of them accompanies their students throughout the whole course, across all modules, supported by a data-oriented methodology that enables them to measure and manage students’ learning experience in a single, exclusive digital platform that provides insights on performance, enrollments, grades, dropouts and achievement of goals. We believe this helps to create a personal bond and gives tutors and mediators the ability to play a fundamental role in the development of our students inside and outside the classroom.
Our local tutors are a part of the same community and face the same reality and conditions as our students, which paves the way for a close relationship and gives tutors the ability to play a fundamental role in the development of our students inside and outside the classroom.
The success of our tutor-based model from Uniasselvi or mediator-teacher model from UniCesumar requires well-prepared professionals who must not only have an academic background, but also industry experience. They are our employees, and we control the entire hiring and training process and monitor their performance, through our students’ monthly evaluation. This helps us ensure that adequate quality levels are maintained. We invest a significant amount of time and resources to train them constantly.
We believe that this careful process, considering the individuality of each brand, allows us to provide a quality service to our students at our hubs, supported by our online, technology-enabled platform and content. This model allows for higher student satisfaction and higher retention rates.
Strong Network of Hub Partners
We have built and maintained strong relationships with our hub partners who have played a key role in our growth. We expect to maintain the relationships as we grow, because they are essential to the scalability of our business model. Our hub strategy is proximity at scale. We believe a solid partnership network is critical to executing our digital education strategy and expanding our operations in an asset-light model.
Our business model is financially aligned with that of our hub partners. Our hub partners are compensated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student in the service agreement. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, for Uniasselvi partners, this percentage is higher in the beginning of the hub’s operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. On the other hand, for UniCesumar partners, this percentage is fixed, depending on the methodology and type of course. We believe that the share of the tuition fee paid to our hub partners represents an amount that allows our hub partners to maintain educational facilities and provide needed services to our students. We also believe that this structure incentivizes our hub partners to attract a higher number of students, which will in turn increase such hub partner’s profitability.
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Each hub partner is responsible for rental costs and property maintenance, as well as administrative services, cleaning, local student service and infrastructure of the classrooms. Our partners are also responsible for local advertising campaigns and relationships with the local community, as well as for providing us with data about the local competitive landscape, context and demographics. This allows us to set individual prices for each course, in each hub, in each city we operate.
We believe that our partners choose to work with us for the following reasons, among others: (1) our profitable partnership model; (2) our strong brand; (3) our effective tutor-centered methodology with higher retention rates; (3) our distinctive digital marketing strategy; (4) our technology-enabled platform and sales tools designed to help partners manage their businesses more efficiently on a daily basis; and (5) our comprehensive product portfolio.
Partners are typically not business managers; they are entrepreneurs or pedagogical consultants with extensive backgrounds in the education sector – e.g., former school principals or former executives of our Company. The features of our technology-enabled platform help them to follow their operational and financial key performance indicators, or KPIs, in real time. These KPIs include active students per hub, internal evaluation (CPA) application, drop-out rates, and students’ failure and attendance rates, on both an individual and a consolidated basis if they own more than one hub. In addition, our partners can track the competitive environment, such as pricing promotions and discounts offered by other companies.
We further provide specialized training programs for our hub partners so they can become specialists in the day-to-day operations and ultimately be able to deal with financial and academic difficulties. Based on a manager’s portal that provides standard performance indicators, we also host monthly meetings to discuss financial and pedagogical performance. These meetings are an opportunity to discuss the implementation of KPI monitoring routines, train hub partners on presentation skills, provide guidance on turnaround strategies when hubs are performing below their stipulated goals, and monitor the evolution of such strategies.
In our view, the increase in the number of average hubs owned by each of our partners underpins the strength of our relationships. On average, after four years, our partners operate six hubs. Our hub partners’ attrition rate is very low, and most terminations or suspensions of partnerships are attributable to us (usually as a result of our partners’ failure to manage the business).
Evolution of the Number of Hubs per Uniasselvi Partner |
|
Base hubs |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
Base partners |
|
1.7 |
|
3.4 |
|
4.6 |
|
5.3 |
|
5.7 |
|
7.3 |
|
7.6 |
|
5.7 |
2017 partners |
|
|
|
3.7 |
|
3.9 |
|
4.7 |
|
4.8 |
|
5.1 |
|
5.6 |
|
4.6 |
2018 partners |
|
|
|
|
|
2.8 |
|
3.4 |
|
3.5 |
|
2.3 |
|
2.1 |
|
2.8 |
2019 partners |
|
|
|
|
|
|
|
1.7 |
|
2.7 |
|
3.5 |
|
3.8 |
|
2.6 |
2020 partners |
|
|
|
|
|
|
|
|
|
1.5 |
|
1.8 |
|
2.1 |
|
1.8 |
2021 partners |
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
1.6 |
|
1.7 |
2022 partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
1.8 |
2023 partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
Evolution of the Number of Hubs per UniCesumar Partner |
|
Base hubs |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
Base partners |
|
1.4 |
|
2.3 |
|
3.2 |
|
3.7 |
|
3.9 |
|
5.2 |
|
5.9 |
|
5.7 |
2017 partners |
|
|
|
1.4 |
|
1.8 |
|
2.2 |
|
2.4 |
|
3.1 |
|
3.5 |
|
4.6 |
2018 partners |
|
|
|
|
|
1.2 |
|
1.4 |
|
1.6 |
|
2.1 |
|
2.3 |
|
2.8 |
2019 partners |
|
|
|
|
|
|
|
1.2 |
|
1.3 |
|
2.1 |
|
2.4 |
|
2.6 |
2020 partners |
|
|
|
|
|
|
|
|
|
1.4 |
|
1.9 |
|
2.3 |
|
1.8 |
2021 partners |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
1.7 |
|
1.7 |
2022 partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
1.8 |
2023 partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
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As shown above, the number of hubs per new Uniasselvi partner in year decreased from 2.8 in 2018 to 1.7 in 2019 to 1.5 in 2020 to 1.4 in 2021 to 1.5 in 2022, then increased to 1.9 in 2023. This is due to the fact that the expansion of new hubs in 2018 started in more densely populated areas and then progressed into less densely populated regions, and the number of hubs per new partner therefore decreased as a result of the geographic position of the new hubs.
Integrated Marketing Model
We developed a marketing model for our operations, which focuses on managing the student’s entire life cycle from the moment they are first identified as prospective students, and which integrates communication, commercial and sales strategies as well as management tools. From finding potential customers to enrolling them as new students, we establish and develop relationships with students. We endeavor to avoid dropouts and maintain ongoing relationships with our alumni. We believe that the strategy to manage this complex process is one of our competitive advantages. Our marketing strategy has three main focus areas:
| ● | Communication Strategy: we developed our strategy by focusing on managing investments and sales volumes in each region of Brazil, assessing our performance and customer acquisition cost (which we calculate as the sum of marketing expenses divided by student intakes), or “CAC,” per hub. Media investments are made transparently with hub partners, according to the local market share of our brand and the number of competitors by location. Our marketing strategy is divided into national and local campaigns, with digital and offline marketing as the main pillars of our communication; |
| ● | Integration and management of sales efforts: we developed an integrated operation process with our hub partners using successful internal teams from each hub, focused on supporting commercial teams across the network. We operate as a single team, with an eye on the entire business process within our systems. Our sales team work in a fully integrated manner with a set of supporting processes and systems to generate an intense sales effort and is constantly updated on new strategies through our digital education system. Our sales academy, which uses standard content to educate the entire sales force, broadcast tools for periodic meetings with the entire hub network and mobile groups in order to streamline urgent demands; and |
| ● | Relationship with students: our strategies are based on sharing relevant information for the use of our services, engaging students with the course and retaining them. To support relationship planning, we evaluate all classes taking place. In each subject, students evaluate all main factors affecting our courses: the tutor, the content and the infrastructure of the hub. This continuous process, known as CPA, allows a constant flow of information to our management team, who are focused on maximizing the experience delivered to students. Based on our relationship with students, demonstrated by high levels of satisfaction and low dropout rates, we incorporated additional strategies in an attempt to further improve our results of operations, among which we highlight the use of Artificial Intelligence, or AI, and the adoption of best practices for customer experience. Improvements in our quality indicators are the best confirmation of the success of our student relationship policies and strategies, as well as our efforts to integrate of their experience with our brands. The results in our CPA and Institutional Concept evaluated by the MEC indicate that we are on the right path. |
Our Products and Services
We believe that, by incorporating quality, engagement, flexibility, affordability and innovation into our course offerings, we provide a differentiated learning experience to our students. Our core business is to provide digital education undergraduate courses, however, we also offer digital education graduate and on-campus undergraduate courses.
Our value proposition differentiates us from our competitors in the Brazilian market, as we seek to address what students value the most by providing a personalized student experience which combines the advantages of digital education and on-campus education. We believe our hybrid model incorporates the flexibility of online learning whenever and wherever appropriate, while also giving students the opportunity to network and to experience a sense of belonging through frequent interactions with tutors and other classmates during weekly meetings.
Our internal financial reports are also based on these three operating segments, as further detailed below.
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Digital Education Undergraduate Courses
Our portfolio of courses is composed mainly of pedagogy, business administration, accounting, physical education, vocational education, engineering and health-related courses. Courses are offered in two different versions, consisting either of (i) a hybrid model and (ii) 100% online, and cover three undergraduate degrees:
| ● | Bachelor: Courses covering a wide range of theoretical and practical subjects, with an average duration of four to five years; |
| ● | Teaching: Courses focused on training professionals to act as teachers or professors, with an average duration of four years; and |
| ● | Vocational: Courses focused on developing practical skills for a specific profession, with average duration of two to three years. |
Uniasselvi
What differentiates our digital education model is its hybrid methodology, which consists of weekly in-person meetings with on-site tutors, besides the benefit of the VLE, which works with the academic system Gioconda and the Leo App. Uniasselvi digital education undergraduate courses are structured around separate monthly modules. This enables students to enroll in digital education courses at any time during a semester. Each module includes four in-person meetings at our hubs or online live meeting, depending on the type of course chosen.
Despite this flexibility, we generally experience a higher number of enrollments in digital education courses in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, we generally experience 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. This is due to the high school calendar in Brazil in which classes end in December. In order to attract and encourage potential new students to enroll in our undergraduate courses later in the semester, we often offer discounts, generally equivalent to the number of months that have passed in the semester.
Courses are offered in two formats: (i) hybrid: our core product, which consists of one weekly in-person meeting with dedicated local tutors. For some specific engineering and some health-related courses, it consists of two weekly in-person meetings with dedicated local tutors; and (ii) flex: the course is given in the same way as the hybrid digital education format, but with a weekly virtual meeting. The student only goes to the hub for end-of-month exams. Our flex course offering also allows tutors to assist classes formed by students from anywhere in Brazil in the same virtual lab. Through this format, we can serve smaller regions where demand is insufficient to form a class of a specific course.
UniCesumar
As a complementary way of offering its courses, using the hybrid methodology, UniCesumar delivers weekly online live classes, focused on student autonomy and the quality of educational resources, and also the benefit of the VLE, that works with the academic system and the app Studeo. The courses are structured in 10-week modules. The students have four modules per year, and each module contains two or three disciplines. These are offered by way of weekly online live classes, recorded conceptual classes and case studies, in-person tests applied in our hubs, online studies and general knowledge activities. UniCesumar also offers educational content and support via internet and mobile devices.
UniCesumar’s digital education undergraduate courses are structured in 10-week modules, which means that students are able to enroll in digital education courses twice during a semester. Despite this flexibility, UniCesumar generally experiences a higher number of enrollments in digital education courses in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, similar to Uniasselvi, UniCesumar also generally experiences a higher number of enrollments at the beginning of the first semester of each year than at the end of the second semester of each year due to the high school calendar in Brazil in which classes end in December.
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Courses are also offered in two formats, according to the methodology of each course: (i) hybrid: for courses that do not require practical classes, such as some specific engineering and some health-related courses; and (ii) online: for courses that do not require practical classes, such as business administration, teaching or some vocational courses. It is important to highlight that all students have weekly synchronous classes with teachers.
On-Campus Undergraduate Courses
We additionally offer traditional on-campus undergraduate courses, including those that are currently not allowed to be offered through digital education, such as law and health-related courses, and others such as business administration, accounting, physical education, and engineering. As of December 31, 2023, there were approximately 21,716 students enrolled in our on-campus undergraduate courses.
UniCesumar is supported by a brand legacy of over 30 years as a regional leader, including with regard to its medical education courses. UniCesumar has 348 approved medical seats for campuses located in Maringá in the State of Paraná and Corumbá in the State of Mato Grosso do Sul. In addition to these seats, UniCesumar can offer additional medical seats per year in accordance to rules determined by governmental programs such as PROUNI, FIES and Mais Médicos. UniCesumar’s medical course is ranked the sixth-best medical course among private institutions in Brazil, according to the 2019 Preliminary Course Concept by the ENADE.
Continuing Education Courses
We offer continuing education courses predominantly in pedagogy, finance and business, and also in other subjects such as law, engineering, IT and health-related courses. Courses are offered in three different versions, which are (i) in a hybrid model, (ii) 100% online, and (iii) on-campus. In addition to our graduate courses, we offer online short courses, professional qualification courses and technical courses.
In December 2020, we launched a pilot project focused on certificate programs for technical courses, which we believe is a potentially growing sector. This project is part of our strategy to expand complementary offerings throughout the students’ lifelong journey, providing an opportunity for students to follow a certificate program for vocational courses in parallel with high school studies or prior to their enrollment in an undergraduate program. As part of the first phase of the pilot project, there were three technical courses already authorized and being offered at ten hubs located in certain Brazilian states. We believe this could represent an additional source of revenue for us and contribute to a reduction of our customer acquisition cost, as these students may extend their learning journey with the pursuit of an undergraduate degree afterwards.
As part of our strategy following the UniCesumar Business Combination, with the expertise of our digital education undergraduate business, we expect to further grow and develop this operating segment.
For additional information about our students and business, see “Item 5. Operating and Financial Reviews and Prospects—A. Operating Results—Key Business Metrics.”
Seasonality
We generally experience 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. This is due to the high school calendar in Brazil in which classes conclude in December. In order to attract and encourage potential new students to enroll in our undergraduate courses later in the semester, we often offer discounts, generally equivalent to the number of months that have passed in the semester. As a result, we generally record higher revenue in the second and fourth quarters of each year. Revenue is also higher later in the semester due to lower dropout rates during that same period.
A significant portion of our expenses are also seasonal. Due to the nature of our intake cycle, a significant amount of selling and marketing expenses are incurred in connection with the first semester intake, particularly in the first quarter of each year. As a result, we expect quarterly fluctuations in our revenue and operating results to continue. These fluctuations could result in volatility and adversely affect our performance, liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced.
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As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our results of operations.
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations” for additional information.
Our Distribution and Geographic Presence
As a consequence of the new regulatory framework in 2017, which eased the process to open new hubs, we were able to expand our operations and geographic presence. As a result of our differentiated value proposition, we were able to increase our number of hubs and student base while improving quality.
We are present in all states of Brazil with considerable market share of enrollments in all regions. We have operating hubs in 1,417 cities, with 802 of these cities having over 40,000 inhabitants – which, according to our business model, is the optimal population to accommodate a digital education hub. We are also present in all cities in Brazil with over a million inhabitants. We note that as soon as we enter a new city, we usually quickly gain market share and become the market leaders of the city through our combination of hybrid offering, efficient pricing strategy and student-centric business model.
We have worked together with an international consulting firm to develop a robust expansion plan, which has mapped several opportunities to pursue in the next five years. Additionally, we also employ a heat map tool (which we developed in-house) that allows us to efficiently position new hubs geographically. Our heat map searches and analyses the locations of potential students’ homes and workplaces and optimizes our decisions as to the location of our hubs, whether to open new hubs or to relocate already operational hubs.
We have a very strong presence in the south region of Brazil. According to the 2022 Postsecondary Education Census by the INEP we had a market share of 33.3% between private institutions in terms of digital education enrollments in this region. We are also present in locations where access to on-campus education is difficult or deficient, with a large amount of hubs in small cities. We believe that our strong distribution network serves our purpose of democratizing access to postsecondary education and cementing our leadership nationwide.
We currently have a strategy to further penetrate the southeast region, as it is the largest market in Brazil. The charts below illustrate representativeness of each region in terms of enrollments in the total private digital education market, as well as our market share per region:
Source: INEP.
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Sources and Availability of Raw Materials
We outsource the printing and binding of our educational materials. Printer costs are one of our principal costs, and printer fees are impacted by changes in the price of paper, one of the principal raw materials required to produce our educational materials. The cost of paper is generally impacted by fluctuations in U.S. dollar/real exchange rate, and is also impacted by inflation, but not necessarily linked to a specific inflation index. Such changes in prices are reflected as inflation adjustments in the fees charged by our third party printers, which produce our printed materials.
Our Competitive Strengths
Over the last 20 years, we have built a set of capabilities and features of our hybrid digital education business model and we believe this provides us with meaningful sustainable competitive advantages. Our value proposition differentiates us from other competitors in the Brazilian market, as we address what students value the most by providing a personalized student experience that combines the advantages of digital education and on-campus education.
We believe our platform is difficult to replicate and it would take a significant amount of time and investments for competitors to be able to compete with our know-how, brand awareness, content production and methodology, infrastructure, as well as build a solid partner network to reach the scale of our operations.
We have been developing and improving our digital education platform not only to support our students in their academic journey, but also increasingly to support them in their professional endeavors. We are passionate about democratizing access to postsecondary education in Brazil because we know the power of affordable education and its ability to transform our students’ lives.
One example of our continued focus on digital strength is the business combination we undertook in May 2022 with UniCesumar, an educational platform that has achieved high quality indicators and benefits from strong technological support while also having a regional footprint that is complementary to ours. See also “Item 4. Information on the Company—A. History and Development of the Company— Our History.”
Through our technology-enabled platform, we support all of our stakeholders. While we produce and deliver content that is centralized and constantly evolving, we enable hub partners and tutors to distribute it in multiple formats that cater to students’ needs and prioritize a personalized, engaging, effective and simple experience. We also enable our partners to actively manage hubs’ activities in a comprehensive manner, providing a 360-degree vision of their operations, through a data-driven online portal. This technological platform gathers data regarding their student base, student performance, financial indicators, tutor and infrastructure evaluations, commercial performance, pricing and others – highlighting key insights, such as students in need of special attention, and helping predict and avoid potential dropouts.
The combination of these aspects enables us to enroll a large student base and attract loyal partners and trained tutors, ultimately increasing our ability to expand geographically at an even faster rate, while maintaining our differentiated customer support.
Our Growth Strategy
We aim to continue generating value for our shareholders and remain focused on our primary mission: to provide students full access to digital education and improve their experience through our student-centric model. We believe this focus helped us grow and expand our business to several regions in Brazil in recent years and is a key driver for differentiating ourselves from our competitors. A large part of this growth was based on the strategic decision to start expanding into small and medium-sized cities and being the first educational institution to open units and provide access to higher education for residents of cities in the countryside of Brazil.
Based on the most recent available data of INEP, our CAGR for the period from 2015 to 2022 was 34.0%, the highest among the private digital education market (considering the five biggest private education companies in 2015).
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Our revenue growth is a result of our business model, which has been based on the opening of new hubs, ramp-up of current hubs, annual price adjustments, and expansion of course offerings, as described below:
| ● | Maturation of Recently-Opened Hubs. In the last years, we significantly increased the number of students per hub. As of December 31, 2023, 93.2% of our 2,499 hubs are still ramping up, and we believe there is space to grow our operations, margins and student base. The maturation of a hub takes at least eight semesters, or four years, which is the average duration of a course, and the number of students per hub may continue to grow after such period as hubs gain more local recognition over time. |
| ● | Opening of New Hubs and Expansion to New Markets. We intend to continue to expand to sizeable Brazilian states that offer a significant market opportunity and where we have a limited presence, including in the southeast of Brazil, in states such as São Paulo, Rio de Janeiro, Minas Gerais, and Espírito Santo. We believe there is still significant potential to strengthen our presence in the Southeastern region of Brazil, which represented 42.1% of the total digital education enrollments in private institutions in Brazil according to the 2022 Postsecondary Education Census by the INEP. |
| ● | Mix of Courses. We have continuously added high-value courses to our portfolio over time, such as engineering and nursing courses, contributing to higher margins. We also believe there will be a significant increase in digital education enrollments if MEC authorizes the offering of additional undergraduate courses, such as law and health-related courses like psychology, which can currently only be provided on-campus. Because of our state-of-the-art infrastructure, we believe we are better positioned to capture this market opportunity and further strengthen our system relative to our competitors. |
| ● | Selective Pursuit of M&A Opportunities. As with the UniCesumar Business Combination and Rede Enem, we intend to continue selectively pursuing acquisitions that we believe contribute to our mission, are financially attractive and resonate with, and enhance, our value proposition. |
Our Competition
Based on the most recent available data of INEP, our CAGR for the period from 2015 to 2022 was 34.0%, the highest among the private digital education market (considering the five biggest private education companies in 2015).
Source: INEP.
Note: We selected the five largest education companies in 2015, which includes us, as points of comparison to show our growth.
We believe there are no pure-players in the postsecondary digital education providers in Brazil with a business model that is perfectly comparable to ours. This is due to the fact that our value proposition combines digital and technology-driven and in-person offerings. Several companies compete in the postsecondary education industry and the market is very fragmented. According to the 2022 Postsecondary Education Census by the INEP, there were 2,283 private postsecondary education institutions in Brazil offering 9,186 digital education undergraduate courses. According to the 2022 Postsecondary Education Census by INEP, we were the largest digital postsecondary education group in Brazil, in terms of enrollments.
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Source: INEP.
Corporate Social Responsibility
We believe that Vitru’s academic programs have helped thousands of people across Brazil to gain new skills and improve their employment prospects. Our courses are designed to be accessible and affordable, which has made them particularly valuable for low-income students who may not have access to traditional education and training programs.
We are actively engaged in our community, continuously seeking to develop and participate in social and environmental initiatives. Our efforts are focused on our centers (núcleos de apoio), which support faculty members and students in institutional projects promoting social inclusion, extension programs, undergraduate research, and academic support. These centers have representatives from the institution on several boards in the regions where we operate.
One of the centers is our Social Responsibility Center (Núcleo de Responsabilidade Social) which is specifically focused on developing citizenship and raising awareness of individual and social rights through economic, political, and social development actions. We also have implemented a range of initiatives focused on political engagement, and social justice issues; community outreach programs focused on entrepreneurship, social inclusion, and human promotion; and initiatives to promote ethnic and race equality, environmental preservation and protection, culture, artistic production, sports, and leisure.
Through our internal program, SOMA, we are committed to fostering a more diverse and inclusive environment, preparing more than 10,000 of our employees to welcome everyone, uniting differences, and fostering equality. We also support various community projects, such as community herb gardens, environmental education, composting, and healthy eating habits.
In addition, we are proud to support the Projeto Autismos, a training and awareness program designed to educate education professionals about Autism Spectrum Disorder (ASD). Through this program, we provide ongoing training and resources to teachers and other education professionals, with the goal of improving outcomes for students with ASD.
Finally, we offer the community the opportunity to access free or low-cost health services in our school clinics, performed by our students under the supervision of teachers. Our goal is to provide at least 1,000 health services to community members each year and to track the impact of these services on community health outcomes.
We believe that our commitment to engage our stakeholders in these initiatives is an important step toward creating a more conscious society, and we are committed to ongoing evaluation and improvement to ensure that our programs are making a meaningful impact in the community.
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Industry Overview
Brazilian Postsecondary Education Framework
We believe education is a priority for Brazilians, irrespective of their age or income. It is viewed as a stepping stone into the job market, and as one of the most important decisions for parents to make with respect to their child’s development as well as for working adults wishing to progress their careers.
In Brazil, the education cycle begins with primary and secondary education, also known as K-12, with a student base of 47.3 million students. Primary and secondary education is mostly provided by public schools, which account 80.1% of total students enrolled in 2023 according to INEP. Private institutions generally lead quality rankings, and there is significant variation in quality across public schools as a result of the different investments made by municipalities, states, or the Brazilian federal government based on results in the ENEM.
Postsecondary education is divided into undergraduate and graduate degrees:
| ● | Undergraduate courses generally cater to incoming secondary school students. Graduate degrees encompass post-graduate, master’s and doctoral degrees. Institutions are classified as colleges, university centers or universities, depending on the courses offered, the level of education of faculty members and the autonomy granted to them by the MEC. There are three types of undergraduate degrees in Brazil: bachelor’s, licenses and vocational degrees. These undergraduate degrees have flexible curricular schedules. Bachelor’s degrees typically have a duration three to six years and are designed to provide students with solid theoretical understanding of their subject matter and prepare them for their desired professions. License degrees are focused on training K-12 and secondary school teachers, and have a duration of three to five years. Vocational degrees provide more focused training and typically last two to three years. |
| ● | Graduate degrees focus on deepening students’ understanding of their selected subject. There has been significant growth of lato sensu graduate degrees in Brazil. Post-graduate degrees, which also include master of business administration degrees, are more focused on preparing students for a specific profession and are typically provided over a total of 360 hours. |
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Postsecondary education in Brazil is provided in two formats:
| ● | On-Campus: This format is based on face-to-face interactions with students, although, pursuant to the applicable regulatory standards, up to 40% of the content of these courses may be provided in a digital format to complement face-to-face interactions (this applies to all private and public postsecondary courses, except for medical courses); and |
| ● | Digital Education: In this format, course delivery is primarily made in a digital format, which may be complemented by in-person and online tutoring and support classes offered to students. |
Postsecondary education students in Brazil have been facing several challenges, including (1) high tuition fees with few financing alternatives, (2) long commutes, (3) lack of access to continuously available resources for studying, (4) teachers, tutors and materials which fail to engage students, and (5) poor support and student experience.
Given the limited and less-efficient nature of public postsecondary education, private education institutions have gained market share in Brazil through a combination of significant investments, more efficient learning models, and by enrolling new postsecondary education students into the system. Nevertheless, private education institutions charge fees. The tuition fees vary based on subject, price positioning and teaching format (on-campus and digital education).
Undergraduate courses
According to INEP, Brazil had 7.4 million students as of 2022 in the private postsecondary education market. We believe Brazil has strong growth potential as a result of low penetration rates and increases in disposable income. Brazil has one of the lowest postsecondary education gross enrollment rates in the world, at only 37% in 2021, according to INEP.
In Brazil, approximately 23.2 million people have completed secondary education, but have not attended a postsecondary education institution according to a February 2020 study by Educa Insights. It is expected that the penetration rate of private postsecondary education will continue to increase in the coming years, while the available seats in public universities are expected to remain limited given the lack of investments in this area by the Brazilian government. In addition, we note that the cost per student in public education is significantly higher than in private education, which demonstrates a more efficient private sector in this regard.
In 2014, the Brazilian federal government established a National Education Plan (Plano Nacional de Educação), or PNE, with 20 goals for improving and enhancing access to education, which is expected to be completed by 2024. Out of the 20 goals, the most important goal for the postsecondary education sector is to increase the penetration rate of postsecondary education to 50.0% of the target population (i.e., 18 to 24 years old) as compared to 37.4% in 2021. To reach this rate, the Brazilian government has enacted market friendly regulations to promote digital education courses, mainly due to the affordability of these courses.
In 2022, there were 9.4 million students enrolled in private and public undergraduate courses in Brazil, 7.4 million in the private sector and 2.0 million in the public sector), with private education accounting for 78.0% of total enrollments according to INEP. The growth in the number of students enrolled was mainly driven by the private sector, which has grown faster than the public sector, as a result of (i) the increasing adoption of digital education and (ii) governmental programs and incentives, such as the PROUNI and FIES.
In the private education market, the increase in digital education has been the driver behind the expansion of the student base and increasing penetration, which, in 2022, stood at 56.1% of the overall private offering, surpassing on-campus enrollments. According to the 2022 Postsecondary Education Census by the INEP, digital education expanded at a CAGR of 15.3% between 2010 and 2022, significantly greater than the reduction in the CAGR of 1.8% for on-campus education in the same period.
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Source: INEP.
Graduate courses
This trend is also pronounced in private postgraduate courses, which exhibited a CAGR of 41.0% from 2016 to 2019 in the number of students enrolled in digital education courses according to the latest data reported by Semesp. Postgraduate courses are offered by approximately two thousand institutions, of which 90.3% are private, to 1.4 million students (a student base which is almost double the size of what it was in 2016). Despite still being the preferred choice for many students, on-campus has been losing market share. The number of students enrolled in digital education courses increased at a CAGR of 38.9% from 2016 to 2019, while the number of students enrolled in on-campus courses increased at a CAGR of 13.1% in the same period. In 2019, students enrolled in digital education courses accounted for 36.3% of the student population.
Source: Semesp.
In this context, digital education courses, for both graduate and undergraduate courses, are becoming increasingly popular in Brazil due to a combination of (a) greater flexibility, as most students also work and would prefer a more flexible alternative, (b) higher affordability, as tuition fees are approximately 70% lower than average tuition fees for on-campus courses, (c) similar quality standards, with a more engaging and digital methodology and (d) a promising career path, with degrees which are the same as an on-campus degree, a proven increase in employability and a positive impact on average salaries.
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Digital Education
In Brazil, digital education programs can provide the same graduation degrees as traditional on campus programs. As a condition to offering the same degrees for on campus courses, digital education courses are required to have the same defined duration, curriculum, and on-site final exams managed by accredited institutions.
There are three main postsecondary education digital education offerings in Brazil:
| ● | 100% online: pure online programs in which the student has online access to content and course activities, and goes to the hub only for end-of-semester exams; |
| ● | Video conference-based: classes which are broadcast to several students via video conference; and |
| ● | Hybrid: students have access to content through online platforms when/where appropriate, but also hold in-person weekly meetings and classes with on-site tutors. |
According to the latest available data published in February 2022 by INEP, out of the 6.9 million students enrolled in private undergraduate courses in 2021, approximately 3.5 million students were enrolled in digital education courses. In addition, digital education represents an even higher share of new enrollments, at 70.4% of total new private enrollments in 2021 (a level which has been above 25% since 2014).
Students without a strong academic background are more likely to benefit from hybrid courses than in 100% online courses as a result of hybrid courses providing a greater degree of interaction with teachers and tutors. According to a February 2020 study by Educa Insights, 51% of secondary school students consider having at least one face-to-face interaction per week as the most relevant factor when choosing digital education courses.
We believe that postsecondary education students in Brazil require not only more affordable and flexible study alternatives, but an academic experience that involves personal contact with faculty and other students in order to develop their skills better. Given its flexibility, it is expected that the hybrid model will drive market share gains for digital education in the coming years. According to February 2020 study by Educa Insights, hybrid courses, which accounted for 3.9% of the total student in 2018, are expected to account for 18.7% of the overall student base by the end of 2023. The overall share of students enrolled in digital education (both hybrid and online) is expected to increase to 49.3%. The growth in enrolments in the hybrid model is not expected to come at the expense of the 100% online offering model as the target students are not the same. However, it is expected that the on-campus offering model will be negatively impacted by the growth in the hybrid model, as it also combines face-to-face and online classes but is more expensive.
Source: February 2020 study by Educa Insights.
Note: Educa Insights estimates were based on data relating to 2018 and prior years. Years for which estimates are given are marked with an “E” after the relevant year.
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As a result of the Brazilian government’s phasing out of FIES, which supported almost 21.8% of enrolled students in private postsecondary education at its peak in 2015 (in comparison to 5.2% in 2020) and the low availability of private financing alternatives for education, digital education courses have proven to be resilient and well positioned to attract students in need of an affordable alternative. Considering the CAGR between 2015 and 2020, the demand for digital education enrollments has increased 18.4% in the period while on-campus enrollments’ demand has decreased 5.0%.
Given that tuition is a key consideration for students and that there is no difference between on-campus and digital education degrees, the digital education offering is typically more appealing to students. While average on-campus tuition is R$1,115 per month, the average digital education ticket is significantly lower and is at R$309 per month, according to a 2021 study by Semesp. Affordable digital education tickets are a result of lower personnel expenses and lease costs, combined with the scalability of online platforms for virtual/online classes. In addition, online platforms are able to access the national market while offering flexibility to students.
We believe that the COVID-19 pandemic has accelerated the digital transformation in the sector by bringing a virtual learning experience to all students. We believe that level of acceptance of digital education is growing continuously as a result of the positive experience that students have had with digital offerings. We believe that this trend could enhance our ability to capture and enroll new students seeking a more structured and customizable hybrid solution.
In addition, it is expected that the macroeconomic environment in Brazil will be adversely affected by the pandemic, with a decrease in income levels and rising unemployment rates. We believe that the value proposition inherent in digital education value combined with its more affordable tuition fees should drive new enrollments in the sector, and accelerate the change in student base from on-campus to online or hybrid courses. Given the increasing numbers of enrollments in digital education as a result of the pandemic, Educa Insights estimated in a February 2020 study that the digital education student base could reach the size of the on-campus student base in 2023.
Larger cities (mostly state capitals and their surrounding areas), usually have a broad educational offering with a comprehensive portfolio for students. Conversely, smaller towns (i.e. those cities with fewer than 30,000 inhabitants) lack alternatives. Therefore, we believe that digital education model provides a consistent regional offering, with quality levels equivalent to those found in major cities and attractiveness to local students while also creating an opportunity to increase postsecondary penetration across Brazil.
Given the size of Brazil’s territory, expansion to cities with lower density can be challenging for on-campus players and provides opportunities for digital education players. The partnership model with local hubs results in the ability to deploy a complete product portfolio with limited local investment and own-site ownership, which we believe improves student experience and makes for a better financial profile.
Key Trends Driving Digital Education Expansion in Brazil
We believe the following factors are expected to contribute to the expansion of the digital education market in Brazil:
| ● | Hybrid digital education model creates an affordable option with great user experience. The flexibility of technology-based platforms combined with active online and face-to-face tutoring presents a differentiated value proposition to students along with affordable tuition fees. With an increasing number of students who think the quality of digital education equals that of on-campus learning, it is expected that the growth in digital education will accelerate. |
| ● | New courses offerings would increase penetration of digital education. The ability to offer law degrees in a digital education format would represent a significant increase in the current addressable market. Law is a leading subject for undergraduate degrees in Brazil, a key requirement for public careers, and is often selected by students as a second major. If law-related courses are allowed to be offered in a digital education format, which is likely, we believe the demand for them would be equivalent to a third of the current course offerings in three years. The possibility of offering health-related digital education courses with a large student base, such as psychology and dentistry, would also be significant. |
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| ● | Postsecondary education degrees provide better employability and average salaries. According to a February 2020 study by Educa Insights, people holding a postsecondary education degree can expect to earn 65.3% more on average than those who only completed secondary education, with no significant difference between on-campus and digital education courses. Similarly, the unemployment rate for people holding a postsecondary education degree is 21.0%, which is 32.0 p.p. lower than those with only secondary school education, according to a February 2020 study by Educa Insights. |
| ● | Post-graduate courses to grow supported by salary differentials and low penetration rate. We believe that the post-graduate education market still has significant room for growth as it only had 1.3 million students served by two thousand institutions as of 2021, according to Semesp. We expect to see increasing demand for lato sensu post-graduate courses thanks to the higher employability level and salaries these courses provide, as well as the higher number of undergraduate graduations. |
| ● | Technology as an education lever. With enhanced student experience and consistent quality education, the acceptance of technology in education has increased significantly in the past twenty years. For example, the acceptance rate of digital education has increased by 25 p.p. since 2017 according to a February 2020 study by Educa Insights. As people born in the early 2000s are reaching postsecondary education, the demand for technology and online support tools is increasing across all institutions. |
| ● | Positive K-12 outlook. While more students are graduating than in previous generations, according to the OECD, Brazil is still lagging behind other Latin American countries in terms of number of students completing secondary education. In 2017, the MEC put in place measures to make secondary schools more attractive to students and to increase graduation rates. It is expected that an increase in graduation rates from secondary schools would lead to greater demand for undergraduate education by students between 18 and 24 years old. Enrollment in postsecondary education tends to benefit from increases in secondary school graduation rates. |
| ● | Resilient postsecondary digital education market. Digital education has proven to be resilient to macroeconomic downturns over the years primarily because of its value proposition. The ability to deliver better career prospects and higher wages in an affordable manner protects digital education from the negative impacts of economic cycles and enables off-cycle growth. |
| ● | PNE to drive further sector growth. There are still significant deliverables to be completed as part of the PNE, which was launched in 2014 and sets forth certain goals to be achieved by 2024. In addition to providing incentives for students and universities, we believe that digital education’s unique value proposition and affordability place it in a good position to capture the growth necessary to fulfill the Brazilian government’s objectives. |
Market Opportunity
We believe Brazil is the largest market in Latin America and is among the most attractive private education market opportunities in the world for the following reasons:
| ● | Postsecondary education penetration rates have been increasing, but are still well below other countries. According to the OECD, as of 2020, Brazil has one of the lowest postsecondary education penetration rates in the world, with only 23.0% of the Brazilian population between 25 and 64 years having completed any sort of postsecondary education degree. This is much lower than the average across OECD countries of 47.0% and also below other countries in Latin America, such as Chile with 41.0%; |
| ● | The Brazilian National Education Plan targets. In 2014, the Brazilian federal government established a PNE with 20 goals for improving and enhancing access to education, which is expected to be completed by 2024. Out of the 20 goals, the most important goal for the postsecondary education sector is to increase the penetration rate of postsecondary education to 50.0% of the target population (i.e. 18 to 24 years old) as compared to 37.4% in 2021, according to the 2022 Fourth Cycle Report from INEP; |
| ● | Changing in government Brazilian regulations. Historically, Brazilian regulations imposed mandatory bureaucratic preapproval procedures to request the opening of new learning units, which limited growth in the digital education market. In 2017, the Brazilian government simplified the opening of education units while |
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| maintaining the quality of digital education courses, as the number of preapproved units for each university depends on the institution’s score in the last ENADE. Lower-performing institutions cannot open any new units, while higher-performing institutions can open up to 250 units per year; |
| ● | Postsecondary Education Degree in Brazil leads to higher employability levels and higher average salaries. According to a February 2020, study by Educa Insights, people holding a postsecondary education degree can expect to earn 65.3% more on average than those who only completed secondary education, with no significant difference between on-campus and digital education courses. Similarly, the unemployment rate for people holding a postsecondary education degree is 21.0%, which is 32.0 p.p. lower than those with only secondary school education, according to Educa Insights; |
| ● | Digital Education has driven recent private sector growth. According to INEP, private digital education expanded at a CAGR of 15.3% between 2010 and 2022, significantly greater than the negative CAGR of 1.8% for on-campus education during the same period. In this context, digital education courses are becoming increasingly popular in Brazil due to (1) greater flexibility for students who also work, and (2) greater affordability in that tuitions are approximately one third of on-campus tuition fees; and |
| ● | Hybrid delivery offering is dictating the pace. Postsecondary education students in Brazil need more affordable and flexible alternatives to study, as well as an academic experience that involves personal contact with faculty and other students. According to INEP, in 2022, 81.0% of Brazil’s secondary school (K-12) students were enrolled in public schools. In this context, we believe students without strong academic secondary school backgrounds are less likely to continue their education through 100% online courses and are more likely to continue their education in courses that provide a hybrid combination of both on-campus and online offerings. |
Regulatory Overview
The Brazilian Constitution establishes education as a right of all citizens, the provision of which is a duty of the state and the family. Accordingly, the government is required to provide all Brazilian citizens with access to free primary education that requires compulsory attendance. Private investment in education is permitted so long as educational entities (schools, postsecondary education institutions) providing regulated education services comply with the applicable quality rules and requirements prescribed by law and applied by the relevant regulatory bodies.
The Brazilian education system is organized as a cooperation regime among federal, state and municipal governments. The federal government is responsible for organizing and coordinating the federal education system in order to guarantee equal opportunity and quality of education throughout Brazil. Brazilian states and the Brazilian Federal District are required to focus on primary and secondary education (which are similar to the final years of elementary school, junior high and high school in the United States – K12), while municipalities are responsible for offering preschool and primary education (which are similar to kindergarten and the first years of elementary school). Each federative entity is responsible for creating rules and regulating them within their respective education systems, including issuing all relevant accreditation, authorizations, recognitions and qualifications required for each such educational stage, as well as monitoring and evaluating the quality of services.
Private higher education institutions are part of the Brazilian Federal Educational System (Sistema Federal de Ensino) and their activities are regulated by the federal government, based on acts published by the MEC, in accordance with art. 6th of Law No. 4,024/1961. All higher education institutions enjoy the prerogatives of freedom to teach, which allows them to define their own contents (art. 206, II, of the Brazilian Constitution), as well as the plurality of teaching methods and the coexistence of public and private institutions (art. 206, III, of the Brazilian Constitution). Furthermore, universities have didactic, scientific and administrative autonomy, as provided for in art. 207 of the Brazilian Constitution.
Law No. 9,394/1996, or the National Education Guidelines Law (Lei de Diretrizes e Bases da Educação Nacional), or the LDB, establishes the guidelines for the provision of education services in Brazil and sets forth the federal government’s duty to: (1) coordinate the national education system; (2) prepare the Brazilian Education Plan (Plano Nacional de Educação), or PNE; (3) provide technical and financial assistance to the states, the Federal District and municipalities; (4) define, in cooperation with other federal entities, the responsibilities and guidelines for primary and secondary education; and (5) issue rules and regulations regarding postsecondary courses, and carry out activities relating to the accreditation of institutions, authorization and recognition of courses and monitoring and evaluation of all the educational system.
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In addition, the federal government, through Law No. 13,005 of June 25, 2014, implemented the PNE, with a duration of 10 years from the date of its publication (i.e., June 26, 2014). The PNE established objectives for Brazilian education. For postsecondary education, the objectives are: (1) increasing postsecondary education enrollment rates to 50% of the population aged 18 to 24; (2) increasing the quality of postsecondary education by raising the proportion of academic staff with master’s and doctorate degrees to 75%, of which at least 35% shall be doctors; and (3) increasing progressively stricto sensu postgraduate courses. Such goals apply to each federation territory, and provide guidance for the private education market.
Accordingly, each of the federal, state and municipal governments was required to prepare a 10-year education plan and establish policies, guidelines and objectives applicable to the sector of the Brazilian education system over which it is responsible. In addition, these objectives act as guidelines for the private education market.
Postsecondary Education
The postsecondary education sector is subject to comprehensive government regulation. Its purpose is to ensure the quality of educational services, through evaluations of the ability of educational institutions to meet the National Curricular Guidelines (Diretrizes Curriculares Nacionais - “DCNs”) applicable to the courses they offer, as well as other qualitative standards established by the National Education Council (Conselho Nacional de Educação - “CNE”) and approved by the MEC. The evaluation of postsecondary education follows the parameters established by Law No. 10,861/2004, which establishes the National Postsecondary Education Evaluation System (Sistema Nacional de Avaliação da Educação - “SINAES”) (“SINAES Law”), which consists of three aspects: (i) evaluation of IES and courses, with analysis of the Institutional Development Plan (Plano de Desenvolvimento Institucional - “PDI”) and Course Pedagogical Projects (Projetos Pedagógicos dos Cursos - “PPC”); (ii) assessment of student performance, through ENADE; and (iii) self-assessment carried out by the Own Assessment Committee (Comissão Própria de Avaliação - “CPA”), a mandatory internal assessment body. The results of such evaluations are taken into consideration in the proceedings for opening new units and new courses.
Therefore, the courses offered by higher education institutions in Brazil require authorizations and are subject to ongoing regulation. The federal responsibility to regulate, monitor and evaluate postsecondary education institutions and courses is exercised by the MEC, the CNE, the INEP, the CONAES, the SERES and the SETEC.
Regulatory Bodies
The main regulatory bodies of postsecondary education in the Brazilian education system are:
| ● | the MEC; |
| ● | the CNE; |
| ● | the INEP; |
| ● | the CONAES; |
| ● | the SERES; and |
| ● | Secretariat of Professional and Technical Education (Secretaria de Educação Profissional e Tecnológica), or SETEC. |
The MEC is the federal government agency responsible for education in general, including the formulation and evaluation of the Brazilian national education policy, in order to ensure the quality of education and compliance with education regulations. The INEP is a federal authority associated with the MEC responsible for evaluating educational institutions and student performance, as well as conducting research in order to provide a reliable database for public use.
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The MEC is assisted by the CNE, which is the entity with decision-making and deliberative powers to ensure the improvement of national education. The CNE is comprised of the CEB, which is the collegiate responsible for the regulation of primary and secondary school, and the Higher Education Board (Câmara de Educação Superior), or CES, which is the entity responsible for the postsecondary education system. The CEB and CES are each composed of 12 members appointed by the President of Brazil.
Ministry of Education (MEC)
The MEC, a federal body, is the highest authority for postsecondary education within the Brazilian national education system, whose competences consist, in summary, of the following: (1) confirming the CNE’s accreditation decisions for postsecondary education institutions; (2) confirming evaluation systems and criteria adopted by the INEP; (3) confirming the opinions and regulation proposals from the CNE; (4) issuing rules and instructions for compliance with laws, decrees and regulations pertaining to education issues; and (5) regulating and monitoring the postsecondary education system through its secretariats.
National Education Council (CNE)
The CNE is a consulting and decision-making body monitored by the MEC, comprised of the Chamber of Primary and Secondary Education, or the CEB, and the Chamber of Postsecondary Education, or the CES, each composed of 12 members appointed by the President of Brazil.
The CNE is required, among other responsibilities, to: (1) issue regulations to implement the MEC’s guidelines, as well as advise and support the MEC in its activities and decisions; (2) decide on accreditation applications and renewals from postsecondary education institutions engaged in digital education, based on the opinion of the relevant secretariats; (3) propose guidelines and deliberate on the preparation of the evaluation instruments for accreditation and reaccreditation of institutions to be elaborated by the INEP; (4) issue guidelines to be observed by the SERES for accreditation and reaccreditation of universities, university centers and colleges; (5) determine, through the CES, the inclusion and exclusion of course designation from the catalog of advanced technology courses; (6) decide appeals of decisions issued by the SERES, the CEB or the CES; and (7) analyze and propose questions regarding the application of postsecondary education legislation to the MEC.
Anísio Teixeira National Institute for Educational Research (INEP)
The INEP is a federal body linked to the MEC whose main responsibilities are, among others, to: (1) design, plan, coordinate and operationalize actions for the evaluation of HEI, undergraduate courses and government schools, as well as the National Exam for the Assessment of Student Performance (Exame Nacional de Desempenho de Estudantes), or the ENADE, the examinations and assessments of undergraduate students; (2) design, plan, coordinate, operationalize and evaluate indicators related to postsecondary education resulting from examinations and inputs from official databases and the establishment and maintenance of databases of specialized evaluators and collaborators, including the appointment of evaluation committees; (3) prepare and submit to the MEC the instruments for external evaluation (in loco), in accordance with the guidelines proposed by the SERES and by other competent bodies; (4) design, plan, evaluate and update the indicators for the external evaluation instruments in place, in accordance with the guidelines proposed by the CONAES; (5) chair the Technical Committee for Evaluation Monitoring; and (6) plan, coordinate, operationalize and evaluate the actions necessary to achieve its objectives.
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National Higher Education Evaluation Commission (CONAES)
The CONAES is a collegiate coordination and monitoring body of the National Higher Education Evaluation System (Sistema Nacional de Avaliação da Educação Superior), or SINAES, monitored by the MEC, composed of a President and 13 members, including one representative of the INEP, one representative of the Foundation for the Coordination of Improvement of Postsecondary Education Personnel (Fundação de Coordenação de Aperfeiçoamento de Pessoal de Nível Superior), or CAPES, three representatives of the MEC (one of which must come from the body responsible for the regulation and monitoring of postsecondary education), one representative of the student body of postsecondary education institutions, one representative of the academic staff of postsecondary education institutions, one representative of the administrative body of postsecondary education institutions, and five members appointed by the Minister of Education, with distinguished scientific, philosophic and artistic knowledge and proven expertise in postsecondary evaluation or management.
Among other activities, the CONAES is required to: (1) propose and evaluate the dynamics, procedures and mechanisms for institutional evaluation, courses and student performance; (2) establish guidelines for the organization of evaluation committees, analyze reports, prepare opinions and submit recommendations to the competent bodies; (3) formulate proposals for the development of postsecondary education institutions, based on the analysis and recommendations produced in the evaluation processes; (4) communicate with the state educational systems, with the aim to establish common actions and criteria for the evaluation and supervision of postsecondary education; and (5) annually submit for approval by the Minister of Education the list of courses for which students will apply for the ENADE.
Secretaria de Regulação e Supervisão da Educação Superior (SERES)
The SERES is a federal body linked to the MEC, responsible for regulating, supervising and applying penalties to private and public higher education institutions. The main responsibilities of the SERES are to: (1) authorize, recognize and renew the recognition of undergraduate courses in higher education institutions, especially offered by those that do not enjoy autonomy prerogatives (colleges) or medicine, dentistry, pharmacy courses, law and psychology courses of all institutions; (2) prepare opinions on the accreditation and re-accreditation processes of higher education institutions, which will be decided by the CNE and MEC; and (3) manage e-MEC, a public registration information system for higher education institutions and courses.
Secretaria de Educação Profissional e Tecnológica (SETEC)
The SETEC is the federal body, linked to the MEC, which is required to: (1) formulate, plan, coordinate, implement, monitor and evaluate the public policies for professional and technological education; and (2) promote the innovation, expansion and improvement of the quality of professional and technological education.
Organization of the Postsecondary Education Institutions
In order to allow postsecondary education institutions to fulfill their objectives, the LDB provides that postsecondary education includes the following programs:
| ● | Undergraduate courses, including traditional and technological undergraduate courses, offering specific training and diplomas to students, open to candidates who have completed secondary school or equivalent and who have been approved in the respective selection or entrance examinations; |
| ● | Postgraduate courses, including master’s and doctoral degrees, specialization courses, further training courses and others, open to candidates who hold a diploma in an undergraduate course and who meet the requirements laid down by educational institutions; and |
| ● | Extension courses, understood as any academic, technical or cultural activity that is not included as an integral and compulsory part of the undergraduate and postgraduate curriculum, in which the students receive certificates. Such courses are open to candidates who meet the requirements established in each case by educational institutions. |
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According to the LDB, postsecondary education can be provided by public or private institutions. A private postsecondary education institution must be controlled, managed and supported by an individual or a legal entity with responsibility for financing its supported entities. The natural or legal person controlling, managing and supporting a higher education institution is called the maintainer and the relationship established between the higher education institution and the maintainer is called maintenance. Postsecondary education institutions may be maintained by for-profit or not-for-profit private institutions, or supporting entities, as follows:
| ● | Private in the strict sense: private for-profit institutions created and maintained by one or more private individuals or legal entities; |
| ● | Community: incorporated by groups of individuals or by one or more legal entities and that include representatives of the community in their organizational structure; |
| ● | Confessional: incorporated by groups of individuals or by one or more legal entities that meet the specific confessional and ideological orientation and that include representatives of the community in their organizational structure; or |
| ● | Philanthropic, in the form of the law. |
According to their organization and academic prerogatives, postsecondary education institutions can be:
| ● | Colleges: Colleges are public or private educational institutions offering postsecondary courses in one or more areas, maintained by a single supporting entity and with isolated management and direction. Colleges are allowed to offer courses along several levels, namely bachelor’s, associate’s, specialization and graduate programs (master’s and doctorate degrees). Colleges have minimum requirements with regard to qualification of faculty members and their labor practices, and cannot establish new campuses, courses or spots without prior authorization from the MEC; |
| ● | University Centers: University centers are public or private education institutions offering several bachelor’s, associate’s and graduate programs, and are expected to provide appropriate conditions with respect to education and qualification opportunities for their professors. To be considered a university center, the institution shall comply with the following requirements: (1) at least one-third of the faculty members must hold a master’s or doctorate degree; (2) at least 20% of the faculty members must work on a full-time basis; (3) at least eight undergraduate courses shall be recognized and have obtained a satisfactory concept in the on-site external evaluation carried out by the INEP; (4) it shall have an institutionalized extension program in the areas of knowledge covered by their undergraduate courses; (5) it shall have a scientific initiation program with a project oriented by doctoral or master’s teachers, which may include programs of professional or technological initiation and initiation to teaching; (6) it shall have obtained CI greater than or equal to four in the on-site evaluation performed by the INEP; and (7) it shall not have been penalized as a result of an administrative supervision process in the last two years. |
| ● | Universities: Universities are public or private education institutions offering several postsecondary courses, continuing education and research development. Like University Centers, certain requirements for university reaccreditation must be observed, namely: (1) one-third of the academic staff is hired on a full-time basis; (2) one-third of the faculty members must have a master’s or doctoral degree; (3) at least 60 percent of the undergraduate courses shall be recognized and have a satisfactory concept obtained in the evaluation proceedings carried out by the INEP; (4) it shall have an institutionalized extension program in the areas of knowledge covered by their undergraduate courses; (5) it shall have a scientific initiation program with a project oriented by doctoral or master’s professors, which may include programs of professional or technological initiation and initiation to teaching; (6) it shall have obtained CI greater than or equal to four in the external evaluation carried out by the INEP; (7) it shall regularly offer four master’s degree courses and two PhD courses recognized by the MEC; and (8) it shall not have been penalized as a result of an administrative supervision process in the last two years. |
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The LDB provides that the following powers are granted to universities and university centers in the exercise of their autonomy, among others: (1) to create, organize and discontinue postsecondary education programs on their premises, subject to the applicable regulation; (2) to establish the curricula for programs, subject to the applicable general guidelines; (3) to establish plans, programs and projects in connection with scientific research, artistic production and extracurricular activities; (4) to establish the number of student offerings available; (5) to create and change their bylaws in accordance with the applicable general rules, as well as to award degrees, diplomas and other certificates; (6) to grant degrees and diplomas; (7) to enter into contracts, agreements and covenants; (8) to approve and execute plans, programs and projects related to works, services and acquisitions in general, as well as manage income according to institutional provisions; (9) to manage available resources and available items as provided for in the act of incorporation, in the laws and in the bylaws; and (10) to receive grants, donations, inheritances, bequests and financial cooperation resulting from agreements with public and private entities.
Higher education institutions must adopt the procedures set forth in: (1) Ordinance No. 1,095/2018 to grant diplomas; and (2) Ordinance No. 554/2019 to grant digital diplomas.
Digital Education
Digital education in Brazil is regulated by article 80 of the LDB, by Decree No. 9,057/2017 and Decree No. 9,235/2017, by Ordinance Nos. 11 and 23, both of 2017, and the CNE’s Resolution No. 1, of 2016.
Digital education is defined as the educational method in which didactic and pedagogic processes are conducted through information and communication media and technologies, with students and teachers interacting in educational activities while located in different locations or at different times.
Pursuant to the applicable regulations, digital education is subject to different factors compared to traditional methods, including: (1) reduced transmission costs in commercial channels of sound and audiovisual broadcasting; (2) concession of channels with exclusive educational purposes; and (3) minimal time reservation, with no onus on the public authorities, by the concessionaries of commercial channels.
Digital education can be offered at the following levels and as part of the following educational methods: (1) primary and secondary education, as long as it is used only to supplement learning processes or in emergency situations; (2) education for young people and adults, according to specific legal criteria; (3) special education, according to specific legal criteria; (4) professional education, covering technical programs at the secondary level and technological programs at the postsecondary level; and (5) postsecondary education, covering undergraduate, master’s programs, specializations and doctorate studies.
Undergraduate courses (bachelor’s, licentiate and technological) may be offered using digital education methods whenever a postsecondary institution is regularly accredited with the MEC for this purpose. Currently, there is no educational regulation that bans the provision of digital education courses. However, there are discussions and legislative proposals aimed at banning the provision of digital education courses in with respect to health, architecture and law.
Pursuant to Decree No. 9,057/2017, institutional accreditation and reaccreditation, as well as the authorization and recognition of courses and their renewal, will be subject to on-site evaluation, with the aim to verify the existence and suitability of the method, infrastructure, technology and personnel that enable the execution of the activities provided for in the PDI and PPC.
The educational institutions accredited for the offering of postsecondary education in the distance modality that hold autonomy prerogatives (universities and university centers) do not require authorization for operation of the postsecondary course in the distance modality, but shall inform the MEC about the offering of the course within 60 days of the date of creation of such course, for the purposes of supervision, evaluation and recognition. Also, distance institutions must inform the MEC about the creation of educational centers and the alteration of their addresses.
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Although digital education is defined by the absence of direct contact between students and teachers, there are activities that must be conducted on-site, such as tutorials, evaluations, internships, professional practice, laboratory and dissertation defense, which are to be provided in the educational and development projects of the institution and the course. Accordingly, the digital education institutions must provide the necessary infrastructure for the students to conduct those activities, using the headquarters of the education institution or smaller supporting units throughout the country. Digital education supporting units are no longer subject to on-site evaluation or required to obtain prior authorization of the MEC in order to be set up or operated. Pursuant to Normative Ruling No. 11/2017, such units can be created by unilateral decision of the institution itself.
The distance courses and programs must be projected with the same defined duration for the respective on-site courses. The evaluation of performance of students for the purposes of promotion, conclusion of the course and attainment of diplomas and certificates must be conducted through the conclusion of the programmed activities and on-site exams drafted by the accredited education institution, following procedures and criteria defined in the PPC.
The evaluation of the digital education courses is performed in the same manner as the evaluation of the on-site courses. If there is any irregularity in or noncompliance to any of the previously established conditions, the competent body will initiate an administrative proceeding that may result in one or more penalties, such as: (1) forfeiture of accreditation or reaccreditation authorization to operate as a digital education institution; (2) intervention; (3) temporary suspension of autonomy prerogatives; (4) initiation of reaccreditation proceedings; (5) reduction of available vacancies within courses; (6) temporary suspension of new student admissions; and (7) temporary suspension of course offerings.
Diplomas and certificates for digital education courses and programs from accredited institutions are valid throughout the national territory, and institutions are not entitled to set different criteria for diplomas issued for digital education courses and those issued for on-site courses. Only accredited education institutions, public or private, may offer distance courses and programs. It is the MEC’s responsibility to promote the accreditation acts of postsecondary institutions. To act outside the institution’s local geographic reach, the institution shall require an extraterritorial accreditation to the MEC.
Institutional accreditation for digital education courses or programs requires periodic renewal. Also, the accredited institution must initiate the authorized coursework within 24 months from the accreditation, and if the institution does not implement the authorized activities in such time frame, it will be subject to an administrative proceeding that may result in the cancelling of the given authorization.
Pursuant to Decree No. 9,057/2017, postsecondary courses may be offered in the digital education modality through a partnership between an accredited distance education institution and another company. In this case, applicable regulations establish that educational activities must be conducted in the facilities of the accredited education institution, which will be responsible before the MEC for the regularity of the teaching and learning processes. Accordingly, the education institution must inform the MEC of its partnerships, describing their purpose and most relevant aspects, in order for the MEC to be able to assess eventual irregularities.
In any case, digital education courses and programs are subject to the evaluation rules of the SINAES in the same manner that on-site courses are.
It is also important to point out that Ordinance No. 2,117 of 2019 changed the maximum limit for digital education hours in on-site courses from 20% to 40% of the overall course load. Courses will still be deemed to be offered on-site even if they include a digital education portion provided that the students enrolled in the course must be aware of this. This limit does not apply to on-site medical courses.
Distance learning has been a frequent topic of discussion within the MEC, which has stated its intention to reform the regulations applicable to distance learning.
The main event in this regard was the opening of a public consultation relating to a possible change to MEC Ordinance No. 11/2017, which sets standards for the accreditation of higher education institutions and the offering of distance learning courses in higher education. The consultation was proposed by MEC, through SERES. It began on October 19, 2023 and ended on November 20, 2023.
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The consultation follows on from the working group previously constituted by MEC to discuss possible alternatives for teaching at distance.
Among the most relevant proposals, the following stand out: (i) the prohibition of opening new classes and the loss of distance learning accreditation for higher education that obtain a CI-EAD score lower than 4 in their re-accreditation process; and (ii) prohibition on offering approximately 17 subjects in a distance learning format, namely: law, nursing, dentistry, psychology, biomedicine, religious sciences, physical education (bachelor's degree), pharmacy, physiotherapy, speech therapy, geology/geological engineering, medicine, nutrition, oceanography, public health, occupational therapy and degrees in general.
After the public consultation ended, the MEC published MEC Ordinance No. 2,041/2023 to suspend the progress of regulatory processes related to distance learning to allow the changes discussed in the public consultation to be applied in practice. The processes suspended were those of (i) authorization of the courses covered by the public consultation and listed above, in addition to degrees in any area; and (ii) distance learning accreditation of higher education institutions that obtain a CI-EAD lower than 4.
The suspension was initially established for 90 days and was expected to end in February 2024. However, with the advent of MEC Ordinance No. 158/2024, the suspension period was extended for another 90 days, so that it will last at least until May 2024.
Although it has been underway since 2023, it is possible that this reform will be halted so that its issues can be addressed jointly in a broader reform of the higher education sector led by the MEC, which was recently announced through MEC Ordinance No. 223/2024. MEC Ordinance No. 223/2024 aimed to establish a working group with the purpose of structuring and proposing an action plan for the elaboration of a Brazilian higher education policy, covering the activities of regulation, supervision and evaluation of higher education institutions and undergraduate and postgraduate courses. Although it does not specify whether it will include distance learning or not, it is expected that it will do so as generally the regulatory agendas for distance learning and face-to-face teaching are consistent.
Another measure that highlights the MEC’s current focus on distance learning was the establishment of supervision proceedings against 11 higher education institutions to investigate possible irregularities in the provision of distance learning, especially when supporting a high student-teacher ratio calculated by SERES based on data from the 2022 Higher Education Census. The proceedings are still in the preparatory phase, without any presumption or finding of any deficiency in the provision of education or deficiencies in compliance with the applicable legislation. As of the date of this annual report, all are still ongoing and there is no statement from SERES regarding these matters.
Regulatory Processes of Postsecondary Education Institutions
Accreditation of Postsecondary Education Institutions and Authorization and Recognition of Courses
A postsecondary education institution is initially accredited as a college. The accreditation as a university or university center is only granted after the institution has operated as a college, met satisfactory quality standards, including positive assessments in the SINAES, and met all legal requirements applicable to each type of postsecondary education institution, such as minimum graduation rate and labor regime for the faculty.
The application for qualification of a postsecondary education institution must be supported by various documents, including:
| ● | Supporting entity: (1) incorporation documents, duly registered with the competent body, evidencing its existence and legal capacity, in accordance with civil legislation; (2) certificates of tax and social security compliance; (3) proof of ownership of assets capable of supporting the education institution; (4) financial statements; and (5) a consent form executed by the supporting entity’s legal representative, vouching for the veracity and regularity of the provided information and the financial capability of the supporting entity; and |
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| ● | Postsecondary education institution: (1) an educational development plan; (2) bylaws and internal regulations; (3) identification and qualification of managers, with a description of their academic and administrative experience; (4) a receipt of regularity and availability of the teaching facilities; (5) a plan of accessibility assurance, pursuant to the regulation and followed by a technical report by a competent professional or public body; and (6) compliance with the legal requirements related to the safety of the building, including having an escape route in case of fire, proved by a specific report issued by the competent public body. |
In relation to the accreditation process of a new postsecondary educational institution and linked course authorizations, the MEC may issue a temporary accreditation act to expedite the operation, pursuant to article 24 of Decree No. 9,235/2017, as long as the supporting entity complies with all the following requirements:
| ● | all self-supporting postsecondary education institutions have been reaccredited in the last five years obtaining an average Institutional Concept (Conceito Institucional) greater or equal to 4; |
| ● | none of its postsecondary education institutions have been subject to administrative penalties by the MEC in the last two years; and |
| ● | the courses to be offered by the new postsecondary institution must already be offered by other institutions supported by the same supporting entity and duly recognized by the MEC in the last five years with a Course Concept (Conceito de Curso) greater or equal to 4. |
Following the initial accreditation as a postsecondary education institution, colleges depend on authorization from the MEC to offer undergraduate (graduação) education courses. Institutional accreditation requires periodic renewal. Within their autonomy, universities and university centers do not depend on authorization from the MEC to create the majority of postsecondary education courses and campuses in the same city as their headquarters, except for medicine, dentistry, psychology, nursery and law courses, which necessarily must be previously authorized by the MEC. In any other cases, institutions are required to inform the MEC about the courses they offer for purposes of monitoring, evaluation and further recognition.
Except for medicine, dentistry, psychology, nursery and law courses, the external in loco evaluation in connection with the authorization for postsecondary on-site courses of the federal education system can be waived after documentary analysis if the following requirements are met: (1) having a CI greater than or equal to 3; (2) absence of an administrative supervision process; and (3) the institution offers other courses in the same area of knowledge which meet the minimum evaluation standards.
Requesting authorization for a course must be supported by the following documents, among others: (1) proof of payment of the local evaluation fee; (2) the pedagogic project of the course, outlining the number of positions, classes, description of the program and other relevant academic elements; (3) a list of faculty members, together with the relevant agreements entered into with the education institution, together with their respective titles, working hours and work regime; and (4) proof of availability of the teaching facilities.
Universities and university centers may apply for the accreditation of a campus not located in the same city as their headquarters, provided that it is located in the same state. Such campuses and programs must integrate the same set of universities or university centers and will only enjoy autonomous prerogatives if there is compliance with the same headquarters requirements and if a high-quality degree is shown, through an average CI greater or equal to 4. Therefore, even in the case of universities or university centers, prior authorization from the MEC is necessary to create any courses on campuses not located in the same city as the university’s headquarters.
Authorizations for medical courses are governed by a separate regime set forth by Federal Law No. 12,871, dated as of October 22, 2013, that redesigned the conditions to access the market for medical courses. Pursuant to this legislation, SERES has the right to select the location where private medical courses will be offered and institutions are required to compete between themselves in a public procurement for the right to be authorized to enter the market. After a five-year period of suspension of new notices, starting with MEC Ordinance No. 328/2018, amended by Ordinance No. 1,302/2018, SERES Notice No. 1/2023 was published in August 2023, which will select higher education institutions to offer up to 95 medical courses at 95 different locations in municipalities within the 116 health regions selected by the MEC.
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This regime enacted by Federal Law No. 12,871/2013 has been challenged before the Brazilian Supreme Court by means of Direct Unconstitutionality Action (“ADI”) No. 7,187/DF. In addition, Direct Constitutionality Action No. (“ADC”) 81/DF has been launched to recognize the constitutionality of the referred regime.
On August 7, 2023, Justice Gilmar Mendes, rapporteur of the lawsuits, partially granted an injunction of relief establishing that new private medical courses are subject to a prior public procurement to be conducted by the MEC. Considering that such decision could affect a wide number of requests submitted by means of judicial determinations, the effect of the injunction of relief have been softened (modulados) to allow the continued operation of all courses that had been authorized by MEC due to judicial decisions as well as authorizing MEC to examine the ones still pending whose documental stage have already been approved, although subject to a series of conditions.
On August 25, 2023, Justice Gilmar Mendes submitted the case to the wider court and put forth his vote in line with the above. As of the date of this annual report, there are six votes in favor of granting the ADC, recognizing the constitutionality of subjecting the opening of new medical courses to public calls for proposals coordinated by the MEC. Supreme-Court Justice André Mendonça has stated his opposition as he considers the way in which such public calls for proposals have been carried out to be unconstitutional, and that he believes these proposals should be preceded by a regulatory impact analysis. Regarding how this decision will be applied, the court is evenly split for each of the following proposals: (i) to allow the courses currently operating to proceed with their activities and for the dismissal of all requirements pending; and (ii) to allow the operation of the courses already in activity and also to allow MEC to decide the ones still pending that have already passed the documentary stage.
Currently, the trial is suspended upon the request of Supreme-Court Justice Alexandre de Moraes. There is still no estimate as to when the trial will resume, but the deadline is May 27, 2024.
In the event that the lawsuits are upheld, this may positively affect our business if we were to decide to add medical courses to our portfolio, albeit this is not currently part of our strategy.
Once authorization for a given course has been issued, postsecondary education institutions, including university centers and universities, must also file a request for the recognition of the course after 50% of the contents have been covered by the first intake of students as a condition for the national validation of the respective diploma. The requirement must be filed with the MEC after the midway point of the term established for the completion of the corresponding program and three-quarters completion of such term, and must include the following documents, among others: (1) a pedagogic project, including the number of students and other pertinent academic information; (2) a list of faculty members, listed in the national registry of instructors; and (3) proof of availability of the teaching facilities.
Authorization and recognition of courses, as well as accreditation of postsecondary education institutions, must have a limited term and be renewed periodically following the regular evaluation process, currently established according to the evaluation cycles of the SINAES.
Our postsecondary education institutions are accredited by the MEC and their courses are duly authorized. We also make every effort to comply with applicable regulations to maintain our institutions and courses compliant with the MEC.
Modification of Supporting Entity
Pursuant to Decree No. 9,235/2017 and Ordinance No. 23/2017, modification of a supporting entity occurs whenever there is a change in the supporting entity or its controlling shareholder in a way that may affect the decision-making process. Although it no longer depends on any approval by the MEC, the modification must be reported to the MEC within 60 days of the consummation of the event for the purposes of updating the registries. Such notice must be followed by all the legal documents related to the alteration, duly registered, and the term of commitment executed by the legal representatives of both the current and new supporting entities.
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If the new supporting entity or controlling shareholder already supports another postsecondary education institution, it must meet the requirements necessary for the accreditation of a postsecondary education institution, which will be assessed by the MEC in the context of the institution’s reaccreditation proceedings, in the period provided for in the accreditation of the transferred postsecondary education institution in force on the date of the modification of supporting entity. Additionally, the LDB also provides that educational institutions must inform the MEC of any change in their bylaws, which must be registered with the competent bodies.
The transfer of programs or courses between postsecondary education institutions is prohibited and may subject the involved entities to penalties such as: (1) suspension of new students’ admission; (2) suspension of the offering of undergraduate or postgraduate lato sensu courses; (3) suspension of the institution’s autonomy to, among other things, create new postsecondary courses and establish course curricula, if applicable; (4) suspension of the license to establish new distance-learning courses; (5) overriding of any ongoing regulatory requests filed by the institution and prohibition of the filing of any new regulatory requests; (6) suspension of the participation in the New FIES; (7) suspension of the participation in PROUNI; and (8) suspension of or restriction on the ability to participate in other federal educational programs.
Financing Alternatives for Students: Incentive Programs
Programs providing for public funding to students enrolled with private higher education institutions has been a major public policy to expand access to postsecondary education in Brazil, especially for the low-income segment of the population. The most important programs are the following.
University for All Program (PROUNI)
PROUNI is a tax incentive program created through the Provisional Measure No. 213, of September 10, 2004, later converted into Law No. 11,096, of January 13, 2005, that addresses the exemption of certain federal taxes imposed to postsecondary institutions that grant scholarships to low-income students enrolled in undergraduate courses and technology graduate courses. By granting tax incentives to postsecondary education institutions, PROUNI has played an important role in inciting the growth and private investment in the postsecondary education sector.
In 2022, Federal Law No. 14,350 was enacted. This law extends access to PROUNI to students from private schools who did not receive any scholarship to study at such schools. Previously, only students coming from public schools or who had attended private schools on a full scholarship could participate in the program. The new rules came into effect on July 16, 2022.
Private postsecondary institutions may adhere to PROUNI by the execution of a specific agreement with the MEC, valid for 10 years and renewable for the same period. Such agreement must be amended every semester with an additional term establishing the number of scholarships to be offered in each course, unit and class, and what percentage of scholarships shall be granted to indigenous and afro-Brazilians. In order to participate in PROUNI, an educational institution must:
| ● | be up to date with its tax obligations; and |
| ● | comply with the following requirements: (1) offer at least one full-time scholarship to every 10.7 regularly paying students enrolled at the end of the past school year, excluding the full-time scholarships granted through PROUNI or by the institution; or (2) offer one full-time scholarship to every 22 regularly paying students enrolled in traditional and technological undergraduate courses, provided that it also offers scholarships (25% or 50% of the tuition) in the value equal to 8.5% of the paying students’ annual revenue, available to students enrolled in traditional and technological undergraduate courses at the school year. |
The ratio between the number of scholarships and the number of regularly paying students must be complied with annually. If the entity does not comply with the ratio during a school year because of the withdrawal of students, the institution must adjust the number of scholarships in a proportionate manner for the subsequent school year.
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Pursuant to Normative Ruling No. 1.394, of September 12, 2013, a postsecondary education institution that has adhered to PROUNI is exempt, totally or partly, from the following taxes for the duration of the adherence period:
| ● | IRPJ and CSLL with respect to the net income derived from the undergraduate degree courses and extension courses; and |
| ● | PIS and COFINS, with respect to the revenue derived from undergraduate degree courses and extension courses. |
In case a postsecondary education institution requires its exclusion from PROUNI, its tax incentives will be suspended from the date of the solicitation and will not be applicable for the entire period of the basis of calculation.
Normative Ruling No. 1,394, of September 12, 2013, introduced new provisions regarding the tax exemptions granted by PROUNI. According to this Normative Ruling, in addition to the tax exemptions obtained by higher education institutions signatories to PROUNI, tax exemptions are calculated based on the Proportion of Effective Occupation of the Scholarships (Proporção de Ocupação Efetiva de Bolsas), or POEB. Originally, the exemption related to IRPJ should be calculated without taking into account the additional 10% of IRPJ. However, Normative Ruling No. 1,394 was amended by Normative Ruling No. 1,417/2013.
According to Article 7, II, of Normative Ruling No. 1,394, as amended by Normative Ruling No. 1,417, dated December 6, 2013, the calculation of the exemption should also include the additional 10% of IRPJ, in addition to the CSLL rate. The amount calculated based on the multiplication of the POEB on the IRPJ and CSLL due by the legal entity, is the amount of the IRPJ and CSLL exemption, respectively, which may be deducted from the IRPJ and CSLL in relation to the totality of our activities.
Accordingly, with the issuance of Normative Ruling No. 1,417, of December 6, 2013, the IRPJ/CSLL exemption on our operating income proportionate to the POEB will also include the additional 10% of IRPJ. Normative Ruling No. 1,417, dated December 6, 2013, extended the limit to the amount of the tax exemption.
Other modifications of the fiscal incentive granted by PROUNI were established by Normative Ruling No. 1,476, of July 1, 2014, which also amends the aforementioned Normative Ruling No. 1,417, of September 6, 2013, in order to (1) exclude several amounts from the concept of profit of the holding, which impacts the enjoyment of the exemption related to CSLL and IRPJ; and (2) exclude the POEB from the applicable calculation, specifically for higher education institutions with terms of adherence to PROUNI signed up to June 26, 2011, which also affects the calculation of the exemption specifically enjoyed for the terms of adhesion celebrated in the period prior to that date.
We calculate the amount of our PROUNI tax benefits based on the applicable legislation.
Student Financing Program (FIES)
The FIES, created by Law No. 10,260, of July 12, 2001, is a MEC program to finance students that cannot bear the total costs of their education. FIES has been the most important program for the expansion of access to higher education in Brazil during the last decade, and it is currently responsible for a significant part of the revenues of the majority of private higher education institutions.
FIES consists of funding granted by FNDE to students regularly enrolled in an on-site course of a postsecondary private higher education institutions registered in FIES that has been positively evaluated by the MEC. After a specific selection proceeding, students may be partially or wholly funded by FIES and, in that case, FNDE will be responsible for crediting the correspondent amount due by the student to the private higher education institution.
Payments are made with government bonds whose primary purpose is to compensate tax debts from the private higher education institution. In case there are no debts to be compensated, the institution can resell the bonds to the government by means of a specific proceeding that currently occurs on a monthly basis. The frequency of these proceedings could vary according to public financial constraints and the discretion of FNDE.
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FIES has been substantially reshaped by Law No. 13,530, dated December 7, 2017, and currently the program is not as broad as it used to be. According to applicable regulations, in order to enroll students that have been selected by FIES, private higher education institutions are required to contribute to the fund 13% of educational fees and tuition due by students to the institution as consideration for the educational services rendered in the first year of studies. This amount is subject to change in the following years: (i) from the second to the fifth year after joining, the contribution could vary between 10% and 25% depending on various factors including non-payment of co-participation and other amounts owed by students to FIES; and (ii) from the sixth year onwards, the contribution varies from 10% to 27.5%, based on the criteria established by regulation.
As a result of the COVID-19 pandemic, Law No. 14.024 of 2020 suspended the financial obligations of FIES students for the duration of the period of public calamity established by Legislative Decree No. 6/2020. Furthermore, several 2020 FIES internal procedure deadlines were extended, including enrollments and contract signings.
Social Student Financing Fund (Fundo de Financiamento Estudantil Social - FlES Social)
The Student Financing Fund Management Committee (“CG-Fies”), linked to the MEC, issued Resolution No. 58/2024, which creates the rules for the so-called “FIES Social”, a set of specific rules that will be adopted in selection processes of FIES from the second semester of 2024.
In practice, Resolution No. 58/2024 provides that at least 50% of the vacancies in each selection process must be allocated to students with a per capita family income of up to half the minimum wage, registered in the Brazilian Federal Government’s Single Registry for Social Programs (“CadÚnico”). Furthermore, it provides that the selection to fill these vacancies and those for general competition will be made prioritizing students who self-declare as black, mixed race, indigenous, quilombola and disabled.
Resolution No. 58/2024 provides that scholarship holders selected for FIES Social will be eligible for full scholarships and therefore establishes that the criteria in force to determine the financing percentage described in FNDE Resolution No. 18/2018 do not apply.
Resolution No. 58/2024 makes it clear that even the full scholarship is subject to the maximum and minimum values established by FNDE Resolution No. 54/2023. Therefore, if the FIES Social scholarship holder attends courses with more expensive monthly tuition fees, such as medicine, for example, the scholarship holder will be responsible for covering the differences.
University Scholarship Program of the State of Santa Catarina (Programa de Bolsas Universitárias do Estado de Santa Catarina), or Santa Catarina Free University, and State Fund to Support the Maintenance and Development of Postsecondary Education (Fundo Estadual de Apoio à Manutenção e ao Desenvolvimento da Educação Superior), or FUMDES
On January 8, 2023, Complementary Law 831/2023 and State Law 18,672/2023 were published in the Official Gazette of the State of Santa Catarina, to establish new regulations relating to articles 170 and 171 of the Constitution of the State of Santa Catarina and replace the UNIEDU program with (i) the Santa Catarina Free University program, which serves non-profit community higher education institutions, or ICES, and (ii) FUMDES, which serves for-profit private higher education institutions. State Law 18,672/2023 was later amended by Law 18,848/2024, which precluded granting FUMDES scholarships for distance learning courses.
The Santa Catarina Free University program provides that 100% of the public resources provided for in art. 170 of the Constitution of the State of Santa Catarina will be allocated to ICES, in the form of financial assistance to be allocated to their students who meet certain requirements (be born in the state of Santa Catarina or reside in the state for a certain period of time, and meet certain income and other metrics , among others). These students will be able to study for free in the courses offered by these institutions.
The ANUP questioned the criteria used to implement the Santa Catarina Free University program before the Court of Auditors of the State of Santa Catarina (Tribunal de Contas do Estado de Santa Catarina — “TCE-SC”).
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Furthermore, the Association of Private Supporters of Higher Education of Santa Catarina (Associação de Mantenedoras Particulares de Educação Superior de Santa Catarina — “AMPESC”) began a Direct Action of Unconstitutionality (Ação Direta de Inconstitucionalidade — “ADI”) before the Court of Justice of the State of Santa Catarina (Tribunal de Justiça do Estado de Santa Catarina — “TJSC”) in relation to the Complementary Law 831/2023 that created the Santa Catarina Free University program.
The TCE-SC has not yet commented on the Report of the TCE-SC Management Accounts Board (Diretoria de Contas de Gestão do TCE-SC — “DGE”), which raised a number of questions about the economic and financial sustainability of the Santa Catarina Free University program. There is a precautionary request from the DGE pending analysis by the TCE-SC to suspend the notices for scholarships under the Santa Catarina Free University program.
At the judicial level, the TJSC has rejected the ADI brought by AMPESC due to AMPESC lack of legitimacy to bring such a claim. As of the date of this annual report, there is no preliminary or definitive decision that would modify the situation described above and the Santa Catarina Free University and FUMDES programs remain in force.
National Higher Education Evaluation System (SINAES)
The SINAES was created by Law No. 10,861 of April 14, 2004, with the purpose of evaluating postsecondary education institutions and undergraduate courses and measuring student academic performance. The main objectives of this system are: (i) to assess the quality of education in Brazil; and (ii) to provide guidelines for the MEC to decide upon institutional reaccreditation, recognition and renewal of recognition of courses. Additionally, the SINAES is responsible for improving the quality of postsecondary education in Brazil given that the MEC can identify deficiencies and establish specific conditions for institutions to remedy their issues and resume their operations.
The SINAES is monitored and coordinated by the CONAES, and the INEP has a very important role in all processes. The results of the evaluation of postsecondary education institutions and their courses are public and represented on a five-level scale as follows:
| ● | Level 5 indicates excellent conditions; |
| ● | Level 4 indicates more than satisfactory conditions; |
| ● | Level 3 indicates satisfactory conditions; and |
| ● | Levels 1 and 2 indicate unsatisfactory conditions. |
After the on-site evaluations, institutions and courses obtain quality concepts as follows:
| ● | an Institutional Concept, which is the result of the on-site evaluation of the institution performed by the INEP; and |
| ● | a Course Concept, which is the result of the on-site evaluation of the course performed by the INEP. |
Given the volume of in-person assessment processes, the MEC created provisional indicators in order to provide a qualitative assessment until an in-person assessment of SINAES is carried out.
Pursuant to applicable regulations, evaluation processes consist of a preliminary assessment of several conditions relating to the institution and its courses, such as infrastructure, titles of faculty members, work schedule of faculty members and student performance. Every year, the INEP establishes a method to evaluate those elements and for them to correspond to a number in the five-level scale.
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The preliminary assessment is a complex process based on quality indicators as follows:
(a) National Student Performance Examination—ENADE
The ENADE is a test applied to a number of students that are completing courses. It evaluates students’ knowledge regarding the content provided in the curricular guidelines of the respective undergraduate course and their skills and competencies. The ENADE’s results are considered in the composition of quality indexes for courses and institutions.
(b) Preliminary Course Concept—CPC
The Preliminary Course Concept (Conceito de Curso Preliminar), or CPC, is composed of the ENADE score, the Indicator of Difference between Observed and Expected Performance (Indicador de Diferença entre os Desempenhos Observado e Esperado), or IDD, and factors that include teacher titles, the work schedule of faculty staff and infrastructure of the institution. It is an indicator of the State of undergraduate courses in the country. The rules for conducting the on-site verification of teaching conditions are defined annually. Certain courses with a concept equal to or greater than 3, as defined annually by the MEC, may not receive the visit of the evaluators as a result of which the CPC becomes a permanent concept (the Course Concept). The CPC is released every year for a specific group of courses that consists in the same areas evaluated at the ENADE.
(c) General Course Index—IGC
The IGC of the institution summarizes in a single indicator the results of the CPC and the evaluation of master’s and doctorate courses of each educational institution. With regard to graduate courses, CAPES indexes are used and adapted to the scale according to a methodology provided by the INEP, given that they are organized in a different manner. The IGC also goes from 1 to 5 and is published by the INEP/MEC, after the release of the results of the ENADE and the CPC. The IGC is a criterion in the accreditation and reaccreditation processes of institutions and also in the authorization process for new courses: institutions with IGCs less than 3, for example, may have their applications for new courses rejected by the MEC. Similarly, the indicator is used to guide the expansion of quality education: institutions with good performance are exempted from the authorization of the MEC to open courses.
(d) Indicator of Difference between Observed and Expected Performance—IDD
The IDD is intended to provide a reference of the contribution of the course to the learning of each student. For that purpose, it compares the results of the ENADE with the performance of the same student in the ENEM. The indicator has a scale of 1 to 5.
Following preliminary assessments, all institutions are typically subject to an on-site evaluation to confirm the results. However, given the size of the system, the MEC gives institutions the option to convert the results of the preliminary assessments into final results and, therefore, forego on-site evaluations. For institutions that obtain unsatisfactory levels, the MEC on-site evaluations are mandatory.
Even before the on-site evaluation, the MEC is entitled to apply precautionary measures when preliminary assessments of the institution or course is not considered satisfactory, such as: (1) suspension of new enrollments within the respective course or the entire institution; (2) reduction of vacancies; and (3) suspension of all regulatory proceedings for institutional reaccreditation, new authorizations, recognitions or renewals of recognitions.
Should the level be confirmed as less than 3 by the on-site evaluation, the MEC may propose a term of commitment to the institution, in order for it to correct the unsatisfactory conditions within a specific deadline. Failure to uphold, in full or in part, the conditions established in the term of commitment may result in one or more penalties to be applied by the MEC, such as: (1) temporary suspension of the opening of a selection process of undergraduate courses; (2) disqualification from the operating authorization of the higher education institution or recognition of courses offered; and (3) warning, suspension or cancellation of the mandate of the officer responsible for the action not executed, in the case of public postsecondary education institutions.
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Registration of the Brazilian Educational System – SEB
The Register was established by Ordinance No. 1,773/2019 and aims to support the formulation, implementation, execution, evaluation and monitoring of public policies.
All educational institutions must provide personal data of the academic staff and students, as well as information on the enrollment, attendance and school records of students.
School Census
The school census is conducted annually by the INEP and the provision of information is mandatory for all public and private education institutions, as provided by the LDB.
Accreditation for Postgraduate Programs
Lato sensu
Postsecondary education institutions accredited for offering undergraduate courses and that have at least one regular undergraduate course or a stricto sensu postgraduate course can offer lato sensu postgraduate courses in the subjects in which they are accredited, either on-site or through digital education.
The offering of postgraduate programs does not require an authorization to operate, even if it is offered by a college. However, it must be reported to the MEC, through the MEC’s system (e-MEC), within 60 days of the date of creation of such course.
The lato sensu postgraduate courses are aimed at students who hold a diploma in an undergraduate course and satisfy the criteria of the institution that is offering the postgraduate course. The postgraduate courses must meet the following requirements: (1) a curriculum with a minimum study load of 360 hours; and (2) a teaching staff composed of at least 30% graduates of stricto sensu postgraduate courses.
Stricto sensu
The authorization and recognition of stricto sensu postgraduate courses (master’s and doctorates) must be evaluated by CAPES, submitted to the CNE’s deliberation and approved by the MEC.
The educational institutions can only initiate master’s and doctorate course activities following publication of the homologation of the CNE’s favorable opinion by the MEC in the Official Gazette.
As part of its analysis, CAPES must consider the general requirements and the specific parameters of the subject area to which each course is linked. The general requirements are: (1) alignment of the proposal with the postgraduate planning of the institution; (2) suitability and justification of the proposal for the regional or national development and its economic and social importance; (3) clarity and consistency of the proposal with detailed information on its objectives, area of concentration, lines of research, curricular structure, subject and bibliographic references; (4) clarity of the criteria adopted to select the students, justifications for the profile of the aimed formation and profile of the egress; (5) proof that the teaching staff has academic, didactic, technical and scientific competence and qualifications related to the purpose of the course; (6) a permanent teaching staff to ensure the regularity and quality of teaching, research and orientation activities; (7) indication of up to five intellectual productions of each permanent teacher; and (8) physical and technological infrastructure of teaching and research adequate for the development of the proposed activities.
Authorizations of new stricto sensu postgraduate courses must be requested at specific dates, as defined by CAPES and published in the Official Gazette.
We have an accredited university in one of our maintainers. In line with the applicable legal requirements, this higher education institution maintains four stricto sensu postgraduate programs.
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Regulatory Quality Indicators
Our model is recognized by certain regulatory quality indicators, such as:
| ● | CI Score: A quality indicator for postsecondary education institutions measured and published by INEP through on-campus evaluations that comprise educational organization subjects, such as institutional planning and development, academic, management and infrastructure. The current accreditations and re-accreditations, for both Uniasselvi and UniCesumar, obtained the maximum ratings on a scale of 1 to 5. |
| ● | Course Concept: quality indicator for each course at each higher education institution measured and published by INEP through on-campus evaluations that cover issues of teaching methods, teaching and tutorial staff, and infrastructure. The recognized/renewed courses, both for Uniasselvi and UniCesumar, achieved Course Concepts scores of 4 and 5 on a scale of 1 to 5 in over 90% of cases. |
The CI score and Course Concept are the SINAES indicators and result from on-campus evaluations by agents designated by INEP/MEC. However, the MEC/INEP also created provisional indicators in evaluation policy for higher education institutions:
| ● | CPC: A quality indicator for postsecondary education institutions measured and published by ENADE that comprises educational and organization subjects, such as student and faculty performance, infrastructure, didactic-pedagogical resources and other inputs, in order to measure general courses quality. In 2021 (the last available data), Vitru’s CPC score was 6.5% higher than the market average for private distance learning institutions. |
| ● | IGC: This is the most important quality indicator for a course. The IGC considers the average of the last three CPC grades, the distribution of students across undergraduate and graduate, and the average evaluation of graduate programs. In 2021 (the last available data), Vitru’s IGC score was 7.1% higher than the market average for private institutions. |
| ● | IDD: A quality indicator that is intended to capture the institution’s contribution to the student’s development. In 2021 (the last available data), Vitru’s IDD score was 2.26%, higher than the market average for private distance learning institutions, which was 2.21%. |
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C.Organizational Structure
We are a Cayman Islands exempted company incorporated with limited liability on March 5, 2020 for purposes of effectuating our initial public offering. Prior to the consummation of our initial public offering, our Principal Shareholders held 522,315,196 shares of Vitru Brazil. Prior to the consummation of our initial public offering, our Principal Shareholders contributed all of their shares in Vitru Brazil to us. In return for this contribution, we issued new common shares to our Principal Shareholders in a one-to-31 exchange for the shares of Vitru Brazil contributed to us. Until the contribution of Vitru Brazil shares to us, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments.
The diagram below depicts our organizational structure as of the date of this annual report:
Below is a brief description of our subsidiaries:
Vitru Brasil Empreendimentos, Participações e Comércio S.A. (“Vitru Brazil”)
Vitru Brazil is an operating subsidiary and was incorporated on June 27, 2014 in Florianópolis, State of Santa Catarina. Vitru Brazil is primarily a holding company through which we hold our remaining subsidiaries listed below, and through which we provide our postgraduate courses. On March 6, 2024, the registration statement filed by Vitru Brazil relating to the Proposed Transaction was declared effective by the SEC. In addition, on December 4, 2023, the CVM approved the conversion of the registration of Vitru Brazil with the CVM from category “B” to category “A” pursuant to CVM Resolution No. 80, of March 29, 2022, as amended. Pursuant to CVM regulation, category “A” registration authorizes the trading of any classes of securities of Vitru Brazil in regulated markets. On December 26, 2023, the B3 approved Vitru Brazil’s application for the listing of Vitru Brazil on the Novo Mercado segment of the B3 and admission to trading of the Vitru Brazil Shares. The listing will become effective upon closing of the Proposed Transaction.
Sociedade Educacional Leonardo da Vinci Ltda. (“Uniasselvi”)
Uniasselvi was incorporated on January 30, 2004 in Indaial, State of Santa Catarina. Vitru Brazil acquired sole control of Uniasselvi from Kroton on February 28, 2016. We conduct most of our digital education undergraduate courses through Uniasselvi and its activities also include conducting on-campus undergraduate and continuing education courses. Uniasselvi holds the following educational entities authorized by the MEC:
| ● | Centro Universitário Leonardo da Vinci – Uniasselvi; |
| ● | Centro Universitário Uniasselvi de Blumenau; |
| ● | Centro Universitário Uniasselvi de Brusque; |
| ● | Faculdade Leonardo da Vinci de Chapecó; |
| ● | Faculdade Leonardo da Vinci de São Gonçalo; |
| ● | Faculdade Metropolitana de Florianópolis – FAMEFLORIPA; |
| ● | Faculdade Metropolitana de Itajaí – FIMT; |
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| ● | Faculdade Metropolitana de Lages – FAMELAGES; |
| ● | Faculdade Metropolitana de Palhoça – FAMEPALHOÇA; and |
| ● | Faculdade Metropolitana de Rio Sul – FAMESUL. |
CESUMAR – Centro de Ensino Superior de Maringá Ltda. (“UniCesumar”)
UniCesumar is a limited liability company (sociedade limitada) incorporated under the laws of Brazil on April 2, 2007, pursuant to its articles of incorporation and headquartered in the city of Maringá, State of Paraná. UniCesumar was founded in 1989 by a group of teachers led by Professor Wilson de Matos Silva and has become one of the 10 largest education groups in Brazil by number of enrolled students, according to the INEP census published by the MEC in February 2022. UniCesumar holds the following educational entities authorized by the MEC:
| ● | Universidade Cesumar; |
| ● | Faculdade UniCesumar de Corumbá; |
| ● | Faculdade Politécnica de Corumbá; |
| ● | Faculdade Politécnica de Corumbá; |
| ● | Faculdade Cesumar de Ponta Grossa; |
| ● | Faculdade Cesumar de Londrina; |
| ● | Faculdade Cesumar de Campo Grande; and |
| ● | Centro Universitário do Paraná. |
Sociedade Educacional do Vale do Itapocu Ltda (“Sociedade Educacional do Vale do Itapocu”); FAIR Educacional Ltda. (“FAIR”) and FAC Educacional Ltda. (“FAC”)
Sociedade Educacional do Vale do Itapocu, FAIR and FAC are the subsidiaries through which we provide on-campus undergraduate and continuing education courses. These subsidiaries were incorporated on November 3, 2005, April 25, 2014, and June 24, 2014, respectively, and were also acquired by us from Kroton in 2016 and 2017.
Sociedade Educacional do Vale do Itapocu, FAIR and FAC hold the following educational entities authorized by the MEC:
| ● | Centro Universitário Uniasselvi de Guaramirim; |
| ● | Faculdade Leonardo da Vinci de Belo Horizonte; |
| ● | Faculdade Leonardo da Vinci de Jacobina; |
| ● | Faculdades Integradas de Rondonópolis – FAIR; |
| ● | Faculdade de Mato Grosso – FAMAT; and |
| ● | Instituto de Ensino Superior de Cuiabá. |
Rede Enem Serviços de Internet Ltda. (“Rede Enem”)
Rede Enem is our subsidiary incorporated on September 1, 2022, and through which we offer a platform that provides free content through an ecosystem, including blogs, free preparatory courses, and social media profiles in order to improve the performance of students in secondary education, mainly from public schools, for the ENEM.
Instituto Cesumar de Ciência, Tecnologia e Inovação (“ICETI”)
ICETI is an association with the purpose of supporting, developing and promoting education, research, innovation and technology projects, in order to complement Cesumar’s activities.
Additional Information
See Note 2.2 to our audited consolidated financial statements included elsewhere in this annual report for additional information on our subsidiaries.
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D.Property, Plant and Equipment
Intellectual Property
Our business depends to a significant extent on our intellectual property, such as our “Uniasselvi” and “UniCesumar” brands. We rely and expect to continue to rely on a combination of copyright, trademark and trade secret laws, as well as employee and third-party non-disclosure, confidentiality and other types of contractual arrangements to establish, maintain and enforce our intellectual property rights, including with respect to our proprietary rights related to our products and services. In addition, we license technology and copyright from third parties.
As of December 31, 2023, we owned 51 trademarks, including “Vitru,” “Uniasselvi,” “UniCesumar,” and a number of additional brands which we use in certain parts of Brazil, such as “Fameblu,” “Univinci,” “ICPG,” “Asselvi,” “Cesumar,” “UC UniCesumar” and “Comunidade do Conhecimento”. We also have the right to use of a number of registered copyrights, most notably copyrights for physical and digital teaching materials.
We also own a number of domain names registered in Brazil, including “unicesumar.edu.br,” “cesumar.edu.br,” “unicesumar.com.br” and “unicesumaraovivo.com.br.
Properties
Our corporate headquarters, which include our Uniasselvi academic core and business operations are located in the city of Indaial, in the State of Santa Catarina. The office consists of 4,370 square meters of space and is under a lease that expires in 2028. We also lease a secondary corporate headquarters, located in the city of Maringá, in the State of Paraná, which includes the majority of product development, sales, marketing of UniCesumar, and business operations of both brands. These principal executive offices consist of approximately 91,875 square meters of space under a lease that expires in 2042.
We also lease 758.10 square meters in the city of Florianópolis, in the State of Santa Catarina, for certain administrative activities and where our main executive offices and part of our senior management are located, under a lease that expires in 2024. We believe our facilities are sufficient for our current needs.
In addition to our corporate headquarters and to our corporate center, and as of December 31, 2023, we leased all operational and administrative facilities. We believe that our facilities are suitable and adequate for our business as presently conducted, however, we periodically review our facility requirements and may acquire or lease new space to meet the needs of our business or consolidate them and dispose of facilities that are no longer needed.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto as well as the information presented under “Item 3. Key Information—A. Selected financial data.” The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in “Forward-Looking Statements” and “Item 3. Key Information—D. Risk factors.”
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A.Operating Results
We provide a complete pedagogical system focused on a hybrid digital education experience for undergraduates and continuing education students. Between 2016 and 2022, we grew at a CAGR of 39.8% in terms of enrolled students in our undergraduate digital education programs, as shown in the chart below.
Source: INEP.
Note: The data presented in this chart for the period from 2010 to 2022 is derived from publicly available information published by INEP for market share comparability purposes, it is calculated by INEP by applying the same metrics for all postsecondary education institutions in Brazil. This data may not be directly comparable with data derived from our internal records included elsewhere in this annual report.
We offer a differentiated digital education experience to our students through our innovative hybrid model, which emphasizes flexibility, affordability, and a strong relationship with all stakeholders engaged in our platform. Our hybrid and technology-enabled content is delivered both digitally and through in-person or virtual weekly meetings led by highly-trained tutors on our extensive hub network. We believe that this unique tutor-centered learning experience sets us apart, creating a stronger sense of community and belonging and contributing to higher engagement and retention rates of our student base.
Our hub partners, who own 94.0% of our hubs as of December 31, 2023, are compensated by their respective shares represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student in the service agreement. This percentage is similar across all our partnership agreements and varies in accordance with the type, of course, the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher at the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of the lower tuition share allocated to our hub partners. We have built and nurtured strong relationships with more than 676 hub partners, who play a key role in our expansion. Our proven quality has allowed us to accelerate the growth of our business and further differentiate ourselves.
Our CI score, which is measured and published by MEC and is based on institutional planning and development, academic and management criteria, was 5 (on a scale of 1 to 5), enabling us to open up to 1,500 hubs per year, 250 hubs at each of our six institutions accredited to offer digital education undergraduate courses, compared to a maximum of 150 and 50 new hubs per year for institutions scoring up to 4 and 3, respectively. We offer the highest quality standards in higher education in Brazil, as evaluated by the MEC.
Our Business Economics and Cohorts
We believe our business model and our value proposition to our students has resulted in best-in-class economics for our hubs network, which plays a pivotal role in our organic growth strategy.
We believe an annualized cohort analysis is a useful indicator of demand for our services. We define a cohort as the number of new hubs opened in a given year.
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We track the cohorts on a semi-annual basis. Our strong cohorts are driven by the maturation of our hubs, our high retention rates, especially after the first year of enrollment, the expansion of our offering (e.g. new courses) and annual tuition adjustments.
The result of our recent cohorts demonstrates our successful track record in developing our educational system as set out in the chart below.
| (1) | The number of hubs and students in 2021 has been revised post-closing and is aligned with Vitru’s criteria. |
Note: The numbers in the chart above show the actual student base (in thousands), within each cohort, as of the end of each semester between the second semester of 2017 and the second semester of 2023.
Key Business Metrics
We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:
Enrolled Students
The number of enrolled students is one of the most significant operational metrics tracked by our management. It represents the total number of students enrolled in the courses we provide. As of December 31, 2023, we had 883,646 enrolled students, respectively, representing a CAGR of 55.5% from 2021 to 2023.
In our digital education undergraduate courses, our first core business, we had 803,656 students as of December 31, 2023, representing a CAGR of 62.6% from 2021 to 2023. In our digital education graduate courses, our second core business, we had 57,938 students as of December 31, 2023, representing a CAGR of 2.5% from 2021 to 2023.
We believe the metric that best shows our focus on digital education (comprising both undergraduate courses and graduate courses) and its relevance to our course offerings is the number of enrolled students from digital education as a percentage of our total enrolled students.
The following table sets forth the number of enrolled students as of the dates presented.
|
|
As of December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Total enrolled students |
|
883,646 |
|
768,384 |
|
365,433 |
% Digital education to total enrolled students |
|
97.5% |
|
97.3% |
|
98.3% |
Total of digital education students |
|
861,594 |
|
747,538 |
|
359,175 |
Number of digital education undergraduate students |
|
803,656 |
|
696,254 |
|
304,060 |
Number of digital education graduate students |
|
57,938 |
|
51,284 |
|
55,115 |
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Number of Hubs
We have substantially expanded our operations and geographic presence throughout Brazil with the opening of new hubs in the last years. The number of hubs is one of the drivers that enable us to increase our base of enrolled students. Our network as of December 31, 2023 consisted of 2,499 hubs across all Brazilian states, representing a CAGR of 63.1% from 2021 to 2023.
The following table sets forth the number of hubs as of the dates presented.
|
|
As of December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Number of Hubs |
|
2,499 |
|
2,170 |
|
939 |
We expect to continue to launch new hubs to increase our coverage and market penetration. We believe our strategy of targeting small-sized, medium-sized and underserved cities provides us with a significant growth opportunity. In addition, we believe that we are well positioned to grow in denser regions, such as the states of São Paulo and Rio de Janeiro, where our presence is still relatively small.
Maturation Index
We believe the number of students per hub in each cohort is useful to show hub maturation and the ramp-up in our hubs’ operations as they attract and maintain new students from our digital education undergraduate courses. We expect mature hubs to have approximately 800 students per hub. We have developed a maturation index to assess our hubs’ progress against our expectations.
We calculate the maturation index as the actual number of students per hub not yet considered mature (which we call “expansion hubs”) divided by the number of students we expect such hub to achieve once it has matured (i.e., the weighted average of students we expect to achieve according to the size of our expansion hubs). The index comprises all expansion hubs as of the end of each period, and it can therefore decrease in a given quarter if new expansion hubs are opened.
As of December 31, 2023, 93.2% of our 2,499 hubs were still ramping up and the current maturation index of these expansion hubs was only 42.4%. We believe this shows our potential for growth. We estimate that a typical hub reaches its full capacity in terms of number of students (and is deemed to be mature) after seven or eight years of operations.
|
|
As of December 31, |
|||||
|
|
2023 |
|
2022 |
|
2021 |
|
Theoretical maturation index |
|
42.4 |
% |
41.8 |
% |
32.9 |
% |
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Tuition
We believe that the total amount of tuition we charge (which is the sum of our gross revenue and hub partners’ portion less other academic revenue less cancellations), considering only our digital education undergraduate business, is a useful metric to show the compelling strength of our growth and the maturation of our hubs.
|
|
As of and for the Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
|
|
(in R$ millions) |
||||
Tuition (net of cancellations) |
|
2,285.0 |
|
1,590.6 |
|
829.1 |
We typically adjust our tuition fees on an annual basis, at rates above the variation of inflation indices for the previous twelve months.
Our operating results normally fluctuate as a result of seasonal variations in our business. For further information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations” and “Item 4. Information on the Company—B. Business Overview—Our Business—Our Products and Services—Seasonality.”
Brazilian Macroeconomic Environment
Substantially all of our operations are located in Brazil. As a result, our revenues and profitability are affected by political and economic developments in Brazil and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the industry in general, are particularly sensitive to changes in economic conditions.
Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/real exchange rate at the dates and for the years indicated.
|
|
As of and for the Year Ended December 31, |
||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
|||
Real growth in gross domestic product (GDP) |
|
|
2.9 |
% |
|
3.0 |
% |
|
4.8 |
% |
Inflation (deflation) (IGP-M)(1) |
|
|
(3.2) |
% |
|
5.5 |
% |
|
17.8 |
% |
Inflation (IPCA)(2) |
|
|
4.6 |
% |
|
5.8 |
% |
|
10.1 |
% |
CDI interest rate(3) |
|
|
12.31 |
% |
|
11.73 |
% |
|
4.35 |
% |
SELIC(4) |
|
|
11.75 |
% |
|
13.75 |
% |
|
9.25 |
% |
Year-end exchange rate—reais per U.S.$1.00(5) |
|
R$ |
4.841 |
|
R$ |
5.218 |
|
R$ |
5.581 |
|
Average exchange rate—reais per U.S.$1.00(6) |
|
R$ |
4.995 |
|
R$ |
5.165 |
|
R$ |
5.396 |
|
Depreciation of the real vs. U.S.$ in the period(7) |
|
|
(7.2) |
% |
|
(6.5) |
% |
|
7.4 |
% |
Unemployment rate(8) |
|
|
8.0 |
% |
|
9.5 |
% |
|
13.5 |
% |
Source: FGV, IBGE and Brazilian Central Bank.
(1) |
Inflation (IGP-M) is the general market price index measured by the FGV. |
(2) |
Inflation (IPCA) is a broad consumer price index measured by the IBGE. |
(3) |
The CDI (certificado de depósito interbancário) interest rate is an average of interbank overnight rates in Brazil, accumulated during the corresponding period. |
(4) |
The SELIC rate is the base interest rate (Sistema Especial de Liquidação e Custódia) in Brazil. |
(5) |
Annual rate at the end of the period. |
(6) |
Average of the exchange rate on each business day of the year. |
(7) |
Comparing the U.S.$ closing selling exchange rate as reported by the Brazilian Central Bank at the end of each year. |
(8) |
Average unemployment rate for year as measured by the IBGE. |
Inflation directly affects most of our current operating costs and expenses, adjusted by reference to indexes that reflect the inflation rate such as the IGP-M or IPCA. For instance, our most important cost component is personnel, which accounted for 44.9%, 46.2% and 49.9% of our total costs and expenses in the years ended December 31, 2023, 2022 and 2021, respectively, and is clearly impacted by inflation rates.
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Historically, inflation has been offset by our ability to adjust our tuition fees in rates that are typically above the variation of inflation indexes, due mostly to the increase in the content density and complexity over the course; however, this may not necessarily continue to be the case in the future. Our financial performance is also tied to fluctuations in interest rates, such as the CDI rate, because such fluctuations affect the value of our financial investments.
The recent economic instability in Brazil, the deterioration of the political environment and continued high interest rates, have all contributed to a decline in market confidence in the Brazilian economy, and have had a significant effect on economic conditions in 2023. Business operations across Latin America, Asia, Europe and the United States in 2023 were affected by supply chain disruption and shortages of components, with a direct impact on the availability of goods and services. In 2023 and early 2024, inflationary pressures continued in Brazil, as it did globally, including as a result of the ongoing war between Ukraine and Russia, the commencement of war between Israel and Hamas, wider tensions in the Middle East, supply chain issues and increases in energy prices. Accumulated inflation for the year ended December 31, 2023, was 4.6% in Brazil. We cannot predict when or whether economic conditions will stabilize globally or in Brazil. Brazilian GDP increased by 2.9% in 2023 but is expected to increase by 1.7% in 2024 according to the Brazilian federal government. While Brazilian GDP increased in 2023, due in part to fiscal incentives granted by the Brazilian government and to a record grain harvest that boosted commodity-linked segments, we cannot assure you that this trend will continue. The macroeconomic outlook for 2024 is marred by high inflation, high interest rates, a deteriorating global economic outlook, and continued uncertainty regarding the continuation or escalation of the war in Ukraine and of the conflict in the Middle East. Furthermore, we believe Brazil is unlikely to repeat another record harvest and, even if it does, the growth could be significantly smaller than growth seen in 2023. Hence, the contribution of the commodity-related segments to overall economic growth is expected to be less significant than in 2023. Brazilian monetary policy is also expected to remain tight.
For further information, see “Item 3. Key Information—D. Risk Factors— Risks Relating to Brazil— Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our common shares.”
Segment Reporting
We report on our operations according to the following segments, each of which represents a main line of service from which we generate revenue: (i) digital education undergraduate courses; (ii) on-campus undergraduate, and (iii) continuing education courses. For further information, see “Item 4. Information on the Company—B. Business Overview—Our Business—Our Products and Services.”
Principal Components of Our Results of Operations
Net Revenue
Our revenue consists primarily of tuition fees charged for digital education undergraduate courses, on-campus undergraduate courses, and continuing education courses. We also generate revenue from student fees and certain education-related activities.
Revenue from tuition fees is recognized over time when services are rendered to the customer and we satisfy our performance obligation under the contract at an amount that reflects the consideration that we expect to receive for those services. Revenue from tuition fees is recognized net of scholarships and other discounts, refunds and taxes.
Other revenues consists mainly of operational activities performed at the request of our students, such as the revenue we earn on application of additional exams (substitute exams or vacation courses), transfers between campuses, services related to the issuance of certificates and penalties we impose for the early termination of contracts. Other revenue is recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration that we expect to receive for those services. Other revenue is presented net of the corresponding discounts, returns and taxes.
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Our net revenue consists primarily of tuition fees charged for our undergraduate and graduate courses. Revenue from tuition is recognized over time when services are rendered to the customer and we meet our obligations under the services agreement at an amount that reflects the consideration to which we expect to be entitled in exchange for those services. Revenue from tuition is recognized net of scholarships and other discounts, refunds and taxes. Other revenue is recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration to which we expect to be entitled in exchange for the service. Other revenue is presented net of the corresponding discounts, refunds and taxes.
Joint Operations with Hub Partners
A hub is a local operating unit owned by us or by third party hub partners. We enter into these partnerships through contracts with hub partners who provide support centers with infrastructure for our students. Each hub partner is responsible for rental costs and property maintenance, as well as administrative services, cleaning, local student service and infrastructure of the hubs. It is responsible for offering students access to audiovisual resources, a library and information technology support to enable students to take part in our digital education courses. We typically enter into contracts with our hub partners for an initial six-month term. The contracts are automatically renewable after the first six-month period and every six months thereafter unless terminated in accordance with their terms.
Our contractual agreements with each hub partner set forth the terms and conditions of the hub as a joint operation. Such contractual agreements also establish the rights of each hub partner to receive revenue from the operation of the hub and include provisions relating to expenses incurred in the operation of the hub. Accordingly, the revenue from digital education courses and related accounts receivable are recognized only up to the portion of the joint revenue to which we are entitled. We therefore record an obligation to pay hub partners under our trade payables when we receive payments of monthly tuition fees from students.
Our hub partners are compensated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student in the service agreement. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of lower tuition share allocated to our hub partners. See “Item 4. Information on the Company—B. Business Overview—Our Business—Strong Network of Hub Partners” for additional information on our agreements with our hub partners.
Taxes Deducted from Gross Revenue
Revenue, expenses and assets are recognized net of sales tax, except:
| ● | when the sales taxes incurred on the purchase of goods or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable; and |
| ● | when the amounts receivable or payable are stated with the amount of sales taxes included. |
The net amount of sales taxes, recoverable or payable to the tax authority, is included as part of receivables or payables in the statement of financial position, and net of corresponding revenue or cost/expense, in our statement of profit or loss.
Sales revenue in Brazil is subject to taxes and contributions, at the following statutory rates:
| ● | The PIS and the COFINS are contributions levied by the Brazilian federal government on gross revenue. These amounts are invoiced to and collected from our customers. Given that we are acting as tax withholding agents on behalf of the tax authorities, these amounts are recognized as deductions to gross revenue against tax |
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| liabilities. PIS and COFINS paid on certain purchases may be claimed back as tax credits to offset amounts of PIS and COFINS which are payable. These amounts are recognized as recoverable taxes and are offset each month against taxes payable and presented net, as the amounts are due to the same tax authority. |
| ● | PIS and COFINS are contributions calculated on two different regimes pursuant to the applicable Brazilian tax legislation: cumulative method and non-cumulative method. The regulations applicable to PROUNI provide that the revenue from traditional and technical undergraduate courses are exempt from PIS and COFINS. For income from other teaching activities, PIS and COFINS are charged based on the cumulative method at rates of 0.65% and 3.00%, respectively, and for non-teaching activities, PIS and COFINS are charged based on the non-cumulative method at rate of 1.65% and 7.6%, respectively. |
| ● | ISS is a tax levied by municipalities on revenue from the provision of services. ISS tax is added to amounts invoiced to our customers for the services we render. Given that we are acting as an agent collecting these taxes on behalf of municipal governments, these are recognized as deductions to gross revenue against tax liabilities. The applicable rates may vary from 2.00% to 5.00%. |
| ● | INSS is a social security charge levied on wages paid to employees. |
Cost of Services Rendered
Cost of sales consist primarily of expenses related to services of providing classes and delivering our content and technology to our students, which are mainly composed of payroll, depreciation and amortization, print expenses, freight, leases, utilities, cleaning, security and maintenance of our hubs.
We outsource the printing and binding of our educational materials. Printer costs are one of our principal costs, and printer fees are impacted by changes in the price of paper, one of the principal raw materials required to produce our educational materials. The cost of paper is generally impacted by fluctuations in the U.S. dollar/real exchange rate, and is also impacted by inflation, but not necessarily linked to a specific inflation index. Such changes in prices are reflected as inflation adjustments in the fees charged by our third-party printers, which produce our printed materials. To the extent we cannot offset the impact of printer costs by adjusting the prices of our educational materials, our margins may be negatively affected.
Expenses
We classify our operating expenses as selling expenses, general and administrative expenses, net impairment losses on financial assets and other income and expenses. The largest component of our operating expenses is employee and labor-related expenses, which includes salaries and bonuses and employee benefit expenses.
Selling expenses. Selling expenses consist primarily of expenses with personnel related to sales and marketing activities, marketing and sales expenses, as well as expenses with commercial consultants and projects.
General and administrative expenses. General and administrative expenses consist of personnel expenses related to general and administrative activities, depreciation and amortization, leases, consulting and advisory services, leases, contingencies and maintenance of our corporate offices.
Net impairment losses on financial assets. Net impairment losses on financial assets expenses consist of provision for losses, effective losses and recovery on receivables. The allowance for expected credit losses of trade receivables are calculated 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. When the delay of receivables exceeds 365 days, the receivable is written down. Collection efforts continue even for written-off receivables and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.
Other expenses. The other expenses are contractual indemnities (such as insurance policies reimbursements), deductible donations and miscellaneous income and/or expense items. A significant portion of our expenses are also seasonal.
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Due to the nature of our intake cycle, a significant amount of selling and marketing expenses are incurred in connection with the first semester intake, particularly in the first quarter of each year.
Financial Income (Expenses)
Our financial income consists of interest on tuition fees paid in arrears and the financial investments yield. The interest on tuition fees paid in arrears is recognized based on the time elapsed, using the effective interest rate method. This financial income is calculated using the same effective interest rate used to calculate the recoverable amount, that is, the original rate of trade receivables.
Financial expenses include interest expenses on taxes payable in installments and other financial liabilities, including the interest accrued on accounts payable from the acquisition of subsidiaries and on lease liabilities.
Income Tax
Tax Incentives
The postsecondary education companies which we maintain are part of the PROUNI program. PROUNI provides, through Law No. 11,096, of January 13, 2005, exemption of certain federal taxes imposed to postsecondary institutions that grant scholarships to low-income students enrolled in undergraduate courses and technology graduate courses. The following federal taxes are included in the exemption: IRPJ, CSLL, PIS and COFINS.
For additional information on PROUNI, see “Item 4. Information on the Company—B. Business Overview—Regulatory Overview—Financing Alternatives for Students: Incentive Programs—University for All Program (PROUNI).”
Current Income Taxes
Income taxes in Brazil consist of IRPJ and CSLL. According to Brazilian tax law, income taxes and social contribution are assessed and paid by each legal entity. The income tax payable by each entity is calculated based on the entity’s income, adjusted based on certain additions and exclusions provided for in the applicable legislation.
Current income taxes were calculated based on the criteria established in Normative Ruling No. 1,394, of September 12, 2013, issued by the Brazilian internal revenue service (Receita Federal do Brasil) in relation to the PROUNI program. Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. We periodically evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred Income Taxes
Deferred income tax and social contribution are recognized on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. We apply the liability method. However, deferred taxes are not accounted for if they arise from the initial recognition of an asset or liability in a transaction other than a business combination which, at the time of the transaction, does not affect accounting nor taxable profit or loss.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit against which the temporary differences and/or tax losses may be utilized will be available. Pursuant to Brazilian tax legislation, loss carry forwards can be used to offset up to 30% of taxable profit for the year and do not expire.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the foreseeable future.
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Deferred tax assets and liabilities are presented net in the statement of financial position when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes. This generally occurs when the relevant assets and liabilities relate to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different jurisdictions are generally presented separately, and not on a net basis.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with IFRS accounting standards. In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. Our significant accounting policies are described in Note 2 to our audited consolidated financial statements, each included elsewhere in this annual report. We believe that the following critical accounting policies are more affected by the significant judgments and estimates used in the preparation of our consolidated financial statements.
Fair Value Measurement of Financial Instruments
When the fair values of financial assets and financial liabilities recorded in our statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs into these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required to estimate fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. For more information, see Note 6.3 to our audited consolidated financial statements, each included elsewhere in this annual report.
Credit Losses on Trade Receivables
We recognize an allowance for expected credit losses, or ECLs, for trade receivables applying a simplified approach in calculating ECLs. As a result, we do not track changes in credit risk, but rather recognize an allowance for doubtful accounts based on lifetime ECLs at each reporting date. We have established a provision matrix that is based on our historical credit losses, adjusted for forward looking factors specific to the debtors and the economic environment. We consider a trade receivable to be in default when contractual payments are 365 days past due. In certain cases, however, we may also consider a financial asset to be in default when internal or external information indicates that we are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by us. A trade receivable is written off when there is no reasonable expectation of recovering the contractual cash flows. The information about our allowance for expected credit losses is disclosed in Note 10 to our audited consolidated financial statements, each included elsewhere in this annual report.
Provision for Contingencies
We are a party to proceedings at judicial and administrative levels, as disclosed in Note 20 to our audited consolidated financial statements, included elsewhere in this annual report. The provision for legal proceedings is set up for all proceedings assessed as probable losses. The likelihood of loss is assessed based on available evidence, the hierarchy of laws, case law, most recent court decisions and their relevance within the legal system and the assessment made by the outside legal counsel. Provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations, additional exposures identified based on new matters or court decisions.
Lease Term of Contracts with Renewal Options
We determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
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We have the option, under some of our leases to lease the assets for additional terms. We apply judgements in evaluating whether it is reasonably certain to exercise the option to renew. That is, we consider all relevant factors that create an economic incentive for us to exercise the renewal. After the commencement date, we reassess the lease term if there is a significant event or change in circumstances that is within our control and affects our ability to exercise (or not to exercise) the option to renew (for example, a change in business strategy).
Incremental Lease Rate
We are unable to determine the implicit discount rate to be applied to our lease agreements. Therefore, the incremental rate on the lessee’s loan is used to calculate the present value of the lease liabilities at the initial registration of the lease.
The lessee’s incremental loan rate is the interest rate that the lessee would have to pay when borrowing funds for the acquisition of an asset similar to the asset object of the lease, for a similar term and with a similar guarantee, the funds required to obtain the asset with a value similar to the right of use asset in a similar economic environment.
Obtaining this rate involves a high degree of judgment and should be a function of the lessee’s credit risk, the term of the lease, the nature and quality of the collateral offered and the economic environment in which the transaction takes place. The rate calculation process preferably uses readily observable information from which to make the necessary adjustments to arrive at its incremental lending rate.
IFRS 16 — Leases, or IFRS 16, allows the incremental rate to be determined for a group of agreements when such agreements have similar characteristics.
We have adopted the aforementioned practical method of determining groupings for our lease agreements as we understand that the effects of a grouped application do not materially differ from the application to individual leases. The size and composition of the portfolios were defined according to the following assumptions: (1) assets of a similar nature; and (2) remaining maturities with respect to the similar initial application date.
Share-Based Compensation
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms and conditions of the grant and the information available at the grant date and at each reporting period, for the liability portion on cash-settled transactions.
We use certain methodologies to estimate fair value which include the following:
| ● | estimation of fair value based on equity transactions with third parties close to the grant date; and |
| ● | other valuation techniques including option pricing models such as Black-Scholes. |
These estimates also require determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share option, expected volatility of the price of our shares and expected dividend yield.
Recent Accounting Pronouncements
New standards, interpretations and amendments adopted by the Vitru Group
We have applied the following standards and amendments for the first time in our annual reporting period commencing January 1, 2023:
| ● | Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement. We changed the information reported regarding our accounting policies so that only the policies of the most relevant values and/or that influence the information normally used by users of the financial statements is presented. |
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| ● | Definition of Accounting Estimates – Amendments to IAS 8. We did not need to adopt the amendment due to there being no change in policy or accounting estimates in the current year. |
| ● | Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12. We were not affected by this amendment due to the fact that we already accounted for such transactions in a manner consistent with the new requirements. |
New standards and interpretations not yet adopted
The new and amended standards and interpretations that had been issued, but had not yet become effective, up to the date of issuance of the Company’s financial statements are disclosed below. We intend to adopt these new and amended standards and interpretations, if applicable, when they become effective.
| ● | Classification of Liabilities as Current or Non-current – Amendments to IAS 1 Non-current Liabilities with Covenants – Amendments to IAS 1 Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. Effective date: 1 January 2024. |
| ● | Lease Liability in a Sale and Leaseback – Amendments to IFRS 16 Amendments to IFRS 3 – Reference to the Conceptual Framework. Effective date: 1 January 2024. |
| ● | Supplier finance arrangements – Amendments to IAS 7 and IFRS 7 Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract. Effective date: 1 January 2024. |
| ● | Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10 and IAS 28. Effective date: to be defined. |
These standards are not expected to have a material impact on our financial statements in the current or future reporting periods and on foreseeable future transactions.
JOBS Act
We are an emerging growth company under the JOBS Act. The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
115
Results of Operations
Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 and 2021
The following table sets forth our income statement data for the year ended December 31, 2023, 2022 and 2021:
|
|
For the Years Ended December 31, |
|
Variation |
|||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2023 vs. 2022 |
|
2022 vs. 2021 |
|
||||
|
|
(in R$ millions, except percentages) |
|||||||||||||
Statement of Profit or Loss at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
1,962.5 |
|
1,317.3 |
|
631.1 |
|
645.2 |
|
49.0 |
% |
686.2 |
|
108.7 |
% |
Revenue from digital education undergraduate courses |
|
1,414.5 |
|
998.2 |
|
531.7 |
|
416.3 |
|
41.7 |
% |
466.5 |
|
87.7 |
% |
Revenue from on-campus undergraduate courses |
|
446.2 |
|
251.1 |
|
47.0 |
|
195.1 |
|
77.7 |
% |
204.1 |
|
434.2 |
% |
Revenue from continuing education courses |
|
101.8 |
|
68.1 |
|
52.4 |
|
33.7 |
|
49.5 |
% |
15.7 |
|
30.0 |
% |
Cost of services rendered |
|
(669.5) |
|
(502.3) |
|
(240.9) |
|
(167.2) |
|
33.3 |
% |
(261.4) |
|
108.5 |
% |
Gross profit |
|
1,293.0 |
|
815.0 |
|
390.2 |
|
477.9 |
|
58.7 |
% |
424.8 |
|
108.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
(360.4) |
|
(244.9) |
|
(111.5) |
|
(115.5) |
|
47.2 |
% |
(133.4) |
|
119.7 |
% |
General and administrative expenses |
|
(259.1) |
|
(179.3) |
|
(89.3) |
|
(79.8) |
|
44.5 |
% |
(90.0) |
|
100.8 |
% |
Net impairment losses on financial assets |
|
(263.5) |
|
(187.5) |
|
(110.7) |
|
(76.0) |
|
40.5 |
% |
(76.8) |
|
69.4 |
% |
Net impairment losses on financial assets from digital education undergraduate courses |
|
(234.6) |
|
(155.9) |
|
(90.1) |
|
(78.7) |
|
50.5 |
% |
(65.8) |
|
73.2 |
% |
Net impairment losses on financial assets from on-campus undergraduate courses |
|
(11.3) |
|
(23.6) |
|
(5.0) |
|
12.3 |
|
(52.1) |
% |
(18.6) |
|
375.8 |
% |
Net impairment losses on financial assets from continuing education courses |
|
(17.6) |
|
(8.0) |
|
(15.6) |
|
(9.6) |
|
120.0 |
% |
7.6 |
|
(48.6) |
% |
Other income (expenses), net |
|
(8.5) |
|
(2.3) |
|
0.1 |
|
(6.2) |
|
269.9 |
% |
(2.4) |
|
(3,638.5) |
% |
Operating expenses |
|
(891.5) |
|
(614.0) |
|
(311.4) |
|
(277.5) |
|
45.3 |
% |
(302.6) |
|
97.1 |
% |
Operating profit |
|
401.6 |
|
201.0 |
|
78.8 |
|
200.5 |
|
99.8 |
% |
122.2 |
|
155.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income |
|
61.0 |
|
64.6 |
|
45.5 |
|
(3.6) |
|
(5.6) |
% |
19.1 |
|
42.0 |
% |
Financial expenses |
|
(366.5) |
|
(264.4) |
|
(74.9) |
|
(102.1) |
|
38.6 |
% |
(189.5) |
|
253.0 |
% |
Financial results |
|
(305.6) |
|
(199.8) |
|
(29.4) |
|
(105.8) |
|
53.0 |
% |
(170.4) |
|
579.2 |
% |
Profit before taxes |
|
96.1 |
|
1.2 |
|
49.4 |
|
94.9 |
|
7,900.0 |
% |
(48.2) |
|
(97.5) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes |
|
(53.6) |
|
(18.0) |
|
(11.3) |
|
(35.6) |
|
197.8 |
% |
(6.7) |
|
59.3 |
% |
Deferred income taxes |
|
66.4 |
|
110.2 |
|
32.6 |
|
(43.8) |
|
(39.7) |
% |
77.6 |
|
238.0 |
% |
Income taxes |
|
12.8 |
|
92.2 |
|
21.3 |
|
(79.4) |
|
(86.1) |
% |
70.9 |
|
332.9 |
% |
Net income for the year |
|
108.9 |
|
93.4 |
|
70.7 |
|
15.5 |
|
16.6 |
% |
22.7 |
|
32.2 |
% |
116
Net Revenue
Net revenue for the year ended December 31, 2023 was R$1,962.5 million, an increase of R$645.2 million, or 49.0%, from R$1,317.3 million for the year ended December 31, 2022. This increase was attributable to increases in net revenue from digital education undergraduate courses, on-campus undergraduate courses and continuing education courses. Net revenue for the year ended December 31, 2022 was R$1,317.3 million, an increase of R$686.2 million, or 108.7%, from R$631.1 million for the year ended December 31, 2021. This increase was attributable to increases in net revenue from digital education undergraduate courses, on-campus undergraduate courses and continuing education courses.
| ● | Revenue from digital education undergraduate courses. Revenue from digital education undergraduate courses for the year ended December 31, 2023 was R$1,414.5 million, an increase of R$416.3 million, or 41.7%, from R$998.2 million for the year ended December 31, 2022, primarily as a result of the expansion and maturation of operational hubs, and a higher consolidated average ticket in this segment. Revenue from digital education undergraduate courses for the year ended December 31, 2022 was R$998.2 million, an increase of R$466.5 million, or 87.7%, from R$531.7 million for the year ended December 31, 2021. These increases were primarily driven by the increase in the number of students enrolled in our digital education undergraduate courses, as a result of the expansion and maturation of operational hubs, and by the consolidation of UniCesumar’s results within our own. |
| ● | Revenue from on-campus undergraduate courses. Revenue from on-campus undergraduate courses for the year ended December 31, 2023 was R$446.2 million, an increase of 77.6%, from R$251.1 million for the year ended December 31, 2022. This increase was primarily attributable to an increase in the student base due to the slight recovery of the demand for on-campus courses following the end of the COVID-19 pandemic. Revenue from on-campus undergraduate courses for the year ended December 31, 2022 was R$251.1 million, an increase of 434.2%, from R$47.0 million for the year ended December 31, 2021. This increase was primarily attributable to the consolidation of UniCesumar in our results of operations following the closing of the UniCesumar Business Combination given that UniCesumar has significant on-campus activities. The effects of the consolidation of UniCesumar offset a decrease in our revenue in this segment of R$9.3 million for the year ended December 31, 2022, which was primarily attributable to the ongoing shift to digital education supported by the increased number and attractiveness of digital education undergraduate courses. |
| ● | Revenue from continuing education courses. Revenue from continuing education courses for the year ended December 31, 2023 was R$101.8 million, an increase of R$33.7 million, or 49.5%, from R$68.1 million for the year ended December 31, 2022. This increase in revenue from continuing education courses was primarily due to the growth of this business segment as a result of our strategy, adopted in 2022, to expand our offering of complementary offerings to our students. Revenue from continuing education courses for the year ended December 31, 2022 was R$68.1 million, an increase of R$15.7 million, or 30.0%, from R$52.4 million for the year ended December 31, 2021. This increase in revenue from continuing education courses was primarily due to the consolidation of R$15.3 million in revenue from continuing education courses of UniCesumar’s results within our own since the closing of the UniCesumar Business Combination. |
Cost of Services Rendered
Cost of services rendered for the year ended December 31, 2023 was R$669.5 million, an increase of 33.3%, from R$502.3 million for the year ended December 31, 2022. This increase was primarily attributable to the impact of the integration of UniCesumar into Vitru, since UniCesumar was reflected in Vitru’s consolidated results for seven months in the year ended December 31, 2022 but for the entire year in the year ended December 31, 2023. Costs of services rendered amounted to 34.1% and 38.1% of net revenue in the years ended December 31, 2023 and 2022, respectively. Accordingly, our gross margin (defined as gross profit divided by net revenue) increased from 61.9% in the year ended December 31, 2022 to 65.9% in the year ended December 31, 2023.
.
117
Cost of services rendered for the year ended December 31, 2022 was R$502.3 million, an increase of 108.5%, from R$240.9 million for the year ended December 31, 2021. This increase was primarily attributable to an increase of R$150.6 million in personnel costs with the hiring of new tutors to support the growth of our business, as well as an increase in depreciation of R$29.0 million driven by depreciation and amortization relating to content production, rights-of-use assets, and software. As a result of the UniCesumar Business Combination, we experienced an increase in amortization in an amount of R$10.3 million, from the recognition of identifiable assets, in addition to the impact of R$2,298.5 million related to the consolidation of UniCesumar’s results of operations into our own. Costs of services rendered amounted to 38.1% and 38.2% of net revenue in the years ended December 31, 2022 and 2021, respectively. Accordingly, our gross margin (defined as gross profit divided by net revenue) increased from 61.8% in the year ended December 31, 2021 to 61.9% in the year ended December 31, 2022.
Gross Profit
As a result of the foregoing, gross profit for the year ended December 31, 2023 was R$1,293.0 million, an increase of R$478.0 million, or 58.7%, from R$815.0 million for the year ended December 31, 2022. Gross profit for the year ended December 31, 2022 was R$815.0 million, an increase of R$424.8 million, or 108.9%, from R$390.2 million for the year ended December 31, 2021.
Operating Expenses
Operating expenses for the year ended December 31, 2023 were R$891.5 million, an increase of R$277.5 million, or 45.3%, from R$614.0 million for the year ended December 31, 2022. Operating expenses for the year ended December 31, 2022 were R$614.0 million, an increase of R$302.5 million, or 97.1%, from R$311.4 million for the year ended December 31, 2021. These variations are attributable to the following:
| ● | Selling Expenses. Selling expenses for the year ended December 31, 2023 amounted to R$360.4 million, an increase of R$115.6 million, or 47.2%, from R$244.9 million for the year ended December 31, 2022. This increase was primarily attributable to amortization of intangible assets from the UniCesumar Business Combination in an amount of R$54.5 million related to customer relationships acquired in the business combination and R$47.2 million in online advertising costs, which are aimed primarily at attracting new students to our digital education segment. |
Selling expenses for the year ended December 31, 2022 amounted to R$244.9 million, an increase of R$133.4 million, or 119.6%, from R$111.5 million for the year ended December 31, 2021. In addition to the impact from the consolidation of UniCesumar’s results of operations of R$72.5 million into our own, this increase was driven by an increase of R$57.5 million in online advertising costs, which are aimed primarily at attracting new students to our digital education segment. Our selling expenses were also affected by an increase in the amortization of intangible assets from the UniCesumar Business Combination in an amount of R$47.2 million related to customer relationships acquired in the business combination.
Despite the increase in expenses with online advertising, our Uniasselvi’s customer acquisition cost in the digital education undergraduate segment decreased 1.5% in the year ended December 31, 2022 to R$351.3 per new student compared to R$356.6 per new student in the year ended December 31, 2021.
| ● | General and Administrative Expenses. General and administrative expenses for the year ended December 31, 2023 were R$259.1 million, an increase of R$79.8 million, or 44.5%, from R$179.3 million for the year ended December 31, 2023, mainly due to (i) higher software and IT maintenance expenses, and (ii) certain non-recurring costs incurred in connection with mergers and acquisitions. |
General and administrative expenses for the year ended December 31, 2022 were R$179.3 million, an increase of R$90.0 million, or 100.8%, from R$89.3 million for the year ended December 31, 2021, mainly due to an increase of R$26.3 million in personnel expenses and R$27.8 million of consultancy expenses related to integration planning and financial advisory services for the UniCesumar Business Combination in addition to the impact from the consolidation of UniCesumar’s results of operations of R$43.8 million into our own.
118
| ● | Net Impairment Losses on Financial Assets. Net impairment losses on financial assets for the year ended December 31, 2023 were R$263.5 million, an increase of R$76.0 million, or 40.5%, from R$187.5 million for the year ended December 31, 2022. On a relative basis, the margin of net impairment losses on financial assets decreased from 14.2% of net revenue in the year ended December 31, 2022 to 13.4% of net revenue in the year ended December 31, 2023. The decrease in net impairment losses on financial assets was primarily due to the increase in the proportion of freshmen (instead of seniors) in our digital education undergraduate courses, as freshmen have historically had a higher rate of default, as well as the macroeconomic scenario in Brazil. |
Net impairment losses on financial assets for the year ended December 31, 2022 were R$187.5 million, an increase of R$76.8 million, or 69.4%, from R$110.7 million for the year ended December 31, 2021. On a relative basis, the margin of net impairment losses on financial assets decreased from 17.5% of net revenue in the year ended December 31, 2021 to 14.2% of net revenue in the year ended December 31, 2022. The increase in net impairment losses on financial assets was primarily due to the impact of the consolidation of UniCesumar’s results of operations into our own, which accounted for R$38.8 million of the overall increase, and to an increase in our net revenue of 23.0%, or R$144.9 million, from the year ended December 31, 2021 to the year ended December 31, 2022 (after excluding the results of UniCesumar from the date of acquisition to December 31, 2022), which resulted in an increase in the net impairment losses on financial assets. The reduction in the margin of net impairment losses was driven by the fact that UniCesumar has more effective collection procedures in place than Vitru does and therefore has a lower margin of net impairment losses, as a result of which the consolidation of UniCesumar’s results into our own led to a decrease in Vitru’s consolidated net impairment margin.
These increases were principally attributable to the increase in the proportion of freshmen (instead of seniors) in our digital education undergraduate courses, as freshmen have historically had a higher rate of default, as well as the current economic crisis.
| ● | Net impairment losses on financial assets from digital education undergraduate courses. Net impairment losses on financial assets from digital education undergraduate courses for the year ended December 31, 2023 were R$234.6 million, an increase of R$78.7 million, or 50.5%, from R$155.9 million for the year ended December 31, 2022. The margin of net impairment losses on financial assets from digital education undergraduate courses increased from 15.6% of net revenues in the year ended December 31, 2022 to 16.6% of net revenue in the year ended December 31, 2023. |
Net impairment losses on financial assets from digital education undergraduate courses for the year ended December 31, 2022 were R$155.9 million, an increase of R$65.8 million, or 73.2%, from R$90.1 million for the year ended December 31, 2021. The margin of net impairment losses on financial assets from digital education undergraduate courses decreased from 16.9% of net revenues in the year ended December 31, 2021 to 15.6% of net revenue in the year ended December 31, 2022.
In addition to the impacts of the contribution of UniCesumar to our consolidated results for the year ended December 31, 2022, these increases were the result of an increase in the proportion of freshmen (instead of seniors) in each year (compared to the immediately preceding year) in our digital education undergraduate courses, as freshmen have historically had a higher rate of default.
| ● | Net impairment losses on financial assets from on-campus undergraduate courses. Net impairment losses on financial assets from on-campus undergraduate courses for the year ended December 31, 2023 were R$11.3 million, a decrease of R$12.3 million, or 52.1%, from R$23.6 million for the year ended December 31, 2022. Net impairment losses on financial assets from on-campus undergraduate courses for the year ended December 31, 2022 were R$23.6 million, an increase of R$18.6 million, or 375.8%, from R$5.0 million for the year ended December 31, 2021. |
| ● | Net impairment losses on financial assets from continuing education courses. Net impairment losses on financial assets from continuing education courses for the year ended December 31, 2023 were R$17.6 million, an increase of R$9.6 million, or 120.0%, from R$8.0 million for the year ended December 31, 2022. The margin of net impairment losses on financial assets continuing education courses slightly |
119
| increased from 11.8% of net revenues in 2022 to 17.3% of net revenue from continuing education courses in 2023. |
Net impairment losses on financial assets from continuing education courses for the year ended December 31, 2022 were R$8.0 million, a decrease of R$7.6 million, or 48.6%, from R$15.6 million for the year ended December 31, 2021. The margin of net impairment losses on financial assets continuing education courses slightly decreased from 29.8% of net revenues in 2021 to 11.8% of net revenue from continuing education courses in 2022. These decreases were a result of the impact of the consolidation of UniCesumar results, an increase in the recovery of write-off uncollectible receivables during the year and a decrease in our organic net revenue in this segment.
Other Income (Expenses), Net
We recorded other income (expenses), net of R$8.5 million for the year ended December 31, 2023, compared to other income (expenses), net of R$2.3 million for the corresponding period in 2022. This variation is attributable to the consolidation of UniCesumar’s results of operations in the year ended December 31, 2023, which reflects a full year of UniCesumar’s results whereas the year ended December 31, 2022 only reflected seven months of results of UniCesumar.
We recorded other income (expenses), net of R$2.3 million for the year ended December 31, 2022, compared to other income, net of R$0.1 million for the corresponding period in 2021. This variation is attributable to the consolidation of UniCesumar’s results of operations into our own.
Operating Profit
As a result of the foregoing, we recorded operating profit of R$401.6 million for the year ended December 31, 2023, compared to operating profit of R$201.0 million for the year ended December 31, 2022 and to an operating profit of R$78.8 million for the year ended December 31, 2021.
Financial Results
Financial results for the year ended December 31, 2023 were an expense of R$305.6 million, an increase of R$105.8 million, or 53.0%, from an expense of R$199.8 million for the year ended December 31, 2022. This decrease was primarily attributable to the increase in our financial expenses and by the decrease in our financial income.
| ● | Financial Income. Financial income for the year ended December 31, 2023 was R$61.0 million, a decrease of R$3.6 million, or 5.6%, from R$64.6 million for the year ended December 31, 2022. |
Financial income for the year ended December 31, 2022 was R$64.6 million, an increase of R$19.1 million, or 42.0%, from R$45.5 million for the year ended December 31, 2021. This increase was partially attributable to a R$7.4 million increase in financial investment yield due to an increase in the SELIC rate and an increase of R$9.1 million in the interest earned on tuition fees paid in arrears.
| ● | Financial Expenses. Financial expenses for the year ended December 31, 2023 were R$366.5 million, an increase of R$102.1 million, or 38.6%, compared to the previous year. This increase was primarily attributable to interest the indebtedness incurred in connection with the acquisition of UniCesumar. |
Financial expenses for the year ended December 31, 2022 were R$264.4 million, an increase of R$189.5 million, or 253.0%, compared to the previous year. This increase was primarily attributable to a R$157.2 million increase in interest on loans and financing as a result of the issuance of debentures during the year, in addition to the impact of R$19.1 million as a result of the consolidation of UniCesumar’s results of operations into our own.
Profit before Taxes
As a result of the foregoing, we recorded profit before taxes for the year ended December 31, 2023 of R$96.0 million and an increase of R$94.8 million, or 7,900.0%, compared to profit before taxes for the year ended December 31, 2022 of R$1.2 million, and a profit before taxes of R$49.4 million for the year ended December 31, 2021.
120
Income Taxes
Income taxes for the year ended December 31, 2023 were a credit of R$12.8 million, a decrease of R$79.4 million, from a credit of R$92.2 million for the year ended December 31, 2022. Income taxes for the year ended December 31, 2022 were a credit of R$92.2 million, an increase of R$70.9 million, from a credit of R$21.3 million for the year ended December 31, 2021. This decrease was primarily attributable to the following:
| ● | Current Income Taxes. Current income taxes expenses for the year ended December 31, 2023 were an expense of R$53.6 million, an increase of R$35.6 million, or 197.8%, from an expense of R$18.0 million for the year ended December 31, 2022. This increase was primarily attributable to a higher taxable profit in the year ended December 31, 2023 compared to the year ended December 31, 2022. |
Current income taxes expenses for the year ended December 31, 2022 were an expense of R$18.0 million, an increase of R$6.7 million, or 59.3%, from an expense of R$11.3 million for the year ended December 31, 2021. This increase was primarily attributable to a higher taxable profit.
| ● | Deferred Income Taxes. Deferred income taxes for the year ended December 31, 2023 were a credit of R$66.4 million, a decrease of R$43.8 million, or 39.7%, from a credit of R$110.2 million for the year ended December 31, 2022, mainly because we are no longer recognizing the tax on Vitru Brazil's tax losses for the year ended December 31 2023. |
Deferred income taxes for the year ended December 31, 2022 were a credit of R$110.2 million, an increase of R$77.6 million, or 238.0%, from a credit of R$32.6 million for the year ended December 31, 2021, principally due to the recognition of deferred tax assets on tax loss carryforwards and temporary differences and deferred income taxes related to intangible assets from the business combinations with UniCesumar.
Net Income for the Year
As a result of the foregoing, we recorded a net income for the year ended December 31, 2023 of R$108.8 million, compared to a net income of R$93.4 million for the year ended December 31, 2022 and a net income of R$70.7 million for the year ended December 31, 2021.
B.Liquidity and Capital Resources
Cash Flows
As of December 31, 2023 and 2022, we had R$21.3 million and R$47.2 million in cash and cash equivalents, respectively. We believe that our current available cash and cash equivalents and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.
The following table shows the generation and use of cash in the year ended December 31, 2023, 2022 and 2021.
|
|
For the Year Ended |
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, |
|
Variation |
|||||||||||
|
|
2023 |
|
2022 |
|
2021 |
|
2023 vs. 2022 |
|
2022 vs. 2021 |
|||||
|
|
(in R$ millions, except percentages) |
|||||||||||||
Cash Flow Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities |
|
229.5 |
|
121.5 |
|
65.0 |
|
108.0 |
|
88.8 |
% |
56.5 |
|
86.7 |
% |
Cash flows provided by (used in) investing activities |
|
(803.8) |
|
(2,162.1) |
|
100.0 |
|
1,358.3 |
|
(62.9) |
% |
(2,262.1) |
|
(2,261.7) |
% |
Cash flows provided by (used in) financing activities |
|
548.5 |
|
2,012.2 |
|
(175.4) |
|
(1,463.7) |
|
(72.8) |
% |
2,187.6 |
|
(1,247.3) |
% |
121
Operating Activities
Our net cash flows from operating activities increased by 88.8% to R$229.5 million in the year ended December 31, 2022, from R$121.5 million in the year ended December 31, 2023, as a result of the following variations. Our profit before taxes increased to R$96.0 million in the year ended December 31, 2023 from a profit of R$1.1 million in the year ended December 31, 2022. The adjustments to reconcile income before taxes to cash provided by operating activities increased to R$823.6 million in the year ended December 31, 2023, from R$555.4 million in the year ended December 31, 2022, mainly because our results of operations for the year ended December 31, 2023 reflected a full year of UniCesumar’s results of operations, whereas our results of operations for the year ended December 31, 2022 only reflected seven months of UniCesumar’s results of operations.
Our net cash flows from operating activities increased by 86.7% to R$121.5 million in the year ended December 31, 2022, from R$65.0 million in the year ended December 31, 2021, as a result of the following variations. Our profit before taxes decreased to R$1.2 million in the year ended December 31, 2022 from a profit of R$49.4 million in the year ended December 31, 2021. The adjustments to reconcile income before taxes to cash provided by operating activities increased to R$555.4 million in the year ended December 31, 2022, from R$208.7 million in the year ended December 31, 2021, mainly as a result of R$76.8 million variation in net impairment losses on financial assets during the years compared.
Changes in our operating assets and liabilities were principally affected by (i) an increase of R$235.5 million in trade receivables in the year ended December 31, 2022, compared to an increase of R$117.1 million in trade receivables in the year ended December 31, 2021, primarily as a result of an increase in net revenue due to the expansion of our business and the impact from the consolidation of UniCesumar’s results of operations into our own; and (ii) an increase of R$53.6 million in trade payables in the year ended December 31, 2022, from an increase of R$9.5 million in trade payables in the year ended December 31, 2021, as a result of the contribution of UniCesumar to the consolidated results.
Investing Activities
Our net cash flows provided by (used in) investing activities varied to cash provided by investing activities of R$803.8 million in the year ended December 31, 2023, from net cash provided by investing activities of R$2,162.1 million in the year ended December 31, 2022, primarily as a result of payments made in connection with the acquisition of UniCesumar in 2022. In addition, we recorded payments for the acquisition of interests in subsidiaries of R$487.3 million in the year ended December 31, 2023, a decrease of R$1,804.4 million, or 78.7%, compared to R$2,291.7 million in the year ended December 31, 2022.
Our net cash flows provided by (used in) investing activities varied to cash provided by investing activities of R$2,162.1 million in the year ended December 31, 2022, from net cash provided by investing activities of R$100.0 million in the year ended December 31, 2021, primarily as a result of the payments for the acquisition of interests in subsidiaries, net of cash obtained, and the impact from the consolidation of UniCesumar’s results of operations into our own. In addition, we recorded payments for the acquisition of interests in subsidiaries of R$2,291.7 million in the year ended December 31, 2022, an increase of R$2,162.1 million, or 1,691.7%, compared to R$127.8 million in the year ended December 31, 2021.
Financing Activities
Our net cash flows provided by (used in) financing activities varied from net cash provided by financing activities of R$548.5 million in the year ended December 31, 2023 compared to cash used in financing activities of R$2,012.2 million in the year ended December 31, 2022, primarily due to the fact that we had a higher proceeds from the issuance of debentures in the year ended December 31, 2022 than in the year ended December 31, 2023.
Our net cash flows provided by (used in) financing activities varied from net cash provided by financing activities of R$2,012.2 million in the year ended December 31, 2022 compared to cash used in financing activities of R$175.4 million in the year ended December 31, 2021, primarily due to our issuance on May 15, 2022, of two series of debentures, the first series of principal amount R$500 million maturing in May 2024, and the second series of principal amount R$1,450 million maturing in May 2027. See “—Indebtedness” for more information.
122
Indebtedness
As of December 31, 2023, 2022 and 2021 our total consolidated indebtedness was R$2,509.7 million, R$2,450.9 million and R$161.5 million, respectively, of which (i) R$2,181.8 million, R$1,620.2 million and zero, respectively, consisted of our various series of debentures as described under “—Debentures” below; (ii) nil, R$507.4 million and R$149.8 million, respectively, were payables from the acquisition of subsidiaries; and (iii) R$327.8 million, R$323.3 million and R$161.5 million, respectively, were lease liabilities.
Acquisitions of our Subsidiaries, including UniCesumar
On May 20, 2022, we closed our business combination with UniCesumar. The closing purchase price (subject to certain post-closing adjustments) amounted to R$3.21 billion, payable as follows: (i) 65.9% in cash on the closing date; (ii) 17.0% in stock through the issuance of 7,182,385 new common shares (5,144,383 common shares issued and delivered on the closing date and 2,038,002 common shares to be withheld for a specified term as an indemnification guarantee); and (iii) 16.0% in cash, to be paid 12 months after the closing date (subsequently extended to 24 months), as adjusted by the IPCA inflation rate beginning from the closing date. We have also entered into a five-year non-compete agreement with the Matos family, one of the former shareholders of UniCesumar, in connection with which we paid a total of R$180.0 million on the closing date. Other related payments may include an earn-out payment of R$1.0 million per additional medical seat approved within 36 months after closing, a performance earn-out payment of up to R$50.0 million up to two years after the closing date.
On September 26, 2022, we entered into an agreement with the former shareholders of UniCesumar, though which the maturity date of the 16.0% deferred cash payment described above was postponed from 12 months to 24 months after the closing date of the UniCesumar Business Combination. After the 12th month, the amount of the cash payment will be adjusted by the monthly variation of the Brazilian interest rate (SELIC) plus 3.0% per year.
We completed the acquisitions of certain of our other subsidiaries in 2016 and 2017. The purchase price had been completely paid by December 31, 2022. The subsidiaries in question, all of which we acquired from the Kroton group, are: Sociedade Educacional Leonardo da Vinci S/S Ltda., Sociedade Educacional do Vale do Itapocu S/S Ltda., FAIR Educacional Ltda. and FAC Educacional Ltda.
Debentures
On May 15, 2022, Vitru Brazil completed its first issuance of debentures, issuing two series of simple, secured, nonconvertible debentures in an offering with restricted distribution efforts directed solely at professional investors in Brazil, in compliance with Rule 476 of the Brazilian Securities Commission (Instrução da Comissão de Valores Mobiliários). The aggregate principal amount of the debentures is R$1,950.0 million, comprised of a first series of debentures in an amount of R$500.0 million and a second series of debentures in an amount of R$1,450.0 million. The first and second series of debentures mature on May 15, 2024, and May 15, 2027, respectively. The interest rate applicable to the debentures was initially equal to the Brazilian daily interbank deposit rate (Depósito Interfinanceiro) plus a spread of 2.60% for the first series of debentures and 2.75% for the second series of debentures. Pursuant to the terms of the debentures, since Vitru did not undertake an equity offering in an amount of at least R$500.0 million within one year following the issuance (i.e., by May 15, 2023), the spread on the first and second series of debentures increased to 2.90% and 3.20%, respectively. Vitru Brazil’s obligations under the first issuance of debentures are guaranteed by certain subsidiaries of Vitru Brazil, namely UniCesumar, Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda. and Fair Educacional Ltda. Vitru Brazil’s obligations under the first issuance of debentures are also secured by certain collateral in accordance with Brazilian law, including the share capital of UniCesumar, and the rights related thereto, pursuant to a fiduciary assignment (alienação fiduciária em garantia), and certain receivables of UniCesumar, including from the provision of educational services. The first issuance of debentures is also subject to cross-default and cross-acceleration provisions in relation to other financial agreements entered into by us, Vitru Brazil and certain subsidiaries, including the guarantors. The proceeds from the issuance of the first issuance of debentures were used by Vitru Brazil to pay part of the purchase price in connection with the UniCesumar Business Combination.
123
On May 5, 2023, we announced that Vitru Brazil completed its second issuance of debentures, issuing simple, secured, nonconvertible debentures in an aggregate principal amount of R$190 million in a public offering directed solely to professional investors in Brazil, in compliance with Rule No. 160 of the CVM. The debentures will mature on May 5, 2028. The interest rate applicable to the debentures will be equal to the Brazilian daily interbank deposit rate (Depósito Interfinanceiro) plus a spread of 2.60% yearly, based on 252 business days. These debentures are secured by a fiduciary assignment of receivables from education services provided by UniCesumar. In addition, they are also guaranteed by the following subsidiaries of Vitru Brazil: Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda., Fair Educacional Ltda. and Cesumar.
On December 5, 2023, we announced that Vitru Brazil completed its third issuance of debentures, issuing simple, unsecured, nonconvertible debentures in a private offering directed solely at professional investors in Brazil, in compliance with Resolution 160 of the CVM. The aggregate principal amount of the debentures is R$500 million comprised of a single series that will mature on November 16, 2028. The interest rate applicable to the debentures will be equal to the Brazilian average daily interbank deposit rate (Depósito Interfinanceiro) plus a spread of 2.45% yearly. Vitru Brazil used the net proceeds from the issuance of these debentures first to prepay the last installment of the sellers’ financing in relation to the acquisition of UniCesumar that would be due in May 2024, at an interest rate equal to the Brazilian average daily interbank deposit rate (Depósito Interfinanceiro) plus a spread of 3.0% yearly, thereby extending the maturity profile of its debt, and will use any remaining proceeds to strengthen its cash position. The third issuance of debentures is guaranteed by Sociedade Educacional Leonardo da Vinci Ltda. and UniCesumar.
For further information about our indebtedness, see Notes 14, 17 and 19 to our audited consolidated financial statements included elsewhere in this annual report.
Capital Expenditures
In the years ended December 31, 2023, 2022 and 2021, we made capital expenditures of R$122.6 million, R$97.0 million and R$58.3 million, respectively. These capital expenditures mainly include expenditures related to the purchase of property and equipment and the purchase and capitalization of intangible assets.
Our capital expenditures in the year ended December 31, 2023 totaled R$49.4 million for internal project development, R$17.5 million for IT equipment, R$24.0 million for furniture, equipment and facilities, R$7.8 million for refurbishments related to the accessibility and modernization of certain of our facilities, R$21.9 million for software acquisitions, R$0.6 million for library books and R$1.5 million for leasehold improvements.
Our capital expenditures in the year ended December 31, 2022 totaled R$32.1 million for internal project development, R$8.7 million for IT equipment, R$6.5 million for furniture, equipment and facilities, R$13.1 million for refurbishments related to the accessibility and modernization of certain of our facilities, R$18.8 million for software acquisitions, and R$5.8 million for operation licenses for distance learning, R$0.2 million for library books, R$0.7 million for vehicles and R$11.1 million for improvements in leased properties.
Our capital expenditures in the year ended December 31, 2021 totaled R$28.7 million for internal project development, R$9.2 million for IT equipment, R$8.6 million for furniture, equipment and facilities, R$5.5 million for refurbishments related to the accessibility and modernization of certain of our facilities, R$3.6 million for software acquisitions, and R$2.7 million for improvements in leased properties.
Off-Balance Sheet Arrangements
As of December 31, 2023, 2022 and 2021, we did not have any off-balance sheet arrangements.
124
Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2023:
|
|
Payments Due By Period as of December 31, 2023 |
||||||||
|
|
|
|
|
|
|
|
More than |
|
|
|
|
Less than 1 year |
|
1-3 years |
|
3-5 years |
|
5 years |
|
Total |
|
|
(in R$ millions) |
||||||||
Trade payables |
|
112.1 |
|
— |
|
— |
|
— |
|
112.1 |
Lease liabilities |
|
51.6 |
|
76.9 |
|
96.1 |
|
261.4 |
|
486.0 |
Share-based compensation |
|
— |
|
— |
|
2.0 |
|
— |
|
2.0 |
Total |
|
163.6 |
|
76.9 |
|
98.1 |
|
261.4 |
|
600.0 |
C.Research and Development, Patents and Licenses, Etc.
See “Item 4. Information on the Company—D. Property, Plant and Equipment—Intellectual Property.”
D.Trend Information
The following discussion is based largely upon our current expectations about future events and trends affecting our business. Actual results for the industries in which we operate and our performance could differ substantially. For further information related to our forward-looking statements, see “Forward-Looking Statements” and for a description of certain factors that could affect our industry in the future and our own future performance, see “Item 3. Key Information—3D. Risk Factors.”
The following list sets forth, in our view, the most important trends, uncertainties and events that are reasonably likely to continue to have a material effect on our revenues, income from continuing operations, profitability, liquidity and capital resources, or that may cause reported financial information to be not necessarily indicative of future operating results or financial condition:
| ● | the ongoing economic and political crisis in Brazil may adversely affect the performance of the Brazilian economy; |
| ● | potential inflation increases that could cause an increase in interest rates and lower economic growth; |
| ● | developments and the perception of risk in other countries may adversely affect the Brazilian economy; |
| ● | continued market volatility and instability that could affect our revenues; |
| ● | restrictive regulations or government intervention; |
| ● | decreased liquidity in domestic and international capital markets; |
| ● | tax policies that could decrease our profitability; |
| ● | our ability to realize the anticipated benefits of our UniCesumar Business Combination; |
| ● | our ability to realize the anticipated benefits of our corporate reorganization; |
| ● | developments with respect to actual or potential epidemics, pandemics, outbreaks or other public health crises in Brazil and globally; and |
| ● | currency fluctuation and exchange rate controls that could have an adverse impact on international investor. |
For more information, see “Item 3. Key Information—D. Risk Factors” where we present the risks we face in our business that may affect our commercial activities, operating results or liquidity.
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E.Critical Accounting Estimates
Our financial statements are presented in IFRS accounting standards as issued by the IASB. For summary information about critical judgments, assumptions and estimation uncertainties in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements, see “—A. Operating Results—Critical Accounting Estimates and Judgments” and note 3 to our audited consolidated financial statements for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Board of Directors, Executive Officers and Senior Management
We are managed by our board of directors, executive officers and by our senior management, pursuant to our memorandum and articles of association, or our Articles of Association, and the Companies Act.
Board of Directors
As of the date of this annual report, our board of directors is composed of eleven members. Each director is appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).
The following table presents the names of the current members of our board of directors.
Name |
|
Age |
|
Position |
Edson Gustavo Georgette Peli |
|
42 |
|
Chairman |
Carlos Eduardo Martins e Silva |
|
41 |
|
Vice-Chairman |
Wilson de Matos Silva |
|
76 |
|
Director |
Daniel Arthur Borghi |
|
50 |
|
Director |
Felipe Samuel Argalji |
|
36 |
|
Director |
Fernando Cezar Dantas Porfírio Borges |
|
54 |
|
Director |
Mariana Moura Wyatt |
|
41 |
|
Director |
Weslley Kendrick Silva |
|
47 |
|
Director |
Aline Leite San Lee Sun |
|
50 |
|
Independent Director(1) |
Claudia Jordão Ribeiro Pagnano |
|
56 |
|
Independent Director(1) |
Rivadávia Correa Drummond de Alvarenga Neto |
|
55 |
|
Independent Director(1) |
(1) |
Member of our Audit Committee. |
The following is a brief summary of the business experience of our directors. Unless otherwise indicated, the current business addresses for our directors is Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, SC, 88032-005, Brazil.
Edson Gustavo Georgette Peli is the chairman of our Board of Directors since April 18, 2024, and has been a member of our board of directors since September 2, 2020. Mr. Peli also serves on the Board of Directors of Vitru Brazil, a position he has held since October 2015. In addition to our company, Mr. Peli is a member of the Board of Directors of Rede D'Or São Luiz S.A., Combio Energia S.A. and Ri Happy Brinquedos S.A. Mr. Peli was also Managing Director of The Carlyle Group in São Paulo, where he joined in 2008, focusing on investment opportunities in Brazil and other South American countries. Mr. Peli remained with The Carlyle Group until its Brazilian operations were acquired by SPX Capital in May 2021, where he is currently a Partner. Since starting his career in private equity in 2008, Mr. Peli has been involved in the investment and management of more than R$6 billion in investments in the healthcare, education, consumer abd retail and renewable energy sectors. Before joining The Carlyle Group, Mr. Peli worked in the investment banking area at Credit Suisse Brasil S.A., from December 2004 to February 2008, where he was involved in mergers and acquisitions and capital markets, having participated in more than 30 transactions in various sectors.
126
Before joining Credit Suisse Brasil, Mr. Peli worked in the risk analysis area at Banco Citibank S.A., from February 2004 to December 2004. Mr. Peli holds a bachelor's degree in Business Administration from the São Paulo School of Business Administration of the Getulio Vargas Foundation, with a specialization in Corporate Finance and Capital Markets from the University of Texas at Austin.
Carlos Eduardo Martins e Silva is a member of our board of directors, a position he has held since July 13, 2021, and has served as the Chairman of the board since August 26, 2022. Mr. Martins e Silva is a partner at Vinci Partners where he focuses on private equity. He has actively participated in the raising, investing, monitoring and divestment of three private equity funds that together invested a total of U.S.$1.6 billion in more than 30 companies. He has served on the boards of directors or fiscal councils of Cemar, Ceagro, Los Grobo, Burger King, Vitru, Uniasselvi, Domino’s, Grupo CURA and Vero. Since 2021 he has also been a member of the deliberative council of the Brazilian Private Equity and Venture Capital Association (Associação Brasileira de Private Equity & Venture Capital — ABVCAP). He has also held executive positions at portfolio companies of Vinci Partners, including serving as the chief financial officer of Sollus and Los Grobo, and as the chief executive officer of Uniasselvi (on an interim basis) and Domino’s between 2018 and 2020. Before joining Vinci Partners, Mr. Martins e Silva was an equity research analyst at Credit Suisse where he participated in several initial public offerings between 2006 and 2007. Previously, he worked as an equity analyst at Banco Modal. He holds a bachelor’s degree in economics from the Universidade Federal do Rio de Janeiro and from the Università degli Studi di Bologna.
Wilson de Matos Silva is a member and Vice-Chairman of our board of directors since May 20, 2022. Mr. de Matos Silva is the founder and former dean of Unicesumar. He founded the business in 1990. He is also a founder of the educational group Colégio Objetivo – Unidade Maringá. Prior to this, Mr. de Matos Silva was a University Professor at the state university of Universidade Estadual de Maringá-PR and at Universidade Paranaense. Mr. de Matos Silva has a bachelor’s degree in mathematics from Universidade Federal de Santa Catarina as well as a specialization in advanced calculus from Universidade Estadual de Londrina.
Daniel Arthur Borghi is a member of our board of directors since November 16, 2022, and is Co-CEO of Crescera Investimentos, a managing director, and a member of its Executive Committee. A partner for over 10 years, he is responsible for its Education Private Equity practice. He was a member of the board of directors of Afya Limited. He is also currently a member of the board of Vertex Technologies Ltd. (Nelogica). Prior to joining Crescera Investimentos, he was a consultant at McKinsey &Co., an executive at Docas Participações S.A., and a partner at Finance Ltda. He holds an electrical engineering degree from Pontifícia Universidade Católica do Rio de Janeiro and an MBA from the Kellogg School of Management, Northwestern University.
Felipe Samuel Argalji is a member of our board of directors since November 16, 2022, and is a senior partner and member of the Executive Committee of Crescera Investimentos, responsible for investments in the Education Private Equity sector, since 2009. He was a member of the Finance Committee of Abril Educação, and a member of the board of directors at Anima Educação and Afya Limited. He is also currently a member of the board of AOVS Sistemas de Informática S/A (Alura). He holds an economics degree from IBMEC.
Fernando Cezar Dantas Porfírio Borges is a member of our board of directors, a position he has held since September 2, 2020. Mr. Borges has previously served on the board of directors of Vitru Brazil, a position he has held since October 2015. In addition to our company, Mr. Borges currently serves on the boards of directors of Ri-Happy Brinquedos S.A., Estok Comércio e Participações Ltda., or Tok & Stok, USS Soluções Gerenciadas S.A. and Grupo Madero and is Vice-Chairman of the board of directors of the Brazilian Association of Private Equity & Venture Capital, or ABVCAP, a member of the board of EMPEA—Emerging Market Private Equity Association and of LAVCA – Latin American Private Equity & Venture Capital Association. Mr. Borges was also a managing Director and head of the Carlyle Group’s South American buyout group focused on private equity investment opportunities in South America. He joined The Carlyle Group in 2007 and was involved in The Carlyle Group’s investments in portfolio companies in Brazil. Mr. Borges stayed with The Carlyle Group until its operations in Brazil were acquired by SPX Capital in May 2021, where he is currently a Partner. Prior to joining The Carlyle Group, Mr. Borges was a managing director at AIG Capital Partners and chief executive officer of AIG Capital Investments do Brasil, being responsible for managing AIG’s private equity activities in Brazil. Prior to his time at the AIG Capital Group, Mr. Borges was a director of Bozano, Simonsen’s private equity division, where he was responsible for managing a private equity fund sponsored by Bozano, Simonsen Group and Advent International.
127
Cumulatively, Mr. Borges has 18 years of private equity experience in Brazil, having participated in more than 20 transactions in the region. Mr. Borges holds a graduate degree from the Bologna Center of the School of Advanced International Studies of Johns Hopkins University and a bachelor of the arts degree in international relations from Universidade de Brasilia.
Mariana Moura Wyatt is a partner and co-founder at 23S Capital. Prior to 23S Capital, Ms. Wyatt worked for 10 years at Temasek, where she was responsible for investments in Brazil. Before Temasek, she worked in the investment banking departments of Goldman Sachs and Citigroup. She is currently a board member at Bionexo S.A. and Clínica SIM Holdings Ltd. (SiMCo) and a member of the executive committees at Samedil Serviços de Atendimento Médico S.A. (MedSênior). She was also a member of the finance committee of Zamp S.A. (Burger King in Brazil), the strategic committee at Smartfit Escola de Ginástica e Dança S.A. and the risk committee at Superbac Biotechnology Solutions S.A. Ms. Wyatt holds an undergraduate degree in business administration from the Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas and an MBA from Columbia Business School.
Weslley Kendrick Silva is a member of our board of directors since May 20, 2022. Mr. Kendrick Silva is the Head of Institutional Relations at UniCesumar, a position he has held since 2018. Mr. Kendrick Silva has a law degree from UniCesumar, as well as a post-graduate degree in marketing. In addition, Mr. Kendrick Silva has a post-graduate degree in strategic management of third-party organizations from Faculdade Cidade Verde and a master’s degree in leadership from Southeastern University.
Aline Leite San Lee Sun is an independent member of our board of directors, a position she has held since October 12, 2021. Mrs. Sun has over 30 years of experience in financial markets, including being the co-founder and chief executive officer of Guide Investimentos from 2013 to 2020. She was also a consultant at Pacífico Asset Management from 2011 to 2013, a superintendent in the asset management team at Itaú Unibanco from 2009 to 2011 and at Unibanco from 2004 to 2009, a senior product manager at Bank Boston from 2000 to 2004, a senior trader at Banco BBM in Rio de Janeiro and at BBM Securities in New York from 1996 to 1999, and a trader at Banco Icatu S.A. from 1993 to 1996. She has a bachelor’s degree in business economics from the Pontifícia Universidade Católica do Rio de Janeiro, a Certificate of Special Studies in Administration Management at Harvard Business School, and a certificate from the Advanced Boardroom Program for Women at Saint Paul Escola de Negócios.
Claudia Pagnano is an independent member of our board of directors, a position she has held since September 2, 2020. Ms. Pagnano has been an independent member of the board of directors of Vix Logistica SA serving their board, audit committee, ESG and people committee and market committee. From 2017 until 2019, she worked at Condor S/A, first as an independent business advisor and then as the chairwoman of its strategy and innovation committee. She also acts as an independent member of the board at Brado Logistica, a company which is part of Grupo COSAN in Brazil. She is also a consulting member of Security SA and a pro bono member of Cruz Vermelha do Brasil – São Paulo Chapter, the largest nonprofit humanitarian organization in the world. Ms. Pagnano is also one of the nine founders of WCD (Women Corporate Directors), Brazil chapter, a non-profit foundation that aims to increase the participation of women in positions of boards of directors. Prior to that, she was Chief Executive Officer at Abrakidabra, Chief Commercial Officer at Gol Linhas Aéreas, Managing Director of the Brazilian Division of Brazil Foods-BRF, Chief Marketing Officer and Private Label Vice-President of Grupo Pão de Açucar, Chief Marketing Officer at BankBoston and Unibanco, Consumer Films Business Director for Brazil and Latin America at Eastman Kodak Company and Marketing Category Director at Colgate Palmolive. Ms. Pagnano holds a bachelor’s degree in Communication and Marketing from Escola Superior de Propaganda e Marketing, including extension courses in Finance from Fundação Getúlio Vargas (FGV) and has also received a certificate in Digital Transformation & Innovation from the University of California, Berkeley in 2018.
Rivadávia Correa Drummond de Alvarenga Neto is an independent member of our board of directors, a position he has held since September 2, 2020. Dr. Drummond is Clinical Assistant Professor at the W. P. Carey School of Business at Arizona State University, Faculty Lead for Arizona State University’s new M.S. degree in Innovation & Venture Development. Prior to joining the W. P. Carey School of Business at Arizona State University, Dr. Drummond was an original partner and board member of the Anima Educational Group Brazil, between 2018 and 2020, he was a Visiting Associate Professor at the Hong Kong Polytechnic University and The University of Hong Kong, Hong Kong, SAR, China. Dr. Drummond is also founding partner and Executive Director of Rivadavia & Associates. Dr.
128
Drummond was a post-doctoral fellow and visiting scholar at the University of Toronto, Canada, in 2009, holds (i) a PhD in Information Studies, I-School from the Federal University of Minas Gerais (UFMG), in which he had his PhD Dissertation nominated for the award “Best Brazilian Dissertation in the field,” (ii) a MSc in Information Studies, I-School, from the Federal University of Minas Gerais (UFMG), (iii) an MBA in International Business, from the Catholic University of Minas Gerais and (iv) a bachelor’s degree in Business from the Federal University of Minas Gerais.
Board Diversity Matrix (as of December 31, 2023) | ||
Country of Principal Executive Offices: |
|
Brazil |
Foreign Private Issuer: |
|
Yes (Cayman Islands) |
Disclosure Prohibited under Home Country Law: |
|
No |
Total Number of Directors: |
|
11 |
|
|
|
|
|
|
|
|
Did Not Disclose |
Part I: Gender Identity |
|
Female |
|
Male |
|
Non-Binary |
|
Gender |
Directors: |
|
3 |
|
8 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
Part II: Demographic Background |
|
|
|
|
|
|
|
|
Underrepresented Individual in Home Country Jurisdiction: |
|
|
|
|
2 |
|
|
|
LGBTQ+: |
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— |
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Did not Disclose Demographic Background: |
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Executive Officers
Our executive officers are responsible for the management and representation of our company. We have a strong management team led by William Victor Kendrick de Matos Silva, our chief executive officer, with broad experience in the education industry. Our executive officers were appointed by our board of directors to hold office until their successor shall be appointed or their earlier removal from, or vacation of, office.
The following table lists our current executive officers:
Name |
|
Age |
|
Position |
William Victor Kendrick de Matos Silva |
|
43 |
|
Chief Executive Officer |
Carlos Henrique Boquimpani de Freitas(1) |
|
48 |
|
Chief Financial and Investor Relations Officer |
Ana Paula Rodrigues |
|
50 |
|
Chief People and Management and Services Officer |
(1) |
Carlos Freitas has resigned from his position as Chief Financial and Investor Relations Officer, effective April 30, 2024. We are currently searching for a replacement for Mr. Freitas. If a replacement is not found in time, Willian Victor Kendrick de Matos Silva is expected to assume the role of Chief Financial and Investor Relations Officer on an interim basis. |
Unless otherwise indicated, the current business addresses for our executive officers is Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, SC, 88032-005, Brazil.
William Victor Kendrick de Matos Silva is our Chief Executive Officer, a position he has held since May 20, 2022. Mr. Kendrick de Matos Silva is the former Head of Distance Learning at UniCesumar. Mr. Kendrick de Matos Silva has a master’s degree in public policy management from Universidade do Vale do Itajaí and a bachelor’s degree in physiotherapy from Centro Universitário de Maringá.
Carlos Henrique Boquimpani de Freitas is our Chief Financial and Investor Relations Officer, a position he has held since September 2, 2020. Mr. Freitas has been the chief financial officer of the companies of our group since March 2019. Prior to joining our company, Mr. Freitas began his career in the Mergers and Acquisitions department of Banco Brascan (part of the Brookfield Group) in Rio de Janeiro from May 1997 to June 2000. In 2000, he joined the French group ENGIE, which operates in the electricity, gas and services sectors where he worked from June 2000 to March 2019.
129
At ENGIE he held various positions, such as Senior Strategy and Portfolio Manager at ENGIE Latin America from January 2008 to January 2009; Head of Finance, Treasury and Insurance at ENGIE Brasil Energia (formerly Tractebel Energia, a company listed in Brazil with a market capitalization exceeding U.S.$10 billion) from February 2009 to January 2013; and Chief Financial and Investor Relations Officer and Head of Human Resources at ECL, a listed company in Chile, from February 2013 to December 2016. Most recently, he was the Chief Financial and Investor Relations Officer of ENGIE Brasil Energia from January 2017 to March 2019. Mr. Freitas has a bachelor’s degree in Production Engineering from Universidade Federal do Rio de Janeiro and an MBA from INSEAD, France.
Ana Paula Rodrigues is our Chief People and Management and Services Officer, a position she has held since September 2, 2020. Ms. Rodrigues has been the head of human resources and services of the companies of our group since July 2018. Prior to that, she worked at YDUQS from April 1999 to July 2018, including 15 years in leadership positions. During her last two years at YDUQS, she was in charge of the shared services center and the information technology department, which provided services to over 90 campuses throughout Brazil. She also worked in several other departments, including the Student Relations Department. She participated in the creation of the management excellence program and the implementation of the quality control system at YDUQS. She was also the Chief Operations Officer of the distance learning department and in charge of student relations, in which capacity she focused on reducing drop-out rates. She was also responsible for the integration of the largest private educational institution launched by YDUQS. Ms. Rodrigues has an MBA in Strategic Management and a bachelor’s degree in Information Technology from Universidade Estácio de Sá.
Directors’ and Officers’ Insurance
As of December 31, 2023, we contracted civil liability insurance coverage for acts carried out by our directors and executive officers in the course of their duties in Brazil.
Share Ownership
The shares and any outstanding beneficially owned by our directors and officers and/or entities affiliated with these individuals are disclosed in the section entitled “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
Our Relationship with our Directors, Executive Officer and Members of Senior Management
William Victor Kendrick de Matos Silva is the son of Wilson de Matos Silva and the brother of Weslley Kendrick Silva. There are otherwise no family relationships between any of our directors, executive officers and members of our senior management.
B.Compensation
Compensation of Directors, Officers and Senior Management
Under Cayman Islands law, we are not required to disclose compensation paid to our senior management on an individual basis and we have not otherwise publicly disclosed this information elsewhere. Our executive officers, directors and senior management receive fixed and variable compensation. They also receive benefits in line with market practice in Brazil. The fixed component of their compensation is set on market terms and adjusted annually.
The variable component consists of cash bonuses and awards of shares (or the cash equivalent). Cash bonuses are paid to executive officers and members of our management based on previously agreed targets for the business. Shares (or the cash equivalent) are awarded under our share options long-term incentive program, as discussed below.
For the fiscal years ended December 31, 2023, 2022 and 2021, our directors, executive officers and senior management received a total compensation in the amount of R$28.9 million, R$2.2 million, and R$19.2 million, respectively.
130
Employment Agreements
We have entered into employment agreements with each of our executive officers. The employment agreements generally follow the requirements prescribed by Brazilian labor laws. Each of these employment agreements provides that our executive officers are employed for an indefinite period of time. Upon a termination of service by the Company, each executive officer is entitled under his or her employment agreement to notice as required under Brazilian law. The employment agreements include certain restrictive covenants, including non-disclosure provisions.
None of our directors have entered into service agreements with the Company that provide for benefits upon termination of service.
Long-Term Incentive Plan
We have share option plans in place as described below. See also notes 3(g) and 23 to our audited consolidated financial statements included elsewhere in this annual report.
Vitru Limited recorded a reversal with share option plans of R$9.4 million and R$6.0 million in the years ended December 31, 2023 and 2022, respectively. For the year ended on December 31, 2021, prior to the one-to-31 contribution, Vitru Brazil recorded expense with share option plans of R$6.5 million.
Awards under certain of the equity compensation plans which we make available to our directors, executive officers and members of our management may vest on the completion of the merger with Vitru Brazil. Following the merger with Vitru Brazil, these equity compensation plans will be replaced by substantially similar plans at the level of Vitru Brazil.
First Share Option Plan
Certain members of our management participate in the first share option plan of Vitru Brazil, which was approved on June 8, 2017 and migrated to Vitru Limited in September 2020. The first share option plan is administered and managed by our board of directors and the share option plan management committee. As of December 31, 2023, we have four separate programs to grant rights in place under the first share option plan (approved on June 23, 2017 with respect to the first, July 31, 2018 with respect to the second, and August 30, 2019 with respect to the third and fourth programs).
Each share option grants its holder the right to purchase one share issued by us, under the terms and conditions set forth in the corresponding plan. Options are not entitled to dividends on the underlying shares.
Rights under each of programs vest in five installments of 20%, starting and expiring as provided for in each specific program. If a beneficiary is dismissed by us, resigns or retires, the portion of his or her rights under the share option plan that has vested at that date will be satisfied, but the non-vested portion will be cancelled. If a beneficiary dies or becomes permanently incapacitated, the portion of his or her rights under the share option plan that has vested at that date will be satisfied, and 50% of the non-vested portion will be cancelled. If a beneficiary is terminated for cause, all of his or her rights under the share option plan will be cancelled. Furthermore, beneficiaries have the right to turn all their vested options into shares by paying in cash the option exercise price set forth in the applicable program. The difference between the stipulated price in the program and the fair value of the share at the measurement date is recorded as equity. Upon the occurrence of a transfer of control, all options would become fully vested and may be fully or partially exercised by the beneficiaries. Upon the occurrence of a secondary public offering of our common shares, all options would become fully vested but the number of shares that may be sold by the beneficiaries would be proportional to the quantity of shares sold by the Principal Shareholders. In addition, participants have the right to require us to acquire all the common shares held by them to be held in treasury or for cancellation, upon payment, in cash, of the 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, we will pay the participant the price equivalent to a certain multiple of our EBITDA less Net Debt, as set forth in each program, to be recorded as a liability.
131
All unvested share options under the second, third and fourth programs automatically vested upon the consummation of the September 2020 initial public offering. Unvested options under the first program did not vest as a result of the initial public offering. In addition, any common shares acquired by the beneficiaries of the share option plan as a result of the exercise of their options were subject to a lock-up for a period of one year from the exercise date. This diluted by approximately 3.0%, the interest in our issued share capital of holders of our common shares prior to the migration of the plan.
The first share option plan provides for the granting of up to 25,471,110 common share options with no par value (before the issuance of new common shares to our Principal Shareholders in a one-to-31 exchange for the shares of Vitru Brazil contributed to us, equivalent to 821,649 options after the one-to-31 contribution), representing up to approximately 5.0% of the number of common issued by Vitru Brazil as of the date the plan was approved. In 2019 and 2018, 1,834,105 and 1,487,665 vested shares (before the one-to-31 contribution), respectively, were exercised under the first program at an average exercise price of R$1.02 and R$0.98, respectively.
In the year ended December 31, 2023, a total of zero options (after the one-to-31 contribution) were exercised under the first program. As of December 31, 2023, Vitru Limited had a total of 26,610 share options outstanding under the first share option plan. See also Note 23 to our audited consolidated financial statements, included elsewhere in this annual report.
Second Share Option Plan
On November 19, 2020, we established a new equity incentive plan, or the Second Long-Term Incentive Plan, or “Second LTIP,” with the purpose of advancing the interests of our shareholders by enhancing our ability to attract, retain and motivate individuals to perform at the highest level. The Second LTIP governs issuances of equity-related incentive awards. The Second LTIP is administered and managed by our board of directors and the officers’ committee (as delegated by the board of directors). Unless otherwise provided for in the applicable award agreement, options issued under the Second LTIP become exercisable, subject to continued employment through the applicable date, as follows: (i) 15% on the one year anniversary of September 18, 2020, or the “First Trading Day,” (ii) 30% on the two year anniversary of the First Trading Day, (iii) 50% on the three year anniversary of the First Trading Day, (iv) 70% on the four year anniversary of the First Trading Day and (v) 100% on the five year anniversary of the First Trading Day. Options must be exercised on or before the six year anniversary of the execution of the applicable award agreement.
Upon a termination of employment by the Company without Just Cause (as defined in the Second LTIP), due to death, retirement or permanent disability or by the participant due to voluntary resignation, all unvested options will lapse in full for no consideration, and any vested options must be exercised within 60 days of the date of termination of employment (except in the case of death, in which such exercise period will be 12 months from the date of such termination of employment). Upon a termination with Just Cause, upon resignation, removal from office or termination of the service agreement with cause, the vested and unvested portion of the options will lapse in full for no consideration. All rights with respect to the vested options are conditions on the participant’s compliance with certain restrictive covenants set forth in the Second LTIP.
We reserved up to 5.0% of our common shares for issuance under our equity incentive plan. As of December 31, 2023, Vitru Limited had a total of 1,048,454 share options outstanding under the Second LTIP. See also Note 23 to our audited consolidated financial statements, included elsewhere in this annual report.
C.Board Practices
Committees of the Board of Directors
Our board of directors has an Audit Committee. As allowed by the laws of the Cayman Islands, we do not have a nomination and corporate governance committee or compensation committee nor do we have any current intention to establish either.
132
Audit Committee
The audit committee, which consists of Aline Leite San Lee Sun, Claudia Jordão Ribeiro Pagnano and Rivadávia Correa Drummond de Alvarenga Neto, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Aline Leite San Lee Sun serves as Chairman of the Committee. The audit committee consists of members who are financially literate, and Aline Leite San Lee Sun is considered an “audit committee financial expert” as defined by the SEC. Our board of directors has determined that Aline Leite San Lee Sun, Claudia Jordão Ribeiro Pagnano and Rivadávia Correa Drummond de Alvarenga Neto satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act.
The audit committee is governed by a charter that complies with Nasdaq rules. The audit committee is responsible for, among other things:
| ● | the appointment, compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services; |
| ● | pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services; |
| ● | reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit; |
| ● | obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and the Company consistent with the applicable PCAOB requirements regarding the independent auditor’s communications with the audit committee concerning independence; |
| ● | confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law; |
| ● | reviewing with management and the independent auditor, in separate meetings whenever the Audit Committee deems appropriate, any analyses or other written communications prepared by the Management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS accounting standards methods on the financial statements; and other critical accounting policies and practices of the Company; |
| ● | reviewing, in conjunction with the Chief Executive Officer and Chief Financial Officer of the Company, the Company’s disclosure controls and procedures and internal control over financial reporting; |
| ● | establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and |
| ● | approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy. |
The audit committee meets as often as it determines is appropriate to carry out its responsibilities, but in any event will meet at least four times per year.
D.Employees
As of December 31, 2023, we had 10,922 employees, 8.6% of which were based in our offices in the cities of Indaial and Florianópolis, in the State of Santa Catarina, and 91.4% based elsewhere in Brazil. Over 33.2% of our employee base has an undergraduate degree and 45.6% hold a postgraduate qualification, master’s degree, or doctorate.
133
The table below breaks down our full-time personnel by function as of the dates indicated:
|
|
As of December 31, |
||||
Number of Employees by function |
|
2023(1) |
|
2022(1) |
|
2021 |
Management |
|
11 |
|
11 |
|
7 |
Student Support and Academic Staff |
|
3,875 |
|
4,127 |
|
1,715 |
Local tutors |
|
4,295 |
|
3,437 |
|
3,391 |
General and Administrative |
|
1,782 |
|
1,987 |
|
681 |
Technology and Content Development |
|
382 |
|
401 |
|
95 |
Sales and Marketing |
|
577 |
|
214 |
|
147 |
Full-time Personnel |
|
10,922 |
|
10,177 |
|
6,036 |
(1) |
Includes non-temporary independent contractors. |
|
|
As of December 31, |
||||
Number of Employees by region |
|
2023(1) |
|
2022(1) |
|
2021 |
South |
|
7,723 |
|
7,212 |
|
3,289 |
Northeast |
|
1,159 |
|
1,029 |
|
959 |
Midwest |
|
722 |
|
738 |
|
634 |
Southeast |
|
799 |
|
708 |
|
621 |
North |
|
519 |
|
490 |
|
533 |
Full-time Personnel |
|
10,922 |
|
10,177 |
|
6,036 |
(1) |
Includes non-temporary independent contractors. |
Leading us is a management team with experience in renowned education companies, as well as diverse backgrounds across banking, financial management, and technology.
We closely monitor our employees’ satisfaction rate, through a survey conducted by Great Place to Work, which granted us the certificate of a great place to work. Uniasselvi was also awarded as one of the top 20 companies to work for in the State of Santa Catarina in 2023 for the fifth consecutive year in the Big Companies category, which considers companies with over 1,000 employees.
Our employees in Brazil are subject to certain collective bargaining agreements with labor unions of educational services for the geographic area in which they render services. The collective bargaining agreements are valid for a one-year term. We believe we have a constructive relationship with these unions, as we have not experienced strikes, work stoppages or disputes leading to any form of downtime.
In addition, as of December 31, 2023, we had 138 temporary personnel among our employees and 103 independent contractors.
E.Share Ownership
The shares and any outstanding beneficially owned by our directors and officers and/or entities affiliated with these individuals are disclosed in “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Long-Term Incentive Plan” for information on our share option long-term incentive program.
F.Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
134
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.Major Shareholders
The following table and accompanying footnotes present information relating to the beneficial ownership of our common shares as of the date of this annual report.
The number of common shares beneficially owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares held by that person.
The percentages of beneficial ownership in the table below are calculated on the basis of 33,543,107 common shares outstanding as of March 31, 2024.
|
|
Shares |
|
|
|
% of Total |
|
|
Beneficially Owned |
|
% |
|
Voting Power |
5% Shareholders |
|
|
|
|
|
|
Compass Group LLC(1) |
|
4,767,953 |
|
14.2 |
|
14.2 |
Neuberger(2) |
|
4,355,932 |
|
13.0 |
|
13.0 |
The Carlyle Group(3) |
|
4,164,314 |
|
12.4 |
|
12.4 |
Crescera(4) |
|
3,852,266 |
|
11.5 |
|
11.5 |
Vinci Partners(5) |
|
3,454,278 |
|
10.3 |
|
10.3 |
23S Capital(6) |
|
3,190,790 |
|
9.5 |
|
9.5 |
SPX Capital(7) |
|
2,082,157 |
|
6.2 |
|
6.2 |
Board of Directors and Executive Officers(8) |
|
|
|
|
|
|
Carlos Eduardo Martins e Silva |
|
— |
|
— |
|
— |
Wilson de Matos Silva |
|
1,099,205 |
|
3.3 |
|
3.3 |
Daniel Arthur Borghi |
|
— |
|
— |
|
— |
Edson Gustavo Georgette Peli |
|
— |
|
— |
|
— |
Felipe Samuel Argalji |
|
— |
|
— |
|
— |
Fernando Cezar Dantas Porfírio Borges |
|
— |
|
— |
|
— |
Mariana Moura Wyatt |
|
— |
|
— |
|
— |
Weslley Kendrick Silva |
|
* |
|
* |
|
* |
Aline Leite San Lee Sun |
|
— |
|
— |
|
— |
Claudia Jordão Ribeiro Pagnano |
|
— |
|
— |
|
— |
Rivadávia Correa Drummond de Alvarenga Neto |
|
— |
|
— |
|
— |
William Victor Kendrick de Matos Silva |
|
* |
|
* |
|
* |
Carlos Henrique Boquimpani de Freitas |
|
* |
|
* |
|
* |
Ana Paula Rodrigues |
|
* |
|
* |
|
* |
* |
Represents beneficial ownership of less than 1% of our issued and outstanding common shares. |
(1) |
The information provided is based on the Schedule 13G/A filed by Compass Group LLC on February 14, 2024. |
(2) |
The information provided is based on the Schedule 13G jointly filed by NB Alternatives Advisers LLC and NB Verrocchio LP on February 16, 2021. |
(3) |
Mundi Holdings I, L.L.C., or “Mundi I,” is the record holder of the securities reported herein. The Carlyle Group Inc., which is a publicly traded company listed on Nasdaq, is the sole member of Carlyle Holdings II GP L.L.C., which is the managing member of Carlyle Holdings II L.L.C., which, with respect to the securities reported herein, is the managing member of CG Subsidiary Holdings L.L.C., which is the general partner of TC Group Cayman Investment Holdings, L.P., which is the general partner of TC Group Cayman Investment Holdings Sub L.P., which is the sole member of CSABF General Partner Limited, which is the general partner of CSABF General Partner, L.P., which is the ultimate general partner of each of the members of Mundi I. Accordingly, each of the foregoing entities may be deemed to share beneficial ownership of the securities held of record by Mundi I. Each of them disclaims beneficial ownership of such shares of common stock. The address of TC Group Cayman Investment Holdings, L.P. and TC Group Cayman Investment Holdings Sub L.P., CSABF General Partner Limited, CSABF General Partner, LP and Mundi I is c/o Walkers, Cayman Corporate Center, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman |
135
Islands. The address of each of the other entities named in this footnote is c/o The Carlyle Group, 1001 Pennsylvania Avenue, NW, Suite 220 South, Washington, D.C. 20004. The information provided is based on information provided to the Company and the Schedule 13G/A jointly filed by those persons on February 11, 2022.
(4) |
Crescera includes Crescera Growth Capital Master V Fundo de Investimento em Participações Multiestratégia, Crescera Growth Capital V Coinvestimento III Fundo de Investimento em Participações Multiestratégia, Crescera Asset Management Ltda., Crescera Investimentos Ltda. and Crescera Partners S.A. The information provided is based on the Schedule 13D jointly filed by those entities on January 18, 2023. |
(5) |
Vinci Partners includes Vinci Capital Gestora de Recursos Ltda., Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC. The information provided is based on information provided to Vitru Cayman and the Schedule 13G/A filed jointly by those persons on February 8, 2024. |
(6) |
The information provided is based on the Schedule 13G filed by DBOAT I Fundo de Investimento em Participações Multiestratégia on November 2, 2023. |
(7) |
Fundo Brasil de Internacionalização de Empresas — FIP Multiestratégia II, “Fundo Brasil,” is the record holder of the securities reported therein. SPX Private Equity Gestão de Recursos Ltda., “SPX PE,” formerly named TCG Gestor Ltda., is the portfolio manager of Fundo Brasil. The address of SPX Private Equity Gestão de Recursos Ltda. is Avenida Brigadeiro Faria Lima, 3,732, 21st floor, Itaim Bibi, São Paulo, SP, Brazil, CEP 04538-132. The address of Fundo Brasil is Praça XV de Novembro, No. 20, Sls. 201, 202, 301 and 302, Centro, Rio de Janeiro — RJ, Brazil, 20010. The information provided is based on information provided to the Company and the Schedule 13G/A filed by those entities on February 14, 2024. |
(8) |
Information provided to the Company by members of the Board of Directors and Executive Officers, as of December 31, 2023. |
136
B.Related Party Transactions
We have set forth below a summary of our principal related party transactions. See also Note 24 to our audited consolidated financial statements, each included elsewhere in this annual report.
We hold shares (quotas) in certain investments funds managed by Vinci Partners, an insurance policy issued by Austral Seguradora S/A and uses the services of the law firm Kloch Advocacia. Each of these entities are related parties of the Company. The balance of these investments is as follows as of the dates indicated:
|
|
As of and for the year ended December 31, |
||||||
|
|
2023 |
|
2023 |
|
2022 |
|
2021 |
|
|
U.S.$ |
|
R$ |
||||
|
|
(in millions) |
||||||
Joint operations |
|
|
|
|
|
|
|
|
CESUTEC - Centro De Ensino Sistematizado e Tecnologia da Educacao |
|
— |
|
— |
|
(2.0) |
|
— |
WM Administracao e Participacoes Ltda |
|
— |
|
— |
|
(1.8) |
|
— |
PL Administracao e Participacoes Ltda |
|
— |
|
— |
|
(0.8) |
|
— |
Net revenue |
|
— |
|
— |
|
(4.5) |
|
— |
Leases |
|
|
|
|
|
|
|
|
SOEDMAR - Sociedade Educacional De Maringa Ltda. |
|
|
|
|
|
|
|
|
Right-of-use assets |
|
33.9 |
|
164.2 |
|
160.2 |
|
— |
Depreciation expense |
|
(0.9) |
|
(4.3) |
|
(5.1) |
|
— |
Lease liabilities |
|
35.0 |
|
169.3 |
|
165.1 |
|
— |
Interest on lease |
|
(2.0) |
|
(9.5) |
|
(13.1) |
|
— |
WM Administracao e Participacoes Ltda |
|
|
|
|
|
|
|
|
Right-of-use assets |
|
0.6 |
|
2.9 |
|
2.8 |
|
— |
Depreciation expense |
|
(0.0) |
|
(0.2) |
|
(0.3) |
|
— |
Lease liabilities |
|
0.6 |
|
3.0 |
|
2.9 |
|
— |
Interest on lease |
|
(0.0) |
|
(0.2) |
|
(0.3) |
|
— |
Short-term investments |
|
|
|
|
|
|
|
|
FI Vinci Renda Fixa Crédito Privado |
|
|
|
|
|
|
|
|
Short-term investments (balance) |
|
— |
|
— |
|
— |
|
— |
Financial income |
|
— |
|
— |
|
— |
|
0.2 |
Donations |
|
|
|
|
|
|
|
|
ICETI - Instituto Cesumar de Ciência, Tecnologia e Inovação |
|
|
|
|
|
|
|
|
Other income (expenses), net |
|
(0.7) |
|
(3.6) |
|
(3.3) |
|
— |
Insurance |
|
|
|
|
|
|
|
|
Austral Seguradora S.A. |
|
|
|
|
|
|
|
|
Prepaid expenses (balance) |
|
— |
|
— |
|
— |
|
0.2 |
General and administrative expenses |
|
— |
|
— |
|
(0.2) |
|
(0.3) |
Legal services |
|
|
|
|
|
|
|
|
Kloch Advocacia |
|
|
|
|
|
|
|
|
General and administrative expenses |
|
— |
|
— |
|
(0.1) |
|
(0.2) |
Loans |
|
|
|
|
|
|
|
|
Working capital funding |
|
|
|
|
|
|
|
|
Vitru Brasil Empreendimentos, Participações e Comercio S.A. |
|
1.7 |
|
8.2 |
|
— |
|
— |
(1) |
For convenience purposes only, amounts in reais as of December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.841 to U.S.$1.00, the commercial purchase rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
137
Related Person Transactions Policy
Our related party transactions policy defines the concepts of related party, related party transaction and requires certain related party transactions policy to be approved by our audit committee.
The related party transactions policy also includes certain exceptions, details review periods and sets out the process involved in submitting transactions for approval.
Registration Rights Agreement
On September 17, 2020, we entered into a registration rights agreement with certain of our significant shareholders, or the Original Registration Rights Agreement. On November 10, 2022, we entered into an Amended and Restated Registration Rights Agreement with our Principal Shareholders, amending the Original Registration Rights Agreement and pursuant to which Crescera became a party and became entitled to certain rights similar to the rights granted to Vinci Partners and Carlyle SPX (as defined in the Amended and Restated Registration Rights Agreement) under the Original Registration Rights Agreement. Furthermore, on October 24, 2023, we entered into another Amended and Restated Registration Rights Agreement with our Principal Shareholders, amending the Registration Rights Agreement and pursuant to which 23S became a party and became entitled to certain rights similar to the rights granted to Vinci Partners, Carlyle SPX and Crescera (as defined in the Amended and Restated Registration Rights Agreement) under the Registration Rights Agreement.
Pursuant to the agreement, at any time that the Principal Shareholders are no longer subject to restrictions on transfer of their shares pursuant to the lock-up agreements entered into with the underwriters of our initial public offering, subject to several exceptions, including underwriter cutbacks and our right to defer a demand registration under certain circumstances, the Principal Shareholders may require that we register for public resale under the Securities Act all common shares constituting registrable securities, or the Registrable Securities, that they request be registered so long as the securities requested to be registered in each registration statement have an aggregate estimated market value of at least U.S.$25 million (unless the initiating holder is seeking to register the sale of its entire interest in our share capital). If we are eligible to register the sale of Registrable Securities on Form F-3 under the Securities Act, our Principal Shareholders have the right to require us to register the sale of the Registrable Securities held by them on Form F-3, subject to certain restrictions.
If we propose to register the sale of any of our securities under the Securities Act for our own account or the account of any other holder (excluding any securities to be registered on Form S-8 relating to shares issued in connection with an employee benefit plan or Form F-4 relating to shares issued in connection with any transaction), our Principal Shareholders are entitled to notice of such registration and to request that we include Registrable Securities for resale on such registration statement, and we are required, subject to certain exceptions, to include such Registrable Securities in such registration statement.
In connection with the transfer of their Registrable Securities, the parties to the Registration Rights Agreement may assign certain of their respective rights under the Registration Rights Agreement under certain circumstances. In connection with the registrations described above, we will indemnify any selling shareholders in certain situations, subject to certain restrictions, and the selling shareholders will indemnify us in certain situations, subject to certain restrictions.
Lease Agreements
Some of the properties in which we operate, including properties where some of our campuses are located, are owned and operated, directly or indirectly, by certain of the former shareholders of UniCesumar (including our current CEO and two Vitru directors). Specifically, on May 20, 2022, UniCesumar entered into a lease agreement with Soedmar Sociedade Educacional de Maringá Ltda., or “Soedmar,” pursuant to which Soedmar agreed to lease to UniCesumar certain properties at Campus Maringá located in the State of Paraná; Campus Ponta Grossa, located in the State of Paraná; Campus Londrina, located in the State of Paraná; Campus Curitiba, in the State of Paraná; and Terreno Londrina.
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The lease agreement is for an initial term of 20 years, subject to certain provisions set out in the lease agreement. The monthly rent payable by us under the lease agreement for all the properties is approximately R$1.8 million.
Indemnification Agreements
We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
C.Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements,” which contains our audited consolidated financial statements prepared in accordance with IFRS accounting standards.
Dividends and Dividend Policy
We have not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.
Certain Cayman Islands and Brazilian Legal Requirements Related to Dividends
Under the Companies Act and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For further information, see “Item 10. Additional Information—E. Taxation—Cayman Islands Tax Considerations.”
Additionally, please refer to “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We depend on dividends being distributed to us by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive or if the Brazilian government imposes taxes or restrictions on the distribution of dividends or interest on shareholders’ equity by subsidiaries to parent companies.” Our ability to comply with our financial obligations and to pay dividends to our shareholders depends on our ability to receive distributions from the companies we control, which in turn depends on the cash flow and profits of those companies. If, for any legal reasons due to new laws or bilateral agreements between countries, they are unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.
Legal Proceedings
We are, and may from time to time be, involved in disputes that arise in the ordinary course of our business. Any claims against us, whether meritorious or not, can be time consuming, result in costly litigation, require significant management time and result in the diversion of significant operational resources.
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We are subject to a number of judicial and administrative proceedings in the Brazilian court systems, including civil, environmental, labor and tax law and social security claims and other proceedings, which we believe are common and incidental to business operations in Brazil in general. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisers.
As of December 31, 2023, we were parties to 2,269 proceedings in an aggregate amount of R$176.5 million, and we had recorded provisions in our financial statements in connection with legal proceedings for which we believe a loss is probable in accordance with accounting rules in an aggregate amount of R$41.9 million. As of the same date, we had surety bonds in an aggregate amount of R$33.4 million in relation to our legal proceedings. However, legal proceedings are inherently unpredictable and subject to significant uncertainties. If one or more cases were to result in a judgment against us in any reporting period for amounts that exceeded our management’s expectations, the impact on our operating results or financial condition for that reporting period could be material. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Unfavorable decisions in our legal or administrative proceedings may adversely affect us.”
Civil Matters
As of December 31, 2023, we were party to 1,846 judicial and administrative proceedings of a civil nature in a total aggregate amount of R$25.6 million. Out of the 1,846 judicial and administrative civil proceedings in which we are involved, (i) 275 are classified as having a remote chance of loss, (ii) 1,122 are classified as having a possible chance of loss, and (iii) 449 are classified as having a probable risk of loss. As of December 31, 2023, we have recorded a provision of R$7.8 million for the proceedings with a probable chance of loss. The civil claims to which we are a party generally relate to consumer claims, including those related to alleged undue collection of tuition fees and rates, delay in the issuance of certificates and diplomas, undue collection of tuition fees for students that have been granted scholarships and public financing and denial of enrollment in courses, among others. We believe these proceedings are unlikely to have a material adverse impact, individually, or in the aggregate, on our results of operations or financial condition.
Labor Matters
As of December 31, 2023, we were party to 401 labor-related judicial and administrative proceedings in a total aggregate amount of R$66.1 million, including proceedings relating to collective claims filed by labor unions against us for alleged non-compliance with collective bargaining agreements. Out of the 401 labor-related judicial and administrative proceedings in which we are involved, (i) 33 are classified as having a remote risk of loss, (ii) 179 are classified as having a possible chance of loss, and (iii) 189 are classified as having a probable risk of loss. We have recorded a provision of R$34.0 million for the proceedings with a probable chance of loss. In general, the labor claims to which we are a party were filed by former employees or third parties employees seeking our joint and/or subsidiary liability for the acts of our suppliers and service providers. The principal claims involved in these labor suits relate to overtime, salary equalization, vacation payments and/or failure to provide vacation, severance payments and termination fees, and indemnification obligations arising under Brazilian labor laws. We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate, on our results of operations or financial condition.
Tax and Social Security Matters
As of December 31, 2023, we were party to 22 judicial and administrative tax and social security proceedings in a total aggregate amount of R$84.7 million as a result of which we may be held liable for a payment to tax and social security authorities. Out of the 22 tax-related judicial and administrative proceedings in which are involved, (i) 14 are classified as having a remote risk of loss, (ii) 7 are classified as having a possible chance of loss, and (iii) 1 is classified as having a probable risk of loss. We have recorded a provision of R$6.4 million for the proceedings with a probable chance of loss.
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As of December 31, 2023, we had surety bonds in an aggregate amount of R$33.4 million in relation to tax and social security matters. We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate, on our results of operations or financial condition.
As of December 31, 2023, we were party to three administrative proceedings in relation to a tax infraction notice issued by the Finance Department of the Municipality of the City of Porto Alegre for the total amount of R$48.5 million. We estimate that the chance of loss in these proceedings is possible. The infraction notice relates to amounts of ISS tax allegedly due by us (plus a 150% fine and late payment interest, for the period from January 2012 to April 2023). According to the Porto Alegre tax authorities, the digital education educational services we provide from our headquarters in Indaial in the State of Santa Catarina are subject to ISS tax levied by the City of Porto Alegre, in which we maintain a digital education center. We have challenged this interpretation in administrative proceedings and in judicial court. Pursuant to the purchase and sale agreement relating to our acquisition of Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., FAIR Educacional Ltda. and FAC Educacional Ltda., the sellers are liable to reimburse us for amounts accrued prior to February 29, 2016 in connection with these proceedings if a decision unfavorable to us is issued. See Note 20 to our audited consolidated financial statements included elsewhere in this annual report.
B.Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant change since the date of our audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A.Offer and Listing Details
On September 22, 2020, we completed our initial public offering. Our common shares have been listed on the Nasdaq Global Select Market since September 18, 2020 under the symbol “VTRU.”
B.Plan of Distribution
Not applicable.
C.Markets
For a description of our publicly traded common shares, see “—A. Offer and listing details.”
D.Selling Shareholders
Not applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.Share Capital
Not applicable.
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B.Memorandum and Articles of Association
General
Vitru Limited was incorporated on March 5, 2020, as a Cayman Islands exempted company with limited liability duly registered with the Cayman Islands Registrar of Companies under incorporation number 360670. Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of Companies Act.
Our affairs are governed principally by: (1) our Memorandum and Articles of Association; (2) the Companies Act; and (3) the common law of the Cayman Islands. As provided in our Articles of Association, subject to Cayman Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered office is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.
Our Memorandum and Articles of Association authorize the issuance of up to 1,000,000,000 shares of our authorized share capital. As of December 31, 2023, we had 33,826,199 common shares of our authorized share capital issued and outstanding. As of March 31, 2024, 33,543,107, common shares of our authorized share capital were issued and outstanding.
The following is a summary of the material provisions of our authorized share capital and our Articles of Association. This is not a summary of all the significant provisions of our Articles of Association, of the Companies Act or of the common law of the Cayman Islands and does not purport to be complete. Our shareholders adopted the Amended and Restated Memorandum and Articles of Association included as Exhibit 1.1 to this annual report.
Recent Amendments to our Memorandum and Articles of Association
On October 23, 2023, our shareholders resolved to amend and restate our Articles of Association. The purpose of the amendments was to give 23S certain rights, which are substantially similar to the rights granted to Vinci Partners, Carlyle SPX and Crescera.
Share Capital
The Memorandum and Articles of Association authorize common shares, which are entitled to one vote per share.
As of December 31, 2022, Vitru’s total authorized share capital was U.S.$50,000, divided into 1,000,000,000 shares par value U.S.$0.00005 each, all of which are undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.
As of December 31, 2023, Vitru had a total issued and outstanding share capital of U.S.$1,691.31, divided into 33,826,199 common shares. As of March 31, 2024, Vitru had a total issued and outstanding share capital of U.S.$1,677.15 divided into 33,543,107 common shares.
Treasury Shares
As of December 31, 2023, Vitru had no shares in treasury.
Issuance of Shares
Except as expressly provided in Vitru’s Articles of Association, the board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increase to issued share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act.
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In accordance with its Articles of Association, Vitru shall not issue bearer shares. Vitru’s Articles of Association also provide that the issuance of non-voting shares requires the affirmative vote of a majority of the of then-outstanding common shares.
Fiscal Year
Vitru’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.
Corporate Purposes
Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of Companies Act.
Voting Rights
The holders of the common shares are entitled to one vote per share.
Vitru’s Articles of Association provide as follows regarding the respective rights of holders of shares:
| ● | class consents from the holders of shares shall be required for any variation to the rights attached to their respective class of shares, however, the directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal; |
| ● | the rights conferred on holders of shares of any class shall not be deemed to be varied by the creation or issue of further shares of that class; and |
| ● | the rights attaching to shares of any class shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights. |
Preemptive or Similar Rights
The common shares are not entitled to preemptive or similar rights.
Record Dates
For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, Vitru’s board of directors may set a record date which shall not exceed forty (40) clear days prior to the date where the determination will be made.
General Meetings of Shareholders
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of Vitru at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to Vitru in respect of the shares that such shareholder holds must have been paid.
Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation or company, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per common share.
143
As a Cayman Islands exempted company, Vitru is not obliged by the Companies Act to call annual general meetings. The Articles of Association provide that the Company will in each year hold a general meeting as its annual general meeting. At any annual general meeting the agenda will include, among other things, the presentation of the annual accounts and the report of the directors. In addition, the agenda for an annual general meeting will only include such items as have been included therein by the board of directors.
Also, Vitru may, but is not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings are generally expected to take place in the city of Florianópolis in the State of Santa Catarina, Brazil, but may be held elsewhere if the directors so decide.
The Companies Act provides shareholders a limited right to request a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s Articles of Association. However, these rights may be provided in a company’s Articles of Association. Vitru’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear days’ notice prior to the relevant shareholders meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
Vitru will give notice of each general meeting by publication on its website and in any other manner that it may be required to follow in order to comply with Cayman Islands law, Nasdaq and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.
Holders whose shares are registered in the name of The Depository Trust Company, or DTC, or its nominee, which we expect will be the case for most holders of our common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the common shares.
A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.
A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Act and our Articles of Association.
Pursuant to Vitru’s Articles of Association, general meetings are to be chaired by the chairman of our board of directors or in his absence the vice-chairman of the board of directors. If the chairman or vice-chairman of our board of directors is absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.
144
Liquidation Rights
If Vitru is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between Vitru and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between Vitru and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) and subject to any agreement between Vitru and any person or persons to waive or limit the same, shall apply Vitru’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in Vitru.
Changes to Capital
Pursuant to the Articles of Association, Vitru may from time to time by ordinary resolution:
| ● | increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe; |
| ● | consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares; |
| ● | convert all or any of its paid-up shares into stock and reconvert that stock into paid up shares of any denomination; |
| ● | subdivide its existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or |
| ● | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
Vitru’s shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce its share capital or any capital redemption reserve in any manner permitted by law.
In addition, subject to the provisions of the Companies Act and our Articles of Association, Vitru may:
| ● | issue shares on terms that they are to be redeemed or are liable to be redeemed; |
| ● | purchase its own shares (including any redeemable shares); and |
| ● | make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of its own capital. |
Transfer of Shares
Subject to any applicable restrictions set forth in the Articles of Association, any shareholder of Vitru may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the Nasdaq or any other form approved by the Company’s board of directors.
145
However, Vitru’s board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:
| ● | a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to Vitru in respect thereof; |
| ● | the instrument of transfer is lodged with Vitru, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class of shares; |
| ● | the instrument of transfer is properly stamped, if required; |
| ● | the common shares transferred are free of any lien in favor of Vitru; and |
| ● | in the case of a transfer to joint holders, the transfer is not to more than four joint holders. |
If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
Share Repurchase
The Companies Act and the Articles of Association permit Vitru to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of Vitru, subject to the Companies Act, the Articles of Association and to any applicable requirements imposed from time to time by the SEC, the Nasdaq, or by any recognized stock exchange on which our securities are listed.
Dividends and Capitalization of Profits
We have not adopted a dividend policy with respect to payments of any future dividends by Vitru. Subject to the Companies Act, Vitru’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors (and, for the avoidance of doubt, no dividend shall be declared by the shareholders unless previously recommend by the board of directors). The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to Vitru. Except as otherwise provided by the rights attached to shares and the Articles of Association of Vitru, all dividends shall be paid in proportion to the number of common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (i) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly, and (ii) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.
The holders of common shares shall be entitled to share equally in any dividends that may be declared in respect of Vitru’s common shares from time to time.
Appointment, Disqualification and Removal of Directors
Vitru is managed by its board of directors. The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to eleven directors, with the number being determined by a majority of the directors then in office with the consent of Vinci Partners and Carlyle SPX, in each case for so long as it enjoys director appointment rights. There are no provisions relating to retirement of directors upon reaching any age limit. The Articles of Association also provide that, while Vitru’s shares are admitted to trading on Nasdaq, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.
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The Articles of Association also provide that each of Vinci Partners, Carlyle SPX, Crescera and 23S, for so long as it holds not less than 15 per cent of the voting shares in issue, shall be entitled to appoint up to two persons to act as directors, and that each of Vinci Partners, Carlyle SPX, Crescera and 23S, for so long as it holds not less than 5 per cent and not more than 15 per cent of the voting shares in issue, shall be entitled to appoint one person to act as a director. Each of Vinci Partners, Carlyle SPX, Crescera and 23S shall be entitled to remove any of the directors so appointed. The Articles of Association also provide that, notwithstanding the above director appointment rights, for so long as Crescera holds not less than 5 per cent and no more than 15 per cent of the voting shares in issue and does not transfer any of its common shares between November 20, 2023, and the date of the annual shareholder meeting of the Company to be held in 2024 (which shareholder meeting shall not be held earlier than May 1, 2024), it shall be entitled to appoint two persons to act as directors. Such additional right will automatically cease to apply after the annual shareholder meeting of the Company to be held in 2024.
The Articles of Association otherwise provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed to a two year term, unless they resign, are removed or their office is vacated earlier, provided however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).
Each director shall be appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed). Directors are eligible for re-election.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting.
Additions to the existing board (within the limits set pursuant to the Articles of Association) may be made by ordinary resolution of the shareholders.
For so long as Neuberger holds not less than 5 per cent of the voting shares in issue, Neuberger shall be entitled to appoint an observer to the board of directors and any committee of the board of directors established from time to time. In each case, the observer shall be entitled to attend and speak at all such meetings and receive copies of all board papers as if they were a director but shall not be entitled to vote on any resolutions proposed at a board meeting.
Upon the completion of our initial public offering, the board of directors had put in place an audit committee. See “Item 16A. Audit Committee Financial Expert.”
Grounds for Removing a Director
A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director, (2) becomes bankrupt or makes an arrangement or composition with his creditors, (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (4) he or she willfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, are considered to be a breach of the performance of his or her duties and/or obligations, including: (i) the uninterrupted or repeated omission or refusal to perform the duties and/or obligations established in the Articles of Association or by applicable law; and/or (ii) he or she is unable to comply with such duties and/or obligations as a result of an alcohol or drug addiction; (5) he or she willfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, cause material damages to or adversely affects the financial situation or commercial reputation of the Company; (6) resigns his office by notice to us or (7) has for more than six (6) months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.
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Proceedings of the Board of Directors
The Articles of Association provide that Vitru’s business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office (subject to there being a minimum of two directors present) provided that such a majority must include at least one director appointed by Carlyle SPX, one director appointed by Vinci Partners, one director appointed by Crescera and one director appointed by 23S, for so long as each of them enjoys director appointment rights under the Articles of Association. If such a quorum is not present within half an hour from the time appointed for a meeting of the board of directors, or if during a meeting such quorum ceases to be present, the meeting shall stand adjourned to the same day in the next week at the same time and place or at such time and place as determined by the directors present at such meeting. If a quorum is not present at any such adjourned meeting within half an hour from the time appointed, then the meeting shall proceed. Business at any board meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a casting vote.
Subject to the provisions of the Articles of Association, the board of directors may regulate its proceedings as they determine is appropriate.
Subject to the provisions of the Articles of Association, to any directions given by ordinary resolution of the shareholders and the listing rules of the Nasdaq, the board of directors may from time to time at its discretion exercise all powers of Vitru, including, subject to the Companies Act, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
Business Opportunities
The Articles of Association also provide that, to the fullest extent permitted by applicable law and except as may be otherwise expressly agreed in writing by Vitru, on the one hand, and Carlyle SPX, Vinci Partners, Neuberger, Crescera or 23S, on the other hand, Vitru, on behalf of itself and its subsidiaries, renounces and waives any interest or expectancy of Vitru and its subsidiaries in, or in being offered an opportunity to participate in, directly or indirectly, any potential transactions, matters or business opportunities (including, without limitation, any business activities or lines of business that are the same as or similar to those pursued by, or competitive with, Vitru or any of its subsidiaries or any dealings with customers or clients of Vitru or any of its subsidiaries) that are from time to time presented to Carlyle SPX, Vinci Partners, Neuberger, Crescera or 23S or any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries (other than the Company and its subsidiaries), even if the transaction, matter or opportunity is one that Vitru or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of Carlyle SPX, Vinci Partners, Neuberger, Crescera nor 23S, nor any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries shall be liable to Vitru or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person pursues, acquires or participates in such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to Vitru or its subsidiaries, unless, in the case of any such person who is a director or officer of Vitru, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of Vitru.
Inspection of Books and Records
Holders of Vitru shares have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent Vitru’s accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Articles of Association provide shareholders with the right to receive annual financial statements.
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Such right to receive annual financial statements may be satisfied by publishing the same on the company’s website or filing such annual reports as we are required to file with the SEC.
The Articles of Association also provide that the Company may provide shareholders (that are incorporated under Brazilian laws and subject to CVM regulations or otherwise) copies of any and all: (i) agreements entered into by the Company with its related parties; (ii) shareholders’ agreements entered into by the Company; and (iii) stock option or other securities-based remuneration programs of the Company.
Register of Shareholders
The common shares are held through DTC, and DTC or Cede & Co., as nominee for DTC, will be recorded in the shareholders’ register as the holder of our common shares.
Under Cayman Islands law, Vitru must keep a register of shareholders that includes:
| ● | the names and addresses of the shareholders, a statement of the class and number of shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member; |
| ● | whether voting rights attach to the shares in issue; |
| ● | the date on which the name of any person was entered on the register as a member; and |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of shareholders of Vitru is prima facie evidence of the matters set out therein (i.e. the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders. Once the register of shareholders has been updated, the shareholders recorded in the register of shareholders should be deemed to have legal title to the shares set against their name.
However, there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified where it considers that the register of members does not reflect the correct legal position. If an application for an order for rectification of the register of members were made in respect of our ordinary shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.
Exempted Company
Vitru is an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | an exempted company’s register of shareholders is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
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| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Vitru is subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this annual report, Vitru currently intends to continue to comply with the Nasdaq rules in lieu of following home country practice.
Anti-Takeover Provisions in Our Articles of Association
Some provisions of the Articles of Association may discourage, delay or prevent a change in control of Vitru or management that shareholders may consider favorable. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of Vitru to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of Vitru. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.
Significant Shareholders
So long as our significant shareholders have the ability to determine the outcome of most matters submitted to a vote of shareholders as well as the overall management and direction of Vitru, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the election of directors.
Preferred Shares
Vitru’s board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.
Despite the anti-takeover provisions described above, under Cayman Islands law, Vitru’s board of directors may only exercise the rights and powers granted to them under the Articles of Association, for what they believe in good faith to be in the best interests of Vitru.
Protection of Non-Controlling Shareholders
The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of Vitru in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.
Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.
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Notwithstanding the U.S. securities laws and regulations that are applicable to Vitru, general corporate claims against Vitru by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by Vitru’s Articles of Association.
The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against Vitru, or derivative actions in Vitru’s name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control Vitru, and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.
Registration Rights and Restricted Shares
We entered into the Original Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital and Neuberger. Our shareholders or entities controlled by them or their permitted transferees are able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Registration Rights Agreement.”
On November 10, 2022, we entered into an Amended and Restated Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital, Neuberger and Crescera, pursuant to which Crescera became a party to the Original Registration Rights Agreement and became entitled to certain rights similar to the rights granted to Vinci Partners and Carlyle SPX under the Original Registration Rights Agreement.
Furthermore, on October 24, 2023, we entered into another Amended and Restated Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital, Neuberger, Crescera and 23S, pursuant to which 23S became a party to the Registration Rights Agreement and became entitled to certain rights similar to the rights granted to Vinci Partners, Carlyle SPX and Crescera under the Registration Rights Agreement.
Handling of Mail
Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by Company to be dealt with. None of the Company, its directors, officers, advisers or service providers (including the organization which provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
Certain Anti-Money Laundering Matters
If any person in the Cayman Islands knows or suspects, or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or money laundering, or is involved with terrorism or terrorist financing and property, and the information for that knowledge or suspicion came to their attention in the course of business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) the Financial Reporting Authority of the Cayman Islands (“FRA”), pursuant to the Proceeds of Crime Act (As Revised) of the Cayman Islands, if the disclosure relates to criminal conduct or money laundering, or (ii) a police officer of the rank of constable or higher, or the FRA, pursuant to the Terrorism Act (As Revised) of the Cayman Islands, if the disclosure relates to involvement with terrorism or terrorist financing and property.
Data Protection – Privacy Notice
Scope
The legal basis for this notification is to meet the standards required in respect of, and ensure compliance with, the requirements of the Cayman Islands’ Data Protection Act (As Revised) or the DPA, which came into effect in the Cayman Islands on 30 September 2019. This privacy notice puts investors in the Company on notice that through your investment into Vitru you may provide us with certain personal information which constitutes personal data within the meaning of the DPA (“personal data”).
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The Company collects, uses, discloses, retains and secures personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. The Company will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct the activities of the Company on an ongoing basis or to comply with legal and regulatory obligations to which the Company is subject. The Company will only transfer personal data in accordance with the requirements of the DPA, and will apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction or damage to the personal data. In our use of this personal data, we will be characterized as a “data controller” for the purposes of the DPA, while our affiliates and service providers who may receive this personal data from us in the conduct of our activities may either act as our “data processors” for the purposes of the DPA or may process personal information for their own lawful purposes in connection with services provided to the Company.
If you are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason in relation to your investment into the Company, this will be relevant for those individuals and you should inform such individuals of the content.
Individual Rights in Respect of Personal Data
Under the DPA, individuals must be informed of the purposes for which their personal data is processed and this privacy notice fulfils the Company’s obligation in this respect.
Individuals have rights under the DPA in certain circumstances. These may include the right to request access to their personal data, the right to request rectification or correction of personal data, the right to request that processing of personal data be stopped or restricted and the right to require that the Company cease processing personal data for direct marketing purposes.
If you consider that your personal data has not been handled correctly, or you are not satisfied with the Company’s responses to any requests you have made regarding the use of your personal data, you have the right to complain to the Cayman Islands’ Ombudsman. The Ombudsman can be contacted by calling: +1 (345) 946-6283 or by email at info@ombudsman.ky.
Contacting the Company
For further information on the collection, use, disclosure, transfer or processing of your personal data or the exercise of any of the rights listed above, please contact us through the address and telephone number of our principal executive office. Our principal website is https://investors.vitru.com.br. The information contained in, or accessible through, our website is not incorporated into this annual report or the registration statement of which it forms a part.
C.Material Contracts
See “Item 4. Information on the Company—A. History and Development of the Company—Our History” “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resource— Indebtedness—Debentures” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Registration Rights Agreement.”
Except as otherwise disclosed in this annual report on Form 20-F (including the Exhibits), we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.
D.Exchange Controls
The Cayman Islands currently has no exchange control restrictions.
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E.Taxation
The following summary contains a description of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the common shares, is not applicable to all categories of investors, some of which may be subject to special rules, and does not address all of the Cayman Islands and U.S. federal income tax considerations applicable to any particular holder. The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and on the United States and regulations thereunder as of the date hereof, which are subject to change.
Prospective purchasers of our common shares should consult their own tax advisors about the particular Cayman Islands and U.S. federal, state, local and other tax consequences to them of the acquisition, ownership and disposition of our common shares.
Cayman Islands Tax Considerations
The Cayman Islands laws currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of common shares. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
As a Cayman Islands exempted company with limited liability, we have received an undertaking as to tax concessions pursuant to Section 6 of the Tax Concessions Act (As Revised). This undertaking provides that, for a period of 20 years from the date of issue of the undertaking (March 9, 2020), no law thereafter enacted in the Cayman Islands imposing any taxes to be levied on profits, income, gains or appreciation will apply to us or our operations.
Payments of dividends and capital in respect of our common shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our common shares, nor will gains derived from the disposal of our common shares be subject to Cayman Islands income or corporation tax.
There is no income tax treaty or convention currently in effect between the United States and the Cayman Islands.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of our common shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities.
This summary applies only to U.S. Holders (as defined below) that hold our common shares as capital assets for tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Code known as the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as:
| ● | certain financial institutions; |
| ● | insurance companies; |
| ● | real estate investment trusts or regulated investment companies; |
| ● | dealers or traders in securities that use a mark-to-market method of tax accounting; |
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| ● | persons holding common shares as part of a straddle, wash sale, conversion transaction or other integrated transaction or persons entering into a constructive sale with respect to the common shares; |
| ● | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| ● | tax-exempt entities, including an “individual retirement account” or “Roth IRA;” |
| ● | persons that own or are deemed to own ten percent or more of our common shares, by vote or value; |
| ● | persons holding our common shares in connection with a trade or business conducted outside of the United States; or |
| ● | partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds our common shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our common shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of the common shares.
This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change or differing interpretations, possibly with retroactive effect.
A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of our common shares and is:
| ● | an individual that is a citizen or resident of the United States; |
| ● | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
| ● | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of our common shares in their particular circumstances.
This discussion assumes that we are not, and will not become, a PFIC.
Taxation of Distributions
As discussed under “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy”, we do not currently intend to pay dividends. In the event that we do pay dividends, and subject to the discussion below under “—Passive Foreign Investment Company Rules,” distributions paid on our common shares, other than certain pro rata distributions of common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable to long-term capital gains so long as our common shares are listed and trade on Nasdaq or are readily tradable on another established securities market in the United States. U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular circumstances.
The amount of the dividend will generally be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend.
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Sale or Other Disposition of Common Shares
Subject to the discussion below under “—Passive Foreign Investment Company Rules,” for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of our common shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to various limitations.
Passive Foreign Investment Company Rules
A non-U.S. corporation will be a PFIC for any taxable year in which either (i) 75% or more of its gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of its assets consist of assets that produce, or are held for the production of, “passive income.” For this purpose, subject to certain exceptions, passive income includes interest, dividends, rents, and gains from transactions in commodities. A non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock.
Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, we believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2023. However, because PFIC status depends on the composition of a company’s income and assets and the market value of its assets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any year during which a U.S. Holder holds our common shares, we generally would continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds the common shares, even if we ceased to meet the threshold requirements for PFIC status.
If we were a PFIC for any taxable year during which a U.S. Holder held our common shares (assuming such U.S. Holder has not made a timely election described below), gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of the common shares would be allocated ratably over the U.S. Holder’s holding period for the common shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the tax on such amount. Further, to the extent that any distribution received by a U.S. Holder on its common shares exceeds 125% of the average of the annual distributions on such common shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain. If we are a PFIC in any year, certain elections may be available that would result in alternative tax consequences (such as mark-to-market treatment) of owning and disposing the common shares. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances.
In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
If a U.S. Holder owns common shares during any year in which we are a PFIC, the holder generally must file an annual report containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to us, generally with the holder’s federal income tax return for that year.
U.S. Holders should consult their tax advisers concerning our potential PFIC status and the potential application of the PFIC rules.
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Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisers regarding the application of the U.S. information reporting and backup withholding rules.
Information with Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals (and, under recent Treasury regulations, certain entities) may be required to report information on their U.S. federal income tax returns relating to an interest in our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisers regarding the effect, if any, of this requirement on their ownership and disposition of the common shares.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
I.Subsidiary Information
Not applicable.
J.Annual Report to Security Holders
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes. Information relating to quantitative and qualitative disclosures about these market risks is described below.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates primarily to our short-term investments and accounts payable from acquisition of subsidiaries, subject in each case to variable interest rates, principally the Brazilian interbank deposit CDI rate and IPCA inflation rate.
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Sensitivity Analysis
The following table demonstrates our sensitivity to a reasonably possible change in interest rates on short-term investments and accounts payable from acquisition of subsidiaries. With all variables held constant, our profit before income taxes was affected by the impact on floating interest rate as follows as of December 31, 2023:
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|
|
|
|
December 31, |
|
Index - % per |
|
Probable |
|
|
|
Possible |
|
Remote |
|
|
2023 |
|
Year |
|
Scenario |
|
Risk |
|
Scenario 25% |
|
Scenario 75% |
|
|
(in R$ millions, except as otherwise indicated) |
||||||||||
Short-term investments |
|
220,301.0 |
|
100% CDI – 13.04% |
|
28,727.3 |
|
|
|
21,545.4 |
|
7,181.8 |
Trade receivables |
|
12,375.0 |
|
IPCA – 4.62% |
|
571.7 |
|
|
|
714.7 |
|
1,000.5 |
Lease liabilities |
|
327,834.0 |
|
IGP-M – 3.17% |
|
10,392.3 |
|
|
|
12,990.4 |
|
18,186.6 |
In the tables above, the probable scenario reflects the closing rates of the fixed interest yield and inflation indices at year-end. The possible scenario projects a variation of 25% in CDI and IPCA rates and the remote scenario projects a variation of 75% in these rates, including both increases and decreases in each case, which are considered to be the largest hypothetical losses resulting from this risk factor.
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from our exposure to third parties, including cash and cash equivalents and short-term investments, as well as from its operating activities, primarily related to trade receivables from customers.
Customer credit risk is managed by us based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 10 to our audited consolidated financial statements included elsewhere in this annual report, for additional information on our trade receivables.
Credit risk from balances with banks and financial institutions is managed by our treasury department in accordance with our policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.
Our maximum exposure to credit risk for the components of the statement of financial position as of December 31, 2023, 2022 and 2021 is the carrying amounts of our financial assets.
Liquidity Risk
Our management has responsibility for monitoring liquidity risk. In order to achieve our objective, management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.
The main requirements for financial resources used by us arise from the need to make payments for suppliers, operating expenses, labor and social obligations and accounts payable from acquisition of subsidiaries.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
157
Foreign Exchange Risk
Foreign exchange risk results from a possible change in foreign exchange rates that would affect the finance results (income and/or costs and expenses). Our exposure to foreign exchange risks relates to a portion of our cash and cash equivalents. Our income before income taxes is affected by changes in exchange rates as the latter may result in increases or decreases in our cash and cash equivalents.
The following table demonstrates our sensitivity to a reasonably possible change in exchange rates on cash and cash equivalents.
|
|
|
|
|
|
|
|
Depreciation of exchange rate |
||||
|
|
Balance as of |
|
|
|
|
|
|
|
Possible Scenario |
|
Remote Scenario |
|
|
December 31, |
|
|
|
Current |
|
Probable |
|
- Exchange Rate |
|
- Exchange Rate |
|
|
2023 |
|
Currency |
|
Exchange Rate |
|
Scenario(1) |
|
Variation 25% |
|
Variation 75% |
|
|
(in R$ millions, except as otherwise indicated) |
||||||||||
Cash and cash equivalents |
|
8.3 |
|
U.S.$ |
|
4.841 |
|
— |
|
(2.1) |
|
(6.2) |
(1) |
Value at risk, or VaR, is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given confidence level), given normal market conditions, in a set time period such as a day. The probable scenario provides a 99% confidence level over a period of one day. |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.Debt Securities
Not applicable.
B.Warrants and Rights
Not applicable.
C.Other Securities
Not applicable.
D.American Depositary Shares
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
A.Defaults
No matters to report.
B.Arrearages and Delinquencies
No matters to report.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A.Material Modifications to Instruments
Not applicable.
158
B.Material Modifications to Rights
Not applicable.
C.Withdrawal or Substitution of Assets
Not applicable.
D.Change in Trustees or Paying Agents
Not applicable.
E.Use of Proceeds
On September 17, 2020, the registration statement on Form F-1 (File No 333-248272) relating to our initial public offering of our common shares was declared effective by the SEC. On September 17, 2020, we commenced our initial public offering. On September 22, 2020 we closed our initial public offering, pursuant to which we issued and sold 6,000,000 common shares. Goldman Sachs & Co. LLC, BofA Securities, Inc., Itau BBA USA Securities, Inc., Morgan Stanley & Co. LLC, Bradesco Securities, Inc., BTG Pactual US Capital, LLC, Credit Suisse Securities (USA) LLC, Santander Investment Securities Inc., and XP Securities, LLC, acted as the representatives of the underwriters in our initial public offering. The 6,000,000 registered common shares were sold to the public at a price of U.S.$16.00 per common share, for an aggregate price of U.S.$96,000,000. We incurred approximately U.S.$4.2 million in expenses related to our initial public offering and paid approximately U.S.$5.3 million in underwriting discounts and commissions. The proceeds of our initial public offering are primarily intended to fund inorganic growth opportunities, and we applied these proceeds to the UniCesumar Business Combination.
ITEM 15. CONTROLS AND PROCEDURES
A.Disclosure Controls and Procedures
We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2023. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of December 31, 2023, due to the material weakness mentioned in “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed,” to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
B.Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
159
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making its assessment of internal control over financial reporting, management used the criteria described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management concluded that, as of December 31, 2023, our internal control over financial reporting was not effective due to our insufficient accounting resources and processes necessary to fully comply with the reporting and compliance requirements of IFRS accounting standards and the SEC, which resulted in a material weakness as further discussed under “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry—A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.” A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis.
This material weakness did not result in a misstatement to our consolidated financial statements included herein. However, the material weakness described above could have resulted in a misstatement of one or more account balances or disclosures that could result in a material misstatement to the annual or interim condensed consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute a material weakness.
In order to address this material weakness, we will adopt remediation plans, which we expect will contribute to improving our processes and internal controls environment.
Despite the fact that we are focused on implementing robust internal controls over financial reporting, we cannot assure you that our efforts will be effective or prevent any future material weakness or significant deficiency in our internal control over financial reporting.
C.Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for emerging growth companies.
D.Changes In Internal Control over Financial Reporting
We have implemented certain additional internal controls over financial reporting during the period covered by this annual report including, the enhancement and implementation of certain information technology controls as well as implementation of information technology policies, improvements in our financial statements processes for maintaining a formal process for reviewing and approving accounting entries, as well as recording them in internal policies, in addition to improving the process for disclosing complex stock-based compensation plan transactions. These changes occurred during the year ended December 31, 2023, and we believe they have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
160
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The audit committee, which consists of Aline Leite San Lee Sun, Claudia Jordão Ribeiro Pagnano and Rivadávia Correa Drummond de Alvarenga Neto, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. The audit committee consists of members who are financially literate, and Aline Leite San Lee Sun is considered an “audit committee financial expert” as defined by the SEC.
ITEM 16B. CODE OF ETHICS
We have adopted a code of conduct that applies to all of our employees, officers and directors and posted the full text of our code of conduct on the governance section of our website, https://investors.vitru.com.br. We intend to disclose future amendments to our code of conduct, or future waivers of such code on our website or in public filings. The information on our website is not incorporated by reference into this annual report, and you should not consider information contained on our website to be a part of this annual report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent registered public accounting firm during the years ended December 31, 2023 and 2022. Our independent registered public accounting firm was PricewaterhouseCoopers Auditores Independentes Ltda. for the years ended December 31, 2023 and 2022.
|
|
2023 |
|
2022 |
|
|
(in R$ millions) |
||
Audit fees(1) |
|
2.1 |
|
1.8 |
All other fees(2) |
|
0.8 |
|
2.1 |
Total |
|
2.9 |
|
3.9 |
| (1) | “Audit fees” are fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual consolidated financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. It includes the audit of our financial statements, interim reviews and other services that generally only the independent accountant reasonably can provide, such as comfort letters, statutory audits, consents and assistance with and review of documents filed with the SEC. |
| (2) | “All other fees” are fees billed for products and services provided by the principal accountant, other than the services reported in “Audit fees”, such as due diligence in connection with mergers and acquisitions. |
Our audit committee charter provides that the audit committee shall previously approve the audit services and non-audit services (including fees and terms) to be provided by the Company’s independent auditor, in accordance with the pre-approval policies and procedures established by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Under the listed company audit committee rules of Nasdaq and the SEC, we must comply with Exchange Act Rule 10A-3, which requires that we establish an audit committee composed of members of the Board of Directors that meets specified requirements. The composition of our audit committee complies with the requirements of Nasdaq rules.
161
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table reflects purchases of our common shares, by us or our affiliated purchasers in 2023.
Calendar Months |
|
Total Number of Common Shares Purchased(1) |
|
Average Price Paid per Common Shares in R$(2) |
|
Average Price Paid per Common Shares in US$ |
|
Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs(3)(4) |
|
Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs(3)(4) |
January 2023 |
|
— |
|
— |
|
— |
|
— |
|
— |
February 2023 |
|
— |
|
— |
|
— |
|
— |
|
— |
March 2023 |
|
— |
|
— |
|
— |
|
— |
|
— |
April 2023 |
|
— |
|
— |
|
— |
|
— |
|
— |
May 2023 |
|
10,815 |
|
R$ 77.21 |
|
U.S.$ 15.95 |
|
10,815 |
|
489,185 |
June 2023 |
|
35,987 |
|
R$ 75.81 |
|
U.S.$ 15.66 |
|
35,987 |
|
453,198 |
July 2023 |
|
10,361 |
|
R$ 76.58 |
|
U.S.$ 15.82 |
|
10,361 |
|
442,837 |
August 2023 |
|
7,272 |
|
R$ 76.92 |
|
U.S.$ 15.89 |
|
7,272 |
|
435,565 |
September 2023 |
|
4,037 |
|
R$ 76.29 |
|
U.S.$ 15.76 |
|
4,037 |
|
431,528 |
October 2023 |
|
18,331 |
|
R$ 69.37 |
|
U.S.$ 14.33 |
|
18,331 |
|
413,197 |
November 2023 |
|
120,266 |
|
R$ 60.27 |
|
U.S.$ 12.45 |
|
120,266 |
|
292,931 |
December 2023 |
|
30,813 |
|
R$ 67.00 |
|
U.S.$ 13.84 |
|
30,813 |
|
262,118 |
Total |
|
237,882 |
|
R$ 72.43 |
|
U.S.$ 14.96 |
|
237,882 |
|
— |
| (1) | In the year ended December 31, 2023, no common shares were purchased other than through a publicly announced plan or program by us. |
| (2) | Common shares were purchased in open market purchases in U.S. dollars. For convenience purposes only, amounts in U.S. dollars have been translated to Brazilian reais using an exchange rate of R$4.841 to U.S.$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
| (3) | On May 11, 2023, we announced that our board of directors had approved a buyback program of our common shares for up to 500,000 common shares until the earlier of the completion of the buybacks and May 15, 2024. The buyback program was terminated in the first quarter of 2024. |
| (4) | The number entered in the “Total” row of the column “Maximum Number (or Approximate Dollar Value) of common shares that May Yet Be Purchased Under the Plans or Programs” refers to the number of shares which may be repurchased in the periods as approved by our board of directors. |
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
PricewaterhouseCoopers Auditores Independentes Ltda. was previously appointed as our independent registered public accounting firm. On April 18, 2024, our board of directors, as recommended by our audit committee, approved the dismissal of PricewaterhouseCoopers Auditores Independentes Ltda. Such dismissal will become effective upon completion by PricewaterhouseCoopers Auditores Independentes Ltda. of its audit of the financial statements of Vitru Limited as of and for the year ended December 31, 2023 and the filing of the related Form 20-F.
PricewaterhouseCoopers Auditores Independentes Ltda.’s report on our financial statements for each of the fiscal years ended on December 31, 2023 and 2022 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2023 and 2022 and the subsequent interim period through the date of dismissal, there have been no disagreements with PricewaterhouseCoopers Auditores Independentes Ltda. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers Auditores Independentes Ltda. would have caused PricewaterhouseCoopers Auditores Independentes Ltda. to make a reference thereto in their audit reports for such fiscal years.
During the fiscal years ended December 31, 2023 and 2022 and the subsequent interim period through the date of dismissal, there were “reportable events” as defined under Item 16F(a)(1)(v) of Form 20-F as follows:
162
In connection with the audits of our consolidated financial statements, we identified a material weakness in our internal control over financial reporting. The material weakness identified relates to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS accounting standards and the SEC. Specifically, a material weakness was identified that relates to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS accounting standards and the SEC. For more information on this material weakness, see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry― A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.”
We have provided PricewaterhouseCoopers Auditores Independentes Ltda. with a copy of the foregoing disclosure and have requested that PricewaterhouseCoopers Auditores Independentes Ltda. furnish us with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of this letter is filed as “Exhibit 16.1 — Letter from PricewaterhouseCoopers Auditores Independentes Ltda. to the SEC, dated April 30, 2024 regarding the change in independent registered public accounting firm” to this annual report.
As of the date of this annual report, we have not yet appointed a new independent public accounting firm for the audit of our financial statements for the year ending December 31, 2024.
ITEM 16G. CORPORATE GOVERNANCE
Foreign Private Issuer Status
Nasdaq listing rules include certain accommodations in the corporate governance requirements that allow foreign private issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of Nasdaq. The application of such exceptions requires that we disclose each noncompliance with Nasdaq listing rules that we do not follow and describe the Cayman Islands corporate governance practices we do follow in lieu of the relevant Nasdaq corporate governance standard. As a foreign private issuer, we currently rely, and will continue to rely, on the foreign private issuer exemption with respect to the following rules:
| ● | Nasdaq Rule 5605(b), which requires that independent directors comprise a majority of a company’s board of directors. As allowed by the laws of the Cayman Islands, independent directors do not comprise a majority of our board of directors. |
| ● | Nasdaq Rule 5605(e)(1), which requires that a company have a nominations committee comprised solely of “independent directors” as defined by Nasdaq. As allowed by the laws of the Cayman Islands, we do not have a nominations committee nor do we have any current intention to establish one. |
| ● | Nasdaq Rule 5605(d) & (e), which require that compensation for our executive officers and selection of our director nominees be determined by a majority of independent directors. As allowed by the laws of the Cayman Islands, we do not have a nomination and corporate governance committee or compensation committee nor do we have any current intention to establish either. |
| ● | Nasdaq Rule 5635, which requires that a listed issuer obtain shareholder approval prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. Pursuant to the laws of the Cayman Islands and our Articles of Association, we are not required to obtain any such approval. |
Principal Differences between Cayman Islands and U.S. Corporate Law
The Companies Act was modeled originally after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Act applicable to Vitru and the laws applicable to companies incorporated in the United States and their shareholders.
163
Mergers and Similar Arrangements
The Companies Act permits mergers or consolidations between two Cayman Islands companies, or between a Cayman Islands company and a company incorporated in another jurisdiction (provided that is facilitated by the laws of that other jurisdiction).
Where the merger or consolidation is between two Cayman Islands companies, the directors of each company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution (usually a majority of 66 2/3 % in value) of the shareholders of each company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. No shareholder resolution is required for a merger between a parent company (i.e., a company that owns at least 90% of the issued shares of each class in a subsidiary company) and its subsidiary company. The consent of each holder of a fixed or floating security interest of a constituent company must be obtained, unless the court waives such requirement. If the Cayman Islands Registrar of Companies is satisfied that the requirements of the Companies Act (which includes certain other formalities) have been complied with, the Cayman Islands Registrar of Companies will register the plan of merger or consolidation. Where the merger or consolidation involves a foreign company, the procedure is similar, save that with respect to the foreign company, the director of the Cayman Islands company is required to make a declaration to the effect that, having made due enquiry, he is of the opinion that the requirements set out below have been met: (i) that the merger or consolidation is permitted or not prohibited by the constitutional documents of the foreign company and by the laws of the jurisdiction in which the foreign company is incorporated, and that those laws and any requirements of those constitutional documents have been or will be complied with; (ii) that no petition or other similar proceeding has been filed and remains outstanding or order made or resolution adopted to wind up or liquidate the company in any foreign jurisdictions, (iii) that no receiver, trustee, administrator or other similar person has been appointed in any jurisdiction and is acting in respect of the foreign company, its affairs or property or any part thereof; (iv) that no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction whereby the rights of creditors of the foreign company are and continue to be suspended or restricted.
Moreover, Cayman Islands law also has separate statutory provisions that facilitate the reconstruction or amalgamation of companies, in certain circumstances, schemes of arrangement will generally be more suited for complex mergers or other transactions involving widely held companies, commonly referred to in the Cayman Islands as a “scheme of arrangement” which may be tantamount to a merger. In the event that a merger was sought pursuant to a scheme of arrangement (the procedure of which are more rigorous and take longer to complete than the procedures typically required to consummate a merger in the United States), the arrangement in question (if a shareholders scheme) is approved by shareholders representing three-fourths in value of each class of shareholders with whom the arrangement is to be made or (if a creditor scheme) a majority in number of each class of creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each class of creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings summoned for that purpose. The convening of the meetings and subsequently the terms of the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
| ● | Vitru is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with; |
| ● | the shareholders have been fairly represented at the meeting in question; |
| ● | the arrangement is such as a businessman would reasonably approve; and |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” |
If a scheme of arrangement or takeover offer (as described below) is approved, any dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
164
Squeeze-out Provisions
When a takeover offer is made and accepted by holders of 90.0% of the shares to whom the offer is made within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith, collusion or inequitable treatment of the shareholders.
Shareholders’ Suits
Maples and Calder (Cayman) LLP, our Cayman Islands counsel is not aware of any reported class action having been brought in a Cayman Islands court. Derivative actions have been brought in the Cayman Islands courts, and the Cayman Islands courts have confirmed the availability for such actions. In most cases, we will be the proper plaintiff in any claim based on a breach of duty owed to us, and a claim against (for example) our officers or directors usually may not be brought by a shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority and be applied by a court in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:
| ● | a company is acting or proposing to act illegally or beyond the scope of its authority; |
| ● | the act complained of, although not beyond the scope of the authority, could be if effected duly authorized by more than the number of votes which have actually been obtained; and |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
A shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Corporate Governance
Cayman Islands law restricts transactions between a company and its directors unless there are provisions in the Articles of Association which provide a mechanism to alleviate possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary duties to the companies which they serve. Under Vitru’s Articles of Association, a director must disclose the nature and extent of his interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, the interested director may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.
Subject to the foregoing and our Articles of Association, our directors may exercise all the powers of Vitru to vote compensation to themselves or any member of their body in the absence of an independent quorum. We currently have no intention to establish a compensation committee.
As a foreign private issuer, we are permitted to follow home country practice in lieu of certain Nasdaq corporate governance rules, subject to certain requirements. We currently rely, and will continue to rely, on the foreign private issuer exemption with respect to the following rules:
| ● | Nasdaq Rule 5605(b), which requires that independent directors comprise a majority of a company’s board of directors. As allowed by the laws of the Cayman Islands, independent directors do not comprise a majority of our board of directors. |
| ● | Nasdaq Rule 5605(e)(1), which requires that a company have a nominations committee comprised solely of “independent directors” as defined by Nasdaq. As allowed by the laws of the Cayman Islands, we do not have a nominations committee nor do we have any current intention to establish one. |
165
| ● | Nasdaq Rule 5605(d) & (e), which require that compensation for our executive officers and selection of our director nominees be determined by a majority of independent directors. As allowed by the laws of the Cayman Islands, we do not have a nomination and corporate governance committee or compensation committee nor do we have any current intention to establish either. |
| ● | Nasdaq Rule 5635, which requires that a listed issuer obtain shareholder approval prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. Pursuant to the laws of the Cayman Islands and our Articles of Association, we are not required to obtain any such approval. |
Borrowing Powers
Vitru’s directors may exercise all the powers of Vitru to borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of Vitru or of any third-party. Such powers may be varied by a special resolution of shareholders (requiring a two-thirds majority vote).
Indemnification of Directors and Executive Officers and Limitation of Liability
The Companies Act does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Vitru’s Articles of Association provide that we shall indemnify and hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any losses suffered as a result of all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning Vitru or our affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Vitru’s directors, officers or persons controlling the Company under the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors and officers owe the following fiduciary duties: (1) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (2) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (3) directors should not properly fetter the exercise of future discretion; (4) duty to exercise powers fairly as between different sections of shareholders; (5) duty to exercise independent judgment; and (6) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. However, this obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board of directors. With respect to the duty of directors to avoid conflicts of interest, Vitru’s Articles of Association vary from the applicable provisions of Cayman Islands law mentioned above by providing that a director must disclose the nature and extent of his or her interest in any transaction or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
166
A director of a Cayman Islands company also owes to the company duties to exercise independent judgment in carrying out his functions and to exercise reasonable skill, care and diligence, which has both objective and subjective elements. Recent Cayman Islands case law confirmed that directors must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge, skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge, skill and experience which he or she actually possesses.
A general notice may be given to the board of directors to the effect that (1) the director is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (2) he or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice shall specify the nature of the interest in question. Following the disclosure being made pursuant to Vitru’s Articles of Association and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
In comparison, under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s Articles of Association. Vitru’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
167
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, Vitru’s Articles of Association do not provide for cumulative voting. As a result, the shareholders of Vitru are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Transaction with Interested Shareholders
The Delaware General Corporation Law provides that; unless the corporation has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that this person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, Vitru cannot avail itself of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that the board of directors owe duties to ensure that these transactions are entered into bona fide in the best interests of the company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. If the dissolution is initiated by the board of directors, it may be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution that it be wound up because it is unable to pay its debts as they fall due. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Companies Act, Vitru may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote). Vitru’s Articles of Association also give its board of directors authority to petition the Cayman Islands Court to wind up Vitru.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. Under Vitru’s Articles of Association, if the share capital is divided into more than one class of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.
168
Also, except with respect to share capital (as described above), alterations to Vitru’s Articles of Association may only be made by special resolution of shareholders (requiring a two-thirds majority vote).
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under Cayman Islands law, Vitru’s Articles of Association generally (and save for certain amendments to share capital described in this section) may only be amended by special resolution of shareholders (requiring a two-thirds majority vote).
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by Vitru’s Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on Vitru’s shares. In addition, there are no provisions in the Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
We have adopted an insider trading policy that governs the trading in our securities by our directors, officers and certain other covered persons, and which is reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of the insider trading policy is included as an exhibit to this annual report. Since its effective date, we have not waived compliance with our statement of trading policies.
ITEM 16K. CYBERSECURITY
Cybersecurity risk management is an integral part of our risk management process. To prevent and detect cyber attacks on our systems and databases, we rely on risk management through internal controls in our technical environment operating on the following fronts:
| ● | controls for the treatment of malware contamination risks (next-generation firewalls and antivirus/Endpoint Detection and Response (EDR) with artificial intelligence); |
| ● | controls for risks of theft and privilege escalation (with controls for monitoring physical, logical, and remote access); |
| ● | controls for risks related to exposure to vulnerabilities in general (such as daily monitoring of vulnerabilities via SOC (Security Operations Center), which provides reports on patch updates that communicate any exposure to new risks, application of penetration tests (pentests), detections related to social engineering, such as phishing tests, and others); |
| ● | cybersecurity controls monitored 24/7 by the SOC (Security Operations Center) with intelligence against attacks, threat hunting, and analysis and response of incidents in a managed manner; |
| ● | controls for data loss risks (backups with immutability performed for all critical systems, in addition to the existence of a policy that guides the procedures related to this operation); and |
169
| ● | controls for risks related to changes in the technological environment related to the management of changes (environmental changes are controlled based on an internal policy which provides that the process and proposed changes are only implemented after evaluation and approval of an internal change committee). |
The operation of these controls and processes occurs based on initiatives from the information technology team, especially its leadership and the four Business Process Owners, linked to the Vitru Business Process Owners, Community, a group of employees responsible for executing all internal controls installed in the Company. In conducting its activities, the information technology department also relies on partnerships with companies with certified professionals who provide specialized services in various information technology matters.
We also have operating committees, such as the information security management committee, composed of a multidisciplinary group of employees from various areas of knowledge of information technology. Its purpose is to address matters related to Information Security and Business Continuity, in compliance with internal requirements and policies, as well as with external requirements and policies, based on generally accepted best practices and information technology standards, such as NIST (National Institute of Standards and Technology), a body that develops and promotes measures, standards, and technology. We also have a privacy committee, which has a prevention, guidance, and recommendation role, while also coordinating activities within the Company related to protection, information security and privacy processes.
We also have a wide range of policies and procedures prepared by the information technology department and disclosed to all our employees. We also invest in information security and privacy awareness training for our employees to improve our cybersecurity culture, creating defense lines and involving business areas. We also have a cybersecurity insurance policy; however we cannot assure you that such policy will be sufficient will be sufficient to cover any losses or damages arising from a cybersecurity incident.
Our Board of Directors has overall oversight responsibility for our risk management processes, including managing our cybersecurity risks. Furthermore, our governance bodies, represented by our Audit Committee, Vice Presidents, and other leadership levels, are involved in managing and monitoring information technology risks. The Audit Committee is responsible for ensuring that management has processes designed to identify and evaluate cybersecurity risks to which the Company is exposed and implement processes to manage cybersecurity risks and mitigate cybersecurity incidents. The Audit Committee also reports material cybersecurity risks to our Board of Directors. Management is responsible for identifying, considering, and assessing material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are monitored, implementing appropriate mitigation measures, and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of our Chief Information Officer (CIO), who receives reports from our cybersecurity team and monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents. Our CIO-dedicated personnel are certified and experienced information system security professionals and information security managers with relevant experience. Management, including the CIO and our cybersecurity team, regularly update the Audit Committee on the Company’s cybersecurity programs, material cybersecurity risks, and mitigation strategies, and present the performance of action plans in the monitoring phase to strengthen our technological environment. Such presentations and information cover, among others, third-party assessments of the Company’s cybersecurity programs, developments in cybersecurity, and updates of the Company’s cybersecurity initiatives and processes, and mitigation strategies.
In 2023, we did not identify cybersecurity threats that materially affected or are reasonably likely to materially affect our business strategy, operating results, or financial condition. However, despite our efforts, we cannot eliminate all cybersecurity threat risks or provide assurances that we have not experienced an undetected cybersecurity incident.
For more information, please see "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—We are not insured against all risks to which our business is exposed, and the insurance coverage we have may be inadequate to cover all losses and/or liabilities that we may incur in the course of our operations." and "Item 3. Key Information—D. Risk Factors—Risks Relating to our Business and Industry—Our success depends on our ability to monitor and adapt to technological changes in the education sector and maintain a technological infrastructure that works adequately and without interruption", in this annual report.
170
PART III
ITEM 17. FINANCIAL STATEMENTS
We have responded to Item 18 in lieu of this item.
ITEM 18. FINANCIAL STATEMENTS
See our audited consolidated financial statements filed as part of this annual report, beginning on page F-1.
171
ITEM 19. EXHIBITS
The following documents are filed as part of this annual report:
Exhibit No. |
Exhibit |
|
1.1 |
||
2.1 |
Description of Securities registered under Section 12 of the Exchange Act. |
|
4.1 |
||
4.2 |
||
4.3 |
||
4.4* |
||
4.5 |
||
4.6 |
||
4.7* |
||
4.8 |
||
4.9 |
||
4.11 |
||
8.1 |
||
10.1†* |
||
11.1 |
||
172
11.2 |
||
12.1 |
||
12.2 |
||
13.1 |
||
13.2 |
||
15.1 |
Consent of PricewaterhouseCoopers Auditores Independentes Ltda. |
|
97.1 |
||
99.1 |
||
101.INS |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
* |
Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. |
† |
Certain information has been omitted from this exhibit pursuant to Item 4 of the Instructions As To Exhibits of Form 20-F. |
173
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
VITRU LIMITED |
|
|
|
|
Date:April 30, 2024 |
By: |
/s/ William Victor Kendrick de Matos Silva |
|
|
Name: William Victor Kendrick de Matos Silva |
|
|
Title: Chief Executive Officer |
|
|
|
|
|
|
|
By: |
/s/ Carlos Henrique Boquimpani de Freitas |
|
|
Name: Carlos Henrique Boquimpani de Freitas |
|
|
Title: Chief Financial Officer |
|
|
|
|
|
|
174
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Annual Consolidated Financial Statements |
|
Page |
|
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID 1351) |
|
F-3 |
Consolidated Statements of Financial Position as of December 31, 2023 and 2022 |
|
F-4 |
|
F-6 |
|
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023, 2022 and 2021 |
|
F-7 |
Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 and 2021 |
|
F-8 |
Notes to the Consolidated Financial Statements for the Years Ended December 31, 2023, 2022 and 2021 |
|
F-9 |
F-1
Vitru Limited
Consolidated
financial statements
and independent
auditor’s report
December 31, 2023
F-2
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Shareholders of
Vitru Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Vitru Limited and its subsidiaries (the "Company") as of December 31, 2023, and 2022, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers Auditores Independentes Ltda.
Florianópolis, Brazil,
March 22, 2024
We have served as the Company's auditor since 2016
F-3
Vitru Limited
Consolidated statements of financial position at
(In thousands of Brazilian Reais)
|
|
|
|
|
|
|
|
|
Note |
|
December 31, 2023 |
|
December 31, 2022 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
|
9 |
|
21,302 |
|
47,187 |
Short-term investments |
|
9 |
|
220,301 |
|
26,389 |
Trade receivables |
|
10 |
|
235,560 |
|
224,128 |
Income taxes recoverable |
|
|
|
2,423 |
|
6,994 |
Prepaid expenses |
|
12 |
|
19,710 |
|
20,010 |
Receivable from hub partners |
|
13 |
|
39,351 |
|
31,979 |
Other current assets |
|
|
|
40,459 |
|
14,853 |
TOTAL CURRENT ASSETS |
|
|
|
579,106 |
|
371,540 |
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
Trade receivables |
|
10 |
|
69,127 |
|
47,012 |
Indemnification assets |
|
|
|
28,426 |
|
9,853 |
Deferred tax assets |
|
11 |
|
226,959 |
|
203,043 |
Receivable from hub partners |
|
13 |
|
57,277 |
|
48,117 |
Other non-current assets |
|
|
|
11,100 |
|
6,903 |
Right-of-use assets |
|
14 |
|
349,683 |
|
350,393 |
Property and equipment |
|
15 |
|
205,852 |
|
194,575 |
Intangible assets |
|
16 |
|
4,342,190 |
|
4,427,643 |
TOTAL NON-CURRENT ASSETS |
|
|
|
5,290,614 |
|
5,287,539 |
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
|
5,869,720 |
|
5,659,079 |
The accompanying notes are an integral part of the consolidated financial statements.
F-4
Vitru Limited
Consolidated statements of financial position at
(In thousands of Brazilian Reais)
|
|
Note |
|
December 31, 2023 |
|
December 31, 2022 |
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Trade payables |
|
|
|
112,073 |
|
99,697 |
Loans and financing |
|
17 |
|
151,120 |
|
131,158 |
Lease liabilities |
|
14 |
|
51,621 |
|
51,310 |
Labor and social obligations |
|
18 |
|
90,426 |
|
43,105 |
Taxes payable |
|
|
|
17,370 |
|
16,006 |
Prepayments from customers |
|
|
|
45,331 |
|
43,606 |
Other current liabilities |
|
|
|
24,640 |
|
7,484 |
TOTAL CURRENT LIABILITIES |
|
|
|
492,581 |
|
392,366 |
|
|
|
|
|
|
|
NON-CURRENT |
|
|
|
|
|
|
Loans and financing |
|
17 |
|
2,030,699 |
|
1,489,088 |
Lease liabilities |
|
14 |
|
276,213 |
|
272,029 |
Payables from acquisition of subsidiaries |
|
19 |
|
- |
|
507,361 |
Taxes payable |
|
|
|
6,075 |
|
- |
Provisions for contingencies |
|
20 |
|
41,878 |
|
29,182 |
Deferred tax liabilities |
|
11 |
|
730,896 |
|
773,394 |
Share-based compensation |
|
7 |
|
1,974 |
|
19,805 |
Other non-current liabilities |
|
|
|
4,696 |
|
1,465 |
TOTAL NON-CURRENT LIABILITIES |
|
|
|
3,092,431 |
|
3,092,324 |
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
3,585,012 |
|
3,484,690 |
|
|
|
|
|
|
|
EQUITY |
|
21 |
|
|
|
|
Share capital |
|
|
|
8 |
|
8 |
Capital reserves |
|
|
|
2,056,054 |
|
2,054,527 |
Retained earnings |
|
|
|
228,646 |
|
119,854 |
TOTAL EQUITY |
|
|
|
2,284,708 |
|
2,174,389 |
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
5,869,720 |
|
5,659,079 |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Vitru Limited
Consolidated statements of profit or loss and other comprehensive income for the years ended December 31
(In thousands of Brazilian Reais, except earnings per share)
|
|
|
|
Year Ended |
||||
|
|
|
|
December 31, |
||||
|
|
Note |
|
2023 |
|
2022 |
|
2021 |
NET REVENUE |
|
25 |
|
1,962,525 |
|
1,317,346 |
|
631,147 |
|
|
|
|
|
|
|
|
|
Cost of services rendered |
|
26 |
|
(669,480) |
|
(502,331) |
|
(240,924) |
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
1,293,045 |
|
815,015 |
|
390,223 |
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
26 |
|
(259,086) |
|
(179,335) |
|
(89,344) |
Selling expenses |
|
26 |
|
(360,401) |
|
(244,836) |
|
(111,490) |
Net impairment losses on financial assets |
|
10 |
|
(263,541) |
|
(187,534) |
|
(110,689) |
Other income (expenses), net |
|
27 |
|
(8,453) |
|
(2,320) |
|
65 |
Operating expenses |
|
|
|
(891,481) |
|
(614,025) |
|
(311,458) |
|
|
|
|
|
|
|
|
|
OPERATING PROFIT |
|
|
|
401,564 |
|
200,990 |
|
78,765 |
|
|
|
|
|
|
|
|
|
Financial income |
|
28 |
|
60,970 |
|
64,566 |
|
45,520 |
Financial expenses |
|
28 |
|
(366,545) |
|
(264,437) |
|
(74,879) |
Financial results |
|
|
|
(305,575) |
|
(199,871) |
|
(29,359) |
|
|
|
|
|
|
|
|
|
PROFIT BEFORE TAXES |
|
|
|
95,989 |
|
1,119 |
|
49,406 |
|
|
|
|
|
|
|
|
|
Current income taxes |
|
11 |
|
(53,611) |
|
(18,023) |
|
(11,333) |
Deferred income taxes |
|
11 |
|
66,414 |
|
110,224 |
|
32,575 |
Income taxes |
|
|
|
12,803 |
|
92,201 |
|
21,242 |
|
|
|
|
|
|
|
|
|
NET INCOME FOR THE YEAR |
|
|
|
108,792 |
|
93,320 |
|
70,648 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME |
|
|
|
108,792 |
|
93,320 |
|
70,648 |
|
|
|
|
|
|
|
|
|
Basic earnings per share (R$) |
|
22 |
|
3.23 |
|
3.52 |
|
3.08 |
Diluted earnings per share (R$) |
|
22 |
|
2.97 |
|
3.23 |
|
2.89 |
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Vitru Limited
Consolidated statement of changes in equity
(In thousands of Brazilian Reais)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital reserves |
|
|
|
|
||||
|
|
Share capital |
|
Additional paid-in capital |
|
Share-based compensation |
|
Treasury Shares |
|
Retained earnings |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2020 |
|
6 |
|
1,020,541 |
|
1,515 |
|
- |
|
(44,114) |
|
977,948 |
|
|
|
|
|
|
|
|
|
|
|
|
- |
Profit for the year |
|
- |
|
- |
|
- |
|
- |
|
70,648 |
|
70,648 |
Capital contributions |
|
- |
|
9,722 |
|
- |
|
- |
|
- |
|
9,722 |
Issue of shares to employees |
|
- |
|
529 |
|
(529) |
|
- |
|
- |
|
- |
Value of employee services |
|
- |
|
- |
|
7,810 |
|
- |
|
- |
|
7,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2021 |
|
6 |
|
1,030,792 |
|
8,796 |
|
- |
|
26,534 |
|
1,066,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
- |
|
- |
|
- |
|
- |
|
93,320 |
|
93,320 |
Issuance of shares for business combination |
|
2 |
|
560,544 |
|
- |
|
- |
|
- |
|
560,546 |
Employee share program |
|
|
|
|
|
|
|
|
|
|
|
- |
Capital contributions |
|
- |
|
428,375 |
|
- |
|
- |
|
- |
|
428,375 |
Issue of shares to employees |
|
- |
|
21,853 |
|
(21,853) |
|
- |
|
- |
|
- |
Value of employee services |
|
- |
|
- |
|
26,020 |
|
- |
|
- |
|
26,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2022 |
|
8 |
|
2,041,564 |
|
12,963 |
|
- |
|
119,854 |
|
2,174,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
- |
|
- |
|
- |
|
- |
|
108,792 |
|
108,792 |
Treasury Shares |
|
- |
|
- |
|
- |
|
(16,144) |
|
- |
|
(16,144) |
Employee share program |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
Capital contributions |
|
- |
|
10,396 |
|
- |
|
- |
|
- |
|
10,396 |
Issue of shares to employees |
|
- |
|
6,144 |
|
(6,144) |
|
- |
|
- |
|
- |
Value of employee services |
|
- |
|
- |
|
7,275 |
|
- |
|
- |
|
7,275 |
DECEMBER 31, 2023 |
|
8 |
|
2,058,104 |
|
14,094 |
|
(16,144) |
|
228,646 |
|
2,284,708 |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Vitru Limited
Consolidated statement of cash flows for the year ended December 31,
(In thousands of Brazilian Reais)
|
|
|
|
Year Ended December 31, |
||||
|
|
Note |
|
2023 |
|
2022 |
|
2021 |
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Profit before taxes |
|
|
|
95,989 |
|
1,119 |
|
49,406 |
Adjustments to reconcile income before taxes to cash provided on operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
14 / 15 / 16 |
|
212,658 |
|
127,343 |
|
54,479 |
Net impairment losses on financial assets |
|
10 |
|
263,541 |
|
187,533 |
|
110,689 |
Provision for revenue cancellation |
|
10 |
|
5,638 |
|
2,321 |
|
1,055 |
Provision for contingencies |
|
20 |
|
1,561 |
|
(1,294) |
|
4,905 |
Accrued interests |
|
|
|
339,587 |
|
232,889 |
|
23,275 |
Share-based compensation |
|
23 |
|
(9,389) |
|
(6,458) |
|
14,728 |
Rent concessions |
|
|
|
- |
|
- |
|
(210) |
Loss on sale or disposal of non-current assets |
|
15 / 16 |
|
9,436 |
|
11,365 |
|
9 |
Modification of lease contracts |
|
14 |
|
610 |
|
1,691 |
|
(169) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade receivables |
|
|
|
(302,726) |
|
(235,541) |
|
(117,096) |
Prepayments |
|
|
|
300 |
|
26,246 |
|
(782) |
Other assets |
|
|
|
(43,823) |
|
(25,869) |
|
5,569 |
Trade payables |
|
|
|
12,376 |
|
53,612 |
|
9,466 |
Labor and social obligations |
|
|
|
47,321 |
|
(19,732) |
|
(1,770) |
Other taxes payable |
|
|
|
7,439 |
|
4,814 |
|
849 |
Prepayments from customers |
|
|
|
1,725 |
|
15,529 |
|
664 |
Other payables |
|
|
|
20,387 |
|
465 |
|
411 |
Cash from operations |
|
|
|
662,630 |
|
376,033 |
|
155,478 |
|
|
|
|
|
|
|
|
|
Income tax paid |
|
|
|
(49,040) |
|
(17,270) |
|
(18,486) |
Interest paid |
|
14 / 17 / 19 |
|
(371,894) |
|
(236,393) |
|
(64,104) |
Contingencies paid |
|
|
|
(12,231) |
|
(906) |
|
(7,853) |
Net cash provided by operating activities |
|
|
|
229,465 |
|
121,464 |
|
65,035 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
15 |
|
(51,300) |
|
(40,316) |
|
(25,995) |
Purchase and capitalization of intangible assets |
|
16 |
|
(71,285) |
|
(56,722) |
|
(32,320) |
Payments for the acquisition of interests in subsidiaries, net of cash |
|
19 |
|
(487,326) |
|
(2,291,688) |
|
(127,804) |
Acquisition of short-term investments, net |
|
|
|
(193,912) |
|
226,653 |
|
286,141 |
Net cash provided (used) by investing activities |
|
|
|
(803,823) |
|
(2,162,073) |
|
100,022 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payments of lease liabilities |
|
14 |
|
(20,738) |
|
(18,374) |
|
(11,170) |
Payments of loans and financing |
|
|
|
(100,869) |
|
(296,262) |
|
(150,000) |
Proceeds from loans and financing , net of transaction costs |
|
|
|
675,828 |
|
1,905,851 |
|
- |
Costs related to future issuances |
|
12 |
|
- |
|
(7,381) |
|
(23,952) |
Shares repurchase |
|
|
|
(16,144) |
|
- |
|
- |
Capital contributions net of treasury shares |
|
|
|
10,396 |
|
428,375 |
|
9,722 |
Net cash provided (used) by financing activities |
|
|
|
548,473 |
|
2,012,209 |
|
(175,400) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
|
(25,885) |
|
(28,400) |
|
(10,343) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
|
|
47,187 |
|
75,587 |
|
85,930 |
Cash and cash equivalents at the end of the year |
|
|
|
21,302 |
|
47,187 |
|
75,587 |
|
|
|
|
(25,885) |
|
(28,400) |
|
(10,343) |
See Note 29 for the main transactions in investing and financing activities not affecting cash.
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
1. Corporate information
Vitru Limited (“Vitru”) and its subsidiaries (collectively, the “Company”) 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 Payments exchange (NASDAQ) under the ticker symbol “VTRU”. Vitru became the parent company of Vitru Brasil Empreendimentos, Participações e Comércio S.A. (hereafter referred to as “Vitru Brazil”) formerly denominated Treviso Empreendimentos, Participações e Comércio S.A., through the completion of 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”, Raffaello Investments LLC”, and the Carlyle Group, through the investment funds “Mundi Holdings I LLC”, “Mundi Holdings Ii LLC” and “Crescera Growth Capital V Coinvestimento III Fundo de Investimento em Participações Multiestratégia” (Note 1.4).
The Company is principally engaged in providing educational services in Brazil, mainly undergraduate and continuing education courses, presentially through its eight campuses in two states, or via digital education, through 2,499 (December 31, 2022 – 2,170) learning centers (“hubs”) across the country.
These consolidated financial statements were authorized for issue by the Board of Directors on March 21, 2024.
1.1. Significant changes in the current reporting year
a) Share-based compensation (Note 23)
In the period between February and September 2023, Stock Options Program (SOP) participants exercised 138,986 share options. The impact caused by this operation was a reversal of R$ 12,155 in liabilities and a constitution of reserve in equity of R$ 2,321, which is included in the amount of R$ 5,083 on the Statements of Changes in Equity. The capital contribution from the participants (exercise price) was R$ 10,396.
b) Issuance of debenture (Note 17)
On May 5th, 2023, the Company issued a new series of debentures through its subsidiary Vitru Brazil, in the amount of R$ 190,000 comprising 190,000 bonds maturing between May 2025 and May 2028.
On November 16th, 2023, the Company issued a new series of debentures through its subsidiary Vitru Brazil, in the amount of R$ 500,000 comprising 500,000 bonds maturing between November 2028 and November 2030.
2. Material accounting policies
The main accounting policies applied in the preparation of these consolidated financial statements of the Company are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. The financial statements are for the group consisting of Vitru and its subsidiaries.
2.1. Basis of preparation
The consolidated financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”) and disclose all (and only) the applicable significant information related to the financial statements, which is consistent with the information utilized by Management in the performance of its duties.
F-9
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The financial statements have been prepared under the historical cost convention, except for share-based compensation, which are adjusted to reflect fair value measurement.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires Management to exercise its judgment in the process of applying the Company’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actual results may differ from estimates.
All amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.
2.2. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company for the years ended December 31, 2023, 2022 and 2021.
The table below list the Company’s subsidiaries:
|
|
|
|
|
|
|
|
Direct and indirect interest |
||||
|
|
|
|
|
|
|
|
|||||
Name |
|
Main activities |
|
Location |
|
Investment type |
|
2023 |
|
2022 |
|
2021 |
Vitru Brasil Empreendimentos, Participações e Comércio S.A |
|
Continuing education courses |
|
Florianópolis - SC |
|
Subsidiary |
|
100% |
|
100% |
|
100% |
UNIASSELVI - Sociedade Educacional Leonardo da Vinci S/S Ltda |
|
Distance learning, on-campus undergraduate and continuing education courses |
|
Indaial - SC |
|
Subsidiary |
|
100% |
|
100% |
|
100% |
Sociedade Educacional do Vale do Itapocu S/S Ltda. |
|
On-campus undergraduate and continuing education courses |
|
Guaramirim - SC |
|
Subsidiary |
|
100% |
|
100% |
|
100% |
FAIR Educacional Ltda. |
|
On-campus undergraduate and continuing education courses |
|
Rondonópolis - MT |
|
Subsidiary |
|
100% |
|
100% |
|
100% |
FAC Educacional Ltda. |
|
On-campus undergraduate and continuing education courses |
|
Cuiabá - MS |
|
Subsidiary |
|
100% |
|
100% |
|
100% |
CESUMAR-Centro de Ensino Superior de Maringá Ltda. |
|
Distance learning, on-campus undergraduate and continuing education courses |
|
Maringá – PR |
|
Subsidiary |
|
100% |
|
100% |
|
- |
Rede Enem Serviços de Internet Ltda |
|
Preparatory courses |
|
Florianópolis - SC |
|
Subsidiary |
|
100% |
|
100% |
|
- |
The Company consolidates the financial information for all entities it controls. Control is achieved when the Company is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
F-10
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
a) Subsidiaries
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and it ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognized the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of profit or loss.
b) Joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Company has only joint operations.
Joint operations
The Company recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate headings. Details of the joint operation are set out in Note 2.5.m.
2.3. Functional and presentation currency
The items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Brazilian Reais (R$), which is the Company’s functional currency and the Company’s presentation currency.
Transactions and balances
Foreign currency transactions are initially recorded by each entity in the Company at their respective functional currency spot rates at the date the transaction is recognized. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the functional currency spot rates at the end of each reporting period are recognized in the income statement. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transaction. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.
F-11
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
2.4. Current versus non-current classification
The Company presents assets and liabilities in the statement of financial position based on current/non- current classification.
An asset is current when it is:
| ● | Expected to be realized or intended to be sold or consumed in the normal operating cycle; |
| ● | Held primarily for the purpose of trading; |
| ● | Expected to be realized within twelve months after the reporting period; or |
| ● | Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. |
All other assets are classified as non-current.
A liability is current when:
| ● | It is expected to be settled in the normal operating cycle; |
| ● | It is held primarily for the purpose of trading; |
| ● | It is due to be settled within twelve months after the reporting period; or |
| ● | There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. |
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
2.5. Summary of material accounting policies
a) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) in the principal market for the asset or liability; or (ii) in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
F-12
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
| ● | Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. |
| ● | Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. |
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re- assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
At each reporting date, the Company analyzes the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Company’s accounting policies. For this analysis, the Company verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.
The Company also compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
b) Financial instruments—initial recognition and measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
Initial recognition and measurement
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
F-13
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income (“OCI”), it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified as: financial assets at amortized cost or financial assets at fair value through profit or loss.
Financial assets at amortized cost
The Company measures financial assets at amortized cost if both of the following conditions are met:
| ● | The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and |
| ● | The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
The Company’s financial assets at amortized cost mainly includes ‘Cash and cash equivalents’, ‘Short-term investments’ and ‘Trade receivables’.
The Company reclassifies financial assets only when its business approach for managing those assets changes.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit and loss (“FVPL”) include held for trading financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair value. At the balance sheet date there are no financial assets measured at FVPL.
Financial assets are classified as fair value through profit and loss if they either fail the contractual cash flow test or in the Company’s business model are acquired for the purpose of selling or repurchasing in the near term. Financial assets may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
F-14
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Financial assets at FVPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of income. The net gain or loss recognized in the statement of income includes any dividend or interest earned on the financial asset. At the balance sheet date there are no financial assets measured at FVPL.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company’s statement of financial position) when:
| ● | The rights to receive cash flows from the asset have expired; or |
| ● | The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. |
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
| ● | Significant accounting estimates and assumptions — Note 3. |
| ● | Trade receivables — Note 10. |
The Company recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and the cash flows the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
F-15
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes an allowance for credit losses based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Company considers a financial asset in default when contractual payments are 365 days past due. In certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
ii. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss or amortized cost, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of amortized cost, net of directly attributable transaction costs.
The Company’s financial liabilities include trade payables, loans and financing lease liabilities, Payables from acquisition of subsidiaries and share-based compensation.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.
Financial liabilities are considered as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes financial instruments entered by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9 — Financial Instruments.
Gains or losses on liabilities at fair value through PL are recognized in the statement of profit or loss.
Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 — Financial Instruments are satisfied. The Company has designated its financial liability related to share-based compensation as at FVPL.
F-16
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Amortized cost
After initial recognition, interest-bearing financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the statement of profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as financial expenses in the statement of profit or loss.
The Company’s financial liabilities at amortized cost include trade payables, loans and financing, lease liabilities, prepayments from costumers and payables from acquisition of subsidiaries.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
c) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short-term financial investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash, bank deposits and short-term highly liquid financial investments, as they are readily convertible to known amounts of cash, subject to an insignificant risk of changes in value and considered an integral part of the Company’s cash management.
d) Prepaid expenses
Prepaid expenses are recognized as an asset in the statement of financial position. These expenditures include prepaid software licenses, insurance premiums and prepaid vacations to employees.
e) Indemnification assets
When the selling shareholders of acquired entities have contractually agreed to indemnify the Company for amounts that may become payable in respect of lawsuits pertaining to the period under their responsibility, indemnification assets are recorded to the proportion of the respective provision. Subsequent changes in the amount recognized for the indemnification asset may occur in relation to the provision for contingencies, according to changes in the range of outcomes or the assumptions used to develop the estimate of the liability at the time of the acquisition.
F-17
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
f) Leases
The group leases offices, buildings and equipment. Rental contracts are typically made for fixed periods of 1 to 20 years but may have extension options.
Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
To determine the incremental borrowing rate, the Company:
| ● | where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received. |
| ● | uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk when the individual lessee does not have recent third-party financing; and |
| ● | makes adjustments specific to the lease, e.g. term, country, currency and security. |
The group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
F-18
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Right-of-use assets
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of use assets are subject to impairment.
g) Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes acquisition, formation or construction cost. Historical cost also includes financial expenses related to the acquisition of qualifying assets.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to the Company and they can be measured reliably. The carrying amount of the replaced items or parts is derecognized. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to reduce their cost to their residual value over their estimated useful lives, as follows:
|
|
Annual average rate |
|
Buildings |
|
4 |
% |
IT equipment |
|
20 |
% |
Furniture, fittings and facilities |
|
10 |
% |
Leasehold improvements |
|
4% - 10 |
% |
Library |
|
10 |
% |
F-19
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
An asset’s carrying amount is immediately written down to the recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the amounts of sales with the carrying amounts and are recognized within “Other income (expenses)” in the statement of profit or loss.
The Company annually reviews the useful lives and residual value of its assets. Based on review completed for December 31, 2023, the Company concluded that the depreciation rates used are consistent with its operations and that there are no changes to residual value of assets.
h) Intangible assets
Computer programs (software) and internal project development
Computer software licenses are capitalized and amortized under the straight-line method over their useful lives.
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognized as intangible assets when the following criteria are met:
| ● | It is technically feasible to complete the software/project so that it will be available for use or sale; |
| ● | Management intends to complete the software/project and to use it or sell it; |
| ● | The software/project may be sold or used; |
| ● | Future benefits associated with the software can be demonstrated; |
| ● | Adequate technical, financial and other resources are available to complete the design, and for the use or sale of the software/project; and |
| ● | The expenses attributable to the software/project during its development can be measured reliably. |
Directly attributable costs that are capitalized as part of the software/project product include the software/project development employee costs and an appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period.
Computer software and project development costs recognized as assets are amortized using the straight-line method over their estimated useful lives. The average estimated useful lives of the software is 5 years and project development costs are 4 years.
F-20
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Trademarks and licenses
Trademarks and licenses acquired in a business combination are recognized at fair value at the acquisition date. Subsequently, trademarks and licenses with a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives.
Goodwill
Goodwill is measured as the positive difference between the amount paid or payable and the net fair value of the acquiree’s assets and liabilities and other equity instruments that are acquired/ exchanged. In the case of a bargain purchase, the excess of the net fair value of acquiree’s assets and liabilities over the purchase price is recognized in the statement of profit or loss at the acquisition date.
Goodwill is tested annually or more frequently if events or changes in circumstances indicate a potential impairment and carried at cost less accumulated impairment losses, which are not reversed. Gains and losses on disposal of an entity include the carrying amount of the goodwill on the entity disposed of.
Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship, estimated at 4 years (See note 4).
Operation licenses for digital education
Digital education licenses correspond to the right to operate digital education in a given municipality, with authorization from the Ministry of Education, and in order to obtain such rights, an institution must meet a number of requirements, where the academic and physical infrastructure is assessed. Accordingly, this has been identified and allocated to the Company’s business combination and was assessed as having an indefinite useful life, since as from the time such a license is granted the likelihood of losing it is virtually nil.
Operation licenses for digital education are tested annually or more frequently if events or changes in circumstances indicate a potential impairment and carried at cost less accumulated impairment losses, which are not reversed (See note 4).
Teaching/learning materials — TLM
TLMs acquired in a business combination are recognized at fair value at the acquisition date. The TLMs have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the use of the TLM at classes, estimated at 5 years (See note 4).
F-21
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Non-compete agreements
Non-compete agreements acquired in a business combination are recognized at fair value at the acquisition date. The non-compete agreements have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the non-compete agreement, estimated at 5 years (See note 4)
| i) | Business combinations |
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
| ● | fair values of the assets transferred; |
| ● | liabilities incurred to the former owners of the acquired business; |
| ● | equity interests issued by the Company; |
| ● | fair value of any asset or liability resulting from a contingent consideration arrangement; and |
| ● | fair value of any pre-existing equity interest in the subsidiary. |
| ● | Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. |
Acquisition-related costs are expensed as incurred.
The excess of the
| ● | consideration transferred or to be transferred; |
| ● | amount of any non-controlling interest in the acquired entity; and |
| ● | acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase |
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration, when applicable, is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss.
F-22
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
j) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination and licenses with indefinite useful lives in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.
Impairment losses of continuing operations are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss.
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
F-23
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
k) Provision for contingencies
Provisions for losses related to legal and administrative proceedings involving labor, tax and civil matters are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the liability, and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the liability, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the time elapsed is recognized as interest expense.
l) Share-based payments
The Company offers its managers and executives employee share schemes for the granting of share options issued by the Company, which can be settled either by delivering equity instruments (equity- settled transactions) or by payments in cash (cash-settled transactions).
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by the fair value at the date options are granted by using an appropriate valuation model. Cost is recognized as an employee benefits expense, with a corresponding increase in equity (other capital reserves) The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of options, but the likelihood of the conditions being met is assessed as part of the Company’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an option, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an option and lead to an immediate expensing of an option unless there are also service and/or performance conditions.
No expense is recognized for options that do not ultimately vest because non-market performance and/or service conditions have not been met. Where options include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The relevant services period may commence prior to the grant date. In this situation, the Company estimates the grant date fair value of the equity instruments for the purposes of recognizing the services received during the period between service commencement date and grant date. Once the grant date has been established, the entity revises the earlier estimate so that the amounts recognized for services received is ultimately based on the grant date fair value of the equity instruments.
F-24
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Any proceeds received as a result of an exercise price, net of any directly attributable transaction costs, are credited directly to equity, as a capital increase for the issuance of new shares of the Company or a deduction of treasury shares when available.
Cash-settled transactions
A liability is recognized for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized as an employee benefits expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is determined using an appropriate valuation model. The approach used to account for vesting conditions when measuring equity-settled transactions also applies to cash-settled transactions.
At the balance sheet date, the Company revises its estimates of liability fair value (for the cash-settled transactions) and of the number of options whose rights are to be vested based on the established non- market vesting and service conditions (for both equity and cash-settled transactions). The impact of revising initial estimates, if any, is recognized in the statement of profit or loss prospectively. The significant judgments, estimates and assumptions regarding share-based payments are described further in Note 2. Refer to Note 20 for detailed information relating to these share schemes.
m) Revenue from contracts with customers
The Company’s revenue consists primarily of tuition fees charged for digital education undergraduate courses, on-campus undergraduate courses and continuing education courses. The Company also generates revenue from student fees and certain education-related activities.
Revenue from tuitions is recognized over time when services are rendered to the customer and the Company satisfies its performance obligation under the contract at an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services. Revenues from tuitions are recognized net of scholarships from government programs (Note 2.5.s), cancelations (Note 9) and other discounts, refunds and taxes
Other revenues consists mainly of operational activities performed under the demand of the customers, such as the revenue on application of additional exams (substitute exams or vacation courses), transfer of localization, services of issuance of certificates and fines on contractual cancellation, and are recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for the service. Other revenues are presented net of the corresponding discounts, returns and taxes.
Trade receivables
Trade receivables represent the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in Financial instruments—initial recognition and subsequent measurement.
F-25
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Prepayments from customers
Prepayments from customers (a contract liability) are the obligation to transfer services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer, as a result of pre-paid tuition received from students and is recognized separately in current liabilities, when the payment is received. Prepayments from customers are recognized as revenue when the Company performs all obligations related to the contract, generally in the following month.
Joint operations with hub partners
A hub is a local operating unit that can be owned by the Company or third parties (hub partners) and has the responsibility for offering to students the necessary structure in terms of audiovisual resources, library and information technology, to support the digital education courses.
The contractual agreement between the Company and each hub partner is a joint operation and establishes the rights of each hub partner on the related revenues and obligations for the related expenses. In this sense, the revenue from digital education and related accounts receivable are recognized only to the portion of the Company’s right to the jointly revenue. As a result, when the Company receives the student’s monthly tuition fee in whole, an obligation to the hub partner is accrued under trade payables.
n) Financial results
Financial income is recognized based on the time elapsed, using the effective interest rate method. When a loss is identified in relation to trade receivables, the carrying amount is reduced to its recoverable amount, which corresponds to the estimated future cash flows, discounted at the original effective interest rate of the instrument. Subsequently, as time elapses, interest rates are incorporated into trade receivables, matched against financial income. This financial income is calculated by the same effective interest rate used to calculate the recoverable amount, i.e., the original rate of trade receivables.
Financial expenses include interest expenses on financial liabilities, such as interests accrued on loans and financing, payables from acquisition of subsidiaries and lease liabilities.
Financial results also includes gains and losses associated with transactions denominated in foreign currencies.
o) Earnings per share
Basic earnings per share is calculated by dividing:
| ● | the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares |
| ● | by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. |
F-26
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
| ● | the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and |
| ● | the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. |
p) Taxes
Cayman Islands laws currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to the Company or to any holder of ordinary shares. Therefore, taxes are comprised of taxation over operations in Brazil, as follows:
Tax incentives
The higher education companies maintained by the Company are part of the University for All Program — ProUni, which establishes, through Law 11,096, dated January 13, 2005, exemption from certain federal taxes for post-secondary education institutions that provide in exchange full and partial scholarships to a certain number of low-income students enrolled in traditional undergraduate and technological undergraduate programs. The following federal taxes are included in the exemption:
| ● | Income taxes: Corporate Income Tax (“IRPJ”) and Social Contribution on Net Income (“CSLL”) |
| ● | Contributions on revenue: Social Integration Program tax (Programa de Integração Social or “PIS”) and the Social Contribution on Revenues tax (Contribuição para o Financiamento da Seguridade Social, or “COFINS”) |
Current income taxes
Income taxes in Brazil are comprised of IRPJ and CSLL. According to Brazilian tax law, income taxes and social contribution are assessed and paid by each legal entity and not on a consolidated basis. Income tax of each entity is calculated based on income, adjusted to taxable income by the additions and exclusions provided for in legislation.
Current income taxes were calculated based on the criteria established by the Normative Instruction of the Brazilian Internal Revenue Service, specifically regarding the PROUNI program, which allows exemption of these taxes from traditional and technological graduation activities.
The ProUni program benefit for income taxes is based on a fixed percentage of approved scholarships granted by the federal government to students upon each student's request and is deducted from tuition gross revenue 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 Company recognizes the economic benefits from the ProUni scholarships as tax deductions, as applicable.
F-27
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income taxes
Deferred income tax and social contribution are recognized, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either accounting nor taxable profit or loss.
Deferred tax assets are recognized only to the extent it is probable that future taxable profit will be available against which the temporary differences and/or tax losses can be utilized. In accordance with the Brazilian tax legislation, loss carryforwards can be used to offset up to 30% of taxable profit for the year and do not expire.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are presented net in the statement of financial position when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes, generally when related to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not on a net basis.
Sales and other taxes
Revenues, expenses and assets are recognized net of sales tax, except:
| ● | When the sales taxes incurred on the purchase of goods or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable. |
| ● | When the amounts receivable or payable are stated with the amount of sales taxes included. |
The net amount of sales taxes, recoverable or payable to the tax authority, is included as part of receivables or payables in the statement of financial position, and net of corresponding revenue or cost / expense, in the statement of profit or loss.
F-28
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Sales revenues in Brazil are subject to taxes and contributions, at the following statutory rates:
PIS and COFINS are contributions levied by the Brazilian Federal government on gross revenues. These amounts are invoiced to and collected from the Company’s customers and recognized as deductions to gross revenue against tax liabilities, as we are acting as tax withholding agents on behalf of the tax authorities. PIS and COFINS paid on certain purchases may be claimed back as tax credits to offset PIS and COFINS payable. These amounts are recognized as Recoverable taxes and are offset on a monthly basis against Taxes payable and presented net, as the amounts are due to the same tax authority. PIS and COFINS are contributions calculated on two different regimes according to Brazilian tax legislation: cumulative method and non-cumulative method.
The regulation of PROUNI defines that the revenue from traditional and technological under-graduation courses are exempt from PIS and COFINS. For income from other teaching activities, PIS and COFINS are charged based on the cumulative method at rates of 0.65% and 3.00%, respectively, and for non-teaching activities, PIS and COFINS are charged based on the non-cumulative method at rate of 1.65% and 7.6%, respectively.
ISS is a tax levied by municipalities on revenues from the provision of services. ISS tax is added to amounts invoiced to the Company’s customers for the services the Company renders. These are recognized as deductions to gross revenue against tax liabilities, as the Company acts as agent collecting these taxes on behalf of municipal governments. The rates may vary from 2.00% to 5.00%.
INSS is a social security charge levied on wages paid to employees
2.6. Changes in accounting policies and disclosures
New standards, interpretations and amendments adopted by the Group.
F-29
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
New standards and interpretations not yet adopted.
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions
3. Significant accounting estimates and assumptions
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are recognized prospectively.
Other disclosures relating to the Company’s exposure to risks and uncertainties includes:
| ● | Capital management — Note 8 |
| ● | Financial instruments risk management and policies — Note 6.4 |
| ● | Sensitivity analyses disclosures — Note 6.4.1 |
Estimates and assumptions:
The key assumptions about the future and other key sources of estimated uncertainty as of the reporting date that include a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances that arise and that are beyond the Company’s control. Such changes are reflected in the assumptions where they occur.
F-30
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
a) Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) or group of CGUs exceeds its recoverable amount, defined as the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on data available from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a discounted cash flow model (“DCF” model). The cash flows are derived from the budget for the next five years and do not include restructuring activities to which the Company has not yet committed or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as to expected future cash- inflows and the growth rate used for extrapolation purposes.
These estimates are most relevant to goodwill and indefinite lived intangible assets recognized by the Company. The key assumptions used to determine the recoverable amount for each CGU, including a sensitivity analysis, are disclosed and further explained in Note 14.
b) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs into these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required to estimate fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. See Note 6 for further disclosures.
c) Credit losses on trade receivables
The Company recognizes an allowance for expected credit losses (ECLs) for trade receivables applying a simplified approach in calculating ECLs. As a result, the Company does not track changes in credit risk, but rather recognizes an allowance for doubtful accounts based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Company considers a trade receivable to be in default when contractual payments are 365 days past due. In certain cases, however, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A trade receivable is written off when there is no reasonable expectation of recovering the contractual cash flows. The information about the allowance for expected credit losses is disclosed in Note 8.
d) Provision for contingencies
The Company is party to proceedings at judicial and administrative levels, as disclosed in Note 20. The provision for legal proceedings is set up for all proceedings assessed as probable losses. The likelihood of loss is assessed based on available evidence, the hierarchy of laws, case law, most recent court decisions and their relevance within the legal system, and the assessment made by the outside legal counsel. Provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations, additional exposures identified based on new matters or court decisions.
F-31
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
e) Lease term of contracts with renewal options
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Company has the option, under some of its leases to lease the assets for additional terms. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
f) Incremental lease rate
The Company is unable to determine the implicit discount rate to be applied to its lease agreements. Therefore, the incremental rate on the lessee’s loan is used to calculate the present value of the lease liabilities at the initial registration of the lease.
The lessee’s incremental loan rate is the interest rate that the lessee would have to pay when borrowing funds for the acquisition of an asset similar to the asset object of the lease, for a similar term and with a similar guarantee, the funds required to obtain the asset with a value similar to the right of use asset in a similar economic environment.
Obtaining this rate involves a high degree of judgment and should be a function of the lessee’s credit risk, the term of the lease, the nature and quality of the collateral offered and the economic environment in which the transaction takes place. The rate calculation process preferably uses readily observable information from which to make the necessary adjustments to arrive at its incremental lending rate.
The IFRS 16 allows the incremental rate to be determined for a grouping of contracts, since this choice is associated with the validation that the grouped contracts have similar characteristics.
The Company has adopted the aforementioned practical method of determining groupings for its scope lease agreements as it understands that the effects of their application do not materially differ from the application to individual leases. The size and composition of the portfolios were defined according to the following assumptions: (a) assets of a similar nature and (b) remaining maturities with respect to the similar initial application date.
g) Share-based compensation
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms and conditions of the grant and the information available at the grant date and at each reporting period, for the liability portion on cash-settled transactions.
The Company uses certain methodologies to estimate fair value which include the following:
| ● | estimation of fair value based on equity transactions with third parties close to the grant date; |
| ● | other valuation techniques including option pricing models such as Black-Scholes. |
These estimates also require determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share option, expected volatility of the price of the Company’s shares and expected dividend yield.
F-32
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
| 4. | Business Combinations |
4.1.Business Combination with Unicesumar
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. 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 conditions precedent, including appreciation by a regulatory agency antitrust 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.
The acquisitions were 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 price 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.
F-33
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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 reducing the purchase consideration by 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 |
Lease contracts (vii) |
|
57,278 |
Licenses to operate medical courses (viii) |
|
55,454 |
Deferred taxes |
|
(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. |
F-34
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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. |
F-35
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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) | Lease 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.
| 4.2. | 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 Brazil”. Rede Enem is a platform that provides free content through an ecosystem that includes blogs, free preparatory courses, and social media profiles.
F-36
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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 |
5. 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, and 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:
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 years ended December 31, 2022 and 2021. There were no adjustments or eliminations in the profit or loss between segments.
F-37
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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 allocated in Brazil.
a) Measures of performance
|
|
Digital |
|
|
|
|
|
|
|
|
education |
|
Continuing |
|
On-campus |
|
|
|
|
undergraduate |
|
education |
|
undergraduate |
|
|
Year Ended December 31, |
|
courses |
|
courses |
|
courses |
|
Total allocated |
2023 |
|
|
|
|
|
|
|
|
Net revenue |
|
1,414,508 |
|
101,830 |
|
446,187 |
|
1,962,525 |
Adjusted EBITDA |
|
576,524 |
|
53,769 |
|
212,938 |
|
843,231 |
% Adjusted EBITDA margin |
|
40.76% |
|
52.80% |
|
47.72% |
|
42.97% |
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
Net revenue |
|
998,220 |
|
68,058 |
|
251,068 |
|
1,317,346 |
Adjusted EBITDA |
|
387,373 |
|
38,085 |
|
99,447 |
|
524,905 |
% Adjusted EBITDA margin |
|
38.81% |
|
55.95% |
|
39.61% |
|
39.84% |
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
Net revenue |
|
531,716 |
|
52,460 |
|
46,971 |
|
631,147 |
Adjusted EBITDA |
|
188,936 |
|
26,898 |
|
22,103 |
|
237,937 |
% Adjusted EBITDA margin |
|
35.53% |
|
51.27% |
|
47.06% |
|
37.70% |
The total of the reportable segments net revenues represents the Company’s net revenue. A reconciliation of the Company’s loss before taxes to the allocated Adjusted EBITDA is shown below:
|
|
Year Ended |
||||
|
|
December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Income/(expenses) before taxes |
|
95,989 |
|
1,119 |
|
49,406 |
(+) Financial result |
|
305,575 |
|
199,871 |
|
29,359 |
(+) Depreciation and amortization |
|
212,658 |
|
150,951 |
|
54,479 |
(+) Interest on tuition fees paid in arrears |
|
24,079 |
|
26,545 |
|
17,456 |
(+) Share-based compensation plan |
|
(9,389) |
|
(6,010) |
|
14,728 |
(+) Other income (expenses), net |
|
8,453 |
|
2,320 |
|
(65) |
(+) Restructuring expenses |
|
26,846 |
|
24,948 |
|
10,098 |
(+) M&A and Offering Expenses (i) |
|
54,078 |
|
28,310 |
|
6,975 |
(+) Unallocated Operational expenses |
|
124,942 |
|
96,851 |
|
55,501 |
Adjusted EBITDA allocated to segments |
|
843,231 |
|
524,905 |
|
237,937 |
| (i) | M&A and Offering Expenses for the year ended December 31, 2023 includes unallocated remuneration of R$ 33,879 (R$ 18,231 for the year ended December 31, 2022) regarding Unicesumar business combination. |
F-38
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
b) Other profit and loss disclosure
|
|
Digital |
|
|
|
|
|
|
|
|
|
|
education |
|
Continuing |
|
On-campus |
|
|
|
|
|
|
undergraduate |
|
education |
|
undergraduate |
|
|
|
|
Year Ended December 31, |
|
courses |
|
courses |
|
courses |
|
Unallocated |
|
Total |
2023 |
|
|
|
|
|
|
|
|
|
|
Net impairment losses on financial assets |
|
234,613 |
|
17,580 |
|
11,348 |
|
- |
|
263,541 |
Depreciation and amortization |
|
94,157 |
|
3,893 |
|
92,565 |
|
22,044 |
|
212,658 |
Interest on tuition fees paid in arrears |
|
20,570 |
|
1,205 |
|
2,304 |
|
- |
|
24,079 |
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Net impairment losses on financial assets |
|
155,931 |
|
8,026 |
|
23,577 |
|
- |
|
187,534 |
Depreciation and amortization |
|
87,623 |
|
2,542 |
|
51,019 |
|
9,767 |
|
150,951 |
Interest on tuition fees paid in arrears |
|
18,498 |
|
961 |
|
7,086 |
|
- |
|
26,545 |
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Net impairment losses on financial assets |
|
90,063 |
|
15,666 |
|
4,960 |
|
- |
|
110,689 |
Depreciation and amortization |
|
37,226 |
|
1,563 |
|
8,972 |
|
6,718 |
|
54,479 |
Interest on tuition fees paid in arrears |
|
14,199 |
|
725 |
|
2,532 |
|
- |
|
17,456 |
|
|
|
|
|
|
|
|
|
|
|
6. Financial assets and financial liabilities
6.1. Financial assets
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
At amortized cost |
|
|
|
|
Cash and cash equivalents |
|
21,302 |
|
47,187 |
Short-term investments |
|
220,301 |
|
26,389 |
Trade receivables |
|
304,687 |
|
271,140 |
Total |
|
546,290 |
|
344,716 |
Current |
|
477,163 |
|
297,704 |
Non-current |
|
69,127 |
|
47,012 |
6.2. Financial Liabilities
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
At amortized cost |
|
|
|
|
Trade payables |
|
112,073 |
|
99,697 |
Lease liabilities |
|
327,834 |
|
323,339 |
Accounts payable from acquisition of subsidiaries |
|
- |
|
507,361 |
Loans and financing |
|
2,181,819 |
|
1,620,246 |
At FVPL |
|
|
|
|
Share-based compensation |
|
1,974 |
|
19,805 |
Total |
|
2,623,700 |
|
2,570,448 |
Current |
|
314,814 |
|
282,165 |
Non-current |
|
2,308,886 |
|
2,288,283 |
F-39
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
6.3. Fair Values
The Company assessed that the fair values of cash and cash equivalents, short-term investments, current trade receivables, trade payables and loans and financing approximate their carrying amounts largely due to the short-term maturities of these instruments. Non-current trade receivables, lease liabilities and the payables from acquisition of subsidiaries have their carrying amount discounted by their respective effective interest rate in order to be presented as close as possible to its fair value. Share-based compensation is measured at FVPL.
6.4. Financial instruments risk management objectives and policies
The Company’s principal financial liabilities comprise payables from acquisition of subsidiaries, loans and financing, trade payables, lease liabilities and share-based compensation. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include trade receivables, short-term investments and cash and cash equivalents that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Company monitors market, credit and operational risks in line with the objectives in capital management and counts with the support, monitoring and oversight of the Board of Directors in decisions related to capital management and its alignment with the objectives and risks. The Company’s policy is that no trading of derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.
6.4.1. Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company’s exposure to market risk is related to interest rate risk and exchange rate risk.
The sensitivity analysis in the following sections relate to the position as of December 31, 2023.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s short-term investments, PEP – special installment payment trade receivables (Note 9), loans and financing, lease liabilities and payables from acquisition of subsidiaries, subject in each case to variable interest rates, principally the Brazilian interbank deposit (Certificado de Depósito Interbancário), or CDI rate, the General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M, and the Broad National Consumer Price Index (Índice nacional de Preços ao Consumidor Amplo), or IPCA inflation rate.
F-40
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on short-term investments, trade receivables, loans and financing, lease liabilities and payables from acquisition of subsidiaries. With all variables held constant, the Company’s income before income taxes is affected through the impact on floating interest rate, as follows:
|
|
|
|
|
|
|
|
|
|
Increase / decrease in interest rate |
||
|
|
Balance as of 12/31/2023 |
|
Index - % per year |
|
Probable scenario |
|
Risk |
|
Possible scenario 25% |
|
Remote scenario 75% |
Short-term investments |
|
220,301 |
|
100% CDI - 13.04% |
|
28,727 |
|
Decrease |
|
21,545 |
|
7,182 |
Trade receivables |
|
12,375 |
|
IPCA - 4.62% |
|
572 |
|
Decrease |
|
715 |
|
1,001 |
Lease liabilities |
|
327,834 |
|
IGP-M - 3.17% |
|
10,392 |
|
Increase |
|
12,990 |
|
18,187 |
Probable scenario reflects the closing rates of the fixed interest yield and inflation indexes at year-end. The possible scenario projects a variation of 25 percent in these rates and, the remote scenario, a variation of 75 percent, both rise and fall, being considered the largest losses resulting by risk factor.
Exchange rate risk
Exchange rate risk relates to potentially adverse results that the Company may face from fluctuations in foreign currency exchange rates from economic crisis, sovereign monetary policy alterations, or market movements.
The Company's exposure to the risk of changes in foreign currency exchange rates relates to some of the Company's cash and cash equivalents.
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in exchange rates on cash and cash equivalents. With all variables held constant, the Company's income before income taxes is affected through the impact on floating exchange rate, as follows:
|
|
|
|
|
|
|
|
Depreciation of exchange rate - effect on income |
||||
|
|
Balance as of 12/31/2023 |
|
Currency |
|
Current exchange rate |
|
Scenario (i) VaR 99% I.C. 1 day |
|
Scenario (ii) exchange rate variation 25% |
|
Scenario (iii) exchange rate variation 75% |
Cash and cash equivalents |
|
8,331 |
|
USD |
|
4.8413 |
|
(7) |
|
(2,083) |
|
(6,248) |
| (i) | Probable scenario – Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given Confidence Level – C.L.), given normal market conditions, in a set time period such as a day |
F-41
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
6.4.2. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from the Company’s exposure to third parties, including cash and cash equivalents and short-term investments, as well as from its operating activities, primarily related to trade receivables from customers.
Customer credit risk is managed by the Company based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 10 for additional information on the Company’s trade receivables.
Credit risk from balances with banks and financial institutions is managed by the Company's treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.
The Company’s maximum exposure to credit risk for the components of the statement of financial position in years ended December 31, 2023, and 2022 is the carrying amounts of its financial assets.
6.4.3. Liquidity risk
The Company’s Management has responsibility for monitor liquidity risk. In order to achieve the Company’s objective, Management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.
The main requirements for financial resources used by the Company arise from the need to make payments for suppliers, operating expenses, labor and social obligations and payables from acquisition of subsidiaries.
The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted amounts:
As of December 31, 2023 |
|
Less than 1 year |
|
1 to 3 years |
|
3 to 5 years |
|
More than 5 years |
|
Total |
Trade payables |
|
112,073 |
|
- |
|
- |
|
- |
|
112,073 |
Lease liabilities |
|
51,621 |
|
76,873 |
|
96,115 |
|
261,427 |
|
486,036 |
Share-based compensation |
|
- |
|
- |
|
1,974 |
|
- |
|
1,974 |
Total |
|
163,694 |
|
76,873 |
|
98,089 |
|
261,427 |
|
600,083 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
Less than 1 year |
|
1 to 3 years |
|
3 to 5 years |
|
More than 5 years |
|
Total |
Trade payables |
|
99,697 |
|
- |
|
- |
|
- |
|
99,697 |
Lease liabilities |
|
51,310 |
|
62,567 |
|
40,804 |
|
168,658 |
|
323,339 |
Accounts payable from acquisition of subsidiaries |
|
- |
|
507,361 |
|
- |
|
- |
|
507,361 |
Share-based compensation |
|
19,805 |
|
- |
|
- |
|
30,776 |
|
50,581 |
Total |
|
170,812 |
|
569,928 |
|
40,804 |
|
199,434 |
|
980,978 |
F-42
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
7. Fair value measurement
As of December 31, 2022, the Company have only Share-based compensation liabilities measured at fair value, in the amount of R$ 19,805 (2021 – R$ 52,283), which are classified in Level 3 of fair value measurement hierarchy given significant unobservable inputs used.
There were no transfers between Levels during the year ended on December 31, 2022.
The following table presents the changes in level 3 items for the years ended December 31, 2023, 2022 and 2021 for recurring fair value measurements:
|
|
Share-based compensation |
||||
|
|
2023 |
|
2022 |
|
2021 |
At the beginning of the year |
|
19,805 |
|
52,283 |
|
46,260 |
Adjusted through profit and loss – general and administrative |
|
(17,831) |
|
(32,478) |
|
6,023 |
As of December 31, |
|
1,974 |
|
19,805 |
|
52,283 |
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, payables 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.
The following table summarizes the quantitative information about the significant inputs used in level 3 fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
||||
|
|
As of December 31, |
|
|
||||
Unobservable inputs |
|
2023 |
|
2022 |
|
2021 |
|
Relationship of unobservable inputs to fair value |
Net operating revenue growth rate (i) |
|
20.00% |
|
22.84% |
|
24.80% |
|
2023: Increased growth rate (+200 basis points (bps)) and lower discount rate (-100 bps) would increase FV by R$ 23; lower growth rate (-200 bps) and higher discount rate (+100 bps) would decrease FV by R$ 22. |
Pre-tax discount rate (ii) |
|
11.30% |
|
13.35% |
|
11.20% |
|
2022: Increased growth rate (+200 basis points (bps)) and lower discount rate (-100 bps) would increase FV by R$ 435; lower growth rate (-200 bps) and higher discount rate (+100 bps) would decrease FV by R$ 433. |
| (i) | The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development. |
| (ii) | Pre-tax discount rate reflects specific risks relating to the segment and country in which the Company operates. |
F-43
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
8. Capital management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital, maximizing the return to stockholders.
The Company manages its capital structure and adjusts in light of changes in economic conditions and to maintain and adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
Capital is managed considering the consolidated position.
The Group has the following covenants for the debentures issued:
Net Financial Debt / Adjusted EBITDA less than or equal to:
(a) 4.0x (four times), to be verified based on the Issuer's consolidated and audited financial statements, with the calculation being based on the fiscal year ended on 31 December 2023;
(b) 3.5x (three and a half times), to be verified based on the Issuer's consolidated and revised quarterly financial information, with the calculation being based on the quarter ended June 30, 2024;
Adjusted EBITDA / Net Financial Result greater than or equal to:
(a) 1.5x (one and a half times) to be verified based on the consolidated and revised or audited financial information of the Issuer, as applicable, with the calculation being based on (a) the fiscal year ending on December 31, 2023, and (b) in the quarter ended June 30, 2024;
(b) 2.0x (twice), to be verified based on the Issuer's consolidated and audited financial statements, with the calculation being based on the fiscal year ending on December 31, 2024 and in subsequent years until the maturity of the Debentures
The breach of any of the above covenants will result in the automatic early maturity of the obligations arising from the Debentures, with the consequent consideration, by the Trustee, of the early maturity of all obligations arising from the Debentures and the requirement for payment of what is due, regardless of the call for General Meeting of Debenture Holders or the need to send any form of communication or notification to the Issuer and/or the Guarantors.
For the purposes of this item:
“Financial Debt” means, based on the consolidated and audited or revised financial statements, as applicable, of the Issuer, any amount owed, in Brazil or abroad, as a result of (i) loans, loans, financing or other financial debts, including commercial leasing (except property rental), financial leasing, fixed income securities, debentures, bills of exchange, promissory notes or similar instruments; (ii) acquisitions payable; (iii) net balance of active and passive transactions with derivatives (wherein said balance will be net of what is already classified as current liabilities and non-current liabilities); (iv) letters of credit, guarantees, guarantees, co-obligations and other guarantees provided for the benefit of unconsolidated companies in the respective financial statements; and (v) obligations arising from the redemption of securities representing the share capital and payment of declared and unpaid dividends or profits, if applicable, provided that the Financial Debt will not consider liabilities relating to commercial leases (property rental); “Net Financial Debt” means, based on the consolidated and audited or revised financial statements, as the case may be, of the Issuer, its Financial Debt deducted from the sum of cash, financial investments and marketable securities, free and clear of any Liens.
F-44
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
“Adjusted EBITDA” means, based on the consolidated and audited or revised financial statements, as applicable, of the Issuer for the immediately preceding 12 (twelve) months, the net profit for the period, plus taxes (current and deferred) on profit, net financial expenses, financial income, depreciation, amortization and depletion (including impairment expenses), interest and fines on outstanding monthly fees (“Interest on tuition fees paid in arrears”), expenses with stock option plans (“Share-based compensation plan”), from the Other Expenses and Income line (“Other income (expenses), net”), and from expenses with M&A, share offering and restructuring (“M&A, pre-offering expenses and restructuring expenses ”), all calculated in accordance with the definitions of the most recent form 20-F of Vitru Ltd. And in line with IFRS Accounting Standards, being certain that, in addition, the Adjusted EBITDA must consider expenses with rents paid.
“Net Financial Result” means Financial Income minus (-) Financial Expenses.
“Financial Income” means the sum of interest on financial investments, interest on active loans and loans, active monetary and exchange variations, and income related to hedge/derivatives;
“Financial Expenses” means the sum of interest on financial debts, loans, bonds and securities, discount on the assignment of credit rights, costs of structuring banking or capital market operations, passive monetary and exchange variations, expenses related to hedging/ derivatives, interest or fines for late and/or non-payment of obligations, excluding interest on equity.
In the year ended December 31, 2023 the Group complied with all the required covenants according to the indexes below:
Net Financial Debt / Adjusted EBITDA: 2,93
Adjusted EBITDA / Net Financial Result: 2,18
9. Cash and cash equivalents and short-term investments
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Cash equivalents and bank deposits in foreign currency (i) |
|
8,331 |
|
12,057 |
Cash and cash equivalents (ii) |
|
12,971 |
|
35,130 |
|
|
21,302 |
|
47,187 |
|
|
|
|
|
Short-term investments (iii) |
|
220,301 |
|
26,389 |
| (i) | Short-term deposits maintained in U.S. dollar. |
| (ii) | Cash equivalents are comprised of short-term deposits with an original 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 correspond to financial investments in Investment Funds, with highly rated financial institutions. As of December 31, 2023, the average interest on these Investment Funds is 13.49% p.a., corresponding to 103.45% of CDI (December 31, 2022 – 10.50% p.a. – 84.80% of CDI). Despite the fact that these investments have high liquidity and have insignificant risk of changes in value, they do not qualify as cash equivalents given the nature of the investment portfolio and their maturity. Due to the short-term nature of these investments, their carrying amount is the same as their fair value. |
F-45
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
10. Trade receivables
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Tuition fees |
|
479,939 |
|
410,393 |
FIES and UNIEDU Guaranteed Credits |
|
52,845 |
|
27,710 |
PEP - Special Installment Payment (i) |
|
12,375 |
|
22,365 |
CREDIN - Internal Educational Credit (ii) |
|
39,992 |
|
29,170 |
Provision for revenue cancellation |
|
(12,150) |
|
(6,512) |
Allowance for expected credit losses of trade receivables |
|
(268,314) |
|
(211,986) |
Total trade receivables |
|
304,687 |
|
271,140 |
|
|
|
|
|
Current |
|
235,560 |
|
224,128 |
Non-current |
|
69,127 |
|
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 4.62% and, given the long term of the installments, they have been discounted at an interbank rate of 13.04%. |
| (ii) | Unicesumar has a program similar to PEP, where the students receive a deduction from gross tuition based on services provided during the student’s undergraduate program. The deduction is based on a fixed percentage and, after graduation, the students pay back the deduction on the current value of tuition. |
The aging list of trade receivables is as follows:
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Receivables falling due |
|
194,377 |
|
99,088 |
|
|
|
|
|
Receivables past due |
|
|
|
|
From 1 to 30 days |
|
55,948 |
|
59,718 |
From 31 to 60 days |
|
43,933 |
|
44,827 |
From 61 to 90 days |
|
45,104 |
|
47,174 |
From 91 to 180 days |
|
84,106 |
|
85,358 |
From 181 to 365 days |
|
161,683 |
|
153,473 |
Provision for revenue cancellation |
|
(12,150) |
|
(6,512) |
Allowance for estimated credit losses |
|
(268,314) |
|
(211,986) |
|
|
304,687 |
|
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 |
|
2021 |
At the beginning of the year |
|
(6,512) |
|
(4,191) |
|
(3,136) |
Additions |
|
(33,842) |
|
(15,969) |
|
(13,965) |
Write-off |
|
24,525 |
|
- |
|
10,200 |
Reversals |
|
3,679 |
|
13,648 |
|
2,710 |
As of December 31, |
|
(12,150) |
|
(6,512) |
|
(4,191) |
F-46
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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 |
|
2021 |
At the beginning of the year |
|
(211,986) |
|
(113,934) |
|
(102,128) |
Write-off of uncollectible receivables |
|
207,213 |
|
89,481 |
|
66,287 |
Reversal |
|
37,256 |
|
19,242 |
|
11,416 |
Allowance for expected credit losses |
|
(300,797) |
|
(206,775) |
|
(89,509) |
As of December 31, |
|
(268,314) |
|
(211,986) |
|
(113,934) |
11. Current and deferred income tax
a) Reconciliation of income tax in the statement of profit or loss
Income tax differ 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:
|
|
Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Earnings before taxes |
|
95,989 |
|
1,119 |
|
49,406 |
Statutory combined income tax rate - % |
|
34% |
|
34% |
|
34% |
Income tax at statutory rates |
|
(32,636) |
|
(380) |
|
(16,798) |
|
|
|
|
|
|
|
Income exempt from taxation - ProUni benefit (i) |
|
185,418 |
|
95,871 |
|
20,211 |
Unrecognized deferred tax asset on tax losses (ii) |
|
(123,410) |
|
- |
|
(919) |
Difference on tax rates from offshore companies (iii) |
|
(4,719) |
|
17 |
|
20,809 |
Non-deductible expenses |
|
(12,057) |
|
(7,079) |
|
(2,863) |
Tax losses used to reduce current tax |
|
- |
|
- |
|
30 |
Other |
|
207 |
|
3,772 |
|
772 |
Total income tax and social contribution |
|
12,803 |
|
92,201 |
|
21,242 |
Effective tax rate - % |
|
(13)% |
|
(8,240)% |
|
(43)% |
|
|
|
|
|
|
|
Current income tax expense |
|
(53,611) |
|
(18,023) |
|
(11,333) |
Deferred income tax income |
|
66,414 |
|
110,224 |
|
32,575 |
| (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. |
F-47
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
| (ii) | The Group has companies that have not made a tax profit for some years, so we do not recognize deferred tax assets on the tax losses of these entities. |
| (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 |
||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Tax loss carryforward |
|
93,242 |
|
93,242 |
|
- |
|
78,832 |
Allowance for expected credit losses |
|
90,892 |
|
59,739 |
|
31,153 |
|
12,612 |
Labor provisions |
|
19,036 |
|
2,303 |
|
16,733 |
|
(21,259) |
Lease contracts |
|
3,937 |
|
7,147 |
|
(3,210) |
|
(1,247) |
Provision for revenue cancellation |
|
4,131 |
|
990 |
|
3,141 |
|
(436) |
Provision for contingencies |
|
4,521 |
|
923 |
|
3,598 |
|
(1,201) |
Other provisions |
|
11,200 |
|
38,699 |
|
(27,499) |
|
14,940 |
Total |
|
226,959 |
|
203,043 |
|
23,916 |
|
82,241 |
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
226,959 |
|
203,043 |
|
66,414 |
|
110,224 |
|
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
Profit or loss |
||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Intangible assets on business combinations |
|
(730,896) |
|
(773,394) |
|
42,498 |
|
27,983 |
Total |
|
(730,896) |
|
(773,394) |
|
42,498 |
|
27,983 |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
(730,896) |
|
(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.
12. Prepaid expenses
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Prepayments to hub partners |
|
10,734 |
|
5,109 |
Prepayments to suppliers |
|
4,394 |
|
4,303 |
Software licensing |
|
2,292 |
|
389 |
Prepayments to employees |
|
1,986 |
|
- |
Insurance |
|
304 |
|
208 |
Costs related to future issuances |
|
- |
|
8,514 |
Others |
|
- |
|
1,487 |
Prepaid expenses |
|
19,710 |
|
20,010 |
F-48
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
13. Receivables from hub partners
The receivables from hub partners are amounts of cash transferred to hub partners centers as follows:
|
|
|
|
|
|
|
December 31, 2023 |
|
December 31, 2022 |
Credit to hub partners – distance learning centers |
|
96,628 |
|
80,096 |
Receivables from hub partners |
|
96,628 |
|
80,096 |
|
|
|
|
|
Current |
|
39,351 |
|
31,979 |
Non-current |
|
57,277 |
|
48,117 |
The increase in receivables from hub partners in 2023 is mainly due to the hubs expansion and the marketing funds made available for partners to carry out regional marketing actions during the student recruitment period.
14. 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 year:
|
|
Right-of-use assets |
|
Lease Liabilities |
||||
|
|
2023 |
|
2022 |
|
2021 |
|
2023 |
As of January 1, |
|
350,393 |
|
136,104 |
|
127,921 |
|
323,339 |
|
|
|
|
|
|
|
|
|
New contracts |
|
3,274 |
|
6,901 |
|
13,578 |
|
3,274 |
Re-measurement by index (i) |
|
23,878 |
|
19,214 |
|
11,744 |
|
23,878 |
Lease Modification (ii) |
|
(2,529) |
|
(19,454) |
|
(1,594) |
|
(1,919) |
Business combinations |
|
- |
|
228,258 |
|
- |
|
- |
Depreciation expense |
|
(25,333) |
|
(20,630) |
|
(15,545) |
|
- |
Accrued interest |
|
- |
|
- |
|
- |
|
33,857 |
Payment of principal |
|
- |
|
- |
|
- |
|
(20,738) |
Rent concession (iii) |
|
- |
|
- |
|
- |
|
- |
Payment of interest |
|
- |
|
- |
|
- |
|
(33,857) |
As of December 31, |
|
349,683 |
|
350,393 |
|
136,104 |
|
327,834 |
|
|
|
|
|
|
|
|
|
Current |
|
- |
|
- |
|
- |
|
51,621 |
Non-current |
|
349,683 |
|
350,393 |
|
136,104 |
|
276,213 |
| (i) | Lease liabilities and right-of-use assets were incremented with respect to variable lease payments that depend on an index or a rate, because of annual rental prices contractually adjusted by market inflation rate General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M. |
| (ii) | During the year ended December 31, 2023, the Company partially reduced the scope of one lease contract with a corresponding liability in the amount of R$ 1,919. As a result, a gain of R$ 610 was recognized in other income (expenses), net, in the statement of profit and loss. |
| (iii) | The Company has received Covid-19 related rent concessions and has applied the practical expedient introduced by the amendments made to IFRS 16 in May 2020, applied to all qualifying rent concessions. |
The Company recognized rent expense from short-term leases and low-value assets of R$ 8,492 for the year ended December 31, 2023 (2022 - R$ 5,882), mainly represented by leased equipment.
F-49
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
15. Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT equipment |
|
Furniture, equipment and facilities |
|
Library books |
|
Vehicles |
|
Lands |
|
Construction in progress |
|
Leasehold improvements |
|
TOTAL |
As of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
9,884 |
|
27,573 |
|
4,532 |
|
— |
|
— |
|
28 |
|
54,652 |
|
96,669 |
Cost |
|
24,484 |
|
52,541 |
|
20,994 |
|
— |
|
— |
|
28 |
|
69,462 |
|
167,509 |
Accumulated depreciation |
|
(14,600) |
|
(24,968) |
|
(16,462) |
|
— |
|
— |
|
— |
|
(14,810) |
|
(70,840) |
Purchases |
|
9,166 |
|
8,645 |
|
— |
|
— |
|
— |
|
5,496 |
|
2,688 |
|
25,995 |
Transfers |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(4,344) |
|
4,344 |
|
— |
Disposals |
|
— |
|
(9) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(9) |
Business combinations |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Depreciation |
|
(3,604) |
|
(3,691) |
|
(1,556) |
|
— |
|
— |
|
— |
|
(6,965) |
|
(15,816) |
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
15,446 |
|
32,519 |
|
2,977 |
|
— |
|
— |
|
1,180 |
|
54,719 |
|
106,839 |
Cost |
|
33,650 |
|
61,178 |
|
20,995 |
|
— |
|
— |
|
1,180 |
|
76,494 |
|
193,495 |
Accumulated depreciation |
|
(18,204) |
|
(28,659) |
|
(18,018) |
|
— |
|
— |
|
— |
|
(21,774) |
|
(86,655) |
Purchases |
|
8,701 |
|
6,472 |
|
225 |
|
624 |
|
— |
|
13,144 |
|
11,149 |
|
40,315 |
Transfers |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(5,362) |
|
5,362 |
|
— |
Disposals |
|
— |
|
(827) |
|
— |
|
— |
|
— |
|
— |
|
(10,537) |
|
(11,364) |
Business combinations |
|
20,158 |
|
45,352 |
|
2,471 |
|
1,365 |
|
4,566 |
|
1,686 |
|
2,526 |
|
78,124 |
Depreciation |
|
(11,017) |
|
(3,526) |
|
(1,466) |
|
(829) |
|
— |
|
— |
|
(2,502) |
|
(19,340) |
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 |
|
17,511 |
|
23,998 |
|
645 |
|
— |
|
— |
|
7,659 |
|
1,487 |
|
51,300 |
Transfers |
|
49 |
|
618 |
|
— |
|
— |
|
— |
|
(8,479) |
|
7,812 |
|
— |
Disposals |
|
(1,430) |
|
(3,776) |
|
(1) |
|
(211) |
|
— |
|
— |
|
(50) |
|
(5,468) |
Depreciation |
|
(12,653) |
|
(13,385) |
|
(1,454) |
|
(305) |
|
— |
|
— |
|
(6,758) |
|
(34,555) |
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
36,764 |
|
87,445 |
|
3,398 |
|
644 |
|
4,566 |
|
9,828 |
|
63,207 |
|
205,852 |
Cost |
|
77,215 |
|
150,692 |
|
38,363 |
|
4,376 |
|
4,566 |
|
9,828 |
|
94,681 |
|
379,721 |
Accumulated depreciation |
|
(40,451) |
|
(63,247) |
|
(34,965) |
|
(3,732) |
|
— |
|
— |
|
(31,474) |
|
(173,869) |
There has been no evidence that the carrying amounts of Property and equipment exceed their recoverable amounts.
F-50
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
16. 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, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
24,559 |
|
27,802 |
|
57,543 |
|
245,721 |
|
— |
|
292 |
|
— |
|
218 |
|
304,815 |
|
660,950 |
Cost |
|
62,039 |
|
37,521 |
|
85,163 |
|
245,721 |
|
— |
|
10,826 |
|
100,695 |
|
7,344 |
|
372,268 |
|
921,577 |
Accumulated amortization and impairment |
|
(37,480) |
|
(9,719) |
|
(27,620) |
|
— |
|
— |
|
(10,534) |
|
(100,695) |
|
(7,126) |
|
(67,453) |
|
(260,627) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and capitalization |
|
3,640 |
|
28,680 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
32,320 |
Transfers |
|
985 |
|
(985) |
|
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
Disposals |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
— |
Amortization |
|
(8,440) |
|
(10,610) |
|
(3,558) |
|
— |
|
— |
|
(292) |
|
— |
|
(218) |
|
|
|
(23,118) |
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
20,744 |
|
44,887 |
|
53,985 |
|
245,721 |
|
— |
|
— |
|
— |
|
— |
|
304,815 |
|
670,152 |
Cost |
|
66,664 |
|
65,216 |
|
85,163 |
|
245,721 |
|
— |
|
10,826 |
|
100,695 |
|
7,344 |
|
372,268 |
|
953,897 |
Accumulated amortization and impairment |
|
(45,920) |
|
(20,329) |
|
(31,178) |
|
— |
|
— |
|
(10,826) |
|
(100,695) |
|
(7,344) |
|
(67,453) |
|
(283,745) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and capitalization |
|
18,785 |
|
32,090 |
|
— |
|
5,847 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
56,722 |
Transfers |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Disposals |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Business combination |
|
33,379 |
|
— |
|
341,369 |
|
1,206,641 |
|
55,454 |
|
272,416 |
|
294,525 |
|
26,584 |
|
1,557,774 |
|
3,788,142 |
Amortization |
|
(12,837) |
|
(12,256) |
|
(1,491) |
|
— |
|
— |
|
(22,038) |
|
(33,335) |
|
(5,416) |
|
— |
|
(87,373) |
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 |
|
21,858 |
|
49,427 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
71,285 |
Transfers |
|
20,873 |
|
(20,873) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Disposals |
|
(3,968) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(3,968) |
Amortization |
|
(17,834) |
|
(17,580) |
|
(17,885) |
|
— |
|
— |
|
(36,061) |
|
(54,549) |
|
(8,861) |
|
— |
|
(152,770) |
As of December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
81,000 |
|
75,695 |
|
375,978 |
|
1,458,209 |
|
55,454 |
|
214,317 |
|
206,641 |
|
12,307 |
|
1,862,589 |
|
4,342,190 |
Cost |
|
178,392 |
|
124,449 |
|
437,390 |
|
1,458,209 |
|
55,454 |
|
283,242 |
|
395,220 |
|
33,928 |
|
1,930,042 |
|
4,896,326 |
Accumulated amortization and impairment |
|
(97,392) |
|
(48,754) |
|
(61,412) |
|
— |
|
— |
|
(68,925) |
|
(188,579) |
|
(21,621) |
|
(67,453) |
|
(554,136) |
Impairment tests of intangible assets with indefinite useful life
Goodwill and operation licenses for digital education were allocated to the Cash-generating units (CGUs), which are identified at the level of Company’s operating segments identified in Note 5.
F-51
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The operating segment-level summary of the goodwill and intangible assets allocation and the key assumptions for those CGUs that have significant goodwill allocated to them are presented below:
Segment Level |
|
Distance learning undergraduate courses |
|
Continuing education courses |
|
On-campus undergraduate courses |
||||||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Allocation of carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
1,398,488 |
|
1,398,488 |
|
32,996 |
|
32,996 |
|
431,105 |
|
431,105 |
Operation licenses for distance learning |
|
1,425,894 |
|
1,425,894 |
|
32,315 |
|
32,315 |
|
- |
|
- |
Licenses to operate medical courses |
|
- |
|
- |
|
- |
|
- |
|
55,454 |
|
55,454 |
Intangible assets with indefinite useful life |
|
2,824,382 |
|
2,824,382 |
|
65,311 |
|
65,311 |
|
486,559 |
|
486,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Key assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue growth rate (i) |
|
15.20% |
|
28.80% |
|
34.50% |
|
70.00% |
|
5.70% |
|
-19.90% |
Pre-tax discount rate (ii) |
|
9.37% |
|
10.60% |
|
9.37% |
|
10.60% |
|
9.37% |
|
10.60% |
Long-term growth rate (iii) |
|
3.00% |
|
3.20% |
|
3.00% |
|
3.20% |
|
3.00% |
|
3.20% |
Gross margin (iv) |
|
76.00% |
|
70.80% |
|
76.30% |
|
88.90% |
|
44.90% |
|
35.80% |
| (i) | The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development. |
| (ii) | Pre-tax discount rate reflects specific risks relating to the segment and country in which the Company operates. |
| (iii) | The long-term growth rate does not exceed the long-term average growth rate for the education sector in which the CGU operates and is mostly comprised by expected inflation. |
| (iv) | Budgeted gross margin is the average margin as a percentage of revenue over the five-year forecast period. It is based on the current sales margin levels and is in line with the Company’s operating history and management’s expectations for the future performance. |
Based on the recent changes to legislation and growth of the digital education market in Brazil, Management expects to have strong growth in the digital education undergraduate courses, mainly based on the increase of hubs. In addition to the investments with new hubs, Management also considers investment for improvements to expand their existing units.
For the years ended December 31, 2023 and 2022 the recoverable amount of the cash-generating units (CGUs) was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated long-term growth rates stated above.
There was no goodwill impairment for the year ended December 31, 2023, 2022 and 2021.
Impact of possible changes in key assumptions
A decrease of 120 basis points in management estimated gross margin used in the value-in-use calculation for the digital education undergraduate courses CGU as of December 31, 2023 (74.8% instead of 76.0%), would have not resulted in the recognition of an impairment of goodwill. Also, the Company performed the same sensitivity analysis for the continuing education courses (75.2% instead of 76.3%) and concluded it would have not resulted in the recognition of an impairment of goodwill.
In addition to the test above reducing gross margin, an increasing of 120 basis points in management’s estimated discount rate applied to the cash flow projections for the two CGUs for the year ended December 31, 2023 (12.5% instead of 11.3%), would have not resulted in the recognition of an impairment of goodwill.
F-52
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Management have considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amount of the digital education undergraduate courses and continuing education segments to exceed its recoverable amount.
17. Loans and financing
The Group issued through its subsidiary Vitru Brazil, four series of debentures, the first series containing 500 bonds maturing between November 2023 and May 2024, the second series containing 1,450 bonds maturing between May 2025 and May 2027., the third containing 190,000 bonds maturing between May 2025 and May 2028, and the fourth containing 500,000 bonds maturing between November 2028 and November 2030.
The nominal value for all the issued bonds is R$ 1,000.00.
The covenants from the issued debentures are disclosed and further explained in Note 8.
The debentures are not convertible into shares.
a) Breakdown
|
|
|
|
|
|
December 31, |
|
December 31, |
Type |
|
Interest rate |
|
Maturity |
|
2023 |
|
2022 |
Debentures |
|
From CDI+2.45% until CDI+3.2% p.a |
|
Nov/23 to May/28 |
|
2,181,819 |
|
1,620,246 |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
151,120 |
|
131,158 |
Non-current |
|
|
|
|
|
2,030,699 |
|
1,489,088 |
b) Variation
|
|
Loans and financing |
||
|
|
2023 |
|
2022 |
As of January 1, |
|
1,620,246 |
|
- |
New issuances (i) |
|
675,828 |
|
1,905,851 |
Accrued interest |
|
264,313 |
|
165,881 |
Payment of principal |
|
(100,869) |
|
(296,262) |
Payment of interests |
|
(277,699) |
|
(155,254) |
As of December 31, |
|
2,181,819 |
|
1,620,246 |
The first and second series were issued during the year 2022 and the third and fourth series were issued during 2023. The difference between the face value of the debentures issued and the value presented in the movement are the transaction costs recognized in the amount of R$ 14,172 in 2023 and R$ 44,149 in 2022.
F-53
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
18. Labor and social obligations
|
|
December 31, |
|
December 31, |
|
|
2023 |
|
2022 |
Accrual for bonus |
|
41,031 |
|
9,522 |
Social charges payable (i) |
|
22,085 |
|
15,675 |
Salaries payable |
|
15,455 |
|
10,374 |
Accrued vacation and 13th salary |
|
11,084 |
|
6,883 |
Other |
|
771 |
|
651 |
Total |
|
90,426 |
|
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. |
19. Payables from acquisition of subsidiaries
|
|
2023 |
|
2022 |
At the beginning of the year |
|
507,361 |
|
149,765 |
Proceeds from acquisition of subsidiaries |
|
- |
|
680,015 |
Contractual Amendment - Change of Contractual Condition |
|
- |
|
(73,134) |
Accrued Interest |
|
40,303 |
|
40,069 |
Payment of principal |
|
(487,326) |
|
(236,461) |
Payment of interests |
|
(60,338) |
|
(52,893) |
As of December 31 |
|
- |
|
507,361 |
|
|
|
|
|
Current |
|
- |
|
- |
Non-current |
|
- |
|
507,361 |
On December 5, 2023, the Group settled the acquisition of Unicesumar in advance in order to reduce its debt in the short term.
20. 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, 2020 |
|
2,050 |
|
12,389 |
|
14,439 |
Additions |
|
4,694 |
|
7,964 |
|
12,658 |
Accrued interest |
|
149 |
|
1,039 |
|
1,188 |
Payments |
|
(2,669) |
|
(5,184) |
|
(7,853) |
Reversals |
|
(1,390) |
|
(4,170) |
|
(5,560) |
As of December 31, 2021 |
|
2,834 |
|
12,038 |
|
14,872 |
Additions |
|
2,699 |
|
4,843 |
|
7,542 |
Business combinations |
|
549 |
|
11,961 |
|
12,510 |
Accrued interest |
|
2 |
|
25 |
|
27 |
Payments |
|
(60) |
|
(846) |
|
(906) |
Reversals |
|
(1,485) |
|
(3,378) |
|
(4,863) |
As of December 31, 2022 |
|
4,539 |
|
24,643 |
|
29,182 |
Additions |
|
13,024 |
|
13,103 |
|
26,127 |
Accrued interest |
|
838 |
|
1,443 |
|
2,281 |
Payments |
|
(7,571) |
|
(4,660) |
|
(12,231) |
Reversals |
|
(2,982) |
|
(499) |
|
(3,481) |
As of December 31, 2023 |
|
7,848 |
|
34,030 |
|
41,878 |
F-54
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The Company’s subsidiaries are parties to legal and administrative proceedings. These proceedings generally refer to legal and administrative disputes involving unions, employees, suppliers and students. Provisions are recorded for legal proceedings that represent probable loss. The assessment of the likelihood of loss includes an analysis of available evidence, including the opinion of internal and external legal counsel. Management believes that the provisions are sufficient and properly stated in the financial statements.
b) Indemnification assets
Pursuant to the terms and conditions of the purchase and sale agreement described in note 4, the periods of responsibility for each party in relation to such claims, value limits, notification criteria and reciprocal indemnity were defined. The rights generated by the purchase and sale agreement are as follows:
Assets |
|
Civil |
|
Labor |
|
Total |
As of December 31, 2020 |
|
799 |
|
8,392 |
|
9,191 |
Additions |
|
10 |
|
2,895 |
|
2,905 |
Accrued interest |
|
60 |
|
575 |
|
635 |
Realized |
|
(119) |
|
(3,276) |
|
(3,395) |
Reversals |
|
(155) |
|
(557) |
|
(712) |
As of December 31, 2021 |
|
595 |
|
8,029 |
|
8,624 |
Additions |
|
1,051 |
|
3,541 |
|
4,592 |
Accrued interest |
|
501 |
|
833 |
|
1,334 |
Realized |
|
(433) |
|
(3,645) |
|
(4,078) |
Reversals |
|
(174) |
|
(445) |
|
(619) |
As of December 31, 2022 |
|
1,540 |
|
8,313 |
|
9,853 |
Additions |
|
10,298 |
|
11,517 |
|
21,815 |
Accrued interest |
|
13 |
|
110 |
|
123 |
Realized |
|
(1,845) |
|
(667) |
|
(2,512) |
Reversals |
|
(653) |
|
(200) |
|
(853) |
As of December 31, 2023 |
|
9,353 |
|
19,073 |
|
28,426 |
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 December 31, 2023 and December 31, 2022 as follows:
|
|
|
|
|
Possible losses |
|
December 31, 2023 |
|
December 31, 2022 |
Civil |
|
14,939 |
|
23,210 |
Labor |
|
37,051 |
|
28,284 |
Tax |
|
67,799 |
|
59,916 |
Total |
|
119,789 |
|
111,410 |
Civil proceedings classified as possible loss
As of December 31, 2023, the Company’s subsidiaries were subject to 1,452 (2022 – 1,263) civil claims. Most of the lawsuits are related to consumer claims, including discussions regarding undue collection of tuition fees and rates, delay in the issuance of certificates and diplomas, undue collection of tuition fees for students that have been granted scholarships and public financing and denial of enrollment in courses, among others.
F-55
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Labor proceedings classified as possible loss
As of December 31, 2023, the Company’s subsidiaries were subject to 184 (2022 – 180) labor claims. Most of these claims are related to overtime, salary equalization, vacation payments and/or non-enjoyment of vacation periods, severance payments and termination fees, and indemnities based on Brazilian labor laws.
Tax proceedings classified as possible loss
As of December 31, 2023, the Company’s subsidiaries were subject to 6 (2022 – 5) tax claims. The Company has an outstanding tax administrative proceeding related to Tax Infraction Notice No. 000204.00/2017, issued by the Porto Alegre City Hall Municipal Finance Department, in the total amount of R$ 28,024, corresponding to alleged Service Tax (ISS) debt, plus a 150% fine and late payment interest, for the period from January 2012 to June 2017.
The interpretation of the Porto Alegre City Hall Tax Authorities is that the educational services provided at a distance by the Company, from its headquarters in Indaial/SC, would be subject to ISS taxation in the City of Porto Alegre, where it maintains a digital education center. This interpretation is contested at an administrative level by the Company’s external law firm.
Liability for any payment of such debt shall be in accordance with the liability periods defined in accordance with the terms and conditions of the purchase and sale agreement described in note 18, and Sellers shall be liable for any debts relating to the period prior to the closing date of the acquisition (February 29, 2016).
21. 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
In 2023, the Company recognized the amount of R$ 10,396 and transferred the amount of R$ 6,144 from shared-based compensation reserves due to the issuance of 138,986 new shares regarding the exercise of SOP options.
The Company has issued only common shares, entitled to one vote per share. As of December 31, 2023, the Company’s share capital is represented by 33,826,199 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.
F-56
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
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 is represented by reserve for share-based compensation programs classified as equity-settled, as detailed in Note 23.
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 buybacks and May 15, 2024. During the year period ended December 31, 2023, the Company repurchased 238,521 shares with a cash outflow of R$ 16,144.
d) Dividends
The Company currently intend 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 year ended December 31, 2023, 2022 and 2021, and do not anticipate paying any in the foreseeable future.
22. Earnings per share
22.1. 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 years ended December 31, 2023, 2022 and 2021 (in thousands except per share amounts):
|
|
Year Ended December 31, |
||||
Basic earnings per share |
|
2023 |
|
2022 |
|
2021 |
Net income attributable to the shareholders of the Company |
|
108,792 |
|
93,320 |
|
70,648 |
Weighted average number of outstanding common shares (thousands) |
|
33,734 |
|
26,547 |
|
22,922 |
Basic earnings per common share (R$) |
|
3.23 |
|
3.52 |
|
3.08 |
22.2. Diluted
As of December 31, 2023, the Company had outstanding and unexercised options to purchase 2,868 thousand (2022 – 2,302 thousand and 2021 – 1,514 thousand) common shares which are included in diluted earnings per share calculation.
F-57
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
For years ended December 31, 2023, 2022 and 2021, outstanding options were all anti-dilutive.
|
|
Year Ended December 31, |
||||
Diluted earnings per share |
|
2023 |
|
2022 |
|
2021 |
Net income attributable to the shareholders of the Company |
|
108,792 |
|
93,320 |
|
70,648 |
Weighted average number of outstanding common shares (thousands) |
|
36,602 |
|
28,849 |
|
24,436 |
Diluted earnings per common share (R$) |
|
2.97 |
|
3.23 |
|
2.89 |
F-58
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
23. Share-based compensation
First Share Option Plan
The Company offers to its managers and executives the First Share Option Plan 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 Company'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 Company to retain quality human capital.
The First Share Option Plan was approved on June 8, 2017 and comprises the granting of up to 25,471,110 (after reverse share split 821,649) common share options with no par value, representing up to approximately five percent (5%) of the number of Company-issued common shares on the Plan’s approval date. The Plan is administered and managed by the Company's Board of Directors and the SOP Management Committee.
In the event of any change in the number of common shares issued by the Company resulting from any split, reverse split, amortization, repurchase, cancellation or exchange of shares, the Share Options limit stated in the heading shall be automatically adjusted to reflect any new number of Share Options, regardless of the approval of any amendment to this First Plan.
The First Share Option Plan initially issued by Vitru Brazil and then transferred to the Company upon the corporate reorganization. The transfer did not result in any changes on the Plan nor its balances in the consolidated financial statements.
Each share option grants its holder the right to purchase one (1) Company share, strictly under the terms and conditions set forth in that plan. Options are not entitled to dividends on the underlying shares.
In order to satisfy the exercise of share options granted under the plan, the Company may, at the discretion of the Board of Directors issue new shares within the Company’s authorized capital limit or may even sell treasury shares.
The share options granted to a participant are subject to a vesting period so that they are exercisable, subject to the applicable rules set forth in each grant program, in accordance with the schedule (as from each schedule date a given lot of share options shall be exercisable, a "Vesting Date"), where each year, twenty percent (20%) of the share options granted may be exercised.
When exercised, the vested options are settled in shares issued by Company which can be sold by the employee along with controlling shareholders on exit events or hold by the employee until the end of the plan in exchange for cash consideration by selling shares back to the Company. This represents a compound instrument, thus the expense is recognized with an increase in liability, to the limit of its fair value, derived from a formula based on the Company’s performance and remeasured at each reporting date, and any residual difference between the fair value of the compound instrument and the liability as of each reporting date will be attributed to the equity component of the instrument.
F-59
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
Participants 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.
Upon an exit event, which may be either a transfer of control of the Company or secondary public offerings of Company-issued shares on the Brazilian or international publicly traded market, all options may become fully vested and may be fully or partially exercised by the participants.
Participants also 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.
a) Set out below are summaries of the number and weighted average exercise prices ("WAEP") of options granted under the plan:
|
|
2023 |
|
2022 |
||||
|
|
Number of options |
|
WAEP per option |
|
Number of options |
|
WAEP per option |
As of January 1 |
|
88,474 |
|
259.62 |
|
474,892 |
|
50.60 |
Exercised during the year |
|
(61,864) |
|
269.47 |
|
- |
|
- |
Forfeited during the year |
|
- |
|
|
|
(386,418) |
|
63.86 |
At the end of the year |
|
26,610 |
|
74.93 |
|
88,474 |
|
259.62 |
Exercisable at the end of the year |
|
- |
|
- |
|
77,296 |
|
258.82 |
No options from the First Share Option plan expired during the years ended December 31, 2023 and December 31, 2022.
b) Share options outstanding at the end of the year have the following remaining periods and prices:
|
|
December 31, 2023 |
|
December 31, 2022 |
Weighted average remaining vesting period |
|
3 months |
|
1.2 years |
Weighted average remaining expiring period |
|
1.2 years |
|
2.3 years |
Purchase option exercise price range |
|
R$56.11 |
|
R$56.11 - R$ 71.62 |
Weighted average remaining selling period |
|
3.2 years |
|
4.3 years |
Weighted average selling price |
|
R$ 189.07 |
|
R$ 548.49 |
c) Options granted:
No new options from the First Stock Option Plan were granted during the years ended December 31, 2023 and 2022.
F-60
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
d)The expense recognized for employee services received during the year is as follows:
|
|
Year Ended December 31, |
||||
|
|
|
|
|
|
|
Expense arising from share-based payment transactions |
|
2023 |
|
2022 |
|
2021 |
Cash-settled - first plan |
|
(17,831) |
|
(32,478) |
|
6,023 |
Equity-settled - first plan |
|
2,321 |
|
20,623 |
|
529 |
Equity-settled - second plan |
|
6,121 |
|
5,845 |
|
- |
Total |
|
(9,389) |
|
(6,010) |
|
6,552 |
F-61
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The fair value of cash-settled transactions were 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 (Note 6).
Second Share Option Plan
The Company offers to its managers and executives the Second Share Option Plan 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 Company'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 Company to retain quality human capital.
The Second Share Option Plan was approved on November 19, 2020 and comprises the granting of common share options with no par value, representing up to approximately five percent (5%) of the number of Company-issued common shares on the Plan’s approval date. The Plan is administered and managed by the Company's Board of Directors.
In order to maintain the economic rights of the Participants, if the number of shares that make up the Company's capital is increased or decreased, including due to the split or reverse share split, the Board of Directors must make the appropriate adjustments to the number of shares to be issued according to the Options that were exercised and those that have not been exercised, except if the change in the number of shares that make up the Company's capital is due to the issuance of new shares due to capital increases or capital reduction and/or repurchase of shares, when no adjustments will be made to the number of shares to be issued in accordance with the Options. No fraction of Shares will be issued under the Plan or due to any of the adjustments provided for in this Section.
Each share option grants its holder the right to purchase one (1) Company share, strictly under the terms and conditions set forth in that plan. Options are not entitled to dividends on the underlying shares.
The share options granted to a participant are subject to a vesting period so that they are exercisable, subject to the applicable rules set forth in each grant program, in accordance with the schedule (as from each schedule date a given lot of share options shall be exercisable, a "Vesting Date"), where each year, a proportion of the share options granted may be exercised.
Participants 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.
In the event of a Material Transaction, Relevant Corporate Reorganization or Dissolution occurs and the Participant is Terminated as from such event, the Vesting Period of the Option held by the Terminated Participant will be fully anticipated, so that the Participant must exercise the Options within 60 (sixty) days as of the date of Termination.
F-62
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
a)Set out below are summaries of the number and weighted average exercise prices ("WAEP") of options granted under the plan:
|
|
2023 |
|
2022 |
||||
|
|
Number of options |
|
WAEP per option |
|
Number of options |
|
WAEP per option |
As of January 1 |
|
1,054,090 |
|
30.15 |
|
866,914 |
|
10.31 |
Granted during the year |
|
130,951 |
|
32.45 |
|
508,413 |
|
2.41 |
Exercised during the year |
|
(77,122) |
|
21.35 |
|
- |
|
- |
Forfeited during the year |
|
(59,465) |
|
27.81 |
|
(63,778) |
|
11.90 |
At the end of the year |
|
1,048,454 |
|
36.07 |
|
1,311,549 |
|
12.54 |
Exercisable at the end of the year |
|
244,319 |
|
24.88 |
|
198,688 |
|
13.89 |
No new options from the Second Share Options Plan expired during the year ended December 31, 2022.
b) |
Share options outstanding at the end of the year have the following remaining periods and prices: |
|
|
December 31, 2023 |
|
December 31, 2022 |
Weighted average remaining vesting period |
|
4.0 months |
|
5.0 years |
Weighted average remaining expiring period |
|
6.7 years |
|
7.7 years |
Purchase option exercise price range |
|
R$77.46 |
|
R$83.48 |
|
|
|
|
|
|
|
|
|
|
c) |
Options granted during the year |
|
|
December 31, 2023 |
|
December 31, 2022 |
Grant date |
|
January 3, 2023 |
|
December 11, 2020 |
Expiry date |
|
October 2, 2029 |
|
September 9, 2028 |
Share price at grant date |
|
USD 18.43 |
|
USD 14.30 |
Exercise price |
|
USD 16.00 |
|
USD 16.00 |
Expected price volatility |
|
59.15% |
|
53.96% |
Risk-free interest rate |
|
11.34% |
|
8.22% |
Model used |
|
Black-Scholes |
|
Black-Scholes |
The expense arising from share-based payment transactions from the Second Stock Options Plan in 2023 was R$ 6,121 (2022 - R$ 5,845).
F-63
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
24. Key management compensation and related parties
a) Key management compensation
Key management includes professionals selected at the sole discretion of the Board of Directors from among the Company’s managers and executives.
The total compensation expense with key management for their services is shown below:
|
|
2023 |
|
2022 |
|
2021 |
Salaries and related charges and variable compensation (i) |
|
38,331 |
|
8,241 |
|
12,662 |
Share-based compensation |
|
(9,389) |
|
(6,010) |
|
6,552 |
Total |
|
28,942 |
|
2,231 |
|
19,214 |
| (i) | Variable compensation as defined by the Board of Directors in an agreement with Group executives. |
b) Related parties
As a result of the business combination with Unicesumar, the Company has a lease agreement with companies related to members of the administration: The object of the contract is the Unicesumar Campus located in the city of Maringá-PR and is valid for 20 years from the closing date of the business combination:
|
|
Balance Sheet |
|
Profit or loss |
||||
|
|
December 31, |
|
December 31, |
|
|
||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
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 |
|
2,915 |
|
2,845 |
|
|
|
|
Depreciation expense |
|
|
|
|
|
(217) |
|
(255) |
Lease liabilities |
|
3,017 |
|
2,942 |
|
|
|
|
Interest on lease |
|
|
|
|
|
(194) |
|
(268) |
In addition to the lease, as a result of the business combination with Unicesumar, the Company had a liability that was settled on December 05, 2023 for the acquisition of subsidiaries from members of the Company's management and board. The debt value was adjusted by the IPCA inflation rate until May 2023 and updated by CDI + 3% until its settlement.
|
|
Balance Sheet |
|
Profit or loss |
||||
|
|
December 31, |
|
December 31, |
|
|
||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Payables from acquisition of subsidiaries |
|
|
|
|
|
|
|
|
Accounts payable to selling shareholders |
|
- |
|
147,338 |
|
|
|
|
Financial expenses |
|
|
|
|
|
(9,621) |
|
(1,458) |
F-64
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
The Company also make monthly donations to ICETI – Instituto Cesumar de Ciência, Tecnologia e Inovação. The Institute has, among its institutional purposes and objectives, the support, development and promotion of education, research, development, innovation and technology projects, bringing together actions, programs and activities for this purpose. Some management members form the Company also help administrate the ICETI.
|
|
Balance Sheet |
|
Profit or loss |
||||
|
|
December 31, |
|
December 31, |
|
|
||
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Donations |
|
|
|
|
|
|
|
|
ICETI - Instituto Cesumar de Ciência, Tecnologia e Inovação |
|
|
|
|
|
|
|
|
Other income (expenses), net |
|
|
|
|
|
(3,579) |
|
(3,340) |
F-65
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
25. Revenue
|
|
Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Gross amount from services provided |
|
2,487,626 |
|
1,663,606 |
|
791,006 |
(-) Discounts |
|
(184,116) |
|
(100,425) |
|
(30,305) |
(-) ProUni scholarships (i) |
|
(272,581) |
|
(201,436) |
|
(109,217) |
(-) Taxes and contributions on revenue |
|
(68,404) |
|
(44,399) |
|
(20,337) |
Net revenue |
|
1,962,525 |
|
1,317,346 |
|
631,147 |
|
|
|
|
|
|
|
Timing of revenue recognition |
|
|
|
|
|
|
Transferred over time |
|
1,942,200 |
|
1,299,183 |
|
624,871 |
Transferred at a point in time (ii) |
|
20,325 |
|
18,163 |
|
6,276 |
Net revenue |
|
1,962,525 |
|
1,317,346 |
|
631,147 |
| (i) | Scholarships granted by the federal government to students under the ProUni program as described in Note 2.5.s |
| (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 the year ended December 31, 2023, the amounts billed to students for the portion to be transferred to the hub partner, in respect to the joint operation, is R$ 516,905 (2022 R$ 343,603 –2021 R$ 181,630). As of December 31, 2023, the balance payable to the hub partner is R$ 23,018 (December 31, 2022 - R$ 43,676, December 31, 2021 - R$ 12,989).
26. Costs and expenses by nature
|
|
Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Payroll (i) |
|
578,144 |
|
427,583 |
|
220,372 |
Sales and marketing |
|
255,509 |
|
181,898 |
|
93,026 |
Depreciation and amortization (ii) |
|
212,658 |
|
150,951 |
|
54,479 |
Consulting and advisory services |
|
97,230 |
|
30,663 |
|
25,729 |
Material |
|
30,045 |
|
57,138 |
|
16,488 |
Maintenance |
|
41,790 |
|
27,827 |
|
12,774 |
Utilities, cleaning and security |
|
42,836 |
|
14,330 |
|
6,472 |
Other expenses |
|
30,755 |
|
36,112 |
|
12,418 |
Total |
|
1,288,967 |
|
926,502 |
|
441,758 |
|
|
|
|
|
|
|
Costs of services |
|
669,480 |
|
502,331 |
|
240,924 |
General and administrative expenses |
|
259,086 |
|
179,335 |
|
89,344 |
Selling expenses |
|
360,401 |
|
244,836 |
|
111,490 |
Total |
|
1,288,967 |
|
926,502 |
|
441,758 |
| (i) | Payroll expenses include for the year ended December 31, 2023 R$ 589,733 (2022 – R$ 433,593, related to salaries, bonuses, short-term benefits, related social charges and other employee related expenses, and R$ (9,389) (2022 - R$ (6,010)) related to share-based compensation. |
F-66
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
|
|
Year Ended December 31, |
||||
Depreciation and amortization (ii) |
|
2023 |
|
2022 |
|
2021 |
Costs of services |
|
82,009 |
|
72,936 |
|
43,905 |
General and administrative expenses |
|
75,683 |
|
44,119 |
|
10,570 |
Selling expenses |
|
54,966 |
|
33,896 |
|
4 |
Total |
|
212,658 |
|
150,951 |
|
54,479 |
27. Other income (expenses), net
|
|
Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Write-off of property and intangible assets |
|
(9,436) |
|
(11,365) |
|
(9) |
Deductible donations |
|
(3,579) |
|
(2,322) |
|
(300) |
Modification of lease contracts |
|
(610) |
|
4,625 |
|
379 |
Fines |
|
(141) |
|
(150) |
|
- |
Contractual indemnities |
|
(1) |
|
(252) |
|
(364) |
Other revenues |
|
5,454 |
|
7,395 |
|
730 |
Other expenses |
|
(140) |
|
(251) |
|
(371) |
Total |
|
(8,453) |
|
(2,320) |
|
65 |
28. Financial results
|
|
Year Ended December 31, |
||||
|
|
2023 |
|
2022 |
|
2021 |
Financial income |
|
|
|
|
|
|
Interest on tuition fees paid in arrears |
|
24,079 |
|
26,545 |
|
17,456 |
Financial investment yield |
|
32,801 |
|
31,392 |
|
23,982 |
Foreign exchange gain |
|
2,912 |
|
5,870 |
|
3,817 |
Other |
|
1,178 |
|
759 |
|
265 |
Total |
|
60,970 |
|
64,566 |
|
45,520 |
|
|
|
|
|
|
|
Financial expenses |
|
|
|
|
|
|
Interest on accounts payable from acquisition of subsidiaries |
|
(40,303) |
|
(40,069) |
|
(40,405) |
Interest on lease |
|
(33,858) |
|
(28,246) |
|
(16,008) |
Interest on loans and financing |
|
(264,313) |
|
(165,881) |
|
(8,642) |
Foreign exchange loss |
|
(3,960) |
|
(7,481) |
|
(1,711) |
Other |
|
(24,111) |
|
(22,760) |
|
(8,113) |
Total |
|
(366,545) |
|
(264,437) |
|
(74,879) |
|
|
|
|
|
|
|
Financial results |
|
(305,575) |
|
(199,871) |
|
(29,359) |
F-67
Vitru Limited
Notes to the financial statements.
December 31, 2023 and 2022.
(In thousands of Brazilian Reais, except as otherwise indicated)
29. Other disclosures on cash flows
Non-cash transactions
In the year ended December 31, 2023:
The amount of R$ 6,503 (2022 – R$ 1,469. 2021 – R$ 3,395) regarding provision for contingencies of responsibility of the sellers of subsidiaries acquired in prior years, was reversed to the indemnification assets line item in non-current assets.
30. Subsequent events
On March 6, 2024, the Securities and Exchange Commission (SEC) declared that the Form F-4 of Vitru Brasil Empreendimentos, Participações e Comércio S.A. (“Vitru Brazil”), a wholly owned subsidiary of the Company, was effective. As a result, Vitru Brazil is now registered at the SEC. Such registration is part of the listing migration of the Vitru group from NASDAQ to B3 (the Brazilian Stock Exchange), a process that was started in 2023 as duly announced by the Company, through which Vitru Brazil will incorporate the Company.
***
F-68
Exhibit 2.1
DESCRIPTION OF SECURITIES
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of December 31, 2023, Vitru Limited (“Vitru,” “we,” “us,” and “our”) had the following series of securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common shares, par value |
|
VTRU |
|
The NASDAQ Global Select Market |
Vitru Limited was incorporated on March 5, 2020, as a Cayman Islands exempted company with limited liability duly registered with the Cayman Islands Registrar of Companies under incorporation number 360670. Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of Companies Act.
Our affairs are governed principally by: (1) our Memorandum and Articles of Association; (2) the Companies Act; and (3) the common law of the Cayman Islands. As provided in our Articles of Association, subject to Cayman Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered office is c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.
COMMON SHARES
Item 9. General
9.A.3 Preemptive rights
See “—Item 10.B Memorandum and articles of association—Preemptive or Similar Rights” below.
9.A.5 Type and class of securities
The Memorandum and Articles of Association authorize common shares, which are entitled to one vote per share.
As of December 31, 2023, Vitru’s total authorized share capital was U.S.$50,000, divided into 1,000,000,000 shares par value U.S.$0.00005 each, all of which are undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.
As of December 31, 2023, Vitru had a total issued and outstanding share capital of U.S.$1,691.31, divided into 33,826,199 common shares. As of March 31, 2024, Vitru had a total issued and outstanding share capital of U.S.$1,677.15 divided into 33,543,107 common shares.
Item 9.A.6. Limitations or qualifications
Not applicable.
Item 9.A.7. Other rights
Not applicable.
Item 10.B Memorandum and articles of association
The following information describes our common shares and provisions set forth by our Amended and Restated Memorandum and Articles of Association, the Companies Act; and the common law of the Cayman Islands. This description is only a summary.
You should read and refer to our Amended and Restated Memorandum and Articles of Association included as Exhibit 1.1 to our annual report on Form 20-F for the year ended December 31, 2023 (the “2023 20-F”).
Description of Our Memorandum and Articles of Association
Recent Amendments to our Memorandum and Articles of Association
On October 23, 2023, our shareholders resolved to amend and restate our Articles of Association. The purpose of the amendments was to give DBOAT I Fundo de Investimento em Participações Multiestratégia, or 23S, certain rights, which are substantially similar to the rights granted to Vinci Partners, Carlyle SPX and Crescera (as defined in the Amended and Restated Registration Rights Agreement).
History of Share Capital
On September 17, 2020, the registration statement on Form F-1 (File No. 333-248272) relating to our initial public offering of our common shares was declared effective by the SEC. On September 17, 2020, we commenced our initial public offering. On September 22, 2020 we closed our initial public offering, pursuant to which we issued and sold 6,000,000 common shares for an aggregate price of U.S.$96,000,000.
As of December 31, 2023, Vitru had no shares in treasury.
See also “Item 9. General—9.A.5 Type and class of securities.”
General
Our shareholders adopted the Amended and Restated Memorandum and Articles of Association included as Exhibit 1.1 to our 2023 20-F.
The following is a summary of the material provisions of our authorized share capital and our Articles of Association. This is not a summary of all the significant provisions of our Articles of Association, of the Companies Act or of the common law of the Cayman Islands and does not purport to be complete. Capitalized terms used but not defined herein have the meanings given to them in our 2023 20-F.
Fiscal Year
Vitru’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.
Corporate Purposes
Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of Companies Act.
Issuance of Shares
Except as expressly provided in Vitru’s Articles of Association, the board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increase to issued share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act. In accordance with its Articles of Association, Vitru shall not issue bearer shares. Vitru’s Articles of Association also provide that the issuance of non-voting shares requires the affirmative vote of a majority of the of then-outstanding common shares.
Voting Rights
The holders of the common shares are entitled to one vote per share.
Vitru’s Articles of Association provide as follows regarding the respective rights of holders of shares:
| ● | class consents from the holders of shares shall be required for any variation to the rights attached to their respective class of shares, however, the directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal; |
| ● | the rights conferred on holders of shares of any class shall not be deemed to be varied by the creation or issue of further shares of that class; and |
| ● | the rights attaching to shares of any class shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights. |
Preemptive or Similar Rights
The common shares are not entitled to preemptive or similar rights.
Record Dates
For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, Vitru’s board of directors may set a record date which shall not exceed forty (40) clear days prior to the date where the determination will be made.
General Meetings of Shareholders
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of Vitru at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to Vitru in respect of the shares that such shareholder holds must have been paid.
Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation or company, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per common share.
As a Cayman Islands exempted company, Vitru is not obliged by the Companies Act to call annual general meetings. The Articles of Association provide that the Company will in each year hold a general meeting as its annual general meeting. At any annual general meeting the agenda will include, among other things, the presentation of the annual accounts and the report of the directors. In addition, the agenda for an annual general meeting will only include such items as have been included therein by the board of directors.
Also, Vitru may, but is not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings are generally expected to take place in the city of Florianópolis in the State of Santa Catarina, Brazil, but may be held elsewhere if the directors so decide.
The Companies Act provides shareholders a limited right to request a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s Articles of Association. However, these rights may be provided in a company’s Articles of Association. Vitru’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear days’ notice prior to the relevant shareholders meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
Vitru will give notice of each general meeting by publication on its website and in any other manner that it may be required to follow in order to comply with Cayman Islands law, Nasdaq and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.
Holders whose shares are registered in the name of The Depository Trust Company, or DTC, or its nominee, which we expect will be the case for most holders of our common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the common shares.
A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.
A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Act and our Articles of Association.
Pursuant to Vitru’s Articles of Association, general meetings are to be chaired by the chairman of our board of directors or in his absence the vice-chairman of the board of directors. If the chairman or vice-chairman of our board of directors is absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.
Liquidation Rights
If Vitru is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between Vitru and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between Vitru and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) and subject to any agreement between Vitru and any person or persons to waive or limit the same, shall apply Vitru’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in Vitru.
Changes to Capital
Pursuant to the Articles of Association, Vitru may from time to time by ordinary resolution:
| ● | increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe; |
| ● | consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares; |
| ● | convert all or any of its paid-up shares into stock and reconvert that stock into paid up shares of any denomination; |
| ● | subdivide its existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or |
| ● | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
Vitru’s shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce its share capital or any capital redemption reserve in any manner permitted by law.
In addition, subject to the provisions of the Companies Act and our Articles of Association, Vitru may:
| ● | issue shares on terms that they are to be redeemed or are liable to be redeemed; |
| ● | purchase its own shares (including any redeemable shares); and |
| ● | make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of its own capital. |
Transfer of Shares
Subject to any applicable restrictions set forth in the Articles of Association, any shareholder of Vitru may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the Nasdaq or any other form approved by the Company’s board of directors.
However, Vitru’s board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:
| ● | a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to Vitru in respect thereof; |
| ● | the instrument of transfer is lodged with Vitru, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class of shares; |
| ● | the instrument of transfer is properly stamped, if required; |
| ● | the common shares transferred are free of any lien in favor of Vitru; and |
| ● | in the case of a transfer to joint holders, the transfer is not to more than four joint holders. |
If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
Share Repurchase
The Companies Act and the Articles of Association permit Vitru to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of Vitru, subject to the Companies Act, the Articles of Association and to any applicable requirements imposed from time to time by the SEC, the Nasdaq, or by any recognized stock exchange on which our securities are listed.
Dividends and Capitalization of Profits
We have not adopted a dividend policy with respect to payments of any future dividends by Vitru. Subject to the Companies Act, Vitru’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors (and, for the avoidance of doubt, no dividend shall be declared by the shareholders unless previously recommend by the board of directors). The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to Vitru. Except as otherwise provided by the rights attached to shares and the Articles of Association of Vitru, all dividends shall be paid in proportion to the number of common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (i) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly, and (ii) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.
The holders of common shares shall be entitled to share equally in any dividends that may be declared in respect of Vitru’s common shares from time to time.
See “Item 8A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy” in our 2023 20-F for further information regarding dividend rights.
Appointment, Disqualification and Removal of Directors
Vitru is managed by its board of directors. The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to eleven directors, with the number being determined by a majority of the directors then in office with the consent of Vinci Partners and Carlyle SPX, in each case for so long as it enjoys director appointment rights. There are no provisions relating to retirement of directors upon reaching any age limit. The Articles of Association also provide that, while Vitru’s shares are admitted to trading on Nasdaq, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.
The Articles of Association also provide that each of Vinci Partners, Carlyle SPX, Crescera and 23S, for so long as it holds not less than 15 per cent of the voting shares in issue, shall be entitled to appoint up to two persons to act as directors, and that each of Vinci Partners, Carlyle SPX, Crescera and 23S, for so long as it holds not less than 5 per cent and not more than 15 per cent of the voting shares in issue, shall be entitled to appoint one person to act as a director. Each of Vinci Partners, Carlyle SPX, Crescera and 23S shall be entitled to remove any of the directors so appointed. The Articles of Association also provide that, notwithstanding the above director appointment rights, for so long as Crescera holds not less than 5 per cent and no more than 15 per cent of the voting shares in issue and does not transfer any of its common shares between November 20, 2023, and the date of the annual shareholder meeting of the Company to be held in 2024 (which shareholder meeting shall not be held earlier than May 1, 2024), it shall be entitled to appoint two persons to act as directors. Such additional right will automatically cease to apply after the annual shareholder meeting of the Company to be held in 2024.
The Articles of Association otherwise provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed to a two year term, unless they resign, are removed or their office is vacated earlier, provided however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).
Each director shall be appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed). Directors are eligible for re-election.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum).
Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting.
Additions to the existing board (within the limits set pursuant to the Articles of Association) may be made by ordinary resolution of the shareholders.
For so long as Neuberger holds not less than 5 per cent of the voting shares in issue, Neuberger shall be entitled to appoint an observer to the board of directors and any committee of the board of directors established from time to time. In each case, the observer shall be entitled to attend and speak at all such meetings and receive copies of all board papers as if they were a director but shall not be entitled to vote on any resolutions proposed at a board meeting.
Upon the completion of our initial public offering, the board of directors had put in place an audit committee. See “Item 16A. Audit Committee Financial Expert” in our 2023 20-F.
Grounds for Removing a Director
A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director, (2) becomes bankrupt or makes an arrangement or composition with his creditors, (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (4) he or she willfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, are considered to be a breach of the performance of his or her duties and/or obligations, including: (i) the uninterrupted or repeated omission or refusal to perform the duties and/or obligations established in the Articles of Association or by applicable law; and/or (ii) he or she is unable to comply with such duties and/or obligations as a result of an alcohol or drug addiction; (5) he or she willfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, cause material damages to or adversely affects the financial situation or commercial reputation of the Company; (6) resigns his office by notice to us or (7) has for more than six (6) months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.
Proceedings of the Board of Directors
The Articles of Association provide that Vitru’s business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office (subject to there being a minimum of two directors present) provided that such a majority must include at least one director appointed by Carlyle SPX, one director appointed by Vinci Partners, one director appointed by Crescera and one director appointed by 23S, for so long as each of them enjoys director appointment rights under the Articles of Association. If such a quorum is not present within half an hour from the time appointed for a meeting of the board of directors, or if during a meeting such quorum ceases to be present, the meeting shall stand adjourned to the same day in the next week at the same time and place or at such time and place as determined by the directors present at such meeting. If a quorum is not present at any such adjourned meeting within half an hour from the time appointed, then the meeting shall proceed. Business at any board meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a casting vote.
Subject to the provisions of the Articles of Association, the board of directors may regulate its proceedings as they determine is appropriate.
Subject to the provisions of the Articles of Association, to any directions given by ordinary resolution of the shareholders and the listing rules of the Nasdaq, the board of directors may from time to time at its discretion exercise all powers of Vitru, including, subject to the Companies Act, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
Business Opportunities
The Articles of Association also provide that, to the fullest extent permitted by applicable law and except as may be otherwise expressly agreed in writing by Vitru, on the one hand, and Carlyle SPX, Vinci Partners, Neuberger, Crescera or 23S, on the other hand, Vitru, on behalf of itself and its subsidiaries, renounces and waives any interest or expectancy of Vitru and its subsidiaries in, or in being offered an opportunity to participate in, directly or indirectly, any potential transactions, matters or business opportunities (including, without limitation, any business activities or lines of business that are the same as or similar to those pursued by, or competitive with, Vitru or any of its subsidiaries or any dealings with customers or clients of Vitru or any of its subsidiaries) that are from time to time presented to Carlyle SPX, Vinci Partners, Neuberger, Crescera or 23S or any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries (other than the Company and its subsidiaries), even if the transaction, matter or opportunity is one that Vitru or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of Carlyle SPX, Vinci Partners, Neuberger, Crescera nor 23S, nor any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries shall be liable to Vitru or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person pursues, acquires or participates in such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to Vitru or its subsidiaries, unless, in the case of any such person who is a director or officer of Vitru, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of Vitru.
Inspection of Books and Records
Holders of Vitru shares have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent Vitru’s accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Articles of Association provide shareholders with the right to receive annual financial statements. Such right to receive annual financial statements may be satisfied by publishing the same on the company’s website or filing such annual reports as we are required to file with the SEC.
The Articles of Association also provide that the Company may provide shareholders (that are incorporated under Brazilian laws and subject to Brazilian Securities Commission (Comissão de Valores Mobiliários, or “CVM”) regulations or otherwise) copies of any and all: (i) agreements entered into by the Company with its related parties; (ii) shareholders’ agreements entered into by the Company; and (iii) stock option or other securities-based remuneration programs of the Company.
Register of Shareholders
The common shares are held through DTC, and DTC or Cede & Co., as nominee for DTC, will be recorded in the shareholders’ register as the holder of our common shares.
Under Cayman Islands law, Vitru must keep a register of shareholders that includes:
| ● | the names and addresses of the shareholders, a statement of the class and number of shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member; |
| ● | whether voting rights attach to the shares in issue; |
| ● | the date on which the name of any person was entered on the register as a member; and |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of shareholders of Vitru is prima facie evidence of the matters set out therein (i.e. the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders. Once the register of shareholders has been updated, the shareholders recorded in the register of shareholders should be deemed to have legal title to the shares set against their name.
However, there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified where it considers that the register of members does not reflect the correct legal position. If an application for an order for rectification of the register of members were made in respect of our ordinary shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.
Exempted Company
Vitru is an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | an exempted company’s register of shareholders is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Vitru is subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in our 2023 20-F, Vitru currently intends to continue to comply with the Nasdaq rules in lieu of following home country practice.
Anti-Takeover Provisions in Our Articles of Association
Some provisions of the Articles of Association may discourage, delay or prevent a change in control of Vitru or management that shareholders may consider favorable. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of Vitru to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of Vitru. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.
Significant Shareholders
So long as our significant shareholders have the ability to determine the outcome of most matters submitted to a vote of shareholders as well as the overall management and direction of Vitru, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the election of directors.
Preferred Shares
Vitru’s board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.
Despite the anti-takeover provisions described above, under Cayman Islands law, Vitru’s board of directors may only exercise the rights and powers granted to them under the Articles of Association, for what they believe in good faith to be in the best interests of Vitru.
Protection of Non-Controlling Shareholders
The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of Vitru in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.
Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.
Notwithstanding the U.S. securities laws and regulations that are applicable to Vitru, general corporate claims against Vitru by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by Vitru’s Articles of Association.
The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against Vitru, or derivative actions in Vitru’s name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control Vitru, and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.
Registration Rights and Restricted Shares
On September 17, 2020, we entered into a Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital and Neuberger, or the Original Registration Rights Agreement. Our shareholders or entities controlled by them or their permitted transferees are able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Registration Rights Agreement.”
On November 10, 2022, we entered into an Amended and Restated Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital, Neuberger and Crescera, pursuant to which Crescera became a party to the Original Registration Rights Agreement and became entitled to certain rights similar to the rights granted to Vinci Partners and Carlyle SPX under the Original Registration Rights Agreement.
Furthermore, on October 24, 2023, we entered into another Amended and Restated Registration Rights Agreement with Vinci Partners, The Carlyle Group, SPX Capital, Neuberger, Crescera and 23S, pursuant to which 23S became a party to the Registration Rights Agreement and became entitled to certain rights similar to the rights granted to Vinci Partners, Carlyle SPX and Crescera under the Registration Rights Agreement.
Exhibit 4.8
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INDENTURE OF THE SECOND (2ND) ISSUE OF NON-CONVERTIBLE INTO STOCKS, SIMPLE DEBENTURES OF THE SECURED TYPE AND WITH ADDITIONAL PERSONAL GUARANTEE IN SINGLE SERIES, FOR PUBLIC DISTRIBUTION, UNDER AUTOMATIC DISTRIBUTION REGISTRATION PROCEDURE OF VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
ENTERED INTO BY AND AMONG
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.,
as Issuer,
PENTÁGONO S.A. DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS,
as Trustee, and
SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA.;
SOCIEDADE EDUCACIONAL DO VALE DO ITAPOCU LTDA.;
FAC EDUCACIONAL LTDA.;
FAIR EDUCACIONAL LTDA.; and
CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA.
as Guarantors.
Dated May 5, 2023
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INDENTURE OF THE SECOND (2ND) ISSUE OF NON-CONVERTIBLE INTO STOCKS, SIMPLE DEBENTURES WITH COLLATERAL AND WITH ADDITIONAL PERSONAL GUARANTEE IN SINGLE SERIES, IN TWO (2) SERIES FOR PUBLIC DISTRIBUTION, UNDER AUTOMATIC DISTRIBUTION REGISTRATION PROCEDURE, OF VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
By this indenture,
(a) VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A., a stock corporation registered as a category “B” publicly-held corporation with the Brazilian Securities Commission ("CVM"), in operational phase, with its principal place of business located in the City of Florianópolis, State of Santa Catarina, at Rodovia José Carlos Daux, n. 5500, sala T, 2º andar, Torre Jurerê A, Saco Grande - CEP: 88.032-005, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 20.512.706/0001-40, herein represented under its By-laws (hereinafter referred to as "Issuer");
and, on the other hand,
(b) PENTÁGONO S.A. DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS, a financial institution, with a branch located in the city of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, no. 2.954, 10º andar, Cj. 101, Jardim Paulistano, CEP 01.451-000, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 17.343.682/0003-08, as representative of common interests of the holders of the debentures under this issue ("Debenture holders"), pursuant to Law No. 6,404, of December 15, 1976, as amended ("Brazilian Corporation Law"), herein represented under its By-laws (hereinafter referred to as "Trustee");
and, also, as Guarantors,
(c) SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA., a limited liability company, with its principal place of business located in the City of Indaial, State of Santa Catarina, at Rua Doutor Pedrinho no. 79, Sala 01, Rio Morto, CEP 89.082.-262, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 01.894.432/0001-56, herein represented under its Articles of Association (hereinafter referred to as “UNIASSELVI”);
(d) SOCIEDADE EDUCACIONAL DO VALE DO ITAPOCU LTDA., a limited liability company, with its principal place of business located in the City of Guaramirim, State of Santa Catarina, at Rodovia BR 280, no. 15.885, KM 60, Imigrantes, CEP 89.270-000, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 03.819.722/0001-60, herein represented under its Articles of Association (hereinafter referred to as “SEVITA”);
(e)FAC EDUCACIONAL LTDA., a limited liability company, with its principal place of business located in the City of Cuiabá, State of Mato Grosso, at Av. Fernando Correa da Costa, no. 374, Poção, CEP 78.015-600, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 20.705.425/0001-03, herein represented under its Articles of Association (hereinafter referred to as “FAC”);
(f) FAIR EDUCACIONAL LTDA., a limited liability company, with its principal place of business located in the City of Rondonópolis, State of Mato Grosso, at Rua Arnaldo Estevão de Figueiredo, no. 758, andar 1, Centro, CEP 78.700-150, enrolled with the National Register of Legal Entities of 1 the Ministry of Finance ("CNPJ ") under No. 20.088.672/0001-08, herein represented under its Articles of Association (“FAIR”);
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(g) CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA., a limited liability business company with its principal place of business in the City of Maringá, State of Paraná, at Avenida Guedner, no. 1.6’0, Zona 8, CEP 87050-390, enrolled with the National Register of Legal Entities of the Ministry of Finance (“CNPJ") under No. 79.265.617/0001-99, herein represented under its Articles of Association(“CESUMAR”) and, jointly with UNIASSELVI, SEVITA FAC, and FAIR, hereinafter referred to as “Guarantors”);
Issuer, Trustee and Guarantors are hereinafter referred to collectively as the "Parties" and individually and severally as a "Party";
hereby agree upon to enter into this “Indenture of the second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures with Collateral and With Additional Personal Guarantee, in Single Series, for Public Distribution under Automatic Distribution Registration Procedure, of Vitru Brasil Empreendimentos, Participações e Comércio S.A.” (hereinafter referred to as “Indenture” or “Indenture of Issue”), under the following terms and conditions:
For the purposes of this Indenture, "Business Day(s)" shall mean any day, other than Saturday, Sunday or nationally declared holiday.
1. AUTHORIZATION
1.1. Authorization for Issue by Issuer
1.1.1. This Indenture of Issue is entered into pursuant to the authorizations of (i) the Extraordinary General Meeting of Issuer held on May 5, 2023 ("Issuer EGM") and (ii) the Meeting of Issuer’s Board of Directors held on May 5, 2023 ("Issuer RCA" and together with Issuer EGM, "Issuer Corporate Approvals"), at which resolutions were passed and approved, as applicable: (a) the terms and conditions of Issue (as defined below), the Corporate Guarantee (as defined below) and the Offering (as defined below); and (b) the express authorization to Issuer's executive board to perform all acts, take all actions and adopt all measures necessary for the formalization, implementation and administration of the resolutions taken at Issuer Corporate Approvals, as well as the execution of any and all documents related to the Issue and the Offering, including, but not limited to, the Indenture of Issue, the Distribution Agreement (as defined below), the Fiduciary Assignment Agreement and any amendments to such instruments (if necessary), as well as contracting the service providers necessary for the implementation of Issue and the Offering, pursuant to article 59 of the Brazilian Corporation Law, and in compliance with Law no. 6,385, of December 7, 1976, as amended ("Securities Law"), and with the CVM Resolution no. 160, of July 13, 2022, as amended ("CVM Resolution 160").
1.2. Authorization for Creation of Receivables Fiduciary Assignment by CESUMAR
1.2.1. Based on the resolutions taken at the quotaholders’ meeting of CESUMAR, held on May 5, 2023 (“CESUMAR Corporate Approval”), it was resolved and approved: (a) the grant of the Receivables Fiduciary Assignment (as defined below), by means of the Fiduciary Assignment Agreement (as defined below); and (b) to authorize the management of CESUMAR to adopt any and all actions, perform all acts and enter into all documents necessary to give effect to the resolutions evidenced in CESUMAR Corporate Approval.
1.3. Authorization for Creation of Corporate Guarantee by Guarantors
1.3.1. Based on the resolutions taken at the shareholders' meetings of each of Guarantors, all of which were held on May 5, 2023 ("Guarantors Corporate Approval" and, together with Issuer Corporate Approvals, "Corporate Approvals"), it was resolved and approved: (a) to grant the Corporate Guarantee
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(as defined below) by each of Guarantors, hereby; and (b) to authorize the management of each of Guarantors to take any and all actions, perform all acts and enter into all documents necessary to give effect to the resolutions evidenced in Guarantors Corporate Approval.
2. REQUIREMENTS
The second (2nd) issue of simple, non-convertible debentures, issued by Issuer, in single series for public distribution under automatic distribution procedure ("Issue"), in the total amount of one hundred and ninety Million Brazilian Reais (R$ 190,000,000.00), to be registered with CVM under automatic registration procedure pursuant to article 36, item V, sub-item (a) and article 27, item I, of CVM Resolution No. 160 ("Offering") and this Indenture of Issue, will be carried out in compliance with the following requirements:
2.1. Filing and Publication of Corporate Approvals
2.1.1. |
Under article 62, item I, and article 289 of the Brazilian Corporation Law: |
(i)the minutes of Issuer Corporate Approvals that approved the terms and conditions of Issue, the Debentures, the Restricted Offering, the Quotas Fiduciary Assignment and the Receivables Fiduciary Assignment, as applicable, (a) will be duly filed before the Board of Trade of the State of Santa Catarina ("JUCESC"), and (b) will be published in the newspaper "Diário Catarinense" ("Issuer Publication"), with simultaneous disclosure of the entire corporate act on the website of Issuer Publication, which shall arrange for the digital certification of the authenticity of the documents kept in its own pages issued by accredited certifying authorities within the scope of the Brazilian Public Key Infrastructure (“ICP-Brasil”), pursuant to article 62, item I and article 289, of the Brazilian Corporations Law;
(ii)the minutes of the UNIASSELVI quotaholders’ meeting held on May 5, 2023, which approved the granting of the respective Corporate Guarantee will be duly filed with the JUCESC;
(iii)the minutes of the SEVITA quotaholders' meeting held on May 5, 2023, which approved the granting of the respective Corporate Guarantee will be duly filed with the JUCESC;
(iv)the minutes of the FAC quotaholders’ meeting held on May 5, 2023, which approved the granting of the respective Corporate Guarantee will be duly filed with the Board of Trade of the State of Mato Grosso ("JUCEMAT"); and
(v)the minutes of the FAIR quotaholders’ meeting held on May 5, 2023, which approved the granting of the respective Corporate Guarantee will be filed with the JUCEMAT.
(vi)the minutes of CESUMAR quotaholders’ meeting held on May 5, 2023, which approved the creation of the Receivables Fiduciary Assignment (as defined below), and the grant of the respective Corporate Guarantee will be filed with the Registry of Commerce of the State of Paraná (“JUCEPAR”)
2.1.1.2. After registration of the Corporate Approvals, Issuer and Guarantors are bound to forward an electronic copy (PDF) of the respective registered corporate acts to the Trustee within five (5) Business Days as from the dates of the respective registrations.
2.2. Filing and registration of this Indenture of Issue with the JUCESC
2.2.1. Under article 62, item II and paragraph 3, of the Brazilian Corporation Law, this Indenture of Issue and any amendments thereto shall be filed with the JUCESC within ten (10) Business Days from the date of its execution, for its consequent filing with the JUCESC.
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2.2.2. Issuer undertakes to send to Trustee 1 (one) electronic copy of this Indenture of Issue in ".pdf" format, containing the digital seal of the filing with the JUCESC of this Indenture of Issue, as well as of any amendments, within five (5) Business Days after JUCESC making said registrations available to Issuer.
2.2.3. Any amendments to this Indenture of Issue must be filed with the JUCESC, pursuant to Clause 2.2.1 above.
2.2.4. Trustee is hereby irrevocably and irreversibly authorized and empowered, on behalf of Issuer and at Issuer's expense, to register this Indenture of Issue with the JUCESC, in the event that Issuer fails to do so within the period set forth in Clause 2.1.1 above, under article 62, paragraph 2, of the Brazilian Corporation Law, which, however, will not disregard the non-compliance of a non-monetary obligation by Issuer, under the terms of line "a" of Clause 8.1.2 below.
2.3. Registration of Securities
2.3.1. Under article 129 of Law No. 6,015, of December 31, 1973, as amended, by virtue of the Corporate Guarantee (as defined below) provided by Guarantors under the Clause 5.6. 1 below, for the benefit of the Debenture holders, the Indenture and its eventual amendments, as applicable, will be duly registered by Issuer, at its expenses, with the Registry Office of Deeds and Documents where the head offices of Issuer are located, Trustee and Guarantors, namely, the Registry Office of Deeds and Documents located in the City of Florianópolis, State of Santa Catarina, the City of São Paulo, State of São Paulo, the City of Indaial, State of Santa Catarina in the City of Guaramirim, State of Santa Catarina, in the City of Cuiabá, State of Mato Grosso, in the City of Rondonópolis, State of Mato Grosso and in the City of Maringá, State of Paraná ("Corporate Guarantee Offices") and, within up to ten (10) Business Days as of its execution, shall be filed with the referred Corporate Guarantee Offices, provided that, in case any requirements are imposed by the Corporate Guarantee Offices, Issuer and/or Guarantor shall diligently and timely comply with them. Within five (5) Business Days effective availability to Issuer of each registration made by the Corporate Guarantee Offices, Issuer shall forward to Trustee 1 (one) physical original copy or, if applicable, electronic copy (in ".pdf" format), containing a digital seal, duly registered with the corresponding Corporate Guarantee Office.
2.3.2. Pursuant to article 62, item III, of the Brazilian Corporation Law, due to the Collateral (as defined below) provided by Cesumar on behalf of the Debenture Holders, the Fiduciary Assignment Agreement (as defined below) and any amendments thereto, as applicable, shall be duly registered by Issuer, at
Within five (5) Business Days from availability to Issuer by the RTD Registry Offices of each registration made, Issuer shall forward to Trustee 1 (one) physical original copy or, if applicable, electronic copy (in ".pdf" format), containing the digital seal, duly registered with the corresponding RTD Registry Offices.
2.4. Automatic Registration of the Offering with CVM and Registration with ANBIMA and ANBIMA's Best Practices Guide
2.4.1. The Offering will be duly registered with CVM pursuant to article 19 of the Securities Law. The Debentures will be the subject matter of a public distribution exclusively to Professional investors, as defined pursuant to articles 11 and 13 of CVM Resolution no. 30, of May 11, 2021, as amended (“CVM Resolution 30”), therefore being subject to automatic registration of public distribution of securities, with no need for prior examination by CVM, pursuant to article 26, item V, sub-item (1), and article 27, item I, of CVM Resolution 160 and all other applicable legal, regulatory and self-regulatory provisions.
2.4.2. The Offering shall be subject to registration with ANBIMA - Brazilian Financial and Capital Markets Association ("ANBIMA"), pursuant to article 20, I, and 25, of ANBIMA's "Regulation and Best Practices
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Code for Structuring, Coordination and Distribution of Public Offerings of Securities and Public Offerings for Acquisition of Securities", in force since January 2, 2023, to compose the data base of ANBIMA according to specific rules and procedures regulated by ANBIMA Executive Board, within fifteen (15) days as from the submission of the Offering closure announcement to CVM. Pursuant to article 76 of CVM Resolution 160 (“Closure Notice”).
2.5. Filing for Distribution, Trading, Electronic Custody and Financial Settlement
2.5.1. The Debentures shall be filed for (a) public distribution in the primary market by means of the MDA - Securities Distribution Module, managed and operated by B3 S.A. - Brasil, Bolsa, Balcão - Balcão B3 ("B3"), and the distribution will be financially settled through B3; and (b) trading, in the secondary market, through CETIP21 - Títulos e Valores Mobiliários, managed and operated by B3, and the trades will be financially settled and the Debentures will be electronically held in custody at B3.
2.5.2. Notwithstanding what is described in Clause 2.5. 1 above, the negotiation of the Debentures: (i) may be freely traded among Professional Investors; and (ii) may only be traded in the secondary market among Qualified Investors, such Qualified Investors defined pursuant to article 12 of CVM Resolution 30 (“Qualified Investors”) after elapse of six (6) months as from the Offering closure date as set forth in article 86, item II, sub-item “a” of CVM Resolution 160. Notwithstanding the provision above, the Debentures may be negotiated in the secondary market by the general public after elapse of one (1) year as from the disclosure date of the Closure Notice, pursuant to article 86, item II, sub-item “b” of CVM Resolution 160.
3. CORPORATE PURPOSE OF ISSUER
3.1. According to Issuer's By-laws currently in force, Issuer's corporate purpose comprises: (i) the participation in the capital of other business or non-business companies, as quotaholder or shareholder, in Brazil and/or abroad; (ii) to organize, maintain and develop activities related to education and instruction in all its levels and degrees, in the terms of the principles under the specific legislation, provided that the education and teaching units that may come to be maintained by the Company will have their specific purposes in their respective by-laws; (iii) hold and participate in congresses, seminars, excursions and meetings with educational, cultural and social purposes; and (iv) carry out the retail trade of books, including digital books.
4. ALLOCATION OF THE PROCEEDS
4.1.1. The net proceeds raised by Issuer through the Issue of Debentures shall be fully used for (i) for retiming of the financial liabilities; and/or (ii) use of working capital.
4.1.2. For purposes of the provisions of Clause 4.1.1 above, "net proceeds" shall mean the proceeds raised by Issuer, by means of the payment of the Debentures, less the costs incurred for payment of expenses resulting from the Issue and the Offering.
4.1.3. Issuer shall send to Trustee, semiannually, as of the First Payment Date and until the total allocation of proceeds raised in this Issue is evidenced a statement on letterhead and signed by a legal representative, informing about the allocation of the proceeds of this Issue and indicating, including, the costs incurred for the payment of the expenses resulting from the Offering, pursuant to Clause 4.1.2, and Trustee may request from Issuer all eventual additional clarifications that may be reasonably necessary.
5. THE ISSUE
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5.1. Issue Number
5.1.1. This Indenture constitutes Issuer’s 2nd issue of Debentures.
5.2. Series Number
5.2.1. The Issue will be made in single series.
5.3. Total Amount of Issue
5.3.1. The total amount of Issue is of One Hundred and Ninety Million Brazilian Reais (R$1,950,000,000.00), on the Date of Issue (as defined below) (“Total Amount of Issue”).
5.4. Placement and Distribution Procedure
5.4.1. The Debentures shall be subject to public distribution, to be registered under the automatic distribution procedure, pursuant to the provisions of CVM Resolution 160, the Securities Law and other applicable legal and regulatory provisions, under a firm guarantee of placement for the totality of the Issue with the intermediation of a broker financial institution integrating the Brazilian securities distribution system ("Lead Arranger") under the "Public Distribution, Placement and Coordination Agreement of Simple Debentures, Non-Convertible into Stocks, of the Secured Type, with Additional Personal Guarantee in Single Series, for Distribution of the Second (2nd) Issue of Vitru Brasil Empreendimentos, Participações e Comércio S.A.", to be entered into among Issuer, Lead Arranger and Guarantors ("Distribution Agreement").
5.4.2. As set forth in the Distribution Agreement, the placement of the Debentures shall be performed by the Lead Arranger under a firm placement guarantee for the Total Issue Amount ("Firm Guarantee"), pursuant to the Distribution Agreement.
5.4.3. Partial distribution of the Debentures will not be allowed.
5.4.4. The Lead Arranges will organized the distribution plan, which an shall follow the procedure described in article 49 of CVM Resolution 160, as set forth in the Distribution Agreement (“Distribution Plan”)
5.4.5. The distribution period of the Offering will be of at least three (3) Business Days, except where all Debentures have been distributed within a shorter period, pursuant to article 59, paragraph 4 of CVM Resolution 160 and no more than one hundred and eighty (180) days as from the disclosure date of the distribution commencement notice, pursuant to article 48 of CVM Resolution 160.
5.4.6. Pursuant to CVM Resolution 30 and for purposes of the Offering, the following shall be deemed to be: (a) "Professional Investors": (i) financial institutions and other institutions authorized to operate by the Central Bank of Brazil; (ii) insurance companies and capitalization companies; (iii) open and closed pension fund entities; (iv) individuals or legal entities that hold financial investments in an amount greater than Ten Million Brazilian Reais (R$10,000,000.00) and that, additionally, attest in writing their condition of professional investor by means of a proper term, according to Exhibit A to CVM Resolution 30; (v) investment funds; (vi) investment clubs, as long as their portfolio is managed by a securities portfolio manager authorized by CVM; (vii) independent investment agents, portfolio managers, analysts and consultants of securities authorized by CVM, in relation to their own funds; and (viii) non-resident investors; and (b)"Qualified Investors": (i) Professional Investors; (ii) individuals or legal entities holding financial investments in an amount exceeding One Million Brazilian Reais (R$1,000,000.00) and that, additionally, attest in writing their status as qualified investors by means of a specific term, in accordance with Exhibit B to CVM Resolution 30; (iii) the natural persons that have been approved in technical qualification exams or hold certifications approved by CVM as requirements for the registration of independent investment agents, portfolio managers, analysts and securities consultants, in relation to their own funds; and (iv) investment clubs, provided that their portfolio is managed by one or more unitholders, who are qualified investors.
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5.4.6.1. The social security systems created by the Federal Government, the States, the Distrito Federal, or Municipalities, are considered as Professional Investors only if recognized as such in accordance with the specific regulation of the Social Security Ministry.
5.4.7. Issuer undertakes to: (a) not contact or provide information about the Offering to any investor, except if previously agreed with the Lead Arranger; and (b) inform the Lead Arranger of any contact it receives from potential investors that may express their interest in the Offering, within 1 (one) Business Day as of such contact, undertaking, as of now, not to take any action in relation to said potential investors during this period.
5.4.8. No minimum or maximum lots shall be established for the Offering.
5.4.9. The Issue and the Offering cannot have their value and quantity increased in any event, hence, there is no additional lot of Debentures, pursuant to article 50 of CVM Resolution 160. There will be no preference for subscription of the Debentures by Issuer's current shareholders
5.4.10. The Offering will have as target audience exclusively Professional Investors.
5.4.11. There will be no preference for subscription of the Debentures by Issuer's current shareholders
5.4.12. Subject to the provisions in the Distribution Agreement and pursuant to article 56 of CVM Resolution 160, the participation of Professional Investors who are Related Persons (as defined below) in the Offering may be accepted, without a maximum limit to such participation in relation to the volume of the Offering. The participation of Related Persons will be allowed upon submission to the Lead Arranger of investment intentions with no minimum or maximum lots set. Each Professional Investor will mandatorily inform its capacity as Related Person, as the case may be, under penalty of cancellation of its investment intention by the Lead Arranger.
5.4.12.1. On identification of an excess demand higher than one third (1/3) of the quantity of initially offered Debentures, placement of Debentures to Related Persons will not be allowed, and such investment intentions made by Professional Investors of the Offering who are Related Persons shall be automatically cancelled, pursuant to article 56 of CVM Resolution 160.
5.4.12.2. For the purposes of this Indenture and pursuant to article 2, item XVI, of CVM Resolution 160, “Related Persons” means Professional Investors who are: direct or indirect controllers or managers of the Debenture distribution syndicate’s members, of Issuer, as well as their spouses or companions, ascendants, descendants and collateral relatives up to the second (2nd) degree, companies directly or indirectly controlled by them, and where acting in the Issue or distribution of Debentures, all other persons considered as related, under the CVM regulation providing for rules and procedures to be complied with in transactions made with securities in the regulated markets.
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5.4.13. The distribution of the Debentures will be carried out in accordance with B3's procedures and with the Distribution Plan described in the Distribution Agreement and in this Indenture of Issue.
5.4.14. No liquidity support fund will be created. A market maker contract may be executed for the Debentures. No price stabilization agreement will be entered into for the Debentures in the secondary market.
5.5. Settlement and Bookkeeping Bank
5.5.1. The institution providing settlement services for the Debentures will be Itaú Unibanco S.A., a financial institution headquartered in the City of São Paulo, State of São Paulo, at Praça Alfredo Egydio de Souza Aranha, 100, CEP 04.344-902, enrolled with the National Register of Legal Entities of the Ministry of Finance (CNPJ) under No. 60.701.190/0001-04 ("Settlement Bank"). The institution providing bookkeeping services for the Debentures is Itaú Corretora de Valores S.A., a financial institution headquartered in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 3500, 3º andar (parte), CEP 04.538-132, enrolled with the National Register of Legal Entities of the Ministry of Finance (CNPJ) under No. 61.194.353/0001-64 ("Bookkeeping Agent").
5.5.2. The Bookkeeping Agent will be responsible for performing the bookkeeping of the Debentures, among other responsibilities defined in the rules issued by CVM and B3.
5.5.3. The Settlement Bank and the Bookkeeping Agent may be replaced at any time, upon approval by the Debenture Holders in a Debenture Holders General Meeting.
5.6. Guarantees
5.6.1. Personal Guarantee. In guarantee of faithful, timely, correct and full compliance with the main, accessory and/or default obligations, present and/or future, undertaken or that may be undertaken, before the Debenture holders within the scope of Issue under this Indenture of Issue, which includes the payment of the Debentures, including the Unit Par Value or the balance of the Unit Par Value, as the case may be, the Remuneration, the Default Charges, as well as the reimbursement of any and all costs, charges, expenses or amounts that Trustee, acting as representative and for the benefit of the Debenture Holders, may disburse, including on account of the creation and/or perfecting of the Guarantees (as defined below), and any and all other payments due from Issuer under this Indenture of Issue and the Fiduciary Assignment Agreement (as defined below), including the payment of costs, commissions, service providers' fees, charges and expenses provided for in this Indenture of Issue and all ancillary obligations, such as, but not limited to, late charges, fines, penalties, expenses, costs, out-of-court or court fees, indemnities resulting from final and non-appealable judgments, commissions and other contractual and legal charges, as well as any and all costs and expenses reasonably incurred according to (i) good judgment and reasonability criteria generally accepted in business relationships of this type; and (ii) the fiduciary duty inherent thereto by the Debenture Holders as a result of lawsuits, proceedings and/or other judicial or out-of-court measures necessary to safeguard the rights and privileges of the Debenture Holders set forth in this Indenture of Issue and to enforce the guarantees provided arising out of this Indenture of Issue and the Fiduciary Assignment Agreement (as defined below) ("Guaranteed Obligations"), the Debentures will rely on Personal Guarantee represented by Guarantors' Guarantee, binding and guaranteeing, as well as their successors under any title, as guarantors and principal payers, jointly and severally liable among themselves and with Issuer, on an irrevocable and irreversible basis, in favor of the Debenture holders, represented by Trustee ("Corporate Guarantee").
5.6.1.1. Any and all payments made by Guarantors in connection with the Corporate Guarantee shall be made free and net, without deduction of any present or future taxes, duties, fees, contributions of any nature, charges or withholdings, as well as any interest, fines or other tax liabilities, and Guarantors shall pay such additional amounts as may be necessary for the Debenture holders to receive, after such deductions, collections or payments, an amount equal to that which would have been received if such deductions, collections or payments were not applicable.
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5.6.1.2. Guarantors, by themselves and their respective successors under any title, bind themselves by this instrument and pursuant to law, irrevocably and irreversibly, before the Debenture holders, as joint debtors with Issuer and principal payers of all Guaranteed Obligations until the discharge of the Debentures, with express waiver of the benefits of order, rights and powers of release of any nature set forth in articles 333, sole paragraph, 364, 366, 368, 371, 821, 827, 829, sole paragraph, 830, 834, 835, 837, 838 and 839, of Law no. 10,406, of January 10, 2002, as amended ("Civil Code"), and in articles 130, 131 and 794 of Law No. 13,105, of March 16, 2015, as amended ("Code of Civil Procedure").
5.6.1.3. This Corporate Guarantee shall become effective on the Issue Date (as defined below) and shall remain valid and fully effective, in all its terms until full payment of the Guaranteed Obligations, and may be enforced and demanded by Trustee, judicially or extrajudicially, as many times as necessary until full settlement of the Guaranteed Obligations, including, but not limited to, in case of (i) additions amendments and any other modifications to the conditions set forth in this Indenture, the Distribution Agreement, the Fiduciary Assignment Agreement and the other documents of the Offering, or (ii) any limitation or incapacity of Issuer, including its request for out-of-court reorganization, request for judicial reorganization or bankruptcy, Trustee, for such purpose, shall immediately notify Issuer and Guarantors.
5.6.1.4. For the purposes of articles 829 and 835 of the Civil Code, Guarantors hereby declare that they have read and agree, in its entirety, with the provisions of this Indenture of Issue, being aware of the terms and conditions of the Corporate Guarantee provided and of the Debentures, as well as of the obligations assumed by them in connection with the Issue, declaring themselves jointly and severally liable for the payment of the Guaranteed Obligations until the Debentures have been fully settled and/or redeemed, even if such settlement occurs after the Maturity Dates.
5.6.1.5. Trustee shall request the judicial or extrajudicial enforcement of the Corporate Guarantee, according to the function attributed to it in this Indenture of Issue, once any event of insufficiency of payment of the Guaranteed Obligations is verified. The Corporate Guarantee may be enforced and demanded by Trustee as many times as necessary until the full and effective payment of all Guaranteed Obligations, provided that the non-enforcement of the Corporate Guarantee by Trustee will not give rise, in any event, to the loss of the right of execution of the Guarantee by the Debenture holders.
5.6.1.6. The Guaranteed Obligations shall be paid by Guarantors within three (3) Business Days from the receipt of the written communication sent by Trustee to Guarantors, with copy to Issuer, informing about the non-compliance with the payment, on any date on which it has become due, respecting the respective cure term, if applicable, or the early maturity of the Debentures under Section 8 of this Indenture. The payments shall be made by Guarantors, in accordance with the procedures set forth in this Indenture, without any claim, action, dispute or complaint that Issuer will or may have or exercise in relation to its obligations assumed under the Debentures and this Indenture.
5.6.1.7. The payments referred to in Clause 5.6.1.6 above shall be made outside the scope of B3 and in accordance with instructions received from Trustee, subject to the procedures set forth in this Indenture.
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5.6.1.8. No objection or opposition by Issuer may be admitted or invoked by Guarantors with the purpose of being released from the compliance with its obligations before the Debenture holders.
5.6.1.9. Guarantors shall not be relieved from their obligations hereunder by reason of acts or omissions that may relieve them of their obligations or affect them, including by reason of: (a) any change in the terms and conditions of the Debentures agreed upon between Issuer and the Debenture holders pursuant to this Indenture; (b) any novation or non-exercise of any right, action, privilege and/or guarantee of the Debenture holders against Issuer; and (c) any objection, opposition, limitation or inability of Issuer, including its application for extrajudicial recovery, application for judicial recovery, bankruptcy or proceedings of a similar nature.
5.6.1.10. The Corporate Guarantee under this Clause has been duly consented to in good faith by Guarantors, pursuant to applicable law.
5.6.1.11. Guarantors may make payment of any of the Guaranteed Obligations defaulted by Issuer, regardless of receipt of notice from Trustee, including during any cure period set forth in this Indenture, in which case the default of Issuer shall be deemed cured by Guarantors to the extent of the payment effectively made.
5.6.1.12. Upon the enforcement of the Corporate Guarantee subject matter of this Clause, Guarantors shall subrogate to the rights of the Debenture holders and/or of Trustee before Issuer, as applicable, observing that the subrogation shall occur only after the full payment of the payments related to the Debentures. Notwithstanding the provisions of this Clause, the Parties agree that: (i) Guarantors may only collect, demand, sue or receive any amount due to them by Issuer after full payment of the Guaranteed Obligations; and (ii) the payment of any amount due by Issuer to Guarantors, due to the subrogation under this Clause, may only be made after the settlement of any and all amounts due to the Debenture holders.
5.6.1.13. The Parties hereby acknowledge that the Corporate Guarantee is provided for a fixed term, for purposes of article 835 of the Civil Code, becoming effective as from the Issue Date (inclusive) and having as maturity date the date that corresponds to the date of full settlement of the Debentures, even if its maturity term has been extended or prolonged, under the terms of this Indenture.
5.6.1.14. Based on the financial statements for the fiscal year ended on December 31, 2022, UNIASSELVI's net assets are Three Hundred and Twenty-Two Million, Four Hundred and Sixty-Six Thousand Brazilian Reais (R$322,464,000.00), provided that said net assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by UNIASSELVI before third parties.
5.6.1.15. Based on the financial statements for the fiscal year ending December 31, 2022, SEVITA’s net assets are Four Million, Eight Hundred and Nineteen Thousand Brazilian Reais (R$ 4,819,000.00), provided that said assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by SEVITA before third parties.
5.6.1.16. Based on the financial statements for the fiscal year ending December 31, 2022, FAC’s net assets are Three Million, Seven Hundred and Eleven Thousand Brazilian Reais (R$ 3,711,000.00), provided that said assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by FAC before third parties.
5.6.1.17. Based on the financial statements for the fiscal year ending December 31, 2021, FAIR's net assets are Four Million, Two Hundred and Ninety-Three Thousand Brazilian Reais (R$ 4,293,000.00), provided that said assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by FAIR before third parties.
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5.6.1.18. Based on the financial statements for the fiscal year ending December 31, 2021, CESUMAR’s net assets are One Hundred and Thirty-Eight Million, Five Hundred and Thirteen Thousand Brazilian Reais (R$ 138,513,000.00), provided that said assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by CESUMAR before third parties.
5.6.2. Collateral. To ensure the faithful, full and timely performance of the Guaranteed Obligations, the Debentures will rely on the following collateral, which will be created in favor of the Debenture holders, by means of the execution of the Fiduciary Assignment Agreement (as defined below) and its registration in the competent Registry Office of Deeds and Documents ("Collateral" and, together with the Corporate Guarantee, "Guarantees"), namely the fiduciary assignment of (a) credit rights owned by CESUMAR (including emerging or indemnification rights, as applicable), current and/or future, as well as their accruals by way of fine, interest and other charges imposed thereon, arising from the payment of tuition fees by students of CESUMAR, due in consideration for the provision of education services provided by CESUMAR under the terms of the specific instruments herein agreed upon ("Receivables") and (b) the Bound Account (as defined in the Fiduciary Assignment Agreement) including any and all funds deposited (or credit rights to be received or deposited), for any purpose, in the Bound Account, regardless of where they are, including in transit or in the bank clearing phase, as well as their profits and earnings, including financial investments, income, rights, earnings, distributions and other amounts received or to be received or otherwise deposited or to be deposited to CESUMAR in the Bound Account ("Depositary Bank") in which the Minimum Flow (as defined in the Fiduciary Assignment Agreement) ("Receivables Fiduciary Assignment", and the "Collateral, respectively"), on the terms and conditions to be set forth in the " Fiduciary Assignment Agreement and Other Covenants", to be entered into among Issuer, CESUMAR, Issuer and Trustee, as representative of the Debenture holders, the "Fiduciary Assignment Agreement")
5.6.2.1. The Collateral shall be granted on an irrevocable and irreversible basis by CESUMAR, and shall remain in force until the full discharge of the Guaranteed Obligations, pursuant to this Indenture, the Fiduciary Assignment Agreement and other instruments related to the proper formalization of the Collateral.
5.6.2.2. In case Issuer fails to comply with the obligations set forth in the Fiduciary Assignment Agreement with respect to the registrations, Trustee is hereby authorized and empowered, irrevocably and irreversibly, as its attorney-in-fact, to promote such registrations, on behalf of Issuer, at its own expenses, under the Fiduciary Assignment Agreement, provided that Issuer shall reimburse any and all expenses, under the Fiduciary Assignment Agreement and this Indenture, without prejudice to the occurrence of the non-compliance of a non-monetary obligation by Issuer.
5.6.3. Personal Guarantee and Collateral. It is understood and agreed the non-exclusive, but, if and when applicable, cumulative nature between them, of the Corporate Guarantee and the Receivables Fiduciary Assignment, pursuant to this Indenture and the Fiduciary Assignment Agreement, and Trustee may execute or enforce all or each of them indiscriminately, in any order, for the purposes of amortizing or settling the obligations arising from this Indenture and/or the Fiduciary Assignment Agreement.
5.7. Change to the Offering. Pursuant to article 67, paragraph 2 of CVM Resolution 160, the change to the Offering does not depend on prior approval by CVM, however, as provided for in article 69, head paragraph, of CVM Resolution 160, the change shall be disclosed immediately, through means at least equal to those used for disclosure of the Offering, and the entities taking part in the distribution
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syndicate shall be ensured that at the time of receipt of the Offering acceptance document, the potential Professional Investors are aware that the original offering was changed and of the new conditions thereof.
6. THE DEBENTURES
6.1. Date of Issue
6.1.1. For all legal purposes, the date of issue of the Debentures will be May 5, 2023 (“Date of Issue”).
6.2. Yield start date
6.2.1. For all legal purposes, the yield start date shall be the First Payment Date of the Debentures ("Yield Start Date").
6.3. Form, type, and proof of title
6.3.1. The Debentures will be issued in registered book-entry form, without the Issue of certificates, and, for all legal purposes, their ownership will be evidenced by the deposit account statement issued by the Bookkeeping Agent and, additionally, with respect to the Debentures that are electronically held in custody at B3, as the case may be, a statement will be issued by B3 on behalf of the Debenture Holder, which will serve as proof of title of such Debentures.
6.4. Convertibility
6.4.1. The Debentures will be simple, i.e., non-convertible into stocks issued by Issuer.
6.5. Type
6.5.1. The Debentures shall be of the secured type, under article 58, caption, of the Brazilian Corporation Law, and additionally guaranteed by the Corporate Guarantee, under the Clause 5.6.1 above.
6.6. Term and Expiration Date
6.6.1. Subject to the provisions of this Indenture, the Debentures will have a maturity term of five (5) years counted from the Date of Issue, maturing, therefore, on May 5, 2028 ("Maturity Date ").
6.7. Unit par value
6.7.1. The unit par value of the Debentures will be One Thousand Brazilian Reais (R$ 1,000.00), on the Date of Issue ("Unit par value").
6.8. Number of Debentures issued
6.8.1. A total of one hundred and ninety thousand (190,000) Debentures will be issued.
6.9. Subscription Price and Payment Method
6.9.1.(i) The Debentures may be subscribed at any time as from the distribution start date disclosed by means of a distribution start notice, pursuant to article 13 of CVM Resolution 160, during the distribution period of the Debentures provided for in article 48 of CVM Resolution 160, and the Debentures shall be paid for in cash, in Brazilian currency, upon subscription, according to the settlement rules and procedures set forth by B3 (“Payment Date”) On the first payment date the Debentures will be paid in for the Unit Par Value (“First Payment Date”).
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If any Debenture is to be paid in on a date other than and subsequent to the First Payment Date, the payment will be based on the Unit Par Value plus the Debentures Remuneration, calculated pro rata temporis from the First Payment Date of the Debentures to the date of actual payment.
6.9.2. At the exclusive discretion of Lead Arranger, the Debentures may be subscribed with premium or discount, to be defined upon their subscription, as the case may be, provided that it is equally applied to all Debentures on each payment date.
6.10. Inflation Adjustment of the Debentures
6.10.1. The Unit par value or the balance of the Unit par value of the Debentures will not be adjusted by inflation.
6.11. Remuneration
6.11.1. On the Unit value of the 1st Series Debentures or on the balance of the Unit value of the Debentures, as applicable, will incur remuneration interest corresponding to the accumulated variation of 100% (one hundred percent) of the average daily rates of the DI - Interfinancial Deposit of one day, "over extra-group", expressed as a percentage per annum, based on two hundred and fifty-two (252) Business Days, calculated and published daily by B3 ("DI Rate"), plus an exponential spread of two point sixty percent (2.60%) per annum, based on two hundred and fifty-two (252) Business Days ("Remuneration of the Debentures").
The Remuneration will be calculated on an exponential and cumulative pro rata temporis basis per elapsed Business Days, levied on the Unit par value of the Debentures (or on the balance of the Unit par value of the Debentures) from and including the First Payment Date for the Debentures or the immediately preceding Payment Date for the Remuneration of the Debentures until the Payment Date for the Remuneration in question, the date of payment upon early maturity as a result of an Early Maturity Event (as defined below) or the date of an eventual Optional Total Early Redemption (as defined below), whichever occurs first. The Remuneration of the Debentures will be calculated in accordance with the following formula:
J = VNe x (Interest Factor –– 1)
where:
J = the unit value of the Debentures’ Remuneration due at the end of the
Capitalization Period (as defined below), calculated to eight (8) decimal digits, without rounding;
VNe = Unit par value or the balance of the Debentures' Unit par value, informed/calculated to eight (8) decimal digits, without rounding; and
Interest Factor = Interest Factor composed of the fluctuation parameter plus spread calculated to nine (9) decimal places, with rounding. Calculated as follows:
Interest Factor = (DI Factor x Spread Factor)
where:
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DI Factor = product of the DI Rates, using the percentage applied, from the Capitalization Period start date, inclusive, up to the calculation date, exclusive, calculated with eight (8) decimal digits, rounded off, calculated as follows:
where:
nDI = total number of DI-Over Rates, considered in the asset updating, being "nDI" a whole number;
TDIk = DI-Over Rate, expressed per day, calculated with eight (8) decimals with rounding, calculated as follows:
where:
DIk = DI-Over Rate, published by B3, valid for one (1) Business Day (overnight), used to two (2) decimal places; and
Spread Factor = fixed interest surcharge, calculated to nine (9) decimal places, rounded off, calculated as follows:
where:
Spread = 2,6000
n = the number of Business Days between the date of the next Capitalization Period and the date of the previous Capitalization Period, where "n" is a whole number;
DT = the number of Business Days between the last and the next Capitalization Period, where "DT" is a whole number; and
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DP = the number of Business Days between the last Capitalization Period and the current date, where "DP" is a whole number.
6.11.2. The product of the daily factors shall be carried out (1+TDIk), and at each accumulated daily factor, the result shall be truncated with sixteen (16) decimal digits, applying the next daily factor, and so on, until the last one considered; and
6.11.3. If the daily factors are accumulated, the resulting factor "DI Factor" shall be considered with eight (8) decimal places, rounded off.
6.11.4. The factor resulting from the expression (DI Factor x Spread Factor) is considered with nine (9) decimal places, rounded.
6.11.5. The DI Rate shall be used considering identical number of decimal places disclosed by the agency responsible for its calculation.
6.11.6. Subject to the provisions set forth in the paragraph below, if, at any time during the term of the Debentures, the DI Rate is not disclosed, the last DI Rate available up to the moment shall be applied for the calculation of the Remuneration, and no compensation shall be due between Issuer and the Debenture Holder upon the subsequent disclosure of the DI Rate that would be applicable.
6.11.7. In case the DI Rate is no longer disclosed for a period superior to thirty (30) days, or in case it is extinct, or there is a legal impossibility of application of the DI Rate for calculation of the Remuneration of the Debentures, Trustee shall, within a maximum period of up to five (5) Business Days as of the end of the aforementioned thirty (30) day period or of the extinction or inapplicability event, as the case may be, call a General Meeting of Debenture holders, in the form and within the terms set forth in Article 124 of the Brazilian Corporation Law and in this Indenture, as defined in Section 11 below, which shall have as purpose the resolution by the Debenture holders, in agreement with Issuer, of the new Remuneration parameter of the Debentures, parameter which shall preserve the real value and the same Remuneration levels.
6.11.8. If there is no agreement on the new parameter of Remuneration between Issuer and the Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures on first call or two-thirds (2/3) on second call, or there is no quorum for resolution or no quorum for installation on second call, Issuer shall redeem all the Outstanding Debentures, within thirty (30) calendar days as of the closing date of the respective General Debenture holders' Meeting or the date on which the respective General Debenture holders' Meeting should have been held, or within such longer period as may be mutually agreed at said meeting, at the Unit par value or the balance of the Unit par value of the Debentures, as the case may be, plus the Remuneration on the Debentures, due through the effective redemption date, calculated pro rata temporis, as of the First Payment Date of the Debentures, or the Payment Date of the immediately preceding Remuneration on the Debentures, as the case may be. The Debentures redeemed pursuant to this Clause shall be cancelled by Issuer. In this alternative, for calculation of the respective Remuneration of the Debentures to be redeemed, for each day of the period in which there is an absence of rates, the last officially disclosed DI Rate will be used.
6.11.9. The period for capitalization of the Remuneration ("Capitalization Period") is, for the first Capitalization Period, the interval of time that begins on the First Payment Date of the Series Debentures, , inclusive, and ends on the First Payment Date of the Remuneration of the Debentures, exclusive, and, for the other Capitalization Periods, the interval of time beginning on the immediately preceding, inclusive, Payment Date for the Debentures, inclusive, and ending on the subsequent,
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exclusive, Payment Date for Debentures. Each Capitalization Period succeeds the previous one without solution of continuity, until the respective Maturity Date of the Debentures.
6.12. Remuneration Payment
6.12.1. Without prejudice to the payments as a result of any early maturity of the obligations under the Debentures, the Optional Total Early Redemption of the Debentures, redemption of all Debentures as a result of the Early Redemption Offer or Optional Acquisition with cancellation of all Debentures, as provided for in this Indenture of Issue, the Remuneration will be paid semiannually, as of the Date of Issue, with the first payment due on November 15, 2023, and the other payments due always on the 5th day of May and November of each year, until the Maturity Date (each such date a " Remuneration Payment Date" and together, "Remuneration Payment Dates").
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Installment |
Payment Date of the Debentures |
1 |
November 5, 2023 |
2 |
May 5, 2024 |
3 |
November 5, 2024 |
4 |
May 5, 2025 |
5 |
November 5, 2025 |
6 |
May 5, 2026 |
7 |
November 5, 2026 |
8 |
May 5, 2027 |
9 |
November 5, 2027 |
10 |
Maturity Date of the Debentures |
6.12.2. Those who are Debenture Holders at the end of the Business Day preceding each Remuneration Payment Date set forth in this Indenture of Issue shall be entitled to payments on the Debentures.
6.13. Amortization of the Par Value
6.13.1. The balance of the Unit par value of the Debentures will be amortized in semiannual installments, as of the twenty-fourth (24th_ month (inclusive) counted from the Date of Issue, always due on the 5th day of the months of May and November, being that the first installment will be due on May 5, 2025, and the other installments will be due on each of the respective amortization dates according to the dates indicated in the 2nd column of the table below, and the last due on the Maturity Date of the Debentures (each, a " Debentures Amortization Date" and, together, the "Amortization Dates") and percentages set forth in the 3rd (third) column of the table below:
Installment |
Amortization Date of the Debentures |
Percentage of the balance |
1 |
May 5, 2025 |
4.2857% |
2 |
November 5, 2025 |
16.6667% |
3 |
May 5, 2026 |
20.0000% |
4 |
November 5, 2026 |
25.0000% |
5 |
May 5, 2027 |
33.0000% |
6 |
November 5, 2027 |
50.0000% |
7 |
Maturity Date of the Debentures |
100.0000% |
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6.14. Place of Payment
6.14.1. Payments to which Debentures are due will be made by Issuer on the respective due date using, as applicable: (a) the procedures adopted by B3 for Debentures held in custody electronically therein; and/or (b) the procedures adopted by the Bookkeeping Agent, for Debentures that are not electronically held in custody at B3.
6.15. Extension of Terms
6.15.1. Terms for the payment of any obligation will be extended until the 1st (first) subsequent Business Day if the due date coincides with a national holiday, Saturday or Sunday.
6.16. Delay Charges
6.16.1. Without prejudice to the Remuneration of the Debentures, in case of default in the payment by Issuer of any amount due to the Debenture holders, the overdue debts not paid by Issuer shall be subject to, regardless of notice, notification or judicial or extrajudicial interpellation: (i) a conventional, irreducible fine of a non-compensatory nature of two percent (2%); and (ii) default interest at the rate of one percent (1%) per month, from the date of default to the date of actual payment; both calculated on the amount due and unpaid ("Delay Charges").
6.17. Expiration of Rights to Accruals
6.17.1. Without prejudice to the provisions of Clause 6.16.1 above, the failure of the Debenture Holder to appear to receive the value corresponding to any of the monetary obligations of Issuer, on the dates set forth in this Indenture, or in a notice published by Issuer in the newspaper indicated in Clause 6.19 below, shall not entitle it to receive the Remuneration of the Debentures and/or Delay Charges in the period related to the delay in receiving, being assured, however, the rights acquired until the date of the respective maturity or payment.
6.18. Renegotiation
6.18.1. |
The Debentures will not be subject to scheduled renegotiation. |
6.19. Publication
6.19.1. Without prejudice to compliance with the provision of article 13 of CVM Resolution 160, all acts and decisions to be taken as a result of this Issue that, in any way, may involve the interests of the Debenture holders, shall be mandatorily communicated in the form of notices, in the Publication Newspaper of Issuer or other newspaper that may be designated for such purpose by Issuer, as well as on Issuer's website on the world wide web <https://www.vitru.com.br/> ("Notice to Debenture Holders"), subject to the provisions of article 289 of the Brazilian Corporation Law and the limitations imposed by CVM Resolution 160 in relation to the advertising of the Offering and the legal deadlines, and Issuer shall notify Trustee, B3 regarding any publication on the Date of Issue, provided that, in the event Issuer changes its Publication Newspaper after the Date of Issue, it shall send notice to Trustee informing the new vehicle for disclosure of its information.
6.20. Immunity of Debenture Holders
6.20.1. In case any Debenture Holder enjoys any type of tax immunity or exemption, such Debenture Holder shall forward to the Settlement Bank and to Issuer, within at least ten (10) Business Days prior to the date scheduled for receipt of any values related to the Debentures, documentation evidencing such tax immunity or exemption, provided that, in case the Debenture Holder does not send such
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documentation, Issuer will make the withholdings of taxes provided for in the tax legislation in force in the income of such Debenture Holder.
6.21. Risk Classification
6.21.1. Standard and Poor’s was hired as the rating agency that will perform the risk rating(("rating") of the Debentures ("Rating Agency"). The Rating Agency may, at any time, be replaced by rating companies Fitch Ratings or Moody’s Latin America, without the need of prior approval from the Debenture holders, and Issuer shall notify Trustee within five (5) Business Days as from the hiring of the new Risk Rating Agency.
6.21.2. During effectiveness of the Debentures, Issuer shall keep the Rating Agency hired at its expenses, to perform the annual update of the rating of the Debentures once at each calendar year.
6.21.3. The Issuer shall: (i) keep the rating of the Debentures updated once at each calendar year, based on the preparation date of the latest rating report; (ii) disclose or allow the Rating Agency to widely disclose to the market the reports with the summary reports of the ratings; (iii) deliver to Trustee the rating reports prepared by the Rating Agency within five (5) Business Days as from the date of receipt thereof by Issuer; and (iv) on the same date, notify Trustee of any change and the start of any rating revision process.
7. TOTAL OPTIONAL EARLY REDEMPTION, EARLY REDEMPTION OFFER AND OPTIONAL ACQUISITION
7.1. Total Optional Early Redemption
7.1.1. Subject to the provisions of the Clauses below, Issuer may, as from November 5, 2023, inclusive, at its sole discretion, make the total optional early redemption of the Debentures ("Total Optional Early Redemption of the 1st Series Debentures") and the Total Optional Early Redemption of the 2nd Series Debentures ("Total Optional Early Redemption of the Debentures"), and, the amount due by Issuer will be equal to (a) the Unit par value of the Debentures or the balance of the Unit par value of the Debentures, as the case may be, to be redeemed, plus (b) the Remuneration of the Debentures calculated on a pro rata temporis basis from the Yield Commencement Date, or immediately preceding the Remuneration Payment Date on the Debentures (inclusive), as the case may be, until the date of Effective Optional Total Early Redemption of the Debentures (exclusive), levied on the Unit par value or the balance of the Unit Par Value and other charges due and unpaid until the date of the Optional Total Early Redemption of the Debentures and (c) a flat premium equal to the percentages established in the table below, levied on the result of the sum of the amounts set forth in items (a) and (b) of this Clause, to wit:
Period |
Flat Fee of the Premium |
From November 5, 2023 |
0.70% |
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From November 5, 2024 |
0.55% |
From November 5, 2025 |
0.45% |
From November 5, 2026 |
0.35% |
From November 5, 2027 |
0.20% |
7.1.2. The Total Early Optional Early Redemption of the Debentures will be addressed to all Debenture holders without distinction, with equal conditions being ensured to all Debenture holders according to the terms and conditions provided for in the Clauses below.
7.1.2.1. If the date of performance of the Total Optional Early Redemption of the Debentures coincides with an Amortization Date and/or payment of Remuneration on the Debentures, the premium provided for in item (c) of Clause 7.1.1 above shall be calculated on the balance of the Unit par value after said payment.
7.1.3. The Total Optional Early Redemption of the Debentures shall only be performed by means of individual communication sent to the Debenture Holders, or publication of an announcement, pursuant to Section 6. 19 above, in both cases with a copy to Trustee, B3 and ANBIMA, ten (10) Business Days in advance of the date on which the effective Optional Total Early Redemption of the Debentures is intended to be made ("Redemption Notice"), and the said notice shall contain (a) the date of performance of the Total Optional Early Redemption of the Debentures, which shall be a Business Day; (b) the mention that the amount corresponding to the payment will be the Unit par value of the Debentures or balance of the Unit par value of the Debentures, as the case may be, plus (i) Remuneration, calculated as provided in Clauses 6.11.1.; (ii) of redemption premium, and (c) any other information necessary for the operationalization of the Total Optional Early Redemption of the Debentures.
7.1.4. The Total Optional Early Redemption of the Debentures for the Debentures electronically held in custody at B3 will follow the event settlement procedures adopted by B3. If the Debentures are not electronically held in custody at B3, the Total Optional Early Redemption of the Debentures will be carried out through the Settlement Bank.
7.1.5. The Debentures redeemed by Issuer, as provided for in this Section, shall be mandatorily cancelled.
7.1.6. The partial optional early redemption of the Debentures will not be admitted.
7.2. Early Redemption Offer
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7.2.1. Issuer may, at its sole discretion, as of May 15, 2024, exclusive, make an early redemption offer for all of the Debentures, addressed to all Debenture holders being assured to all Debenture holders equal conditions to accept the redemption of the Debentures held by them ("Early Redemption Offer").
7.2.2. Issuer will conduct the Early Redemption Offer by means of individual notice sent to the Debenture holders, with copy to Trustee, or publication of an announcement, pursuant to Clause 6. 19 above ("Early Redemption Offer Notice") 30 (thirty) Business Days in advance of the date in which the early redemption is intended to be made, and in said notice shall state (a) the amount of the redemption premium, if any; (b) the form of statement, to Issuer, by the Debenture holder accepting the Early Redemption Offer; (c) the effective date for the redemption of the Debentures, which shall be a Business Day and payment to the Debenture holders; and (d) other information necessary for decision making and operationalization by the Debenture holders.
7.2.3. After the communication of the terms of the Early Redemption Offer, the Debenture Holders that opt for adherence to said offer will have to manifest themselves to Issuer within the period and in the manner set forth in the Notice of Early Redemption Offer, which will occur on a single date for all Debentures, noting that Issuer may only redeem early the quantity of Debentures that has been indicated by their respective holders in adherence to the Early Redemption Offer.
7.2.4. Issuer may condition the Early Redemption Offer on acceptance by a minimum percentage of debentures, to be defined by Issuer when the Early Redemption Offer is made. Such percentage shall be stipulated in the Early Redemption Offer Notice.
7.2.5. The amount to be paid to the Debenture holders will be equal to the Unit par value of the Debentures or the Unit par value balance of the Debentures to be redeemed, plus (a) the Remuneration calculated pro rata temporis since the Commencement Date of the Yield, or the previous Remuneration Payment Date, as the case may be, until the date of the effective redemption of the Debentures object of the Early Redemption Offer and other charges due and unpaid until the date of the Early Redemption Offer, and (b) if applicable, the redemption premium indicated in the Notice of Early Redemption Offer.
7.2.6. The Debentures redeemed by Issuer, as provided in this Clause, shall be mandatorily cancelled.
7.2.7. The early redemption resulting from the Early Redemption Offer for the Debentures electronically held in custody at B3 will follow the settlement procedures adopted by B3. If the Debentures are not electronically held in custody at B3, it will be done through the Bookkeeping Agent.
7.2.8. B3 and ANBIMA shall be notified by Issuer as to the early redemption resulting from the Early Redemption Offer at least 3 (three) Business Days prior to the effective date of its execution, through correspondence with Trustee's agreement.
7.3. Optional Acquisition
7.3.1. Issuer may, at any time, acquire Outstanding Debentures, subject to the provisions of article 55, paragraph 3, of the Brazilian Corporation Law, and CVM Resolution 77, of March 29, 2022, and such fact, if so required by applicable legal and regulatory provisions, shall be included in the management report and financial statements of Issuer. The Debentures acquired by Issuer pursuant to this Section may, at Issuer's discretion, be cancelled, remain in Issuer's treasury, or be placed again in the market, subject to the restrictions imposed by CVM Resolution 160. The Debentures acquired by Issuer to remain in treasury, pursuant to this Section, if and when placed again in the market, shall be entitled to the same Remuneration applicable to the other Debentures
8. EARLY MATURITY
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8.1. The Debentures and all obligations set forth in this Indenture of Issue shall be deemed to have matured in advance, and Issuer shall immediately be required to pay the Unit par value of the Debentures or the balance of the Unit par value of the Debentures, as applicable, plus the respective Remuneration of the Debentures due, calculated pro rata temporis, since the Commencement Date of the Remuneration or the immediately preceding Remuneration Payment Date until the date of their effective payment, and the Delay Charges and fines, if any, since the occurrence of the events described in Clauses 8.1.1 and 8.1.2 below, subject to the eventual cure periods and respective procedures, when applicable (each one, an "Early Maturity Event").
8.1.1. Automatic Early Maturity Events: Subject to any applicable cure periods, the occurrence of any of the events indicated in this Clause 8.1.1 shall result in the automatic early maturity of the Debentures, without any extrajudicial notice, judicial summons, prior notice to Issuer or consultation with the Debenture Holders (each, an "Automatic Early Maturity Event"):
(a)delay or default, by Issuer and/or Guarantors, of any monetary obligation, principal or ancillary, related to the Debentures and/or provided for in this Indenture of Issue, in the Fiduciary Assignment Agreement, as applicable, and/or in the other documents of the Issue and the Offering, on the respective payment date, which is not fully cured within up to two (2) Business Days counted from receipt by Issuer of the notice on default, without prejudice to the payment of the Late Payment Charges by Issuer;
(b)invalidity, nullity, ineffectiveness, revocation, cancellation, termination, suspension or unenforceability of this Indenture of Issue, of the Fiduciary Assignment Agreement and/or of the other documents of the Issue;
(c)judicial questioning, by Issuer, Guarantors, Vitru Limited (“Vitry Ltd.”) and/or any of their respective Affiliates, as applicable, regarding the validity, legitimacy, existence, effectiveness or enforceability of this Indenture of Issue and/or the Fiduciary Assignment Agreement, and/or the other documents of the Issue and the Restricted Offering of the provisions and obligations set forth in this Indenture of Issue, the Fiduciary Assignment Agreement and/or the other documents of the Issue and the Offering. For purposes of this Indenture of Issue, "Affiliates" means the respective parent companies, subsidiaries, affiliates, companies under common control of Issuer, Guarantors and/or Vitru Ltd;
(d)(i) a decree of bankruptcy of Issuer, any of Guarantors, Vitru Ltd. and/or their Relevant Subsidiaries; (ii) a petition for self-bankruptcy filed by Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries
(iii) a petition for bankruptcy of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Controlled Subsidiaries, formulated by third parties, and not complied with within the legal term;
(iv) petition to the courts with a request for judicial or extrajudicial reorganization of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries, regardless of the granting or homologation of the respective request; (v) any similar event that characterizes a state of insolvency of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries, including agreement among creditors; (vi) filing by Issuers and/or Guarantors, for a mediation, conciliation or extrajudicial reorganization to any creditor or class of creditors, irrespective of a judicial ratification of the plan having be requested or granted, or further, any similar proceeding in another jurisdiction; or (vii) liquidation, dissolution or extinction of Issuer, any of Guarantors and/or Vitru Ltd;
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(e)in the event any statement made by Issuer and/or any of Guarantors in this Indenture or in any other document of the Offering is proved or proved to be false and/or misleading; (f)declaration of early maturity of any debt and/or monetary obligation, in Brazil or abroad, assumed in any agreements (including of financial nature, local or international), of Issuer, any of Guarantors, Vitru Ltd. and/or subsidiaries of Issuer that represent, individually, an amount equal or higher than five percent (5%) of the net equity of Issuer, calculated based on the last financial statements disclosed by Issuer ("Relevant Subsidiaries"), in unit or aggregate value equal or higher than Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the Broad National Consumer Price Index ("IPCA"), or its equivalent in other currencies, arising from loans or fund raising made by Issuer, by any of Guarantors, by Vitru Ltd. and/or by any of their respective Relevant Subsidiaries in the financial or capital markets in Brazil or abroad;
(g)assignment, promise of assignment or any form of transfer or promise of transfer to third parties, in whole or in part, by Issuer and/or any of Guarantors, of their respective rights and their respective obligations assumed in this Indenture and/or in the Fiduciary Assignment Agreement;
(h)non-compliance, by Issuer, with any judicial or administrative decision, whose effects have not been suspended within the legal term, or incus final arbitration award against Issuer, against any of Guarantors, against Vitru Ltd. and/or against any of their respective Relevant Subsidiaries, in an amount, individually or in aggregate, equal or superior to Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies;
(i)use of the net funds resulting from the Issue of Debentures in disagreement with the provisions of this Indenture;
(j)the conversion of Issuer’s corporate type, including conversion of Issuer into a limited liability company as provided for in article 220 to 222 of the Brazilian Corporations Law;
(k)contracting, by Issuer, of any new debt and/or monetary obligation, resulting from loans or fund raising, in the financial or capital markets in Brazil or abroad, in an amount higher than Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the IPCA, which has preference in the order of payment to the Debentures in competition among creditors (i.e, senior debt), except for debt with guarantees of any kind, provided that the respective guarantees are shared pari passu with the Debenture holders, it provided that, in the case of financings whose funds are specifically intended for the acquisition of other companies and that have a collateral guarantee on the totality of the shares/quotas issued by said companies to be acquired by Issuer, such guarantee will not be shared pari passu with the Debenture holders, and may benefit solely and exclusively the entity(ies) financing the acquisition in question
(l)reduction of Issuer's net assets, of any of Guarantors and/or of their respective Relevant Subsidiaries, without the prior and express approval of the Debenture holders, except when the purpose is the absorption of losses;
(m)spin-off, merger, incorporation (including of shares) or any form of corporate reorganization, in which Issuer and/or any of Guarantors, as the case may be, is, exclusively, the incorporator of another company, of the spun-off assets of another company or of the shares of another company, except if such operation (i) exclusively involves companies of their respective economic groups; (ii) does not result in non-compliance with the provisions of item (n) of this Clause 8.1.1 and in items (d) and (y) of Clause 8.1.2; and (iii) provided that it does not cause a Material Adverse Effect; or
(n)corporate reorganizations that imply a change in Issuer's and/or Guarantors' current control situation, except those in which there is an acquisition of control by any or some of the current relevant shareholders of Vitru Ltd, directly or indirectly (i.e., private equity funds managed by Vinci Partners, Carlyle/SPX, Neuberger Bermann and/or Crescera Capital), or with the prior consent of the Debenture holders at a General Meeting convened for this purpose; it being understood that the sale of equity interest is permitted without restrictions on the exit of current shareholders.
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8.1.2. Non-Automatic Early Maturity Events: Upon the occurrence of any of the events set forth in this Clause 8.1.2, if not cured within the applicable cure period, the provisions of Clause 8.3 and following of this Indenture of Issue (each, a "Non-Automatic Early Maturity Event") shall apply:
(a)default, by Issuer and/or by any of Guarantors, of any non-monetary obligation set forth in this Indenture of Issue or in the Fiduciary Assignment Agreement not cured within ten (10) Business Days from the date of the respective default, and the term set forth in this item shall not apply to the obligations for which a specific cure term has been stipulated;
(b)default of any debt and/or monetary obligation of Issuer, any of Guarantors, Vitru Ltd. and/or any of their respective Relevant Subsidiaries (even if in the capacity of guarantor), in an amount, individually or in aggregate, equal to or higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies, arising from loans or fund raising made by Issuer, any of Guarantors, Vitru Ltd. and/or any of their respective Relevant Subsidiaries;
(c)should any representation or warranty made by Issuer and/or any of Guarantors in this Indenture or in any other document of the Offering prove or prove to be incorrect, incomplete, inconsistent, outdated and/or insufficient on the date they were provided;
(d)assignment, sale, disposal and/or any form of transfer, by Issuer, any of Guarantors and/or any of their respective Relevant Subsidiaries, by any means, for free or against payment, of assets owned by Issuer that may cause a Material Adverse Effect;
(e)creation, by judicial measure, of any liens or encumbrances on the assets subject of the Guarantees, provided that they are not cured within twenty (20) days from the effective constitution of such liens or encumbrances or within the timeframe set by the competent authority, whichever is shorter;
(f)creation of personal guarantees, sureties or any Encumbrance (as defined below) on the assets of Issuer, of any of Guarantors and/or of any of their respective Relevant Subsidiaries, in an amount higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, subject to the provision of clause 8.1.1. item “(k)” above. For purposes of this Indenture, "Liens" means mortgage, pledge, fiduciary assignment, beneficial ownership, trust, sales promise, purchase option, preemptive right, charge, lien or encumbrance, attachment, sequestration or seizure, judicial or extrajudicial, voluntary or involuntary, or other act that has the practical effect similar to any of the above expressions) on assets of Issuer, any of Guarantors and/or any of their respective Relevant Subsidiaries;
(g) the Collateral becomes insufficient, ineffective, unenforceable, invalid, and/or in case any events occur that demonstrably affect in a relevant manner the Collateral provided, except in the cases of reinforcement or replacement of the respective guarantee, according to the terms and procedures described in the Fiduciary Assignment Agreement;
(h)if the Corporate Guarantee becomes insufficient, ineffective, unenforceable, invalid, and/or if any events occur that demonstrably materially affect the Corporate Guarantee provided;
(i)with respect to any of the assets subject matter of the Collateral and/or any of the rights thereto, under the Fiduciary Assignment Agreement, as applicable, termination, withdrawal, amendment or any form of alteration, disposal, sale, assignment, transfer, exchange, contribution to the capital, lending, borrowing, leasing, rental, lease, payment in kind, endorsement, discount or any other form of transfer or disposition, including by way of reduction of capital, or creation of any Encumbrance (as defined above, except for the creation of the Collateral), or permitting any of the foregoing acts to be performed, in any of the cases in this subsection, for free or charge, in whole or in part, directly or indirectly, pursuant to the terms and procedures described in the Fiduciary Assignment Agreement;
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(j)in the event Issuer is in default with any of the Guaranteed Obligations and/or is not complying with the Financial Ratios, the distribution of funds from the net income of each period by Issuer in the form of dividends, interest on equity, profit sharing, cash bonuses and other remunerations, the amount of which, individually or in aggregate, exceeds the mandatory minimum in accordance with the Brazilian Corporation Law for each period;
(k)alteration of the principal activities of the corporate purpose of Issuer and/or of any of Guarantors without the prior consent of the Debenture holders, as provided for in its By-laws or articles of association, as the case may be, in effect on the Date of Issue, except in the event of the addition of activities that are related or congeneric to the principal activities;
(l)redemption, repurchase, amortization or bonus of shares issued by Issuer, pursuant to Article 45 of the Brazilian Corporation Law, and/or shares of any of Guarantors, as applicable, unless the beneficiary is Issuer;
(m)execution, by Issuer, as a creditor, of loans with any third parties, except (i) up to the limit of Sixty Million Brazilian Reais (R$ 60,000,000.00), with a company whose capital is fully owned by Issuer, directly or indirectly; or (ii) with a direct or indirect subsidiary of Issuer, provided that (1) concomitantly with the loan made by the other shareholders of such direct or indirect subsidiary of Issuer; and (2) that the representative percentage of the loan made by Issuer corresponds to its interest in the capital stock, directly or indirectly, of the subsidiary in question or limited to Sixty Million Brazilian Reais (R$ 60,000,000.00), whichever is less;
(n)protest of titles for whose payment Issuer and/or any of Guarantors is liable in an amount, individually or in aggregate, equal to or higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies, unless Issuer and/or the Guarantor, as applicable, validly prove to Trustee that (a) the respective protest has been cancelled, (b) they have been provided by Issuer and/or the Guarantor, and accepted by the Judiciary, (c) the relevant protest was requested due to error or bad faith of the representative, or (d) it is taking reasonable measures to suspend the effects of such protest and such measures succeed in suspending the effects of such protest within twenty (20) days after the date of the relevant protest;
(o)the occurrence of any act or measure of any governmental authority that results in the effective seizure, control, expropriation, nationalization, condemnation or otherwise the compulsory acquisition of all or a substantial part of the assets, goods, properties and/or the shares of Issuer's capital stock and/or of any of Guarantors and/or the Collateral in an amount higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or that causes a Material Adverse Effect;
(p)administrative or judicial adverse judgment whose effects have not been suspended within the legal term, against Issuer, any of Guarantors and/or any of their respective Affiliates due to non-compliance with the Social and Environmental Legislation, including in relation to the practice of acts, provided that they case a Material Adverse Effect;
(q) administrative or judicial adverse judgment against Issuer, any of the Guarantors and/or any of their respective Affiliates due to failure to comply with the legislation that deals with the combat of race or gender discrimination, child labor or slave labor or crime against the environment; (r)inclusion of Issuer, any of Guarantors and/or their respective Affiliates in any kind of official list issued by a Brazilian governmental agency of companies that fail to comply with the Social and Environmental Reputational Legislation (as defined below);
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(s)inclusion of Issuer, any of Guarantors and/or their respective Affiliates in any kind of official list issued by the Brazilian government agency of companies that fail to comply with rules of a social and environmental nature, unless, not dealing with issues related to Social and Environmental Reputational Legislation, (i) the respective inclusion is cancelled within 10 (ten) Business Days or (ii) the Company is taking all necessary and applicable actions to arrange for the cancellation of the respective inclusion;
(t)non-obtaining, renewal, cancellation, revocation or suspension of authorizations, licenses and grants, including environmental ones, required for Issuer, Guarantors and their respective controlled companies, to operate, and that cause a Material Adverse Effect, except in cases where they are being contested in good faith before the competent authority;
(u)existence of violation by the Issuer, any of Guarantors, Vitru Ltd. and/or any of their respective Affiliates, of any provision of any law or regulation to which it is subject, of the practice of corruption or bribery acts, including the Anti-Corruption and Anti-Money Laundering Legislation (as defined below);
(v)inclusion of Issuer, any of Guarantors and their Relevant Subsidiaries in the National Registry of Companies Not in Good Standing and Suspended - CEIS, in the National Registry of Punished Companies - CNEP and/or in the Registry of Impeded Private and Non-Profit Entities - CEPIM or other similar registries in the state and/or municipal spheres;
(w)occurrence of any act or measure of any governmental authority (i) aiming at liquidating, dissolving or extinguishing Issuer and/or Guarantors, which is not being contested in good faith by Issuer and/or Guarantors, as applicable, in the judicial or administrative sphere and whose respective effects are not suspended; or (ii) that prevents the continued operation of the business of Issuer and/or Guarantors or causes a Material Adverse Effect (as defined below). For purposes of this Indenture, "Material Adverse Effect" means the occurrence of any adverse change in (i) the financial, economic, reputational, operating or regulatory conditions of Issuer and/or Guarantors that causes a material adverse effect on the ability of Issuer and/or Guarantors to perform their obligations under this Indenture, the Fiduciary Assignment Agreement and the other documents of Issue and the Offering, as applicable, and/or (ii) the reputational conditions of Issuer and/or Guarantors.
(x) no proof of the registration of CESUMAR Corporate Approval with JUCEPAR within the term of sixty (60) days as from execution of this Indenture;
(y)non-compliance, by Issuer, with any of the financial indexes below ("Financial Indexes") to be determined as indicated below based on the annual consolidated financial statements and/or consolidated quarterly information of Issuer, accompanied by Trustee until the Maturity Date and/or full payment of the amounts due by virtue of the Debentures, whichever occurs first, to be calculated based on the consolidated financial information of Issuer, duly audited or reviewed in accordance with the applicable accounting standards, by the independent auditors hired by Issuer:
Net Financial Debt/Adjusted EBITDA
(i)Four and a half times (4.5x), to be verified based on Issuer's audited consolidated quarterly financial information, and the calculation shall be based on the quarter ended June 30, 2023;
(ii)Four times (4.0x), to be verified on the basis of Issuer's audited consolidated financial statements, and the calculation based on the fiscal year ending December 31, 2023; and
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(iii)Three and a half times (3.5x), to be verified on the basis of Issuer's audited consolidated quarterly financial information, with the calculation being based on the quarter ended June 30, 2024; and
(iv)Three times (3.0x), to be verified based on Issuer's audited consolidated financial statements, as from fiscal year ending December 31, 2024, onwards.
Adjusted EBITDA*/Net Financial Result
(i)One and a half times (1.5x) to be verified based on Issuer's consolidated and revised or audited financial information, as applicable, being the calculation based on (a) the quarter ended June 30, 2023, (b) the fiscal year ended December 31, 2023, and (c) the quarter ended June 30, 2024; and
(ii)Two times (2.0x), to be verified based on Issuer's audited consolidated financial statements, being the calculation based on the fiscal year ended December 31, 2024 and the subsequent years until the maturity of the Debentures.
For the purpose of this item,
"Financial Debt" means, based on Issuer's consolidated and audited or reviewed financial statements, as the case may be, any amount due, in Brazil or abroad, as a result of (i) loans, financing or other financial debts, including leasing (except rental of properties), financial leasing, fixed income securities, debentures, bills of exchange, promissory notes or similar instruments; (ii) acquisitions payable; (iii) net balance of asset and liability transactions with derivatives (such balance to be net of what is already classified in current and non-current liabilities); (iv) letters of credit, sureties, co-obligations and other guarantees provided on behalf of companies not consolidated in the respective financial statements and (v) obligations arising from redemption of equity securities and payment of dividends or profits declared and not paid, if applicable, it provided that Financial Debt will not consider liabilities relating to commercial leases (rental of properties);
"Net Financial Debt" means based on Issuer's audited or reviewed consolidated financial statements, as the case may be, its Financial Debt less the sum of cash, short-term investments and marketable securities, free and clear of any Encumbrances;
"Adjusted EBITDA" means, based on the audited or reviewed consolidated financial statements, as the case may be, of Issuer for the immediately preceding twelve (12) months, the net income for the period, plus taxes (current and deferred) on income, net financial expenses, financial income, depreciation, amortization and depletion (including impairment charges), interest on tuition fees paid in arrears, share-based compensation plan expenses, Other income (expenses), net, and M&A, pre-offering expenses and restructuring expenses, all calculated in accordance with the definitions of the most recent Form 20-F of Vitru Ltd. And in line with IFRS standards, it being understood that, in addition, Adjusted EBITDA shall consider expenses with rent paid;
"Net Financial Result" means Financial Revenues less (-) Financial Expenses;
"Financial Income" means the sum of interest on financial investments, interest on loans and borrowings assets, monetary and foreign exchange assets, and hedge/derivative related income; and
"Financial Expenses" means the sum of interest on financial debts, loans, securities, discount on assignment of credit rights, structuring costs of banking or capital market operations, monetary and exchange rate passive variations, expenses related to hedge/derivatives, interest or fines for delay and/or non-payment of obligations, excluding interest on equity.
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8.2. The occurrence of any of the Early Maturity Events described in Clause 8.1.1 above will cause the automatic early maturity of the obligations under the Debentures, with the consequent consideration, by Trustee, of the early maturity of all obligations under the Debentures and demand of the payment of whatever is due, regardless of the calling of a General Meeting of Debenture Holders or the need to send any form of communication or notification to Issuer and/or Guarantors.
8.3. Upon the occurrence of any of the Early Maturity Events described in Section 8.1.2 above, Trustee shall call, within one (1) Business Day counted from the date it becomes aware of the event, a General Meeting of Debenture holders to resolve on the eventual non-declaration of early maturity of the obligations resulting from the Debentures.
8.3.1. In the General Meeting of Debenture holders mentioned in Clause 8.3, which shall be installed in accordance with the procedures and quorum set forth in Section 11 hereof, the Debenture holders may choose not to declare early maturity of the obligations resulting from the Debentures, by resolution of Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures, in which case Trustee shall consider the non-early maturity of the obligations resulting from the Debentures.
8.3.2. In the event the non-automatic early maturity of the Debentures is not approved in accordance with the quorum set forth in Clause 8.3.1 above, Trustee shall consider the early maturity of the obligations under the Debentures.
8.3.3. In the event a quorum for installation, on second call, of the General Meeting of Debenture Holders referred to in Clause 8.3 above is not obtained, Trustee shall consider the early maturity of the obligations under the Debentures.
8.3.4. In case of early maturity of the obligations under the Debentures, Trustee shall send, within one (1) Business Day, a communication with notice of receipt to Issuer ("Early Maturity Notice"), with copy to the Settlement Bank, informing such event, so that Issuer within up to three (3) Business Days as of the reception date of the Early Maturity Notice, make the payment of the value corresponding to the Unit par value of the Debentures, added of the Remuneration due until the date of the effective payment, also added of Delay Charges, if applicable, pursuant to this Indenture.
8.3.5. Once the Debentures mature in advance, pursuant to this Section 8, Trustee shall also immediately communicate to B3, informing the early maturity, whose procedures, in relation to the Debentures electronically held in custody at B3, shall follow the described in the B3 Operations Manual.
8.3.6. Notwithstanding the communication to B3 provided for in item 8.3.5 above, for the payment of the total Debentures to be made through B3, Issuer shall communicate B3 by means of a correspondence jointly with Trustee regarding such payment at least three (3) Business Days before the date set for its payment.
9. ADDITIONAL OBLIGATIONS OF ISSUER AND GUARANTORS
9.1. Subject to the other obligations set forth in this Indenture and the Fiduciary Assignment Agreement, until the outstanding balance of the Debentures is fully paid, Issuer and Guarantors, as applicable, further undertake to:
(i)In the case of Issuer, provide to Trustee:
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(a)within three (03) Business Days within ninety (90) days after the end of each fiscal year, or on the date of its disclosure, whichever occurs first: (i) a copy of its audited consolidated financial statements for the fiscal year then ended, prepared in accordance with accounting principles generally accepted in Brazil, accompanied by the management report and the opinion of the independent auditors, as well as a copy of any communication made by the independent auditors, or to the members of its management, and their respective responses, regarding such financial statements, the accounting system, management or accounts of Issuer or Guarantors, as the case may be; (ii) declaration signed by the legal representative(s) of Issuer, in the form of its By-laws certifying (1) that the provisions contained in this Indenture remain valid; (2) the non-occurrence of any of the events of early maturity set forth in Clause 8 and the non-existence of non-compliance with its obligations before the Debenture holders; and (iii) calculation memory for determination of the Financial Index, under the Clause 8.1.2(aa), containing all the necessary items that demonstrate the compliance with the Financial Indexes, which will be duly evidenced in the explanatory notes of the financial statements audited by the independent auditors hired by Issuer, under penalty of impossibility of follow-up of the referred Financial Indexes by Trustee, which may request to Issuer and/or to the independent auditors of Issuer all eventual additional clarifications that may be necessary;
(b)within three (03) Business Days within forty-five (45) days, counted from the closing of each quarter of the fiscal year (except for the fourth quarter of each fiscal year), its quarterly financial information, together with the calculation chart for determination of the Financial Indices as provided for in Clause 8.1.2(y), com all required initials evidencing fulfillment of the Financial Indices, which shall be duly proven in the notes to the quarterly financial information audited by the independent auditors retained by Issuer, on pain of impossibility for the Trustee to monitor said Financial Indices, which may request to Issuer and/or Issuer’s independent auditors all possible additional clarifications that may be needed;
(c)within three (03) Business Days within 90 (ninety) days after the end of each fiscal year, its annual budget;
(d)the Notices to Debenture holders, relevant facts and minutes of meetings that somehow involve Debenture holders' interests within up to five (5) Business Days from the date they are held;
(e)within ten (10) Business Days counted from the reception of the request, or in lesser term, if so determined by competent authority, any relevant information regarding the Debentures that may be requested to it, in writing, by Trustee, in order that it may comply with its obligations under this Indenture and the CVM Resolution No. 17, of February 9, 2021 ("CVM Resolution 17");
(f)copy of any correspondence or judicial or extrajudicial notification received that may cause an Event of Early Maturity to this Indenture, within five (5) Business Days after its reception
(g)within two (2) Business Days, information about the non-compliance with any clause, terms or conditions of this Indenture, or occurrence of an Event of Early maturity; and
(h)to forward to Trustee an electronic copy (PDF) with the due digital stamp of the JUCESC of the acts and meetings of the Debenture holders that integrate the Issue;
(ii)fulfill the provisions of the specific regulation edited by CVM, in the event a meeting of Debenture Holders is called, to be held in a partial or exclusively digital manner;
(iii)send to Trustee all the corporate acts, financial data and the organization chart of its corporate group, which shall contain, including, Affiliates and the companies integrating its control block in the closing of each fiscal year, all the information that may be requested by Trustee for the accomplishment of the report mentioned in line (l) of Clause 10.5.1 below, within up to 05 (five) Business Days counted from the date that they were requested;
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(iv)the proof of compliance with its monetary obligations before the Debenture holders within up to five (5) Business Days counted from the date of Trustee's respective request;
(v)inform Trustee, within up to two (2) Business Days counted from the date of its occurrence or from the respective receipt of communication of non-compliance with any obligation of Issuer and/or of Guarantors in contracts to which they are parties and that cause or may cause a Material Adverse Effect;
(vi)inform Trustee, within 2 (two) Business Days from the date of its occurrence, about any change in its financial, economic, commercial, operational, regulatory, reputational or corporate conditions or in its business, as well as any events or situations, including legal actions or administrative proceedings, that: (a) may cause a Material Adverse Effect; or (b) cause its financial statements or its quarterly financial information to no longer reflect its actual financial condition;
(vii)inform Trustee, within 2 (two) Business Days, about judicial, arbitration or administrative proceedings in which Issuer and/or Guarantors are parties or that involve the discussion of contracts to which Issuer and/or Guarantors are a party or that cause or may cause a Material Adverse Effect;
(iii)inform Trustee, within up to two (2) Business Days, about any tax, environmental, regulatory, labor, occupational health and safety or antitrust notifications, among others, issued by governmental agencies in relation to Issuer and Guarantors, as applicable, which cause or may cause a Material Adverse Effect;
(ix)inform Trustee, within 2 (two) Business Days, of any matters involving labor disputes or claims that cause or may cause a Material Adverse Effect;
(x)inform Trustee, within up to two (2) Business Days from the date of the occurrence of (a) non-compliance with the Social and Environmental Legislation (as defined below); (b) environmental damage that may cause a Material Adverse Effect; (c) commencement and/or existence and/or decision handed down in administrative or judicial proceedings of a social and environmental nature; or (d) any situation that causes or may cause a Material Adverse Effect, indicating, as applicable, the measures that should be adopted;
(xi)inform Trustee, within 2 (two) Business Days from the date of commencement of any action by any governmental authority to revoke, terminate, suspend, withdraw, adversely modify or withhold any license or approval required that causes or may cause a Material Adverse Effect;
(xii)comply with all determinations issued by CVM, with the submission of documents, providing, furthermore, the information that may be requested by CVM;
(xiii)not disclose to the public information regarding the Issuer, the Issue or the Debentures, in disagreement with the provisions of the applicable regulations, including, but not limited to, the provisions of article 11 of CVM Resolution 160;
(xiv) as from the moment the Offering becomes public, strictly comply with the provision in CVM Resolution 160, especially the provision in article 12 thereof and all other applicable legislation and regulation when disclosing information related to Issuer or the Offering.
(xv) except for the provisions in articles 12 and 35 of CVM Resolution 160, refrain from giving publicity to the Offering, including by means of a statement regarding Issuer, until disclosure of the Closure Notice; (xvi)refrain until disclosure of the Closure Notice, from trading securities issued by Issuer of the same type of the convertible or exchangeable Debentures referred therein, or securities in which the Debentures are convertible or exchangeable, except (a) in the events set forth article 54 , paragraph 2, of CVM Resolution 160, as applicable, or (b) in case of waiver granted by CVM;
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(xvii)not to perform operations outside its corporate object and not to practice any act in disagreement with its By-laws and/or with this Indenture
(xviii)obtain, observe the terms of, perform all necessary acts, and keep in full force all authorizations, approvals, permits, licenses, including environmental ones, issued or issued by the competent agencies, and consents required under the terms of the Brazilian legislation and regulations for the regular exercise of the activities developed by Issuer and by Guarantors and/or necessary to its operations, whose non-renewal, non-obtaining, cancellation, revocation, suspension or extinction, does not prevent the continuity of its operations, except if (i) are being contested in good faith and provided that a precedent condition is obtained, or (ii) are in a timely process of renewal, and (iii) in any case, provided that it does not cause a Material Adverse Effect;
(xix)comply with all obligations assumed under this Indenture, including, without limitation, the obligation to apply the net funds obtained through the Issue of Debentures strictly as described in Clause 4 above;
(xx)comply and cause its Affiliates to comply with all laws, regulations, administrative rules and determinations of governmental agencies, municipalities or courts, as applicable, in any jurisdiction in which Issuer and Guarantors conduct business or hold assets, except in cases in which Issuer and/or Guarantors and/or the Affiliates, as the case may be, are contesting in good faith the respective non-compliance, provided that the respective precedent condition is obtained and all measures are being taken for the fulfillment of the obligations in a diligent manner or whose non-compliance does not result in a Material Adverse Effect (except for compliance with laws, regulations and other environmental rules (including, but not limited to Law no. No. 6938, of August 31, 1981, as amended ("National Environmental Policy"), the Resolutions of CONAMA - National Environmental Council, and the other environmental and labor laws and regulations, relating to occupational health and safety, in force and/or legislation in force pertinent to Anti-Corruption and Anti-Washing, for which Issuer and Guarantors undertake to comply with them in full, without any reservations and/or qualifiers);
(xxi)comply by itself and its respective Affiliates and their respective administrators, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and in benefit of Issuer and/or Guarantors, as applicable, with the legislation in force regarding environmental crimes, slave-like labor, child labor race and gender discrimination, and encouragement of prostitution ("Social and Environmental Reputational Legislation"), as well as the labor laws in force regarding occupational health and safety, the inexistence of child labor (except by hiring apprentices, under the terms of the applicable legislation) or analogous to slavery, the employment of foresters, and non-encouragement of prostitution;
(xxii)comply by itself and its Affiliates, with the other environmental and labor and social security laws in force, as applicable, not mentioned in items (xxvii) and (xxviii) above, including Law no. 6938 of August 31, 1981, as amended (“National Environmental Policy”), the resolutions of the National Environmental Council - CONAMA (together with the legislation mentioned in item (xx) above, the "Socio-Environmental Legislation"), maintaining, furthermore, all legally required environmental licenses valid, exempted, with protocol with the public authorities, observing the terms foreseen in article 18, §4º, of the Resolution of the National Council of Environment - CONAMA nº 237 of December 19, 1997 and/or the deadlines set by the environmental agencies of the jurisdictions in which Issuer, Guarantors and/or their respective controlling companies, subsidiaries, affiliates or companies under common control, as applicable, as well as adopting the preventive or reparatory measures and actions destined to avoid and correct eventual damages to the environment and its workers, as well as proceeding with all the diligence required for its economic activities, preserving the environment and complying with the determinations of the Federal, State and Municipal Agencies that secondarily may legislate or regulate the environmental rules in effect, as applicable;
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(xxiii)take all necessary measures to:
(a) preserve all of its rights, title, licenses (including environmental licenses), permits and assets necessary to conduct its business, within its respective corporate purpose and customary business practices, except in cases where Issuer and/or Guarantors are contesting in good faith the non-preservation of such rights, title, licenses, permits and assets and the effects of such non-preservation are suspended or the preservation of such rights, title, licenses, permits and assets does not cause or is not likely to cause a Material Adverse Effect;
(b) pay or otherwise discharge, when due, subject to applicable grace periods, all of its obligations, including, but not limited to, tax, labor and commercial obligations; except that Issuer and/or Guarantors, as the case may be, are contesting in good faith the respective default or the failure to pay does not result in a Material Adverse Effect; and
(c) keep the assets necessary for the conduct of its main activities adequately insured, in accordance with the practices adopted by Issuer and with market practices, it provided that Trustee will not carry out any type of monitoring and control over such insurance(s);
(xxiv) always keep valid, effective, in perfect order and in full force all the authorizations required for the execution of this Indenture, the Fiduciary Assignment Agreement and of the other documents of the Restricted Offering and for the compliance with all the obligations set forth herein and therein;
(xxxv)not to perform operations in disagreement with its corporate purpose, observing the statutory, legal and regulatory provisions in force;
(xxvi)to hire and keep hired, at their expenses, during all the term of validity of the Debentures, the service providers inherent to the obligations set forth in this Indenture, including: (a) Trustee; (b) the Settling Bank and the Bookkeeping Agent; (c) the B3, and keep the Debentures registered for trading at B3, during the term of validity of the Debentures, bearing the costs of such registration;
(xxvii)timely pay for the services related to the Debentures' registration at B3 and CVM;
(xxvii)keep in compliance with the obligations related to taxes, tributes, fees, contributions of any nature, charges or withholdings, present or future, as well as any interest, fines or other tax liabilities, and other governmental obligations whose lack of payment does not result in a Material Adverse Effect, or that are being contested in good faith;
(xxix)provide Trustee, the CVM, ANBIMA and/or the B3 with any information requested respectively by each one, within the period indicated in the respective request;
(xxx)attend the General Meeting of Debenture holders in order to provide the information requested (xxxi)not assign, transfer or in any way dispose of any of its obligations related to the Debentures, without the prior and express approval of the Debenture holders;
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(xxxii)keep in force the structure of contracts and other existing agreements necessary to enable the operation and functioning of its activities or that are relevant in such a way that the non-maintenance of such contracts and agreements makes it impossible for Issuer and/or Guarantors, as the case may be, to comply with the obligations arising from the Debentures;
(xxxiii)maintain the obligations assumed in this Indenture as legally valid and binding obligations of Issuer and/or Guarantors, as the case may be, enforceable in accordance with its terms and conditions;
(xxxiv)comply by itself, its respective Affiliates and their respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, in the same extent as they are applicable, any law or regulation against the practice of corruption, crimes against the economic or tax order, bribery, "laundering" or concealment of assets, rights and values, or against the national financial system, the capital market or the national or foreign public administration, including, without limitation, illegal acts that may lead to administrative, civil or criminal liability, as applicable, under the terms, including, Laws No. 6,385, of December 7, 1976, No. 7,492, of June 16, 1986, No. 8,137, of December 27, 1990, No. 8,429, of June 2, 1992, No. 8,666, of June 21, 1993, no. 14.133, of April 1, 2021 (or other rules for public tenders and contracts), No. 9,613, of March 3, 1998, No. 12,529, of November 30, 2011, No. 12,846, of August 1, 2013, Decree No. 11.129, of July 11, 2022, Decree-Law No. 2,848/40, Decree No. 5,687, of January 31, 2006 enacting the United Nations Convention against Corruption, adopted by the United Nations General Assembly on October 31, 2003, U. S. Foreign Corrupt Practices Act of 1977, and the UK Bribery Act, the ordinances and normative instructions issued by the Comptroller General pursuant to the aforementioned law and ordinance, as well as all laws, decrees, regulations and other normative acts issued by a governmental authority with jurisdiction over Issuer and/or Guarantors in question related to this matter (together, the "Anti-Corruption and Anti-Money Laundering Laws"), and Issuer and Guarantors, as applicable to each of them, shall (a) maintain internal procedures that aim to disclose and ensure full compliance with the Anti-Corruption and Anti-Money Laundering Laws; (b) endeavor its best efforts to make its internal policies on Anti-Corruption and Anti-Wash Laws known to its Affiliates or any subcontractors and to all of its professionals prior to such hiring (c) to refrain from practicing any corruption and bribery acts, national and foreign, in its interest or for its benefit, exclusive or not; and (d) in case it has knowledge of any act or fact related to the mentioned rules, to communicate the Trustee within two (2) Business Days counted from the knowledge of such act or fact;
(xxxv)allocate the net proceeds of the Offering strictly under the Section 4 above, as well as ensure that they are not employed by Issuer and/or its respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer, (i) for the payment of illegal contributions, gifts or entertainment activities or any other illegal expense related to political activity; (ii) for the illegal payment, directly or indirectly, to public employees or officials, political parties, politicians or political candidates (including their family members), whether domestic or foreign; (iii) in any action designed to facilitate an illegal offer, payment or promise to pay, as well as to have approved or approved the payment, giving of money, property, gift or any other thing of value, directly or indirectly, to any "government official" (including any officer or employee of a government or of an entity owned or controlled by a government or public international organization or any person acting in the capacity of government official or political party candidate) in order to influence any political action or to obtain an improper advantage in violation of applicable law; (iv) in any acts to obtain or retain any improper business, transaction or business advantage; (v) in any payment or taking any action that violates any of the Anti-Corruption and Anti-Abuse Laws; or (vi) in an act of corruption, payment of a bribe or any other illegal amount, as well as influenced the payment of any improper amount;
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(xxxvi)exclusively with respect to Issuer, comply with the provisions of CVM Resolution 160, as applicable;:
(xxxvii) the controllers and managers of Issuer are responsible for the compliance with the obligations under item (xxxvi);
(xxxviii) notify Trustee, within three (3) Business Days from the date it becomes aware that Issuer, Guarantors, their Affiliates, and their respective administrators, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on their behalf and for the benefit of Issuer and/or of Guarantors, as applicable, are involved in an investigation, inquiry, action, proceeding and/or judicial or administrative proceeding, conducted by a domestic or foreign administrative or judicial authority, as applicable, related to non-compliance with the Anti-Corruption and Anti-Money Laundering Laws, and shall, when requested by Trustee provide copies of any decisions rendered and any judicial or extrajudicial agreements signed within the scope of the referred procedures, as well as detailed information about the measures adopted in response to such procedures, within three (3) Business Days from the respective request, provided that, for the purposes of this obligation, Issuer and/or Guarantors shall be deemed to be aware of (a) the receipt of a summons, subpoena or judicial or extrajudicial notification, issued by a domestic or foreign judicial or administrative authority, (b) the communication of the fact by Issuer and/or Guarantors to the competent authority, and (c) the adoption of a judicial or extrajudicial measure by Issuer and/or Guarantors against the violator;
(xxxix)not to offer, promise, give, authorize, request or accept, directly or indirectly, any undue advantage, pecuniary or of any nature, related in any way with the purpose of this Indenture, as well as not to practice injurious acts, violations or crimes against the economic or tax order, the financial system, the capital market or the public administration, national or foreign, as applicable, of "laundering" or occultation of assets, rights and values, terrorism or terrorism financing, foreseen in the applicable national and/or foreign legislation, and take all measures within their reach to prevent managers, employees, attorneys-in-fact, representatives, theirs or of their Affiliates, as well as suppliers, contractors or subcontractors from doing so;
(xl)keep, for a period of 5 (five) years as of the present date, or for a longer period by express determination of CVM, in case of administrative proceeding, all documents and information required by CVM Resolution 160, being that the documents and information may be kept in physical or electronic means, admitting the substitution of documents by the respective digitalized images; and
(xli)hire and keep hired at its expenses during effectiveness of the Debentures, the Rating Agency hired to assign the rating of the Issue, and further (a) update such rating once each calendar year as from the date of the first report until full discharge of the Debentures; (b)disclose or allow the Rating Agency to widely disclose the reports on such rating to the market; and (c) in the event the wide disclosure mentioned in item (b) above does not occur, inform Trustee of any downgrade of such rating on the same date that it receives the respective rating report, except that, in case the hired Rating Agency discontinues its activities in Brazil, has its registration or recognition cancelled or suspended at CVM, preventing it from operating as a rating agency, the Company shall (i) hire another rating agency without the need for approval from Debenture holders, being sufficient to notify Trustee, provided that such rating agency is Fitch Ratings or Moody’s; or (ii) in case the rating agency is not included among the recommended in item (l) above, within five (5) Business Days as from the date it becomes aware of the event, notify Trustee and call a General Debenture Holders’ Meeting, for the latter to define the substitute rating agency.
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10. TRUSTEE
10.1. Appointment
10.1.1. Issuer appoints Pentágono S.A. Distribuidora de Títulos e Valores Mobiliários above mentioned as Trustee of the Debenture holders of this Issue, and it hereby accepts the appointment to, under the terms of the law and this Indenture, represent before Issuer the Debenture holders.
10.2. Declaration
10.2.1. |
Trustee hereby declares under penalty of law that: |
(a) has verified the truthfulness of the information contained in this Indenture, having diligent to remedy the omissions, failures, or defects of which it has knowledge;
(b) has no legal impediment, according to paragraph 3 of the article 66 of the Brazilian Corporation Law and article 6 of the CVM Resolution 17, to perform the function that is conferred to it;
(c) accepts the function that is granted to it, fully undertaking the duties and attributions set forth in the specific legislation and in this Indenture
(d) fully accepts this Indenture, all of its clauses and conditions;
(e) has no connection with Issuer that prevents it from performing its functions;
(f) is aware of the Circular no. 1,832, of October 31, 1990, of the Brazilian Central Bank;
(g) is duly authorized to execute this Indenture and to comply with its obligations set forth herein, and all legal and statutory requirements necessary for such purpose have been satisfied;
(h) it not in any of the situations of conflict of interest set forth in article 6 of CVM Resolution 17;
(i) is duly qualified to perform the activities of trustee under the terms of the applicable regulation in force;
(j) this Indenture constitutes a legal, valid, binding and effective obligation of Trustee, enforceable according to its terms and conditions;
(k) the execution of this Indenture and the performance of its obligations hereunder are not in breach of any obligation previously assumed by Trustee; and
(l) based on the corporate organization chart made available by Issuer for the purposes of the provision in CVM Resolution 17, on the date of execution of this Indenture the Trustee identified that its provides services as trustee in the following issue of Issuer or of an affiliate, subsidiary, controlling company or member of the same economic group of Issuer, namely:
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Issue |
1st Issue of Debentures of Vitru Brasil Empreendimentos, Participações e Comércio |
Issue Total Value |
R$1,950,000,000.00 |
Quantity |
500,000 (1st Series); 1,450,000 (2nd Series) |
Type |
Collateral |
Guarantee |
Quota Fiduciary Assignment and Receivables Fiduciary Assignment |
Maturity Date |
5/15/2024 (1st Series); 5/15/2027 (2nd Series) |
Remuneration |
100% of the DI Rate + 2.60% p.a (1st Series); 100% of the DI Rate + 2.75% p.a. (2nd Series) |
Classification |
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10.3. Remuneration of Trustee
10.3.1. Issuer shall owe to Trustee by way of fees for performing the duties and attributions incumbent upon it, under the terms of the applicable legislation in force and of this Indenture, a remuneration performed through annual installments of Six Thousand Brazilian Reais (R$6,000.00), the first installment will be due up to the fifth (5th) Business Day counted as from the date of execution of this Indenture, and the following ones on the same day of the subsequent years. The first installment of the fees shall be due even if the Transaction is discontinued, as structuring and implementation, and the payment shall be made up to the fifth (5th) business day as from the notice of transaction cancellation.
10.3.2. In case it is necessary to hold a General Meeting of Debenture holders, or to enter into amendments or legal instruments related to the issue, an additional remuneration equal to Five Hundred Brazilian Reais (R$ 500.00) will be due to Trustee, per man-hour dedicated to activities related to the issue, to be paid within 5 (five) days after the delivery, by Trustee, to Issuer of the hours report. For the purposes of the concept of General Meeting of Debenture holders, all activities related to the meeting are included, and not only the analysis of the draft and attendance or virtual participation at the meeting. Thus, these activities include, but are not limited to, (a) analysis of the call notice; (b) participation in calls or meetings; (c) checking a quorum prior to the meeting; (d) checking a proxy prior to the meeting; and (d) amendments and contracts resulting from the meeting. For clarification purposes, "time report" is the material to be sent by Trustee indicating the task performed (for example, analysis of a certain document or participation in a meeting), the Trustee employee, the time spent on the function and the amount of time.
10.3.3. The above mentioned installments will be updated by the positive accumulated variation of the Broad National Consumer Price Index ("IPCA"), published by the Brazilian Institute of Geography and Statistics, or in its absence or impossibility of application, by the official index that replaces it, as of the payment date of the first installment until the payment dates of the subsequent installments, calculated pro rata die, if necessary.
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10.3.4. The remuneration set forth in Clause 10.3.1 above shall be due even after the final maturity of the Debentures, in case Trustee is still performing activities inherent to its function in relation to the Issue, and such remuneration shall be calculated on a pro rata die basis.
10.3.5. In case of delay in the payment of any amount due as a result of Trustee's remuneration, the debts in arrears will be, without prejudice to the monetary restatement, subject to: (a) a contractual fine of 2% (two percent) on the amount due and unpaid; and (b) default interest of 1% (one percent) per month, and the amount of the overdue debt will be subject to monetary adjustment by the IPCA, incident from the date of default until the date of the effective payment, calculated pro rata die.
10.3.6. The installments mentioned in the items above will be increased by the following Taxes: (a) ISS (Taxes on Services of Any Nature); (b) PIS (Contribution to the Social Integration Program); (c) COFINS (Contribution to the Financing of Social Security); (d) CSLL (Social Contribution on Net Profits); (e) IRRF (Withholding Income Tax); and (f) any other taxes that may be levied on Trustee's remuneration at the rates in effect on the dates of each payment.
10.3.7. The remuneration does not include expenses considered necessary for the exercise of Trustee function during the implementation and validity of the service, which will be covered by Issuer, upon payment of the respective charges accompanied by the respective receipts, issued directly on behalf of Issuer or upon reimbursement, after, whenever possible, previous approval, which are publications in general, notifications, notarial expenses, transportation, meals, travel and lodging, extraction of certificates, photocopies, scans, sending of documents, costs incurred in telephone contacts related to the Issue, expenses with experts, such as auditing and/or inspection, among others, or legal advice to Debenture holders.
10.3.8. All expenses with legal procedures, including administrative ones, which Trustee may incur in order to protect the interests of the Debenture Holders shall be, whenever possible, previously approved and advanced by the Debenture Holders, and subsequently, as provided by law, reimbursed by Issuer. Such expenses to be advanced by the Debenture holders correspond to expenses with third-party legal fees, deposits, costs and court fees for actions proposed by Trustee, as the Debenture holders' representative. The fees resulting from the defeat in lawsuits will be equally borne by Debenture holders, as well as Trustee's remuneration and expenses, in the event Issuer remains in default regarding their payment for a period superior to 30 (thirty) calendar days, and Trustee may request a prior guarantee from Debenture holders to cover the risk of defeat.
10.3.9. Trustee will not advance the funds for payment of expenses resulting from the Issue, and such funds will always be due and advanced by Issuer or Debenture holders, as the case may be;
10.3.10. Any additional obligations assigned to Trustee, provided that they are approved by Trustee, and/or changes in the Issue, will allow the Trustee to revise the fees submitted herein; and 10.3.9. Trustee's credit for expenses incurred to protect the rights and interests or to realize the Debenture holders' credits that have not been settled as set forth herein will be added to Issuer's debt and will enjoy the same guarantees as the Debentures, if applicable, and will be preferred to the Debentures in the payment order.
10.4. Replacement
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10.4.1. In the event of impediment, resignation, intervention, extrajudicial liquidation or any other case of vacancy, a General Meeting of Debenture Holders will be held within thirty (30) calendar days counted from the event that determines it, in order to choose the new Trustee, which may be called by Trustee itself to be replaced, by Debenture Holders representing at least 10% (ten percent) of the Outstanding Debentures, or by CVM. If the call is not made until fifteen (15) calendar days prior to the end of the above mentioned term, Issuer will be responsible for making it, observing the terms set out in the Brazilian Corporation Law, provided that CVM may nominate a provisory substitute while the process for choosing a new Trustee is not concluded.
10.4.2. The remuneration of the new Trustee will be the same already set forth in this Indenture, except if another one is negotiated with Issuer, being previously and expressly accepted in writing by Issuer, at the General Meeting of Debenture holders.
10.4.3. In case Trustee is not able to continue to perform its functions due to circumstances supervening to this Indenture, it shall immediately communicate the fact to the Debenture holders and to Issuer, by calling a General Meeting of Debenture holders, requesting its replacement.
10.4.4. The Debenture holders may, after the closing of the term for the distribution of the Debentures in the market, proceed with the replacement of Trustee and with the indication of its substitute, in a General Meeting of Debenture holders specially called for such purpose.
10.4.5. The replacement, on a permanent basis, of Trustee shall be communicated to CVM, within up to seven (7) Business Days, counted as from the registration in the appliable agencies of the amendment to the Indenture that deals with the respective substitution, and the referred communication shall be followed by the declaration set forth in the caption of article 5 of CVM Resolution 17 and other information and documents required in Paragraph 1 of the referred article.
10.4.6. The replacement of Trustee shall be subject to an amendment to this Indenture, under the Clauses 2.1.1(v), 2.2 and 2.3 of this Indenture.
10.4.7. Trustee will start exercising its functions as from the date of this Indenture, or, in case of a substitute Trustee, on the day of execution of the corresponding amendment to the Indenture, and shall remain in the exercise of its functions until its effective substitution or until the date of full liquidation of the Debentures, as applicable.
10.4.8. The CVM rules and precepts shall apply to the events of replacement of Trustee.
10.5. Duties
10.5.1. In addition to other duties set forth in law, in a normative act of CVM, in particular CVM Resolution 17, or in this Indenture, the duties and attributions of Trustee are:
(a)to perform its activities with good faith, transparency and loyalty towards the Debenture Holders;
(b)to protect the rights and interests of the Debenture holders, employing in the exercise of the function the care and diligence that every active and honest man usually employs in the administration of his own assets;
(c)to resign from the function, in the event of supervening conflict of interests or of any other modality of inaptitude, and to immediately call a General Meeting of Debenture holders, set forth in article 7 of CVM Resolution 17, to resolve on their replacement;
(d)to keep in good custody all documentation related to the exercise of its functions; (e)to verify, at the moment of accepting the function, the veracity of the information related to the Guarantees and the consistency of the other information contained in the Indenture, making sure that the omissions, failures or defects of which it has knowledge, are corrected
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(f)to work close to Issuer, so that the Indenture and its amendments are registered in the competent bodies, adopting, in case of Issuer omission, the measures eventually foreseen by law
(g)to follow up the rendering of periodic information by Issuer and to alert the Debenture holders, in the annual report referred to in line "l" below, Under article 15 of CVM Resolution 17, about inconsistencies or omissions of which it has knowledge
(h)to express an opinion about the sufficiency of the information provided in the proposals of modification of the conditions of the Debentures
(i)to verify the regularity of the constitution of the Guarantees, as well as the value of the assets given as guarantee, observing the maintenance of its sufficiency and feasibility in the terms established in the Indenture and in the Fiduciary Assignment Agreement;
(j)to examine the proposal of substitution of the assets given as guaranty, expressing its opinion about the subject in a justified manner;
(k)to notify, as the case may be, Issuer and/or other providers of Guarantees to reinforce the respective guarantee given, in case of its deterioration or depreciation, if applicable, under the terms of the Indenture and of the Fiduciary Assignment Agreement;
(l)to prepare an annual report intended to the Debenture holders, describing the relevant facts occurred during the fiscal year related to the Debentures, pursuant to line "b" of the paragraph 1 of the article 68 of the Brazilian Corporation Law and to article 15 of the CVM Resolution 17, which shall contain, at least, the following information:
(i)compliance by Issuer with its obligations to provide periodic information, indicating any inconsistencies or omissions of which it may be aware;
(ii)statutory changes occurred during the fiscal year with relevant effects for the Debenture holders;
(iii)comments on Issuer's economic, financial and capital structure indicators related to contractual clauses designed to protect the interests of Debenture holders and which establish conditions that should not be breached by Issuer;
(iv)number of Debentures issued, number of Debentures outstanding and balance cancelled in the period;
(v)redemption, amortization, conversion, renegotiation and interest payment of the Debentures made in the period;
(vi)the constitution and applications of the amortization fund or other types of funds, if any;
(vii)allocation of the funds raised through the Issue, according to the information provided by Issuer;
(viii)list of assets and values delivered to its administration, if any;
(ix)compliance with other obligations assumed by Issuer and by Guarantors in the Indenture; (x)maintenance of the sufficiency and feasibility of the Guarantees;
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(xi)existence of other issues of securities, public or private, made by Issuer, by a related, controlled, controlling company or member of the same group of Issuer in which it has acted in the same fiscal year as Trustee, as well as the following data on such issues:
(a) name of the offering company;
(b) amount of the issue;
(c) quantity of securities issued;
(d) type and guarantees involved;
(e) maturity and interest rate; and
(f) default in the period.
(xii)declaration on the non-existence of a conflict of interest situation that would prevent Trustee from continuing to exercise the function;
(m)to make the report referred to in item "l" above available on its website in the world wide web within a maximum period of 4 (four) months, as of the end of Issuer's fiscal year;
(n)to request, when deemed necessary for the faithful performance of its duties, updated certificates from the civil distributors, Public Treasury courts, protest registries, Labor Courts, Public Prosecutor's Office, the locality where the asset pledged as collateral is located, or the domicile or head office of the debtor, assignor, guarantor or co-obligor, as the case may be;
(o)to request, when deemed necessary, an external audit of Issuer;
(p)to call, when necessary, the General Meeting of Debenture holders, pursuant to article 10 of CVM Resolution 17;
(q)to attend the General Meeting of Debenture holders, in order to provide the information requested;
(r)to keep the list of Debenture Holders and their addresses up to date, including through representations before Issuer, the Settling Bank, the Bookkeeping Agent and the B3, (s) to oversee compliance with the provisions of this item, Issuer and the Debenture Holders, as soon as they subscribe, pay-in or acquire the Debentures, expressly authorize the Settlement Bank, the Bookkeeping Agent and B3 to comply with any requests made by Trustee, including disclosure, at any time, of the position of the Debentures and their respective Debenture Holders;
(s)to inspect the compliance with the clauses contained in the Indenture, specially those imposing the obligations to do and not to do;
(t)to communicate to the Debenture holders any default, by Issuer, of financial obligations assumed in the Indenture, including the obligations related to the Guarantees and to contractual clauses destined to protect the interest of the Debenture holders and that establish conditions that shall not be breached by Issuer, indicating the consequences for the Debenture holders and the measures that it intends to take regarding the matter, observing the term set forth in article 16, II, of CVM Resolution 17; (u)to monitor the destination of the funds raised through the Issue of the Debentures, according to the data obtained from Issuer's managers
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(v)to follow up, on each payment date, the full and punctual payment of the values due, as stipulated in this Indenture
(w)to make available daily the unit value of the Debentures, to be calculated by Issuer, to the Debenture holders and to the market participants, through its call center and its website; and
(x)Trustee will rely on the information made available to it by Issuer to follow up the compliance with the Financial Ratios.
10.5.2. The acts or statements of Trustee that create liability for the Debenture Holders and/or exonerate third parties from obligations with them will only be valid when previously resolved by the Debenture Holders gathered in a General Meeting.
10.5.3. Trustee's performance is limited to the scope of CVM Resolution 17 and applicable articles of Brazilian Corporation Law, being Trustee, therefore, exempt, under any form or pretext, from any additional liability that has not arisen from applicable laws and regulations.
10.5.4. Without prejudice to Trustee's duty of diligence, Trustee will assume that the original documents or certified copies of documents forwarded by Issuer or by third parties at its request have not been subject to fraud or tampering. It will also not be responsible, under any circumstances, for the preparation of Issuer's corporate documents, which will remain under Issuer's legal and regulatory obligation to prepare them, pursuant to applicable law.
10.6. Specific Duties
10.6.1. In the event of default on any obligations of Issue, Trustee shall use any and all measures provided by law or in this Indenture, to protect rights or defend the interests of the Debenture holders, pursuant to article 12 of CVM Resolution 17.
11. GENERAL MEETING OF DEBENTURE HOLDERS
11.1. General provisions
11.1.1. The Debenture holders may, at any time, meet in a general meeting, in accordance with the provisions of article 71 of the Brazilian Corporation Law, in order to resolve on matters of interest to the Debenture holders ("General Meeting of Debenture holders"), provided that:
11.1.1.1. Without prejudice to the other provisions of this Indenture of Issue, the General Meetings of Debenture holders may be held in an exclusively or partially digital form, subject to the provisions of CVM Resolution No. 81, dated March 29, 2022.
11.2. Call
11.2.1. The General Meeting of Debenture Holders may be convened by Trustee, by Issuer, by Debenture Holders representing at least ten percent (10%) of the Outstanding Debentures, or by the CVM.
11.2.2. The call shall be made by means of an announcement published, at least three (3) times, in the press organs in which Issuer shall perform its publications, in compliance with other rules related to the publication of announcement of general meetings call, set forth in the Brazilian Corporation Law, the applicable regulation and this Indenture.
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11.2.3. The General Meetings of Debenture holders shall be called in accordance with the deadlines set forth in the Brazilian Corporation Law in force at the time of the call.
11.2.4. The General Meeting of Debenture holders attended by the holders of all Outstanding Debentures shall be deemed regular, regardless of publications and/or notices.
11.2.5. The resolutions taken by the Debenture holders, within the scope of their legal authority, subject to the quorums established in this Indenture, shall exist, be valid and effective before Issuer and shall bind all the holders of Outstanding Debentures, regardless of attendance or vote cast at the respective General Meeting of Debenture holders.
11.3. Quorum
11.3.1. Pursuant to article 71, third paragraph, of the Brazilian Corporation Law, the General Meeting of Debenture Holders shall be convened, on first call, with the presence of Debenture Holders representing at least a majority of the Outstanding Debentures and, on second call, with any number of Debenture Holders.
11.3.2. For purposes of constituting any and all quorums for installation and/or resolution of the General Meeting of Debenture holders provided for herein, "Outstanding Debentures" shall be deemed to mean all Debentures subscribed, excluding those held in treasury by Issuer and/or by any of Guarantors and their respective controlled or affiliated companies, parent companies (or control group), companies under common control, as well as directors of Issuer or of Guarantors, including, but not limited to, persons directly or indirectly related to any of the aforementioned persons.
11.4. Chairman
11.4.1. The chairman of the General Meeting of Debenture holders will be held by the Debenture Holder elected by the Debenture holders or one appointed by CVM.
11.5. Quorum
11.5.1. In the resolutions of the General Meeting of Debenture Holders, each Outstanding Debenture shall be entitled to one vote, being allowed the appointment of a proxy, whether a debenture Holder or not.
11.5.2. Without prejudice to other quorums expressly set forth in the other Clauses of this Indenture, and observing the provisions of Clause 11.5.3 below, any and all matters related to the Debentures and to the Issue, which are subject to resolution in the General Meeting of Debenture holders, in relation to any obligations set forth herein, shall be approved by Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures.
11.5.3. Notwithstanding the provision in Clause 11.5.2 above, the resolutions related to: (i) changes related to the Issue Amount, Amortization Flow and Dates, Remuneration, Remuneration Payment Dates, Maturity Dates, any change related to Collateral or personal guarantees, Optional Total Early Redemption of the Debentures, Early Redemption Offer, Optional Acquisition, renegotiation, changes in the items that provide for Events of Early Maturity, term of the Debentures and/or devices about quorum set forth in this Indenture (except those that establish a specific quorum, as the case may be), and shall count with the approval of Debenture holders representing, at least, seventy-five percent (75%) of the
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Outstanding Debentures, in first call or second call; and (ii) waiver requests must be approved by Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures, on first call, and, at least two-thirds (2/3) of the Outstanding Debentures, on second call.
11.6. Other provisions applicable to General Meetings of Debenture holders
11.6.1. The presence of Issuer's legal representatives at the General Meetings of Debenture Holders convened by Issuer shall be mandatory, whereas at the General Meetings of Debenture Holders convened by the Debenture Holders or Trustee, the presence of Issuer's legal representatives shall be optional, unless when requested by the Debenture Holders or Trustee, as the case may be, in which case it shall be mandatory.
11.6.2. Trustee will attend the General Meetings of Debenture holders and provide Debenture holders with any information requested.
11.6.3. The provisions of Brazilian Corporation Law concerning general meetings of shareholders will apply, as applicable, to General Meetings of Debenture Holders.
12. REPRESENTATIONS AND WARRANTIES OF ISSUER E GUARANTORS
12.1. Issuer and each of Guarantors, respectively, represent and warrant to Trustee, as of the date of execution of this Indenture, that:
(a)Issuer is a stock corporation registered as a publicly-held company with CVM and Guarantors are limited liability companies, duly organized, incorporated and existing under the laws of the Federative Republic of Brazil, and they have the necessary qualification and authorizations to conduct the business in which they are currently engaged;
(b)it is duly authorized and has obtained all the authorizations, including, as applicable, corporate, legal, regulatory and of third parties (including creditors), necessary to execute this Indenture, the agreements necessary for the creation of the Collateral and the granting of the Corporate Guarantee, as applicable, to issue the Debentures and to comply with its respective obligations set forth in this Indenture and in the other documents related to the Issue and to the Offering, and all legal, corporate, regulatory, of third parties (including creditors) and statutory requirements necessary for such purpose have been satisfied;
(c)the obligations undertaken under this Indenture and the Fiduciary Assignment Agreement and in the other documents of Issue and of the Restricted Offering constitute legally valid, lawful, binding and effective obligations, enforceable in accordance with their terms and conditions;
(d)no registration, consent, authorization, approval, license, order of, or qualification with any governmental authority or regulatory body is required for the performance of its obligations under this Indenture or for the execution of Issue, except for the protocols, registrations and publications, as applicable, provided in Clause 2 above;
(e)the execution of this Indenture and the Fiduciary Assignment Agreement, as applicable, and the performance of Issue and the Restricted Offering: (i) do not breach its By-laws or articles of association, as applicable; (ii) do not breach any provision of law, contract or regulation to which Issuer and/or Guarantors, as applicable, and/or by which any of its assets are subject; (iii) are not in breach of any administrative, judicial or arbitral order, decision or judgment affecting Issuer and/or Guarantors, as applicable, or any of their assets; (v) are not in breach of any contract or instrument to which Issuer and/or Guarantors, as applicable, are a party or by which any of their assets are subject, nor will it result in: (1) the early maturity of any obligation set forth in any such contracts or instruments; (2) the creation of any Encumbrance on any assets or property of Issuer and/or Guarantors, as applicable, except for those already existing as of the date hereof and for those created as a result of the execution of this Indenture, the Issue of the Debentures and the establishment of the Guarantees; or (3) the termination of any such contracts or instruments;
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(f)there is no lawsuit, administrative or arbitration proceeding, inquiry or other type of investigation that may cause a Material Adverse Effect on Issuer and/or Guarantors;
(g)no Material Adverse Effect has occurred until the date hereof, and it has not omitted any fact, of any nature, that is known to it and that may result in an Event of Early Maturity or in the occurrence of a Material Adverse Effect
(h)it is in compliance with the obligations contained in this Indenture and the Fiduciary Assignment Agreement and no Event of Early Maturity has occurred, is not in progress and does not exist on the date hereof;
(i)the latest financial information disclosed in 2018, 2019 and 2020, respectively, adequately present the financial position of Issuer and/or Guarantors, as applicable, on the dates to which they relate, and have been duly prepared in accordance with the accounting principles determined by applicable regulations generally accepted in Brazil. Since the date of the most recent respective financial statements, there has been no adverse impact on its financial condition and results of operations in question, no transaction involving Issuer and/or Guarantors, as applicable, outside the normal course of its business, that is material to Issuer and/or Guarantors, as applicable, nor has there been any reduction in Issuer's and/or Guarantors' share capital or substantial increase in Issuer's and/or Guarantors' indebtedness, as applicable;
(j)_ the reference form of Issuer, prepared pursuant CVM Resolution no. 80 of March 29, 2022, as amended (“CVM Resolution 80”) (“Reference Form – Issuer”) is in effect and filed with CVM on the date of this Indenture and has all true, consistent, up-to-date and correct information in relation to Issuer and Guarantors, as required by CVM regulations;
(k) there are no other relevant facts in relation to Issuer and Guarantors that have not been disclosed in the Reference Form – Issuer, whose omission causes any declaration in the Reference Form – Issuer to be false, inconsistent, inaccurate, outdated, incorrect and/or insufficient;
(l)there is no breach of any contractual, legal provision or of any judicial, administrative or arbitral order, or any proceeding, judicial, administrative or arbitral, in any of the cases of this clause that may directly or indirectly seek to annul, alter, invalidate, question or in any way affect any of the obligations arising out of or related to the Debentures
(m)it has all the authorizations and licenses (including environmental) required by the federal, state and municipal authorities that are indispensable for the exercise of its activities, being all of them valid, except in case of good faith challenge, provided that the respective precedent condition is obtained or that they are in a timely process of renewal, provided that such absence does not cause a Material Adverse Effect
(n)there are no strikes or stoppages in progress related to Issuer and/or Guarantors;
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(o)is complying with the laws, regulations, administrative rules and determinations of governmental agencies, municipalities or courts, including, (i) with respect to itself and its Affiliates, its employees (including officers and/or partners with management powers), its employees, agents, representatives, suppliers, contractors, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, the Social and Environmental Legislation, applicable to the conduct of its business and maintenance of its properties in all its aspects; and (ii) with respect to itself and its respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, the Anti-Corruption and Anti-Money Laundering Laws, applicable to the conduct of its business and maintenance of its properties in all its aspects;
(p)especially as to the Socio-Environmental Legislation, adopts measures and preventive and reparatory actions, destined to prevent, mitigate, correct and/or compensate for any damages that may be caused to the environment or to its workers in the scope of the activities described in its corporate purpose, as applicable, as well as it proceeds to all the required and indispensable diligences for its economic activities, preserving the environment in the terms of the Socio-environmental Legislation and complying with the determinations of the municipal, state, and federal bodies that may subsidiarily legislate or regulate the Socio-environmental Legislation;
(q)its activities do not use child labor and/or labor in conditions analogous to slavery and/or employ forest dwellers, nor encourage prostitution;
(r)no statement, information, financial statement, document or report provided by Issuer and/or any of Guarantors under this Indenture of Issue contains, in any material respect, an untrue statement of a fact or an omission of a fact necessary to make the statements contained therein not misleading;
(s)it has not, as well as its Affiliates and their respective directors, partners with management powers, employees, agents, representatives, acting on its behalf or for the benefit of Issuer and/or Guarantors, been convicted in the judicial, arbitral or administrative spheres, for (i) crime against the environment, (ii) use of slave labor or child labor;
(t)the legal representatives who sign this Indenture have statutory and/or delegated powers to assume, on its behalf, the obligations set forth herein and, being proxies, had the powers rightfully granted, and the respective mandates are in full force and effect;
(u)the information provided until the closing of the Offering is true, consistent, correct, sufficient and up-to-date, so that investors interested in subscribing or acquiring the Debentures have knowledge of Issuer and of Guarantors, as the case may be, and their respective activities and financial situation, their responsibilities, in addition to the risks to their activities and any other relevant information for making informed investment decisions of investors interested in acquiring the Debentures, to the extent required by applicable law
(v)it has not omitted any fact, of any nature, that is of its knowledge and that may result in a change in its economic-financial, reputational or legal situation to the detriment of the Debenture holders
(w)the documents, information and informational materials provided to Trustee or the Debenture holders are correct, true, consistent, sufficient and up-to-date in all material respects, and are up to date as of the date they were provided, as applicable, and include the documents and information relevant for making an investment decision on the Debentures, and information has been made available on the relevant operations of Issuer and Guarantors, as applicable, as well as on the relevant rights and obligations arising therefrom;
(x) (i) it is aware and causes its respective administrators, partners with management powers, employees, agents or representatives, acting on its behalf and on behalf of Issuer and/or of Guarantors to be aware of the terms of the Anti-Corruption and Anti-Washing Laws; (ii) it has policies and procedures for compliance with said legislation; and (iii) it makes its best efforts to make its internal policies regarding the Anti-Corruption and Anti-Washing Laws known to its eventual subcontractors and to all its professionals prior to said hiring;
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(y)there is no, on this date, any conviction, action, administrative or legal proceeding or violation, as well as, to the best of its knowledge, there is not, on this date, any investigation process or inquiry related to any provision of any law or regulation, national or foreign related to the practice of corruption or acts harmful to the public administration, including the Anti-corruption and Anti-laundering Laws, by Issuer and/or Guarantors, their respective Affiliates and their respective administrators, partners with management powers, employees and representatives, acting on their behalf and for the benefit of Issuer and/or Guarantors;
(z)is fully aware and agrees with the form of disclosure and calculation of the DI Rate and that the form of calculation of remuneration of the Debentures was determined by its own free will, in compliance with the principle of good faith;
(aa)the information disclosed to the market by Issuer and Guarantors, pursuant to CVM Resolution 160, is true, consistent, correct and sufficient, allowing investors to make an informed decision regarding the Issue
(bb)it has disclosed all material facts with respect to Issuer, Guarantors or the Debentures, pursuant to CVM Resolution 160;
(cc)it is up to date with the payment of all relevant tax obligations (municipal, state and federal), except in cases in which (i) Issuer and/or Guarantors are challenging in good faith the respective payment in the administrative and/or judicial spheres, provided that they have made corresponding provisions, or (ii) cause a Material Adverse Effect; and
(dd)it holds all goods and assets considered indispensable for the faithful development and operation of Issuer's and Guarantors' activities, which are duly insured, in accordance with the practices adopted by Issuer and in line with market practices.
12.2. Issuer and/or Guarantors, as applicable, undertake to notify Trustee and the Debenture holders, within 3 (three) Business Days, counted from the respective occurrence, if any statements made herein with respect to themselves become totally or partially untrue, incomplete or incorrect.
13. MISCELLANEOUS
13.1. Notices
13.1.1. The notices to be sent by any of the Parties pursuant to this Indenture shall be forwarded to the following addresses:
If to Issuer and Guarantors:
Vitru Brasil Empreendimentos, Participações e Comércio S.A., Sociedade Educacional Leonardo da Vinci Ltda., Sociedade Educacional do Vale do Itapocu Ltda., Fac Educacional Ltda., Fair Educacional Ltda. e CESUMAR – Centro de Ensino Superior de Maringá Ltda.
Rodovia BR José Carlos Daux, nº 5500, sala T, 2º andar, Torre Jurerê A, bairro Saco Grande – CEP: 88032-005, Cidade de Florianópolis, Estado de Santa Catarina Attn.: Pedro Jorge Guterres Quintans Graça and Carlos Henrique Boquimpani de Freitas Pentágono S.A. Distribuidora de Títulos e Valores Mobiliários Avenida Brigadeiro Fria Lima, 2954, 10º andar, Cj. 101, Jardim Paulistano, São Paulo – SP,CEP 01451-000. Attn.: Mrs. Marcelle Motta Santoro / Mrs. Karolina Gonçalves Vangelotti / Mr. Marco Aurélio Ferreira Tel: (11) 4420-5920 E-mail: assembleias@pentagonotrustee.com.br
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E-mail: pedro.graca@uniasselvi.com.br and carlos.freitas@vitru.com.br
If to Trustee:
If to Settlement Bank:
Itaú Unibanco S.A.
Praça Alfredo Egydio de Souza Aranha, 100, São Paulo, CEP 04.344-902
Attn.: Mr. Breno Okamoto
Tel: (11) 3072-6035
E-mail: breno.okamoto@itau-unibanco.com.br
If to Bookkeeping Agent:
Itaú Corretora de Valores S.A.
Avenida Brigadeiro Faria Lima, 3500, 3º andar (part), São Paulo, CEP 04.538-132
Attn.: Mr. Breno Okamoto
Tel: (11) 3072-6035
E-mail: escrituracaorendafixa@itau-unibanco.com.br
If to B3:
B3 S.A. – Brasil, Bolsa, Balcão – Balcão B3
Praça Antônio Prado, 48– 6º andar
CEP 01010-901 – São Paulo – SP
Attn.: Superintendence of Corporate Securities Offerings and Funds
Tel: (11) 2565-5061
E-mail: valores.mobiliarios@b3.com.br
13.1.2. The notices relating to this Indenture shall be considered delivered when received under protocol or with "notice of receipt" issued by the Brazilian Post Office, by telegram or, further, by electronic mail, at the addresses above. The communications made by facsimile or electronic mail shall be considered as received on the date they are sent, provided that their receipt is confirmed by means of a receipt issued by the machine used by the sender.
13.1.3. The change in any of the addresses above shall be communicated immediately by the Party that has its address changed.
13.2. Waiver
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13.2.1. No waiver of any of the rights arising out of this Indenture shall be presumed. Thus, no delay, omission or liberality in exercising any right, power or remedy by Trustee and/or the Debenture holders by reason of any default of Issuer shall impair such rights, powers or remedies, or will be deemed as a waiver thereof or acquiescence in such default, nor shall it create novation or modification of any other obligations assumed by Issuer in this Indenture or precedent with respect to any other default or delay.
13.3. Truth of the Documentation
13.3.1. Without prejudice to Trustee's duty of diligence, Trustee will assume that the original documents or certified copies of documents forwarded by Issuer, by Guarantors or by third parties at its request have not been subject to fraud or tampering. Trustee will also not be under any circumstances responsible for the preparation of Issuer's corporate documents, which will remain under Issuer's legal and regulatory obligation under applicable law.
13.3.2. In order to provide the specified services and to make the necessary decisions with respect to the provisions of this Indenture, Trustee shall not be responsible for verifying the sufficiency, validity, quality, truthfulness or completeness of the corporate resolutions, the acts of management or of any document or record of Issuer which it considers authentic which has been or is forwarded to it by Issuer or its employees.
13.4. Extrajudicial Enforcement Instrument and Specific Performance
13.4.1. This Indenture and the Debentures constitute extrajudicial enforcement instruments under article 784, subparagraphs I and II of the Code of Civil Procedure, and the Parties hereby acknowledge, without any other applicable measures, that the obligations undertaken under this Indenture will serve as specific performance and are subject to the provisions of articles 815 and following of the Code of Civil Procedure, without prejudice to the right to declare the early maturity of the Debentures under this Indenture.
13.5. Counting of Terms
13.5.1. Except as otherwise specifically provided for in this Indenture, the terms established in this Indenture shall be counted in accordance with the rule prescribed in article 132 of the Civil Code, and the day of the beginning is excluded and the day of the maturity is included.
13.6. Irrevocability and Successors
13.6.1. This Indenture is executed on an irrevocable and irreversible basis and is binding upon the Parties and their successors.
13.7. Severability and Interpretation of Headings of the Clauses
13.7.1. If any of the provisions of this Indenture is held as illegal, invalid or ineffective, all other provisions hereof shall prevail, and the Parties undertake, in good faith, to replace the affected provision by another that, to the extent possible, produces the same effect.
13.7.2. The holding of a General Meeting of Debenture holders is waived to resolve on: (i) the correction of typing, verbal agreement, accentuation or arithmetic errors; (ii) amendments to any documents of the Issue already expressly permitted under the terms of the respective document(s); (iii) amendments to any documents of the Issue due to requirements formulated by the CVM, B3 or ANBIMA; or (iv) due to the updating of the Parties' registration data, such as change in the corporate name, address and telephone number, among others, provided that the changes or corrections referred to in items (i), (ii), (iii) and (iv) above may not cause any loss to the Debenture Holders or any change in the flow of the Debentures and provided that there are no additional costs or expenses for the Debenture Holders.
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13.7.2.1. Notwithstanding the waiver of the General Meeting of Debenture holders to resolve on the matters indicated in Clause 13.7.2 above, the Parties shall remain obliged to take all measures, as well as to prepare, execute and register all documents required for purposes of correction of errors or alteration to the Issue documents, in the events set out in items (i) to (iv) of Clause 13.7.2.
13.8. Expenses
13.8.1. Issuer shall bear all costs: (a) resulting from the public placement of the Debentures, including all costs related to their registration at B3 and CVM; (b) of registration and publication of all acts necessary for the Issue, such as this Indenture, any amendments thereto and the corporate acts of Issuer; and (c) for expenses with the hiring of Trustee, the Rating Agency, the Settlement Bank and Bookkeeping Agent, and the debentures trading system in the secondary market of B3.
13.9. Governing Law
13.9.1. |
This Indenture is governed by under the Laws of the Federative Republic of Brazil. |
13.10. Electronic Signature and Jurisdiction
13.11. This Indenture shall be signed by electronic, digital and/or computerized means, provided that the Parties acknowledge this form of contracting as valid and fully effective, constituting a legitimate and sufficient form for the proof of identity and validity of the Parties' statement of will to execute eventual amendments, and shall, in any case, comply with the rules in force for verification of the authenticity of the Parties' signatures, provided that it is established with certification within the ICP - BRASIL standards, in accordance with article 107 of the Civil Code and article 10, Paragraph 1, of Executive Order No. 2,200-2 of August 24, 2001.
13.12. The Parties agreed for all legal purposes, that the starting date of the effects from this Indenture will be the date of this instrument, even if any of the Parties signs this Indenture electronically on a subsequent date for any reason whatsoever, in which event the Parties hereby agree with the retroaction of the effects of this instrument to the date mentioned herein.
13.12.1. The courts of the City of São Paulo, State of São Paulo, are hereby elected to settle any doubts or controversies arising out of this Indenture, with the exclusion of any other, no matter how privileged it may be or may become.
In witness whereof, the Parties have executed this indenture electronically, together with two (2) witnesses, who also sign it.
São Paulo, May 5, 2023.
(The signatures are available on the following pages)
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(Signature page 1/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
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Title: CEO |
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Title: CFO |
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(Signature page 2/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
PENTÁGONO S.A. DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS
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/s/ Marcelle Motta Santoro |
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Name: Marcelle Motta Santoro |
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Title: Officer |
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(Signature page 3/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA.
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
Title: CEO |
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Title: CFO |
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(Signature page 4/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
SOCIEDADE EDUCACIONAL DO VALE DO ITAPOCU LTDA.
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
Title: CEO |
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Title: CFO |
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(Signature page 5/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
FAC EDUCACIONAL LTDA
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
Title: CEO |
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Title: CFO |
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(Signature page 6/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
FAIR EDUCACIONAL LTDA.
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
Title: CEO |
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Title: CFO |
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(Signature page 7/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA.
/s/ Pedro Jorge Guterres Quintans Graça |
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/s/ Carlos Henrique Boquimpani de Freitas |
Name: Pedro Jorge Guterres Quintans Graça |
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Name: Carlos Henrique Boquimpani de Freitas |
Title: CEO |
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Title: CFO |
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(Signature page 8/8 of the “Indenture of the Second (2nd) Issue of Non-Convertible into Stocks, Simple Debentures of the Secured Type and with Additional Personal Guarantee in Single Series, for Public Distribution, under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
WITNESSES:
/s/ Juciane Fernanda Locatelli |
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/s/ Camila Souza |
Name: Juciane Fernanda Locatelli |
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Name: Camila Souza |
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Exhibit 4.9 |
INDENTURE OF THE THIRD (3RD) ISSUE OF NON-CONVERTIBLE INTO STOCKS, SIMPLE DEBENTURES OF THE UNSECURED TYPE WITH ADDITIONAL PERSONAL GUARANTEE IN UP TO TWO SERIES FOR PUBLIC DISTRIBUTION UNDER AUTOMATIC REGISTRATION PROCEDURE OF VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
ENTERED INTO BY AND AMONG
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.,
as Issuer,
VÓRTX DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS LTDA.
as Trustee,
and
SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA.; and
CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA
as Guarantors.
Dated October 30, 2023
INDENTURE OF THE THIRD (3RD) ISSUE OF NON-CONVERTIBLE INTO STOCKS, SIMPLE DEBENTURES OF THE UNSECURED TYPE WITH ADDITIONAL PERSONAL GUARANTEE IN UP TO TWO SERIES FOR PUBLIC DISTRIBUTION UNDER AUTOMATIC DISTRIBUTION REGISTRATION PROCEDURE OF VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
By this indenture,
(1)VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A., a stock corporation registered as a category “B” publicly-held corporation with the Brazilian Securities Commission ("CVM"), in operating phase, with its principal place of business located in the City of Florianópolis, State of Santa Catarina, at Rodovia José Carlos Daux, n. 5500, sala T, 2º andar, Torre Jurerê A, Saco Grande - CEP: 88.032-005, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 20.512.706/0001-40, herein represented under its By-laws (hereinafter referred to as "Issuer"); (2)VÓRTX DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS LTDA., a financial institution, with its principal place of business in the City of São Paulo, State of São Paulo, at Rua Gilberto Sabino, no.
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and, on the other hand,
215, 4º andar, Pinheiros, CEP 05425-020, , enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ") under No. 22.610.500/0001- 88, as representative of common interests of the holders of the debentures under this issue ("Debenture holders"), pursuant to Law No. 6,404, of December 15, 1976, as amended ("Brazilian Corporation Law"), and CVM Resolution no. 17, of February 9, 20221 (“CVM Resolution 17”) herein represented under its Articles of Association (hereinafter referred to as "Trustee");
and, also, as Guarantors,
(3) SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA., a limited liability company, with its principal place of business located in the City of Indaial, State of Santa Catarina, at Rua Doutor Pedrinho, no. 79, Sala 01, Rio Morto, CEP 89.082.262, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ") under No. 01.894.432/0001-56, herein represented under its Articles of Association (hereinafter referred to as “UNIASSELVI”); e
(4) CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA., a limited liability company, with its principal place of business located in the City of Maringá, State of Paraná, at Avenida Guedner, no, 1.610, Zona 8, CEP 87.050-390, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 79.265.617/0001-99, herein represented under its Articles of Association; (“CESUMAR” and, jointly with UNIASSELVI, hereinafter referred to as “Guarantors”);
Issuer, Trustee and Guarantors are hereinafter referred to collectively as the "Parties" and individually and severally as a "Party";
hereby agree upon to enter into this “Indenture of the third (3rd) Issue of Non-Convertible into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in up to two Series for Public Distribution under Automatic Distribution Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.” (hereinafter referred to as “Indenture” or “Indenture of Issue”), under the following terms and conditions:
For the purposes of this Indenture, "Business Day(s)" shall mean any day, other than Saturday, Sunday or nationally declared holiday.
1. AUTHORIZATION
1.1. Authorization for Issue by Issuer
1.1.1. This Indenture of Issue is entered into pursuant to authorization of the Meeting of Issuer’s Board of Directors held on October 27 2023 (“Issuer RCA” and together with Issuer EGM,) whereat resolutions were passed and approved, as applicable: (a) the terms and conditions of Issue (as defined below) and the Offering (as defined below) and (b) the express authorization to Issuer's executive board to perform all acts, take all actions and adopt all measures necessary for the formalization, implementation and administration of the resolutions taken at Issuer’s RCA, as well as the execution of any and all documents related to the Issue and the Offering, including, but not limited to, the Indenture of Issue the Distribution Agreement (as defined below), and any amendments to such instruments (if necessary), including the amendment to this Indenture of Issue, which will ratify the results of the Bookbuilding Procedure (as defined below), as well as contracting the service providers necessary for the implementation of Issue and the Offering, pursuant to article 59 of the Brazilian Corporation Law, and in compliance with Law no. 6,385, of December 7, 1976, as amended ("Securities Law"), and with the Brazilian Securities Commission Resolution ("CVM") No. 160, of July 13, 2022, as amended ("CVM Resolution 160").
1.2. Authorization for Creation of Guarantee by Guarantors
1.2.1. Based on the resolutions taken at the shareholders' meetings of each of Guarantors, all of which were held on October 27, 2023 ("Guarantors Corporate Approval" and, together with Issuer’s RCA, "Corporate Approvals"), it was resolved and approved: (a) to grant the Guarantee (as defined below) by each of Guarantors, hereby; and (b) to authorize the
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management of each of Guarantors to take any and all actions, perform all acts and enter into all documents necessary to give effect to the resolutions evidenced in Guarantors Corporate Approvals.
2. REQUIREMENTS
The third (3rd) issue of simple, non-convertible debentures, issued by Issuer, in up to two series ("Debentures") for public distribution under automatic distribution registration procedure ("Issue"), initially in the amount of regime Five Hundred Million Brazilian Reais (R$ 500,000,000.00) under firm placement guarantee, and such amount may be increased by up to One Hundred Million Brazilian Reais (R$100,000,000.00) as a result of the exercise of the Additional Lot Option (as defined below), to be carried out by the Arrangers under the best distribution efforts procedure, to registered at CVM under automatic registration, as provided for in article 26, item V, sub-item (a) and article 27, item I of CVM Resolution 160 (“Offering”) and this Indenture
2.1. Filing and Publication of Corporate Approvals
2.1.1. |
Under article 62, item I, and article 289 of the Brazilian Corporation Law: |
(i) Issuer’s RCA will be duly filed before the Board of Trade of the State of Santa Catarina ("JUCESC"), and published in the newspaper "Diário Catarinense" ("Issuer Publication"), with simultaneous disclosure of the entire corporate act on the website of Issuer Publication, and Issuer shall arrange for the digital certification of the authenticity of the documents maintained on own pages issued by the accredited certifying authority within the scope of the Brazilian Public Key Infrastructures (“ICP – Brasil”), pursuant to article 62, item I and article 289 of the Brazilian Corporation Law;
(ii)the minutes of the UNIASSELVI quotaholders’ meeting held on October 27, 2023, which approved the granting of the respective Guarantee will be duly filed with the JUCESC; and
(iii)the minutes of the CESUMAR quotaholders' meeting held on October 27, 2023, which approved the granting of the respective Guarantee will be filed with the JUCEPAR.
2.1.2. After registration of the Corporate Approvals, Issuer and Guarantors are required to forward an electronic copy (.pdf format) of the respective corporate acts registered for Trustee within five (5) Business Days as from the date of the respective registrations.
2.2. Filing and registration of this Indenture of Issue and any amendments thereto
2.2.1. Under article 62, item II and paragraph 3, of the Brazilian Corporation Law, this Indenture of Issue and any amendments thereto shall be filed with the JUCESC within ten (10) Business Days from the date of its execution, for its consequent filing with the JUCESC.
2.2.2. Issuer undertakes to send to Trustee 1 (one) electronic copy of this Indenture of Issue in ".pdf" format, containing the digital seal of the filing with the JUCESC of this Indenture of Issue, as well as of any amendments, within five (5) Business Days after JUCESP makes said registrations effectively available to Issuer.
2.2.3. Trustee is hereby irrevocably and irreversibly authorized and empowered, on behalf of Issuer and at Issuer's expense, to register this Indenture of Issue with the JUCESC, in the event that Issuer fails to do so within the period set forth in Clause 2.1.1 above, under article 62, paragraph 2, of the Brazilian Corporation Law, which, however, will not disregard the non-compliance of a non-monetary obligation by Issuer, under the terms of line "a" of Clause 8.1.2 below.
2.3. Creation of the Guarantee
2.3.1. Under article 129 of Law No. 6,015, of December 31, 1973, as amended, by virtue of the Guarantee (as defined below) provided by Guarantors under the Clause 5.8.1 below, for the benefit of the Debenture holders, this Indenture of Issue and its eventual amendments, as applicable, will be duly registered by Issuer, at its expenses, with the Registry Office of Deeds and Documents where the head offices of Issuer are located, Trustee and Guarantors, namely, the Registry Office of Deeds and Documents located in the City of Florianópolis, State of Santa Catarina, the City of São Paulo, State of São Paulo, the City of Indaial, State of Santa Catarina in the City of Maringá, State of Paraná ("Registry Offices of Deeds and Documents – RTD Office") and, within up to ten (10) Business Days as of its execution, shall be filed with the referred Offices, provided that, in case any requirements are imposed by the RTD Offices, Issuer and/or Guarantor shall diligently
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and timely comply with them. Within five (5) Business Days from effective availability of each registration made by the RTD Offices, Issuer shall forward to Trustee 1 (one)electronic copy (in ".pdf" format), containing a digital seal, duly registered with the corresponding RTD Office.
2.4. Automatic Registration of the Offering with CVM and Registration with ANBIMA and ANBIMA's Best Practices Guide
2.4.1. The Offer shall be duly registered with CVM pursuant to article 19 of the Securities Law. The Debentures shall be the subject of public distribution intended exclusively to Professional Investors, as such Professional Investors are defined as provided for in articles 11 and 13 of CVM Resolution no. 30 of May 11, 2021, as amended (“CVM Resolution 30”), being therefore subject to the automatic public distribution offering of securities procedure, with no need for prior review by CVM, as provided for in article 26, item V, sub-item (a), and article 27, item I of CVM Resolution 160 and all other applicable legal, regulatory and self-regulatory provisions.
2.4.2. The Offering shall be subject to registration with ANBIMA - Brazilian Financial and Capital Markets Association ("ANBIMA"), pursuant to article 20, I and article 25 ANBIMA's "Regulation and Best Practices Code for Structuring, Coordination and Distribution of Public Offerings of Securities and Public Offerings for Acquisition of Securities", in force since January 2, 2023, to compose ANBIMA’s database under the specific rules and procedures regulated by ANBIMA Executive Board within fifteen (15) days as from the submission of the Offering closure notice to ANBIMA, as set forth in article 76 of CVM Resolution 160 (“Closing Notice”).
2.5. Filing for Distribution, Trading, Electronic Custody and Financial Settlement
2.5.1. The Debentures shall be filed for (a) public distribution in the primary market by means of the MDA - Securities Distribution Module, managed and operated by B3 S.A. - Brasil, Bolsa, Balcão - Balcão B3 ("B3"), and the distribution will be financially settled through B3; and (b) trading, in the secondary market, through CETIP21 - Títulos e Valores Mobiliários, managed and operated by B3, and the trades will be financially settled and the Debentures will be electronically held in custody at B3.
2.5.2. Notwithstanding what is described in Clause 2.5. 1 above, the Debentures (i) may be freely traded among Professional Investors; and (ii) may only be negotiated in the secondary market among Qualified Investors, as such Qualified Investors are defined according to article 12 of CVM Resolution 30 (“Qualified Investors”) after elapse of six (6) months as from the date of the Offering closure, pursuant to article 86, item II, sub-item “a” of CVM Resolution 160. Notwithstanding the provision above, the Debentures may be traded in the secondary market by the public in general after elapse of one (1) year as from disclosure of the Closing Notice, as set forth in article 86, item II, sub-item “b” of CVM Resolution 160.
3. CORPORATE PURPOSE OF ISSUER
3.1. According to Issuer's By-laws currently in force, Issuer's corporate purpose comprises: (i) the participation in the capital of other business or non-business companies, as quotaholder or shareholder, in Brazil and/or abroad; (ii) to organize, maintain and develop activities related to education and instruction in all its levels and degrees, in the terms of the principles under the specific legislation, provided that the education and teaching units that may come to be maintained by the Company will have their specific purposes in their respective by-laws; (iii) hold and participate in congresses, seminars, excursions and meetings with educational, cultural and social purposes; and (iv) carry out the retail trade of books, including digital books.
4. Allocation of the Proceeds
4.1. The net proceeds raised by Issuer through the Issue of Debentures shall be used (i) with priority for the pre-payment of the last installment of the financing taken out by Issuer from sellers within the scope of CESUMAR acquisition (“Seller’ Financing”) and (ii) the remaining proceeds for Issuer’s cash reinforcement.
4.1.1. For purposes of the provisions of Clause 4.1 above, "net proceeds" shall mean the proceeds raised by Issuer, by means of the payment of the Debentures, less the costs incurred for payment of expenses resulting from the Issue and the Offering.
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4.1.2. Issuer shall send to Trustee a statement on letterhead and signed by a legal representatives, attesting to the allocation of the proceeds of this Indenture within one (1) year as from the Date of Issue, pursuant to Schedule I to this Indenture of Issue, together with the respective proof(s) of payment of Sellers’ Financing.
4.1.3. Whenever requested in writing by the authorities for purposes of compliance with the rules and requirements of regulatory and inspection agencies, within ten (10) Business Days from receipt of the request, or within a shorter term, if so requested by any authority or determined by rule, Issuer undertakes to send to Trustee the documents that at the discretion of the authorities or regulatory agencies, evidence the use of the proceeds from the Debentures in the activities indicated above.
5. THE ISSUE
5.1. Issue Number
5.1.1. This Indenture of Issue constitutes Issuer’s third (3rd) issue of Debentures.
5.2. Series Number
5.2.1. The Issue will be made in up to two series under the communicating vessels system (“Communicating Vessels System”), so that the quantity of Debentures and series of the Issue to be issued will be defined after completion of the Bookbuilding Procedure, except that any of the Debenture series may be cancelled depending on the result of the Bookbuilding Procedure. In the event the Arrangers (as defined below) exercise the firm guarantee, allocation of the Debentures to be paid in in view of the firm guarantee will be made in any of the series at the sole, but not joint and several, discretion of Arrangers, at the ceiling rate of the respective series, subject to the provision in the Distribution Agreement (as defined below).
5.2.2. According to the Communicating Vessels System, the quantity of Debentures issued in one of the series shall be deducted of the quantity to be allocated in another series, subject to the total quantity of Debentures provided for in Clause 6.8.1 below, so that the sum of the allocated Debentures in each of the effectively issued series shall correspond to the total quantity of Debentures subject matter of the Issue. The Debentures will be allocated among the series in such manner as to meet the demand identified in the Bookbuilding Procedure and in the Company interest in the allocation. The quantity of Debentures to be allocated in each series or until inexistence of allocation in a certain series will be the subject matter of an amendment to this Indenture of Issue, pursuant to Clause 5.6.2 below.
5.2.3. Save for the express mentions to the first series Debentures (“First Series Debentures”) and the second series Debentures (“Second Series Debentures”), all references to “Debentures” shall be understood as references to the First Series Debentures and Second Series Debentures, jointly.
5.3. Total Amount of Issue
5.3.1. The total amount of Issue will initially be of Five Hundred Million Brazilian Reais (R$500,000,000.00), on the Date of Issue (as defined below), which amount may be increased by up to twenty percent (20%), by up to One Hundred Million Brazilian Reais (R$100,000,000.00), reaching the total amount of Six Hundred Million Brazilian Reais (R$600,000,000.00) as a result of the exercise of the Additional Lot Option, as provided for in Clause 5.4 below ("Total Amount of Issue”).
5.4. Additional Lot Option
5.4.1. |
In case of an identified excess demand from Investor for subscription and payment of Debentures during completion of the Bookbuilding Procedure, the quantity of initially offered Debentures may be increased by up to twenty percent (20%), that is, by up to One Hundred Million Brazilian Reais (R$100,000,000.00), and reach the total amount of Six Hundred Million Brazilian Reais (R$600,000,000.00) (“Additional Lot Option”), pursuant to the terms of the Distribution Agreement, under the same conditions as those of the initially offered Debentures, without the need of anew request for registration or change to the terms of the Offering, as provided for in and according to, the limits set forth in the terms of article 50 of CVM Resolution 160. The offering of Debentures originating from any exercise of the Additional Lot Option will be carried out by the Arrangers under the best distribution efforts procedure. |
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5.5. Placement and Distribution Procedure
5.5.1. The Debentures shall be subject to public distribution to be registered under the automatic distribution procedure, pursuant to the provisions of CVM Resolution 160, , the Securities Law and other applicable legal and regulatory provisions, under a firm guarantee of placement, subject to the provision in Clause 5.5.2 below, with the intermediation of broker financial institutions integrating the Brazilian securities distribution system ("Arrangers") under the "Public Distribution, Placement and Coordination Under Firm Placement Guarantee Agreement of Simple Debentures, Non-Convertible into Stocks, of the Unsecured Type with Additional Personal Guarantee in Up to Two Series, for Public Distribution of the Third (3rd) Issue of Vitru Brasil Empreendimentos, Participações e Comércio S.A.", to be entered into among Issuer, Arrangers and Guarantors ("Distribution Agreement").
5.5.2. As set forth in the Distribution Agreement, the Debentures shall be the subject of public distribution under a firm placement guarantee for the initially offered volume, in the amount of Five Hundred Million Brazilian Reais (R$500,000,000.00) (“Firm Guarantee”), and the offering of Debentures originating from any exercise of the Additional Lot Option will be carried out by the Arrangers under the best distribution efforts procedure, pursuant to the Distribution Agreement.
5.5.3. Partial distribution of Debentures will not be allowed.
5.5.4. The Arrangers will organize the distribution plan, which shall follow the procedure described in article 49 of CVM Resolution 160, as set forth in the Distribution Agreement (“Distribution Plan”).
5.5.5. The distribution period of the Offering will be of at least three (3) Business Days, except where all Debentures have been distributed in a shorted period, pursuant to article 59, paragraph 4, of CVM Resolution 160, and no more than one hundred and eighty (180) days as from the disclosure date of the commencement of the distribution, pursuant to article 48 of CVM Resolution 160.
5.5.6. Pursuant to CVM Resolution 30 and for purposes of the Offering, the following shall be deemed to be: (a) "Professional Investors": (i) financial institutions and other institutions authorized to operate by the Central Bank of Brazil; (ii) insurance companies and capitalization companies; (iii) open and closed pension fund entities; (iv) individuals or legal entities that hold financial investments in an amount greater than Ten Million Brazilian Reais (R$10,000,000.00) and that, additionally, attest in writing their condition of professional investor by means of a proper term, according to Exhibit A to CVM Resolution 30; (v) investment funds; (vi) investment clubs, as long as their portfolio is managed by a securities portfolio manager authorized by CVM; (vii) independent investment agents, portfolio managers, analysts and consultants of securities authorized by CVM, in relation to their own funds; and (viii) non-resident investors; and (b)
"Qualified Investors": (i) Professional Investors; (ii) individuals or legal entities holding financial investments in an amount exceeding One Million Brazilian Reais (R$1,000,000.00) and that, additionally, attest in writing their status as qualified investors by means of a specific term, in accordance with Exhibit B to CVM Resolution 30; (iii) the natural persons that have been approved in technical qualification exams or hold certifications approved by CVM as requirements for the registration of independent investment agents, portfolio managers, analysts and securities consultants, in relation to their own funds; and (iv) investment clubs, provided that their portfolio is managed by one or more unitholders, who are qualified investors.
5.5.6.1. The social security systems created by the Federal Government, the States, the Distrito Federal, or Municipalities, are considered as Professional Investors only if recognized as such in accordance with the specific regulation of the Social Security Ministry.
5.5.7. Issuer undertakes to: (a) not contact or provide information about the Offering to any investor, except if previously agreed with the Arrangers; and (b) inform the Arrangers of any contact it receives from potential investors that may express their interest in the Restricted Offering, within 1 (one) Business Day as of such contact, undertaking, as of now, not to take any action in relation to said potential investors during this period.
5.5.8. No minimum or maximum lots shall be established for each Series of the Offering.
5.5.9. Issuer may, as previously decided jointly with the Arrangers, elect to increase the quantity of Debentures, by exercising the Additional Lot Option.
5.5.10. The Offering will have exclusively Professional Investors as Target Audience.
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5.5.11. There will be no preference for subscription of the Debentures by Issuer’s current shareholders.
5.5.12. Subject to the provisions in the Distribution Agreement and under the terms of article 56 of CVM 160, the participation of Professional Investors who are Related Persons (as defined below) may be accepted in the Offering, without a maximum limit of such participation in relation to the volume of the Offering. The participation of Related Persons in the Offering will be accepted upon submission of investment intentions without establishment of minimum or maximum lots, to the Arrangers. Under penalty of cancellation of their investment intention by the Arrangers, each Professional Investor shall inform of its capacity as Related Person in its investment intention, as the case may be.
(i) |
In case of an identified excess demand higher than one third (1/3) of the initially offered Debentures, the placement of Debentures to Related Person shall not be allowed, and the investment intentions made by Professional Investors of the Offering that are Related Persons shall be cancelled, pursuant to article 56 of CVM Resolution 160. |
(ii) |
For the purposes of this Indenture of Issue and pursuant to article 2, item XVI of CVM Resolution 160, “Related Persons” means the Professional Investors who are: direct or indirect controllers, or managers, of the members of the Debenture distribution syndicate, of Issuer, as well as their spouses or companions, their ascendants, descendants, and collateral relatives up to the second (2nd) degree, companies directly or indirectly controlled by them, and, where acting in the Issue of Distribution of the Debentures, all other persons deemed related under CVM regulation providing for rules and procedures to be followed in transactions performed with securities in regulated markets. |
5.5.13. The distribution of the Debentures will be carried out in accordance with B3's procedures and with the Distribution Plan described in the Distribution Agreement and in this Indenture of Issue.
5.5.14. No liquidity support fund will be created. A market maker contract may be executed for the Debentures. No price stabilization agreement will be entered into for the Debentures in the secondary market.
5.6.Bookbuilding Procedure
5.6.1. |
The procedure for collection of investment intentions organized by the Arrangers will be adopted, with receipt of reservations from Professional Investors without minimum or maximum lots, to check the Professional Investors’ demand for Debentures, so as to define the final quantity and volume of the Issue, considering any issue of Debentures in view of the total partial exercise of the Additional Lot Option, the quantity of Issue series and the quantity of Debentures to be allocated in each series (“Bookbuilding Procedure”). |
5.6.2 |
The results of the Bookbuilding Procedure and, consequently, of the Total Issue Amount, the quantity of series of the Issue and the quantity of debentures to be allocated in each series will be ratified by means of an amendment to this Indenture of Issue, which shall be registered with JUCESC and the RTD Offices, as set forth in Clauses 2.2.1 and 2.3.1 above, without the need for new corporate approval by any of the signatories to this Indenture of Issue and/or holding of a Debenture holders General Meeting |
5.7. Settlement and Bookkeeping Bank
5.7.1. The institution providing settlement services for the Debentures will be Itaú Unibanco S.A., a financial institution headquartered in the City of São Paulo, State of São Paulo, at Praça Alfredo Egydio de Souza Aranha, 100, CEP 04.344-902, enrolled with the National Register of Legal Entities of the Ministry of Finance (CNPJ) under No. 60.701.190/0001-04 ("Settlement Bank"). The institution providing bookkeeping services for the Debentures is Itaú Corretora de Valores S.A., a financial institution headquartered in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 3500, 3º andar (parte), CEP 04.538-132, enrolled with the National Register of Legal Entities of the Ministry of Finance (CNPJ) under No. 61.194.353/0001-64 ("Bookkeeping Agent").
5.7.2. The Bookkeeping Agent will be responsible for performing the bookkeeping of the Debentures, among other responsibilities defined in the rules issued by CVM and B3.
5.7.3. The Settlement Bank and the Bookkeeping Agent may be replaced at any time, upon approval by the Debenture Holders in a Debenture Holders General Meeting.
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5.8.Personal Guarantee
5.8.1. In guarantee of faithful, timely, correct and full compliance with the main, accessory and/or default obligations, present and/or future, undertaken or that may be undertaken, before the Debenture holders within the scope of Issue under this Indenture of Issue, which includes the payment of the Debentures, including the Unit Par Value (as defined below) or the balance of the Unit Par Value, as the case may be, the Remuneration (as defined below), the Default Charges (as defined below), as well as the reimbursement of any and all costs, charges, expenses or amounts that Trustee, acting as representative and for the benefit of the Debenture Holders, may disburse, including on account of the creation and/or perfecting of the Guarantee (as defined below), and any and all other payments due from Issuer under this Indenture of Issue, including the payment of costs, commissions, service providers' fees, charges and expenses provided for in this Indenture of Issue and all ancillary obligations, such as, but not limited to, late charges, fines, penalties, expenses, costs, out-of-court or court fees, commissions and other contractual and legal charges, as well as any and all costs and expenses reasonably incurred according to (i) the generally accepted good judgment and reasonability criteria in business relationships of this type and (ii) the fiduciary duty inherent thereto by the Debenture Holders as a result of lawsuits, proceedings and/or other judicial or out-of-court measures necessary to safeguard the rights and privileges of the Debenture Holders set forth in this Indenture of Issue and to enforce the guarantee provided arising out of this Indenture of Issue ("Guaranteed Obligations"), the Debentures will rely on Personal Guarantee represented by Guarantors' Guarantee, binding and guaranteeing, as well as their successors under any title, as guarantors and principal payers, jointly and severally liable among themselves and with Issuer, on an irrevocable and irreversible basis, in favor of the Debenture holders, represented by Trustee ("Guarantee").
5.8.2. Any and all payments made by Guarantors in connection with the Guarantee shall be made free and net, without deduction of any present or future taxes, duties, fees, contributions of any nature, charges or withholdings, as well as any interest, fines or other tax liabilities, and Guarantors shall pay such additional amounts as may be necessary for the Debenture holders to receive, after such deductions, collections or payments, an amount equal to that which would have been received if such deductions, collections or payments were not applicable.
5.8.3. Guarantors, by themselves and their respective successors under any title, bind themselves by this instrument and pursuant to law, irrevocably and irreversibly, before the Debenture holders, as joint debtors with Issuer and principal payers of all Guaranteed Obligations until the discharge of the Debentures, with express waiver of the benefits of order, rights and powers of release of any nature set forth in articles 333, sole paragraph, 364, 366, 368, 371, 821, 827, 829, sole paragraph, 830, 834, 835, 837, 838 and 839, of Law no. 10,406, of January 10, 2002, as amended ("Civil Code"), and in articles 130, 131 and 794 of Law No. 13,105, of March 16, 2015, as amended ("Code of Civil Procedure").
5.8.4. This Guarantee shall become effective on the Issue Date (as defined below) and shall remain valid and fully effective, in all its terms until full payment of the Guaranteed Obligations, and may be enforced and demanded by Trustee, judicially or extrajudicially, as many times as necessary until full settlement of the Guaranteed Obligations, including, but not limited to, (i) additions amendments and any other modifications to the conditions set forth in this Indenture, the Distribution Agreement, and the other documents of the Offering, or (ii) any limitation or incapacity of Issuer, including its request for out-of-court reorganization, request for judicial reorganization or bankruptcy, Trustee, for such purpose, shall immediately notify Issuer and Guarantors.
5.8.5. For the purposes of articles 829 and 835 of the Civil Code, Guarantors hereby declare that they have read and agree, in its entirety, with the provisions of this Indenture of Issue, being aware of the terms and conditions of the Guarantee provided and of the Debentures, as well as of the obligations assumed by them in connection with the Issue, declaring themselves jointly and severally liable for the payment of the Guaranteed Obligations until the Debentures have been fully settled and/or redeemed, even if such settlement occurs after the Maturity Dates.
5.8.6. Trustee shall request the judicial or extrajudicial enforcement of the Guarantee, according to the function attributed to it in this Indenture of Issue, once any event of insufficiency of payment of the Guaranteed Obligations is verified. The Guarantee may be enforced and demanded by Trustee as many times as necessary until the full and effective payment of all Guaranteed Obligations, provided that the non-enforcement of the Guarantee by Trustee will not give rise, in any event, to the loss of the right of execution of the Guarantee by the Debenture holders.
5.8.7. The Guaranteed Obligations shall be paid by Guarantors within three (3) Business Days from the receipt of the written communication sent by Trustee to Guarantors, with copy to Issuer, informing about the non-compliance with the payment, on any date on which it has become due, respecting the respective cure term, if applicable, or the early maturity of the Debentures under Section 8 of this Indenture. The payments shall be made by Guarantors, in accordance with the procedures set forth in this Indenture, without any claim, action, dispute or complaint that Issuer will or may have or exercise in relation to its obligations assumed under the Debentures and this Indenture.
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5.8.8. The payments referred to in Clause 5.8.7 above shall be made outside the scope of B3 and in accordance with instructions received from Trustee, subject to the procedures set forth in this Indenture.
5.8.9. No objection or opposition by Issuer may be admitted or invoked by Guarantors with the purpose of being released from the compliance with its obligations before the Debenture holders.
5.8.10. Guarantors shall not be relieved from their obligations hereunder by reason of acts or omissions that may relieve them of their obligations or affect them, including by reason of: (i) any change in the terms and conditions of the Debentures agreed upon between Issuer and the Debenture holders pursuant to this Indenture; (ii) any novation or non-exercise of any right, action, privilege and/or guarantee of the Debenture holders against Issuer; and (iii) any objection, opposition, limitation or inability of Issuer, including its application for extrajudicial recovery, application for judicial recovery, bankruptcy or proceedings of a similar nature.
5.8.11. The Guarantee under this Clause has been duly consented to in good faith by Guarantors, pursuant to applicable law.
5.8.12. Guarantors may make payment of any of the Guaranteed Obligations defaulted by Issuer, regardless of receipt of notice from Trustee, including during any cure period set forth in this Indenture, in which case the default of Issuer shall be deemed cured by Guarantors to the extent of the payment effectively made.
5.8.13. Upon the enforcement of the Guarantee subject matter of this Clause, Guarantors shall subrogate to the rights of the Debenture holders and/or of Trustee before Issuer, as applicable, observing that the subrogation shall occur only after the full payment of the payments related to the Debentures. Notwithstanding the provisions of this Clause, the Parties agree that: (i) Guarantors may only collect, demand, sue or receive any amount due to them by Issuer after full payment of the Guaranteed Obligations; and (ii) the payment of any amount due by Issuer to Guarantors, due to the subrogation under this Clause, may only be made after the settlement of any and all amounts due to the Debenture holders.
5.8.14. The Parties hereby acknowledge that the Guarantee is provided for a fixed term, for purposes of article 835 of the Civil Code, becoming effective as from the Issue Date (inclusive) and having as maturity date the date that corresponds to the date of full settlement of the Debentures, even if its maturity term has been extended or prolonged, under the terms of this Indenture.
5.8.15. Based on the financial statements for the fiscal year ended on December 31, 2022, UNIASSELVI's net assets are Three Hundred and Twenty-Two Million, Four Hundred and Sixty-Four Thousand Brazilian Reais (R$322,464,000.00), and said net assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by UNIASSELVI before third parties.
5.8.16. Based on the financial statements for the fiscal year ending December 31, 2022, CESUMAR’s net assets are and One Hundred and Thirty-Eight Million, Five Hundred and Sixteen Thousand Brazilian Reais (R$138,516,000.00) and said assets may be affected by other obligations, including collaterals or personal guarantees, undertaken and/or that may be undertaken by CESUMAR before third parties.
5.8.17. For purposes of verifying the sufficiency of the personal guarantee provided pursuant to CVM Resolution 17, each year Guarantors shall send to Trustee within ninety (90) days as from the closing of their financial year, a copy of their financial statements for the latest fiscal year ended.
5.9.Change to the Fundamental Features of the Offering
5.9.1. Pursuant to article 67, paragraph 2 of CVM Resolution 160, the change to the Offering does not depend on prior approval of CVM, however, as provided for in article 69, head paragraph of CVM Resolution 160, the change shall be immediately disclosed by means equal to those used for disclosure of the Offering, and the entities participating in the distribution syndicate shall ensure that the potential Professional Investors, upon receipt of the document of acceptance of the Offering, become aware of the change to the original offering and of the new conditions.
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6. THE DEBENTURES
6.1. Date of Issue
6.1.1. For all legal purposes, the date of issue of the Debentures will be November 26. 2023 (“Date of Issue”).
6.2. Yield start date
6.2.1. For all legal purposes, the yield start date shall be the First Payment Date of the Debentures (as defined below) ("Yield Start Date").
6.3. Form, type, and proof of title
6.3.1. The Debentures will be issued in registered book-entry form, without the Issue of certificates, and, for all legal purposes, their ownership will be evidenced by the statement issued by the Bookkeeping Agent and, additionally, with respect to the Debentures that are electronically held in custody at B3, as the case may be, a statement will be issued by B3 on behalf of the Debenture Holder, which will serve as proof of title of such Debentures.
6.4. Convertibility
6.4.1. The Debentures will be simple, i.e., non-convertible into stocks issued by Issuer.
6.5. Type
6.5.1. The Debentures shall be unsecured, under article 58, caption, of the Brazilian Corporation Law, and additionally guaranteed by the Guarantee, under the Clause 5.6.1 above.
6.6. Term and Expiration Date
6.6.1. Subject to the provisions of this Indenture of Issue, (i) the final maturity of the 1st Series Debentures will take place on expiration of term of one thousand, eight hundred and twenty-seven (1,827) days counted from the Date of Issue, maturing, therefore, on November 16, 2028 ("Maturity Date of the 1st Series) and (ii) the final maturity of the 2nd Series Debentures will take place on expiration of the term of two thousand, five hundred and fifty-seven (2,557) days counted from the Date of Issue, maturing, therefore, on November 16, 2030 ("Maturity Date of the 2nd Series " and, when together with the Maturity Date of the 1st Series, the "Maturity Dates").
6.7. Unit par value
6.7.1. The unit par value of the Debentures will be One Thousand Brazilian Reais (R$ 1,000.00), on the Date of Issue ("Unit par value").
6.8. Number of Debentures issued
6.8.1. Initially, five hundred thousand (500,000) Debentures will be issued, and such number may be increased by twenty percent (20%), that is, by up to one hundred thousand (100,000) Debentures, due to the exercise of the Additional Lot Option, as provided for in Clause 5.4 above in up to two (2) series, to be defined after completion of the Bookbuilding Procedure, except that (i) the allocation of the Debentures between the series will take place under the Communicating Vessels System; (ii) there will be no minimum or maximum quantity for allocation between the series; and (iii) any of the series may not be issued, in which case the total Debentures will be issued in the remaining series, as agreed at the end of the Bookbuilding Procedure. The number of Debentures to be allocated in the first series (“First Series”) and/or in the second series (“Second Series”), as well as the number of series will be formalized by means of the amendment mentioned in Clause 5.6.2 above.
6.9. Subscription Price and Payment Method
6.9.1. The Debentures may be subscribed at any time as from the distribution start date disclosed by means of a distribution start announcement, pursuant to article 13 of CVM Resolution 160, during the Debenture distribution period provided for in article 48 of CVM Resolution 160, and the Debentures will be paid for in cash, in Brazilian currency upon subscription, in accordance with the settlement rules and procedures established by B3 (“Payment Date”). On the first payment date, the Debentures will be paid in by their Unit Par Value (“First Payment Date”). If any Debenture is to be paid in on a date subsequent to the First Payment Date, the payment will be based on the Unit Par Value plus the Debentures Remuneration, calculated pro rata temporis as from the First Payment Date to the date of actual payment.
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6.9.2. At the sole discretion of the Arrangers, the Debentures may be subscribed with premium or discount to be defined, as the case may be, upon their subscription, provided that it is equally applied to all Debentures of the same series on each payment date.
6.10. Inflation Adjustment of the Debentures
6.10.1. The Unit par value or the balance of the Unit par value of the Debentures will not be adjusted by inflation.
6.11. Remuneration
6.11.1. Remuneration of the First Series Debentures: On the Unit value of the First Series Debentures or on the balance of the Unit value of the First Series Debentures, as applicable, will incur remuneration interest corresponding to the accumulated variation of 100% (one hundred percent) of the average daily rates of the DI - Interfinancial Deposit of one day, "over extra-group", expressed as a percentage per annum, based on two hundred and fifty-two (252) Business Days, calculated and published daily by B3 ("DI Rate"), plus an exponential spread of two point forty-five percent (2.45%) per annum, based on two hundred and fifty-two (252) Business Days ("Remuneration of the First Series Debentures").
6.11.2. Remuneration of the Second Series Debentures: On the Unit par value of the Second Series Debentures or on the balance of the Unit par value of the Second Series Debentures, as applicable, will incur remuneration interest corresponding to the accumulated variation of 100% (one hundred percent) of the DI Rate, increased exponentially by spread (surcharge) of 2,65% (two hundred and sixty- five hundredths) per annum, based on 252 (two hundred and fifty two) Business Days ("Remuneration of the Second Series Debentures” and, when together with the Remuneration of the First Series Debentures, "Remuneration").
6.11.3. The Debentures' Remuneration will be calculated on an exponential and cumulative pro rata temporis basis per elapsed Business Days, levied on the Unit par value of the Debentures of the each Series (or on the balance of the Unit par value of the Debentures of the respective Series) from and including the First Payment Date for the Debentures or the immediately preceding (inclusive) Payment Date for the Remuneration of the Debentures of the respective series until the Payment Date for the Remuneration of the respective series in question, the date of payment upon early maturity as a result of an Early Maturity Event (as defined below) or the date of an eventual Optional Total Early Redemption (as defined below), whichever occurs first. The Remuneration of the Debentures will be calculated in accordance with the following formula:
J = VNe x (Interest Factor – 1)
where:
J = the unit value of the Remuneration on the due at the end of the Capitalization Period (as defined below), calculated to eight (8) decimal digits, without rounding;
VNe = Unit par value or the balance of the Debentures' Unit par value, informed/calculated to eight (8) decimal digits, without rounding; and
Interest Factor = Interest Factor composed of the fluctuation parameter plus spread calculated to nine (9) decimal places, with rounding. Calculated as follows:
Interest Factor = (DI Factor x Spread Factor)
where:
DI Factor = product of the DI Rates, using the percentage applied, from the Capitalization Period start date, inclusive, up to the calculation date, exclusive, calculated with eight (8) decimal digits, rounded off, calculated as follows:
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where:
nDI = total number of DI-Over Rates, considered in the asset updating, being "nDI" a whole number;
TDIk = DI-Over Rate, expressed per day, calculated with eight (8) decimals with rounding, calculated as follows:
where:
DIk = DI-Over Rate, published by B3, valid for one (1) Business Day (overnight), used to two (2) decimal places; and
Spread Factor = fixed interest surcharge, calculated to nine (9) decimal places, rounded off, calculated as follows:
where:
Spread = 2,4500 for First Series Debentures, and 2,6500 for the Second Series Debentures;
DP = the number of Business Days between the first Payment Date of the Debentures of the respective series, in case of first Capitalization Period, or immediately preceding Payment Date (inclusive) of Remuneration Interest on the Debentures of the respective series, in case of all other Capitalization Periods, and the date of calculation (exclusive) where "DP" is a whole number.
6.11.4. The product of the daily factors shall be carried out (1+TDIk), and at each accumulated daily factor, the result shall be truncated with sixteen (16) decimal digits, applying the next daily factor, and so on, until the last one considered; and
6.11.5. If the daily factors are accumulated, the resulting factor "DI Factor" shall be considered with eight (8) decimal places, rounded off.
6.11.6. The factor resulting from the expression (DI Factor x Spread Factor) is considered with nine (9) decimal places, rounded.
6.11.7. The DI Rate shall be used considering identical number of decimal places disclosed by the agency responsible for its calculation.
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6.11.8. Subject to the provisions set forth in the paragraph below, if, at any time during the term of the Debentures, the DI Rate is not disclosed, the last DI Rate available up to the moment shall be applied for the calculation of the Remunerations, and no compensation shall be due between Issuer and the Debenture Holder upon the subsequent disclosure of the DI Rate that would be applicable.
6.11.9. In case the DI Rate is no longer disclosed for a period superior to thirty (30) days, or in case it is extinct, or there is a legal impossibility of application of the DI Rate for calculation of the Remuneration of the First Series Debentures and/or the Second Series Debentures, as the case may be, Trustee shall, within a maximum period of up to five (5) Business Days as of the end of the aforementioned thirty (30) day period or of the extinction or inapplicability event, as the case may be, call a General Meeting of First Series Debenture Holders and/or the Second Series, as the case may be, in the form and within the terms set forth in Article 124 of the Brazilian Corporation Law and in this Indenture, as defined in Section 11 below, which shall have as purpose the resolution by the First Series Debenture Holders and/or Debenture holders of the Second Series, in mutual agreement with Issuer, of the new Remuneration parameter of the Debentures of the First Series Debentures and/or Second Series Debentures, as the case may be, which parameter shall preserve the real value and the same Remuneration levels.
6.11.10. If there is no agreement on the new parameter of Remuneration of the First Series Debentures and/or Remuneration of the Second Series Debentures between Issuer and the First Series Debenture Holders and/or Debenture holders of the Second Series, as the case may be, representing, at least, seventy-five percent (75%) of the Outstanding First Series Debentures (as defined below) and/or Outstanding Second Series Debentures (as defined below), as the case may be, on first call or two-thirds (2/3) on second call, or there is no quorum for resolution or no quorum for installation on second call, Issuer shall redeem all the Outstanding Debentures of the respective Series, within thirty (30) calendar days as of the closing date of the respective General Meeting of First Series Debenture Holders and/or Second Series, as the case may be, or the date on which the respective General Meeting of First Series Debenture Holders and/or Second Series, as the case may be, should have been held, or within such longer period as may be mutually agreed at said meeting, at the Unit par value or the balance of the Unit par value of the Debentures of the First Series and/or Second Series, as the case may be, plus the Remuneration on the First Series Debentures or Remuneration on the Second Series Debentures, as the case may be, due through the effective redemption date, calculated pro rata temporis, as of the First Payment Date of the Debentures or the immediately preceding Payment Date of the Remuneration (as defined below), as the case may be. The First Series Debentures or the Second Series Debentures redeemed pursuant to this Clause shall be cancelled by Issuer. In this alternative, for calculation of the Remuneration of the First Series Debentures and/or Remuneration of the Second Series Debentures to be redeemed, for each day of the period in which there is an absence of rates, the last officially disclosed DI Rate will be used.
6.11.11. The period for capitalization of the Remuneration ("Capitalization Period") is, for the first Capitalization Period, the interval of time that begins on the First Payment Date of the Debentures inclusive, and ends on the First Payment Date of the e Remuneration of the First Series Debentures or on the first Payment Date of the Remuneration on the Second Series Debentures as the case may be, exclusive, and, for the other Capitalization Periods, the interval of time beginning on the immediately preceding, inclusive, Payment Date of the Remuneration on the First Series Debentures or Remuneration on the Second Series Debentures, as the case may be, and ending on the subsequent, exclusive, Payment Date for the Remuneration on the First Series Debentures or Payment Date for the Remuneration on the Second Series Debentures, as the case may be. Each Capitalization Period succeeds the previous one without interruption, until the respective Maturity Date of the Debentures.
6.12. Remuneration Payment
6.12.1. Without prejudice to the payments as a result of any early maturity of the obligations under the Debentures, the Total Optional Early Redemption of the Debentures, Optional Extraordinary Amortization, the redemption of the total Debentures resulting from the Early Redemption Offer, the Optional Acquisition with calculation of the total Debentures as provided for in this Indenture of Issue, the Remuneration will be paid semiannually, as of the Date of Issue, with the first payment due on May 16, 2024, and the other payments due always on the 16th day of May and November of each year, until the Maturity Date of the each Series, as defined in Clause 6.6 above (each such date a "Remuneration Payment Date" and, together, "Remuneration Payment Dates").
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Installment |
Payment Date of the Remuneration on |
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1 |
May 16, 2024 |
2 |
November 16, 2024 |
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Installment |
Payment Date of the Remuneration |
1 |
May 16, 2025 |
2 |
November 16, 2025 |
3 |
May 16, 2026 |
4 |
November 16, 2026 |
5 |
May 16, 2027 |
6 |
November 16, 2027 |
7 |
May 16, 2028 |
8 |
November 16, 2028 |
9 |
May 16, 2028 |
10 |
Maturity Date of the First Series Debentures |
Installment |
Payment Date of the Remuneration of the |
1 |
May 16, 2024 |
2 |
November 16, 2024 |
3 |
May 16, 2025 |
4 |
November 16, 2025 |
5 |
May 16, 2026 |
6 |
November 16, 2026 |
7 |
May 16, 2027 |
8 |
November 16, 2027 |
9 |
May 16, 2028 |
10 |
November 16, 2028 |
11 |
May 16, 2029 |
12 |
November 16, 2029 |
13 |
May 16, 2030 |
14 |
Maturity Date of the Second Series Debentures |
6.12.2. Those who are Debenture Holders at the end of the Business Day preceding each Remuneration Payment Date set forth in this Indenture of Issue shall be entitled to payments on the Debentures.
6.13. Amortization of the Par Value
6.13.1. Amortization of the First Series Debentures: The Unit PAR Value or balance of the Unit par value of the First Series Debentures will be amortized in consecutive, semiannual installments, as of the third (3rd) year (inclusive) counted from the Date of Issue, always due on the 16th day of the months of May and November, and the first installment will be due on November 16, 2026, and the other installments will be due on each of the respective amortization dates according to the dates indicated in the 2nd column of the table below, and the last due on the Maturity Date of the First Series Debentures (each, "Amortization Date of the First Series Debentures " and, together, the “Amortization Dates of the First Series Debentures”) and percentages set forth in the third (3rd) column of the table below:
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Installment |
Amortization Date of the Debentures |
Percentage of the balance |
1 |
November 16, 2026 |
20.0000% |
2 |
May 16, 2027 |
25.0000% |
3 |
November 16, 2027 |
33.3333% |
4 |
May 16, 2028 |
50.0000% |
5 |
Maturity Date of the First Series Debentures |
100.0000% |
6.13.2. Amortization of the Second Series Debentures: The balance of the Unit Par Value of the Second Series Debentures will be amortized in semiannual, consecutive installments as from the fourth (4th) year (inclusive) as from the Date of Issue, always due on the 16th day of the Months of May and November, and the first installment will be due on November 16, 2027 and all other installments will be due on each of the amortization dates, according to the dates indicated in the 2nd column of the table below and the last due on the Maturity Date of the Second Series Debentures (each an “Amortization Date of the Second Series Debentures” and, together, the ”Amortization Dates of the Second Series Debentures” and, together with the Amortization Dates of the First Series Debentures”, the “Amortization Dates of the Debentures”) and percentages set forth in the 3rd (third) column of the table below:
Installment |
Amortization Date of the Debentures |
Percentage of the Unit Part |
1 |
November 16, 2027 |
14.2857% |
2 |
May 16, 2028 |
16.6667% |
Installment |
Amortization Date of the Debentures |
Percentage of the Unit Part |
3 |
November 16, 2028 |
20.0000% |
4 |
May 16, 2029 |
25.0000% |
5 |
November 16, 2029 |
33.3333% |
6 |
May 16, 2030 |
50.0000% |
7 |
Maturity Date of the Second Series Debentures |
100.0000% |
6.14. Place of Payment
6.14.1. Payments to which Debentures are due will be made by Issuer on the respective due date using, as applicable: (a) the procedures adopted by B3 for Debentures held in custody electronically therein; and/or (b) the procedures adopted by the Bookkeeping Agent, for Debentures that are not electronically held in custody at B3.
6.15. Extension of Terms
6.15.1. Terms for the payment of any obligation will be extended until the 1st (first) subsequent Business Day if the due date coincides with a national holiday, Saturday or Sunday.
6.16. Delay Charges
6.16.1. Without prejudice to the Remuneration of the Debentures, in case of default in the payment by Issuer of any amount due to the Debenture holders, the overdue debts not paid by Issuer shall be subject to, regardless of notice,
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notification or judicial or extrajudicial interpellation: (i) a conventional, irreducible fine of a non-compensatory nature of two percent (2%); and (ii) default interest at the rate of one percent (1%) per month calculated pro rata temporis from the date of default to the date of actual payment; both calculated on the amount due and unpaid ("Delay Charges").
6.17. Expiration of Rights to Accruals
6.17.1. Without prejudice to the provisions of Clause 6.16.1 above, the failure of the Debenture Holder to appear to receive the value corresponding to any of the monetary obligations of Issuer, on the dates set forth in this Indenture, or in a notice published by Issuer in the newspaper indicated in Clause 6.19 below, shall not entitle it to receive the Remuneration of the Debentures and/or Delay Charges in the period related to the delay in receiving, being assured, however, the rights acquired until the date of the respective maturity or payment.
6.18. Renegotiation
6.18.1. |
The Debentures will not be subject to scheduled renegotiation. |
6.19. Publication
6.19.1. Without prejudice to compliance with the provision in article 13 of CVM Resolution, all acts and decisions to be taken as a result of this Issue that, in any way, may involve the interests of the Debenture holders, shall be mandatorily communicated in the form of notices, in the Publication Newspaper of Issuer or other newspaper that may be designated for such purpose by Issuer, as well as on Issuer's website on the world wide web <https://www.vitru.com.br/> ("Notice to Debenture Holders"), subject to the provisions of article 289 of the Brazilian Corporation Law and the limitations imposed by CVM Resolution 160 in relation to the advertising of the Offering and the legal deadlines, and Issuer shall notify Trustee, B3 regarding any publication on the Date of Issue, provided that, in the event Issuer changes its Publication Newspaper after the Date of Issue, it shall send notice to Trustee informing the new vehicle for disclosure of its information.
6.20. Immunity of Debenture Holders
6.20.1. In case any Debenture Holder enjoys any type of tax immunity or exemption, such Debenture Holder shall forward to the Settlement Bank and to Issuer, within at least ten (10) Business Days prior to the date scheduled for receipt of any values related to the Debentures, documentation evidencing such tax immunity or exemption, provided that, in case the Debenture Holder does not send such documentation, Issuer will make the withholdings of taxes provided for in the tax legislation in force in the income of such Debenture Holder.
6.21. Risk Rating
6.21.1. Standard and Poor’s was hired as the rating agency that will perform the rating(("rating") of the Debentures ("Rating Agency"). The Rating Agency may, at any time, be replaced by rating companies Fitch Ratings or Moody’s Latin America, without the need of prior approval from the Debenture holders, and Issuer shall notify Trustee of the new Risk Rating Agency within five (5) Business Days as from the hiring.
6.21.2. During effectiveness of the Debentures, Issuer shall keep the Rating Agency hired at its expenses, to perform the annual update of the rating of the Debentures once at each calendar year.
6.21.3. The Issuer shall: (i) keep the rating of the Debentures updated once at each calendar year, based on the preparation date of the latest rating report; (ii) disclose or allow the Rating Agency to widely disclose to the market the reports with the summary of the ratings; (iii) deliver to Trustee the rating reports prepared by the Rating Agency within five (5) Business Days as from the date of receipt thereof by Issuer; and (iv) on the same date, notify Trustee of any change and the start of any rating revision process.
7. TOTAL OPTIONAL EARLY REDEMPTION, EXTRAORDINARY AMORTIZATION, EARLY REDEMPTION OFFER AND OPTIONAL ACQUISITION
7.1. Total Optional Early Redemption
7.1.1. Total Optional Early Redemption of the First Series Debentures: Subject to the provisions of the Clauses below, Issuer may, as from the thirtieth (30th) month, namely May 16, 206, inclusive, at its sole discretion, make the total optional
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early redemption of the First Series Debentures ("Total Optional Early Redemption of the First Series Debentures"), and the amount due by Issuer will be equivalent to (a) the Unit Par Value of the First Series Debentures or he balance of the Unit Part Value of the First Series Debentures, as the case may be, to be redeemed added with (b) the Remuneration of the First Series Debentures, calculated pro rata temporis as from the Yield Start Date or the immediately preceding Remuneration Payment Date of the First Series Debentures (inclusive), as the case may be, until the effective date of Early Optional Redemption of the First Series Debentures (exclusive) accrued on the Unit Par Value or the balance of the Unit Par Value of the First Series Debentures and all other charges due and unpaid until the Total Optional Early Redemption of the First Series Debentures; and (c) percentage premium per annum, pro rata temporis based on two hundred and fifty-two (252) Business Days, calculated from the date of Total Optional Early Redemption of the First Series Debentures until the respective Maturity Date, according to the formula below (First Series Premium), multiplied by the result of the sum of amounts provided for in items (a) and (b) of this Clause, to wit:
where:
P = percentage defined according to the table below; and
DUr = number of Business Days as from the date of the Total Optional Early Redemption of the First Series Debentures until the respective Maturity Date.
Date of the Total Optional Early |
Premium resulting from the Total |
From May 16, 2026 (inclusive) to |
0.40% per annum |
) |
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From November 16, 2027 (inclusive) until Maturity Date of the First Series Debentures |
0.35% per annum |
7.1.2. Total Optional Early Redemption of the Second Series Debentures: Subject to the provision in the Clauses below, Issuer may, as from the forty-eighth (48th) month, that is, as from November 16, 2027. inclusive, at its sole discretion, make the total optional early redemption of the Second Series Debentures (“Total Optional Early Redemption of the Second Series Debentures” and, together with the Total Optional Early Redemption of the First Series Debentures, the “Total Optional Early Redemption of the Debentures”), and the amount due by Issuer will be equivalent to (a) the Unit Par Value of the Second Series Debentures or balance of the Unit Par Value of the Second Series Debentures, as the case may be, to be redeemed, added with (b) the Remuneration of the Second Series Debentures, calculated pro rate temporis from the Yield Start Date or the immediately preceding Payment Date of the Second Series Remuneration (inclusive), as the case may be, until the effective date of the Total Optional Early Redemption of the Second Series Debentures (exclusive), accrued on the Unit Par Value or the balance of the Unit Par Value of the Second Series Debentures and all other charges due and unpaid until the date of Total Optional Early Redemption of the Second Series Debentures; and (c) the percentage premium per annum, pro rata temporis, based on the two hundred and fifty-to (252) Business Days, calculated as from the date of the Total Optional Early Redemption of the Second Series Debentures until the respective Maturity Date, according to the formula below (“Second Series Premium”), multiplied by the result of the sum of amount provided for in items (a) and (b) of this Clause, to wit:
where:
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P = percentage defined according to the table below; and
DUr = number of Business Days as from the date of Total Optional Early Redemption of the Second Series Debentures until the respective Maturity Date.
Date of the Total Optional Early |
Premium resulting from the Total |
From November 16, 2027 (inclusive) until May 16, 2029 (exclusive) |
0.45% pr annum |
May 16, 2029 (inclusive) until the Maturity Date of the Second Series Debentures |
0.40% per annum |
7.1.3. The Total Optional Early Redemption of the Debentures will be addressed to all Debenture holder of the respective series without distinction, and equal conditions will be ensured to all Debenture holders of the respective series, according to the terms and conditions provided for in the Clause below.
7.1.4. If the date of performance of the Total Optional Early Redemption of the Debentures coincides with an Amortization Date and/or payment of Remuneration on the Debentures, the premium provided for in item (c) of Clauses 7.1.1. and 7.1.2 above shall be calculated on the balance of the Unit par value of the First Series Debentures and Second Series Debentures, as the case may be, after said payment.
7.1.5. The Total Optional Early Redemption of the Debentures shall only be performed by means of individual communication sent to the Debenture Holders of the respective series, or publication of an announcement, pursuant to Section 6. 19 above, in both cases with a copy to Trustee, B3 and ANBIMA, ten (10) Business Days in advance of the date on which the effective Optional Total Early Redemption of the Debentures is intended to be made (“Redemption Notice”), and the said notice shall contain (a) the date of performance of the Total Optional Early Redemption of the Debentures, which shall be a Business Day; (b) the mention that the amount corresponding to the payment will be the Unit par value of the Debentures or balance of the Unit par value of the Debentures, as the case may be, plus (i) Remuneration, calculated as provided in Clause 6.11.2., (ii) of redemption premium; and (c) any other information necessary for the operationalization of the Total Optional Early Redemption of the Debentures.
7.1.6. The Total Optional Early Redemption of the Debentures for the Debentures electronically held in custody at B3 will follow the event settlement procedures adopted by B3. If the Debentures are not electronically held in custody at B3, the Total Optional Early Redemption of the Debentures will be carried out through the Settlement Bank.
7.1.7. The Debentures redeemed by Issuer, as provided for in this Section, shall be mandatorily cancelled.
7.1.8. The partial optional early redemption of the Debentures will not be admitted.
7.2. Optional Extraordinary Amortization
7.2.1. Optional Extraordinary Amortization of the First Series Debentures. Issuer may, as from the thirtieth (30th) month, that is, May 16, 2026, inclusive, subject to the terms and conditions set forth below, at its sole discretion and irrespective of the First Series Debenture holders’ will, provided that Issuer declares to Trustee to be in good standing with its obligations under this Indenture of Issue, by means of a notice to be sent according to Clause 13.1 of this Indenture of Issue, make the extraordinary amortization of the First Series Debentures, limited to ninety-eight percent (98%) of the Unit Part Value or the balance of the Unit Par Value of the First Series Debentures (“Optional Extraordinary Redemption of the First Series Debentures”).
7.2.2. The Optional Extraordinary Amortization of the First Series Debentures may only occur (i) by means of a notice sent to each of the First Series Debenture Holders, with copy to Trustee, B3, ANBIMA, Bookkeeping Agent and Settlement Bank, or alternatively, (ii) by publication of a notice addressed to the First Series Debenture Holders, in this case subject to the terms of Clause 6.19 of this Indenture Issue, plus the mailing on the same date, of a written communication to Trustee, B3, ANBIMA, Bookkeeping Agent and Settlement Bank, with the information provided for in Clause 7.2.3 below (in any case, "Notice of Optional Extraordinary Amortization of the First Series Debentures"), in both cases at least five (5) Business Days prior to the date expected for performance of the effective Optional Extraordinary Amortization of the First Series Debentures ("Date of Optional Extraordinary Amortization of the First Series Debentures” ").The Date of the Optional Extraordinary Amortization of the First Series Debentures shall necessarily correspond to a Business Day.
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7.2.3. Upon the Optional Extraordinary Amortization of the First Series Debentures, the First Series Debenture Holders will be entitled to receive: (i) a portion of the Unit Par Value or balance of the Unit Par Value of First Series Debentures, as the case may be, added with the First Series Debentures Remuneration calculated pro rata temporis as from the Yield Start Date or the immediately preceding Payment Date of the First Series Remuneration, as the case may be, and all other applicable charges due and not paid until the Date of Optional Extraordinary Amortization of the First Series Debentures (“Value of the Optional Extraordinary Amortization of the First Series Debentures”); (ii) added with First Series Premium, calculated according to the formula provided for in clause 7.11, multiplied by the Value of the Optional Extraordinary Amortization of the First Series Debentures (‘Extraordinary Amortization Premium of the First Series Premium”).
7.2.4. The Notice of Optional Extraordinary Amortization of the First Series Debentures shall include: (i) the effective date of the Optional Extraordinary Amortization of the First Series Debentures, which shall mandatorily be a Business Day; (ii) mention to the value of the Optional Extraordinary Amortization of the First Series Debentures and the value of the Premium of the Extraordinary Amortization of the First Series Debentures; and (iii) information necessary to the make the Optional Extraordinary Amortization of the First Series Debentures operational.
7.2.5. The Optional Extraordinary Amortization of the First Series Debentures electronically held in custody at B3 will follow the procedures adopted by B3. With respect to First Series Debentures not electronically held in custody at B3, the Optional Extraordinary Amortization of the First Series Debentures will be settled upon a deposit to be made by the Bookkeeping Agent into the current accounts indicated by the First Series Debenture Holders
7.2.6.In case the Optional Extraordinary Amortization of the First Series Debentures is made on the amortization date of the First Series Debentures provided for in Clause 6.13.1 above or any of the Remuneration Payment Dates provided for in Clause 6.12, the amounts due on such dates will be deducted of the Optional Extraordinary Amortization of the First Series Debentures, for purposes of calculating the Premium of the Extraordinary Amortization of the First Series Debentures
7.2.7. Optional Extraordinary Amortization of the Second Series Debentures. Issuer may only as from the forty-eighth (48th) month, that is, as from November 16, 2027, inclusive, subject to the terms and conditions set below, at its sole discretion and regardless of the Second Series Debenture Holders’ will, provided that Issuer declares to Trustee to be in good standing with its obligations under the terms of this Indenture of Issue, by means of a notice to be sent according to the Communication Clause of this Indenture of Issue, carry out the extraordinary amortization of the Second Series Debentures, limited to ninety-eight percent (98%) of the Unit Par Value or the balance of the Unit Par Value of the Second Series Debentures as from the Issue Date (“Optional Extraordinary Amortization of the Second Series Debentures”)
7.2.8. The Optional Extraordinary Amortization of the Second Series Debentures may take place: (i) by means of a notice to each Second Series Debenture Holder, with copy to Trustee, B3, ANBIMA, Bookkeeping Agent and Settlement Bank: or, alternatively, (ii) by means of a published notice addressed to the Second Series Debenture Holders, in this case subject to Clause 6.19 of this Indenture of Issue, plus the mailing on the same date of a written notice to Trustee, B3, ANBIMA, Bookkeeping Agent and Settlement Bank, with the information established in Clause 7.2.9 below (in any case, a “Notice of Optional Extraordinary Amortization of the Second Series Debentures”), in both cases at least five (5) Business Days in advance of the expected date to perform the effective Optional Extraordinary Amortization of the Second Series Debentures (“Date of Optional Extraordinary Amortization of the Second Series Debentures”). The Date of Optional Extraordinary Amortization of the Second Series Debentures shall necessarily correspond to a Business Day
7.2.9. Upon the Optional Extraordinary Amortization of the Second Series Debentures, the Debenture Holders will be entitled to receive: (i) the installment of the Unit Par Value or the balance of the Unit Par Value of the Second Series Debentures, as the case may be, added with the Remuneration of the Second Series Debentures, calculated pro rata temporis as from the Yield Start Date or the preceding Remuneration Payment Date of the Second Series Debentures, as the case may be, plus all other applicable charges due and unpaid until the Optional Extraordinary Amortization of the Second Series Debentures (“Amount of the Optional Extraordinary Amortization of the Second Series Debentures”), (ii) added with the Second Series Premium. Calculated according to the formula provided for in clause 7.1.2, multiplied by the Amount of the Optional Extraordinary Amortization of the Second Series Debentures (“Premium of the Extraordinary Amortization of the Second Series Debentures”).
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7.2.10. The Notice of the Optional Extraordinary Amortization of the Second Series Debentures shall contain (i) the effective date of the Date of Optional Extraordinary Amortization of the Second Series Debentures, which shall, necessarily, be a Business Day; (ii) mention the Optional Extraordinary Amortization Amount of the Second Series Debentures and the Optional Extraordinary Amortization Premium of the Second Series Debentures; and (iii) any other information necessary for the operation of the Optional Extraordinary Early Redemption of the Second Series Debentures.
7.2.11.The Optional Extraordinary Amortization of the Second Series Debentures electronically held in custody at B3 will follow the procedures adopted by B3. In case of Second Series Debentures not electronically held in custody at B3, the settlement of the Optional Extraordinary Amortization of the Second Series Debentures will take place upon a deposit to be made by Bookkeeping Agent into the current accounts indicated by the Second Series Debenture Holders.
7.2.12. In case the Optional Extraordinary Amortization of the Second Series Debentures is made on any of the amortization dates of the Second Series Debentures provided for in Clause 6.13.2 above or on any of the Remuneration Payment Dates provided for in Clause 6.12, the amounts due in such dates will be deducted of the Optional Extraordinary Amortization Amount of the Second Series Debentures, in order to calculate the Extraordinary Amortization Premium of the Second Series Debentures.
7.3. Early Redemption Offer
7.3.1. Issuer may, at its sole discretion, at any time, make an early redemption offer for all of the First Series Debentures or the Second Series Debentures, as the case may be, addressed to all Debenture holders of the respective series, being assured to all respective series Debenture holders equal conditions to accept the redemption of the Debentures held by them ("Early Redemption Offer").
7.3.2. Issuer will conduct the Early Redemption Offer for the First Series Debentures and/or the Second Series Debentures, as the case may be, by means of individual notice sent to the Debenture holders, with copy to Trustee, or publication of an announcement, pursuant to Clause 6. 19 above ("Early Redemption Offer Notice") 30 (thirty) Business Days in advance of the date in which the early redemption is intended to be made, and in said notice shall state (a) the amount of the redemption premium, if any, which shall not be negative; (b) the form of statement, to Issuer, by the Debenture holder accepting the Early Redemption Offer; (c) the effective date for the redemption of the Debentures, which shall be a Business Say and payment to the Debenture holders; and (d) other information necessary for decision making and operationalization by the Debenture holders.
7.3.3. After the communication of the terms of the Early Redemption Offer, the Debenture Holders that opt for adherence to said offer will have to manifest themselves to Issuer within the period and in the manner set forth in the Notice of Early Redemption Offer, which will occur on a single date for all Debentures of said series, noting that Issuer may only redeem early the quantity of Debentures that has been indicated by their respective holders in adherence to the Early Redemption Offer.
7.3.4. Issuer may condition the Early Redemption Offer on acceptance by a minimum percentage of debentures, to be defined by Issuer when the Early Redemption Offer is made. Such percentage shall be stipulated in the Early Redemption Offer Notice.
7.3.5. The amount to be paid to the Debenture holders will be equal to the Unit par value of the Debentures or the Unit par value balance of the Debentures to be redeemed, plus (a) the Remuneration, calculated pro rata temporis since the Commencement Date of the Yield, or the Remuneration Payment Date of the First Series or the previous the Remuneration Payment Date of the Second Series, as the case may be, until the date of the effective redemption of the Debentures object of the Early Redemption Offer and other charges due and unpaid until the date of the Early Redemption Offer, and (b) if applicable, the redemption premium indicated in the Notice of Early Redemption Offer, which may not be negative.
7.3.6. The Debentures redeemed by Issuer, as provided in this Clause, shall be mandatorily cancelled.
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7.3.7. The early redemption resulting from the Early Redemption Offer for the Debentures electronically held in custody at B3 will follow the settlement procedures adopted by B3. If the Debentures are not electronically held in custody at B3, it will be done through the Bookkeeping Agent.
7.3.8. B3 and ANBIMA shall be notified by Issuer as to the early redemption resulting from the Early Redemption Offer at least 3 (three) Business Days prior to the effective date of its execution, through correspondence with Trustee's agreement.
7.4. Optional Acquisition
7.4.1. Issuer may, at any time, acquire Outstanding Debentures (as defined below), subject to the provisions of article 55, paragraph 3, of the Brazilian Corporation Law, and CVM Resolution 77, of March 29, 2022, as amended, and such fact, if so required by applicable legal and regulatory provisions, shall be included in the management report and financial statements of Issuer. The Debentures acquired by Issuer pursuant to this Section may, at Issuer's discretion, be cancelled, remain in Issuer's treasury, or be placed again in the market, subject to the restrictions imposed by CVM Resolution 160. The Debentures acquired by Issuer to remain in treasury, pursuant to this Section, if and when placed again in the market, shall be entitled to the same Remuneration applicable to the other Debentures of the respective series.
8. EARLY MATURITY
8.1. The Debentures and all obligations set forth in this Indenture of Issue shall be deemed to have matured in advance, and Issuer shall immediately be required to pay the Unit par value of the Debentures of each series, or the balance of the Unit par value of the Debentures of each series, as applicable, plus the Remuneration of the Debentures of the respective series, due, calculated pro rata temporis, since the Commencement Date of the Remuneration of the respective series or the Remuneration Payment Date of the immediately preceding series, until the date of their effective payment, and the Delay Charges and fines, if any, since the occurrence of the events described in Clauses 8.1.1 and 8.1.2 below, subject to the eventual cure periods and respective procedures, when applicable (each one, an "Early Maturity Event").
8.1.1. Automatic Early Maturity Events: Subject to any applicable cure periods, the occurrence of any of the events indicated in this Clause 8.1.1 shall result in the automatic early maturity of the Debentures, without any extrajudicial notice, judicial summons, prior notice to Issuer or consultation with the Debenture Holders (each, an "Automatic Early Maturity Event"):
(i)default or default, by Issuer and/or Guarantors, of any monetary obligation, principal or ancillary, related to the Debentures and/or provided for in this Indenture of Issue and/or in the other documents of the Issue and the Offering, on the respective payment date, which is not fully cured within up to two (2) Business Days counted from the respective default;
(ii)invalidity, nullity, ineffectiveness, revocation, cancellation, termination, suspension or unenforceability of this Indenture of Issue and/or of the other documents of the Issue;
(iii)judicial questioning, by Issuer, Guarantors, Vitru Ltd. (”Vitru Ltda.”) and/or any of their respective Affiliates, as applicable, regarding the validity, legitimacy, existence, effectiveness or enforceability of this Indenture of Issue and/or the other documents of the Issue and the Offering of the provisions and obligations set forth in this Indenture of Issue, and/or the other documents of the Issue and the Offering. For purposes of this Indenture of Issue, "Affiliates" means the respective parent companies, subsidiaries, affiliates, companies under common control of Issuer, Guarantors and/or Vitru Ltd., and on the date hereof Vitru Ltda. does not have a parent company under the terms of article 116 of the Brazilian Corporation Law, and currently has a diffuse control;
(iv)(a) a decree of bankruptcy of Issuer, any of Guarantors, Vitru Ltd. and/or Issuer’s subsidiaries individually representing a value equal to or higher than five percent (5%) of Issuer’s net assets, as calculated based on the latest financial statements disclosed by Issuer (“Relevant Subsidiaries”); (b) a petition for self-bankruptcy filed by Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries. (c) a petition for bankruptcy of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries, formulated by third parties, and not complied with within the legal term; (d) filing in court of a request for judicial or extrajudicial reorganization of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries, regardless of the granting or homologation of the respective request; (e) any similar event that characterizes a state of insolvency of Issuer, any of Guarantors, Vitru Ltd. and/or any of their Relevant Subsidiaries, including agreement among creditors; (f) request by Issuer and/or Guarantors for mediation, conciliation or extrajudicial reorganization to any creditor or classes of creditors, regardless of the judicial homologation of said plan having been requested or granted, or further, any similar proceeding in another jurisdiction; (g) liquidation, dissolution or extinction of Issuer, any one of the Guarantors and/or Vitru Ltd; or (h) any interlocutory procedure and/or procedure similar to those described above in another jurisdiction, filed by Guarantors, Issuer and/or any of their Relevant Subsidiaries as set forth in paragraph 1, article 20-B and paragraph 12, article 6, both of Law no.
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11.101, of February 9, 2005; or (i) filing in court by Guarantors, Issuer and/or any of their Relevant Subsidiaries, of a petition for judicial reorganization, including in another jurisdiction, irrespective of the grant of the reorganization procedure or its grant by the competent court;
(v) in the event any statement made by Issuer and/or any of Guarantors in this Indenture of Issue or in any other document of the Offering is proved or proved to be false and/or misleading;
(vi)declaration of early maturity of any debt and/or monetary obligation, in Brazil or abroad, assumed in any agreements (including of financial nature, local or international), of Issuer, any of Guarantors, Vitru Ltd. and/or subsidiaries of Issuer in unit or aggregate value equal or higher than Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the Broad National Consumer Price Index ("IPCA"), or its equivalent in other currencies, arising from loans or fund raising made by Issuer, by any of Guarantors, by Vitru Ltd. and/or by any of their respective subsidiaries in the financial or capital markets in Brazil or abroad;
(vii)assignment, promise of assignment or any form of transfer or promise of transfer to third parties, in whole or in part, by Issuer and/or any of Guarantors, of their respective rights and their respective obligations assumed in this Indenture of Issue;
(viii)non-compliance, by Issuer, with any judicial or administrative decision whose effects have not been stayed within the legal term, or arbitration award against Issuer, against any of Guarantors, against Vitru Ltd. and/or against any of their respective subsidiaries, in an amount, individually or in aggregate, equal or superior to Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies;
(ix)use of the net funds resulting from the Issue of Debentures in disagreement with the provisions of this Indenture;
(x)the conversion of Issuer’s corporate type, including the conversion into a limited liability company, pursuant to articles 220 and 222 of the Brazilian Corporation Law;
(xi)contracting, by Issuer, of any new debt and/or monetary obligation, resulting from loans or fund raising, in the financial or capital markets in Brazil or abroad, in an amount higher than Sixty Million Brazilian Reais (R$60,000,000.00), adjusted at the IPCA, except for unsecured debt of any type, provided that the respective guarantees are shared pari passu with the Debenture holders, by means of execution of a guarantee sharing agreement to be formalized within forty-five (45) days com execution of the respective guarantee instrument, in such way that, subject to this condition, the contracting of this debt and the creation of the guarantees may be formalized regardless of prior consent from Debenture Holders and the provision in item (vi) of Clause 8.1.2 below, it being further provided that financings whose funds are specifically intended for the acquisition of other companies or assets and that have a collateral guarantee on the shares/quotas issued by said companies (or assets) to be acquired by Issuer, such guarantee(s) will not be shared pari passu with the Debenture holders, and may benefit solely and exclusively the entity(ies) financing the acquisition in question
(xii)reduction of Issuer's net assets, of any of Guarantors and/or of their respective Relevant Subsidiaries, without the prior and express approval of the Debenture holders, except when the purpose is the absorption of losses;
(xiii)spin-off, merger, incorporation (including of shares) or any other form of corporate reorganization of Issuer and/or any of the Guarantors, except in cases that (a) exclusively involves companies of its economic group; (b) does not result in non-compliance with the provisions of item (xiv) of this Clause 8.1.1 and in item (xv) of Clause 8.1.2; and (c) does not cause a Material Adverse Effect;
(xiv) change in Issuer's and/or Guarantors' current control situation, except for the acquisition of Issuer’s control by any or some of the current relevant shareholders of Vitru Ltd, directly or indirectly (i.e., private equity funds managed by Vinci Partners, Carlyle/SPX, Neuberger Bermann, and/or Crescera Capital (“Relevant Shareholders”), or, (b) in case of prior consent of the Debenture holders at a General Meeting convened for this purpose, or the exit of Issuer’s Relevant Shareholders, provided that it does not entail acquisition of Issuer’s control by any third party other than the Relevant Shareholders.
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8.1.2. Non-Automatic Early Maturity Events: Upon the occurrence of any of the events set forth in this Clause 8.1.2, if not cured within the applicable cure period, the provisions of Clause 8.3 and following of this Indenture of Issue (each, a "Non-Automatic Early Maturity Event") shall apply:
(i)default, by Issuer and/or by any of Guarantors, of any non-monetary obligation set forth in this Indenture of Issue not cured within up to ten (10) Business Days from the date of the respective default, and the term set forth in this item shall not apply to the obligations for which a specific cure term has been stipulated;
(ii)default of any debt and/or monetary obligation of Issuer, any of Guarantors, Vitru Ltd. and/or any of their respective subsidiaries (even if in the capacity of guarantor), in an amount, individually or in aggregate, equal to or higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies, arising from loans or fund raising made by Issuer, any of Guarantors, Vitru Ltd. and/or any of their respective subsidiaries;
(iii)should any representation or warranty made by Issuer and/or any of Guarantors in this Indenture of Issue or in any other document of the Offering prove or show to be incorrect, incomplete, inconsistent, outdated and/or insufficient on the date they were provided;
(iv)assignment, sale, disposal and/or any form of transfer, by Issuer, any of Guarantors and/or any of their respective Relevant Subsidiaries, by any means, for free or against payment, of assets owned by Issuer that may cause a Material Adverse Effect;
(v)creation, by judicial measure, of any liens or encumbrances on the Guarantee provided that they are not cured within twenty (20) days from the effective constitution of such liens or encumbrances or within the timeframe set by the competent authority, whichever is shorter;
(vi)creation of personal guarantees, sureties or any Encumbrance (as defined below) on the assets of Issuer, of any of Guarantors and/or of any of their respective subsidiaries, in an amount higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, subject to the provision in item (xi) of clause 8.1.1 above. For purposes of this Indenture, "Liens" means mortgage, pledge, fiduciary assignment, beneficial ownership, trust, sales promise, purchase option, preemptive right, charge, lien or encumbrance, attachment, sequestration or seizure, judicial or extrajudicial, voluntary or involuntary, or other act that has the practical effect similar to any of the above expressions) on assets of Issuer, any of Guarantors and/or any of their respective subsidiaries;
(vii)if the Guarantee becomes insufficient, ineffective, unenforceable, invalid, and/or if any events occur that demonstrably materially affect the Guarantee provided;
(viii)in the event Issuer is in default with any of the Guaranteed Obligations and/or is not complying with the Financial Ratios, the distribution of funds from the net income of each period by Issuer in the form of dividends, interest on equity, profit sharing, cash bonuses and other remunerations, the amount of which, individually or in aggregate, exceeds the mandatory minimum in accordance with the Brazilian Corporation Law for each period;
(ix)alteration of the principal activities of the corporate purpose of Issuer and/or of any of Guarantors without the prior consent of the Debenture holders, as provided for in its By-laws or articles of association, as the case may be, in effect on the Date of Issue, except in the event of the addition of activities that are related or congeneric to the principal activities;
(x)redemption, repurchase, amortization or bonus of shares issued by Issuer, pursuant to Article 45 of the Brazilian Corporation Law, and/or shares of any of Guarantors, as applicable, unless the beneficiary is Issuer;
(xi)execution, by Issuer, as a creditor, of loans with any third parties, except (i) up to the individual or aggregate limit of Sixty Million Brazilian Reais (R$ 60,000,000.00), with a company whose capital is fully owned by Issuer, directly or indirectly; or (ii) with a direct or indirect subsidiary of Issuer, provided that (1) concomitantly with the loan made by the other shareholders of such direct or indirect subsidiary of Issuer; and (2) that the representative percentage of the loan made by Issuer corresponds to its interest in the capital stock, directly or indirectly, of the subsidiary in question or limited to Sixty Million Brazilian Reais (R$ 60,000,000.00), whichever is less;
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(xii)protest of titles for whose payment Issuer and/or any of Guarantors or their subsidiaries is liable in an amount, individually or in aggregate, equal to or higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or its equivalent in other currencies, unless Issuer and/or the Guarantors or subsidiaries, as applicable, validly prove to Trustee that (a) the respective protest has been cancelled, (b) they have been provided by Issuer and/or the Guarantor, and accepted by the Judiciary, (c) the relevant protest was requested due to error or bad faith of the representative, or (d) it is taking reasonable measures to suspend the effects of such protest and such measures succeed in suspending the effects of such protest within twenty (20) days after the date of the relevant protest;
(xiii)the occurrence of any act or measure of any governmental authority that results in the effective seizure, expropriation, nationalization, or otherwise the compulsory acquisition of all or of a substantial part of the assets, goods, properties and/or the shares of Issuer's capital stock and/or of any of Guarantors in an individual or aggregate amount higher than Sixty Million Brazilian Reais (R$ 60,000,000.00), adjusted at the IPCA, or that causes a Material Adverse Effect;
(xiv)occurrence of any act or measure of any governmental authority (a) aiming at liquidating, dissolving or extinguishing Issuer and/or Guarantors, which is not being contested in good faith by Issuer and/or Guarantors, as applicable, in the judicial or administrative sphere and whose respective effects are not suspended; or (b) that prevents the continued operation of the business of Issuer and/or Guarantors or causes a Material Adverse Effect (as defined below). For purposes of this Indenture, "Material Adverse Effect" means the occurrence of any adverse change in (1) the financial, economic, reputational, operating or regulatory conditions of Issuer and/or Guarantors that causes a material adverse effect on the ability of Issuer and/or Guarantors to perform their obligations under this Indenture, the Issue and the other documents of Issue and the Offering, as applicable, and/or (2) the reputational conditions of Issuer and/or Guarantors.
(xv)non-compliance, by Issuer, with any of the financial indexes below ("Financial Indexes") to be determined as indicated below based on the annual consolidated financial statements and/or consolidated quarterly information of Issuer, examined by Trustee until the Maturity Date and/or full payment of the amounts due by virtue of the Debentures, whichever occurs first, to be calculated based on the consolidated financial information of Issuer, duly audited or reviewed in accordance with the applicable accounting standards, by the independent auditors hired by Issuer:
Net Financial Debt/Adjusted EBITDA less than or equal to:
(a)Four times (4.0x), to be verified on the basis of Issuer's audited consolidated financial statements, and the calculation based on the fiscal year ending December 31, 2023;
(b)Three and a half times (3.5x), to be verified on the basis of Issuer's audited consolidated quarterly financial information, with the calculation being based on the quarter ended June 30, 2024; and
(c)Three times (3.0x), to be verified based on Issuer's audited consolidated financial statements, as from fiscal year ending December 31, 2024, onwards.
Adjusted EBITDA*/Net Financial Result higher than or equal to:
(a)One and a half times (1.5x) to be verified based on Issuer's consolidated and revised or audited financial information, as applicable, being the calculation based on (a) the fiscal year ended December 31, 2023, and (c) the quarter ended June 30, 2024; and
(b)Two times (2.0x), to be verified based on Issuer's audited consolidated financial statements, being the calculation based on the fiscal year ended December 31, 2024 and the subsequent years until the maturity of the Debentures.
"Financial Debt" means, based on Issuer's consolidated and audited or reviewed financial statements, as the case may be, any amount due, in Brazil or abroad, as a result of (i) loans, financing or other financial debts, including leasing (except rental of properties), financial leasing, fixed income securities, debentures, bills of exchange, promissory notes or similar instruments; (ii) acquisitions payable; (iii) net balance of asset and liability transactions with derivatives (such balance to be net of what is already classified in current and non-current liabilities); (iv) letters of credit, sureties, co-obligations and other guarantees provided on behalf of companies not consolidated in the respective financial statements and (v) obligations arising from redemption of equity securities and payment of dividends or profits declared and not paid, if applicable, it provided that Financial Debt will not consider liabilities relating to commercial leases (rental of properties);
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"Net Financial Debt" means based on Issuer's audited or reviewed consolidated financial statements, as the case may be, its Financial Debt less the sum of cash, short-term investments and marketable securities, free and clear of any Encumbrances;
For the purposes of this item, "Adjusted EBITDA" means, based on the audited or reviewed consolidated financial statements, as the case may be, of Issuer for the immediately preceding twelve (12) months, the net income for the period, plus taxes (current and deferred) on income, net financial expenses, financial income, depreciation, amortization and depletion (including impairment charges), interest on tuition fees paid in arrears, share-based compensation plan expenses, Other income (expenses), net, and M&A, pre-offering expenses and restructuring expenses, all calculated in accordance with the definitions of the most recent Form 20-F of Vitru Ltd. and in line with IFRS standards, it being understood that, in addition, Adjusted EBITDA shall consider expenses with rent paid;
"Net Financial Result" means Financial Revenues less (-) Financial Expenses;
"Financial Income" means the sum of interest on financial investments, interest on loans and borrowings assets, monetary and foreign exchange assets, and hedge/derivative related income; and
"Financial Expenses" means the sum of interest on financial debts, loans, securities, discount on assignment of credit rights, structuring costs of banking or capital market operations, monetary and exchange rate passive variations, expenses related to hedge/derivatives, interest or fines for delay and/or non-payment of obligations, excluding interest on equity.
8.2. The occurrence of any of the Early Maturity Events described in Clause 8.1.1 above will cause the automatic early maturity of the obligations under the Debentures, with the consequent consideration, by Trustee, of the early maturity of all obligations under the Debentures and demand of the payment of whatever is due, regardless of the calling of a General Meeting of Debenture Holders or the need to send any form of communication or notification to Issuer and/or Guarantors.
8.3. Upon the occurrence of any of the Early Maturity Events described in Section 8.1.2 above, Trustee shall call, within one (1) Business Day counted from the date it becomes aware of the event, a General Meeting of Debenture holders to resolve on the eventual non-declaration of early maturity of the obligations resulting from the Debentures.
8.3.1. In the General Meeting of Debenture holders mentioned in Clause 8.3, which shall be installed in accordance with the procedures and quorum set forth in Section 11 hereof, the Debenture holders may choose not to declare early maturity of the obligations resulting from the Debentures, by resolution of Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures, in which case Trustee shall consider the non-early maturity of the obligations resulting from the Debentures.
8.3.2. In the event the non-automatic early maturity of the Debentures is not approved in accordance with the quorum set forth in Clause 8.3.1 above, Trustee shall consider the early maturity of the obligations under the Debentures.
8.3.3. In the event a quorum for installation, on second call, of the General Meeting of Debenture Holders referred to in Clause 8.3 above is not obtained, Trustee shall consider the early maturity of the obligations under the Debentures.
8.3.4. In case of early maturity of the obligations under the Debentures, Trustee shall send, within one (1) Business Day, a communication with notice of receipt to Issuer ("Early Maturity Notice"), with copy to the Settlement Bank, informing such event, so that Issuer within up to three (3) Business Days as of the reception date of the Early Maturity Notice, make the payment of the value corresponding to the Unit par value of the Debentures, added of the Remuneration due until the date of the effective payment, also added of Delay Charges, if applicable, pursuant to this Indenture.
8.3.5. Once the Debentures mature in advance, pursuant to this Section 8, Trustee shall also communicate to B3 immediately, informing the early maturity, whose procedures, in relation to the Debentures electronically held in custody at B3, shall follow the described in the B3 Operations Manual.
8.3.6. Irrespective of the communication to B3 provided for in Clause 3.5 above, for the payment of all of the Debentures to be made through B3, Issuer shall communicate B3 by means of a correspondence jointly with Trustee or such payment at least three (3) Business Days in advance of the date set for such payment.
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9. ADDITIONAL OBLIGATIONS OF ISSUER AND GUARANTORS
9.1. Subject to the other obligations set forth in this Indenture and the Issue, until the outstanding balance of the Debentures is fully paid, Issuer and Guarantors, as applicable, further undertake to:
(i)In the case of Issuer, provide to Trustee:
(a)within three (03) Business Days within, at most, ninety (90) days after the end of each fiscal year, or on the date of its disclosure, whichever occurs first: (1) a copy of its audited consolidated financial statements for the fiscal year then ended, prepared in accordance with accounting principles generally accepted in Brazil, accompanied by the management report and the opinion of the independent auditors, as well as a copy of any communication made by the independent auditors, or to the members of its management, and their respective responses, regarding such financial statements, the accounting system, management or accounts of Issuer or Guarantors, as the case may be; and (2) declaration signed by the legal representative(s) of Issuer, in the form of its By-laws certifying (2.a) that the provisions contained in this Indenture remain valid; (2.b) the non-occurrence of any of the events of early maturity set forth in item (xv) of Clause 8 and the non-existence of non-compliance with its obligations before the Debenture holders; and (3) calculation memory for determination of the Financial Index, under the Clause 8.1.2, containing all the necessary items that demonstrate the compliance with the Financial Indexes, which will be duly evidenced in the explanatory notes of the financial statements audited by the independent auditors hired by Issuer, under penalty of impossibility of follow-up of the referred Financial Indexes by Trustee, which may request to Issuer and/or to the independent auditors of Issuer all eventual additional clarifications that may be necessary;
(b)within three (03) Business Days within 45 (forty-five) days counted from the closing of each quarter of the fiscal year (except for the fourth quarter of each fiscal year), its quarterly financial information, together with the calculation chart for determination of the Financial Indices, pursuant to Clause 8.1.2(xv), containing all necessary initials, evidencing fulfillment of the Financial Indices, which will be duly evidenced in the financial statements audited by the independent auditors hired by Issuer, on pain of Trustee’s impossibility to monitor said Financial Indices, and Trustee may request to Issuer and/or Issuer’s independent auditors all possible additional clarifications that may be needed;
(c)within three (03) Business Days within, ninety (90) days after the end of each fiscal year, its annual budget;
(d)the Notices to Debenture holders, relevant facts and minutes of meetings that somehow involve Debenture holders' interests within up to five (5) Business Days from the date they are held;
(e)within ten (10) Business Days counted from the reception of the request, or in lesser term, if so determined by competent authority, any relevant information regarding the Debentures that may be requested to it, in writing, by Trustee, in order that it may comply with its obligations under this Indenture of Issue and the CVM Resolution 17;
(f)copy of any correspondence or judicial or extrajudicial notification received that may cause an Event of Early Maturity to this Indenture, within five (5) Business Days after its reception
(g)within two (2) Business Days, information about the non-compliance with any clause, terms or conditions of this Indenture of Issue, or occurrence of an Event of Early maturity; and
(h)to forward to Trustee an electronic copy (PDF) with the due digital stamp of the JUCESC of the acts and meetings of the Debenture holders that integrate the Issue;
(ii)fulfill the provisions of the specific regulation edited by CVM, in the event a meeting of Debenture Holders is called, to be held in a partial or exclusively digital manner;
(iii)send to Trustee all the corporate acts, financial data and the organization chart of its corporate group, which shall contain, including, Affiliates and the companies integrating its control block in the closing of each fiscal year, all the information that may be requested by Trustee for the accomplishment of the report mentioned in line (l) of Clause 10.5.1 below, within up to 05 (five) Business Days counted from the date that they were requested; (viii)inform Trustee, within up to two (2) Business Days, about any tax, environmental, regulatory, labor, occupational health and safety or antitrust notifications, among others, issued by governmental agencies in relation to Issuer and Guarantors, as applicable, which cause or may cause a Material Adverse Effect;
(iv)the proof of compliance with its monetary obligations before the Debenture holders within up to five (5) Business Days counted from the date of Trustee's respective request;
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(v)inform Trustee, within up to two (2) Business Days counted from the date of its occurrence or from the respective receipt of communication of non-compliance with any obligation of Issuer and/or of Guarantors in contracts to which they are parties and that cause or may cause a Material Adverse Effect;
(vi)inform Trustee, within 2 (two) Business Days from the date of its occurrence, about any change in its financial, economic, commercial, operational, regulatory, reputational or corporate conditions or in its business, as well as any events or situations, including legal actions or administrative proceedings, that: (a) may cause a Material Adverse Effect; or (b) cause its financial statements or its quarterly financial information to no longer reflect its actual financial condition;
(vii)inform Trustee, within 2 (two) Business Days, about judicial, arbitration or administrative proceedings in which Issuer and/or Guarantors are parties or that involve the discussion of contracts to which Issuer and/or Guarantors are a party or that cause or may cause a Material Adverse Effect;
(ix)inform Trustee, within 2 (two) Business Days, of any matters involving labor disputes or claims that cause or may cause a Material Adverse Effect;
(x)inform Trustee, within up to two (2) Business Days from the date of the occurrence of (a) non-compliance with the Social and Environmental Legislation (as defined below); (b) environmental damage that may cause a Material Adverse Effect; (c) commencement and/or existence and/or decision handed down in administrative or judicial proceedings of a social and environmental nature; or (d) any situation that causes or may cause a Material Adverse Effect, indicating, as applicable, the measures that should be adopted;
(xi)inform Trustee, within 2 (two) Business Days from the date of commencement of any action by any governmental authority to revoke, terminate, suspend, withdraw, adversely modify or withhold any license or approval required that causes or may cause a Material Adverse Effect;
(xii) inform Trustee, within five (5) Business Days from the date (a) it becomes aware of the inclusion of Issuer, any of the Guarantors and/or their respective Affiliates in any type official list issued by a Brazilian governmental agency of companies that fail to comply with the Reputation Social and Environmental Legislation (as defined below); or (b) of awareness of an adverse judgment that entailed said inclusion, whichever occurs first;
(xiii) inform Trustee within five (5) Business Days as from the date (a) it becomes aware of the Inclusion of Issuer, any of the Guarantors and their Relevant Subsidiaries in the National Register of Disreputable and Suspended Companies – CEIS, in the National Register of Punished Companies – CNEP and/or Register of Prevented Not-for-Profit Private Entities – CEPM or any other similar registers at state and/or municipal levels; or (b) of awareness of the adverse judgment that entailed said inclusion, whichever occurs first;
(xiv)comply with all determinations issued by CVM, with the submission of documents, providing, furthermore, the information that may be requested by CVM;
(xv)not disclose to the public information regarding the Issuer, the Issue or the Debentures, in disagreement with the provisions of the applicable regulations, including, but not limited to, the provisions of article 11 of CVM Resolution 160;
(xvi) as from the moment the Offering becomes public by disclosing information related to Issuer, the Offering and/or Guarantors, strictly follow the provision in CVM Resolution 160, especially the provision in article 12, and all other applicable legislation and regulations;
(xvii) subject to the provision in articles 12 and 35 of CVM Resolution 160, refrain from publicizing the Offering, including by means of a statement regarding Issuer and/or Guarantors, until disclosure of the Closing Notice;(xviii) until disclosure of the Closing Notice, refrain from trading securities issued by Issuer, of the same type of Debentures referred therein, whether convertible or exchangeable, or securities in which the Debentures are convertible or exchangeable, except (a) in the events set forth in article 54, paragraph 2, of CVM Resolution 160, as applicable, or (b) in the event of a waiver granted by CVM; (xix)not to perform operations outside its corporate object and not to practice any act in disagreement with its By-laws and/or with this Indenture
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(xx)obtain, observe the terms of, perform all necessary acts, and keep in full force all authorizations, approvals, permits, licenses, including environmental ones, issued or issued by the competent agencies, and consents needed under the terms of the Brazilian legislation and regulations for the regular exercise of the activities developed by Issuer and by Guarantors and/or necessary to its operations, whose non-renewal, non-obtaining, cancellation, revocation, suspension or extinction, does not prevent the continuity of its operations, except if (a) are being contested in good faith and provided that a precedent condition is obtained, or (b) are in a timely process of renewal, and (c) in any case, provided that it does not cause a Material Adverse Effect;
(xxi)comply with all obligations assumed under this Indenture of Issue, including, without limitation, the obligation to apply the net funds obtained through the Issue of Debentures strictly as described in Clause 4 above;
(xxii)comply and cause its Affiliates to comply with all laws, regulations, administrative rules and determinations of governmental agencies, municipalities or courts, as applicable, in any jurisdiction in which Issuer and Guarantors conduct business or hold assets, except in cases in which Issuer and/or Guarantors and/or the Affiliates, as the case may be, are in good faith contesting the respective non-compliance, provided that the respective precedent condition is obtained and all measures are being taken for the fulfillment of the obligations in a diligent manner or whose non-compliance does not result in a Material Adverse Effect (except for compliance with laws, regulations and other environmental rules (including, but not limited to Law no. No. 6938, of August 31, 1981, as amended ("National Environmental Policy"), the Resolutions of CONAMA - National Environmental Council, and the other environmental and labor laws and regulations, relating to occupational health and safety, in force and/or legislation in force pertinent to Anti-Corruption and Anti-Washing, for which Issuer and Guarantors undertake to comply with them in full, without any reservations and/or qualifiers);
(xxiii)comply by itself and its respective Affiliates and their respective administrators, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and in benefit of Issuer and/or Guarantors, as applicable, with the legislation in force regarding environmental crimes, slave-like labor, child labor race and gender discrimination, and encouragement of prostitution ("Social and Environmental Reputational Legislation"), as well as the labor laws in force regarding occupational health and safety, the inexistence of child labor (except by hiring apprentices, under the terms of the applicable legislation) or analogous to slavery, the employment of foresters, and non-encouragement of prostitution;
(xxiv)comply by itself and its Affiliates, with the other environmental and labor and social security laws in force, as applicable, not mentioned in items (xxii) and (xxiii) above, including Law no. 6938, of August 31, 1981, as amended (“National Environmental Policy”), the resolutions of the National Environmental Council - CONAMA (together with the legislation mentioned in item (xxii) above, ("Social and Environmental Legislation"), maintaining, furthermore, all legally necessary environmental licenses valid, exempted, with protocol with the public authorities, observing the terms foreseen in article 18, §4º, of the Resolution of the National Council of Environment - CONAMA nº 237 of December 19, 1997 and/or the deadlines set by the environmental agencies of the jurisdictions in which Issuer, Guarantors and/or their respective controlling companies,
(xxv) affiliates or companies under common control, as applicable, as well as adopting the preventive or reparatory measures and actions destined to avoid and correct eventual damages to the environment and its workers, as well as proceeding with all the diligence required for its economic activities, preserving the environment and complying with the determinations of the Federal, State and Municipal Agencies that secondarily may legislate or regulate the environmental rules in effect, as applicable;
(xxvi)take all necessary measures to:
(a) preserve all of its rights, title, licenses (including environmental licenses), permits and assets necessary to conduct its business, within its respective corporate purpose and customary business practices, except in cases where Issuer and/or Guarantors are contesting in good faith the non-preservation of such rights, title, licenses, permits and assets and the effects of such non-preservation are suspended or the preservation of such rights, title, licenses, permits and assets does not cause or is not likely to cause a Material Adverse Effect;
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(b) pay or otherwise discharge, when due, subject to applicable grace periods, all of its obligations, including, but not limited to, tax, labor and commercial obligations; except that Issuer and/or Guarantors, as the case may be, are contesting in good faith the respective default or the failure to pay does not result in a Material Adverse Effect; and
(c) keep the assets necessary for the conduct of its main activities adequately insured, in accordance with the practices adopted by Issuer and with market practices, it provided that Trustee will not carry out any type of monitoring and control over such insurance(s);
(xxvii)always keep valid, effective, in perfect order and in full force all the authorizations required for the execution of this Indenture, the Issue and of the other documents of the Offering and for the compliance with all the obligations set forth herein and therein;
(xxviii)to hire and keep hired, at their expenses, during all the term of validity of the Debentures, the service providers inherent to the obligations set forth in this Indenture, including: (a) Trustee; (b) the Settling Bank and the Bookkeeping Agent; (c) the B3, and keep the Debentures registered for trading at B3, during the term of validity of the Debentures, bearing the costs of such registration;
(xxix)timely pay for the services related to the Debentures' registration at B3 and CVM;
(xxx)keep in compliance with the obligations related to taxes, tributes, fees, contributions of any nature, charges or withholdings, present or future, as well as any interest, fines or other tax liabilities, and other governmental obligations whose lack of payment does not result in a Material Adverse Effect, or that are being contested in good faith;
(xxxi)provide Trustee, the CVM, ANBIMA and/or the B3 with any information requested respectively by each one, within the period indicated in the respective request;
(xxxii)attend the General Meeting of Debenture holders in order to provide the information requested
(xxxiii)not assign, transfer or in any way dispose of any of its obligations related to the Debentures, without the prior and express approval of the Debenture holders;
(xxxiv)keep in force the structure of contracts and other existing agreements necessary to enable the operation and functioning of its activities or that are relevant in such a way that the non-maintenance of such contracts and agreements makes it impossible for Issuer and/or Guarantors, as the case may be, to comply with the obligations arising from the Debentures;
(xxxvi)maintain the obligations assumed in this Indenture of Issue as legally valid and binding obligations of Issuer and/or Guarantors, as the case may be, enforceable in accordance with its terms and conditions;
(xxvi)comply by itself, its respective Affiliates and their respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, to the same extent they are applicable, any law or regulation against the practice of corruption, crimes against the economic or tax order, bribery, "laundering" or concealment of assets, rights and values, or against the national financial system, the capital market or the national or foreign public administration, including, without limitation, illegal acts that may lead to administrative, civil or criminal liability, as applicable, under the terms, including, Laws No. 6,385, of December 7, 1976, No. 7,492, of June 16, 1986, No. 8,137, of December 27, 1990, No. 8,429, of June 2, 1992, No. 8,666, of June 21, 1993, No. 14,133, of April 1, 2021 (or other rules for public tenders and contracts), No. 9,613, of March 3, 1998, No. 12,529, of November 30, 2011, No. 12,846, of August 1, 2013, Decree No. 11.129, of July 11, 2022, Decree-Law No. 2,848/40, Decree No. 5,687, of January 31, 2006 enacting the United Nations Convention against Corruption, adopted by the United Nations General Assembly on October 31, 2003, U. S. Foreign Corrupt Practices Act of 1977, and the UK Bribery Act, the ordinances and normative instructions issued by the Comptroller General pursuant to the aforementioned law and ordinance, as well as all laws, decrees, regulations and other normative acts issued by a governmental authority with jurisdiction over Issuer and/or Guarantors in question related to this matter (together, the "Anti-Corruption and Anti-Money Laundering Laws"), and Issuer and Guarantors, as applicable to each of them, shall (a) maintain internal procedures that aim to disclose and ensure full compliance with the Anti-Corruption and Anti-Money Laundering Laws; (b) endeavor its best efforts to make its internal policies on Anti-Corruption and Anti-Wash Laws known to its Affiliates or any subcontractors and to all of its professionals prior to such hiring (c) to refrain from practicing any corruption and bribery acts, national and foreign, in its interest or for its benefit, exclusive or not; and (d) in case it has knowledge of any act or fact related to the mentioned rules, to communicate the Trustee within two (2) Business Days counted from the knowledge of such act or fact;
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(xxxvii)allocate the net proceeds of the Offering strictly under the Section 4 above, as well as ensure that they are not employed by Issuer and/or its respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer, (a) for the payment of illegal contributions, gifts or entertainment activities or any other illegal expense related to political activity; (b) for the illegal payment, directly or indirectly, to public employees or officials, political parties, politicians or political candidates (including their family members), whether domestic or foreign; (c) in any action designed to facilitate an illegal offer, payment or promise to pay, as well as to have approved or approved the payment, giving of money, property, gift or any other thing of value, directly or indirectly, to any "government official" (including any officer or employee of a government or of an entity owned or controlled by a government or public international organization or any person acting in the capacity of government official or political party candidate) in order to influence any political action or to obtain an improper advantage in violation of applicable law; (c) in any acts to obtain or retain any improper business, transaction or business advantage; (e) in any payment or taking any action that violates any of the Anti-Corruption and Anti-Abuse Laws; or (f) in an act of corruption, payment of a bribe or any other illegal amount, as well as influenced the payment of any improper amount;
(xxxviii)exclusively with respect to Issuer, comply with the provision in CVM Resolution 160, as applicable:
(xxxix) the controlling companies and managers of Issuer are responsible for complying with the obligations under item (xxxviii);
(xl)notify Trustee, within three (3) Business Days from the date it becomes aware that Issuer, Guarantors, their Affiliates, and their respective administrators, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on their behalf and for the benefit of Issuer and/or of Guarantors, as applicable, are involved in an investigation, inquiry, action, proceeding and/or judicial or administrative proceeding, conducted by a domestic or foreign administrative or judicial authority, as applicable, related to non-compliance with the Anti-Corruption and Anti-Money Laundering Laws, and shall, when requested by Trustee provide copies of any decisions rendered and any judicial or extrajudicial agreements signed within the scope of the referred procedures, as well as detailed information about the measures adopted in response to such procedures, within three (3) Business Days from the respective request, provided that, for the purposes of this obligation, Issuer and/or Guarantors shall be deemed to be aware of (a) the receipt of a summons, subpoena or judicial or extrajudicial notification, issued by a domestic or foreign judicial or administrative authority, (b) the communication of the fact by Issuer and/or Guarantors to the competent authority, and (c) the adoption of a judicial or extrajudicial measure by Issuer and/or Guarantors against the violator;
(xli)not to offer, promise, give, authorize, request or accept, directly or indirectly, any undue advantage, pecuniary or of any nature, related in any way with the purpose of this Indenture of Issue, as well as not to practice injurious acts, violations or crimes against the economic or tax order, the financial system, the capital market or the public administration, national or foreign, as applicable, of "laundering" or occultation of assets, rights and values, terrorism or terrorism financing, foreseen in the applicable national and/or foreign legislation, and take all measures within their reach to prevent managers, employees, attorneys-in-fact, representatives, theirs or of their Affiliates, as well as suppliers, contractors or subcontractors from doing so;
(xlii)keep, for a period of 5 (five) years as of the present date, or for a longer period by express determination of CVM, in case of administrative proceeding, all documents and information required by CVM Resolution 160, being that the documents and information may be kept in physical or electronic means, admitting the substitution of documents by the respective digitalized images;
(xliii) to hire and keep hired the Rating Agency at its expenses throughout the term of the Debentures, to carry out the rating of the Issue, and further (a) update such rating annually, once at each calendar year as from the date of the first report until the full discharge of the Debentures; (b) disclose or allow the Rating Agency to widely disclose to the market the reports on such rating; and (c) in ca\se the wide disclosure mentioned in item (b) above does not occur, communicate the Trustee of any downgrade in such rating on the same date it receives the respective rating report; provided that, in case the hired Rating Agency has its registration or recognition cancelled or suspended at CVM, preventing it from operating as a rating agency, the Company shall (1) hire another rating agency with no need for approval from Debenture Holders, being it sufficient to notify Trustee, provided that such rating agency is Fitch Ratings or Moody's; or (2) in case the rating agency is not included in those indicated in item (1) above, within five (5) Business Days from the date it becomes aware, notify Trustee and call a General Meeting of Debenture Holders, to define the substitute rating agency.
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10. TRUSTEE
10.1 .Appointment
10.1.1. Issuer appoints Vórtx Distribuidora de Títulos e Valores Mobiliários Ltda., identified above, as Trustee of the Debenture holders of this Issue, and it hereby accepts the appointment to, under the terms of the law and this Indenture, represent before Issuer the Debenture holders.
10.2. Declaration
10.2.1. |
Trustee hereby declares under penalty of law that: |
(i) has verified the truthfulness of the information contained in this Indenture, having diligent to remedy the omissions, failures, or defects of which it has knowledge;
(ii) has no legal impediment, according to paragraph 3 of the article 66 of the Brazilian Corporation Law and article 6 of the CVM Resolution 17, to perform the function that is conferred to it;
(iii) accepts the function that is granted to it, fully undertaking the duties and attributions set forth in the specific legislation and in this Indenture
(iv) fully accepts this Indenture, all of its clauses and conditions;
(v) has no connection with Issuer that prevents it from performing its functions;
(vi) is aware of the Circular no. 1,832, of October 31, 1990, of the Brazilian Central Bank;
(vii) is duly authorized to execute this Indenture of Issue and to comply with its obligations set forth herein, and all legal and statutory requirements necessary for such purpose have been satisfied;
(viii) it not in any of the situations of conflict of interest set forth in article 6 of CVM Resolution 17;
(ix) is duly qualified to perform the activities of trustee under the terms of the applicable regulation in force;
(x) this Indenture of Issue constitutes a legal, valid, binding and effective obligation of Trustee, enforceable according to its terms and conditions;
(xi) the execution of this Indenture and the performance of its obligations hereunder are not in breach of any obligation previously assumed by Trustee; and
(xii) based on the corporate organization chart made available by Issuer, for the purposes of the provision in CVM Resolution 17, on the date of signature of this Indenture of Issue Trustee does not provide trustee services in issues of Securities of Issuer or an affiliate, subsidiary, controlling company or member of the same economic group of Issuer.
10.3. Remuneration of Trustee
10.3.1 Trustee will be owed fees for performing the duties and attributions incumbent upon it, under the terms of this instrument and the legislation in force, corresponding to: (i) one implementation installment in the amount of Twelve Thousand and Five Hundred Brazilian Reais (R$12,500.00), due by the fifth (5th) business day as from the date of execution of this Indenture of Issue, and (ii) annual installments in the amount of Twelve Thousand and Five Hundred Brazilian Reais (R$12,500.00), the first of which due on the same maturity date of installment (i) above of the subsequent year and the others on the same maturity date of the subsequent years; and (iii) in addition, installments of Six Hundred and Fifty Brazilian Reais (R$ 650.00) will be due to Trustee, on account of verification of the Financial Indices, due by the fifth (5th) business day as from the verification. In case the operation is discontinued, the amount of installment (i) will be due by Issuer and/or Debtor on account of “abort fee” by the fifth (5th) Business Day as from notice of operation cancellation.
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10.3.2. In case of default by Issuer or restructuring of the conditions of the operation, an additional remuneration equal to Six Hundred and Fifty Brazilian Reais (R$ 650.00) will be due to Trustee, per man-hour of work dedicated to activities related to the Issue, including but not limited to, (i) the enforcement of the guarantees; (ii) attendance in formal meetings or teleconferences with Issuer, the Debenture Holders or the other parties to the Issue, including respective general meetings; (iii) the analysis and/or preparation of any amendments to the Operation Documents, minutes of meetings and/or any documents needed for what is provided in the item below: (iv) requests for early redemption calculation and other simulations; and (v) implementation of the consequent decision taken in such events, which remuneration shall be paid within ten (10) days after verification and approval of the respective “Worked Hours Report” by Issuer.
10.3.3. The above mentioned installments, due on account of Trustee’s fee will be adjusted annually by the accumulated variation of the IPCA/IBGE in the absence thereof or further, impossibility of its use, by the official index that replaces it, as of the first payment until the subsequent payment dates.
10.3.4. Trustee’s recurring remuneration shall be due until full settlement of the securities or until fulfillment of all obligations required from Trustee within the scope of the Issue. In no event whatsoever a pro rata temporis payment or return, even where partial, of Trustee’s remuneration will be applicable.
10.3.5. The installments mentioned in the Clause above will be increased by ISS (Taxes on Services of Any Nature); PIS (Contribution to the Social Integration Program); COFINS (Contribution to the Financing of Social Security); CSLL (Social Contribution on Net Profits); IRRF (Withholding Income Tax); and any other taxes that may be levied on Trustee's remuneration at the rates in effect on the dates of each payment.
10.3.6. The payments under this clause made on account of remuneration may be invoices by any company of the economic group, including but not limited to, Vórtx Serviços Financeiros Ltda., registered with the CNPJ/ME under no. 17.595.680/0001-36.
10.3.7. In case of delay in the payment of any amount due, the outstanding debts will be added with a contractual fine of two percent (2%) on the debt amount, as well as default interest of one percent (1%0 per month, and the outstanding debt will be subject to monetary adjustment by the accumulated IPCA, applicable since the default date until the effective payment, calculated pro rata die.
10.3.8. Expenses. Additionally, Issuer will advance to Trustee all necessary expenses to provide the services described in this instrument, protect the investors’ rights and interests, or realize their credits. In case of Issuer’s denial to fund such expenses, Debenture Holders shall advance all costs to be expended by Trustee, proportionally to their credits and subsequently refunded by Issuer. The expenses to be advanced shall be approved in advance by Debenture Holders and Issuer. Examples of expenses that may be incurred by Trustee: (i) publication of reports, notices, call notices and notifications, expenses with registry offices, as provided for herein and the applicable legislation, and any other expenses that may be required by applicable regulations; (ii) expenses with telephone conferences and contacts; (iii) obtaining of certificates, photocopies, scanning, sending of documents; (iv) trips to other states, meals, Transportation and respective lodgings, where necessary for performance of the duties and duly proven; (v) if applicable, all expenses needed to inspect works or projects financed with funds from the payment (vi) verification, validation or use of systems to check, monitor, or obtain a technical or legal opinion on the documentation or information provided by Issuer for fulfillment of its obligations; (vii) revalidation of valuation reports, as the case may be, pursuant to CVM Circular Letter no. 1/2021 SRE; (viii) expenses with third-party legal fees, deposits, costs and court fees in actions proposed by Trustee or resulting from actions against it, filed in the performance of its duties, resulting from exclusive and proven fault of Issuer or further, that provenly cause losses or financial risks to it, as the group of Debenture holders' representative; (ix) any expenses, deposits and court costs resulting from the defeat in lawsuits will be equally supported by Debenture holders, as well as Trustee's remuneration; (x) costs and Financiers expenses related to B3/CETIP.
10.3.9. In case of necessary refund of expenses to Trustee, it shall be made no later than five (5) business days after submission of the respective accounts rendering to Issuer and the copies of the respective proof of payment.
10.3.10. Trustee's credit for expenses incurred to protect the rights and interests or to realize the Debenture holders' credits that have not been settled as provided for in the clauses above will be added to Issuer's debt, and will be preferred in the payment order. Trustee may resort to any existing funds in the escrow accounts to discharge the expenses and fees in default, sending the respective advance notification of its acts to the investors and issuers and mandatorily submitting the respective accounts rendering.
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10.3.11. The Trustee shall not advance funds for payment of expenses arising from the Issue, and such funds shall always be due and advanced by the Issuer or Investors, as the case may be.
10.4. Replacement
10.4.1. In the event of impediment, resignation, intervention, extrajudicial liquidation or any other case of vacancy, a General Meeting of Debenture Holders will be held within thirty (30) calendar days counted from the event that determines it, in order to choose the new Trustee, which may be called by Trustee itself to be replaced, by Debenture Holders representing at least 10% (ten percent) of the Outstanding Debentures, or by CVM. If the call is not made until fifteen (15) calendar days prior to the end of the above mentioned term, Issuer will be responsible for making it, observing the terms set out in the Brazilian Corporation Law, provided that CVM may nominate a provisory substitute while the process for choosing a new Trustee is not concluded.
10.4.2. The remuneration of the new Trustee will be the same already set forth in this Indenture, except if another one is negotiated with Issuer, being previously and expressly accepted in writing by Issuer, at the General Meeting of Debenture holders.
10.4.3. In case Trustee is not able to continue to perform its functions due to circumstances supervening to this Indenture, it shall immediately communicate the fact to the Debenture holders and to Issuer, by calling a General Meeting of Debenture holders, requesting its replacement.
10.4.4. The Debenture holders may, after the closing of the term for the distribution of the Debentures in the market, proceed with the replacement of Trustee and with the indication of its substitute, in a General Meeting of Debenture holders specially called for such purpose.
10.4.5. The replacement, on a permanent basis, of Trustee shall be communicated to CVM, within up to seven (7) Business Days, counted as from the registration in the competent agencies of the amendment to the Indenture of Issue that deals with the respective substitution, and the referred communication shall be followed by the declaration set forth in the caption of article 5 of CVM Resolution 17 and other information and documents required in Paragraph 1 of the referred article.
10.4.6. The replacement of Trustee shall be subject to an amendment to this Indenture, under the Clauses 2.1.1(v), 2.2 and 2.3 of this Indenture.
10.4.7. Trustee will start exercising its functions as from the date of this Indenture of Issue, or, in case of a substitute Trustee, on the day of execution of the corresponding amendment to the Indenture, and shall remain in the exercise of its functions until its effective substitution or until the date of full liquidation of the Debentures, as applicable.
10.4.8. The CVM rules and precepts shall apply to the events of replacement of Trustee.
10.5. Duties
10.5.1. In addition to other duties set forth in law, in a normative act of CVM, in particular CVM Resolution 17, or in this Indenture, the duties and attributions of Trustee are:
(i)to perform its activities with good faith, transparency and loyalty towards the Debenture Holders;
(ii)to protect the rights and interests of the Debenture holders, employing in the exercise of the function the care and diligence that every active and honest man usually employs in the administration of his own assets;
(iii)to resign from the function, in the event of supervening conflict of interests or of any other modality of inaptitude, and to immediately call a General Meeting of Debenture holders, set forth in article 7 of CVM Resolution 17, to resolve on their replacement;
(iv)to keep in good custody all documentation related to the exercise of its functions;
(v)to verify, at the moment of accepting the function, the veracity of the information related to the Guarantee and the consistency of the other information contained in this Indenture of Issue, making sure that the omissions, failures or defects of which it has knowledge, are corrected (vi)to work close to Issuer, so that this Indenture of Issue and its amendments are registered in the competent bodies, adopting, in case of Issuer omission, the measures eventually foreseen by law
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(vii)to follow up the rendering of periodic information by Issuer and to alert the Debenture holders, in the annual report referred to in item (xii) below, Under article 15 of CVM Resolution 17, about inconsistencies or omissions of which it has knowledge;
(viii)to express an opinion about the sufficiency of the information provided in the proposals of modification of the conditions of the Debentures;
(ix)to verify the regularity of the constitution of the Guarantee, observing the maintenance of its sufficiency and feasibility in the terms established in this Indenture of Issue;
(x)to examine the proposal of substitution of the assets given as guaranty, expressing its opinion about the subject in a justified manner;
(xi)to notify, as the case may be, the Guarantors to reinforce the respective guarantee given, in case of its deterioration or depreciation, if applicable, under the terms of this Indenture of Issue;
(xii)to prepare an annual report intended to the Debenture holders, describing the relevant facts occurred during the fiscal year related to the Debentures, pursuant to line "b" of the paragraph 1 of the article 68 of the Brazilian Corporation Law and to article 15 of the CVM Resolution 17, which shall contain, at least, the following information:
(a)compliance by Issuer with its obligations to provide periodic information, indicating any inconsistencies or omissions of which it may be aware;
(b)statutory changes occurred during the fiscal year with relevant effects for the Debenture holders;
(c)comments on Issuer's economic, financial and capital structure indicators related to contractual clauses designed to protect the interests of Debenture holders and which establish conditions that should not be breached by Issuer;
(d)number of Debentures issued, number of Debentures outstanding and balance cancelled in the period;
(e)redemption, amortization, conversion, renegotiation and interest payment of the Debentures made in the period;
(f)the constitution and applications of the amortization fund or other types of funds, if any;
(g)allocation of the funds raised through the Issue, according to the information provided by Issuer;
(h)list of assets and values delivered to its administration, if any;
(i)compliance with other obligations assumed by Issuer and by Guarantors in the Indenture;
(j)maintenance of the sufficiency and feasibility of the Guarantee;
(k)existence of other issues of securities, public or private, made by Issuer, by a related, controlled, controlling company or member of the same group of Issuer in which it has acted in the same fiscal year as Trustee, as well as the following data on such issues:
(i) name of the offering company;
(ii) amount of the issue;
(iii) quantity of securities issued;
(iv) type and guarantees involved;
(v) maturity and interest rate; and (vi) default in the period.
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(l)declaration on the non-existence of a conflict of interest situation that would prevent Trustee from continuing to exercise the function;
(xiii)to make the report referred to in item "l" above available on its website in the world wide web within a maximum period of 4 (four) months, as of the end of Issuer's fiscal year;
(xiv)to request, when deemed necessary for the faithful performance of its duties, updated certificates from the civil distributors, Public Treasury courts, protest registries, Labor Courts, Public Prosecutor's Office, the locality where the asset pledged as collateral is located, or the domicile or head office of the debtor, assignor, guarantor or co-obligor, as the case may be;
(xv)to request, when deemed necessary, an external audit of Issuer;
(xvi)to call, when necessary, the General Meeting of Debenture holders, pursuant to article 10 of CVM Resolution 17;
(xvii)to attend the General Meeting of Debenture holders, in order to provide the information requested;
(xviii)to keep the list of Debenture Holders and their addresses up to date, including through representations before Issuer, the Settling Bank, the Bookkeeping Agent and the B3, (s) to oversee compliance with the provisions of this item, Issuer and the Debenture Holders, as soon as they subscribe, pay-in or acquire the Debentures, expressly authorize the Settlement Bank, the Bookkeeping Agent and B3 to comply with any requests made by Trustee, including disclosure, at any time, of the position of the Debentures and their respective Debenture Holders;
(xix)to inspect the compliance with the clauses contained in the Indenture, specially those imposing the obligations to do and not to do;
(xx)to communicate to the Debenture holders any default, by Issuer, of financial obligations assumed in this Indenture of Issue, including the obligations related to the Guarantee and to contractual clauses destined to protect the interest of the Debenture holders and that establish conditions that shall not be breached by Issuer, indicating the consequences for the Debenture holders and the measures that it intends to take regarding the matter, observing the term set forth in article 16, II, of CVM Resolution 17;
(xxi)to monitor the destination of the funds raised through the Issue of the Debentures, according to the data obtained from Issuer's managers
(xxii)to follow up, on each payment date, the full and punctual payment of the values due, as stipulated in this Indenture
(xxiii)to make available daily the unit value of the Debentures to the Debenture holders and to the market participants, through its call center and its website; and
(xiv)Trustee will rely on the information made available to it by Issuer to follow up the compliance with the Financial Ratios.
10.5.2. The acts or statements of Trustee that create liability for the Debenture Holders and/or exonerate third parties from obligations with them will only be valid when previously resolved by the Debenture Holders gathered in a General Meeting.
10.5.3. Trustee's performance is limited to the scope of CVM Resolution 17 and applicable articles of Brazilian Corporation Law, being Trustee, therefore, exempt, under any form or pretext, from any additional liability that has not arisen from applicable laws and regulations.
10.5.4. Without prejudice to Trustee's duty of diligence, Trustee will assume that the original documents or certified copies of documents forwarded by Issuer or by third parties at its request have not been subject to fraud or tampering. It will also not be responsible, under any circumstances, for the preparation of Issuer's corporate documents, which will remain under Issuer's legal and regulatory obligation to prepare them, pursuant to applicable law.
10.6. Specific Duties
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10.6.1. In the event of default on any obligations of Issue, Trustee shall use any and all measures provided by law or in this Indenture, to protect rights or defend the interests of the Debenture holders, pursuant to article 12 of CVM Resolution 17.
11. GENERAL MEETING OF DEBENTURE HOLDERS
11.1. General provisions
11.1.1. The Debenture holders may, at any time, meet in a general meeting, in accordance with the provisions of article 71 of the Brazilian Corporation Law, in order to resolve on matters of interest to the Debenture holders ("General Meeting of Debenture holders")
11.1.1.2. Without prejudice to the other provisions of this Indenture of Issue, the General Meetings of Debenture holders may be held in an exclusively or partially digital form, subject to the provisions of CVM Resolution no. 81, dated March 29, 2022.
11.1.3. Where the matter to be resolved is specific to the First Series Debenture Holders or the Second Series Debentures Holders individually, they may, at any time according to the provision in article 71 of the Brazilian Corporation Law, meet at a general meeting, which will be held separately, to resolve on the matters of common interest to Debenture Holders of the respective series Debentures, as the case may be. Whenever the matter to be resolved is a common matter to all series, including but not limited to, with respect to prior requests for waiver related to Early Maturity Events and resolutions regarding examination of early maturity of the Debentures in view of occurrence of any of the Non-Automatic Early Maturity Events, the Debenture Holders, at any time will meet at a joint General Meeting of Debenture Holders Meeting, as provided for in article 71 of the Brazilian Corporation Law, to resolve on a matter of common interest to Debenture Holders of all series. In such case, for purposes of quorum determination, the total Debentures subject matter of the Issue will be taken into account, with no distinction between the series.
11.1.4. The procedures under this Clause 11 will be jointly applicable to General Meetings of Debenture Holders of all series; and individually, to the General Meetings of Debenture Holders of each of the respective series, as the case may be. The quorums contained in this Clause 11 and all other clauses of this Indenture of Issue shall be calculated considering the total Outstanding Debentures or the Outstanding Debentures of the respective series, as the case may be.
11.2. Call
11.2.1. The General Meeting of Debenture Holders may be convened by Trustee, by Issuer, by Debenture Holders representing at least ten percent (10%) of the Outstanding Debentures, by Debenture Holders representing at least ten percent (10%) of the Outstanding Debentures of the respective series, as the case may be, or by the CVM.
11.2.2. The call shall be made by means of an announcement published, at least three (3) times, in the press organs in which Issuer shall perform its publications, in compliance with other rules related to the publication of announcement of general meetings call, set forth in the Brazilian Corporation Law, the applicable regulation and this Indenture.
11.2.3. The General Meeting of Debenture Holders shall be called at least twenty-one (21) days in advance in relation to the date of holding. The General Meeting of Debenture Holders may be held within at least eight (8) days after the date scheduled for the General Meeting of Debenture Holders to be convened. Call of the General Meeting of Debenture Holders is waived in case of attendance of Debenture Holders representing one hundred percent (100%) of the Debentures.
11.2.4. The General Meetings of Debenture holders shall be called in accordance with the deadlines set forth in the Brazilian Corporation Law in force at the time of the call.
11.2.5. The General Meeting of Debenture holders attended by the holders of all Outstanding Debentures shall be deemed regular, regardless of publications and/or notices.
11.2.6. The resolutions taken by the Debenture holders, within the scope of their legal authority, subject to the quorums established in this Indenture, shall exist, be valid and effective before Issuer and shall bind all the holders of Outstanding Debentures, or the holders of all Outstanding Debentures of the respective series, as the case may be, regardless of attendance or vote cast at the respective General Meeting of Debenture holders.
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11.3. Quorum
11.3.1. Pursuant to article 71, third paragraph, of the Brazilian Corporation Law, the General Meeting of Debenture Holders shall be convened, on first call, with the presence of Debenture Holders representing at least a majority of the Outstanding Debentures or the Outstanding Debentures of the respective series, as the case may be, and, on second call, with any number of Debenture Holders.
11.3.2. For purposes of constituting any and all quorums for installation and/or resolution of the General Meeting of Debenture holders provided for herein, (i) "Outstanding Debentures" shall be deemed to mean all Debentures subscribed, excluding those held in treasury by Issuer and/or by any of Guarantors and their respective controlled or affiliated companies, parent companies (or control group), companies under common control, as well as directors of Issuer or of Guarantors, including, but not limited to, persons directly or indirectly related to any of the aforementioned persons; (ii) “First Series Outstanding Debentures” shall mean all subscribed First Series Debentures, excluding those held in treasury by Issuer and/or any of the Guarantors and their respective subsidiaries or affiliates, controlling companies (or controlling group), companies under common control, as well as the managers of Issuer or Guarantors, including but not limited to, persons directly or indirectly related to any of the previously mentioned persons; and (iii) “Second Series Outstanding Debentures” shall mean all subscribed Second Series Debentures, excluding those held in treasury by Issuer and/or any of the Guarantors and their respective subsidiaries or affiliates, controlling companies (or controlling group), companies under common control, as well as the managers of Issuer or Guarantors, including but not limited to, persons directly or indirectly related to any of the previously mentioned persons.
11.4. Chairman
11.4.1. The chairman of the General Meeting of Debenture holders will be held by the Debenture Holder elected by the Debenture holders or one appointed by CVM.
11.5. Quorum
11.5.1. In the resolutions of the General Meeting of Debenture Holders, each Outstanding Debenture shall be entitled to one vote, being allowed the appointment of a proxy, whether debenture holder or not.
11.5.2. Without prejudice to other quorums expressly set forth in the other Clauses of this Indenture of Issue, and observing the provisions of Clause 11.5.3 below, any and all matters related to the Debentures and to the Issue, which are subject to resolution in the General Meeting of Debenture holders, in relation to any obligations set forth herein, shall be approved by Debenture holders representing, at least, fifty percent (50%) plus one of the Outstanding Debentures or the Outstanding Debentures of the respective series, as the case may be.
11.5.3. Notwithstanding the provision in Clause 11.5.2 above, the resolutions related to: (i) changes related to the Issue Amount, Amortization Flow and Dates, Remuneration, Remuneration Payment Dates, Maturity Dates, any change related to Guarantee, Optional Total Early Redemption of the Debentures, Extraordinary Amortization, Early Redemption Offer, Optional Acquisition, renegotiation, changes in the items that provide for Events of Early Maturity, term of the Debentures and/or devices about quorum set forth in this Indenture of Issue (except those that establish a specific quorum, as the case may be), shall count with the approval of Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures or Outstanding Debentures of the respective series, as the case may be, in first call or second call; and (ii) waiver requests must be approved by Debenture holders representing, at least, seventy-five percent (75%) of the Outstanding Debentures of the Outstanding Debentures of the respective series, as the case may be, on first call, and, at least two-thirds (2/3) of the Outstanding Debentures or Outstanding Debentures of the respective series, as the case may be, on second call.
11.6. Other provisions applicable to General Meetings of Debenture holders
11.6.1. The presence of Issuer's legal representatives at the General Meetings of Debenture Holders convened by Issuer shall be mandatory, whereas at the General Meetings of Debenture Holders convened by the Debenture Holders or Trustee, the presence of Issuer's legal representatives shall be optional, unless when requested by the Debenture Holders or Trustee, as the case may be, in which case it shall be mandatory.
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11.6.2. Trustee will attend the General Meetings of Debenture holders and provide Debenture holders with any information requested.
11.6.3. The provisions of Brazilian Corporation Law concerning general meetings of shareholders will apply, as applicable, to General Meetings of Debenture Holders.
12. REPRESENTATIONS AND WARRANTIES OF ISSUER E GUARANTORS
12.1. Issuer and each of Guarantors, respectively, represent and warrant to Trustee, as of the date of execution of this Indenture, that:
(i)Issuer is a stock corporation registered as a publicly-held company with |CVM and Guarantors are limited liability companies, duly organized, incorporated and existing under the laws of the Federative Republic of Brazil, and they have the necessary qualification and authorizations to conduct the business in which they are currently engaged;
(ii)it is duly authorized and has obtained all the authorizations, including, as applicable, corporate, legal, regulatory and of third parties (including creditors), necessary to execute this Indenture, to issue the Debentures and to comply with its respective obligations set forth in this Indenture of Issue and in the other documents related to the Issue and to the Offering, and all legal, corporate, regulatory, of third parties (including creditors) and statutory requirements necessary for such purpose have been satisfied;
(iii)the obligations undertaken under this Indenture of Issue and in the other documents of Issue and of the Offering constitute legally valid, lawful, binding and effective obligations, enforceable in accordance with their terms and conditions;
(iv)no registration, consent, authorization, approval, license, order of, or qualification with any governmental authority or regulatory body is required for the performance of its obligations under this Indenture of Issue or for the execution of Issue, except for the protocols, registrations and publications, as applicable, provided in Clause 2 above;
(v)the execution of this Indenture of Issue and the performance of Issue and the Offering: (a) do not breach its By-laws or articles of association, as applicable; (b) do not breach any provision of law, contract or regulation to which Issuer and/or Guarantors, as applicable, and/or by which any of its assets are subject; (c) are not in breach of any administrative, judicial or arbitral order, decision or judgment affecting Issuer and/or Guarantors, as applicable, or any of their assets; (d) are not in breach of any contract or instrument to which Issuer and/or Guarantors, as applicable, are a party or by which any of their assets are subject, nor will it result in: (1) the early maturity of any obligation set forth in any such contracts or instruments; (2) the creation of any Encumbrance on any assets or property of Issuer and/or Guarantors, as applicable, except for those already existing as of the date hereof and for those created as a result of the execution of this Indenture, the Issue of the Debentures and the establishment of the Guarantee; or (3) the termination of any such contracts or instruments;
(vi)there is no lawsuit, administrative or arbitration proceeding, inquiry or other type of investigation that may cause a Material Adverse Effect on Issuer and/or Guarantors;
(vii)no Material Adverse Effect has occurred until the date hereof, and it has not omitted any fact, of any nature, that is known to it and that may result in an Event of Early Maturity or in the occurrence of a Material Adverse Effect
(viii)it is in compliance with the obligations contained in this Indenture of Issue and no Event of Early Maturity has occurred, is not in progress and does not exist on the date hereof;
(ix)the latest financial information disclosed in 2020, 2021 and 2022, respectively, adequately present the financial position of Issuer and/or Guarantors, as applicable, on the dates to which they relate, and have been duly prepared in accordance with the accounting principles determined by applicable regulations generally accepted in Brazil. Since the date of the most recent respective financial statements, there has been no adverse impact on its financial condition and results of operations in question, no transaction involving Issuer and/or Guarantors, as applicable, outside the normal course of its business, that is material to Issuer and/or Guarantors, as applicable, nor has there been any reduction in Issuer's and/or Guarantors' share capital or substantial increase in Issuer's and/or Guarantors' indebtedness, as applicable;
(x) the reference form of Issuer, prepared pursuant to CVM Resolution no. 80, of March 29, 2022, as amended (“CVM Resolution 80”) (“Reference Form – Issuer”) is in effect and filed with CVM on the date of this Indenture of Issue and contains all true, consistent, up-to-date and correct information related to Issuer and Guarantors, as required by CVM regulations;
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(xi) there are no other material facts in relation to Issuer and Guarantors that have not been disclosed in the Reference Form – Issuer, which omission causes any representation in the Reference Form – Issuer to be untrue, inconsistent, inaccurate, outdated, incorrect and/or insufficient;
(xii)there is no breach of any contractual, legal provision or of any judicial, administrative or arbitral order, or any proceeding, judicial, administrative or arbitral, in any of the cases of this clause that may directly or indirectly seek to annul, alter, invalidate, question or in any way affect any of the obligations arising out of or related to the Debentures
(xiii)it has all the authorizations and licenses (including environmental) required by the federal, state and municipal authorities that are indispensable for the exercise of its activities, being all of them valid, except in case of good faith challenge, provided that the respective precedent condition is obtained or that they are in a timely process of renewal, provided that such absence does not cause a Material Adverse Effect
(xiv)there are no strikes or stoppages in progress related to Issuer and/or Guarantors;
(xv)is complying with the laws, regulations, administrative rules and determinations of governmental agencies, municipalities or courts, including, (a) with respect to itself and its Affiliates, its employees (including officers and/or partners with management powers), its employees, agents, representatives, suppliers, contractors, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, the Social and Environmental Legislation, applicable to the conduct of its business and maintenance of its properties in all its aspects; and (b) with respect to itself and its respective directors, partners with management powers, employees, agents, representatives, subcontractors or third parties, acting on its behalf and for the benefit of Issuer and/or Guarantors, the Anti-Corruption and Anti-Money Laundering Laws, applicable to the conduct of its business and maintenance of its properties in all its aspects;
(xvi)especially as to the Socio-Environmental Legislation, adopts measures and preventive and reparatory actions, destined to prevent, mitigate, correct and/or compensate for any damages that may be caused to the environment or to its workers in the scope of the activities described in its corporate purpose, as applicable, as well as it proceeds to all the required and indispensable diligences for its economic activities, preserving the environment in the terms of the Socio-environmental Legislation and complying with the determinations of the municipal, state, and federal bodies that may subsidiarily legislate or regulate the Socio-environmental Legislation;
(xvii)its activities do not use child labor and/or labor in conditions analogous to slavery and/or employ forest dwellers, nor encourage prostitution;
(xviii)no statement, information, financial statement, document or report provided by Issuer and/or any of Guarantors under this Indenture of Issue contains, in any material respect, an untrue statement of a fact or an omission of a fact necessary to make the statements contained therein not misleading;
(xix)it has not, as well as its Affiliates and their respective directors, partners with management powers, employees, agents, representatives, acting on its behalf or for the benefit of Issuer and/or Guarantors, been convicted in the judicial, arbitral or administrative spheres, for (a) crime against the environment, or (b) use of slave labor or child labor;
(xx)the legal representatives who sign this Indenture of Issue have statutory and/or delegated powers to assume, on its behalf, the obligations set forth herein and, being proxies, had the powers rightfully granted, and the respective mandates are in full force and effect;
(xxi)the information provided until the closing of the Offering is true, consistent, correct, sufficient and up-to-date so that investors interested in subscribing or acquiring the Debentures have knowledge of Issuer and of Guarantors, as the case may be, and their respective activities and financial situation, their responsibilities, in addition to the risks to their activities and any other relevant information for making informed investment decisions of investors interested in acquiring the Debentures, to the extent required by applicable law
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(xxii)it has not omitted any fact, of any nature, that is of its knowledge and that may result in a change in its economic-financial, reputational or legal situation to the detriment of the Debenture holders (xxiii)the documents, information and informational materials provided to Trustee or the Debenture holders are correct, true, consistent, sufficient and up-to-date in all material respects, and are up to date as of the date they were provided, as applicable, and include the documents and information relevant for making an investment decision on the Debentures, and information has been made available on the relevant operations of Issuer and Guarantors, as applicable, as well as on the relevant rights and obligations arising therefrom;
(xxiv)(a) it is aware and causes its respective administrators, partners with management powers, employees, agents or representatives, acting on its behalf and on behalf of Issuer and/or of Guarantors to be aware of the terms of the Anti-Corruption and Anti-Washing Laws; (b) it has policies and procedures for compliance with said legislation; and (c) it makes its best efforts to make its internal policies regarding the Anti-Corruption and Anti-Washing Laws known to its eventual subcontractors and to all its professionals prior to said hiring;
(xxv)there is no, on this date, any conviction, action, administrative or legal proceeding or violation, as well as, to the best of its knowledge, there is not, on this date, any investigation process or inquiry related to any provision of any law or regulation, national or foreign related to the practice of corruption or acts harmful to the public administration, including the Anti-corruption and Anti-laundering Laws, by Issuer and/or Guarantors, their respective Affiliates and their respective administrators, partners with management powers, employees and representatives, acting on their behalf and for the benefit of Issuer and/or Guarantors;
(xxvi)is fully aware and agrees with the form of disclosure and calculation of the DI Rate and that the form of calculation of remuneration of the Debentures was determined by its own free will, in compliance with the principle of good faith;
(xxvii)the information disclosed to the market by Issuer and Guarantors, pursuant to CVM Resolution 160, is true, consistent, correct, sufficient and up-to-date, allowing investors to make an informed decision regarding the Issue
(xxviii)it has disclosed all material facts with respect to Issuer, Guarantors or the Debentures, pursuant to CVM Resolution 160;
(xxix)it is up to date with the payment of all relevant tax obligations (municipal, state and federal), except in cases in which (a) Issuer and/or Guarantors are challenging in good faith the respective payment in the administrative and/or judicial spheres, provided that they have made corresponding provisions, or (b) cause a Material Adverse Effect; and
(xxx)it holds all the goods and assets considered indispensable for the faithful development and operation of Issuer's and Guarantors' activities, which are duly insured, in accordance with the practices adopted by Issuer and in line with market practices.
12.2. Issuer and/or Guarantors, as applicable, undertake to notify Trustee and the Debenture holders, within 3 (three) Business Days, counted from the respective occurrence, if any statements made herein with respect to themselves become totally or partially untrue, incomplete or incorrect.
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13. MISCELLANEOUS
13.1. Notices
13.1.1. The notices to be sent by any of the Parties pursuant to this Indenture of Issue shall be forwarded to the following addresses:
If to Issuer and Guarantors:
Vitru Brasil Empreendimentos, Participações e Comércio S.A., Sociedade Educacional Leonardo da Vinci Ltda. and CESUMAR – Centro de Ensino
Superior de Maringá Ltda.
Rodovia BR José Carlos Daux, nº 5500, sala T, 2º andar, Torre Jurerê A, bairro Saco Grande – CEP: 88032-005, Cidade de Florianópolis, Estado de Santa Catarina
Attn.: William Victor Kendrick de Matos Silva and Carlos Henrique Boquimpani de Freitas
Tel.: (47) 3281-9500
E-mail: william.matos@vitru.com.br and carlos.freitas@vitru.com.br
With copy to: juridicosocitario@uniasselvi.com.br
If to Trustee:
Vórtx Distribuidora de Títulos e Valores Mobiliários Ltda.
Rua Gilberto Sabino no. 215, 4º. Andar, Pinheiros CEP 05.425-020
São Paulo - SP.
Attn.: Eugênia Souza / Marcio Teixeira
Tel.: (11) 3030-7177
E-mail: agentefiduciario@vortx.com.br / pu@vortx.com.br (for de-pricing purposes);
13.1.2. The notices relating to this Indenture of Issue shall be considered delivered when received under protocol or with "notice of receipt" issued by the Brazilian Post Office, by telegram or, further, by electronic mail, at the addresses above. The communications made by facsimile or electronic mail shall be considered as received on the date they are sent, provided that their receipt is confirmed by means of a receipt issued by the machine used by the sender.
13.1.3. The change in any of the addresses above shall be communicated immediately by the Party that has its address changed.
13.1.4. Except for the obligations undertaken as a means of specific performance, the performance of the obligations agreed herein and in all other Operation Documents related to the sending of documents and periodic information to Trustee will take place exclusively through the VX Informa Platform. For the purposes of this Indenture, “VX Informa” shall mean the digital platform made available by Trustee on its website (https://vortx.com.br). For the registration it is necessary to access https://portal.vortx.com.br/register and request access to the system.
13.2. Waiver
13.2.1. No waiver of any of the rights arising out of this Indenture shall be presumed. Thus, no delay, omission or liberality in exercising any right, power or remedy by Trustee and/or the Debenture holders by reason of any default of Issuer shall impair such rights, powers or remedies, or will be deemed as a waiver thereof or acquiescence in such default, nor shall it create novation or modification of any other obligations assumed by Issuer in this Indenture of Issue or precedent with respect to any other default or delay.
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13.3. Truth of the Documentation
13.3.1. Without prejudice to Trustee's duty of diligence, Trustee will assume that the original documents or certified copies of documents forwarded by Issuer, by Guarantors or by third parties at its request have not been subject to fraud or tampering. Trustee will also not be under any circumstances responsible for the preparation of Issuer's corporate documents, which will remain under Issuer's legal and regulatory obligation under applicable law.
13.3.2. In order to provide the specified services and to make the necessary decisions with respect to the provisions of this Indenture, Trustee shall not be responsible for verifying the sufficiency, validity, quality, truthfulness or completeness of the corporate resolutions, the acts of management or of any document or record of Issuer which it considers authentic which has been or is forwarded to it by Issuer or its employees.
13.4. Extrajudicial Enforcement Instrument and Specific Performance
13.4.1. This Indenture of Issue and the Debentures constitute extrajudicial enforcement instruments under article 784, subparagraphs I and II of the Code of Civil Procedure, and the Parties hereby acknowledge, without any other applicable measures, that the obligations undertaken under this Indenture of Issue will serve as specific performance and are subject to the provisions of articles 815 and following of the Code of Civil Procedure, without prejudice to the right to declare the early maturity of the Debentures under this Indenture of Issue.
13.5. Counting of Terms
13.5.1. Except as otherwise specifically provided for in this Indenture of Issue, the terms established in this Indenture of Issue shall be counted in accordance with the rule prescribed in article 132 of the Civil Code, and the day of the beginning is excluded and the day of the maturity is included.
13.6. Irrevocability and Successors
13.6.1. This Indenture of Issue is executed on an irrevocable and irreversible basis and is binding upon the Parties and their successors.
13.7. Severability and Interpretation of Headings of the Clauses
13.7.1. If any of the provisions of this Indenture of Issue is held as illegal, invalid or ineffective, all other provisions hereof shall prevail, and the Parties undertake, in good faith, to replace the affected provision by another that, to the extent possible, produces the same effect.
13.7.2. The holding of a General Meeting of Debenture holders is waived to resolve on: (i) the correction of typing, verbal agreement, accentuation or arithmetic errors; (ii) amendments to any documents of the Issue already expressly permitted under the terms of the respective document(s); (iii) amendments to any documents of the Issue due to requirements formulated by the CVM, B3 or ANBIMA; or (iv) due to the updating of the Parties' registration data, such as change in the corporate name, address and telephone number, among others, provided that the changes or corrections referred to in items (i), (ii), (iii) and (iv) above may not cause any loss to the Debenture Holders or any change in the flow of the Debentures and provided that there are no additional costs or expenses for the Debenture Holders.
(i) Notwithstanding the waiver of the General Meeting of Debenture holders to resolve on the matters indicated in Clause 13.7.2 above, the Parties shall remain obliged to take all measures, as well as to prepare, execute and register all documents required for purposes of correction of errors or alteration to the Issue documents, in the events set out in items (i) to (iv) of Clause 13.7.2.
13.8. Expenses
13.8.1. Issuer shall bear all costs: (a) resulting from the public placement of the Debentures, including all costs related to their registration at B3 and CVM; (b) of registration and publication of all acts necessary for the Issue, such as this Indenture, any amendments thereto and the corporate acts of Issuer; and (c) for expenses with the hiring of Trustee, the Rating Agency, the Settlement Bank and Bookkeeping Agent, and the debentures trading system in the secondary market of B3.
13.9. Governing Law
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13.9.1. |
This Indenture of Issue is governed by under the Laws of the Federative Republic of Brazil. |
13.10. Electronic Signature and Jurisdiction
13.10.1. This Indenture of Issue shall be signed by electronic, digital and/or computerized means, provided that the Parties acknowledge this form of contracting as valid and fully effective, constituting a legitimate and sufficient form for the proof of identity and validity of the Parties' statement of will to execute eventual amendments, and shall, in any case, comply with the rules in force for verification of the authenticity of the Parties' signatures, provided that it is established with certification within the ICP - BRASIL standards, in accordance with article 107 of the Civil Code and article 10, Paragraph 1, of Executive Order No. 2,200-2 of August 24, 2001.
13.10.2 The Parties agree that for all legal purposes, the starting date for this Indenture of Issue to produce effects will be the date of this instrument, even where any of the Parties signs this Indenture of Issue on a later date for any reason, in which event the Parties hereby agree with the retroaction of the effects hereof to the date mentioned herein.
13.10.3. The courts of the City of São Paulo, State of São Paulo, are hereby elected to settle any doubts or controversies arising out of this Indenture, with the exclusion of any other, no matter how privileged it may be or may become.
In witness whereof, the Parties have executed this indenture electronically, together with two (2) witnesses, who also sign it.
São Paulo, October 30, 2023.
(The signatures are available on the following pages)
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(Signature page 1/5 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
/s/ Carlos Henrique Boquimpani de Freitas |
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/s/ William V K de Matos Silva |
Name: Carlos Henrique Boquimpani de Freitas |
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Name: William V K de Matos Silva |
Title: CFO |
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Title: CEO |
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(Signature page 2/5 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
VÓRTX DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS LTDA.
/s/ Matheus Gomes Faria |
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/s/ Francielle Viana |
Name: Matheus Gomes Faria |
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Name: Francielle Viana |
Title: Attorney-in-fact |
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Title: Attorney-in-fact |
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(Signature page 3/5 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
SOCIEDADE EDUCACIONAL LEONARDO DA VINCI LTDA.
/s/ Carlos Henrique Boquimpani de Freitas |
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/s/ Pedro Jorge Guterres Quintans Graça |
Name: Carlos Henrique Boquimpani de Freitas |
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Name: Pedro Jorge Guterres Quintans Graça |
Title: CFO |
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Title: CEO |
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(Signature page 4/5 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
CESUMAR – CENTRO DE ENSINO SUPERIOR DE MARINGÁ LTDA.
/s/ Carlos Henrique Boquimpani de Freitas |
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/s/ William V K de Matos Silva |
Name: Carlos Henrique Boquimpani de Freitas |
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Name: William V K de Matos Silva |
Title: CFO |
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Title: CEO |
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(Signature page 5/5 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure of Vitru Brasil Empreendimentos, Participações e Comércio S.A.”)
Witnesses:
/s/ Letícia Ferreira Hammes |
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/s/ Ana Beatriz Rodrigues de Brito |
Name: Letícia Ferreira Hammes |
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Name: Ana Beatriz Rodrigues de Brito |
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CPF: Attorney-in-fact |
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SCHEDULE I
FORM OF DECLARATION OF PROOF OF ALLOCATION OF FUNDS ORIGINATING FROM THE THIRD (3rd) ISSUE OF DEBENTURES OF VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A., a stock corporation registered as category “B” publicly-held company with the Securities and Exchange Commission, in operating phase, with its principal place of business in the City of Florianópolis, State of Santa Catarina, at Rodovia José Carlos Daux, n. 5500, sala T, 2º andar, Torre Jurerê A, Saco Grande - CEP: 88.032-005, enrolled with the National Register of Legal Entities of the Ministry of Finance ("CNPJ ") under No. 20.512.706/0001-40, herein represented under its By-laws ("Issuer”, represents for due purposes to have used the funds raised by means of the third (3rd) issue of non-convertible into stocks, simple debentures issued by Issuer in [•] series, for public distribution under the automatic distribution procedure, exclusively pursuant to the terms of Clause 4 of the “Indenture of the Third (3rd) Issue of Non-Convertible Into Stocks, Simple Debentures of the Unsecured Type with Additional Personal Guarantee in Up to Two Series for Public Distribution Under Automatic Registration Procedure, of Vitru Brasil Empreendimentos, Participações e Comércio S.A.” (“Indenture”), entered into by and between Issuer and VÓRTX DISTRIBUIDORA DE TÍTULOS E VALORES MOBILIÁRIOS LTDA., enrolled with the CNPJ under no. 22.610.500/0001-88, on October 30, 2023, as amended, according to the report below:
Discharged Agreement |
Date of Discharge |
Amount Paid for Discharge |
[·] |
[·] |
[·] |
[·] |
[·] |
[·] |
[·] |
[·] |
[·] |
Summary:
Percentage Funds Used |
Amount Allocated |
[·] |
[·] |
VALOR TOTAL |
R$ [·] |
This report is attached with a copy of the Instrument of Discharge [or similar document or document evidencing the discharge of the debt] and the respective proofs of payment.
São Paulo, [·] [·], 20[·].
VITRU BRASIL EMPREENDIMENTOS, PARTICIPAÇÕES E COMÉRCIO S.A.
Exhibit 11.2
STATEMENT OF POLICY CONCERNING TRADING POLICIES
TABLE OF CONTENTS
Page No.
| 1. | SUMMARY OF THE COMPANY POLICY CONCERNING TRADING POLICIES |
It is Vitru Limited and its subsidiaries’ (collectively, the “Company”) policy that it will, without exception, comply with all applicable laws and regulations in conducting its business. Each employee and each director is expected to abide by this policy. When carrying out Company business, employees and directors must avoid any activity that violates applicable laws or regulations. In order to avoid even an appearance of impropriety, the Company’s directors, officers and certain other employees are subject to pre-approval requirements and other limitations on their ability to enter into transactions involving the Company’s securities. Although these limitations do not apply to transactions pursuant to written plans for trading securities that comply with Rule 10b5-1 under the Securities Exchange Act of 1934, the entry into, amendment or termination of any such written trading plan is subject to pre-approval requirements and other limitations.
| 2. | THE USE OF INSIDE INFORMATION IN CONNECTION WITH TRADING IN SECURITIES |
| 2.1 | GENERAL RULE |
The U.S. securities laws regulate the sale and purchase of securities in the interest of protecting the investing public. U.S. securities laws give the Company, its officers and directors, and other employees the responsibility to ensure that information about the Company is not used unlawfully in the purchase and sale of securities.
All employees and directors should pay particularly close attention to the laws against trading on “inside” information. These laws are based upon the belief that all persons trading in a company’s securities should have equal access to all “material” information about that company. For example, if an employee or a director of a company knows material non-public financial information, that employee or director is prohibited from buying or selling shares in the company until the information has been disclosed to the public. This is because the employee or director knows information that will probably cause the share price to change, and it would be unfair for the employee or director to have an advantage (knowledge that the share price will change) that the rest of the investing public does not have. In fact, it is more than unfair; it is considered to be fraudulent and illegal. Civil and criminal penalties for this kind of activity are severe.
The general rule can be stated as follows: It is a violation of federal securities laws for any person to buy or sell securities if he or she is in possession of material inside information. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. It is inside information if it has not been publicly disclosed in a manner making it available to investors generally on a broad- based non-exclusionary basis. Furthermore, it is illegal for any person in possession of material inside information to provide other people with such information or to recommend that they buy or sell the securities. (This is called “tipping”.) In that case, they may both be held liable.
The Securities and Exchange Commission (the “SEC”), the stock exchanges and plaintiffs’ lawyers focus on uncovering insider trading. A breach of the insider trading laws could expose the insider to criminal fines up to three times the profits earned and imprisonment up to ten years, in addition to civil penalties (up to three times of the profits earned), and injunctive actions. In addition, punitive damages may be imposed under applicable state laws. Securities laws also subject controlling persons to civil penalties for illegal insider trading by employees, including employees located outside the United States. Controlling persons include directors, officers, and supervisors. These persons may be subject to fines up to the greater of $1,000,000 or three times profit (or loss avoided) by the insider trader.
Inside information does not belong to the individual directors, officers or other employees who may handle it or otherwise become knowledgeable about it. It is an asset of the Company. For any person to use such information for personal benefit or to disclose it to others outside the Company violates the Company’s interests. More particularly, in connection with trading in the Company’s securities, it is a fraud against members of the investing public and against the Company.
| 2.2 | WHO DOES THE POLICY APPLY TO? |
The prohibition against trading on inside information applies to directors, officers and all other employees, and to other people who gain access to that information.
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The prohibition applies to both domestic and international employees of the Company and its subsidiaries. Because of their access to confidential information on a regular basis, Company policy subjects its directors and certain employees (the “Window Group”) to additional restrictions on trading in the Company securities. The restrictions for the Window Group are discussed in Section F below. In addition, directors and certain employees with inside knowledge of material information may be subject to ad hoc restrictions on trading from time to time.
| 2.3 | OTHERS COMPANIES’ STOCK |
Employees and directors who learn material information about suppliers, customers, or competitors through their work at the Company, should keep it confidential and not buy or sell stock in such companies until the information becomes public. Employees and directors should not give tips about such stock.
| 2.4 | HEDGING AND DERIVATIVES |
Employees and directors are prohibited from engaging in any hedging transactions (including transactions involving options, puts, calls, prepaid variable forward contracts, equity swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any change in the market value of the Company’s equity securities.
Trading in options or other derivatives is generally highly speculative and very risky. People who buy options are betting that the stock price will move rapidly. For that reason, when a person trades in options in his or her employer’s stock, it will arouse suspicion in the eyes of the SEC that the person was trading on the basis of inside information, particularly where the trading occurs before a company announcement or major event. It is difficult for an employee or director to prove that he or she did not know about the announcement or event.
If the SEC or the stock exchanges were to notice active options trading by one or more employees or directors of the Company prior to an announcement, they would investigate. Such an investigation could be embarrassing to the Company (as well as expensive), and could result in severe penalties and expense for the persons involved. For all of these reasons, the Company prohibits its employees and directors from trading in options or other derivatives involving the Company’s stock. This policy does not pertain to employee stock options granted by the Company. Employee stock options cannot be traded.
| 2.5 | PLEDGING OF SECURITIES, MARGIN ACCOUNTS |
Pledged securities may be sold by the pledgee without the pledgor’s consent under certain conditions. For example, securities held in a margin account may be sold by a broker without the customer’s consent if the customer fails to meet a margin call. Because such a sale may occur at a time when an employee or a director has material inside information or is otherwise not permitted to trade in Company securities, the Company prohibits employees and directors pledging Company securities in any circumstance, including by from purchasing Company securities on margin or holding Company securities in a margin account.
| 2.6 | GENERAL GUIDELINES |
The following guidelines should be followed in order to ensure compliance with applicable antifraude laws and with the Company’s policies:
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| ◾ | trading is permitted from the start of the second business day following an annual or quarterly earnings release until the 30 calendar days before the subsequent earnings release (the “Window”), subject to the restrictions below; |
| ◾ | all trades are subject to prior review; |
| ◾ | clearance for all trades must be obtained from the Company’s General Counsel; |
| ◾ | no trading is permitted outside the Window except for reasons of exceptional personal hardship and subject to prior review by the Chief Executive Officer and General Counsel; provided that, if one of these individuals wishes to trade outside the Window, it shall be subject to prior review by the other; and |
| ◾ | individuals in the Window Group are also subject to the general restrictions on all employees. |
Note that at times the General Counsel may determine that no trades may occur even during the Window when clearance is requested. No reasons may be provided and the closing of the Window itself may constitute material inside information that should not be communicated.
The foregoing Window Group restrictions do not apply to transactions pursuant to written plans for trading securities that comply with Rule 10b5-1 under the Securities Exchange Act of 1934 (“10b5- 1 Plans”). However, Window Group members may not enter into, amend or terminate a 10b5-1 Plan relating to Company securities without the prior approval of the General Counsel, which will only be given during a Window period.
| 2.7 | APPLICABILITY OF U.S SECURITIES LAWS TO INTERNACIONAL TRANSACTIONS |
All employees of the Company and its subsidiaries are subject to the restrictions on trading in the Company securities and the securities of other companies. The U.S. securities laws may be applicable to the securities of the Company’s subsidiaries or affiliates, even if they are located outside the United States. Transactions involving securities of subsidiaries or affiliates should be carefully reviewed by counsel for compliance not only with local law but also for possible application of U.S. securities laws.
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| 3. | OTHER LIMITATIONS ON SECURITIES TRANSACTIONS |
The U.S. Securities Act (the “Securities Act”) requires every person who offers or sells a security to register such transaction with the SEC unless an exemption from registration is available. Rule 144 under the Securities Act is the exemption typically relied upon for (i) public resales by any person of “restricted securities” (i.e., unregistered securities acquired in a private offering or sale) and (ii) public resales by directors, officers and other control persons of a company (known as “affiliates”) of any of the Company’s securities, whether restricted or unrestricted.
The exemption in Rule 144 may only be relied upon if certain conditions are met. These conditions vary based upon whether the Company has been subject to the SEC’s reporting requirements for 90 days (and is therefore a “reporting company” for purposes of the rule) and whether the person seeking to sell the securities is an affiliate or not.
Rule 144 also imposes the following additional conditions on sales by persons who are “affiliates.” A person or entity is considered an “affiliate,” and therefore subject to these additional conditions, if it is currently an affiliate or has been an affiliate within the previous three months:
Bona fide gifts are not deemed to involve sales of shares for purposes of Rule 144, so they can be made at any time without limitation on the amount of the gift. Donees who receive restricted securities from an affiliate generally will be subject to the same restrictions under Rule 144 that would have applied to the donor, depending on the circumstances.
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Directors and officers also may sell securities in a private transaction without registration. Although there is no statutory provision or SEC rule expressly dealing with private sales, the general view is that such sales can safely be made by affiliates if the party acquiring the securities understands he is acquiring restricted securities that must be held for at least six months (if issued by a reporting company that meets the current public information requirements) or one-year (if issued by a non- reporting company) before the securities will be eligible for resale to the public under Rule 144. Private resales raise certain documentation and other issues and must be reviewed in advance by the Company’s General Counsel.
All of the directors and executive officers of the Company have agreed to additional limitations on their ability to transfer, pledge or convey any of the economic consequences of ownership of any Company securities prior to 180 days from the date of the Underwriting Agreement entered into in connection with the Company’s initial public offering.
In order to prevent market manipulation, the SEC adopted Regulation M under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). Regulation M generally restricts the Company or any of its affiliates from buying Company stock, including as part of a share buyback program, in the open market during certain periods while a distribution, such as a public offering, is taking place. You should consult with the Company’s General Counsel, if you desire to make purchases of Company stock during any period that the Company is making conducting an offering or buying shares from the public.
A report on Schedule 13D is required to be filed with the SEC and submitted to the Company within ten days after the reporting threshold is reached. If a material change occurs in the facts set forth in the Schedule 13D, such as an increase or decrease of one percent or more in the percentage of stock beneficially owned, an amendment disclosing the change must be filed promptly. A decrease in beneficial ownership to less than five percent is per se material and must be reported.
A limited category of persons (such as banks, broker-dealers and insurance companies) may file on Schedule 13G, which is a much abbreviated version of Schedule 13D, as long as the securities were acquired in the ordinary course of business and not with the purpose or effect of changing or influencing the control of the issuer. A report on Schedule 13G is required to be filed with the SEC and submitted to the Company within 45 days after the end of the calendar year in which the reporting threshold is reached.
A person is deemed the beneficial owner of securities for purposes of Section 13(d) if such person has or shares voting power (i.e., the power to vote or direct the voting of the securities) or dispositive power (i.e., the power to sell or direct the sale of the securities). A person filing a Schedule 13D or 13G may disclaim beneficial ownership of any securities attributed to him or her if he or she believes there is a reasonable basis for doing so.
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| 4. | REVIEW |
A review of this policy must be promoted by the area that issued it and will take place annually or according to institutional needs.
| 5. | FINAL CONSIDERATIONS |
All employees must follow internal rules and, if they encounter difficulties in complying with this, they must communicate in advance to the Governance, Risks and Compliance area, which will act promptly to clarify them and, if applicable, will implement corrective actions.
Suspicious situations or situations that violate this Policy can be reported on our Ethics Channel, by accessing the website: https://portal.uniasselvi.com.br/institucional/canal-etica.
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Exhibit 12.1
CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William Victor Kendrick de Matos Silva, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Vitru Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: April 30, 2024
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By: |
/s/ William Victor Kendrick de Matos Silva |
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Name: William Victor Kendrick de Matos Silva |
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Title: Chief Executive Officer |
Exhibit 12.2
CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carlos Henrique Boquimpani de Freitas, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Vitru Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: April 30, 2024
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By: |
/s/ Carlos Henrique Boquimpani de Freitas |
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Name: Carlos Henrique Boquimpani de Freitas |
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Title: Chief Financial and Investor Relations Officer |
Exhibit 13.1
CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Vitru Limited (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, William Victor Kendrick de Matos Silva, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: April 30, 2024
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By: |
/s/ William Victor Kendrick de Matos Silva |
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Name: William Victor Kendrick de Matos Silva |
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Title: Chief Executive Officer |
Exhibit 13.2
CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F of Vitru Limited (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, Carlos Henrique Boquimpani de Freitas, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
Date: April 30, 2024
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By: |
/s/ Carlos Henrique Boquimpani de Freitas |
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Name: Carlos Henrique Boquimpani de Freitas |
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Title: Chief Financial and Investor Relations Officer |
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Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-253374 and File No. 333-259556) and on Form F-3 (File No. 333-260480) of Vitru Limited of our report dated March 22, 2024 relating to the financial statements, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers Auditores Independentes Ltda.
Florianópolis, Brazil
April 30, 2024
Exhibit 16.1
April 30, 2024
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Commissioners:
We have read the statements made by Vitru Limited (copy attached), which we understand will be filed with the Securities and Exchange Commission, pursuant to Item 16F of Form 20-F of Vitru Limited dated April 30, 2024. We agree with the statements concerning our Firm contained therein.
Very truly yours,
/s/ PricewaterhouseCoopers Auditores Independentes Ltda.
Florianópolis, Brazil
April 30, 2024
Copy of Item 16F. Change in Registrant’s Certifying Accountant
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
PricewaterhouseCoopers Auditores Independentes Ltda. was previously appointed as our independent registered public accounting firm. On April 18, 2024, our board of directors, as recommended by our audit committee, approved the dismissal of PricewaterhouseCoopers Auditores Independentes Ltda. Such dismissal will become effective upon completion by PricewaterhouseCoopers Auditores Independentes Ltda. of its audit of the financial statements of Vitru Limited as of and for the year ended December 31, 2023 and the filing of the related Form 20-F.
PricewaterhouseCoopers Auditores Independentes Ltda.’s report on our financial statements for each of the fiscal years ended on December 31, 2023 and 2022 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal years ended December 31, 2023 and 2022 and the subsequent interim period through the date of dismissal, there have been no disagreements with PricewaterhouseCoopers Auditores Independentes Ltda. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers Auditores Independentes Ltda. would have caused PricewaterhouseCoopers Auditores Independentes Ltda. to make a reference thereto in their audit reports for such fiscal years.
During the fiscal years ended December 31, 2023 and 2022 and the subsequent interim period through the date of dismissal, there were “reportable events” as defined under Item 16F(a)(1)(v) of Form 20-F as follows:
In connection with the audits of our consolidated financial statements, we identified a material weakness in our internal control over financial reporting. The material weakness identified relates to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS accounting standards and the SEC. Specifically, a material weakness was identified that relates to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS accounting standards and the SEC. For more information on this material weakness, see “Item 3. Key Information—D. Risk factors—Risks Relating to Our Business and Industry―A material weakness in our internal control over financial reporting has been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.”
Exhibit 97.1
CLAWBACK POLICY
| 1. | OBJECTIVE |
The Board of Directors (the “Board”) of Vitru Limited (the “Company”) has adopted this Clawback Policy (the “Policy”) to be applied to the Executive Officers of the Company as of the Effective Date.
| 2. | DEFINITIONS |
For purposes of this Policy, the following definitions shall apply:
| a) | “Company Group” means the Company and each of its Subsidiaries, as applicable. |
| b) | “Covered Compensation” means any Incentive-Based Compensation granted, vested or paid to a person who served as an Executive Officer at any time during the performance period for the Incentive-Based Compensation and that was received (i) on or after the effective date of Nasdaq Rule 5608, (ii) after the person became an Executive Officer and (iii) at a time that the Company had a class of securities listed on a United States national securities exchange. |
| c) | “Effective Date” means October 2, 2023. |
| d) | “Erroneously Awarded Compensation” means the amount of Covered Compensation granted, vested or paid to a person during the fiscal period in which the applicable Financial Reporting Measure relating to such Covered Compensation was attained, that exceeds the amount of Covered Compensation that otherwise would have been granted, vested or paid to the person had such amount been determined based on the applicable Restatement, computed without regard to any taxes paid (i.e., on a pre-tax basis). For Covered Compensation based on stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in a Restatement, the Board will determine the amount of such Covered Compensation that constitutes Erroneously Awarded Compensation, if any, based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return upon which the Covered Compensation was granted, vested or paid and the Board shall maintain documentation of such determination and provide such documentation to the Nasdaq. |
| e) | “Exchange Act” means the Securities Exchange Act of 1934. |
| f) | “Executive Officer” means the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, and any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers of the Company if they perform such policy-making functions for the Company. “Policy-making function” does not include policy- making functions that are not significant. Both current and former Executive Officers are subject to the Policy in accordance with its terms. |
| g) | “Financial Reporting Measure” means (i) any measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures derived wholly or in part from such measures and may consist of IFRS/GAAP or non-IFRS/non-GAAP financial measures (as defined under Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Exchange Act), (ii) stock price or (iii) total shareholder return. Financial Reporting Measures need not be presented within the Company’s financial statements or included in a filing with the SEC. |
| h) | “Home Country” means the Company’s jurisdiction of incorporation. |
| i) | “Incentive-Based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure. |
| j) | “Lookback Period” means the three completed fiscal years (plus any transition period of less than nine months that is within or immediately following the three completed fiscal years and that results from a change in the Company’s fiscal year) immediately preceding the date on which the Company is required to |
| prepare a Restatement for a given reporting period, with such date being the earlier of: (i) the date the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare a Restatement. Recovery of any Erroneously Awarded Compensation under the Policy is not dependent on if or when the Restatement is actually filed. |
| k) | “Nasdaq” means the Nasdaq Stock Market. |
| l) | “Received” Incentive-Based Compensation is deemed “received” in the Company’s fiscal period during which the Financial Reporting Measure specified in or otherwise relating to the Incentive- Based Compensation award is attained, even if the grant, vesting or payment of the Incentive-Based Compensation occurs after the end of that period. |
| m) | “Restatement” means a required accounting restatement of any Company financial statement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including (i) to correct an error in previously issued financial statements that is material to the previously issued financial statements (commonly referred to as a “Big R” restatement) or (ii) to correct an error in previously issued financial statements that is not material to the previously issued financial statements but that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as a “little r” restatement), within the meaning of Exchange Act Rule 10D-1 and Nasdaq Rule 5608. Changes to the Company’s financial statements that do not represent error corrections under the then-current relevant accounting standards will not constitute Restatements. Recovery of any Erroneously Awarded Compensation under the Policy is not dependent on fraud or misconduct by any person in connection with the Restatement. |
| n) | “SEC” means the United States Securities and Exchange Commission. |
| o) | “Subsidiary” means any domestic or foreign corporation, partnership, association, joint stock company, joint venture, trust or unincorporated organization “affiliated” with the Company, that is, directly or indirectly, through one or more intermediaries, “controlling”, “controlled by” or “under common control with”, the Company. “Control” for this purpose means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, contract or otherwise. |
| 3. | RECOUPMENT OF ERRONEOUSLY AWARDED COMPENSATION |
In the event of a Restatement, any Erroneously Awarded Compensation received during the Lookback Period prior to the Restatement (a) that is then-outstanding but has not yet been paid shall be automatically and immediately forfeited and (b) that has been paid to any person shall be subject to reasonably prompt repayment to the Company Group in accordance with Section 4 of this Policy. The Board must pursue (and shall not have the discretion to waive) the forfeiture and/or repayment of such Erroneously Awarded Compensation in accordance with Section 4 of this Policy, except as provided below. For the avoidance of doubt, the Company’s obligation to recover Erroneously Awarded Compensation is not dependent on (a) if or when the restated financial statements are filed or (b) any fault of any Executive Officer for the accounting errors or other actions leading to a Restatement.
Notwithstanding the foregoing, a majority of the independent directors serving on the Board may determine not to pursue the forfeiture and/or recovery of Erroneously Awarded Compensation from any person if such majority determines that such forfeiture and/or recovery would be impracticable due to any of the following circumstances: (i) the direct expense paid to a third party (for example, reasonable legal expenses and consulting fees) to assist in enforcing the Policy would exceed the amount to be recovered, including the costs that could be incurred if pursuing such recovery would violate local laws other than the Company’s Home Country laws (following reasonable attempts by the Company Group to recover such Erroneously Awarded Compensation, the documentation of such attempts, and the provision of such documentation to the Nasdaq), (ii) pursuing such recovery would violate the Company’s Home Country laws adopted prior to November 28, 2022 (provided that the Company obtains an opinion of Home Country counsel acceptable to the Nasdaq that recovery would result in such a violation and provides such opinion to the Nasdaq), or (iii) recovery would likely cause any otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
| 4. | MEANS OF REPAYMENT |
In the event that the Board determines that any person shall repay any Erroneously Awarded Compensation, the Board shall provide written notice to such person by email or certified mail to the physical address on file with the Company Group for such person, and the person shall satisfy such repayment in a manner and on such terms as required by the Board, and the Company Group shall be entitled to set off the repayment amount against any amount owed to the person by the Company Group, to require the forfeiture of any award granted by the Company Group to the person, or to take any and all necessary actions to reasonably promptly recoup the repayment amount from the person, in each case, to the fullest extent permitted under applicable law, including without limitation, Section 409A of the Internal Revenue Code and the regulations and guidance thereunder. If the Board does not specify a repayment timing in the written notice described above, the applicable person shall be required to repay the Erroneously Awarded Compensation to the Company Group by wire or cash no later than thirty (30) days after receipt of such notice.
| 5. | NO INDEMNIFICATION |
No person shall be indemnified, insured or reimbursed by the Company Group in respect of any loss of compensation by such person in accordance with this Policy, nor shall any person receive any advancement of expenses for disputes related to any loss of compensation by such person in accordance with this Policy, and no person shall be paid or reimbursed by the Company Group for any premiums paid by such person for any third-party insurance policy covering potential recovery obligations under this Policy. For this purpose, “indemnification” includes any modification to current compensation arrangements or other means that would amount to de facto indemnification (for example, providing the person a new cash award which would be cancelled to effect the recovery of any Erroneously Awarded Compensation). In no event shall the Company Group be required to award any person an additional payment if any Restatement would result in a higher incentive compensation payment.
| 6. | MISCELLANEOUS |
This Policy generally will be administered and interpreted by the Board. Any determination by the Board with respect to this Policy shall be final, conclusive and binding on all interested parties. The determinations of the Board under this Policy, if any, need not be uniform with respect to all persons, and may be made selectively amongst persons, whether or not such persons are similarly situated. The Board shall have the power to (a) correct any defect, supply any omission and reconcile any inconsistency in this Policy, and (b) make any other determination and take any other action that the Board deems necessary or desirable for the administration of this Policy and to comply with applicable law (including Section 10D of the Exchange Act) and applicable stock market or exchange rules and regulations.
This Policy is intended to satisfy the requirements of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as it may be amended from time to time, and any related rules or regulations promulgated by the SEC or the Nasdaq, including any additional or new requirements that become effective after the Effective Date which upon effectiveness shall be deemed to automatically amend this Policy to the extent necessary to comply with such additional or new requirements.
The provisions in this Policy are intended to be applied to the fullest extent of the law. To the extent that any provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to applicable law. The invalidity or unenforceability of any provision of this Policy shall not affect the validity or enforceability of any other provision of this Policy. Recoupment of Erroneously Awarded Compensation under this Policy is not dependent upon the Company Group satisfying any conditions in this Policy, including any requirement to provide applicable documentation to the Nasdaq.
The rights of the Company Group under this Policy to seek forfeiture or reimbursement are in addition to, and not in lieu of, any rights of recoupment, or remedies or rights other than recoupment, that may be available to the Company Group pursuant to the terms of any law, government regulation or stock exchange listing requirement or any other policy, code of conduct, employee handbook, employment agreement, equity award agreement, or other plan or agreement of the Company Group.
Any applicable award agreement or other document setting forth the terms and conditions of any compensation covered by this Policy shall be deemed to include the restrictions imposed herein and incorporate this Policy by reference and, in the event of any inconsistency, the terms of this Policy will govern.
For the avoidance of doubt, this Policy applies to all compensation that is received on or after the Effective Date, regardless of the date on which the award agreement or other document setting forth the terms and conditions of the Covered Executive’s compensation became effective, including, without limitation, compensation received under the First Stock Option Plan, the Stock Option Plan, and any successor plan to each of the foregoing.
This Policy will be governed and interpreted in accordance with the Laws of the Federative Republic of Brazil and any allegations or disputes arising from or in connection with this Policy must be resolved definitively by the jurisdiction of the district of Florianópolis/SC, Brazil.
| 7. | AMENDMENT AND TERMINATION |
To the extent permitted by, and in a manner consistent with applicable law, including SEC and Nasdaq rules, the Board may terminate, suspend or amend this Policy at any time in its discretion. To the extent that any applicable law, or stock market or exchange rules or regulations require recovery of Erroneously Awarded Compensation in circumstances in addition to those specified herein, nothing in this Policy shall be deemed to limit or restrict the right or obligation of the Company to recover Erroneously Awarded Compensation to the fullest extent required by such applicable law, stock market or exchange rules and regulations. Unless otherwise required by applicable law, this Policy shall no longer be effective from and after the date that the Company no longer has a class of securities publicly listed on a United States national securities exchange.
| 8. | SUCESSORS |
This Policy shall be binding and enforceable against all persons and their respective beneficiaries, heirs, executors, administrators or other legal representatives with respect to any Covered Compensation granted, vested or paid to or administered by such persons or entities.
| 9. | REVIEW |
The area responsible for this document shall ensure that it is reviewed on an annual basis or whenever the Company requires such a review.
| 10. | OTHERS MATTERS |
All employees must abide by internal rules and, if they face any difficulties in doing so, should communicate this to the Governance, Risks and Compliance area which shall promptly act to answer any questions and, if applicable, take corrective measures.
Breaches of this Policy, whether actual or suspected, can be reported through our Ethics Channel available on: https://sistema.canalethos.com.br/vitru/home.
ATTACHED I
VITRU LIMITED
CLAWBACK POLICY
ACKNOWLEDGMENT, CONSENT AND AGREEMENT
I acknowledge that I have received and reviewed a copy of the Vitru Limited Clawback Policy (as may be amended from time to time, the “Policy”), and I have been given an opportunity to ask questions about the Policy and review it with my counsel. I knowingly, voluntarily and irrevocably consent to and agree to be bound by and subject to the Policy’s terms and conditions, including that I will return any Erroneously Awarded Compensation that is required to be repaid in accordance with the Policy.
I further acknowledge, understand and agree that (i) the compensation that I receive, have received or may become entitled to receive from the Company Group is subject to the Policy, and the Policy may affect such compensation and (ii) I have no right to indemnification, insurance payments or other reimbursement by or from the Company Group for any compensation that is subject to recoupment and / or forfeiture under the Policy. Capitalized terms not defined herein have the meanings set forth in the Policy.
Signed:
Print Name:
Date:
Exhibit 99.1
Consent of Educa Estudos de Mercado S.A.
We hereby consent to (1) the use of and all references to the name of Educa Estudos de Mercado S.A. (including the brand “Educa Insights”) in the annual report on Form 20-F for the year ended December 31, 2023 of Vitru Limited (the “Company”) and any amendments thereto (the “Annual Report”) and any other filings with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or any correspondence with the SEC by the Company; including, but not limited to, the use of the information supplied by us and set forth under the “Presentation of Financial and Other Information” and “Item 4. Information on the Company” sections of the Annual Report; and (2) the filing of this consent as an exhibit to the Annual Report by the Company for the use of our name, brand and information cited in the Annual Report, including without limitation in the above-mentioned sections of the Annual Report.
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Sincerely, |
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By: |
/s/ Daniel Infante |
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Name: |
Daniel Infante |
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Title: |
Founding partner |
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April 30, 2024