Vitru(VTRU) - 2023 Q1 - Quarterly Report

Introduction and Highlights Letter to Shareholders The company is transitioning to a single CEO, William Matos, following the successful integration of UniCesumar, which led to strong Q1 2023 results including significant revenue and EBITDA growth - The company is transitioning from a co-CEO structure to a single CEO, with William Matos assuming the role and Pedro Graça moving to the Board of Directors within six months[6] - The integration of Uniasselvi and UniCesumar has positioned Vitru as a leader in Brazil's distance learning higher education sector, serving approximately 800,000 digital education students across 2,248 hubs as of March 31, 2023[5] - Consolidated intake in the DE Undergraduate segment grew by 17.7% in Q1 2023 compared to the pro-forma combined intake in Q1 2022[9] Q1 2023 Financial Performance Highlights | Metric | Value (R$ million) | Growth vs Q1 2022 (%) | | :--- | :--- | :--- | | Consolidated Net Revenue | 444.2 | 149.9% | | Consolidated Adjusted EBITDA | 168.5 | 255.5% | | Adjusted EBITDA Margin | 37.9% | +11.2 p.p. | First Quarter 2023 Highlights Vitru reported substantial Q1 2023 growth, driven by UniCesumar consolidation, with significant increases in student base, net revenue, and profitability Key Financial Highlights Q1 2023 vs Q1 2022 | R$ million (except margins) | 1Q23 | 1Q22 | % Chg | | :--- | :--- | :--- | :--- | | Net Revenue | 444.2 | 177.8 | 149.8% | | Adjusted EBITDA | 168.5 | 47.4 | 255.5% | | Adjusted EBITDA Margin | 37.9% | 26.7% | 11.2 p.p. | | Adjusted Net Income | 81.1 | 26.5 | 206.0% | | Adjusted Cash Flow from Operations | 128.0 | 46.9 | 172.9% | - Total student base reached 886.1 thousand at the end of Q1 2023, a 127.7% increase compared to Q1 2022, with 97.4% of students in Digital Education courses[20] - The company approved its first Share Buyback Program for up to 500,000 shares and issued its second debentures amounting to R$190 million[20] Operating and Financial Performance Operating Results Q1 2023 operating results show significant expansion driven by the UniCesumar acquisition, with doubled student base and hubs, and solid intake growth Student Base and Hubs Vitru's student base grew 127.7% to 886.1 thousand and hubs increased 129.2% to 2,248, with most hubs still in expansion, indicating significant future growth potential Student Base and Hubs Breakdown (as of March 31, 2023) | Metric | 1Q23 | YoY Change | | :--- | :--- | :--- | | Total enrolled students ('000) | 886.1 | 127.7% | | Number of digital education students ('000) | 862.8 | 125.8% | | Number of hubs | 2,248 | 129.2% | | % of Expansion hubs | 92.5% | +1.1 p.p. | | Theoretical maturation index | 46.5% | +9.4 p.p. | - The high percentage of hubs in expansion (92.5%) with a low average maturation ratio (46.5%) represents a substantial future growth avenue for the company[24] Intake and Retention Q1 2023 saw a 17.7% increase in combined DE undergraduate intake, while retention declined to 74.7% due to a higher mix of first-year students Q1 2023 Key Operational Highlights | Metric | 1Q23 | YoY Change | | :--- | :--- | :--- | | Total DE undergraduate intake ('000) | 412.6 | 17.7% | | Uniasselvi DE undergraduate intake ('000) | 207.6 | 21.5% | | UniCesumar DE undergraduate intake ('000) | 205.0 | 14.1% | | DE undergraduate retention rate | 74.7% | (5.2) p.p. | - The deterioration in retention rates in Q1 2023 is explained by strong student intakes in 2022, which increased the mix of freshmen who typically have higher drop-out rates in their first two semesters[31] Tuitions and Average Ticket Total DE undergraduate tuitions grew 19.0% to R$514.2 million, with average monthly tickets for Uniasselvi and UniCesumar increasing by 4.9% and 2.4% respectively DE Undergraduate Tuitions and Average Ticket (Pro-forma) | Metric | 1Q23 | 1Q22 | % Chg | | :--- | :--- | :--- | :--- | | Total DE undergraduate tuitions (R$M) | 514.2 | 432.0 | 19.0% | | Avg. ticket Uniasselvi (R$/month) | 315.2 | 300.6 | 4.9% | | Avg. ticket UniCesumar (R$/month) | 226.2 | 221.0 | 2.4% | - The 2.4% growth in UniCesumar's average ticket indicates successful application of Uniasselvi's pricing strategies post-combination[40] Financial Results Q1 2023 financial results show dramatic growth, primarily from UniCesumar consolidation, with net revenue up 149.8% and significant surges in profitability and cash flow Revenue Analysis Consolidated Net Revenue for Q1 2023 increased 149.8% to R$444.2 million, driven by UniCesumar, with significant growth in both digital and on-campus undergraduate revenues Net Revenue Breakdown Q1 2023 vs Q1 2022 | Metric (R$ million) | 1Q23 | 1Q22 | % Change | | :--- | :--- | :--- | :--- | | Digital education undergraduate | 320.7 | 156.0 | 105.6% | | On-campus undergraduate | 102.6 | 10.0 | 926.0% | | Continuing education | 20.9 | 11.8 | 77.1% | | Net Revenue | 444.2 | 177.8 | 149.8% | Profitability Analysis Q1 2023 profitability significantly improved, with Gross Profit up 159.9%, Adjusted EBITDA surging 255.5% to R$168.5 million, and Adjusted Net Income rising 206.0% - Gross Margin increased from 63.4% in Q1 2022 to 66.0% in Q1 2023, primarily due to a decreased depreciation and amortization ratio over net revenue post-UniCesumar consolidation[55] - Adjusted EBITDA increased 255.5% to R$168.5 million, with the Adjusted EBITDA Margin expanding by 11.2 p.p. to 37.9%, reflecting UniCesumar's contribution and operational success[65] - Adjusted Net Income grew 206.0% to R$81.1 million, driven by the strong growth in Adjusted EBITDA[66] Expense Analysis Q1 2023 expense management showed positive results, with selling expenses dropping to 17.2% of net revenue and provisions for doubtful accounts improving to 10.7% - Selling Expenses for Adjusted EBITDA calculation decreased as a percentage of Net Revenue from 26.9% in Q1 2022 to 17.2% in Q1 2023, primarily due to UniCesumar's hub partners bearing more intake costs[57] - G&A expenses for Adjusted EBITDA calculation decreased as a percentage of Net Revenue to 6.6% from 7.1%, attributable to corporate structure synergies from ongoing integration[61] - Net impairment losses on financial assets (provisions for doubtful accounts) decreased by 3.8 p.p. to 10.7% of Net Revenue, primarily due to UniCesumar's more effective onboarding and retention processes[63] Cash Flow and Capital Management Adjusted Cash Flow from Operations increased 172.9% to R$128.0 million, with CAPEX decreasing to 4.5% of revenue, reflecting strong cash generation and capital efficiency gains Cash Flow & Conversion | Metric (R$ million) | 1Q23 | 1Q22 | % Chg | | :--- | :--- | :--- | :--- | | Adjusted Cash Flow from Operations | 128.0 | 46.9 | 172.9% | | Adjusted Cash Flow Conversion from Operations | 79.8% | 115.8% | (36.0) p.p. | Net Debt Position | Metric (R$ million) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Net Debt (ex-IFRS 16) | 2,031.9 | 2,054.0 | | Total Net Debt (IFRS 16) | 2,353.3 | 2,377.4 | - CAPEX as a percentage of Net Revenue decreased by 1.2 p.p. to 4.5% in Q1 2023, reflecting planned synergies in content production and hub expansion[77][78] Supplementary Information About Vitru and Forward-Looking Statements Vitru is the leading pure-player in Brazil's private post-secondary digital education market, operating through Uniasselvi and UniCesumar across three core segments - Vitru is the leading pure-player in Brazil's private post-secondary digital education market based on enrolled undergraduate students[80] - The company's operations are divided into three segments: Digital education undergraduate, On-campus undergraduate (including medical), and Continuing education courses[83][84] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDA and Net Income to assess core operational performance and facilitate comparisons by excluding specific non-recurring items - The company uses non-GAAP measures such as Adjusted EBITDA, Adjusted Net Income, and Net Debt to provide additional information on its core operational performance[87] - Adjusted EBITDA is calculated by adjusting net income for taxes, financial results, depreciation & amortization, share-based compensation, and M&A/restructuring expenses[88][92] - Adjusted Net Income is calculated by adjusting net income for M&A expenses, share-based compensation, amortization of intangible assets from business combinations, and their corresponding tax effects[89][92] Financial Statements and Reconciliations This section presents unaudited interim condensed consolidated financial statements for Q1 2023, including profit or loss, financial position, cash flows, and detailed reconciliations of non-GAAP measures - This section contains the unaudited interim condensed consolidated statements of profit or loss, financial position, and cash flows for the three-month period ended March 31, 2023[93][94][97] - Detailed reconciliations are provided for key non-GAAP measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted Cash Flow Conversion from Operations, and Net Debt[99][100][101]