Vitru(VTRU) - 2023 Q2 - Quarterly Report

Unaudited Interim Condensed Consolidated Financial Statements Consolidated Statements of Financial Position As of June 30, 2023, Vitru's total assets increased to BRL 6.05 billion from BRL 5.66 billion at the end of 2022, driven by a significant rise in current assets, particularly cash and short-term investments. Total liabilities also grew to BRL 3.72 billion, primarily due to an increase in current liabilities, including loans and payables from acquisitions. Consequently, total equity rose to BRL 2.33 billion from BRL 2.17 billion Consolidated Balance Sheet Summary (in thousands of BRL) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | 734,767 | 371,540 | | Total Non-Current Assets | 5,311,120 | 5,287,539 | | Total Assets | 6,045,887 | 5,659,079 | | Total Current Liabilities | 1,055,578 | 392,366 | | Total Non-Current Liabilities | 2,662,013 | 3,092,324 | | Total Liabilities | 3,717,591 | 3,484,690 | | Total Equity | 2,328,296 | 2,174,389 | | Total Liabilities and Equity | 6,045,887 | 5,659,079 | Consolidated Statements of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2023, Vitru reported a significant increase in financial performance compared to the same period in 2022. Net revenue nearly doubled to BRL 965.7 million, and net income more than tripled to BRL 143.3 million. This growth was reflected in the basic earnings per share, which rose from BRL 1.84 to BRL 4.24 Income Statement Highlights - Six Months Ended June 30 (in thousands of BRL) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 965,719 | 485,806 | +98.8% | | Gross Profit | 638,864 | 302,756 | +111.0% | | Operating Profit | 226,873 | 64,890 | +249.6% | | Net Income for the Period | 143,276 | 44,797 | +219.8% | | Basic Earnings Per Share (R$) | 4.24 | 1.84 | +130.4% | | Diluted Earnings Per Share (R$) | 4.02 | 1.72 | +133.7% | Consolidated Statement of Changes in Equity Total equity increased from BRL 2.17 billion at the end of 2022 to BRL 2.33 billion as of June 30, 2023. The primary driver for this growth was the net income of BRL 143.3 million generated during the period. Other changes included capital contributions and share-based compensation adjustments Equity Movement - Six Months Ended June 30, 2023 (in thousands of BRL) | Description | Amount | | :--- | :--- | | Equity at December 31, 2022 | 2,174,389 | | Profit for the period | 143,276 | | Treasury Shares | (3,644) | | Capital contributions | 8,614 | | Value of employee services | 5,661 | | Equity at June 30, 2023 | 2,328,296 | Consolidated Statement of Cash Flows For the six months ended June 30, 2023, the company generated BRL 138.4 million in cash from operating activities, a notable increase from BRL 107.9 million in the prior year period. Cash used in investing activities was BRL 282.6 million, mainly for acquisitions of short-term investments. Financing activities provided BRL 180.5 million, largely from new loans. This resulted in a net increase in cash and cash equivalents of BRL 36.4 million Cash Flow Summary - Six Months Ended June 30 (in thousands of BRL) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 138,428 | 107,901 | | Net cash used in investing activities | (282,560) | (1,999,957) | | Net cash provided by financing activities | 180,485 | 1,929,546 | | Net increase (decrease) in cash | 36,353 | 37,490 | | Cash at end of period | 83,540 | 113,077 | Notes to the Unaudited Interim Condensed Consolidated Financial Statements Note 1: Corporate Information Vitru Limited is a Cayman Islands holding company listed on NASDAQ (VTRU), primarily providing educational services in Brazil through 2,301 learning centers. The company reported a negative net working capital of BRL 320.8 million as of June 30, 2023, resulting from its growth and acquisition strategy, but remains confident in its ability to meet financial obligations. The company's revenue is seasonal, with higher enrollments in the first and third quarters leading to higher revenue in the second and fourth quarters - The company provides educational services in Brazil through 2,301 learning centers as of June 30, 2023, an increase from 2,170 at year-end 2022[12] - As of June 30, 2023, the company had a negative net working capital position, with short-term liabilities exceeding short-term assets by BRL 320,811 thousand, mainly due to growth strategies including the Unicesumar acquisition[13] - On May 5, 2023, the company issued a new series of debentures totaling BRL 190 million through its subsidiary Vitru Brasil[17] Note 3: Business Combinations This note details the acquisition of Unicesumar, which closed on May 20, 2022. The total purchase consideration was BRL 3.28 billion, consisting of cash, shares, and a contingent payment. The acquisition resulted in BRL 3.14 billion of goodwill, primarily attributed to workforce synergies and the combined track record of the institutions. A smaller acquisition of Rede Enem for BRL 1.4 million in September 2022 is also mentioned - The acquisition of Unicesumar closed on May 20, 2022, a leading higher education institution with approximately 331 thousand students[24][25] Unicesumar Purchase Consideration (in thousands of BRL) | Component | Amount | % of Total | | :--- | :--- | :--- | | Cash payable at acquisition | 2,162,500 | 65.94% | | Payable after 12 months | 525,681 | 16.03% | | Contingent consideration | 30,608 | 0.93% | | Payable through Vitru shares | 560,544 | 25.92% | | Total Consideration | 3,279,333 | | - The acquisition generated goodwill of BRL 3,142,283 thousand, based on total acquired net assets of BRL 137,050 thousand and a purchase consideration of BRL 3,279,333 thousand[27] Note 4: Segment Reporting The company's operations are divided into three segments: Digital education undergraduate courses, Continuing education courses, and On-campus undergraduate courses. For the first six months of 2023, the Digital education segment was the largest contributor, generating BRL 705.6 million in net revenue and BRL 316.1 million in Adjusted EBITDA. The company's overall Adjusted EBITDA margin for the period was 44.90% Segment Performance - Six Months Ended June 30 (in thousands of BRL) | Segment | Net Revenue 2023 | Net Revenue 2022 | Adjusted EBITDA 2023 | Adjusted EBITDA 2022 | | :--- | :--- | :--- | :--- | :--- | | Digital education undergraduate | 705,649 | 399,897 | 316,082 | 163,462 | | Continuing education | 49,624 | 28,177 | 16,519 | 17,532 | | On-campus undergraduate | 210,446 | 57,732 | 101,045 | 20,055 | | Total | 965,719 | 485,806 | 433,646 | 201,049 | - The company operates solely in Brazil, and the Chief Operating Decision Maker (CODM) does not evaluate performance based on geographic regions[38] Note 7: Trade Receivables Total trade receivables increased to BRL 327.2 million as of June 30, 2023, from BRL 271.1 million at year-end 2022. The balance is composed of tuition fees and various educational credit programs. The allowance for expected credit losses also grew to BRL 234.0 million, representing a significant portion of gross receivables Trade Receivables Breakdown (in thousands of BRL) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Tuition fees | 470,889 | 410,393 | | Gross Receivables (subtotal) | 568,444 | 489,643 | | Allowance for expected credit losses | (234,004) | (211,986) | | Total trade receivables | 327,242 | 271,140 | - The allowance for expected credit losses increased by BRL 22.0 million during the first six months of 2023, with additions of BRL 133.5 million and write-offs of BRL 105.3 million[51] Note 8: Current and Deferred Income Tax For the first six months of 2023, the company recorded a total income tax benefit of BRL 55.0 million on pre-tax earnings of BRL 88.2 million, resulting in a negative effective tax rate of (62)%. This was primarily due to BRL 89.9 million in tax exemptions from the ProUni program, which provides scholarships to low-income students - The company benefits from the ProUni program, which provides tax exemptions for offering scholarships. This resulted in an income tax benefit of BRL 89,897 thousand for the first half of 2023[52] Deferred Tax Assets and Liabilities (in thousands of BRL) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Deferred tax assets | 254,138 | 203,043 | | Deferred tax liabilities | (752,144) | (773,394) | Note 13: Intangible Assets As of June 30, 2023, total intangible assets were valued at BRL 4.39 billion, slightly down from BRL 4.43 billion at the end of 2022. The largest components are Goodwill (BRL 1.86 billion) and Operation licenses for distance learning (BRL 1.46 billion), both of which are indefinite-lived assets. No impairment was identified during the period Intangible Assets Net Book Value (in thousands of BRL) | Asset | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Goodwill | 1,862,589 | 1,862,589 | | Operation licenses for distance learning | 1,458,209 | 1,458,209 | | Trademarks | 384,920 | 393,863 | | Customer relationship | 233,915 | 261,190 | | Non compete agreements | 232,347 | 250,378 | | Software | 89,537 | 60,071 | | Total Intangible Assets | 4,391,817 | 4,427,643 | - Goodwill and licenses for distance learning operations are tested for impairment annually. No evidence of impairment was identified during the first half of 2023[64] Note 14: Loans and Financing Total loans and financing stood at BRL 1.79 billion as of June 30, 2023, up from BRL 1.62 billion at year-end 2022. The increase is due to a new debenture issuance of BRL 190 million in May 2023. The debt primarily consists of debentures with maturities extending to May 2028 - On May 5, 2023, the company issued a new series of debentures for BRL 190,000 thousand, maturing between May 2025 and May 2028[66] Loans and Financing Breakdown (in thousands of BRL) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Current | 229,187 | 131,158 | | Non-current | 1,563,373 | 1,489,088 | | Total | 1,792,560 | 1,620,246 | Note 16: Accounts Payable from Acquisition of Subsidiaries The company has an outstanding liability of BRL 526.8 million related to the acquisition of Unicesumar. This amount, including accrued interest, is classified as a current liability and is due to be paid on May 20, 2024 - A final installment of BRL 526,826 thousand for the Unicesumar acquisition is payable on May 20, 2024. This amount includes the principal of BRL 525,681 thousand plus accrued interest[70] Note 18: Equity As of June 30, 2023, Vitru's share capital consisted of 33,805,517 common shares. In May 2023, the board approved a share buyback program for up to 500,000 shares. By the end of June, 46,802 shares had been repurchased. The company does not anticipate paying dividends in the foreseeable future, intending to retain earnings for business expansion - As of June 30, 2023, the Company's share capital is represented by 33,805,517 common shares[79] - A share buyback program was approved on May 11, 2023, to repurchase up to 500,000 common shares. During the period, 46,802 shares were repurchased for BRL 3,644 thousand[81][82] - The company did not pay cash dividends in the six months ended June 30, 2023, and does not plan to in the foreseeable future[83] Note 19: Earnings Per Share For the six months ended June 30, 2023, basic earnings per share (EPS) was BRL 4.24, and diluted EPS was BRL 4.02. This represents a significant increase from the same period in 2022, when basic and diluted EPS were BRL 1.84 and BRL 1.72, respectively. The calculation for diluted EPS includes the potential effect of 1.88 million outstanding share options Earnings Per Share (EPS) - Six Months Ended June 30 | EPS Type | 2023 (R$) | 2022 (R$) | | :--- | :--- | :--- | | Basic EPS | 4.24 | 1.84 | | Diluted EPS | 4.02 | 1.72 | - As of June 30, 2023, there were 1,880 thousand outstanding and unexercised share options that have a dilutive effect on earnings per share[86] Note 22: Revenue For the six months ended June 30, 2023, gross revenue from services was BRL 1.26 billion. After deductions for cancellations, discounts, and ProUni scholarships (BRL 129.8 million), net revenue was BRL 965.7 million. The vast majority of revenue (BRL 954.6 million) is recognized over time as educational services are provided Revenue Reconciliation - Six Months Ended June 30 (in thousands of BRL) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Gross amount from services provided | 1,255,024 | 625,846 | | (-) Cancellation | (45,512) | (8,137) | | (-) Discounts | (81,709) | (34,629) | | (-) ProUni scholarships | (129,771) | (81,595) | | (-) Taxes and contributions | (32,313) | (15,679) | | Net revenue | 965,719 | 485,806 | Note 25: Financial Results For the six months ended June 30, 2023, the company reported a net financial expense of BRL 138.6 million. This was composed of BRL 24.7 million in financial income, primarily from interest on late tuition payments and investment yields, and BRL 163.3 million in financial expenses, dominated by interest on loans (BRL 114.1 million) and interest on acquisition-related payables (BRL 19.5 million) Financial Results - Six Months Ended June 30 (in thousands of BRL) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Financial income | 24,667 | 29,478 | | Financial expenses | (163,307) | (76,740) | | Net Financial Results | (138,640) | (47,262) | - The largest financial expense was interest on loans and financing, which amounted to BRL 114,082 thousand for the first half of 2023, a significant increase from BRL 33,371 thousand in the same period of 2022[99]