Vitru(VTRU) - 2024 Q1 - Quarterly Report

Introduction & Highlights CEO Letter The CEO's 2023 annual review highlights significant achievements including a 2.7 percentage point EBITDA margin increase, 15.0% student base growth, and a 9.9% rise in average DE Undergraduate course ticket, alongside initiating a stock listing migration to B3 - The student base grew by 15.0% to 883.6 thousand students as of December 31, 2023, with 97.5% enrolled in Digital Education (DE) courses[5] - The average ticket for DE Undergraduate courses increased by 9.9% in the second semester of 2023 compared to the same period in 2022[6] - The company has started the process of migrating its stock listing from NASDAQ to the B3 exchange in Brazil[7] 2023 Key Financial Metrics | Metric | Value | Growth (YoY) | | :--- | :--- | :--- | | Adjusted EBITDA | R$ 718 million | - | | EBITDA Margin | 36.6% | +2.7 p.p. | Highlights of 2023 and Thereafter This section consolidates Vitru's 2023 key achievements, showcasing significant growth in net revenue, Adjusted EBITDA, and student numbers, alongside progress on its B3 listing migration Key Financial Highlights (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Net Revenue | 1,962.5 | 1,317.3 | 49.0% | | DE Undergraduate Net Revenue | 1,414.1 | 998.2 | 41.7% | | Adjusted EBITDA | 718.5 | 447.2 | 60.7% | | Adjusted EBITDA Margin | 36.6% | 33.9% | 2.7 p.p. | | Adjusted Net Income | 253.8 | 204.9 | 23.9% | | Adjusted Cash Flow from Operations | 613.6 | 358.8 | 71.0% | - The total student base reached 883.6k at the end of 2023, with a 15.4% increase in Digital Education Undergraduate students[15] - The average ticket in the DE Undergraduate segment rose by 9.9% in 2H 2023 compared to 2H 2022[15] Operating Results Student Base and Hubs Vitru's total student base grew 15.0% to 883.6 thousand by year-end 2023, with 97.5% in digital education, and hubs expanded 15.2% to 2,499, indicating significant future organic growth Student Base and Hubs (as of Dec 31, 2023) | Metric | 4Q23 | 4Q22 | YoY Change | | :--- | :--- | :--- | :--- | | Total enrolled students ('000) | 883.6 | 768.4 | 15.0% | | % Digital education students | 97.5% | 97.3% | +0.2 p.p. | | Number of digital education students ('000) | 861.6 | 747.5 | 15.3% | | Number of hubs | 2,499 | 2,170 | 15.2% | - The majority of hubs (93.2%) are still in the expansion phase and have not reached full maturity, representing a key avenue for future growth[19] Intake and Retention Combined student intake for Uniasselvi and UniCesumar in 2H 2023 increased by a strong 27.3%, driven by growth across both institutions DE Undergraduate Intake Volume ('000) | Intake Cycle | 2023.2 | 2022.2 | % Change | | :--- | :--- | :--- | :--- | | Total DE undergraduate intake | 313.5 | 246.2 | 27.3% | | Uniasselvi DE undergraduate intake | 194.2 | 171.1 | 13.5% | | UniCesumar DE undergraduate intake | 119.3 | 75.1 | 58.9% | Tuitions and Average Ticket In 2H 2023, total Digital Education undergraduate tuitions grew 22.0%, with the average monthly ticket increasing 9.9% to R$279.0, reflecting successful pricing strategies DE Undergraduate Tuitions and Average Ticket (2H23 vs 2H22) | Metric | 2H23 | 2H22 | % Change | | :--- | :--- | :--- | :--- | | Total DE undergraduate tuitions (R$ million) | 1,168.5 | 957.7 | 22.0% | | Average ticket Vitru DE undergraduate (R$/month) | 279.0 | 253.8 | 9.9% | | Average ticket Uniasselvi DE undergraduate (R$/month) | 323.8 | 301.7 | 7.3% | | Average ticket UniCesumar DE undergraduate (R$/month) | 236.6 | 209.1 | 13.2% | - The increase in UniCesumar's average ticket is partly due to implementing new pricing strategies aligned with Uniasselvi's, particularly for the first annual renewal of the 2022.2 freshman class[34] Financial Results Net Revenue Consolidated net revenue for 2023 increased 49.0% to R$1,962.5 million, primarily driven by strong growth in the Digital Education Undergraduate segment Net Revenue Breakdown (2023 vs 2022) | R$ million | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Digital education undergraduate | 1,414.1 | 998.2 | 41.7% | | On-campus undergraduate (ex-medicine) | 189.3 | 120.3 | 57.3% | | Medicine undergraduate | 255.5 | 130.8 | 95.3% | | Continuing education | 103.7 | 68.0 | 52.5% | | Net Revenue | 1,962.5 | 1,317.3 | 49.0% | Cost of Services Cost of services rose to R$669.5 million in 2023, but improved by 2.2 percentage points as a percentage of net revenue, reflecting efficiency gains Cost of Services Analysis (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Cost of Services | 669.5 | 502.3 | 33.3% | | Cost of Services for Adj. EBITDA calculation | 582.0 | 420.3 | 38.5% | | as % of Net Revenue (for Adj. EBITDA) | 29.7% | 31.9% | (2.2) p.p. | - The improvement in cost of services as a percentage of revenue is mainly due to continuous efforts to improve combined operations and exchange best practices between brands[43] Gross Profit and Gross Margin Gross profit reached R$1,293.0 million in 2023, with gross margin expanding 4.0 percentage points to 65.9%, driven by slower hub openings and increased average tuition tickets - Gross Margin for the full year 2023 reached 65.9%, a gain of 4.0 percentage points compared to 2022[46] - The margin improvement is attributed to a reduced pace of new hub openings and continuous work to improve average tickets[46] Operating Expenses Total operating expenses grew in 2023 due to expansion, with selling expenses improving as a percentage of revenue, while G&A expenses rose due to IT costs and one-off acquisition items Selling Expenses Selling expenses increased 47.2% to R$360.4 million in 2023, but improved by 0.4 percentage points as a percentage of net revenue, reflecting scale gains and optimized marketing Selling Expenses Analysis (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Selling Expenses | 360.4 | 244.8 | 47.2% | | Selling Expenses for Adj. EBITDA calculation | 305.4 | 210.7 | 44.9% | | as % of Net Revenue (for Adj. EBITDA) | 15.6% | 16.0% | (0.4) p.p. | General and Administrative Expenses G&A expenses rose 44.5% to R$259.1 million in 2023, driven by higher IT costs and one-off M&A earn-out and pre-offering expenses G&A Expenses Analysis (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | G&A Expenses | 259.1 | 179.3 | 44.5% | | G&A Expenses for Adj. EBITDA calculation | 117.4 | 78.1 | 50.3% | | as % of Net Revenue (for Adj. EBITDA) | 6.0% | 5.9% | 0.1 p.p. | - G&A expenses in 2023 included R$33.9 million in earn-out payments for the UniCesumar acquisition and R$11.2 million in capitalized pre-offering payments, which were treated as one-off expenses[51] Net Impairment Losses on Financial Assets (PDA) Provisions for doubtful accounts (PDA) totaled R$263.5 million in 2023, but improved by 0.8 percentage points as a percentage of net revenue, reflecting best practice exchanges - For the full year 2023, PDA as a percentage of Net Revenue showed a gain of 0.8 p.p. compared to 2022, reflecting operational improvements[54] - The company is working to roll out UniCesumar's more effective onboarding and retention processes across the entire business to improve PDA performance[54] Adjusted EBITDA Adjusted EBITDA grew 60.7% to R$718.5 million in 2023, with the margin expanding 2.7 percentage points to 36.6%, driven by strong revenue growth and improved margins Adjusted EBITDA Performance | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Adjusted EBITDA (R$ million) | 718.5 | 447.2 | +60.7% | | Adjusted EBITDA Margin | 36.6% | 33.9% | +2.7 p.p. | - The increase in Adjusted EBITDA margin for the year reflects the solid growth of Uniasselvi, the contribution of UniCesumar's results, improved average tickets, and better gross margins[57] Financial Results (Net Finance Costs) Net financial expenses increased 52.9% to R$305.6 million in 2023, primarily due to higher indebtedness and Q4 expenses from new debentures and seller financing prepayment Financial Results Breakdown (R$ million) | Item | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Financial Income | 61.0 | 64.6 | (5.6)% | | Financial Expenses | (366.5) | (264.4) | 38.6% | | Financial Results | (305.6) | (199.8) | 52.9% | Adjusted Net Income Adjusted Net Income increased 23.9% to R$253.8 million for 2023, though Q4 saw a 78.3% decrease to R$10.7 million due to higher financial expenses and deferred tax impact Adjusted Net Income Performance (R$ million) | Period | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Full Year | 253.8 | 204.9 | 23.9% | | Q4 | 10.7 | 49.3 | (78.3)% | Cash Flow and Cash Conversion from Operations Adjusted Cash Flow from Operations grew 71.0% to R$613.6 million in 2023, with a strong conversion rate of 96.2%, driven by positive working capital and improved collection Cash Flow Performance (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Adjusted Cash Flow from Operations | 613.6 | 358.8 | 71.0% | | Adjusted Cash Flow Conversion from Operations | 96.2% | 96.0% | 0.2 p.p. | Indebtedness Vitru reduced total net debt by R$109.3 million in 2023 to R$2,268.1 million, issuing R$500 million in new debentures to prepay seller financing, maintaining a Net Debt / Adjusted EBITDA ratio of 2.9x Net Debt (R$ million) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Net Debt (ex-IFRS 16) | 1,940.2 | 2,054.0 | | Total Net Debt (IFRS 16) | 2,268.1 | 2,377.4 | - The company issued R$500 million in new debentures at CDI + 2.45% to prepay R$532.2 million of seller financing that cost CDI + 3.0%[71][72] - The Net Debt / Adj. EBITDA (ex-IFRS 16) ratio was 2.9x at year-end 2023, well below the covenant limit of 4.0x[74][76] Capital Expenditures (CAPEX) Capital Expenditures (CAPEX) Capital Expenditures (CAPEX) totaled R$122.6 million in 2023, increasing 26.4% but decreasing to 6.2% of Net Revenue, indicating improved capital efficiency CAPEX Breakdown (2023 vs 2022) | R$ million (except where stated) | 2023 | 2022 | % Chg | | :--- | :--- | :--- | :--- | | Property and equipment | 49.0 | 40.3 | 21.6% | | Intangible assets | 73.6 | 56.7 | 29.8% | | Total Investing activities | 122.6 | 97.0 | 26.4% | | as % of Net Revenue | 6.2% | 7.4% | (1.2) p.p. | Appendix & Reconciliations About Vitru Vitru is Brazil's leading pure-play digital education company, offering a hybrid distance learning model for post-secondary students through Uniasselvi and UniCesumar - Vitru is the leading pure-player in Brazil's private post-secondary digital education market based on the number of enrolled undergraduate students[80] - The company's pedagogical model is a hybrid methodology that combines a proprietary Virtual Learning Environment (VLE) with in-person or online meetings led by tutors[82] - Operations are divided into three segments: Digital education undergraduate courses, On-campus undergraduate courses (including medicine), and Continuing education courses[83] Additional Information & Disclaimers This section provides important legal notices, including details on the proposed corporate restructuring and B3 listing migration, and a forward-looking statements disclaimer - The press release contains information on the proposed corporate restructuring and migration of Vitru's listing from NASDAQ to the B3 exchange in Brazil[84] - The document includes forward-looking statements that involve risks and uncertainties, and readers are cautioned not to place undue reliance on them[86][87][88] Non-GAAP Financial Measures This section defines the calculation methodologies for key non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted Cash Flow Conversion, and Net Debt - The company uses non-GAAP measures to supplement its IFRS financial statements for the convenience of investors[89] - Key non-GAAP measures used are Adjusted EBITDA, Adjusted Net Income, Adjusted Cash Flow Conversion from Operations, and Net Debt[89][93] - Adjusted EBITDA is calculated by adding back items such as taxes, financial results, depreciation & amortization, share-based compensation, and M&A/restructuring expenses to net income[90] Financial Tables This section presents unaudited interim condensed consolidated financial statements, including profit or loss, financial position, and cash flows, for Q4 and FY 2023 and 2022 - Includes the unaudited interim condensed consolidated statements of profit or loss for Q4 and FY 2023 and 2022[95] - Includes the unaudited interim condensed consolidated statements of financial position as of December 31, 2023, and 2022[96] - Includes the unaudited interim condensed consolidated statements of cash flows for the twelve-month periods ended December 31, 2023, and 2022[98] Reconciliations of Non-GAAP Financial Measures This section provides detailed reconciliations of non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted Cash Flow Conversion, and Net Debt, to IFRS - Provides a detailed reconciliation of Net Income to Adjusted EBITDA for Q4 and full-year 2023 and 2022[99] - Provides a detailed reconciliation of Net Income to Adjusted Net Income for Q4 and full-year 2023 and 2022[100] - Provides reconciliations for Adjusted Cash Flow Conversion from Operations and Net Debt[101][103]