Vitru(VTRU) - 2022 Q4 - Annual Report

Report of Independent Registered Public Accounting Firm This section presents the auditor's opinion on Vitru Limited's consolidated financial statements Opinion on the Financial Statements PricewaterhouseCoopers Auditores Independentes Ltda. issued an unqualified opinion on Vitru Limited's consolidated financial statements for the three years ended December 31, 2022, confirming fair presentation in conformity with IFRS - The audit covers the consolidated statements of financial position as of December 31, 2022 and 2021, and the related statements of profit or loss, comprehensive income, changes in equity, and cash flows for the three years ended December 31, 2022[3] - The auditor's opinion confirms that the financial statements are presented fairly in all material respects and conform with IFRS[3] - The audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB)[5] Consolidated Financial Statements This section provides an overview of Vitru's financial position, performance, and cash flows Consolidated Statements of Financial Position Vitru's total assets significantly increased from R$1.53 billion in 2021 to R$5.66 billion in 2022, primarily driven by a surge in intangible assets from R$670 million to R$4.43 billion due to acquisitions, while total liabilities also grew substantially from R$461 million to R$3.48 billion, mainly from new loans and financing of R$1.62 billion and increased payables from acquisitions, consequently doubling total equity from R$1.07 billion to R$2.17 billion Consolidated Assets (in thousands of BRL) | Asset Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | 371,540 | 514,784 | | Cash and cash equivalents | 47,187 | 75,587 | | Short-term investments | 26,389 | 253,042 | | Trade receivables | 224,128 | 140,560 | | Total Non-Current Assets | 5,287,539 | 1,012,643 | | Intangible assets | 4,427,643 | 670,152 | | Right-of-use assets | 350,393 | 136,104 | | Property and equipment | 194,575 | 106,839 | | Total Assets | 5,659,079 | 1,527,427 | Consolidated Liabilities and Equity (in thousands of BRL) | Liability & Equity Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Liabilities | 392,366 | 259,342 | | Loans and financing | 131,158 | — | | Total Non-Current Liabilities | 3,092,324 | 201,957 | | Loans and financing | 1,489,088 | — | | Deferred tax liabilities | 773,394 | — | | Payables from acquisition of subsidiaries | 507,361 | — | | Total Liabilities | 3,484,690 | 461,299 | | Total Equity | 2,174,389 | 1,066,128 | | Total Liabilities and Equity | 5,659,079 | 1,527,427 | - As of December 31, 2022, the company had a negative net working capital position, with short-term liabilities exceeding short-term assets by R$21,438 thousand, though management remains confident in its ability to meet obligations due to its business model's resilience and operational cash flow generation[19] Consolidated Statements of Profit or Loss and Other Comprehensive Income For the year ended December 31, 2022, Vitru's net revenue more than doubled to R$1.32 billion from R$631 million in 2021, with operating profit increasing to R$201 million, while net income rose more modestly to R$93.3 million from R$70.6 million in 2021, heavily impacted by a sharp increase in financial results to R$199.9 million, and basic earnings per share increased to R$3.52 from R$3.08 year-over-year Key Profit & Loss Items (in thousands of BRL) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Revenue | 1,317,346 | 631,147 | 519,179 | | Gross Profit | 815,015 | 390,223 | 297,727 | | Operating Profit | 200,990 | 78,765 | 60,943 | | Financial Results | (199,871) | (29,359) | (27,860) | | Net Income for the Period | 93,320 | 70,648 | 52,114 | | Basic EPS (R$) | 3.52 | 3.08 | 2.79 | | Diluted EPS (R$) | 3.23 | 2.89 | 2.68 | Consolidated Statement of Changes in Equity Total equity increased from R$1.07 billion at the end of 2021 to R$2.17 billion at the end of 2022, primarily driven by net income of R$93.3 million, issuance of shares for the Unicesumar acquisition valued at R$560.5 million, and capital contributions of R$428.4 million Changes in Equity in 2022 (in thousands of BRL) | Description | Amount | | :--- | :--- | | Equity at Dec 31, 2021 | 1,066,128 | | Profit for the period | 93,320 | | Issuance of shares for acquisition | 560,546 | | Capital contributions | 428,375 | | Value of employee services (Share-based comp) | 26,020 | | Equity at Dec 31, 2022 | 2,174,389 | Consolidated Statement of Cash Flows In 2022, net cash from operating activities nearly doubled to R$121.5 million, but the company experienced a significant net cash outflow of R$2.16 billion from investing activities, dominated by a R$2.29 billion payment for subsidiary acquisitions, which was financed by R$2.01 billion in net cash from financing activities, including R$1.91 billion from new loans and R$428.4 million from capital contributions, resulting in an overall decrease in cash and cash equivalents by R$28.4 million, ending the year at R$47.2 million Consolidated Cash Flows (in thousands of BRL) | Cash Flow Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 121,464 | 65,035 | 75,913 | | Net cash used in investing activities | (2,162,073) | 100,022 | (610,295) | | Payments for acquisition of subsidiaries | (2,291,688) | (127,804) | (117,248) | | Net cash provided by (used in) financing activities | 2,012,209 | (175,400) | 617,855 | | Proceeds from loans and financing | 1,905,851 | — | 150,000 | | Capital contributions | 428,375 | 9,722 | — | | Net increase (decrease) in cash | (28,400) | (10,343) | 83,473 | | Cash and cash equivalents at end of period | 47,187 | 75,587 | 85,930 | Notes to the Financial Statements This section provides detailed explanations and breakdowns of the figures presented in the consolidated financial statements Note 1: Corporate Information Vitru Limited is a Cayman Islands holding company, publicly traded on NASDAQ (VTRU), primarily engaged in providing educational services in Brazil through digital and on-campus platforms, with operations significantly expanded in 2022 through the acquisition of Unicesumar and Rede Enem, operating through 2,170 learning centers as of December 31, 2022, and having secured a major investment from Crescera Capital during the year - Vitru Limited is a holding company incorporated in the Cayman Islands, trading on NASDAQ under the ticker "VTRU"[14] - The company provides educational services in Brazil, including undergraduate and continuing education courses, through eight on-campus sites and 2,170 learning hubs as of December 31, 2022 (up from 939 in 2021)[17] 1.2 Business Combination with Unicesumar On May 20, 2022, Vitru completed the acquisition of 100% of Unicesumar, a leading Brazilian higher education institution, for a total purchase consideration of R$3.21 billion, comprising cash, Vitru shares, and a contingent payment, which resulted in goodwill of R$1.56 billion and significantly expanded Vitru's operations, contributing R$541.3 million to revenue and R$181.5 million to net profit from the acquisition date to year-end - The acquisition of Unicesumar was closed on May 20, 2022[24] Unicesumar Purchase Price Consideration (in thousands of BRL) | Component | Amount | % of Total | | :--- | :--- | :--- | | Cash payable at acquisition date | 2,162,500 | 67.36% | | Amount payable after 12 months | 456,721 | 14.23% | | Contingent consideration | 30,608 | 0.95% | | Payable through issuance of Vitru shares | 560,544 | 17.46% | | Total | 3,210,373 | 100.00% | - The acquisition generated goodwill of R$1,556.3 million, attributed to workforce synergies and enhanced market position[27][36] - From the acquisition date to December 31, 2022, Unicesumar contributed R$541,272 thousand in revenue and R$181,466 thousand in net profit[37] 1.3 Acquisition of Rede Enem On September 1, 2022, Vitru acquired 100% of Rede Enem Serviços de Internet Ltda, a platform providing free educational content, for a purchase price of R$1,400 thousand in cash, resulting in goodwill of R$1,407 thousand - On September 1, 2022, the Company acquired 100% of Rede Enem, a platform for free educational content[39] Rede Enem Acquisition Details (in thousands of BRL) | Item | Amount | | :--- | :--- | | Total acquired net assets at book value | (7) | | Purchase price consideration (cash) | 1,400 | | Goodwill arising on acquisition | 1,407 | 1.4 Investment from Crescera Capital On November 10, 2022, Crescera Capital, a leading asset manager, invested in Vitru by subscribing to 3,636,363 new common shares, amounting to a capital increase of R$328.7 million (approximately US$58.3 million) - Crescera subscribed for 3,636,363 new common shares in a capital increase of R$328,728 thousand (US$58,260 thousand) on November 10, 2022[41] Note 2: Significant Accounting Policies The consolidated financial statements are prepared in accordance with IFRS under the historical cost convention, with Brazilian Reais (R$) as the functional and presentation currency, and key policies include the acquisition method for business combinations, recognition of revenue from contracts with customers over time as services are rendered, and annual impairment testing for goodwill and indefinite-lived intangible assets, with financial instruments classified and measured at amortized cost or fair value through profit or loss (FVPL) - The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB[43] - The functional and presentation currency is the Brazilian Real (R$)[53] - Revenue from tuition is recognized over time as services are rendered, and the company operates a joint operation model with hub partners, recognizing only its portion of revenue from digital education[154][158] - Business combinations are accounted for using the acquisition method, with goodwill measured as the excess of consideration over the fair value of net identifiable assets[118][119] - Goodwill and intangible assets with indefinite useful lives are tested for impairment annually[139][140] Note 3: Significant Accounting Estimates and Assumptions Management makes critical judgments and estimates that affect reported financial amounts, with key areas including the impairment of non-financial assets (like goodwill) which relies on discounted cash flow models, fair value measurement of financial instruments, estimating credit losses on trade receivables using a provision matrix, assessing provisions for legal contingencies, and determining lease terms and incremental borrowing rates for lease accounting - Impairment of non-financial assets is a key estimate, based on value-in-use calculations using a discounted cash flow (DCF) model over a five-year budget period[183] - Credit losses on trade receivables are estimated using a provision matrix based on historical loss experience and forward-looking factors, with a receivable considered in default when over 365 days past due[186][188] - Provisions for legal contingencies are recognized for proceedings assessed as probable losses, based on evidence and legal counsel opinions[189] - Determining the lease term, especially with renewal options, and calculating the incremental borrowing rate for lease liabilities requires significant judgment[190][192] Note 4: Segment Reporting Vitru reports performance across three operating segments: Digital Education Undergraduate Courses, Continuing Education Courses, and On-campus Undergraduate Courses, with the Digital Education segment being the largest in 2022, generating R$998.2 million in net revenue and R$387.4 million in Adjusted EBITDA, and total allocated Adjusted EBITDA for all segments reaching R$523.4 million in 2022, a significant increase from R$237.9 million in 2021 - The company's operating segments are: Digital education undergraduate courses, Continuing education courses, and On-campus undergraduate courses[202][205] Segment Performance (in thousands of BRL) | Segment | Net Revenue 2022 | Adj. EBITDA 2022 | Net Revenue 2021 | Adj. EBITDA 2021 | | :--- | :--- | :--- | :--- | :--- | | Digital Education | 998,220 | 387,373 | 531,716 | 188,936 | | Continuing Education | 68,058 | 36,596 | 52,460 | 26,898 | | On-campus | 251,068 | 99,447 | 46,971 | 22,103 | | Total Allocated | 1,317,346 | 523,416 | 631,147 | 237,937 | Reconciliation of Profit Before Taxes to Adjusted EBITDA (in thousands of BRL) | Item | 2022 | 2021 | | :--- | :--- | :--- | | Profit (loss) before taxes | 1,119 | 49,406 | | (+) Financial result | 191,871 | 29,359 | | (+) Depreciation and amortization | 150,951 | 54,479 | | (+) Other adjustments | 180,964 | 94,493 | | Adjusted EBITDA allocated to segments | 524,905 | 237,937 | Note 5: Financial Instruments and Risk Management As of December 31, 2022, total financial assets at amortized cost were R$343.2 million, while total financial liabilities were R$2.6 billion, a substantial increase from R$405.3 million in 2021, mainly due to new loans and acquisition-related payables, with the company managing market risk (interest rate and exchange rate), credit risk, and liquidity risk, and sensitivity analyses showing that a 25% increase in interest rates could increase lease liabilities by R$112.1 million and acquisition payables by R$36.8 million Financial Assets and Liabilities Summary (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Financial Assets (Amortized Cost) | 343,227 | 475,122 | | Trade receivables | 269,651 | 146,493 | | Financial Liabilities (Amortized Cost) | 2,577,556 | 353,003 | | Loans and financing | 1,645,368 | — | | Payables from acquisition of subsidiaries | 509,152 | 149,765 | | Financial Liabilities (FVPL) | 19,805 | 52,283 | - The company is exposed to market risk (interest and exchange rates), credit risk (from customers and financial institutions), and liquidity risk[212] - A sensitivity analysis indicates that a 25% increase in interest rates would increase lease liabilities by R$112.1 million and payables from acquisition of subsidiaries by R$36.8 million[217] Note 6: Fair Value Measurement The company's share-based compensation liabilities are the primary financial instruments measured at fair value on a recurring basis, classified as Level 3 due to the use of significant unobservable inputs, with the fair value of these liabilities decreasing from R$52.3 million in 2021 to R$19.8 million in 2022, mainly due to the issuance of shares to employees, while the fair values of other financial instruments like cash, short-term investments, and current receivables/payables are considered to approximate their carrying amounts - Share-based compensation liabilities are measured at fair value and are classified as Level 3 in the fair value hierarchy[227] Changes in Level 3 Fair Value Liabilities (Share-based compensation, in thousands of BRL) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Opening balance at January 1 | 52,283 | 46,260 | | Issue of shares to employees | (32,478) | — | | Expenses recognized | — | 6,023 | | As of December 31 | 19,805 | 52,283 | - Key unobservable inputs for Level 3 valuation include net operating revenue growth rate (22.84% in 2022) and a pre-tax discount rate (13.35% in 2022)[230] Note 7: Capital Management The company's primary capital management objective is to ensure its ability to continue as a going concern while maximizing shareholder returns, managing its capital structure by adjusting dividend payments, returning capital, or issuing new shares in response to economic conditions, and having no transactions subject to financial covenants - The main objectives of capital management are to safeguard the company's ability to operate as a going concern and to maintain an optimal capital structure to maximize shareholder returns[231] - The company may adjust its capital structure by changing dividend policies, returning capital to shareholders, or issuing new shares[232] - The company is not subject to any financial covenants[233] Note 8: Cash and Cash Equivalents and Short-term Investments At the end of 2022, the company's cash and cash equivalents stood at R$47.2 million, down from R$75.6 million in 2021, while short-term investments also saw a significant decrease, falling from R$253.0 million to R$26.4 million, with these investments primarily held in high-liquidity investment funds with highly rated financial institutions Cash and Investments (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | 47,187 | 75,587 | | Short-term investments | 26,389 | 253,042 | | Total | 73,576 | 328,629 | Note 9: Trade Receivables Net trade receivables increased to R$271.1 million in 2022 from R$146.5 million in 2021, driven by a rise in gross tuition fees receivable to R$410.4 million, with the allowance for expected credit losses (ECL) also growing significantly from R$113.9 million to R$212.0 million, reflecting the larger receivables base, and the majority of receivables being current, though non-current receivables increased from R$5.9 million to R$47.0 million Trade Receivables Breakdown (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Tuition fees | 410,393 | 247,419 | | Allowance for expected credit losses | (211,986) | (113,934) | | Total trade receivables | 271,140 | 146,493 | | Current | 224,128 | 140,560 | | Non-current | 47,012 | 5,933 | Change in Allowance for Expected Credit Losses (in thousands of BRL) | Description | 2022 | 2021 | | :--- | :--- | :--- | | At the beginning of the year | (113,934) | (102,128) | | Allowance for expected credit losses | (206,775) | (127,557) | | Write-off of uncollectible receivables | 89,481 | 98,883 | | Reversal | 19,242 | 16,868 | | As of December 31 | (211,986) | (113,934) | - Receivables are written off when they are over 365 days past due, with collection efforts continuing on written-off amounts[238] Note 10: Current and Deferred Income Tax In 2022, the company recorded a total income tax benefit of R$92.2 million on pre-tax profit of R$1.1 million, resulting in a highly negative effective tax rate, primarily due to a R$95.9 million tax benefit from the ProUni program and a R$110.2 million deferred income tax income, with deferred tax assets increasing to R$203.0 million from R$83.4 million in 2021, mainly from tax loss carryforwards and allowances for expected credit losses Income Tax Reconciliation (in thousands of BRL) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Earnings before taxes | (1,119) | 49,406 | | Income tax at statutory rates (34%) | 380 | (16,798) | | Income exempt from taxation - ProUni benefit | 95,871 | 20,211 | | Non-deductible expenses | (7,079) | (2,863) | | Other | (1,211) | 20,682 | | Total income tax and social contribution | 92,201 | 21,242 | | Effective tax rate | (8240)% | 43% | Deferred Tax Assets (in thousands of BRL) | Source | 2022 | 2021 | | :--- | :--- | :--- | | Tax loss carryforward | 93,242 | 14,410 | | Allowance for expected credit losses | 59,739 | 47,128 | | Other provisions | 38,699 | 4,661 | | Total Deferred Tax Assets | 203,043 | 83,350 | Note 11: Prepaid Expenses Prepaid expenses decreased from R$35.0 million in 2021 to R$20.0 million in 2022, primarily driven by a reduction in 'Costs related to future issuances' from R$24.0 million to R$8.5 million Prepaid Expenses Breakdown (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Costs related to future issuances | 8,514 | 23,952 | | Prepayments to hub partners | 5,109 | 345 | | Prepayments to suppliers | 4,303 | 4,111 | | Prepayments to employees | — | 4,425 | | Others | 2,084 | 2,124 | | Total Prepaid Expenses | 20,010 | 34,957 | Note 12: Receivables from Hub Partners As of December 31, 2022, the company reported new receivables from hub partners totaling R$80.1 million, net of a R$2.6 million allowance for expected credit losses, with these receivables representing cash transferred to hub partners, and R$32.0 million classified as current and R$48.1 million as non-current Receivables from Hub Partners (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Credit to hub partners | 82,650 | — | | Allowance for expected credit losses | (2,554) | — | | Financial assets | 80,096 | — | | Current | 31,979 | — | | Non-current | 48,117 | — | Note 13: Leases The company's right-of-use assets more than doubled to R$350.4 million in 2022 from R$136.1 million in 2021, primarily due to R$228.3 million in assets acquired through business combinations, with corresponding lease liabilities increasing to R$323.3 million from R$161.5 million, as the company leases buildings for offices and hubs with contracts typically ranging from 1 to 20 years Movement in Right-of-Use Assets and Lease Liabilities (in thousands of BRL) | Description | Right-of-Use Assets 2022 | Lease Liabilities 2022 | | :--- | :--- | :--- | | Balance at Dec 31, 2021 | 136,104 | 161,532 | | Business combinations | 228,258 | 171,829 | | New contracts | 6,901 | 6,901 | | Depreciation expense | (20,630) | — | | Accrued interest | — | 28,246 | | Payments (Principal & Interest) | — | (46,620) | | Other adjustments | (191) | 1,451 | | Balance at Dec 31, 2022 | 350,393 | 323,339 | - The company recognized R$5,882 thousand in rent expense from short-term and low-value asset leases in 2022[247] Note 14: Property and Equipment The net book value of property and equipment increased to R$194.6 million in 2022 from R$106.8 million in 2021, with growth driven by R$78.1 million in assets acquired through business combinations and R$40.3 million in new purchases, partially offset by R$19.3 million in depreciation Changes in Property and Equipment (Net Book Value, in thousands of BRL) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Net book value at beginning of year | 106,839 | 92,144 | | Purchases | 40,316 | 25,995 | | Business combinations | 78,124 | — | | Disposals | (11,365) | (9) | | Depreciation | (19,340) | (15,816) | | Net book value at end of year | 194,575 | 106,839 | Note 15: Intangible Assets Intangible assets surged from R$670.2 million in 2021 to R$4.43 billion in 2022, almost entirely due to business combinations which added R$3.79 billion in intangibles, including R$1.56 billion in goodwill, R$1.21 billion in distance learning operation licenses, and R$341.4 million in trademarks, with the company performing impairment tests and concluding there was no goodwill impairment for the year ended December 31, 2022 Changes in Intangible Assets (Net Book Value, in thousands of BRL) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Net book value at beginning of year | 670,152 | 660,950 | | Business combinations | 3,788,142 | — | | Purchase and capitalization | 56,722 | 32,320 | | Amortization | (87,373) | (23,118) | | Net book value at end of year | 4,427,643 | 670,152 | Intangible Assets from Business Combinations in 2022 (in thousands of BRL) | Asset | Amount | | :--- | :--- | | Goodwill | 1,557,774 | | Operation licenses for distance learning | 1,206,641 | | Trademarks | 341,369 | | Customer relationship | 294,525 | | Non-compete agreements | 272,416 | | Other | 115,417 | | Total | 3,788,142 | - Goodwill and operation licenses for digital education were allocated to Cash-Generating Units (CGUs) for impairment testing, with the recoverable amount determined using value-in-use calculations based on five-year cash flow projections[251][255] - No goodwill impairment was recognized for the year ended December 31, 2022[256] Note 16: Loans and Financing In May 2022, Vitru issued two series of debentures totaling R$1.95 billion to finance its operations, particularly the Unicesumar acquisition, resulting in an outstanding balance of loans and financing of R$1.62 billion as of December 31, 2022, with maturities extending to May 2027 and interest rates tied to the CDI rate - On May 19, 2022, the company issued debentures totaling R$1.95 billion through its subsidiary Vitru Brasil[262] Loans and Financing Details as of Dec 31, 2022 (in thousands of BRL) | Category | Amount | | :--- | :--- | | Total Balance | 1,620,216 | | Current | 131,158 | | Non-current | 1,489,088 | | Interest Rate | CDI +2.9% and CDI +3.2% p.a. | | Maturity | Nov/23 to May/27 | Note 17: Labor and Social Obligations Labor and social obligations increased from R$25.0 million in 2021 to R$43.1 million in 2022, with the main components of this liability being social charges payable (INSS, FGTS), salaries payable, and accruals for bonuses and vacation Labor and Social Obligations (in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Social charges payable | 15,675 | 7,562 | | Salaries payable | 10,374 | 4,172 | | Accrual for bonus | 9,522 | 8,683 | | Accrued vacation | 6,883 | 4,443 | | Other | 651 | 155 | | Total | 43,105 | 25,015 | Note 18: Payables from Acquisition of Subsidiaries Payables from the acquisition of subsidiaries increased significantly to R$507.4 million in 2022 from R$149.8 million in 2021, primarily due to the Unicesumar acquisition which added a future payment obligation of R$525.7 million, due in May 2024, with the entire balance as of December 31, 2022, classified as non-current - The payable from the Unicesumar acquisition is R$525,681 thousand, due on May 20, 2024, and is adjusted by the IPCA inflation rate for the first year and CDI + 3% for the second year[267] Changes in Payables from Acquisition of Subsidiaries (in thousands of BRL) | Description | 2022 | | :--- | :--- | | At the beginning of the year | 149,765 | | Proceeds from acquisition of subsidiaries | 680,015 | | Payment of principal | (236,461) | | Accrued Interest & Other | (33,958) | | As of December 31 | 507,361 | Note 19: Contingencies The company's provision for contingencies (probable losses) nearly doubled to R$29.2 million in 2022, largely due to R$12.5 million in provisions assumed from business combinations, with labor claims constituting the majority of this provision, and an additional R$111.4 million in possible losses for which no provision has been made, up from R$71.4 million in 2021, with tax claims being the largest component Provision for Contingencies (Probable Loss, in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Labor | 24,643 | 12,038 | | Civil | 4,539 | 2,834 | | Total | 29,182 | 14,872 | Contingencies with Possible Loss (Not Provisioned, in thousands of BRL) | Category | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Tax | 59,916 | 33,025 | | Labor | 28,284 | 24,645 | | Civil | 23,210 | 13,746 | | Total | 111,410 | 71,416 | - A significant tax contingency classified as a possible loss is a R$28.0 million claim from the Porto Alegre City Hall regarding Service Tax (ISS) for the period January 2012 to June 2017[273] Note 20: Equity As of December 31, 2022, Vitru's share capital was represented by 33,687,213 common shares, with the capital structure significantly impacted in 2022 by a R$328.7 million capital increase from Crescera's investment and a R$79.0 million rights offering, and the company has an authorized capital limit of 1 billion shares and did not pay any dividends in 2022 - As of December 31, 2022, the company's share capital consists of 33,687,213 common shares with a par value of US$0.00005 each[282] Capital Contributions in 2022 (in thousands of BRL) | Source | Amount | | :--- | :--- | | Crescera Investment | 328,728 | | Rights Offering | 79,024 | | Share Option plan | 20,623 | | Total | 428,375 | - The company did not pay any cash dividends in 2022 and does not anticipate paying any in the foreseeable future[286] Note 21: Earnings Per Share For the year ended December 31, 2022, basic earnings per share (EPS) was R$2.81, calculated on a net income of R$75.6 million and a weighted average of 26.9 million outstanding shares, while diluted EPS was R$2.62, reflecting the potential dilution from 6.2 million outstanding share options Basic Earnings Per Share (in thousands, except per share amounts) | Description | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income attributable to shareholders | 75,585 | 70,648 | 52,114 | | Weighted average outstanding shares | 26,900 | 22,922 | 18,702 | | Basic EPS (R$) | 2.81 | 3.08 | 2.79 | Diluted Earnings Per Share (in thousands, except per share amounts) | Description | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income attributable to shareholders | 75,585 | 70,648 | 52,114 | | Weighted average diluted shares | 28,849 | 24,436 | 19,465 | | Diluted EPS (R$) | 2.62 | 2.89 | 2.68 | Note 22: Share-Based Compensation Vitru operates two share option plans to incentivize and retain key personnel, with the First Plan being a compound instrument (cash or equity settled) and the Second Plan being equity-settled, and in 2022, the company recognized a net expense of R$(6.0) million for share-based compensation, a significant shift from the R$14.9 million expense in 2021, mainly due to a R$32.5 million cash-settled expense reversal in the first plan, with 88,474 options outstanding under the First Plan and 1,319,523 under the Second Plan as of year-end - The company has a First Share Option Plan (approved 2017) and a Second Share Option Plan (approved 2020) for managers and executives[291][308] Share-Based Compensation Expense (in thousands of BRL) | Plan | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash-settled - first plan | (32,478) | 8,455 | 11,823 | | Equity-settled - first plan | 20,623 | — | — | | Equity-settled - second plan | 5,845 | 6,410 | — | | Total | (6,010) | 14,865 | 11,823 | Outstanding Options at Year-End | Plan | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | First Share Option Plan | 88,474 | 474,892 | | Second Share Option Plan | 1,319,523 | 866,914 | Note 23: Key Management Compensation and Related Parties Total compensation for key management personnel was R$2.2 million in 2022, a sharp decrease from R$25.2 million in 2021, due to a R$(6.0) million credit from share-based compensation in 2022 compared to a R$12.5 million expense in 2021, with the company engaging in transactions with related parties, including joint operations and lease agreements with entities like SOEDMAR and WM Administracao, primarily arising from the Unicesumar acquisition Key Management Compensation (in thousands of BRL) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Salaries and related charges | 8,241 | 12,662 | | Share-based compensation | (6,010) | 12,520 | | Total | 2,231 | 25,182 | - Related party transactions in 2022 included significant lease agreements with SOEDMAR, resulting in a right-of-use asset of R$160.2 million and a lease liability of R$165.1 million[321] Note 24: Revenue Net revenue for 2022 was R$1.32 billion, up from R$631.1 million in 2021, derived from gross service fees of R$1.68 billion, reduced by cancellations, discounts, ProUni scholarships (R$201.4 million), and taxes, with the vast majority of revenue (R$1.30 billion) recognized over time as educational services are delivered Revenue Breakdown (in thousands of BRL) | Description | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Gross amount from services provided | 1,682,512 | 801,206 | 673,872 | | (-) ProUni scholarships | (201,436) | (109,217) | (98,289) | | (-) Discounts | (100,425) | (30,305) | (24,128) | | (-) Cancellation | (18,906) | (10,200) | (14,764) | | (-) Taxes and contributions | (44,399) | (20,337) | (17,512) | | Net revenue | 1,317,346 | 631,147 | 519,179 | - In 2022, amounts billed to students to be transferred to hub partners under joint operations totaled R$343.6 million, with a year-end payable balance of R$43.7 million[323] Note 25: Costs and Expenses by Nature Total costs and expenses more than doubled to R$926.5 million in 2022 from R$441.8 million in 2021, with the largest components being payroll (R$427.6 million), sales and marketing (R$181.9 million), and depreciation and amortization (R$151.0 million), allocated across cost of services (R$502.3 million), general and administrative expenses (R$179.3 million), and selling expenses (R$244.8 million) Costs and Expenses by Nature (in thousands of BRL) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Payroll | 427,583 | 220,372 | 207,511 | | Sales and marketing | 181,898 | 93,026 | 67,532 | | Depreciation and amortization | 150,951 | 54,479 | 51,475 | | Material | 57,138 | 16,488 | 13,023 | | Other expenses | 108,932 | 57,393 | 42,367 | | Total | 926,502 | 441,758 | 381,908 | Note 26: Other Income (Expenses), Net The company reported a net other expense of R$2.3 million in 2022, a shift from a net income of R$65 thousand in 2021, primarily driven by R$9.8 million in other expenses, including a R$4.7 million write-off of permanent assets, partially offset by a R$4.6 million gain from the modification of lease contracts Other Income (Expenses), Net (in thousands of BRL) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Other expenses | (9,848) | (380) | (2,898) | | Other revenues | 5,477 | 730 | 743 | | Modification of lease contracts | 4,625 | 379 | 3,052 | | Deductible donations | (2,322) | (300) | (300) | | Contractual indemnities | (252) | (364) | (85) | | Total | (2,320) | 65 | 512 | Note 27: Financial Results The company's net financial result was a significant expense of R$226.8 million in 2022, a dramatic increase from a R$29.4 million expense in 2021, driven by a surge in financial expenses to R$291.4 million, primarily due to R$191.0 million in interest on new loans and financing, while financial income was R$64.6 million, led by financial investment yield and interest on late tuition payments Financial Results (in thousands of BRL) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Financial income | 64,566 | 45,520 | 36,558 | | Financial investment yield | 31,392 | 23,982 | 6,296 | | Interest on tuition fees paid in arrears | 26,545 | 17,456 | 15,715 | | Financial expenses | (291,351) | (74,879) | (64,418) | | Interest on loans and financing | (191,003) | (8,642) | (6,205) | | Interest on payables from acquisition | (41,860) | (40,405) | (34,980) | | Interest on lease | (28,246) | (16,008) | (15,085) | | Financial results | (226,785) | (29,359) | (27,860) | Note 28: Other Disclosures on Cash Flows The company reported significant non-cash investing and financing activities in 2022, including R$26.1 million in additions to right-of-use assets recognized with a corresponding increase in lease liabilities, and a R$1.5 million reversal related to contingency provisions against the indemnification asset - In 2022, non-cash transactions included R$26,115 thousand in additions to right-of-use assets, which were also added to lease liabilities[328] - A non-cash transaction of R$1,469 thousand related to contingency provisions was reversed to the indemnification assets line item[328]