Vitru(VTRU) - 2022 Q1 - Quarterly Report

Report of Independent Registered Public Accounting Firm Opinion on the Financial Statements PwC issued an unqualified opinion on the 2019-2021 financial statements, confirming their fair presentation in conformity with IFRS - PwC issued an unqualified audit opinion, stating the financial statements for the three years ended December 31, 2021, present fairly the financial position and results of operations in conformity with IFRS[2] - The audit was conducted in accordance with PCAOB standards but did not include an opinion on the effectiveness of the Company's internal control over financial reporting[4] - PwC has served as the Company's auditor since 2016[6] Consolidated Financial Statements Consolidated Statements of Financial Position Total assets decreased to R$1.53 billion while total liabilities fell, resulting in an increase in total equity to R$1.07 billion Consolidated Statement of Financial Position (in thousands of BRL) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | 514,784 | 731,790 | | Total Non-Current Assets | 1,012,643 | 956,055 | | Total Assets | 1,527,427 | 1,687,845 | | Total Current Liabilities | 259,342 | 382,560 | | Total Non-Current Liabilities | 201,957 | 327,337 | | Total Liabilities | 461,299 | 709,897 | | Total Equity | 1,066,128 | 977,948 | | Total Liabilities and Equity | 1,527,427 | 1,687,845 | Consolidated Statements of Profit or Loss Net revenue grew 21.6% to R$631.1 million in 2021, driving profit for the year up to R$70.6 million from R$52.1 million in 2020 Key Income Statement Data (in thousands of BRL, except EPS) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Revenue | 631,147 | 519,179 | 461,067 | | Gross Profit | 390,223 | 297,727 | 249,520 | | Operating Profit (Loss) | 78,765 | 60,943 | (35,856) | | Profit (Loss) for the Year | 70,648 | 52,114 | (66,160) | | Basic EPS (R$) | 3.08 | 2.79 | (3.93) | | Diluted EPS (R$) | 2.89 | 2.68 | (3.93) | Consolidated Statement of Changes in Equity Total equity increased to R$1,066.1 million in 2021, driven by net profit and capital contributions Changes in Equity in 2021 (in thousands of BRL) | Description | Amount | | :--- | :--- | | Equity at Dec 31, 2020 | 977,948 | | Profit for the year | 70,648 | | Capital contributions | 9,722 | | Value of employee services (Share-based comp) | 7,810 | | Equity at Dec 31, 2021 | 1,066,128 | Consolidated Statement of Cash Flows Cash from operations decreased to R$65.0 million, while investing activities provided cash due to sales of short-term investments Cash Flow Summary (in thousands of BRL) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 65,035 | 75,913 | 56,049 | | Net cash provided by (used in) investing activities | 100,022 | (610,295) | (49,497) | | Net cash used in (provided by) financing activities | (175,400) | 617,855 | (6,470) | | Net decrease (increase) in cash and cash equivalents | (10,343) | 83,473 | 82 | | Cash and cash equivalents at end of year | 75,587 | 85,930 | 2,457 | Notes to the Financial Statements Note 1. Corporate Information Vitru provides educational services in Brazil and agreed to acquire Unicesumar for R$3.15 billion, pending regulatory approval - The Company provides educational services in Brazil, with 939 learning centers ("hubs") as of December 31, 2021, up from 709 in 2020[15] - On September 17, 2020, Vitru Limited priced its IPO of 6,000,000 Class A common shares at US$16.00 per share, raising net proceeds of US$90.7 million (R$492.6 million)[19][20] - On August 23, 2021, the company agreed to acquire Unicesumar for an equity value of R$3,150 million, a transaction pending regulatory approval[21][22] - The company has monitored the COVID-19 pandemic and states there has been no material impact on its operations as of December 31, 2021[26] Note 2. Significant Accounting Policies Financial statements are prepared under IFRS with key policies for revenue recognition, goodwill impairment, and credit losses - The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and presented in Brazilian Reais (R$)[28][41] - Revenue from tuition fees is recognized over time, and the company receives tax exemptions through the ProUni program[145][155] - Goodwill is tested for impairment annually, and a simplified approach is used for expected credit losses (ECLs) on trade receivables[129][68] - The company adopted the IFRS 16 amendment for COVID-19 rent concessions, recognizing a gain of R$210 thousand in 2021[29][171] Note 3. Significant Accounting Estimates and Assumptions Key management estimates include goodwill impairment, fair value of financial instruments, and provisions for legal contingencies - Impairment of non-financial assets, particularly goodwill, is a key estimate based on 5-year discounted cash flow models[183] - Expected credit losses on trade receivables are calculated using a provision matrix, with receivables considered in default when 365 days past due[189] - Provisions for legal contingencies are recognized for proceedings assessed as probable losses based on legal counsel opinions[190] - Estimating the fair value of share-based payments requires determining the appropriate valuation model, such as Black-Scholes[198] Note 4. Segment Reporting The company operates in three segments, with Digital education being the largest, contributing R$531.7 million in 2021 revenue Segment Performance 2021 vs 2020 (in thousands of BRL) | Segment | Net Revenue 2021 | Adjusted EBITDA 2021 | Net Revenue 2020 | Adjusted EBITDA 2020 | | :--- | :--- | :--- | :--- | :--- | | Digital education undergraduate | 531,716 | 188,936 | 423,035 | 156,089 | | Continuing education | 52,460 | 26,898 | 40,589 | 27,045 | | On-campus undergraduate | 46,971 | 22,103 | 55,555 | 16,848 | | Total allocated | 631,147 | 237,937 | 519,179 | 199,982 | - The Digital education undergraduate courses segment accounted for the majority of impairment losses on financial assets, with R$90.1 million in 2021[204] - The company operates solely in Brazil, and all assets, liabilities, and results are allocated within the country[202] Note 5. Financial Instruments and Risk Management The company manages market, credit, and liquidity risks associated with its financial assets and liabilities Financial Assets and Liabilities (in thousands of BRL) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Financial Assets (at amortized cost) | 475,122 | 723,170 | | Cash and cash equivalents | 75,587 | 85,930 | | Short-term investments | 253,042 | 515,201 | | Trade receivables | 146,493 | 122,039 | | Financial Liabilities | 405,286 | 654,471 | | At amortized cost | 353,003 | 608,211 | | At FVPL (Share-based comp) | 52,283 | 46,260 | - The company is exposed to interest rate risk on its short-term investments (CDI rate) and certain liabilities (IGP-M, IPCA)[211] - Liquidity risk is managed by monitoring cash flows; contractual undiscounted liabilities due within one year total R$229.6 million[219][221] Note 9. Trade Receivables Net trade receivables increased to R$146.5 million in 2021, with an associated allowance for credit losses of R$113.9 million Trade Receivables Composition (in thousands of BRL) | Component | 2021 | 2020 | | :--- | :--- | :--- | | Tuition fees | 247,419 | 206,107 | | Allowance for expected credit losses | (113,934) | (102,128) | | Provision for revenue cancellation | (4,191) | (3,136) | | Total trade receivables | 146,493 | 122,039 | Changes in Allowance for ECL (in thousands of BRL) | Description | 2021 | 2020 | | :--- | :--- | :--- | | At the beginning of the year | (102,128) | (79,659) | | Allowance for expected credit losses | (127,557) | (100,592) | | Write-off of uncollectible receivables | 98,883 | 59,704 | | Reversal | 16,868 | 23,752 | | At the end of the year | (113,934) | (102,128) | - Receivables are written off when they are over 365 days past due[235] Note 14. Intangible Assets Intangible assets totaled R$670.2 million, primarily goodwill and licenses, with no impairment recognized in 2021 Intangible Assets Breakdown (in thousands of BRL) | Asset | Net Book Value 2021 | Net Book Value 2020 | | :--- | :--- | :--- | | Goodwill | 304,815 | 304,815 | | Operation licenses for distance learning | 245,721 | 245,721 | | Trademarks | 53,985 | 57,543 | | Software & Development | 65,631 | 52,361 | | Other | — | 510 | | Total | 670,152 | 660,950 | - Goodwill and operation licenses for digital education were allocated to the Digital Education and Continuing Education CGUs for impairment testing[250][251] - No impairment loss was recognized for goodwill in 2021 or 2020, with the digital education segment's recoverable amount exceeding its carrying amount by R$4.03 billion[256] - An impairment loss of R$51.0 million was recognized in 2019 for the on-campus undergraduate courses segment[257] Note 17. Accounts Payable from Acquisition of Subsidiaries Payables from acquisitions decreased to R$149.8 million after principal payments of R$127.8 million in 2021 Changes in Accounts Payable from Acquisitions (in thousands of BRL) | Description | 2021 | 2020 | | :--- | :--- | :--- | | Balance at January 1 | 274,861 | 379,540 | | Accrued Interest | 40,405 | 34,809 | | Payment of principal | (127,804) | (117,248) | | Payment of interests | (37,697) | (22,240) | | Balance at December 31 | 149,765 | 274,861 | - The remaining liability from the Uniasselvi acquisition is payable in one final installment on December 31, 2022, adjusted by the IPCA inflation rate[267] Note 18. Contingencies The company has provisioned R$14.9 million for probable losses and identified R$71.4 million in possible, unprovisioned losses Provision for Contingencies (Probable Loss) (in thousands of BRL) | Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Civil | 2,834 | 2,050 | | Labor | 12,038 | 12,389 | | Total | 14,872 | 14,439 | Contingencies (Possible Loss - Not Provisioned) (in thousands of BRL) | Type | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Civil | 13,746 | 8,106 | | Labor | 24,645 | 17,385 | | Tax | 33,025 | 31,674 | | Total | 71,416 | 57,165 | - A significant tax contingency relates to a R$28.0 million Service Tax (ISS) dispute with the Porto Alegre City Hall[275] Note 21. Share-Based Compensation Total share-based compensation expense was R$14.7 million in 2021, related to two active share option plans - The company has two active share option plans: the First Plan (a compound instrument) and the Second Plan (equity-settled)[289][308] Outstanding Options as of Dec 31, 2021 | Plan | Number of Options Outstanding | | :--- | :--- | | First Share Option Plan | 474,892 | | Second Share Option Plan | 866,914 | Share-Based Payment Expense (in thousands of BRL) | Plan | 2021 | 2020 | | :--- | :--- | :--- | | First Plan (Equity & Cash-settled) | 6,552 | 11,823 | | Second Plan (Equity-settled) | 8,176 | 525 | | Total Expense | 14,728 | 12,348 | Note 23. Revenue Net revenue increased to R$631.1 million in 2021, primarily from services recognized over time and generated entirely in Brazil Revenue Breakdown (in thousands of BRL) | Component | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Gross amount from services provided | 801,206 | 673,872 | 598,344 | | (-) ProUni scholarships | (109,217) | (98,289) | (82,132) | | (-) Other deductions (Cancellations, Discounts, Taxes) | (60,842) | (56,404) | (55,145) | | Net revenue | 631,147 | 519,179 | 461,067 | - Revenue recognized over time was R$624.9 million in 2021, while revenue recognized at a point in time was R$6.3 million[321] Note 24. Costs and Expenses by Nature Total costs and expenses rose to R$441.8 million in 2021, with payroll and sales & marketing being the largest categories Costs and Expenses by Nature (in thousands of BRL) | Expense Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Payroll | 220,372 | 207,511 | 212,683 | | Sales and marketing | 93,026 | 67,532 | 54,212 | | Depreciation and amortization | 54,479 | 51,475 | 62,445 | | Consulting and advisory services | 25,729 | 14,732 | 11,927 | | Material | 16,488 | 13,023 | 17,911 | | Impairment losses | - | - | 51,022 | | Other expenses | 31,664 | 27,635 | 27,540 | | Total | 441,758 | 381,908 | 437,840 | - Payroll expenses in 2021 included R$205.6 million for salaries and benefits and R$14.7 million for share-based compensation[324]