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As filed with the Securities and Exchange Commission on September 8, 2020.
Registration No. 333-248272​
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Vitru Limited
(Exact Name of Registrant as Specified in its Charter)
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The Cayman Islands
(State or other jurisdiction of
incorporation or organization)​
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8200
(Primary Standard Industrial
Classification Code Number)​
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N/A
(I.R.S. Employer
Identification Number)
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Rodovia José Carlos Daux, 5500, Torre Jurerê A,
2nd floor, Saco Grande, Florianópolis, State of
Santa Catarina, 88032-005, Brazil
+55 (47) 3281-9500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
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Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
(212) 947-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
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Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
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John P. Guzman
Jessica Y. Chen
White & Case LLP
1221 Avenue of the Americas
New York, New York 10020
(212) 819-8200
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐                  
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐                  
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐                  
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered
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Amount to be
Registered(1)
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Proposed Maximum
Aggregate Offering
Price Per Share(2)
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Proposed Maximum
Aggregate
Offering Price(1)(2)
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Amount of
Registration Fee(3)
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Common shares, par value US$0.00005 per share
​ ​ ​ ​ ​ 12,914,644 ​ ​ ​ ​ ​ US$ 24.00 ​ ​ ​ ​ ​ US$ 309,951,456 ​ ​ ​ ​ ​ US$ 40,232 ​ ​
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(1)
Includes common shares to be sold by us and the selling shareholders and includes common shares to be sold upon the exercise of the underwriters’ option to purchase additional shares. See “Underwriting.”
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(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
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(3)
Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price. A registration fee of US$12,980 was previously paid in connection with the Registration Statement.
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The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
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The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 2020
PRELIMINARY PROSPECTUS
11,230,126 Common Shares
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Vitru Limited
(incorporated in the Cayman Islands)
This is an initial public offering of the common shares, US$0.00005 par value per share of Vitru Limited, or Vitru. Vitru is offering 6,000,000 of the common shares to be sold in this offering. The selling shareholders identified in this prospectus are offering an additional 5,230,126 common shares. We will not receive any proceeds from the sale of common shares by the selling shareholders. Prior to this offering, there has been no public market for our common shares. It is currently estimated that the initial public offering price per common share will be between US$22.00 and US$24.00. We have applied to list our common shares on the Nasdaq Global Select Market, or Nasdaq, under the symbol “VTRU.”
Following this offering, our existing shareholders, funds and accounts advised by The Carlyle Group, or Carlyle, funds and accounts advised by Vinci Partners, or Vinci Partners, and funds and accounts advised by Neuberger Berman, or the NB Funds, or, collectively, the Existing Shareholders, will beneficially own 51.15% of our outstanding share capital, assuming no exercise of the underwriters’ option to purchase additional shares referred to below.
We are an “emerging growth company” under the U.S. federal securities laws as that term is used in the Jumpstart Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements. Investing in our common shares involves risks. See “Risk Factors” beginning on page 24 of this prospectus.
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Per common
share
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Total
​
Initial public offering price
​ ​ ​ US$      ​ ​ ​ ​ US$      ​ ​
Underwriting discounts and commissions
​ ​ ​ US$ ​ ​ ​ ​ US$ ​ ​
Proceeds, before expenses, to us(1)
​ ​ ​ US$ ​ ​ ​ ​ US$ ​ ​
Proceeds, before expenses, to the selling shareholders(1)
​ ​ ​ US$ ​ ​ ​ ​ US$ ​ ​ ​
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(1)
See “Underwriting” for a description of all compensation payable to the underwriters.
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We and the selling shareholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 1,684,518 additional common shares at the initial public offering price, less underwriting discounts and commissions, solely to cover over-allotments, if any.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the common shares against payment in New York, New York on or about           , 2020.
Goldman Sachs & Co. LLC BofA SecuritiesItaú BBAMorgan Stanley
Bradesco BBIBTG PactualCredit SuisseSantanderXP Investimentos
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The date of this prospectus is           , 2020.
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We and the selling shareholders have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the selling shareholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling shareholders and the underwriters have not authorized any other person to provide you with different or additional information. Neither we, the selling shareholders nor the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this
 
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prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
For investors outside the United States: Neither we, the selling shareholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our common shares and the distribution of this prospectus outside the United States.
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
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Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Vitru” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Vitru Limited, together with its subsidiaries, following the contribution of Vitru Brasil (as defined below) shares to us.
All references to “hubs” refer to our digital education centers throughout Brazil.
All references to “Vitru Brasil” refer to Vitru Brasil Empreendimentos, Participações e Comércio S.A., (formerly known as Treviso Empreendimentos, Participações e Comércio S.A.) our Brazilian principal operating subsidiary whose consolidated financial statements are included elsewhere in this prospectus.
The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Central Bank” refers to the Brazilian Central Bank (Banco Central do Brasil). References in the prospectus to “real,” “reais” or “R$” refer to the Brazilian real, the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the official currency of the United States.
All references to the “Companies Law” are to the Cayman Islands’ Companies Law (2020 Revision) as the same may be amended from time to time, unless the context otherwise requires.
 
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SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important or relevant to you, and we urge you to read this entire prospectus carefully, including the “Presentation of Financial and Other Information,” “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our audited consolidated financial statements (as defined under “Presentation of Financial and Other Information”) and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our common shares.
Our Mission
Our mission is to democratize access to education in Brazil through a digital ecosystem and empower every student to create their own success story.
Postsecondary education students in Brazil have been facing several challenges, including (1) high tuition fees with few to no financing alternatives, (2) long commutes, (3) lack of access to continuously available resources for studying, (4) teachers, tutors and materials which fail to engage students, and (5) poor support and student experience.
We believe that the future of postsecondary education consists of a combination of quality, engagement, flexibility, affordability, technology and innovation. We believe by incorporating all these elements in our value proposition, we not only provide an unparalleled hybrid learning experience for our students in their academic journey, but also help them to increase their professional opportunities, which translates into higher employability levels and wages.
Overview
We are the leading pure distance learning education group in the postsecondary digital education market in Brazil based on the number of enrolled undergraduate students as of December 31, 2018, according to the latest available data published in September 2019 by the Brazilian Ministry of Education (Ministério da Educação), or the MEC.
We provide a complete pedagogical ecosystem focused on hybrid digital education experience for undergraduates and continuing education. We provide course offerings in over 200 subjects through our Virtual Learning Environment, or VLE, which is delivered in multiple formats (videos, eBook, podcasts and html text, among others). Our model also incorporates in-person weekly meetings hosted by our tutors who are mostly local working professionals in the subject area they teach. We have approximately 3,600 tutors who were all hired and trained by us in order to ensure they meet our quality requirements. We believe that this unique tutor-centered learning experience sets us apart, creating a stronger sense of community and belonging and contributing to higher engagement and retention rates of our student base.
At the core of our ecosystem are our digital education centers, or hubs, which offer in-person tutoring, supported by virtual mentoring. We operate our hubs mainly through joint operations in a scalable partnership model based on symbiotic, financially aligned and self-reinforcing relationships with our hub partners, who manage day to day operations and financial planning. Approximately 82.7% of our hubs are managed by hub partners and we have built and nurtured strong relationships with our 151 hub partners, who play a key role in our expansion.
We have one of the largest nationwide digital education footprints in Brazil, driven by an asset-light, highly scalable and profitable business model that maintains resiliency through macroeconomic cycles. Our learning methodology and technology-enabled online educational platform enable us to deliver affordable content digitally and through hubs with in-person and virtual mentoring. Our hybrid platform and unique offerings lead to higher retention rates than our competitors and supports our growth strategy. We expect our ecosystem to include a lifelong postsecondary education journey with a growing offering of undergraduate and continuing education programs, in which we will leverage students’ learning methods, performance and interests as data to drive tailored and engaging educational solutions.
 
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As of June 30, 2020, our network consisted of 608 hubs, compared to 436 hubs as of June 30, 2019 representing an annual growth rate of 39.4%. As of December 31, 2019, our network consisted of 545 hubs, compared to, respectively, 370 hubs, 221 hubs and 72 hubs as of December 31, 2018, December 31, 2017 and December 31, 2016, representing a compound annual growth rate, or CAGR, of 96.3%. Approximately 88% of our hubs have been opened in the last six semesters (i.e., in the last three years, or since the second half of 2017) and are still ramping up, representing a substantial opportunity for growth.
As of June 30, 2020, we had 287,798 enrolled students across all Brazilian states, compared to 244,188 students as of June 30, 2019 representing an annual growth rate of 17.9%. As of December 31, 2019, we had 240,946 enrolled students, compared to 189,295 enrolled students as of December 31, 2018, 140,363 enrolled students as of December 31, 2017 and 115,325 enrolled students as of December 31, 2016, representing a CAGR of 27.8%.
Quality is a cornerstone of our operations, which is proved by our unparalleled academic outcomes. As of June 2019, our Institutional Concept score, which is an overall quality indicator for institutions, measured and published by MEC, and is based on institutional planning and development, academic and management criteria, was awarded a 5 on a scale of 1 to 5, enabling us to open up to 250 new hubs per year, compared to a maximum of 150 and 50 new hubs per year for the institutions scoring up to 4 and 3, respectively.
We believe that the characteristics of our platform, together with proven academic outcomes, a differentiated student experience and the highest quality standards measured by Institutional Concept score, or CI score, have driven our significant growth, allowing us to quickly and efficiently cement our leadership across Brazil in digital education. Based on the most recent available data of the MEC, as of December 31, 2018, we were ranked at least second in terms of market share in 89% of the cities in which we operate, which is a strong indication of the strength of our brand and differentiated value proposition. The following is a summary of our key operational and financial highlights:
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In the six months ended June 30, 2020, we generated R$256.7 million of net revenue, compared to R$234.5 million of net revenue in the six months ended June 30, 2019, representing an increase of 9.5%. In 2019, we generated R$461.1 million of net revenue, compared to R$383.4 million of net revenue in 2018, representing a 20.3% increase.
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In the six months ended June 30, 2020, we generated R$52.4 million of net income, compared to R$25.1 million of loss in the six months ended June 30, 2019, representing growth of 308.8%. In 2019, we generated R$66.2 million of loss for the year, compared to R$45.2 million of loss for the year in 2018, representing a 46.5% increase.
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In the six months ended June 30, 2020, we generated R$75.2 million of Adjusted EBITDA, compared to R$66.1 million of Adjusted EBITDA in the six months ended June 30, 2019, representing growth of 13.8%. In 2019, we generated R$117.6 million of Adjusted EBITDA, compared to R$107.8 million of Adjusted EBITDA in 2018, representing a 9.1% growth.
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In the six months ended June 30, 2020, we generated R$57.1 million of Adjusted Net Income, compared to R$35.1 million of Adjusted Net Income in the six months ended June 30, 2019, representing growth of 62.7%. In 2019, we generated R$57.7 million of Adjusted Net Income, compared to R$55.4 million of Adjusted Net Income in 2018, representing a 4.2% increase.
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For information on how we define Adjusted EBITDA and Adjusted Net Income, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA and Adjusted Net Income, see “Selected Financial and Other Information — Non-GAAP Financial Measures and Reconciliations — Reconciliations of Non-GAAP Financial Measures.”
Our Culture and DNA
We are passionate about democratizing access to postsecondary education in Brazil because we know the power of affordable education and its ability to transform our students’ lives.
 
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Leading us is a management team with over 100 years of aggregate experience in renowned education companies, as well as diverse backgrounds across banking, financial management and technology.
We closely monitor our employees’ satisfaction rate, which was above 81 on a scale of 0 to 100 in 2019, 2018 and 2017, as measured by Great Place to Work. We were also awarded the Great Place to Work certificate as one of the top 10 companies to work for in the state of Santa Catarina in 2019 (out of a study of over 130 companies with over 1,000 employees each).
We are active in our community and continuously seek to develop and participate in social and environmental initiatives. Our corporate responsibility extension policy has already reached over 110,000 people and comprises several initiatives centered on our community, including environmental, cultural, sporting and artistic aspects, among others. In 2019, we were recognized as a Socially Responsible Organization by the Brazilian Association of Postsecondary Education Maintainers (Associação Brasileira de Mantenedoras de Ensino Superior), or ABMES.
During the Covid-19 pandemic, we provided free online courses for students on various subjects through our engaging “Trilha de Aprendizagem” program. Since the beginning of the social distancing measures and shelter in place orders in Brazil, over 190,000 people have completed these digital courses, totaling more than 450 thousand sessions. More recently, in July 2020, we have also structured a free online training program, “Como Ensinar à Distância” in order to assist public school teachers with teaching using digital methods, including exclusive live sessions with specialists. We had over 50,000 subscriptions from participants from more than 2,000 municipalities across Brazil just in the first week of the program, which we believe has contributed to solidifying our reputation among teachers, tutors and professors as a leading digital player in education.
Key Underlying Trends in Digital Education and Market Opportunities
Key Trends in Digital Education
We believe that the compelling strength of our business model and our strong growth prospects are supported by clear underlying market and industry trends, including:
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increasing demand for undergraduate courses, with accelerated growth of digital education;
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increasing number of courses offered through digital education (deregulation);
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higher relevance of hybrid experience for students, combining the best of digital education with the hand-holding support provided by local tutors;
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increasing demand for education technologies to improve students’ experience;
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gradual blurring of intersections of online education and viral content;
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extension of postsecondary education journey through graduate and continuing education courses; and
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budget allocation priorities.
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We also believe that the Covid-19 pandemic is a tipping point that has accelerated the natural digital transformation of the sector by bringing a virtual learning experience to all students ahead of time and further supporting the trends described above. The level of acceptance of digital education is growing continuously as a result of the positive experience that students have had with digital offerings, triggering a clear disruption in the sector. During the pandemic we held over 1,800 simultaneous online classes, a record within our organization.
Considering the digital education enrollments trend acceleration by the pandemic effects, Educa Estudos de Mercado S.A., or Educa Insights, one of the main consulting firms in the education sector in Brazil, currently estimates that the distance learning student base can surpass the on-campus student base as early as 2022, a year earlier than their previous estimate of 2023. This is principally due to: (1) decreasing income levels and rising unemployment rates in Brazil due to the impact of Covid-19,
 
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which has led students to opt for more affordable courses, such as digital education, and (2) the continuous migration to the digital environment during periods of social distancing. In addition, according to Educa Insights, between April and June 2020, 91% of students demonstrated interest in enrolling in digital education while only 42% of students demonstrated an intention to enroll in on-campus courses.
Addressable Market Opportunities
According to a study published in February 2020 by Educa Insights, the digital education business for adults in Brazil has a total addressable market of 31.4 million students, equivalent to R$104.7 billion in revenues as of 2019. Out of the total addressable market of students, approximately 11.8 million are undergraduate students in digital education, 8.0 million are postgraduate students in digital education, 5.6 million are students on technical courses and 6.1 million are students potentially enrolled in professional qualification courses. Out of the total addressable market, in revenue terms, approximately R$37.6 billion is concentrated in undergraduate courses, R$31.7 billion in postgraduate courses, R$21.3 billion in technical courses and R$14.1 billion in professional qualification courses.
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Continued Growth of Higher Education Addressable Market for Undergraduates:   According to a report by Educa Insights and National Institute of Educational Studies and Research Anísio Teixeira (Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira), or INEP, published in February 2020, the total addressable market for undergraduate higher education in Brazil was 16.9 million students as of December 31, 2018, comprised of (i) 1.9 million students effectively enrolled in digital education, (ii) 4.5 million students effectively enrolled in on-campus programs and (iii) 10.5 million working adults and secondary school graduates.
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Continued Shift of Undergraduate Enrollments from On-campus to Digital Education:   According to a report by Educa Insights and INEP published in February 2020, the market share in number of undergraduate students’ enrollments in digital education is expected to grow from 29.4% in 2018 to 49.3% in 2023. However, as previously explained, the Covid-19 pandemic has accelerated this trend, and Educa Insights now believe that the distance learning student base will surpass the on-campus student base by 2022.
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Introduction of Potential New Digital Education Degrees:   According to a report by Educa Insights published in February 2020, as of December 31, 2018 there were 783,000 undergraduate on-campus law students in Brazil, which represent the largest number of enrollments in the country. Law degrees cannot currently be offered in a digital education format.
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Addressable Market for Continuing Education Courses:   According to a report by Educa Insights published in February 2020, there are currently 6.1 million students in professional qualification courses, 5.6 million in technical courses and 8.0 million in digital education post-graduation courses in Brazil, amounting to a total of 19.6 million students (or R$67.1 billion in revenue), considering both enrolled students and students with intention to enroll.
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The total addressable market was calculated by Educa Insights by: (i) extracting data relating to the number of persons from each income bracket and education level from the Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or IBGE, the Survey of a National Sample of Households (Pesquisa Nacional por Amostra de Domicílios) and the IBGE’s Automatic Recovery System (Sistema IBGE de Recuperação Automática) databases; (ii) removing current volume of enrollments in each segment; (iii) determining the percentage of persons who intend to enroll in post-secondary education courses in each segment; and (iv) determining the percentage of persons who intend to enroll in digital education post-secondary education courses in each segment. Items (iii) and (iv) above are determined by an online survey conducted in January 2020. The questionnaire used in this survey took respondents approximately ten minutes to complete and was composed of multiple choice questions. More than 15 thousand Brazilian individuals were contacted and almost four thousand responses were received. The respondents constituted a sample representing a population of more than 87 million people from different education levels (elementary, secondary, professional qualification, undergraduate, graduate) from the Brazilian middle lower-middle and lower income brackets. The sampling error in this survey was approximately 1.55%. The type of sampling used is non-probability sampling by quotas.
 
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The total addressable market for undergraduates was calculated by Educa Insights using the same method but taking into account only undergraduate students and persons wishing to enroll in undergraduate courses with respect to items (ii) to (iv) above, respectively.
Our Disruptive Student-Centric Model
Over the years, we have crafted an innovative go-to-market approach — our disruptive student-centric model. Our successful track record revolves around five complementary elements that compose our ecosystem, which are described below:
Hybrid Model
We believe students need and value a strong support system to learn and retain knowledge that goes beyond virtual standardized digital educational content and learning centers that fall short of being resourceful. Our methodological approach emphasizes the proximity of students with tutors and other classmates during weekly meetings, creating a unique sense of belonging and community, as well as the critical and active role of the hubs in the learning experience:
Superior Product Offering
We provide four different distance learning offerings, which are tailored for each type of course and to provide flexibility to students. They are:
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Hybrid digital education: our core product, which consists of one weekly in-person meeting with dedicated local tutors;
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Hybrid digital education double: specific to engineering and some health-related courses, which consists of two weekly in-person meetings;
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Flex: the first year of the course is given in the hybrid digital education format and the subsequent years are fully online; and
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100% Flex: The entire course is given in a fully online format.
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In addition, we also offer a modular learning methodology whereby the content delivered throughout a semester is divided among five monthly different academic subjects which students can take in any order. We believe this has resulted in a more efficient and flexible schedule for students and tutors, a better operation of our hubs and ability to attract new enrollments throughout the whole semester.
Our flipped classroom methodology gives the best of both in-person and virtual resources to our students to facilitate the learning process. Students have access to all the course materials online in multiples formats (videos, eBook, podcasts and html text, among others), as well as to online tutors. We had already developed over 8.5 terabytes of digital content and approximately 1,673 hours of educational videos. The in-person meetings provide an opportunity for students to improve their understanding of the subject through discussion, activities and explanations from the local dedicated tutor.
Additionally, we give our students the opportunity to take 100% online cross-disciplinary courses offered from the fourth module onwards. These courses enhance our students’ skills beyond the classroom and help prepare them for the labor market, by focusing on soft and 21st century skills, current global topics and support for tests needed for government procurement jobs in Brazil. We have been developing our methodology not only to support our students in their academic journey, but also increasingly in their professional endeavors.
Given that most of our students attended low-quality public secondary schools, we offer support to help them compensate for possible learning deficiencies with online classes. We make available modules covering basic school subjects, such as the Portuguese language and mathematics, which can be taken concurrently with the undergraduate course.
 
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Tutor-based model
We believe that our local, on-site dedicated tutors are a key part of the success of our model. Our tutors are available not only during the weekly meetings, but also online to assist each student individually with their learning, to provide attentive guidance for their studies and activities and answer any questions that students may have.
Around 67% of our tutors hold a postgraduate, master’s or doctoral degree. In addition, our tutors are local experienced professionals who work in their areas of expertise. We believe that the fact that our tutors are employed in professions relating to the matters which they teach gives them practical business insights (e.g., an accountant who takes a part-time job as a tutor to support undergraduate accounting students).
We believe that the relationship between the student and the tutor is very important. Our local tutors are part of the community and face the same reality and conditions as our students, which paves the way for a close relationship and gives tutors the ability to play a fundamental role in the development of our students inside and outside the classroom.
Technology-Enabled Platform
Through our in-house platform, Gioconda, and our mobile application, Leo, we offer the following features that benefit students, tutors, hub partners and our management:
Students’ Portal, which is an online portal that gathers all academic content, as well as student information, such as grades, deadlines, attendance and financial situation. It also allows students to access online after-class support from tutors.
App Leo, which is a mobile application where students can find all course subjects; simulators and 3D laboratories; all student services, including a WhatsApp center; online support with tutors; course learning results, tracks and learning activities; student and class benchmarks; as well as academic and finance metrics.
Tutor’s Portal, which is an online tool, available to all of our tutors, that tracks general performance indicators relating to the classes to which they are assigned.
Teacher’s Portal, which allows teachers in charge of content production to monitor the delivery of the academic subjects and quickly change, update and add new content to support all students or students from a certain region who have specific difficulties. We also develop our own academic content internally, which allows us to continuously improve it according to students’ feedback and achieve superior satisfaction levels.
Manager’s Portal, which supports all our hub partners and our management team by providing financial and operational performance indicators relating to our hubs, on an individual or consolidated basis and information about the competitive landscape.
Sales Management System, which is a platform that allows us and our hub partners to execute a dynamic pricing strategy adapted to each of the geographic markets in which we operate with enhanced discount and promotions controls. We believe that this tool helps us maximize our revenues in each hub and in each market by giving us and our partners across Brazil access to a complete sales interface. This system also provides georeferenced technology through a “heat map” that helps us choose the right place to open a new hub based on an analysis of data on potential students.
Strong Network of Hub Partners
Throughout the years, we have built and kept strong relationships with our 151 hub partners who have played a key role in our expansion. We expect to maintain the relationships as we grow because it is essential given our business’s scalability. We believe that a solid partnership network is critical to execute our digital education strategy and expand our operations in an asset-light manner.
 
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Our business model is financially aligned with that of our hub partners. Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. We believe that the share of the tuition fee paid to our hub partners represents an amount that allows our hub partners to maintain educational facilities and provide needed services for our students. We also believe that this structure incentivizes our hub partners to attract a higher number of students, which will in turn increase such hub partner’s profitability. Each hub partner is responsible for rental costs and property maintenance, as well as administrative services, cleaning, local student service and infrastructure of the classrooms. Our partners are also responsible for local advertising campaigns and contact with the local community, as well as to provide us with intelligence about the local competitive landscape, context and demographics. This allows us to set individual prices for each course, in each hub, in each city we operate.
We believe that our partners choose to work with us for the following reasons, among others: (1) our highly profitable partnership model; (2) our strong brand; (3) our effective tutor-centered methodology with higher retention rates; (3) our distinctive digital marketing strategy; (4) our technology-enabled platform and sales tools designed to help partners manage their businesses more efficiently on a daily basis, and (5) our comprehensive product portfolio.
In our view, the increase in the number of average hubs owned by each of our partners demonstrates the strength of our relationships. On average, after four years, our partners operate six hubs. Our hub partners’ attrition rate is very low, and most terminations or suspensions of partnerships are attributable to us (usually as a result of our partners’ failure to manage the business).
Data-Driven Student Experience
Our students’ experience is evaluated based on a continual improvement process. Our students assess all of their contact points with us on a periodic basis (eight times per year). We call this internal evaluation process “CPA.” It is designed to support our and our partners’ decision-making based on the data collected. We ask students to assess their experience with us based on three aspects:
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Infrastructure:   The quality of infrastructure of our hubs, such as classrooms, common spaces, practice laboratories, computer laboratories, library and virtual learning environment.
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Course:   The quality of the course, subjects and content. The questions are about: the teaching organization; teaching materials such as textbooks, video classes, learning objectives and interactive learning tools; academic and professional training, course coordinator’s performance and tutor performance, both online and during the weekly in-person encounters.
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Institution:   The perception of the quality of the academic service, institution management and the institution’s values.
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Integrated Marketing Model
We developed a marketing model for our operations, which focuses on managing the student’s entire life cycle from the moment they are first identified as prospective students, and which integrates communication, commercial and sales strategies as well as management tools. This model allows all teams involved in our marketing process to have a 360-degree view of the student’s growth.
We understand that our student’s life cycle is similar to other industries. From finding potential customers to enrolling them as new students, we establish and develop relationships with students. We endeavor to avoid dropouts and maintain ongoing relationships with our alumni. The strategy to manage this complex process is one of our competitive advantages.
 
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The marketing process has three cornerstones:
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Communication Strategy:   we developed our strategy by focusing on managing investments and sales volumes in each region of Brazil, assessing our performance and customer acquisition cost (which we calculate as the sum of marketing expenses divided by student intakes), or CAC, hub by hub;
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Integration and management of sales efforts:   we developed an integrated operation process with our hub partners using successful internal teams from each hub, focused on supporting commercial teams across the network; and
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Relationship:   our strategies are based on sharing relevant information for the use of our services, engaging students with the course and retaining students.
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Our Products and Services
We offer the following educational products and services to students enrolled in our ecosystem:
Digital Education Undergraduate Courses
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What differentiates our digital education model is its hybrid methodology, with weekly in-person meetings with on-site tutors. Digital education is the best option for those who do not have time to go to class every day and need flexibility in their schedule, but want to have access to quality postsecondary education;
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More recently, we launched a new flex course offering which allows tutors to assist classes formed by students from anywhere in Brazil in the same virtual lab. Through this format, we can serve smaller regions where demand is insufficient to form a class of a specific course;
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As of June 30, 2020, our digital education undergraduate student base was 236,838 enrolled students;
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Over 167,000 people have graduated from our courses in this modality over the last 11 years.
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Digital Continuing Education Courses
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We offer continuing education courses predominantly in pedagogy, finance and business. We also offer continuing education courses in other subjects such as law, engineering, IT and health-related courses;
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There are over 200 digital education graduate courses and more than 60 online short continuing education courses; and
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As of June 30, 2020, there were over 42,000 students enrolled in our digital continuing education courses.
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Other Businesses
Although it is not our focus, we also offer on-campus undergraduate courses, including those that are currently not allowed to be offered through digital education, such as law and health-related courses, and others such as business administration, accounting, physical education, and engineering. As of June 30, 2020, there were almost 9,000 students enrolled in our on-campus undergraduate courses.
Our Competitive Strengths
Over the last 20 years, we have built a set of capabilities and attributes in our hybrid digital education business model and we believe this provides us with meaningful sustainable competitive advantages:
Digital Education Approach to Postsecondary Education
Our value proposition differentiates us from other players in the Brazilian market, as we address what students value the most by providing a personalized student experience which combines the advantages of digital education and on-campus education.
 
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We believe our platform is difficult to replicate and it would take a significant amount of time and investments for competitors to be able to compete with our know-how, brand awareness, content production and methodology, infrastructure, as well as build a solid partner network to reach the scale of our operations.
We have been developing and improving our digital education platform not only to support our students in their academic journey, but also increasingly to support them in their professional endeavors. We are passionate about democratizing access to postsecondary education in Brazil because we know the power of affordable education and its ability to transform our students’ lives.
Through our technology-enabled platform, we support all of our stakeholders. While we produce and deliver content that is centralized and constantly evolving, we enable hub partners and tutors to distribute it in multiple formats that cater to students’ needs and prioritize a personalized, engaging, effective and simple experience. We also enable our partners to actively manage hubs’ activities in a comprehensive manner, providing a 360-degree vision of their operations, through a data-driven online portal. This technological platform gathers data regarding their student base, student performance, financial indicators, tutor and infrastructure evaluations, commercial performance, pricing and others — highlighting key insights, such as students in need of special attention, and helping predict and avoid potential dropouts.
The combination of these aspects enables us to enroll a large student base and attract loyal partners and trained tutors, ultimately increasing our ability to expand geographically at an even faster rate, while maintaining our differentiated customer support.
Asset-Light and Scalable Business Model
We have an asset-light, highly scalable business model that emphasizes operational efficiency and profitability. We are able to do so by taking charge of hiring and training tutors, developing content, and managing students’ experience as well as incurring faculty and marketing costs, while leaving partner hubs’ day-to-day operations and expenses (general and administrative, rental, equipment) to the care of our partners, who are remunerated by their respective share of the tuition fee collected by us from students, based on a given percentage which is similar across all our partnership agreements. This allows us to quickly expand our operation and geographic footprint with a modest effort.
Leading Student Experience, Brand Awareness and Strong Academic Standards
Our disruptive, student-centric model has achieved the highest satisfaction levels in terms of quality, employability, affordability, infrastructure, recommendation and location consistently across all regions where we are present.
We believe brand awareness is also a key metric to students’ decision-making process. According to statistics from Google, we were the educational brand with the highest growth in Google searches in Brazil in the six months ended June 30, 2020, with 27% growth when compared to the same period in 2019, as compared to a market average of 8%. Furthermore, according to Educa Insights, as of December 31, 2019, we had the highest levels of intention to enroll, first choice and top-of-mind brand, reaching on average 61.1%, 26.5% and 24.3%, respectively. This compares to 39.8%, 13.2% and 12.6%, respectively, for the second place brand. This data relates solely to digital education.
The results from the study conducted by Educa Insights also establish five strategic drivers (employability, quality, tradition, accessibility, and product and infrastructure), that integrate our brand equity and its nationwide presence. We believe that Vitru has all the attributes students value the most.
 
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Below are certain highlights from the study:
Nationwide perception of quality.   We are positioned as one of the best options for digital education in every region of Brazil, with results for the “product,” “employability” and “quality” dimensions significantly above average when compared to our competitors.
Superior quality maintained in the new waves of hubs.   Our perceived quality has no relation whatsoever with the maturity level of our hubs, which we believe highlights the scalability of our model.
A winning hybrid model.   We present superior growth driven by superior intake indicators and brand perception in markets currently dominated by established Brazilian players. Our retention rate is 22 p.p. above the average for distance education companies, based on data relating to the number of students which entered postsecondary education in 2016 and dropped out in 2017 as reported in the 2018 Postsecondary Education Census by the MEC.
An academic model that impacts enrollment intentions.   Our hybrid model has high levels of acceptance in that it is perceived as far better than traditional digital education alternatives.
Our best-in-class quality standards.   Our academic standards are a testament to the quality of our methodology, infrastructure and stakeholders. As of June 2019, our CI score was a five on a scale of one to five.
Our Business Economics and Cohorts
We believe the combination of the elements of our business model and the strength of the value proposition for the students attracted to our ecosystem has resulted in best-in-class unit economics for our hubs network, which plays a pivotal role in our organic growth strategy.
We track the cohorts on a semi-annual basis. We have cohorts showing substantial growth from our current hubs, 536 of which opened in the past three years (between the second half of 2017 and the first half of 2020) and are still maturing. New hubs usually concentrate first and second semester students who tend to have higher drop-out rates compared to students in other semesters. In addition, in the initial years after opening a new hub, we have a strategy of accelerated payback for the hub partners, by means of their higher shares over the tuition fee in the initial years, based on regressive percentages defined in each partnership agreement, which is important to sustain our partners’ profitability. We typically achieve a positive Adjusted EBITDA margin after three semesters of operation, considering hub partners’ lower shares over the tuition fee and a higher student base. In addition, our average student base per mature hub is approximately six times higher than the student base of a recently opened hub, which is ramping up.
Our strong cohorts are driven by the maturation of our hubs, our high retention rates, the expansion of our offerings such as new courses and our cross-selling opportunities. We also closely monitor CAC and lifetime value to our student base, as well as the average payback and internal rate of return for our hubs.
 
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Our Growth Strategies
We aim to continue generating value for our shareholders by implementing the following strategic initiatives:
Maturation of Our Hubs
We expect to grow significantly with the maturation of our hubs. Our hubs normally have a four-year maturation cycle, which begins when a hub becomes operational with a first intake cycle that progresses through these four years. Nevertheless, a hub only reaches full capacity after approximately eight years of existence, in function of the increasing brand awareness locally and continued optimizations in the average size of classes. Given that our hubs have an average life of 2.5 years, or five semesters and are still ramping up, we see considerable room to grow our operations and student base. As of December 31, 2019, we operated 545 hubs in different maturation stages, of which 11.8% are mature and 88.2% are ramping-up. This illustrates the compelling strength of our business model.
We believe we have significant potential to increase our margins through the maturation of our hubs. Because of our strategy to accelerate the payback to our hub partners with higher shares of the tuition fee in the initial years, as hubs mature their share decreases to approximately 21%, thus increasing our profitability and allowing us to reach an average Adjusted EBITDA margin at maturity of approximately 40%.
Opening of New Hubs and Expansion to New Markets
We have worked with a leading international consulting firm to develop a robust expansion plan which has mapped several opportunities that may be captured in the next five years. Additionally, we also employ a heat map tool, which we developed in-house, that we believe allows us to geographically position new hubs more efficiently. Our heat map searches and analyzes the locations of potential students’ homes and workplaces, thereby optimizing the location of our hubs by determining whether to open new hubs or to relocate already operational hubs.
We intend to continue to expand to sizeable Brazilian states which have a significant market opportunity and where we have limited presence in states of the southeastern region of Brazil, such as São Paulo, Rio de Janeiro, Minas Gerais and Paraná. We have adopted a distinct strategy regarding these locations by investing less in media and choosing out hub locations more selectively. As a result, we have had encouraging results in markets where our brand is not well known. We use locations with heavy traffic, such as malls, subway stations and supermarkets, to accelerate our expansion in these markets. We have recently entered into a partnership with one of the largest supermarket chains in Brazil. This has enabled us to install hubs inside their stores which generally enjoy a privileged location with heavy traffic.
We believe we have the right attributes to strengthen our presence in the Southeastern Region of Brazil, which represents 39.7% of the total digital education enrollments in 2018 in the country according to the INEP.
Offering of New Undergraduate Courses
We currently offer 118 digital education undergraduate courses, which is much higher than in 2016 when we only offered 41 courses. We believe there will be a significant increase in digital education enrollments if the MEC authorizes the offering of additional undergraduate courses, such as law and health-related courses like nursing, which, as of now, can only be provided on-campus. Because of our state-of-the-art infrastructure, we believe we are better positioned to capture this market opportunity and further increase our ecosystem relative to our competitors.
According to Educa Insights, if the MEC allows law courses to be offered in a digital education format, 20.8% of new enrollments in that subject are expected to migrate to digital education in the short-term. Educa Insights estimates that there could be as many as 104,100 students enrolled in digital education law courses by 2023.
 
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Further Extension of Postsecondary Education Journey (Cross-selling)
We also seek to offer a broader range of graduate, vocational and continuing education programs. Currently, 22.2% of our undergraduate students enroll in graduate courses with us once they have completed their undergraduate education. In addition, 50.0% of our undergraduate alumni intend to enroll in a graduate course with us, whereas only 27.0% of these individuals intend to continue their education elsewhere. We believe that the expansion of these programs will enable us to increase our serviceable addressable market, improve our economics and position ourselves as the trusted knowledge partner of our students while continuously diversifying our operations.
Although all of our hubs are able to offer our entire portfolio of graduate courses, our partners choose to offer these courses after gaining significant expertise in offering undergraduate courses. Given that 88.2% of our hubs have less than three years of operations, we see a considerable potential for growth in offering our graduate courses.
Selective Pursuit of mergers and acquisitions, or M&A, Opportunities
We intend to selectively pursue acquisitions that we believe resonate with and enhance our value proposition. We are interested in (i) technology companies, such as education technology companies whose solutions can be quickly incorporated into our learning platform, thus improving the learning experience of our students and/or providing useful information for our intake and overall management processes; (ii) life-long complementary digital education courses that enhance our offering in order to expand the relationship cycle with our students, such as preparatory programs for their entrance into the labor market, among others, which we can accommodate in our hub distribution model; and (iii) consolidation opportunities through the acquisition of mid-sized digital education players which have low margins and lack scale, with whom we can leverage our business and academic expertise to improve operational results and margins. We have already begun discussions with a number of selected potential targets in order to move this process forward after our initial public offering.
Our Corporate Structure
Our Corporate Reorganization
We are a Cayman Islands exempted company incorporated with limited liability on March 5, 2020 for purposes of effectuating our initial public offering. Prior to the consummation of this offering, our Existing Shareholders held 522,315,196 shares of Vitru Brasil, our wholly-owned subsidiary whose consolidated financial statements are included elsewhere in this prospectus.
Prior to the consummation of this offering, our Existing Shareholders contributed all of their shares in Vitru Brasil to us. In return for this contribution, we issued new common shares to our Existing Shareholders in a one-to-31 exchange for the shares of Vitru Brasil contributed to us, or the Share Contribution. Until the contribution of Vitru Brasil shares to us, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments.
After accounting for the new common shares that will be issued and sold by us in this offering, we will have a total of 23,058,053 common shares issued and outstanding immediately following this offering, 11,794,212 of these shares will be common shares beneficially owned by our Existing Shareholders, and 11,230,126 of these shares will be common shares beneficially owned by investors purchasing in this offering, assuming no exercise of the underwriters’ option to purchase additional common shares. See “Principal and Selling Shareholders.”
 
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The following chart shows our corporate structure, including our five subsidiaries and their respective business units, after giving effect to our corporate reorganization and this offering:
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See “Presentation of Financial and Other Information — Corporate Events — Our Corporate Reorganization,” and note 2.2 to our audited consolidated financial statements included elsewhere in this prospectus for additional information on our subsidiaries.
Summary of Risk Factors
An investment in our common shares is subject to a number of risks, including risks relating to our business and industry, risks relating to Brazil and risks relating to the offering and our common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Risks Relating to Our Business and Industry
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The Covid-19 outbreak may cause an adverse effect in our operations, including the partial closure of our business. The extension of the Covid-19 pandemic, the perception of its effects, or the way in which such pandemic will impact our business, either on a microeconomic or on a macroeconomic level, are subject to uncertain and unforeseeable future developments, which may have a material adverse effect on our business, financial condition, operating results and cash flow.
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If we are unable to enter into agreements and maintain good relationships with, and/or increase the number of, our hub partners, our business and growth may be adversely affected. Failure by our hub partners to comply with the terms of agreements with them, and any failure by us to enforce such terms, may also adversely affect us. In addition, failure by our hub partners to maintain their existing levels of profitability may result in them ceasing to view their relationships with us as advantageous.
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We are subject to various federal laws and extensive government regulation, and changes in such laws and regulation could have a material adverse effect on our business and our growth strategy.
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We face significant competition in each program we offer and each geographic region in which we operate. If we fail to compete effectively, we may lose market share and our profitability may be adversely affected.
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We operate in markets that are dependent on Information Technology (IT) systems and technological change. Failure to maintain and support customer-facing services, systems, and platforms, including addressing quality issues and execution on time of new products and enhancements, could negatively impact our revenues and reputation.
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We may not be able to appropriately manage the expansion of our business and staff, the increased complexity of our software and platforms, or grow in our addressable market.
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We may be adversely affected if we are unable to maintain consistent educational quality throughout our network, including the education materials of our campuses and hubs, or keep or adequately train our faculty, or ensure that our hub partners will maintain their facilities, equipment and team compatible with our required standards at all time.
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Our business depends on the continued success of our brand “Uniasselvi,” and if we fail to maintain and enhance recognition of our brand, we may face difficulty enrolling new students, and our reputation and operating results may be harmed. Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business and financial condition and results of operations.
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Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business and financial condition and results of operations. In addition, we may in the future be subject to intellectual property claims, which are costly to defend and could harm our business, financial condition and operating results.
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The quality of the pedagogical content we deliver to our clients is significantly dependent upon the quality of our editors, publishers and purchased content. Any issues related to obtaining this content or regarding the quality of this content may have an adverse effect on our business.
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If we lose key personnel our business, financial condition and results of operations may be adversely affected.
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Material weaknesses in our internal control over financial reporting have been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.
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Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.
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Risks Relating to Brazil
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The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our common shares.
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Economic uncertainty and political instability in Brazil may harm us and the price of our common shares.
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Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our common shares.
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Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares.
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Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian economy and the price of our common shares.
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Risks Relating to the Offering and our Common Shares
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There is no existing market for our common shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of your investment.
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Our Existing Shareholders will own 51.15% of our outstanding common shares and, in the event the underwriters choose not to exercise their option to purchase additional common shares, will have the ability to control certain matters requiring shareholder approval. Our Existing Shareholders’ ownership and voting power may limit your ability to influence corporate matters.
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We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
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Corporate Information
Our principal executive offices are located at Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, in the state of Santa Catarina, 88032-005, Brazil. Our telephone number at this address is +55 (47) 3281-9500.
Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is www.vitru.com.br. The information contained in, or accessible through, our website is not incorporated into this prospectus or the registration statement of which it forms a part.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include:
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a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;
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an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, in the assessment of our internal control over financial reporting;
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reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and
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exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute arrangements.
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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in aggregate worldwide market value of our common shares held by non-affiliates or issue more than US$1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus, although we may choose to do so in future filings and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.
In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
 
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Recent Events
Covid-19 Pandemic
We are closely monitoring the situation of the 2019 novel coronavirus, or Covid-19, and taking the necessary measures for the safety and well-being of our employees, students, associates and partners. The global impact of the outbreak has been rapidly evolving, and the outbreak presents material uncertainty and risk with respect to our future performance and financial results. In particular and in the interest of public health and safety, state and local governments in Brazil have required temporary mandatory school closures, which has resulted in the closure of on-campus learning facilities and hubs.
In response to the outbreak, we have implemented several measures aimed at safeguarding the health of our employees, students and hub partners as well as the stability of our operations. These measures include: (1) creating a crisis management committee and a financial committee to discuss the action plan for our organization to address the challenges posed by the Covid-19 pandemic; (2) temporarily replacing in-person weekly meetings with dedicated tutors at the hubs with online meetings between students and the same tutors across all of our hubs, as a result of which since March 30, 2020 all of our students have had real-time meetings with their dedicated tutors; (3) training teachers, tutors and hub partners to support students in this new format; (4) remote support to deliver high-quality content to our students and maintain high levels of engagement and a superior learning experience; (5) making no changes to our course schedule or curriculum; (6) putting in place remote emotional and psychological support to students and employees, provided by our psychology department; and (7) making home office available for all of our employees.
We have also been involved in corporate social responsibility initiatives to help the communities in which we are active and are affected by the Covid-19 pandemic. To that end, we have set up a portal that provides tips on how to make masks, free online courses, psychological support services, tips for micro entrepreneurs, and suggestions for children’s games to be played during times of social distancing, among others. Our objective is to take advantage of the knowledge pool within our organization to support people who are confined at home and help society face the Covid-19 pandemic.
Due to uncertainties related to the dynamics of Covid-19’s spread, the effects on the economic activities on our customers and suppliers and the measures to be adopted in Brazil, it is impossible to predict the impact the pandemic will have on the global economy, as well as on our business. The extent of the impact of Covid-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and its impact on students, hub partners and employees, all of which are uncertain and cannot be predicted.
As of the date of this prospectus, there has been no material impact on our operations, as most of our services were already delivered remotely (distance learning undergraduate courses and most continuing education courses) or capable of being delivered remotely (some of our continuing education courses and on-campus undergraduate courses). In addition, based on information available as of the date of this prospectus:
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There was no relevant impact on our revenue for the six months ended June 30, 2020, which was slightly below our expectations for the period but nevertheless increased by 10% when compared to the corresponding period in the prior year. Student defaults have remained within the expected levels and the engagement of students, compared to the corresponding period in 2019, has shown only a small deterioration.
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Expected credit losses were revised to consider estimated increases in financial defaults, which resulted in an increase of R$2.2 million in allowance for estimated credit losses as of June 30, 2020.
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•
Despite Covid-19, our intake for the six months ended June 30, 2020 was 30% higher than for the corresponding period in 2019, and we have not experienced a significant increase in drop-out rates.
​
•
We assessed potential impairments and the potential impacts on the key assumptions and projections caused by the pandemic on the recoverability of long-lived assets (i.e., impairment
​
​
 
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tests) and concluded that no additional provision for impairment of long-lived assets needed to be recorded in our unaudited interim condensed consolidated financial statements.
•
We have obtained rent concessions on lease contracts due to the temporary suspension of classes in our on-campus learning facilities and hubs caused by the mandatory school closures during the pandemic. As a result, we experienced a gain of R$0.7 million in the “Other income (expenses), net” line in our statement of profit and loss for the six months ended June 30, 2020. Except for these concessions and the modification mentioned in note 1.1.a to our unaudited interim condensed consolidated financial statements, there were no changes to contractual obligations regarding leased buildings and there were no changes in the expected useful life and residual amount of properties and equipment as a result of Covid-19.
​
•
No changes in the provision for contingencies against us were identified as a result of Covid-19.
​
•
As an incentive for our students to keep their payments of tuition fees up to date, we granted an additional discount of 5% to students that payed their tuition fees by the due date in April and May 2020. The amount of additional discounts granted was R$4.0 million.
​
•
We currently have sufficient working capital and other undrawn financing facilities to service our operating activities and ongoing investments.
​
•
We have also taken the benefit of measures made available by the Brazilian federal government as follows:
​
•
Postponement of the due date of tax and social charges obligations:   Certain federal taxes and social charges obligations in the total amount of R$10.8 million that became due in the second quarter of 2020 have not been paid on the dates they were originally due and will be paid by the end of the year, in line with a payment schedule published by Brazilian governmental authorities.
​
•
The Brazilian federal government offered the option of either reducing workload and salary payment for up to three months or suspending employment contracts for up to two months in exchange for employers guaranteeing they will retain the employee after the suspension for a period equivalent to that during which the contract was suspended. We suspended 165 employment contracts through May and June 2020 and had a corresponding expense reduction of R$0.5 million. No workload reduction was necessary until June 2020 and we do not expect to need any for the next months while the measures are in effect.
​
Nevertheless, if the Covid-19 pandemic or the resulting economic downturn continues to worsen, we could experience reduced business activity or higher levels of allowances for doubtful accounts, which could have a material adverse effect on our business, results of operations, cash flows and financial condition. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, students, hub partners and shareholders.
For further information, please see “Risk Factors — Certain Risks Relating to Our Business and Industry — The Covid-19 outbreak may cause an adverse effect in our operations, including the partial closure of our business. The extension of the Covid-19 pandemic, the perception of its effects, or the way in which such pandemic will impact our business, either on a microeconomic or on a macroeconomic level, are subject to uncertain and unforeseeable future developments, which may have a material adverse effect on our business, financial condition, operating results and cash flow” and “Risk Factors — Certain Risks Relating to Our Business and Industry — Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.”
 
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THE OFFERING
This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common shares. You should carefully read this entire prospectus before investing in our common shares including “Risk Factors” and our consolidated financial statements.
Issuer
Vitru Limited.
Selling shareholders
Mundi Holdings I, L.L.C, Mundi Holdings II, L.L.C., Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC, Raffaello Investments LLC, NB Verrocchio LP, Pedro Jorge Guterres Quintans Graça, Carlos Henrique Boquimpani de Freitas, Luiz Gonzaga Victor Foureaux Neto, Ana Paula Rodrigues, Valdir Gomes Barbosa Sobrinho, Gabriel Simoes Guioto Ribeiro, Raphael Ribeiro Rodrigues, Herminio Kloch, Carlos Fabiano Fistarol, Peter Kim Woo, Erico Coelho Ribeiro and Ricardo Grima Fernandes.
Common shares offered by us
6,000,000 common shares (or 6,900,000 common shares if the underwriters exercise in full their option to purchase additional shares).
Common shares offered by the selling shareholders
5,230,126 common shares (or 6,014,644 common shares if the underwriters exercise in full their option to purchase additional shares).
Option to purchase additional common shares
We and the selling shareholders have granted the underwriters the right to purchase up to an additional 1,684,518 common shares from us and the selling shareholders (including 900,000 common shares from us and 784,518 common shares from the selling shareholders) within 30 days of the date of this prospectus, at the public offering price, less underwriting discounts and commissions, solely to cover over-allotments, if any, on the same terms as set forth in this prospectus.
Offering price range
Between US$22.00 and US$24.00 per common share.
Use of proceeds
We estimate that the net proceeds to us from the offering will be approximately US$125.5  million (or US$145.0  million if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of US$23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for organic growth through the expansion of our hybrid platform and course offerings, acquisitions and for other general corporate purposes. We will have broad discretion in allocating the net proceeds from this offering. See “Use of Proceeds.”
We will not receive any proceeds from the sale of common shares by the selling shareholders.
 
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Share capital before and after
offering
As of the date of this prospectus, our authorized share capital is US$50,000, consisting of 1,000,000,000 shares of par value US$0.00005 each, all of which are as yet undesignated and may be issued as common shares or shares with preferred rights.
Immediately after the offering, we will have 23,058,053 common shares outstanding, assuming no exercise of the underwriters’ option to purchase additional shares.
Voting rights
The common shares will be entitled to one vote per share.
Listing
We have applied to list our common shares on the Nasdaq, under the symbol “VTRU.”
Dividend policy
The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders. We do not anticipate paying any cash dividends in the foreseeable future.
Lock-up agreements
We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Members of our board of directors and our executive officers, and our Existing Shareholders, have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting.”
Risk factors
See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.
Cayman Islands exempted company with limited liability
We are a Cayman Islands exempted company with limited liability. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not properly fetter the exercise of future discretion; (iv) duty to exercise powers fairly as between different classes of shareholders; (v) duty to exercise independent judgment; and (vi) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must
 
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disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. In comparison, under the Delaware General Corporation Law, a director of a Delaware corporation owes fiduciary duties to the corporation and its stockholders comprised of the duty of care and the duty of loyalty. Such duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital —  Principal Differences between Cayman Islands and U.S. Corporate Law.”
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted to the underwriters to purchase up to additional 1,684,518 common shares in connection with the offering.
 
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SUMMARY FINANCIAL AND OTHER INFORMATION
The following tables set forth, for the periods and as of the dates indicated, our summary financial and operating data. The summary consolidated statement of financial position as of June 30, 2020 and the summary consolidated statements of profit or loss and other comprehensive income for the six months ended June 30, 2020 and 2019 have been derived from the unaudited interim condensed consolidated financial statements of Vitru Brasil included elsewhere in this prospectus, prepared in accordance with International Financial Reporting Standard IAS No. 34 “Interim Financial Reporting,” or IAS 34. The summary consolidated statements of financial position as of December 31, 2019 and 2018 and the summary consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2019 and 2018 have been derived from the audited consolidated financial statements of Vitru Brasil included elsewhere in this prospectus, prepared in accordance with IFRS, as issued by the IASB.
For convenience purposes only, amounts in reais as of and for the six months ended June 30, 2020 and as of and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
Amounts as of and for the fiscal year ended December 31, 2018 have been restated as a result of the full retrospective method of adoption of IFRS 16 with the date of initial application of January 1, 2019. For more information, see note 2.6 to our audited consolidated financial statements included elsewhere in this prospectus.
This information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Selected Financial and Other Information” and the audited consolidated financial statements of Vitru Brasil, including the notes thereto, included elsewhere in this prospectus.
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Years Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions, except per share information)
​
Statement of Profit or Loss Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 46.9 ​ ​ ​ ​ ​ 256.7 ​ ​ ​ ​ ​ 234.5 ​ ​ ​ ​ ​ 84.2 ​ ​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 383.4 ​ ​
Revenue from distance-learning undergraduate courses
​ ​ ​ ​ 37.2 ​ ​ ​ ​ ​ 203.7 ​ ​ ​ ​ ​ 170.8 ​ ​ ​ ​ ​ 61.4 ​ ​ ​ ​ ​ 336.3 ​ ​ ​ ​ ​ 259.6 ​ ​
Revenue from continuing education courses
​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 21.3 ​ ​ ​ ​ ​ 23.0 ​ ​ ​ ​ ​ 8.6 ​ ​ ​ ​ ​ 47.1 ​ ​ ​ ​ ​ 33.0 ​ ​
Revenue from on-campus undergraduate courses
​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 31.6 ​ ​ ​ ​ ​ 40.7 ​ ​ ​ ​ ​ 14.2 ​ ​ ​ ​ ​ 77.6 ​ ​ ​ ​ ​ 90.8 ​ ​
Cost of services rendered
​ ​ ​ ​ (19.4) ​ ​ ​ ​ ​ (106.0) ​ ​ ​ ​ ​ (105.2) ​ ​ ​ ​ ​ (38.6) ​ ​ ​ ​ ​ (211.5) ​ ​ ​ ​ ​ (184.2) ​ ​
Gross profit
​ ​ ​ ​ 27.5 ​ ​ ​ ​ ​ 150.6 ​ ​ ​ ​ ​ 129.3 ​ ​ ​ ​ ​ 45.6 ​ ​ ​ ​ ​ 249.5 ​ ​ ​ ​ ​ 199.3 ​ ​
Selling expenses
​ ​ ​ ​ (9.1) ​ ​ ​ ​ ​ (50.0) ​ ​ ​ ​ ​ (47.8) ​ ​ ​ ​ ​ (18.4) ​ ​ ​ ​ ​ (100.9) ​ ​ ​ ​ ​ (70.6) ​ ​
General and administrative expenses
​ ​ ​ ​ (4.4) ​ ​ ​ ​ ​ (24.4) ​ ​ ​ ​ ​ (61.3) ​ ​ ​ ​ ​ (22.9) ​ ​ ​ ​ ​ (125.3) ​ ​ ​ ​ ​ (90.7) ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ (6.4) ​ ​ ​ ​ ​ (34.9) ​ ​ ​ ​ ​ (25.3) ​ ​ ​ ​ ​ (10.6) ​ ​ ​ ​ ​ (58.2) ​ ​ ​ ​ ​ (44.6) ​ ​
Other income (expenses), net
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ (0.4) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (0.9) ​ ​ ​ ​ ​ (1.0) ​ ​
Operating expenses
​ ​ ​ ​ (19.7) ​ ​ ​ ​ ​ (107.6) ​ ​ ​ ​ ​ (134.7) ​ ​ ​ ​ ​ (52.1) ​ ​ ​ ​ ​ (285.4) ​ ​ ​ ​ ​ (206.9) ​ ​
Operating profit (loss)
​ ​ ​ ​ 7.9 ​ ​ ​ ​ ​ 43.0 ​ ​ ​ ​ ​ (5.4) ​ ​ ​ ​ ​ (6.6) ​ ​ ​ ​ ​ (35.9) ​ ​ ​ ​ ​ (7.6) ​ ​
 
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​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Years Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions, except per share information)
​
Financial income
​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ 9.5 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 3.5 ​ ​ ​ ​ ​ 19.2 ​ ​ ​ ​ ​ 22.0 ​ ​
Financial expenses
​ ​ ​ ​ (3.8) ​ ​ ​ ​ ​ (20.8) ​ ​ ​ ​ ​ (29.9) ​ ​ ​ ​ ​ (11.0) ​ ​ ​ ​ ​ (60.4) ​ ​ ​ ​ ​ (64.6) ​ ​
Financial results
​ ​ ​ ​ (2.1) ​ ​ ​ ​ ​ (11.2) ​ ​ ​ ​ ​ (20.5) ​ ​ ​ ​ ​ (7.5) ​ ​ ​ ​ ​ (41.2) ​ ​ ​ ​ ​ (42.6) ​ ​
Profit (loss) before taxes
​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 31.7 ​ ​ ​ ​ ​ (25.9) ​ ​ ​ ​ ​ (14.1) ​ ​ ​ ​ ​ (77.1) ​ ​ ​ ​ ​ (50.2) ​ ​
Current income taxes
​ ​ ​ ​ (3.6) ​ ​ ​ ​ ​ (19.6) ​ ​ ​ ​ ​ (8.6) ​ ​ ​ ​ ​ (2.7) ​ ​ ​ ​ ​ (14.8) ​ ​ ​ ​ ​ (10.6) ​ ​
Deferred income taxes
​ ​ ​ ​ 7.4 ​ ​ ​ ​ ​ 40.3 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 25.7 ​ ​ ​ ​ ​ 15.7 ​ ​
Income tax
​ ​ ​ ​ 3.8 ​ ​ ​ ​ ​ 20.6 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 2.0 ​ ​ ​ ​ ​ 10.9 ​ ​ ​ ​ ​ 5.0 ​ ​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
Earnings (loss) per common share
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted earnings (loss) per common
share – R$(2)
​ ​ ​ ​ 0.02 ​ ​ ​ ​ ​ 0.10 ​ ​ ​ ​ ​ (0.05) ​ ​ ​ ​ ​ (0.02) ​ ​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (0.09) ​ ​
Pro forma Basic earnings (loss) per common
share – R$(3)
​ ​ ​ ​ 0.57 ​ ​ ​ ​ ​ 3.11 ​ ​ ​ ​ ​ (1.49) ​ ​ ​ ​ ​ (0.72) ​ ​ ​ ​ ​ (3.93) ​ ​ ​ ​ ​ (2.78) ​ ​
Pro forma Diluted earnings (loss) per common share – R$(3)
​ ​ ​ ​ 0.54 ​ ​ ​ ​ ​ 2.98 ​ ​ ​ ​ ​ (1.49) ​ ​ ​ ​ ​ (0.72) ​ ​ ​ ​ ​ (3.93) ​ ​ ​ ​ ​ (2.78) ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
Based on the weighted average number of outstanding common shares issued by Vitru Brasil for each period presented.
​
(3)
The pro forma basic and diluted earnings per share are presented using our historical earnings (loss) per share recast using the weighted average number of common shares in issue for each period and prior to completion of this offering, after giving effect to the Share Contribution.
​
​ ​ ​
As of June 30,
​ ​
As of
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Statement of Financial Position Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total current assets
​ ​ ​ ​ 72.5 ​ ​ ​ ​ ​ 397.2 ​ ​ ​ ​ ​ 39.2 ​ ​ ​ ​ ​ 214.9 ​ ​ ​ ​ ​ 252.5 ​ ​
Total non-current assets
​ ​ ​ ​ 169.4 ​ ​ ​ ​ ​ 927.5 ​ ​ ​ ​ ​ 159.6 ​ ​ ​ ​ ​ 873.8 ​ ​ ​ ​ ​ 926.5 ​ ​
Total assets
​ ​ ​ ​ 241.9 ​ ​ ​ ​ ​ 1,324.7 ​ ​ ​ ​ ​ 198.8 ​ ​ ​ ​ ​ 1,088.7 ​ ​ ​ ​ ​ 1,179.0 ​ ​
Liabilities and Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total current liabilities
​ ​ ​ ​ 46.9 ​ ​ ​ ​ ​ 257.0 ​ ​ ​ ​ ​ 40.4 ​ ​ ​ ​ ​ 221.4 ​ ​ ​ ​ ​ 175.1 ​ ​
Total non-current liabilities
​ ​ ​ ​ 103.0 ​ ​ ​ ​ ​ 564.0 ​ ​ ​ ​ ​ 76.0 ​ ​ ​ ​ ​ 416.0 ​ ​ ​ ​ ​ 484.5 ​ ​
Total liabilities
​ ​ ​ ​ 149.9 ​ ​ ​ ​ ​ 821.0 ​ ​ ​ ​ ​ 116.4 ​ ​ ​ ​ ​ 637.4 ​ ​ ​ ​ ​ 659.6 ​ ​
Total equity
​ ​ ​ ​ 92.0 ​ ​ ​ ​ ​ 503.7 ​ ​ ​ ​ ​ 82.4 ​ ​ ​ ​ ​ 451.3 ​ ​ ​ ​ ​ 519.4 ​ ​
Total liabilities and equity
​ ​ ​ ​ 241.9 ​ ​ ​ ​ ​ 1,324.7 ​ ​ ​ ​ ​ 198.8 ​ ​ ​ ​ ​ 1,088.7 ​ ​ ​ ​ ​ 1,179.0 ​ ​
​
(1)
For convenience purposes only, amounts in reais as of June 30, 2020 and December 31, 2019 have been translated to
​
​
 
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U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
Non-GAAP Financial Measures and Reconciliations
Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Net revenue
​ ​ ​ ​ 46.9 ​ ​ ​ ​ ​ 256.7 ​ ​ ​ ​ ​ 234.5 ​ ​ ​ ​ ​ 84.2 ​ ​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 383.4 ​ ​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
Adjusted EBITDA(2)
​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 75.2 ​ ​ ​ ​ ​ 66.1 ​ ​ ​ ​ ​ 21.5 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
Adjusted Net Income(3)
​ ​ ​ ​ 10.4 ​ ​ ​ ​ ​ 57.1 ​ ​ ​ ​ ​ 35.1 ​ ​ ​ ​ ​ 10.5 ​ ​ ​ ​ ​ 57.7 ​ ​ ​ ​ ​ 55.4 ​ ​
Cash flow from operations
​ ​ ​ ​ 12.3 ​ ​ ​ ​ ​ 67.2 ​ ​ ​ ​ ​ 50.0 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 98.0 ​ ​ ​ ​ ​ 88.0 ​ ​
Adjusted Cash Flow Conversion from Operations(4)
​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 68% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 79% ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our loss for the year, see “Selected Financial and Other Information — Non-GAAP Financial Measures and Reconciliations — Reconciliations of Non-GAAP Financial Measures — Reconciliation between Adjusted EBITDA and loss for the year.”
​
(3)
For information on how we define Adjusted Net Income, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Net Income, see “Selected Financial and Other Information — Non-GAAP Financial Measures and Reconciliations — Reconciliations of Non-GAAP Financial Measures — Reconciliation of Adjusted Net Income.”
​
(4)
For information on how we define Adjusted Cash Flow Conversion from Operations, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Cash Flow Conversion from Operations, see “Selected Financial and Other Information — Non-GAAP Financial Measures and Reconciliations — Reconciliations of Non-GAAP Financial Measures — Reconciliation of Adjusted Cash Flow Conversion from Operations.”
​
Operating Data
The following table below sets forth certain of our operating data for each of the periods indicated:
​ ​ ​
As of and
for the Six Months
Ended June 30
​ ​
As of and for the
Year Ended December 31,
​
​ ​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​ ​
2017
​ ​
2016
​
Number enrolled students
​ ​ ​ ​ 287,798 ​ ​ ​ ​ ​ 244,188 ​ ​ ​ ​ ​ 240,946 ​ ​ ​ ​ ​ 189,295 ​ ​ ​ ​ ​ 140,363 ​ ​ ​ ​ ​ 115,325 ​ ​
Number of distance learning undergraduate students
​ ​ ​ ​ 236,838 ​ ​ ​ ​ ​ 193,068 ​ ​ ​ ​ ​ 195,613 ​ ​ ​ ​ ​ 148,711 ​ ​ ​ ​ ​ 106,576 ​ ​ ​ ​ ​ 81,406 ​ ​
Number of distance learning graduate
students
​ ​ ​ ​ 42,033 ​ ​ ​ ​ ​ 40,673 ​ ​ ​ ​ ​ 35,952 ​ ​ ​ ​ ​ 30,227 ​ ​ ​ ​ ​ 22,910 ​ ​ ​ ​ ​ 21,108 ​ ​
Number of hubs
​ ​ ​ ​ 608 ​ ​ ​ ​ ​ 436 ​ ​ ​ ​ ​ 545 ​ ​ ​ ​ ​ 370 ​ ​ ​ ​ ​ 221 ​ ​ ​ ​ ​ 72 ​ ​
 
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RISK FACTORS
An investment in our common shares involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the following risk factors in evaluating us and our business before purchasing our common shares. In particular, you should consider the risks related to an investment in companies operating in Brazil and Latin America generally, for which we have included information in these risk factors to the extent that information is publicly available. In general, investing in the securities of issuers whose operations are located in emerging market countries such as Brazil involves a higher degree of risk than investing in the securities of issuers whose operations are located in the United States or other more developed countries. If any of the risks discussed in this prospectus actually occur, alone or together with additional risks and uncertainties not currently known to us, or that we currently deem immaterial, our business, financial condition, results of operations and prospects may be materially adversely affected. If this were to occur, the value of our common shares may decline and you may lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our financial statements and the related notes thereto. You should also carefully review the cautionary statements referred to under “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in this prospectus.
Certain Risks Relating to Our Business and Industry
The Covid-19 outbreak may cause an adverse effect in our operations, including the partial closure of our business. The extension of the Covid-19 pandemic, the perception of its effects, or the way in which such pandemic will impact our business, either on a microeconomic or on a macroeconomic level, are subject to uncertain and unforeseeable future developments, which may have a material adverse effect on our business, financial condition, operating results and cash flow.
Covid-19 is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The disease was first identified in 2019 in Wuhan, the capital of Hubei province in central China, and has since spread globally. On March 11, 2020, the World Health Organization revised the classification of Covid-19 from an epidemic (when a disease spreads through a specific community or region) to a pandemic, which according to the World Health Organization’s definition is when there is a worldwide spread of a new disease. By that time, Covid- 19 had already reached Brazil. On March 20, 2020 the Brazilian federal government declared a national emergency with respect to Covid-19. The classification of the disease as a pandemic was motivated by the rapid increase in the number of cases and the number of affected countries on all continents, triggering measures by governments, companies and societies to contain the advances of Covid-19. The measures vary from country to country in quantity and degree of severity but basically involve: (1) recommendations to adopt voluntary isolation (avoid going out on the streets, avoiding crowds, avoiding physical contact with other people, etc.); (2) internal restrictions regarding the movement of people; (3) closing of schools; (4) closing of public places (parks and leisure centers); (5) closures of shopping malls, bars and restaurants; (6) adoption of remote working practices (home office) by companies, whenever possible and permitted by their activities; (7) closing borders between countries; (8) restriction and/or suspension of trade in non-essential goods and services in the context of Covid-19 (while supermarkets, drugstores, gas stations and other essential services remain available); (9) purchase restrictions for certain essential items to avoid scarcity; (10) interruption of production activities of consumer items not essential to combat the pandemic; (11) restriction on the delivery of products to homes other than essentials; (12) compulsory reduction of working hours; (13) cancellation of public events; and (14) other restrictive measures.
Such events have adversely impacted the global economy as well as national and regional economies (including the Brazilian economy), and have caused disruption of regional or global economic activity. In particular and in the interest of public health and safety, state and local governments in Brazil have required mandatory school closures until June 15, 2020, which has resulted in the closure of our on-campus learning facilities and hubs. The Covid-19 pandemic is still evolving in Brazil, and authorities may maintain the school closures for a longer or undefined extended of period of time, impose a more severe lockdown, among other measures, all of which are outside of our control and
 
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may adversely affect our business, financial condition, operating results and cash flow. The Covid-19 pandemic is expected to cause a material and adverse effect on the general economic, financial, political, demographic and business conditions in Brazil, which may reduce the disposable income of our students and their families, and consequently (1) result in an adverse impact on the ability of our students (current and/or prospective) to pay our tuition fees and/or (2) trigger an increase in our attrition rates.
We cannot predict the extent of the pandemic, and consequently, its direct and indirect impacts on local and world economies in the short, medium and long terms. In a prolonged contraction scenario, the virus could spread globally without a seasonal decline and the impacts could include: (1) increased number of deaths; (2) demand shock; (3) overloading healthcare systems in many countries, especially in less developed areas; (4) large-scale human and economic impact; (5) layoffs and bankruptcies in the most affected sectors rising sharply throughout 2020; (6) severe global economic impact, with significant gross domestic product contraction in most major economies in 2020 and a slow-moving recovery; (7) infrastructure collapse and lack of basic services, particularly in less developed countries; and (8) compromised government planning, coordination and reaction capacity according to the speed that the disease progresses.
Despite the measures adopted to contain the progress of Covid-19 and aid measures announced by governments around the world, including the Brazilian government, as of the date hereof, we cannot predict the extent, duration and impacts of such containment measures, or the results of aid measures in Brazil. Accordingly, we cannot predict the direct and indirect effects of the Covid-19 pandemic and governments’ responses to it on our business, results of operations and financial condition, including: (1) the impact of Covid-19 on our financial condition and results of operations, including trends and the overall economic outlook, capital, investments and financial resources or liquidity position; (2) how future operations could be impacted; (3) the impact on our costs or access to capital and funding resources; (4) if we could incur any material Covid-19-related contingencies; (5) how Covid-19 could affect assets on our balance sheet and our ability to timely record those assets; (6) the anticipation of any material impairments, increases in allowances for credit losses, restructuring charges or other expenses; (7) any changes in accounting judgements that have had or are reasonably likely to have a material impact on our financial statements; (8) the decline in demand for our products; (9) the impact on our materials production chain; (10) the impact on the relationship between costs and revenues; (11) general economic and social uncertainty, including increases in interest rates, variations in foreign exchange rates, inflation and unemployment; and (12) other unforeseen impacts and consequences.
In addition, Covid-19 poses risks that our employees, contractors, suppliers, students, hub partners and other business partners may be prevented from conducting business activities for an indefinite period of time, including shutdowns that may be requested or mandated by governmental authorities and could have a material adverse effect on our results of operations, financial condition and liquidity. The mandatory closure of schools in 2020 may result in delays in students enrollments in postsecondary education courses and, therefore, affect our future operations, financial condition and liquidity. The extent to which Covid-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of Covid-19 and the actions to contain Covid-19 or mitigate its impact, among others.
We are not aware of comparable events that could provide us with guidance as to the effect of the spread of the Covid-19 pandemic and, as a result, the final impact of the Covid-19 outbreak is highly uncertain. Further, these adverse events occurred after the issuance of our audited consolidated financial statements included elsewhere in this prospectus. As of the date hereof, there is no additional information available to enable us to carry out an assessment of the impacts of the Covid-19 pandemic on our business, other than the considerations presented herein and in this prospectus under the sections “Summary — Recent Events” and “Risk Factors — Certain Risks Relating to Our Business and Industry — Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.” Although as of the date of this prospectus there has been no material impact on our operations, as most of our services are already delivered remotely or capable of being delivered remotely, we are not able to assure you if, and to what extent, in the future, our operations will be impacted by Covid-19.
 
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Furthermore, to the extent the Covid-19 pandemic adversely affects our business, results of operations, financial condition and liquidity, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
We are subject to various federal laws and extensive government regulation, and changes in such laws and regulation could have a material adverse effect on our business and our growth strategy.
We are subject to various federal laws and extensive government regulations by the MEC, the National Education Council (Conselho Nacional de Educação), or the CNE, the INEP, and the National Postsecondary Education Assessment Commission (Comissão Nacional de Avaliação da Educação Superior), or CONAES.
The Brazilian government may review and change the laws and regulations to which we are subject at any time. In addition, the MEC may also promulgate additional rules and regulations applicable to postsecondary education institutions, particularly with respect to distance learning programs. Any significant changes to the regulatory framework within which we currently operate could have a material adverse effect on us, in particular changes relating to:
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any revocation of accreditation of private educational institutions;
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the imposition of controls on monthly tuition payments or restrictions on profitability of private educational institutions;
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faculty credentials;
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academic requirements for courses and curricula, including bans on offering certain subjects in a distance learning format;
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changes to the situations in which distance learning education is authorized, requirements to be met to open new distance learning educational hubs or in the accreditation requirements to operate distance learning educational hubs;
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changes to the evaluation criteria of private educational institutions; and
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infrastructure requirements applicable campuses and/or hubs, such as libraries, laboratories and administrative support.
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The postsecondary education sector is highly regulated, and our failure to comply with existing or future laws and regulations could have a material adverse effect on our business.
The offer of postsecondary education is subject to the prior issuance of an authorization by the MEC. The authorizing acts issued by the MEC for postsecondary education are: accreditation and re-accreditation, authorization, recognition and renewal of recognition. Accreditation and re-accreditation refer to the educational institution; while authorization, recognition and renewal of recognition refer to the courses offered by the institution.
Brazilian education regulations define three types of postsecondary education institutions: (i) colleges; (ii) university centers; and (iii) universities. Each of these requires prior accreditation from the MEC to operate. Courses offered by colleges depend on prior authorizations from the MEC to be implemented, while courses offered by university centers and universities are not subject to such requirements, except for courses in law, medicine, psychology, nursing and dentistry, which do require the prior authorization from the MEC. For courses in law and medicine, prior to the authorization from the MEC, it is necessary to obtain formal opinion issued by Federal Council of the Brazilian Bar Association or the National Health Council, respectively.
In addition to the authorization, courses must be recognized by the MEC. Pursuant to article 101 of Ordinance No. 23/2017, issued by the MEC, courses may be considered valid even if the recognition request is not formally recognized by the MEC until the date that the first class has concluded the course and as long as the educational institution has filed a request for accreditation within the established legal deadline. Lastly, all postsecondary education institutions must be accredited by the MEC.
 
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The MEC must authorize our campuses located outside our headquarters before they can start operating and providing programs. Any authorization to open new distance learning educational hubs is contingent on our Institutional Concept (Conceito Institucional), or CI. For further information, see “Regulatory Overview”. Distance learning programs, as well as on-campus learning programs, are also subject to strict accreditation requirements for their implementation and operation. We must comply with all such requirements in order to obtain and renew all authorizations.
We cannot assure you we will be able to comply with these regulations and maintain the validity of our authorizations, recognition and accreditations in the future. If we fail to comply with these regulatory requirements, the MEC could place limitations on our operations, including cancellation of programs, restrictions on the number of enrollments we offer to students, termination of our ability to issue degrees and certificates and revocation of our accreditation, any of which could adversely affect our reputation, financial condition and results of operations. We cannot assure you that we will obtain accreditation or re-accreditation of our postsecondary education institutions, or that our courses will receive authorization or recognition and renewal of recognition as scheduled, or that such courses will have all of the accreditations, re-accreditations, authorizations, recognition and renewal of recognition required by the MEC. The absence of such authorizations and recognitions or any delays in obtaining them could adversely affect our financial condition and results of operations. We may be materially adversely affected if we are unable to obtain authorizations, accreditations and course recognitions in a timely manner, if we cannot introduce new courses as quickly as our competitors or if we are not able to or do not comply with any new rules or regulations promulgated by the MEC.
If we are unable to enter into agreements and maintain good relationships with, and/or increase the number of, our hub partners, our business and growth may be adversely affected. Failure by our hub partners to comply with the terms of agreements with them, and any failure by us to enforce such terms, may also adversely affect us. In addition, failure by our hub partners to maintain their existing levels of profitability may result in them ceasing to view their relationships with us as advantageous.
We derive a significant portion of our revenue from partnerships with education centers. Our net revenue was R$256.7 million for the six months ended June 30, 2020 and R$461.1 million for the year ended December 31, 2019, most of which was derived from students who study in hubs managed by our hub partners. We enter into these partnerships through contracts with hub partners who provide centers with infrastructure for our students, which may include private schools, and to whom we provide teachers and materials, teaching methodologies, as well as pedagogical, administrative and marketing advice. Currently, 82.7% of our hubs are partner hubs. We typically enter into contracts with our hub partners for indefinite terms. In the event of termination, in order to minimize the impact of early termination of these contracts on our students, hub partners are required to carry out their obligations under the applicable contract until the end of the semester during which the termination of the contract is initiated.
We also rely in part on existing partner referrals to attract new hub partners. Accordingly, maintaining a good relationship with our hub partners and developing new relationships and expanding our network of hub partners are essential to the success of our business. As of June 30, 2020 and December 31, 2019, we had 151 and 130 hub partners, respectively. Additionally, we may not be able to renew our contracts with our hub partners, including as a result of changes in the leadership composition of our hub partners and their decisions to discontinue existing relationships with us. In addition, our hub partners are independent entities, and we cannot guarantee that our hub partners will be able to maintain their existing levels of profitability and, therefore, that they will continue to view their relationships with us as valuable.
Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’
 
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operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment.
However, we cannot assure you that our hub partners will continue to work with us if their profitability declines as the hubs mature. Any deterioration in our relationship with our hub partners, and any early termination of, or a failure to renew, our contracts with our hub partners (including as a result of our hub partners no longer viewing those relationships as advantageous, as a result of a decrease in their profitability or otherwise) may harm our image, impair our ability to pursue our growth strategy, and materially adversely affect our business, our operating and financial results and our cash flows. Given that our existing hub partners usually also open new hubs, any deterioration in our relationship with our hub partners, or any failure to renew such relationships, could also affect our ability to expand further.
Furthermore, we cannot guarantee that our hub partners will always comply with the terms of our agreements with them. Failure to abide by such terms may include breaches of obligations not to solicit students, misuse of our brand, creation of unsanctioned classes, default in payment obligations under the applicable agreements and other matters, which may result in the applications of fines and/or penalties and, in certain circumstances, trigger our right to terminate the agreement. We may not always be able to enforce our agreements with hub partners effectively or at all. Any such breaches of agreements by our hub partners, and any failure on our part to enforce such agreements, may result in negative publicity, tarnish our reputation, deter prospective students from enrolling in our courses and deter prospective hub partners from entering into relationships with us, which may have a material adverse effect on our reputation as well as on our business, financial condition and results of operations.
If we are not able to attract and retain students, or are unable to do so without decreasing our tuition fees or increasing tuition discounts, our revenues may decline. Any increase in the drop-out rates of students in our education programs may adversely affect our results of operations.
The success of our business depends primarily on the number of students enrolled in our programs and the tuition fees that they pay. Our ability to attract and retain students depends mainly on the tuition fees we charge, the convenience of the locations of our facilities, the infrastructure of our hubs and campuses, the quality of our programs as perceived by our existing and potential students and our sales and marketing strategies. These factors are affected by, among other things, our ability to (i) respond to increasing competitive pressures, (ii) develop our educational systems to address changing market trends and demands from schools and students, (iii) develop new programs and enhance existing programs to respond to changes in market trends and student demands, (iv) adequately prepare our students for careers in their chosen professional occupations, (v) successfully implement our expansion strategy, (vi) manage our growth while maintaining our teaching quality and (vii) effectively market our programs to a broader base of prospective students. If we are unable to continue to attract new students to enroll in our programs and to retain our current students without significantly decreasing tuition or increasing tuition discounts, our revenues and our business may decline and we may be adversely affected.
We believe that our drop-out rates are primarily related to the personal motivation and financial situation of our current and potential students, as well as to socioeconomic conditions in Brazil. Significant changes in projected drop-out rates and/or failure to re-enroll students once the semester is over may affect our enrollment numbers, as well as our ability to recruit and enroll new students, each of which may have a material adverse effect on our projected revenues and our results of operations.
An increase in delays and/or defaults in the payment of tuition fees, as well as students canceling their course registration, may adversely affect our income and cash flow.
We depend on the full and timely payment of the tuition we charge our students, including tuition payments we receive through Student Financing Program (Programa de Financiamento Estudantil), or FIES, the University Scholarships Program of the State of Santa Catarina (Programa de Bolsas Universitárias de Santa Catarina), or UNIEDU, and other funded scholarships. An increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration, may have a material adverse effect on our cash flows and our business, including our ability to meet our obligations. Student delays and/or defaults in the payment of tuition fees and student
 
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cancellations of their course registrations may occur for a variety of reasons over which we have no control, including a student’s personal, financial and academic situation. Any increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration may have a material adverse effect on us.
Changes in tax laws, tax incentives, benefits or differing interpretations of tax laws may harm our results of operations.
Changes in tax laws, regulations, related legal interpretations applicable to our activities and accounting standards in Brazil may result in a higher tax rate on our earnings, which may significantly reduce our profits and cash flows from operations. In addition, our results of operations and financial condition may decline if certain tax incentives are not retained or renewed. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to customers, our financial condition, results of operations and cash flows could be seriously harmed. Our distance learning activities are also subject to a Municipal Tax on Services (Imposto Sobre Serviços), or ISS. Any increases in ISS rates or differing legal interpretations applicable to our activities would also harm our profitability.
In addition, tax rules in Brazil, particularly at the local level, change regularly, and it is common for taxpayers to challenge such changes, which may result in additional tax assessments and penalties for our company. The Brazilian federal government is currently seeking to reform Brazil’s tax system to improve Brazil’s economic performance. We cannot assure you that these proposed reforms will be successful or, if they are successful, that they will not result in an increase in our overall tax burden.
We are involved in tax proceedings based on differences of interpretation between us and the Brazilian tax authorities regarding tax laws and regulations. For further information, see “Business — Legal Proceedings — Tax and Social Security Matters.”
Any changes in tax laws, incentives, benefits or in the interpretation of tax laws, or decisions adverse to us in tax proceedings could have a material adverse effect on our business, financial condition and our results of operations.
Any change or review of the tax treatment of our activities, or the loss or reduction in federal tax exemptions provided under the PROUNI program, may materially adversely affect our business, financial condition and results of operations.
If the Brazilian government or any Brazilian municipality or tax authority decides to change or review the tax treatment of our activities, including tax exemptions available to us as a result of our participation in certain governmental programs relating to education, and we are unable to pass on any cost increase to our hub partners and/or to our students, our business, financial condition, as well as our results of operations may be materially adversely affected.
In particular, some of our students participate in the University for All Program (Programa Universidade para Todos), or the PROUNI program. PROUNI was created in 2005, through Law No. 11,096, of January 13, 2005. Its purpose is to provide full and partial scholarships to low-income students in undergraduate courses and sequential courses (cursos sequenciais), in private educational institutions. In return, the Brazilian federal government offers tax exemptions to educational institutions that participate in PROUNI. Private institutions may join PROUNI by executing a “commitment term,” with a 10-year term (renewable for another 10 years), setting the number of scholarships to be offered in each program, campus and course. Through the PROUNI program, the Brazilian federal government grants a number of full and partial scholarships to low-income postsecondary education students. As a result of our participation in the PROUNI program, we benefit from certain federal tax exemptions relating to bachelor’s and associate’s degree programs, such as (i) income tax, (ii) Social Contribution Tax on Gross Revenue (Programa de Integração Social), or PIS; (iii) Social Security Financing Tax on Gross Revenue (Contribuição para o Financiamento da Seguridade Social), or COFINS; and (iv) Social Contribution Tax on Net Profit (Contribuição Social sobre o Lucro Líquido), or CSLL, regarding our revenues from undergraduate and associate programs.
 
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We may be disqualified from the PROUNI program and lose our tax exemptions if we do not comply with certain requirements, such as providing total or partial scholarships for a percentage of students who paid their tuition in the previous year, granting partial scholarships, submitting to the MEC semi-annual records of attendance, achievement and drop-out of students receiving scholarships, among others. For further information, see “Regulatory Overview.” If we lose our tax exemptions or are unable to comply with other, more stringent requirements that may be introduced in the future, our business, financial condition and results of operations could be materially adversely affected.
There is a risk that additional changes in tax laws may prohibit, interrupt or modify the use of existing tax exemptions, and we cannot assure you that we will fully maintain such tax and other benefits related to PROUNI in the event the tax laws are amended further. Any suspension, accelerated default, repayment or inability to renew our tax exemptions may have an adverse effect on our results of operations. If we lose our tax exemptions and incentives, if we are unable to comply with future requirements or if changes in the law limit our ability to maintain these tax benefits, our business, financial condition, as well as the results of our operations may be significantly and adversely affected.
Starting in 2020, we expect to benefit from tax Law No. 10,865/04, as amended by Law No. 11,033/04, which currently establishes a zero rate for PIS and COFINS on the sale of books. The sale of books is currently also exempt by the Brazilian constitution from Brazilian municipal taxes, Brazilian services tax (Imposto Sobre Serviços), or ISS, and from the Brazilian tax on the circulation of goods, interstate and intercity transportation and communication services (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação), or ICMS. If the Brazilian tax authorities decide to reduce the scope or discontinue this tax exemption, the resulting increase in the tax rate applicable to sales of books may adversely impact our business and results of operations.
We face significant competition in each program we offer and each geographic region in which we operate. If we fail to compete effectively, we may lose market share and our profitability may be adversely affected.
Our competitors may offer programs or courses similar to or better than those offered by us, have access to more funds, be more prestigious or well-regarded within the academic community, have more conveniently located hubs with better infrastructure or charge lower tuition (or no tuition, in the case of public institutions). To compete effectively, we may be required to reduce our tuition or increase our operating expenses in order to retain or attract students or to pursue new market opportunities. As a result, our revenues and profitability may decrease. We cannot assure you that we will be able to compete successfully against our current or future competitors.
We compete with various public and private postsecondary education institutions, some of which are nonprofit organizations and exempt from various taxes. Additionally, we may become subject to greater competition in the distance learning market due to the implementation of Decree No. 9,057/​2017 and MEC Ordinance No. 11/2017, which now permits the accreditation of postsecondary education institutions exclusively for distance learning in lato sensu undergraduate and postgraduate courses. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share, our profits may decrease and we may be adversely affected.
Our success depends on our ability to monitor and adapt to technological changes in the education sector and maintain a technological infrastructure that works adequately and without interruption.
Information technology is an essential factor of our growth, especially in the distance learning business line. Our information technology systems and tools may become obsolete or insufficient, or we may have difficulties in following and adapting to technological changes in the education sector. Moreover, our competitors may introduce better products or service platforms. Our success, and especially the success of our distance learning business, depends heavily on our ability to efficiently improve our current products while developing and introducing new products that are accepted in the marketplace.
 
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Additionally, a failure to upgrade our technology, features, content, security infrastructure, network infrastructure, or other infrastructure associated with our platform could harm our business. Adverse consequences could include disruptions, slower response times, bugs, degradation in levels of customer support, impaired quality of users’ experiences of our educational platform and delays in reporting accurate financial information.
Furthermore, broad changes in culture, habits and customs in consumer populations and the work environment, with respect to both economic and technological factors, may also affect the attractiveness and registration rates of our courses with our target market.
Our business, particularly our distance learning business line, depends on our information technology infrastructure functioning properly and without interruptions. Several problems regarding our information technology structure, such as viruses, hackers, system interruptions and technical difficulties regarding our satellite transmissions of data, sound and image may have a material adverse effect on us and our business.
In addition, we face risks associated with unauthorized access to our systems, including by hackers and due to failures of our electronic security measures. These unauthorized entries into our systems can result in the theft of proprietary or sensitive information or cause interruptions in the operation of our systems. As a result, we may be forced to incur considerable expenses to protect our systems from electronic security breaches and to mitigate our exposure to technological problems and interruptions. Furthermore, our insurance coverage may not be sufficient to cover any damage we may suffer as a result of unauthorized access to our systems and other cybersecurity risks (see also “— We are not insured against all of the risks to which our business is exposed, and the insurance coverage we have may be inadequate to cover all losses and/or liabilities that we may incur in the course of our operations”).
As of the date hereof, due to the issuance of Provisional Measure No. 959/2020, or PM 959, the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados), or GDP Law will come into force until September 18, 2020, as soon as the Law Conversion Project (projeto de lei de conversão) of PM 959 is sanctioned or vetoed by the Brazilian President.
On August 26, 2020, in the extraordinary deliberative section of the Brazilian National Congress through which the conversion of PM 959 into ordinary law was considered, the Brazilian Federal Senate recognized as impaired the provision of PM 959 dealing with the extension of the entry into force of the GDP Law to May 3, 2021. As a result, this provision of PM 959 was removed from the text and the effective entry into force of the GDP Law is awaiting for the sanction or veto of the law conversion project by the Brazilian President, according to article 62, §12 of the Brazilian Federal Constitution. Articles 52, 53 and 54 of the GDP Law, which deal with administrative sanctions, will only come into force as of August 1, 2021, in the form of Law No. 14,010/2020.
Also on August 26, 2020, the Brazilian Federal Government issued Decree No. 10,474/2020, approving the regulatory structure and the positions on commission and the trust functions of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or NDPA. The Decree will enter into force on the date of publication of the appointment of the NDPA’s President in the Federal Official Journal.
Any failure by us or our subsidiaries to comply with the provisions of the GDP Law may expose us to penalties. See “— Failure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations.”
Difficulties in identifying, opening and efficiently managing new hubs (whether operated by us or by third parties) and/or campuses on a timely basis as part of our organic growth strategy may adversely affect our business.
Our strategy includes expanding organically by opening new hubs (whether operated by us or third parties) and campuses and integrating them into our educational network. This growth plan creates significant challenges in terms of maintaining our teaching quality and culture, as a result of the complexity
 
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and difficulty of effectively managing a large number of hubs, campuses and programs. If we are unable to maintain our current quality standards, we may lose market share and be adversely affected.
Establishing new hubs and campuses poses important challenges and requires us to make significant investments in infrastructure, marketing, personnel and other preoperational expenses, mainly identifying if the city or location is economically sustainable for the opening of a new hub and/or a campus, identifying new hub partners and sites for lease, as well as identifying potential new partners where applicable. We prioritize identifying strategic sites, negotiating the lease of properties, building or refurbishing facilities (including libraries, laboratories, study rooms and classrooms), obtaining local permits, hiring and training faculty and staff and investing in administration and support.
If we do not succeed in identifying and establishing our hubs in a cost-effective manner, or if the MEC imposes conditions for the opening and operating of new hubs, our business may be adversely affected.
We may not be able to successfully expand our presence and performance in the distance learning market.
We may face difficulties in successfully operating our distance learning program and in implementing and investing in the technologies necessary to operate a successful distance learning program, where the technological needs, the expectations of our customers and market standards change rapidly. We have to quickly modify our products and services to adapt to new distance learning technologies, practices and standards. We may be adversely affected if current or future competitors introduce products or service platforms that are superior to those we offer, or if our resources are not adequate to develop and adapt our technological capabilities rapidly enough to maintain our competitive position.
In addition, the success of our distance learning programs depends on the general population having easy and affordable access to the internet, as well as on other technological factors that are outside of our control. If the internet becomes inaccessible or access costs increase to levels higher than current prices, or if the number of students interested in distance learning educational methods does not increase, we may be unable to successfully implement our distance learning program strategy, which would have an adverse effect on our growth strategy.
We may not be able to update, improve or offer the content of our existing programs to our students on a cost-effective basis.
To differentiate ourselves and remain competitive, we must continually update our courses and develop new educational programs, including through the adoption of new technological tools. Updates to our current courses and the development of new educational programs may not be readily accepted by our students or by the market. Also, we may not be able to introduce new educational programs at the same pace as our competitors or at the pace required by the labor market. If we do not adequately modify our educational programs in response to market demand, whether due to financial restrictions, unusual technological changes or otherwise, our ability to attract and retain students may be impaired and we may be materially adversely affected. Any such developments may have a material adverse effect on us.
We may face difficulties in effectively integrating and managing a growing number of hubs.
Our number of hubs has grown exponentially, from 72 as of December 31, 2016 to 545 as of December 31, 2019 and 608 as of June 30, 2020. We may face significant challenges in the process of integrating the operations of any new hubs with our existing hubs, such as the inability to manage a greater number of geographically dispersed employees and create and implement efficient uniform controls, procedures and policies, in addition to the incurrence of high integration costs. The anticipated benefits of the expansion we may pursue will not be achieved unless we successfully integrate the new hubs into our operations and effectively manage, market and apply our business strategy to them. We may also be unable to integrate faculty and personnel with different professional experience and from different corporate cultures, and our relationship with current and new employees, including tutors and professors, may be impaired. In addition, we may face challenges in entering into successful
 
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collective bargaining arrangements with unions due to differences in the negotiation procedures followed in the different geographic regions of the new hubs. See “— We could be adversely affected by the terms and conditions of collective bargaining agreements with the labor unions representing our tutors and professors and administrative employees or by strikes and other union activity.” If we are not able to manage our growth effectively, our business could be materially adversely affected.
Material weaknesses in our internal control over financial reporting have been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.
Prior to this offering, we were a private company with limited accounting personnel and other resources to address our internal control over financial reporting and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
After this offering, we will be subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the current rules of the SEC, starting with our second annual report following our initial public offering we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. We cannot provide an estimate of the time required or costs expected to be incurred in connection with implementing a remediation plan. Remediation measures may be time consuming, costly, and might place significant demands on our financial and operational resources. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our common shares may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, or other regulatory authorities.
In addition, these new obligations will also require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business. These cost increases and the diversion of management’s attention could materially and adversely affect our business, our financial condition and our results of operations.
In connection with the audit of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting as of December 31, 2019, which are described below. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to our insufficient accounting resources and processes necessary to comply with the reporting and compliance requirements of IFRS and the SEC. As a result, this contributed to the following material weaknesses, specifically, we did not design and maintain effective controls over: (a) supervision in relation to financial reporting for a public company, including lack of an audit committee; (b) segregation of duties across business processes; (c) training, specifically, training addressing financial reporting topics for a public company; (d) the accounting for stock-based compensation; (e) the accounting for goodwill, specifically the allocation of goodwill and impairment testing; (f) the financial reporting closing process, including the accounts payable from acquisition of subsidiaries, the identification and disclosure of related party transactions, revenue recognition and the procedures existent to maintain formal accounting policies, processes and controls to analyze, account for and disclose complex transactions; and (g) information systems and associated infrastructure, including but not limited to (1) managing access to our systems, data and end-user computing (EUC) controls, and (2) computer operations controls.
These material weaknesses did not result in a misstatement to our consolidated financial statements included herein. However, each of the material weaknesses described above could have resulted in a
 
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misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim condensed consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control deficiencies constitute material weaknesses.
We are in the process of adopting a remediation plan to improve our internal control over financial reporting, including increasing the depth and experience within our accounting and finance team, designing and implementing improved processes and internal controls, including the implementation of an audit committee, and retaining outside consultants with extensive technical expertise. However, we cannot assure you that our efforts will be effective or prevent any future material weakness or significant deficiency in our internal control over financial reporting.
Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations.
Our revenues, expenses and, consequently, our operating results normally fluctuate as a result of seasonal variations in our business. Specifically:
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Our distance learning undergraduate courses are structured around separate monthly modules. This enables students to enroll in distance learning courses at any time during a semester. Despite this flexibility, we generally experience a higher number of enrollments in distance learning courses in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, we generally experience a higher number of enrollments at the beginning of the first semester of each year than at the beginning of the second semester of each year. In order to attract and encourage potential new students to enroll in our undergraduate courses later in the semester, we often offer discounts, generally equivalent to the number of months that have passed in the semester. As a result, we generally record higher revenue in the second and fourth quarters of each year, as additional students enroll in our courses later in the semester. Revenue is also higher later in the semester due to lower dropout rates during that same period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Revenue Recognition and Seasonality.”
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A significant portion of our expenses are also seasonal. Due to the nature of our business cycle, a significant amount of selling and marketing expenses are required to cover costs in connection with the first semester intake, which in Brazil is typically in December, January and February.
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As a result, we expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our performance, liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our results of operations.
Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.
We may face risks related to public health threats or outbreaks of communicable diseases. The outbreak of communicable diseases could result in a widespread health crisis that could adversely affect the global economy and our ability and our business partners’ ability to conduct business in Brazil for an indefinite period of time. For example, the recent outbreak in China of Covid-19 has spread across the globe, and is already resulting in a global or regional economic slowdown, a shutdown of production and supply chains and a disruption of international trade, all of which may negatively impact the postsecondary education industry.
For example, disruptions in public and private infrastructure, including communications and financial, could materially and adversely disrupt our normal business operations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the
 
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spread of Covid-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our hub partners, our students or other third-parties. See “— Failure to prevent or detect a malicious cyberattack on our systems and databases could result in a misappropriation of confidential information or access to highly sensitive information.”
If our growth rate decelerates significantly, our future prospects and financial results would be adversely affected, preventing us from achieving profitability.
We believe that our growth depends on a number of factors, including, but not limited to, our ability to:
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attract and retain students, thus increasing the number of students of our educational programs;
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continue to introduce our educational programs to new markets;
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provide high quality support to students and hub partners using our products and services;
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expand our business and increase our market share;
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compete with the products, services, offers, prices and incentives offered by our competitors;
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develop new educational programs, products, services, offerings and technologies;
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identify and acquire or invest in businesses, products, offerings or technologies that we believe may be able to complement or expand our operations; and
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increase the positive perception of our brands, especially the “Uniasselvi” brand.
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We may not be successful in achieving the above objectives. Any slowdown in the demand from students or hub partners for our services caused by changes in customer preferences, failure to maintain our brands, inability to expand our portfolio of products or services, changes in the Brazilian or global economy, taxes, competition or other factors may lead to a decrease in revenue or growth and our financial results and future prospects could be negatively affected. We expect that we will continue to incur significant expenses as a result of our efforts to continue growing, and if we cannot increase our revenue at a faster rate than the increase in our expenses, we will not be able to achieve profitability.
We may fail to meet any publicly announced quarterly and annual financial guidance, which would cause the price of our common shares to decline in value and our shareholders’ equity to be adversely affected.
Following this offering, our management may publicly announce quarterly and annual guidance related to our operating and financial results, and cash generation estimates based on management’s expectations and assumptions. To the extent that it does, we cannot guarantee that we will meet any such publicly announced quarterly or annual estimates, and our operating and financial results and cash generation in any one quarter should not be relied upon as indicative of our future performance. Our ability to meet our estimates may be affected by certain factors, including: (1) poor business performance due to flaws in our information technology, our operations or management; (2) competition from existing and future competitors that operate in the same sectors in which we operate and that may offer technological solutions, products and/or services that are more attractive than ours; (3) the absence of qualified professionals to execute our strategies in the short, medium and long term; and (4) other risks to which we are exposed to, as disclosed elsewhere in this prospectus. If our actual operating, financial and cash generation results fail to meet any public guidance that we announce, the price of our common shares could decline in value and our shareholders’ equity may be adversely affected.
Our working capital needs have increased, and may continue to increase for the near future.
We have historically relied on our cash flow generation to satisfy our working capital needs. If we do not increase our cash flow generation or gain access to additional capital, whether through a line or credit or other sources of capital, which may not be available on satisfactory terms or in adequate
 
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amounts, then our cash and cash equivalents may decline, which will have an adverse impact upon our liquidity and capital resources. We expect our working capital needs to increase as our business expands. If we do not have sufficient working capital, we may not be able to pursue our growth strategy, respond to competitive pressures or fund key strategic initiatives, which may harm our business, financial condition and results of operations.
If we are unable to attract, recruit, develop, retain or replace our key personnel or are unable to attract, retain and develop other qualified employees, our business, financial situation and operating results may be adversely affected.
We are dependent upon the ability and experience of a number of our key personnel who have substantial experience with our operations. Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their industry experience. It is possible that the loss of the services of one or a combination of our senior executives or key managers could have a material adverse effect on our business, financial condition and results of operations. We do not currently carry any key man insurance against such risks.
In addition, in order for us to successfully compete and increase the number of customers, we need to attract, recruit, retain and develop talented employees generally, who can provide the required expertise across the entire spectrum of our needs for high quality products, services and educational content, including for sales and marketing. A number of our key employees have significant experience in our operations, and we must develop adequate succession plans to maintain continuity amidst the natural uncertainties of the labor force. The market for skilled staff is competitive, and we may not be successful in recruiting or retaining staff or we may not be able to effectively replace key employees who leave. We must also continue to hire additional staff to execute our strategic plans. Our efforts to retain and develop personnel may also result in significant additional expenses that could adversely affect our business and results of operations.
We cannot guarantee that qualified employees will remain in our employment or that we will be able to attract and retain qualified personnel in the future. In particular, we may not be able to achieve the anticipated revenue growth by expanding our sales and marketing teams if we are not able to attract, develop and retain qualified sales and marketing personnel in the future. Any failure to retain or hire key personnel could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, although we have entered into noncompetition agreements with our key personnel, they may nevertheless go work for our competitors, or create new competing businesses, after leaving us if we are unable to enforce such noncompetition agreements for any reason. Any such departure by key personnel may adversely affect us.
Increases in the price of certain inputs and in the fees of our third-party printer providers may result in an increase in our costs, which we may not be able to pass on to our students by adjusting our monthly tuition fees.
Our primary source of income is the monthly tuition payments we charge to our students. For the six months ended June 30, 2020 and the year ended December 31, 2019, payroll and social charge expenses represented 50.6% and 48.6%, sales and marketing represented 21.7% and 12.4%, materials represented 3.6% and 4.1%, lease payments represented 1.0% and 0.9% and utilities, cleaning and security costs represented 1.6% and 1.6% of our total costs and expenses, respectively. Personnel costs, lease values and the cost of electricity are adjusted regularly using indices that reflect changes in inflation levels. In addition increases in the price of the inputs used for editing and publishing the printed materials related to our educational platform, particularly the price of paper, the cost of printing services and publishing, as well as increases in the fees of our third party printer providers, which produce our printed educational materials, could adversely affect our results if we are not able to fully pass these cost increases on to our students.
Paper and postage prices are particularly difficult to predict and control. Paper is a commodity and its price may be impacted by fluctuations in foreign exchange rates and commodities prices, and can
 
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be subject to significant volatility. Our third-party printer providers have adjusted their fees to account for changes in prevailing market prices of their inputs, especially paper. Though we have historically been able to obtain favorable pricing through volume discounts, particularly as a result of our significant recent growth, no assurance can be provided that we will be able to continue to obtain favorable printing and publishing pricing. We cannot predict with certainty the magnitude of future price changes for paper, postage, and printing and publishing in general.
The tuition fees charged by our competitors, and the contractual arrangements and Brazilian legislation to which we are subject, may prevent us from passing on cost increases to our students by adjusting our monthly fees in a timely manner. If we are not able to transfer any increases in our costs to students by increasing the amounts of their monthly tuition fees, our operating results may be adversely affected.
We are subject to supervision by the MEC and, consequently, we may suffer sanctions as a result of noncompliance with any regulatory requirements.
Brazilian Federal Law No. 10,861/2004, regulated by Decree No. 9,235/2017, implemented the activities of supervision of postsecondary education entities and courses in the Brazilian federal education system. The Secretariat for Regulation and Supervision of Postsecondary Education (Secretaria de Regulação e Supervisão da Educação Superior), or SERES, of the MEC is responsible for the regular and special supervision of the corresponding courses and programs.
Regular supervision derives from complaints and allegations by students, parents and faculty members, as well as by public entities and the press. These complaints and allegations involve specific cases of entities with courses showing evidence of irregularities or deficiencies. We are subject to those complaints and representations. Special supervision, on the other hand, may be commenced by the MEC itself, based on its postsecondary education regularity and quality standards, and involves more than one course or entity, grouped according to the criteria chosen for the special supervision. These criteria may include unsatisfactory results in the National Exam for the Assessment of Student Performance (Exame Nacional de Desempenho de Estudantes), or ENADE, and the Difference Indicator between Expected and Actual Performance (Indicador de Diferença entre os Desempenhos Observado e Esperado), among other quality indicators, the history of course evaluations by the INEP, as well as compliance with specific legal requirements such as, for example, the minimum ratio between faculty members with master’s and doctorate degrees.
Administrative irregularities can include, among others: (i) unlicensed or irregular postsecondary courses; (ii) any outsourcing of postsecondary education activities; (iii) the failure to file a re-accreditation or recognition or renewal request with respect to postsecondary education courses within the time periods enacted by the MEC pursuant to Decree No. 9,235/2017; (iv) failure to comply with any penalties imposed by the MEC; and (v) failure to comply with educational legislation when offering postsecondary education courses.
If the MEC concludes, as part of its supervisory activities, that an irregularity constitutes an imminent risk or threat to students or the public interest, it may impose the following measures on the relevant educational institution for a period to be determined by the SERES: (i) suspend the admission of new students; (ii) suspend the offering of undergraduate or postgraduate lato sensu courses; (iii) suspend the institution’s discretionary ability to, among other things, create new postsecondary courses and establish course curricula, if applicable; (iv) suspend the license to establish new distance learning programs; (v) override any ongoing regulatory requests filed by the institution and prohibit new regulatory requests; (vi) suspend participation in the New FIES; (vii) suspend participation in PROUNI; and (viii) suspend or restrict participation in other federal education programs. The educational institution can contest the MEC’s findings by filing motions with the MEC or with Brazilian courts.
Upon completion of the supervisory process and to the extent the MEC concludes that there are administrative irregularities, SERES may apply the penalties provided for by Law No. 9,394/1996, namely (i) discontinue courses; (ii) directly intervene in the educational institution; (iii) temporarily suspend the institution’s discretionary ability to, among other things, create new postsecondary courses and establish
 
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course curricula, if applicable; (iv) disqualify the institution as an educational institution; (v) reduce the number of student vacancies; or (vi) temporarily suspend new student enrollments.
We are also subject to regulation by UNIEDU, a program of the state of Santa Catarina that provides scholarships for students to attend universities. If we do not comply with such regulations, we may be disqualified and stop receiving funding for corresponding programs, which may adversely affect our business, results of operations and financial condition.
We could be adversely affected by the terms and conditions of collective bargaining agreements with the labor unions representing our tutors and professors and administrative employees or by strikes and other union activity.
Our payroll and social charge expenses account for the majority of our total costs and expenses, or 50.6% and 48.6% of such costs and expenses for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively. Our faculty and administrative employees are represented by labor unions with a strong representation in the higher education sector and are covered by collective bargaining agreements or similar arrangements negotiated by associations representing employers and labor unions representing employees. Such collective bargaining agreements determine the length of the school day, the length of the school year, minimum compensation, raises for cost-of-living, vacations and fringe benefits, among other terms. These agreements are subject to annual renegotiation and may be so modified. We are not members of an association representing employers and we do not therefore participate in collective bargaining agreements negotiations. Typically, inflation rates have been used as a reference for annual wage increases; however, certain collective bargaining agreements may also provide for adjustments in excess of inflation for our faculty and administrative employees. We could also be adversely affected if we fail to achieve and maintain cooperative relationships with our tutors, professors’ or administrative employees’ unions or face strikes, stoppages or other labor disruptions by our tutors, professors or employees.
In addition, we may not be able to pass on any increase in costs arising from the renegotiation of collective bargaining agreements to the monthly tuition fees paid by students, which may have a material adverse effect on our business.
We operate in markets that are dependent on Information Technology (IT) systems and technological change. Failure to maintain and support customer-facing services, systems, and platforms, including addressing quality issues and execution on time of new products and enhancements, could negatively impact our revenues and reputation.
We use complex IT systems and products to support our businesses activities, including customer-facing systems, back-office processing and infrastructure. We face several technological risks associated with online product service delivery, information technology security (including virus and cyber-attacks), e-commerce and enterprise resource planning system implementation and upgrades. Our plans and procedures to reduce risks of attacks on our system by unauthorized parties may not be successful. Thus, our businesses could be adversely affected if our systems and infrastructure experience a failure or interruption in the event of future attacks on our system by unauthorized parties.
We rely upon a third-party data center service provider to host certain aspects of our platform and content and any disruption to, or interference with, our use of such services, could impair our ability to deliver our platform, resulting in customer dissatisfaction, damaging our reputation and harming our business.
We utilize data center hosting facilities from a global third-party service provider to make certain content available in our platform. Our operations depend, in part, on our provider’s ability to protect its facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The occurrence of spikes in user volume, traffic, natural disasters, acts of terrorism, vandalism or sabotage, or a decision to close a facility without adequate notice, or other unanticipated problems at our provider’s facilities could result in lengthy interruptions in the availability of our platform, which would adversely affect our business.
 
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We may pursue strategic acquisitions, investments and/or divestments. The failure of an acquisition, investment or divestment to produce the anticipated results, or the inability to integrate an acquired company fully, could harm our business.
We may undertake acquisitions, and we may from time to time submit non-binding proposals or acquire or invest in complementary companies or businesses, as part of our strategy to expand our operations, including through acquisitions or investments that may be material in size and/or of strategic relevance. We may also evaluate divestment opportunities whenever we believe that disposing of certain assets would be desirable for our business strategy. The success of any acquisition, investment or divestment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that our acquisitions, investments or divestments will produce the results that we expect at the time we enter into or complete a given transaction.
In addition, our previous and any future transactions involve a number of risks and challenges that may have a material adverse effect on our business and results, including the following:
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the acquisition may not contribute to our commercial strategy or the image of our institution;
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a future acquisition may be subject to approval by Brazil’s Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE, or other regulatory authorities, which may deny the necessary approvals for, or impose conditions or restrictions on, the acquisition;
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we may face contingent liabilities in connection with, among others things, (i) judicial and/or administrative proceedings of the acquired institutions, including civil, regulatory, tax, labor, social security, environmental and intellectual property proceedings, and (ii) financial, reputational and technical issues, including with respect to accounting practices, financial statement disclosures and internal controls, as well as other regulatory matters, all of which may not be sufficiently indemnifiable under the relevant acquisition agreement;
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acquisition and divestment processes may require additional funds and/or may be time consuming and the attention of our management may be diverted from their day-to-day responsibilities and our operations;
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our investments in acquisitions may not generate the expected returns, and we may mismanage administrative and financial resources as part of the integration process;
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our divestments may not generate the expected outcomes;
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the business model of the institutions we acquire may differ from ours, and we may be unable to adapt them to our business model or do so efficiently;
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we may not be able to integrate efficiently and successfully the operations of the institutions we acquire, including their corporate cultures, personnel, financial systems, distribution or operating procedures;
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certain transactions may impact our financial reporting obligations and the preparation of our consolidated financial statements, resulting in delays to such preparation;
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the acquisitions may generate goodwill, the impairment of which will result in the reduction of our net income and dividends, and our financial statements may be affected as a result of the application of our accounting policies to the results of our acquisitions;
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the transfer of management of the target institution resulting from a change of control or corporate restructuring must be notified to the MEC, within 60 days from the execution of the document implementing the change of control or corporate restructuring, and the MEC may impose additional restrictions on its reaccreditation; and
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we may be unable to provide the acquired company with the necessary resources to support its operations and if, by the time of the reaccreditation of the acquired company with the MEC, the MEC finds that we have failed to meet any applicable reaccreditation requirements, it may impose restrictions or conditions on the reaccreditation of the acquired company, such as
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being prevented from increasing in vacancies and from admitting new students to the course; in addition the institution may become subject to the administrative supervision process.
We may require additional funds to continue our expansion strategy. If we are unable to obtain adequate financing on favorable terms to complete any potential acquisition or other significant transaction and implement our expansion plans, our growth strategy may be materially and adversely affected.
In addition, we may face significant challenges in the process of integrating the operations of any acquired companies with our existing business, such as the inability to manage a greater number of geographically dispersed employees and create and implement efficient uniform controls, procedures and policies, in addition to the incurrence of high or unexpected integration costs. As of the date of this prospectus, we have fully integrated the operations of our operating companies with our business. The anticipated benefits of the acquisitions we may pursue will not be achieved unless we successfully and efficiently integrate the acquired companies into our operations and effectively manage, market and apply our business strategy to them. We may also be unable to integrate faculty and personnel with different professional experience and from different corporate cultures, and our relationship with current and new employees, including tutors and professors, may be impaired. In addition, we may face challenges in entering into successful collective bargaining arrangements with unions due to differences in the negotiation procedures followed in the different geographic regions of the acquired companies. If we are not able to manage our expanded operations and these integrations effectively, our business could be materially adversely affected.
We may not be able to appropriately manage the expansion of our business and staff or the increased complexity of our software and platforms, or grow in our addressable market.
We are currently experiencing a period of significant expansion and are facing a number of expansion-related issues, such as the acquisition and retention of experienced and talented personnel, cash flow management, corporate culture and internal controls, among others. These issues and the significant amount of time spent on addressing them may result in the diversion of our management’s attention from other business issues and opportunities. In addition, we believe that our corporate culture and values are critical to our success, and we have invested a significant amount of time and resources building them. If we fail to preserve our corporate culture and values, our ability to recruit, retain and develop personnel and to effectively implement our strategic plans may be harmed.
We must constantly update our software and platform, enhance and improve our billing and transaction and other business systems, and add and train new software designers and engineers, as well as other personnel, to accommodate the increased use of our platform and the new solutions and features we regularly introduce. This process is time-intensive and expensive, and may lead to higher costs in the future. Furthermore, we may need to enter into relationships with various strategic partners, other online service providers and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenues, and operating margins.
We cannot assure you that our current and planned platform and systems, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational and financial resources, and this strain is expected to continue. Our failure to manage growth effectively could seriously harm our business, results of operations and financial condition.
The ability to attract, recruit, retain and develop qualified employees is critical to our success and growth.
In order for us to successfully compete and grow, we must attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. We must also develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may
 
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fail to effectively replace current personnel who depart with qualified or effective successors. We must continue to hire additional personnel to execute our strategic plans. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability. We cannot assure you that qualified employees will continue to be employed, that we will manage them successfully, or that, in the future, we will be able to attract qualified personnel with similar skills and expertise at equivalent cost and retain them. Failure to retain or attract qualified personnel could have a material adverse effect on our business, financial condition and results of operations.
We utilize third-party logistics service providers for the shipping of all of our collections of printed teaching materials. The successful delivery of our materials to our clients depends upon effective execution by our logistics team and such service providers. Any material failure to execute properly for any reason, including damage or disruption to any service providers’ facilities, would have an adverse effect on our business, financial condition and results of operations.
The delivery of printed books to our hubs and campuses is a seasonal activity, with a cycle beginning with the creation and revision of content generally from April to July, the purchase of printing services from August to October, and delivery from November to January. We have expanded our operations rapidly since our inception. As our size increases, so does the size and complexity of our logistics operation.
There is a high volume of deliveries in November and December, requiring significant involvement in inventory/demand management and relationship and planning alongside the printers. In an industry where one of the most valued indicators is the timely delivery of printed materials, failure to meet deadlines, inadequate logistical planning, disruptions in distribution centers, deficient inventory management, and failure to meet client requirements may damage our reputation, increase returns of our materials or cause inventory losses, and negatively impact our gross margins, results of operations and business.
Substantially all of the inventory for our printed teaching materials is located in warehouse facilities leased and operated by us and then delivered by a third-party shipping company that handles shipping of all physical learning materials. If our logistics service providers fail to meet their obligations to deliver teaching materials to partner schools in a timely manner, or if a material number of such deliveries are incomplete or contain assembly errors, our business and results of operations could be adversely affected. Furthermore, a natural disaster, fire, power interruption, work stoppage or other unanticipated catastrophic event, especially during the period from August through October when we are awaiting receipt of most of the curriculum materials for the academic year and have not yet shipped such materials to our hubs and campuses, could significantly disrupt our ability to deliver our products and operate our business. If any of our material inventory items, warehouse facilities or distribution centers were to experience any significant damage, we would be unable to meet our contractual obligations and our business would suffer.
The interests of our management team may be focused on certain considerations which may not coincide with your interests. In addition, our shareholders may suffer dilution of their interests in our issued share capital and in the value of their investments due to new stock option grants.
Our directors and officers, among others, own shares in the Company and are beneficiaries under our share-based incentive plan. We implemented our share-based incentive plan in 2017. Due to the issuance of stock options to members of our management team, a significant portion of their compensation is closely tied to our results of operations (as measured by our Adjusted EBITDA), which may lead such individuals to direct our business and conduct our activities with an emphasis on certain considerations which may not coincide with your interests. As a result of these factors, the interests of our management team may not coincide with the interests of our other shareholders.
We have approved a share-based incentive plan for our managers and employees which provides for the granting of stock options to participants. Once the options have been exercised by the participants, our board of directors will determine whether our issued share capital should be increased through the
 
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issuance of new shares to be subscribed by participants, or if they will be settled through shares held in treasury. In the event settlement occurs through the issuance of new shares, our shareholders will suffer dilution of their interests in our issued share capital and in the value of their investments.
Following the consummation of this offering, we intend to establish a new equity incentive plan, which will govern issuances of equity incentive awards following the closing of this offering. We intend to reserve up to 5.0% of our common shares for issuance under our equity incentive plan.
In case of new stock option grants, whether under existing plans or new plans that may be approved by our shareholders at the shareholders’ meeting, our shareholders will be subject to additional dilution. For additional information on our stock option plan, see “Management — Compensation of Directors and Officers” for additional information.
We may be held liable for extraordinary events that may occur at our hubs and/or campuses, which may have an adverse effect on our image and, consequently, our results of operations.
We may be held liable for the actions of principals, coordinators, tutors, professors, employees or other persons connected to us or to third-party service providers, at our hubs and campuses, including allegations of noncompliance by principals, coordinators, tutors, professors or other employees, connected to us or to our hub partners, as the case may be, with specific legislation and regulations implemented by the MEC relating to our programs. In the event of accidents, injuries or other damages affecting students at our campuses or hubs, we may face claims alleging that we were negligent, provided inadequate supervision or were otherwise liable for the injury. We may also be subject to claims alleging that tutors, professors or other employees committed moral or sexual harassment or other unlawful acts. Our insurance coverage may not cover certain indemnifications we may be required to pay, be insufficient to cover these types of claims, or may not cover certain acts or events, and we may also not be able to renew our current insurance policies under the same terms. Such liability claims may affect our reputation and harm our financial results.
We are not insured against all of the risks to which our business is exposed, and the insurance coverage we have may be inadequate to cover all losses and/or liabilities that we may incur in the course of our operations.
We are not insured against all of the risks to which our business may be exposed. Furthermore, the insurance coverage we have may be inadequate or insufficient to cover all losses and/or liabilities that we may incur in the course of our operations. Our existing insurance coverage may also impose conditions for claims with which we may not be able to comply, as a result of which our insurance providers may refuse coverage for losses and/or liabilities that we may incur in the course of our operations. In addition, we may not be able to renew our existing insurance coverage on favorable terms or at all. Accordingly, if we incur a significant liability or loss for which we are not fully insured, our business, financial condition and results of operations could be adversely affected.
We may face restrictions and penalties, and may be subject to proceedings, under the Brazilian Consumer Protection Code in the future.
Brazil has a series of strict consumer protection laws, referred to collectively as the Brazilian Consumer Protection Code (Código de Defesa do Consumidor), or the Consumer Protection Code. These laws apply to all companies in Brazil that supply products or services to Brazilian consumers. They include protection against misleading and deceptive advertising, protection against coercive or unfair business practices and protection in the formation and interpretation of contracts, usually in the form of civil liabilities and administrative penalties for violations.
These penalties are often levied by the Brazilian Consumer Protection Agencies (Fundação de Proteção e Defesa do Consumidor), or PROCONs, which oversee consumer issues on a district-by-district basis. Companies that operate across Brazil may face penalties from multiple PROCONs, as well as from the National Secretariat for Consumers (Secretaria Nacional do Consumidor), or SENACON. Companies may settle claims made by consumers via PROCONs by paying compensation for violations
 
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directly to consumers and through a mechanism that allows them to adjust their conduct, called a conduct adjustment agreement (Termo de Ajustamento de Conduta), or TAC.
Brazilian public prosecutors may also commence investigations of alleged violations of consumer rights and require companies to enter into TACs. Companies that violate TACs face potential enforcement proceedings and other potential penalties such as fines, as set forth in the relevant TAC. Brazilian public prosecutors may also file public civil actions against companies who violate consumer rights or competition rules, seeking strict adherence to the consumer protection laws and compensation for any damages to consumers. In certain cases, we may also face investigations and/or sanctions by the CADE, in the event our business practices are found to affect the competitiveness of the markets in which we operate or the consumers in such markets.
In addition, we may also be subject to legal proceedings by current and/or former students alleging breaches of rights granted by the Consumer Protection Code. Even if unsuccessful, these claims may cause negative publicity, reduce enrollment numbers, increase drop-out rates, entail substantial expenses and divert the time and attention of our management, materially adversely affecting our results of operations and financial condition.
We may be adversely affected if we are unable to maintain consistent educational quality throughout our network, including the education materials of our campuses and hubs, or keep or adequately train our faculty, or ensure that our hub partners will maintain their facilities, equipment and team compatible with our required standards at all time.
Our teaching faculty, including tutors and teachers at our hubs and campuses, is essential for maintaining the quality of our programs and the strength of our brand and reputation. We promote training in order for our faculty to attain and maintain the qualifications we require and for us to provide updating programs on trends and changes in their areas. Due to shortages in the supply of qualified professors or tutors, competition for hiring and retaining qualified professionals has increased substantially. We cannot assure you that we will succeed in retaining our current professors or tutors or recruiting or training new professors or tutors who meet our quality standards, particularly as we continue to expand our operations in new regions.
The quality of our academic curricula and the infrastructure of our hubs and campuses are also key elements of the quality of the education we provide. We cannot assure you that we will succeed in identifying facilities with adequate infrastructure for our new hubs, develop adequate infrastructure in properties we acquire or have enough resources to continue expanding through acquisitions or development of new projects. In addition, we cannot assure you that we will be able to develop academic curricula for our new programs with the same levels of excellence as existing programs and meeting the standards set forth by the MEC. Shortages of qualified tutors and professors, adequate infrastructure or quality academic curricula for new programs according to our business model and the parameters set forth by the MEC, may have a material adverse effect on our business.
Furthermore, the success of our commercial strategy depends on our strategic alliances with our network of hub partners, and on our ability to cooperate effectively with our hub partners. This cooperation depends, in part, on our partners having facilities, equipment and personnel compatible and otherwise able to cooperate with our own. Our partners are independent entities, each of which is responsible for their own installations, the maintenance of adequate equipment and the training of personnel. We may not be able to ensure that our partners will maintain adequate facilities and equipment or that their teams will be sufficiently trained to cooperate effectively with us.
See also “— If we are not able to maintain our current MEC evaluation ratings and the evaluation ratings of our students, we may be adversely affected.”
Our business depends on the continued success of our brand “Uniasselvi,” and if we fail to maintain and enhance recognition of our brand, we may face difficulty enrolling new students, and our reputation and operating results may be harmed.
We believe that market awareness of our brand “Uniasselvi” has contributed significantly to the success of our business. Maintaining and enhancing our brand are critical to our efforts to grow student
 
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enrollments. We rely heavily on the efforts of our sales force and our marketing channels, including online advertising, search engine marketing, social media and word-of-mouth. Failure to maintain and enhance our brand recognition could have a material and adverse effect on our business, operating results and financial condition. We have devoted significant resources to our brand promotion efforts in recent years, but we cannot assure you that these efforts will be successful. Additional efforts to promote our brand, or increases in the costs we incur to promote our brand may also result in significant additional expenses, which could adversely affect our profitability. Our ability to attract new customers and retain our existing customers depends on our investments in our brands, on our marketing efforts and the success of our sales team, and the perceived value of our services in comparison with our competitors. If customers fail to distinguish our brands and the content we offer from our competitors, this may lead to decreased sales and revenue, lower margins or a decline in the market share of our brands. If our marketing initiatives are unsuccessful or become less effective, if we are unable to further enhance our brand recognition, if we incur excessive marketing and promotion expenses, if our brand image is negatively impacted by any negative publicity, or if our customers or third parties misuse our brands in a way that results in a poor general perception of our brands, our business and results of operations could be materially and adversely affected.
In addition, if any of our hub partners engages in unlawful activities, the general public may associate such hub partner’s behavior with our brand, generating negative publicity that may adversely affect our reputation.
Our reputation may be negatively influenced by the actions of other for-profit and private institutions.
In recent years, there have been a number of regulatory investigations and civil litigation matters targeting postsecondary for-profit education institutions in Brazil and private higher education institutions in other countries. These investigations and lawsuits have alleged, among other things, deceptive trade practices, noncompliance with MEC regulations, and breach of the requirement that universities be operated as not-for-profit institutions. These allegations have attracted adverse media coverage and have been the subject of federal and state legislative hearings and investigations in the Brazil and in other countries. Allegations against the postsecondary for-profit and private education markets may affect general public perceptions of for-profit and private educational institutions, including institutions in our network and us, in a negative manner. Adverse media coverage regarding other for-profit or private educational institutions or regarding us directly or indirectly could damage our reputation, reduce student demand for our programs, materially adversely affect our revenues and operating profit or result in increased regulatory scrutiny.
If we are not able to maintain our current MEC evaluation ratings and the evaluation ratings of our students, we may be adversely affected.
We and our students are regularly evaluated and rated by the MEC. If our hubs, campuses, programs or students receive lower scores from the MEC than in previous years in any of its evaluations, including the General Courses Index (Índice Geral de Cursos), or IGC, the CI, and the ENADE, we may experience a reduction in enrollment and be adversely affected by perceptions of decreased educational quality, which may negatively affect our reputation and, consequently, our results of operations and financial condition.
The number of new distance learning educational hubs which are able to open each year is contingent on our CI: (i) a CI equal to 3 allows us to open 50 new distance learning educational hubs per year; (ii) a CI equal to 4 allows us to open 150 new distance learning educational hubs per year; and (iii) a CI equal to 5 allows us to open 250 new distance learning educational hubs per year. In case of noncompliance with the requirements by the MEC or unsatisfactory evaluation, our rating may be lower and the authorization to open new hubs may be reduced. Such reduction may adversely affect our growth strategy. Finally, in the event that any of our programs receive unsatisfactory evaluations, the higher education institution offering the programs may be required to enter into an agreement with the MEC setting forth proposed measures and timetables to improve the program and remedy the unsatisfactory evaluation. Noncompliance with the terms of the agreement may result in additional
 
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penalties on the institution. These penalties could include, but are not limited to, suspending our ability to enroll students in our programs, denial of accreditation or reaccreditation of our institutions or prohibiting us from holding regular class sessions, all of which can adversely affect our results of operations and financial condition.
Our success depends on our ability to operate in strategically located property that is easily accessible by public transportation.
We believe that urban mobility, public transportation systems and transportation costs in many Brazilian cities make the location and accessibility of hubs a decisive factor for students choosing an educational institution. Therefore, a key component of the success of our business consists in finding, renting and/or buying strategically located property that meets the needs of our students. We cannot guarantee that we will be able to keep our current property or acquire new property that is centrally located in the future. In addition, acquisition costs, costs associated with improvements, construction, and repairs of existing properties and rental values for the properties we use might increase in the future and could have a material adverse effect on our business. Finally, due to demographic and socioeconomic changes in the regions in which we operate, we cannot guarantee that the location of our hubs will continue to be attractive and convenient to students.
The quality of the pedagogical content we deliver to our clients is significantly dependent upon the quality of our editors, publishers and purchased content.
The educational materials we provide are a combination of content developed by our internal production team and content purchased from certain publishers in our market. Our editorial team is responsible for producing our materials, working in conjunction with our technology team, to implement additional features and technology delivery. Our content production process requires significant coordination among different teams as well as qualified personnel with appropriate skill sets to ensure the quality of our pedagogical content is maintained. We may not be able to retain, recruit or train qualified employees to produce pedagogical content that meets our standards. Delays in the delivery of content purchased from authors may have a severe impact on our annual content creation schedule. Additionally, a shortage of qualified editors, employees, publishers or suitable purchased content or a decrease in the quality of produced or purchased content, whether actual or perceived, or a significant increase in the cost to engage or retain qualified personnel or acquire content, would have a material adverse effect on our business, financial condition and results of operations.
Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business and financial condition and results of operations.
We rely and expect to continue to rely on a combination of trademark, copyright, patent and trade secret protection laws, as well as confidentiality and intellectual property license and assignment agreements with our employees, consultants and third parties with whom we have relationships to protect our intellectual property and proprietary rights. As of the date of this prospectus, we did not have issued patents or patent applications pending in or outside Brazil. We are party to several agreements with third party authors with respect to educational content, for indefinite terms. As of June 30, 2020, we owned 29 trademarks. As of the date of this prospectus, we owned 47 registered domain names in Brazil. We also have four pending trademark applications in Brazil and unregistered trademarks that we use to promote our brand. Our brand is not a registered trademark in the U.S. From time to time, we expect to file additional patent, copyright and trademark applications in Brazil and abroad. Nevertheless, these applications may not be approved or otherwise provide the full protection we seek. Any dismissal of our “Uniasselvi” trademark application may impact our business. Third parties may challenge any patents, copyrights, trademarks and other intellectual property and proprietary rights owned or held by us. Third parties may knowingly or unknowingly infringe, misappropriate or otherwise violate our patents, copyrights, trademarks and other proprietary rights and we may not be able to prevent infringement, misappropriation or other violation without substantial expense to us.
Furthermore, we cannot guarantee that:
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our intellectual property and proprietary rights will provide competitive advantages to us;
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our competitors or others will not design around our intellectual property or proprietary rights;
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our ability to assert our intellectual property or proprietary rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;
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our intellectual property and proprietary rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;
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any of the patents, trademarks, copyrights, trade secrets or other intellectual property or proprietary rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned; or
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we will not lose the ability to assert our intellectual property or proprietary rights against, or to license our intellectual property or proprietary rights to, others and collect royalties or other payments.
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If we pursue litigation to assert our intellectual property or proprietary rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property or proprietary rights, limit the value of our intellectual property or proprietary rights or otherwise negatively impact our business, financial condition and results of operations. If the protection of our intellectual property and proprietary rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused in the marketplace and our ability to attract customers may be adversely affected.
We may in the future be subject to intellectual property claims, which are costly to defend and could harm our business, financial condition and operating results.
Because of the large number of authors that participate in our publications, from time to time, third parties may allege in the future that we or our business infringe, misappropriate or otherwise violate their intellectual property or proprietary rights, including with respect to our publications. We cannot guarantee that we are party to enforceable agreements with all the counterparties that have purportedly assigned copyrights or other intellectual property rights to us. If any such agreements are found to be void or are otherwise unenforceable, we could be subject to legal proceedings and the payment of significant fines for unauthorized use of intellectual property. In addition, many companies, including various “non-practicing entities” or “patent trolls,” are devoting significant resources to developing or acquiring patents that could potentially affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched patents related to our technology. In addition, the publishing industry has been, and we expect in the future will continue to be, the target of counterfeiting and piracy. We may implement measures in an effort to protect against these potential liabilities that could require us to spend substantial resources. Any costs incurred as a result of liability or asserted liability relating to sales of unauthorized or counterfeit educational materials could harm our business, reputation and financial condition.
Third parties may initiate litigation against us without warning. Others may send us letters or other communications that make allegations without initiating litigation. We may in the future receive such communications, which we will assess on a case-by-case basis. We may elect not to respond to the communication if we believe it is without merit or we may attempt to resolve disputes out-of-court by electing to pay royalties or other fees for licenses or out-of-court settlements for unforeseeable amounts. If we are forced to defend ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, inability to use our current website or inability to market our service or merchandise our products. As a result of a dispute, we may have to develop noninfringing technology, including partially or fully revise any publication that infringes intellectual property rights, enter into licensing agreements, adjust our merchandising or marketing activities or take other actions to resolve the claims. These actions, if required, may be unavailable on terms acceptable to us or may be costly or unavailable. If we are unable to obtain sufficient rights or develop noninfringing intellectual property or
 
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otherwise alter our business practices, as appropriate, on a timely basis, our reputation or our brands, our business and our competitive position may be affected adversely and we may be subject to an injunction or be required to pay or incur substantial damages and/or fees and/or royalties.
Most of our services are provided using proprietary software, and our software is mainly developed by our employees, who do not specifically assign to us their copyrights over the software and we are unable to assure you that we have adequate agreements with all of our employees to provide for the assignment of software rights. While applicable law establishes that employers shall have full title over rights relating to software developed by their employees, we could be subject to lawsuits by former employees claiming ownership of such software. As a result, we may be required to obtain licenses of such software, incurring costs relating to payments of royalties and/or damages and we may be forced to cease the use of such software. If we are unable to use certain of our proprietary software as a result of any of the foregoing or otherwise, this could have a material adverse effect on our business, financial condition and results of operations.
In addition, we use open source software in connection with certain of our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the ownership of open source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute or use open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations.
We may lose bargaining power with our hub partners if they organize themselves into negotiating blocs, which could have an adverse effect on our business.
Although our hub partners are spread across the country and the education market in Brazil is extremely fragmented, which reduces the capacity of the hub partners to organize themselves and reduces the bargaining power of individual hub partners, groups of hub partners could organize as blocs or syndicates in an attempt to negotiate greater contractual benefits. If our hub partners organize themselves as blocs in an attempt to negotiate greater contractual benefits, we would be required to devote additional resources to contract negotiations and could face additional challenges in dealing with our hub partners. We could be forced to offer higher percentage over the tuition fee collected by us from students to hub partners or provide other contractual benefits in an effort to maintain and expand our market share. If we lose bargaining power with our hub partners, we cannot guarantee that we will be able to charge students at profitable prices, which would adversely affect our business, financial condition and results of operations.
Unfavorable decisions in our legal or administrative proceedings may adversely affect us.
We are party to legal and administrative proceedings arising from the ordinary course of our business or from nonrecurring corporate, tax or regulatory events, involving our suppliers, hub partners, students and faculty members, as well as tax authorities, especially with respect to civil, tax and labor claims. We, or our Existing Shareholders, directors or officers may, in the future, be party to legal and administrative proceedings, involving the same or other aspects of our business. We cannot guarantee that the results of these proceedings will be favorable to us or that we have made sufficient provisions for liabilities that may arise as a result of these or other proceedings. Even if we adequately address issues raised by any inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by such proceedings or those lawsuits or claims. Adverse decisions in material legal, arbitration or administrative proceedings, even if such proceedings are without merit, may adversely affect our reputation, results of operations and the price of our common shares.
 
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We and our hub partners are periodically required to obtain or renew local licenses and permits, including licenses from the fire department, for some of the real estate we use. Failure to obtain renewals of these licenses and permits in a timely manner may result in penalties, including closures of certain hubs.
The use of our and our hub partners’ buildings is subject to the successful acquisition of an occupancy permit (Habite-se), or equivalent certificate, issued by the municipality where the property is located, certifying that the building has no deficiencies and has been built in accordance with the project specifications approved by such municipality. In addition, nonresidential properties are required to have a use and operations license and/or permit, issued by the competent municipality, and a fire department inspection certificate, issued by the fire department, prior to being used regularly. Such licenses typically expire and must be renewed, occasionally with an associated renewal fee. We and our hub partners may be unable to obtain or duly renew the required licenses and authorizations for the future operation of facilities. In addition, our hub partners are independent entities, and we cannot guarantee that our hub partners will duly obtain or renew local licenses and permits.
The absence of such licenses may result in penalties ranging from fines to forced demolition of the areas that were not built in compliance with applicable codes or, in a worst case scenario, closure of the hubs lacking the licenses and permits. Any penalties imposed, and in particular the forced closure of any of our hubs, may result in a material adverse effect on our business. Moreover, in the event of any accident at our hubs, the lack of such licenses may result in civil and criminal liability, as well as cause the cancellation of eventual insurance policies for the respective hub. Any such developments may have a material adverse effect on us and on our reputation.
Student protests and strikes may disrupt our ability to hold classes as well as our ability to attract and retain students, which could materially adversely affect our operations.
Political, social and economic developments in Brazil may cause protests and disturbances against such conditions, including policies relating to the operation and funding of higher education institutions. These disturbances may involve protests on university campuses, including the occupation of university buildings and the disruption of classes. We are unable to predict whether students at hubs and campuses in our network will engage in various forms of protest in the future. Should we sustain student strikes, protests or occupations in the future, it could have a material adverse effect on our ability to attract and retain students as well as on our results of operations and on our overall financial condition. Further, we may need to make additional investments in security infrastructure and personnel on our campuses in order to prevent future student protests from disrupting the ability of our hubs and campuses to hold classes. If we are required to make substantial additional investments in security, or if we are unable to identify security enhancements that would prevent future disruptions of classes, that could cause an adverse effect on our results of operations and financial condition. In addition, we may need to pay overtime compensation to certain of our faculty and staff, which may increase our overall costs.
We are currently in the process of registering and annotating certain lease agreements or amendments to lease agreements relating to some of the properties we use.
The lease agreements regarding certain real estate properties we use are currently in the process of being registered and annotated with the applicable real estate registry offices. We may be delayed in registering and annotating our lease agreements or may not be successful in registering our lease agreements due to unforeseen obstacles which may be outside of our control.
Pursuant to Brazilian law, lessees have a right of first refusal in the event that the property they occupy is to be transferred. However, the lessee will only be able to enforce such right against third-parties if the lease agreement is annotated in the property’s real estate records. If the lease is not annotated, the lessee is only entitled to pursue indemnification for losses and damages against the lessor/​seller. Brazilian law also provides for a special regime applicable to the leases of real estate properties used for educational purposes that are authorized and inspected by the public authorities, which limits the range of causes of action for eviction of the lessee to the following cases: (i) mutual agreement; (ii) breach of contract or legal violation; (iii) default in the payment of rent and other charges; (iv) need
 
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of urgent repairs determined by the public authorities that cannot be regularly completed with the presence of lessee; or (v) in the event the landowner, the committed purchaser or the committed assignee (upon the payment in full of the purchase price or otherwise expressly authorized by the landowner and as long as the title is registered in the real estate record file of the leased real estate property) requests the delivery of the real estate property for purposes of demolition, edification, license or renovation that results in the increase of at least 50% of the useable area of the real estate property.
In the event the eviction is based on items “iv” and “v” above, the eviction order may only be enforced one year of after it is made (except in the event the eviction lawsuit takes longer than one year between summons and sentence, in which case the eviction order shall only be enforced after six months of its decree). Specifically with regard to leased properties where educational services are provided, the eviction order may only be enforced in six up to twelve months from the eviction order and must coincide with the school holidays.
Any areas of the leased property used for activities other than educational services (such as administrative buildings, offices, parking lots, among others) are subject to the regular treatment under Brazilian law. If any such areas are sold to third parties during the term of the lease and the lessee does not exercise its right of first refusal, the new owner will be entitled to terminate the lease upon a 90-day prior written notice, counted as from the date of such acquisition, and the lessee will be required to vacate the real estate property, unless (i) the term of the lease is specified in the lease agreement; (ii) the lease agreement contains an effectiveness clause that provides for the maintenance of the terms and conditions of the lease in the event of a transfer of the leased property; and (iii) the lease agreement is duly registered in the real estate records of the leased property. If the new owner does not require the lessee to vacate the property within 90 days from the acquisition, the new owner will have to abide by the lease until through to its maturity.
If we fail to register our lease agreements and one of the real estate properties we occupy is sold to third parties without the lessor respecting our right of first refusal, we will not have the right to buy the real estate property and will solely be able to pursue an action for damages and/or indemnification. In addition, with regard to the real estate properties that are used for activities other than educational services, if their respective lease agreements are not registered in the relevant real estate record file, the new owner will be entitled to terminate the lease upon a 90-day prior written notice and, in such case, we will be forced to vacate such real estate property and our business may be adversely affected.
We may not be able to renew the lease agreements for hubs and campuses.
As of the date of this prospectus, we and our hub partners lease all of the real estate properties in which activities are conducted.
According to Brazilian law, a lessee has the right to renew existing leases for subsequent terms equal to the original term of the lease. In order for a lessee to enforce this right, the following criteria must be met: (i) the non-residential lease agreement must have a fixed term equal to or greater than five consecutive years, or, in the event there is more than one agreement or amendment thereto regarding the same real estate property, the aggregate term in any such agreement and amendment must be equal to or greater than five consecutive years; (ii) the lessee must have been using the real estate property for the same purpose for a minimum period of three years; and (iii) the lessee must claim the right of renewal at the most one year and at least six months prior to the end of the term of the lease agreement by filing a renewal lawsuit.
Lease agreements with terms lasting less than five years are not entitled to a right of renewal and, as a result the lessor has the right to refuse renewal of the lease upon expiration of its term. Certain lease agreements relating to some of our hubs and campuses have terms lasting less than five years.
If we or our hub partners are forced to close any hubs or campuses due to the termination of a lease agreement and are unable to renew the lease, our business and results of operations may be adversely affected.
 
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If we and our hub partners are unable to upgrade our respective hubs and campuses, they may become less attractive to students and we may fail to grow our business.
All of our hubs and campuses, as well as those of our hub partners, require periodic upgrades to remain attractive to students. Upgrading the facilities at our hubs and campuses or those of our hub partners could be difficult for a number of reasons, including the following:
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the applicable properties may not have the capacity or configuration to accommodate proposed renovations;
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construction and other costs may exceed the funds available and/or we or our hub partners may be unable to obtain financing to fund such costs;
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it may be difficult and expensive to comply with local building and fire codes; and
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we or our hub partners may not be able to negotiate reasonable terms with our landlords or developers or complete the work within acceptable time frames.
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Failure by us or our hub partners to upgrade the facilities of our hubs and campuses or those of our hub partners, as applicable could lead to lower enrollment and could cause a material adverse effect on our business, financial condition and results of operations.
Our indebtedness may adversely affect our businesses.
As of June 30, 2020 and December 31, 2019, our total consolidated indebtedness (consisting of lease liabilities and accounts payable from acquisition of subsidiaries, and, as of June 30, 2020 a loan agreement with Banco Santander (Brasil) S.A.) was R$664.9 million and R$482.7 million, respectively. Our consolidated indebtedness may:
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limit our capacity to obtain new credit facilities;
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require that we dedicate a substantial portion of our cash flow to service debt payments, which may affect our ability to use our cash flow for working capital, capital expenditures and other general corporate purposes, in addition to complying with our obligations;
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limit our flexibility to plan and react to changes in our businesses and in the sector in which we operate;
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put us at a disadvantage with our competitors, who may have lower levels of indebtedness; and
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increase our vulnerability to negative economic and industrial conditions, including variations in interest rates or stagnation of our business results or of the economy as a whole.
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As a result of our strategy of growing through acquisitions of new entities, we may need additional funds to implement our strategy. If we cannot obtain adequate financing to conclude any potential acquisition and implement our expansion plans, for example as a result of financial institutions declining to extend credit to us on favorable terms or at all due to our existing levels of indebtedness, our growth strategy will be affected and this could have a material adverse effect on our business, financial condition and results of operations.
For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
In certain circumstances, acquisitions of educational institutions must be approved by the CADE.
Brazilian legislation provides that acquisitions of educational institutions meeting certain requirements must be approved by the CADE prior to the completion of the acquisition if one of the companies or group of companies involved has gross annual revenues in Brazil of at least R$750.0 million in the year immediately prior to the acquisition and any other party has gross income of at least R$75.0 million in that same period. As part of this process, the CADE must determine whether the
 
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specific transaction affects the competitiveness of the market in question or the consumers in such markets. The CADE may not approve our future acquisitions or may condition approval of our acquisitions on our disposal of some of the operations of the target of the acquisition, or impose restrictions on the operations and commercialization of the target. Failure to obtain approval for future acquisitions or any conditional approvals of future acquisitions may result in expenses that may adversely affect our results of operations and financial condition.
We depend on our subsidiaries’ financial results, and we may be adversely affected if the performance of our subsidiaries is not positive or if the Brazilian government imposes taxes or restrictions on the distribution of dividends or interest on shareholders’ equity by subsidiaries to parent companies.
We control a number of subsidiary companies that carry out the business activities of our corporate group. Our ability to comply with our financial obligations and to pay dividends to our shareholders depends on our ability to receive distributions from the companies we control, which in turn depends on the cash flow and profits of those companies. There is no guarantee that the cash flow and profits of our controlled companies will be sufficient for us to comply with our financial obligations and pay dividends or interest on shareholders’ equity to our shareholders. In addition, during the last presidential campaign in Brazil, the current government proposed revoking certain tax exemptions relating to dividends. If enacted, these measures would increase the tax expenses associated with any dividend or distribution, which could impact our ability to pay any future dividends or cash distributions and to receive dividends or cash distributions from our subsidiaries.
Moreover, the payments, dividends and distributions from our subsidiaries to us for funds to pay future cash dividends or distributions, if any, to holders of our common shares, could be restricted under financing arrangements that we or our subsidiaries may enter into in the future and we and such subsidiaries may be required to obtain the approval of lenders to make such payments to us in the event they are in default of their repayment obligations. Furthermore, we may be adversely affected if the Brazilian government imposes legal restrictions on dividend distributions by our Brazilian subsidiaries and exchange rate fluctuations will affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests in those subsidiaries. See “— Risks Relating to Brazil — Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares,” “Economic uncertainty and political instability in Brazil may harm us and the price of our common shares” and “Dividends and Dividend Policy.”
We and our subsidiaries may be held directly or indirectly responsible for labor claims pursuant to contracted services.
To meet the needs of our students and offer greater comfort and quality in all areas and aspects of our activities, we depend on hub partners, service providers and suppliers, engaged by us or by our hub partners, for services such as cleaning, maintenance, construction and security. We may be adversely affected if these third-party service providers, hub partners and suppliers do not meet their obligations under Brazilian labor laws. In particular, according to Brazilian law we may be liable to the employees of hub partners, these service providers and suppliers for labor obligations of these service providers and suppliers, and may also be fined by the relevant authorities. If we are held liable for such claims, we may be adversely affected.
We are subject to environmental laws and regulations, which may become more stringent in the future and increase our obligations and capital investments with respect to their compliance.
We are subject to several environmental municipal, state and federal laws. Compliance with these laws and regulations is monitored by governmental agencies and bodies that may impose, among others, administrative sanctions on us. These sanctions may include, among other consequences, penalties, such as fines, revocation of our licenses and authorizations, and the temporary or permanent suspension of our activities. In addition, governmental agencies or other authorities may also significantly delay or deny the issuance of permits and authorizations required for our operations, preventing us from making constructions and improvements in our hubs and/or campuses.
 
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The enactment of more stringent laws and regulations or more stringent interpretations of existing laws and regulations may force us to increase our capital expenditures relating to environmental compliance, therefore diverting funds from previously planned investments. These changes could have a material adverse effect on us.
Brazilian legislation establishes that individual or legal entities that conduct activities deemed harmful to the environment will be subject to administrative and criminal liabilities in case of environmental infractions or crimes. In addition, when the misconduct of individuals or legal entities causes environmental damage, such legal entities or individuals are required to remedy it, as a civil environmental liability consequence. In this regard, civil environmental liability pursuant to environmental legislation is strict, joint and several, pursuant to which anyone whose activity may be linked to the environmental damage may be held liable. Nonetheless, the right of redress is guaranteed against the legal entities/​individuals that actually caused such damages.
Any delay or denial by environmental agencies of the issuance or renewal of our licenses, as well as our inability to meet the requirements of the environmental agencies during the licensing process, or any environmental liability we may be subject to in the future, may materially adversely affect our reputation, our business and our results of operations.
We may be adversely affected if the Brazilian government changes its investment strategy with respect to education.
According to Law No. 9,394/96, providing education is a duty of the government and of the family, and private education is allowed, in accordance with the terms set forth in applicable law. Historically, direct public investments by the Brazilian government in postsecondary education have been limited to specific schools that are centers of excellence. The limited number of positions available and the competitive nature of the admission process to these institutions significantly restrict access to these institutions by students. However, the Brazilian government may change its policy and increase the competition we face by (i) increasing the level of public investment in basic education and postsecondary education in general, opening a higher amount of positions and increasing the quality of education offered by public entities; and (ii) shifting resources from schools that are centers of excellence and research to public higher education institutions accessible to middle- and low-income working adults, who are our target students. The introduction and extension of affirmative action admission policies by federal and state schools based on income, race or ethnicity criteria could also heighten the level of competition in the industry. In addition, the Brazilian government could reduce investment in public primary and secondary schools, which would diminish the number of students seeking postsecondary education and, in turn, demand for the courses we offer. Any policy change affecting the level of public investment in education may adversely affect us.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations. In particular, we are subject to the Brazilian Anti-corruption Law No. 12,846/2013, to the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA, to the United Kingdom Bribery Act of 2010, as well as economic sanction programs, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC. The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities and employees which are considered foreign officials for purposes of the FCPA. In addition, economic sanctions programs restrict our dealings with certain sanctioned countries, individuals and entities. Although we have internal policies and procedures designed to ensure compliance with applicable anti-fraud, anti-bribery and anti-corruption laws and sanctions regulations, potential violations of anti-corruption laws may be identified on occasion as part of our compliance and internal control processes. When such issues arise, we will attempt to act promptly to learn relevant facts, conduct appropriate due diligence and take any appropriate remedial action to address the risk. Given the size and complexity of our operations, there can be no assurance that our internal policies and
 
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procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, directors, officers, partners, agents and service providers or that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-bribery and anti-corruption laws and sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may be subject to one or more enforcement actions, investigations and proceedings by authorities for alleged infringements of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability and could have a material adverse effect on our reputation, business, financial condition and results of operations.
Government agencies, the MEC and third parties may conduct inspections, file administrative proceedings or initiate litigation against us.
Because we operate in a highly regulated industry, government agencies, the MEC or third parties may conduct inspections, file administrative proceedings or initiate litigation for noncompliance with regulations against us or the institutions we purchase. If the results of these proceedings or litigations are unfavorable to us, or if we are unable to successfully defend our cases, we may be required to pay monetary damages or be subject to fines, limitations, injunctions or other penalties. Even if we adequately address issues raised by an inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by these proceedings or to those lawsuits or claims. Administrative proceedings or court actions brought against us may damage our reputation, even if such lawsuits or claims are without merit.
Failure to prevent or detect a malicious cyberattack on our systems and databases could result in a misappropriation of confidential information or access to highly sensitive information.
Cyberattacks are becoming more sophisticated and pervasive. Across our business we hold large volumes of personally identifiable information including that of employees, hub partners, students, parents and legal guardians. Individuals may try to gain unauthorized access to our data in order to misappropriate such information for potentially fraudulent purposes, and our security measures may fail to prevent such unauthorized access. A breach could result in a devastating impact on our reputation, with significant adverse effects on customer confidence and loyalty that could adversely affect our financial condition and the student experience. In addition, if we were unable to prove that our systems are properly designed to detect an intrusion, we could be subject to severe penalties under applicable laws and loss of existing or future business.
Any illegal or improper uses of our educational platform, as a result of cyberattacks or otherwise, could expose us to additional liability and harm our business.
Our educational platform is susceptible to unauthorized use, copyright violations and unauthorized copying and distribution (whether by students, schools, hub partners or otherwise), theft, employee fraud, and other similar breaches and violations, whether resulting from cyberattacks or otherwise. Our copyrights may also be challenged by third parties, and we may encounter difficulties in enforcing our copyrights. These occurrences may potentially harm our business and consequently negatively impact our results of operations. Additionally, we may be required to employ a significant amount of resources to combat such occurrences and identify those responsible.
Failure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations.
The nature of our business exposes us to risks related to possible shortcomings in data protection. Any perceived or actual unauthorized disclosure of personally identifiable information, whether through breach of our network by an unauthorized party, employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract and retain our customers, or subject us to claims or litigation arising from damages suffered by individuals.
 
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The laws regulating privacy rights and data protection have considerably evolved over recent years, providing for more restrictive provisions on the means through which processing of personal data by organizations is regulated. As of August 2018, when the GDP Law, was enacted, practices involving the processing of personal data were ruled by certain sectorial laws, such as Law No. 8,078/1990 the Consumer Defense Code, and Law No. 12,965, or the Brazilian Civil Rights Framework for the Internet.
On August 15, 2018, the President of Brazil approved the GDP Law, a comprehensive personal data protection law establishing general principles and obligations that apply across multiple economic sectors and contractual relationships. The GDP Law establishes detailed rules for the collection, use, processing and storage of personal data and will affect all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is collected, whether in a digital or physical environment. The obligations established by the GDP Law would initially become effective in August 2020 (24 months from the date of its publication in August 2018), by which date all legal entities would be required to adapt their data processing activities to these new rules.
However, due to the recent developments regarding the Covid-19 outbreak, the president of Brazil
has issued Provisional Measure No. 959/2020, or PM 959/2020, which had postponed the effectiveness of the GDP Law to May 3, 2021.
On August 26, 2020, in the extraordinary deliberative section of the Brazilian National Congress through which the conversion of PM 959 into ordinary law was considered, the Brazilian Federal Senate recognized as impaired the provision of PM 959 dealing with the extension of the entry into force of the GDP Law to May 3, 2021. As a result, this provision of PM 959 was removed from the text and the effective entry into force of the GDP Law is awaiting for the sanction or veto of the law conversion project by the Brazilian President, according to article 62, §12 of the Brazilian Federal Constitution. Articles 52, 53 and 54 of the GDP Law, which deal with administrative sanctions, will only come into force as of August 1, 2021, in the form of Law No. 14,010/2020.
In parallel, on August 26, 2020, the Brazilian Federal Government issued Decree No. 10,474/2020, approving the regulatory structure and the positions on commission and the trust functions of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or NDPA. The Decree will enter into force on the date of publication of the appointment of the NDPA’s President in the Federal Official Journal.
As of the date of this prospectus, we have begun taking steps to comply with the GDP Law with the assistance of external counsel. We intend to complete this process by the end of the second half of 2020.
Pursuant to the GDP Law, security breaches that may result in significant risk or damage to personal data must be reported to the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD, the data protection regulatory body, within a reasonable time period. The notice to the ANPD must include: (a) a description of the nature of the personal data affected by the breach; (b) the affected data subjects; (c) the technical and security measures adopted; (d) the risks related to the breach; (e) the reasons for any delays in reporting the breach, if applicable; and (f) the measures adopted to revert or mitigate the effects of the damage caused by the breach. Once the GDP Law becomes effective, the penalties and fines for violations include: (i) warnings, with the imposition of a deadline for the adoption of corrective measures; (ii) a one-time fine of up to 2% of gross sales of the company or a group of companies or a maximum amount of R$50.0 million per violation; (iii) a daily fine, up to a maximum amount of R$50.0 million per violation; (iv) public disclosure of the violation; (v) the restriction of access to the personal data to which the violation relates, until corrective measures are implemented; and (vi) deletion of the personal data to which the violation relates. Any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could seriously harm our business, financial condition or results of operations.
Failure to comply with the rules for the protection of personally identifiable information, including the GDP Law, could potentially lead to legal proceedings or could result in penalties, significant remediation costs, reputational damage, the cancellation of existing contracts and difficulty in competing
 
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for future business. In addition, we could incur significant costs in complying with relevant laws and regulations regarding the unauthorized disclosure of personal information, which may be affected by any changes to data privacy legislation at both the federal and state levels.
Certain Risks Relating to Brazil
The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our common shares.
The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases or decreases in interest rates, changes in fiscal policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls, and import and export restrictions. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:
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growth or downturn of the Brazilian economy;
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interest rates and monetary policies;
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exchange rates and currency fluctuations;
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inflation;
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liquidity of the domestic capital and lending markets;
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import and export controls;
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exchange controls and restrictions on remittances abroad and payments of dividends;
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modifications to laws and regulations according to political, social and economic interests;
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fiscal policy and changes in tax laws;
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economic, political and social instability, including general strikes and mass demonstrations;
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the regulatory framework governing the educational industry;
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labor and social security regulations;
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energy and water shortages and rationing;
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commodity prices;
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changes in demographics, in particular declining birth rates, which will result in a decrease in the number of enrolled students in education in the future; and
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other political, diplomatic, social and economic developments in or affecting Brazil.
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Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on our activities and consequently our operating results, and may also adversely affect the trading price of our common shares. Recent economic and political instability has led to a negative perception of the Brazilian economy and higher volatility in the Brazilian securities markets, which also may adversely affect us and our common shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Brazilian Macroeconomic Environment.”
Economic uncertainty and political instability in Brazil may harm us and the price of our common shares.
Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors
 
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and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities offered by companies with significant operations in Brazil.
The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigations, known as “Operação Lava Jato,” “Operação Zelotes,” “Operação Greenfield,” “Operação Eficiência,” have negatively impacted the Brazilian economy and political environment. The potential outcome of these investigations is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy.
We cannot predict whether the ongoing investigations will result in further political and economic instability, or if new allegations against government officials and/or executives of private companies will arise in the future.
Additionally, during the months of April and May 2020, the current Brazilian President became involved in controversial political discussions that culminated in the dismissal of the then Minister of Health, Luiz Henrique Mandetta and the resignation of the Minister of Justice, Sergio Moro. Such former ministers were considered important figures within the current Brazilian federal government and the circumstances in which ministerial changes have occurred caused even more instability in the Brazilian economy and capital markets.
As of the date of this prospectus, President Jair Bolsonaro was being investigated by the Brazilian Supreme Federal Court (Supremo Tribunal Federal) for alleged improper acts disclosed by the former Minister of Justice, Mr. Sergio Moro. According to the former minister, the President sought the appointment of certain staff within the Brazilian federal police. If the President is found to have committed the alleged acts, any consequences arising from such investigation, including the initiation of a potential impeachment proceeding, may have material adverse effects on the political and economic environment in Brazil, as well as on Brazilian companies, including some of our subsidiaries.
A failure by the Brazilian government to implement necessary reforms may result in diminished confidence in the Brazilian government’s budgetary condition and fiscal stance, which could result in downgrades of Brazil’s sovereign foreign credit rating by credit rating agencies, negatively impact Brazil’s economy, and lead to further depreciation of the real and an increase in inflation and interest rates, adversely affecting our business, financial condition and results of operations.
Any of the above factors may create additional political uncertainty, which could harm the Brazilian economy and, consequently, our business, and could adversely affect our financial condition, our results of operations and the price of our common shares.
Economic, health, political and environmental crises or any other type of crisis capable of impacting the Brazilian economy may affect the purchasing power of the population, which may result in a decrease in the number of our students and/or an increase in payment delinquency.
Economic, health, political and environmental crises or any other type of crisis capable of impacting the Brazilian economy may affect the purchasing power of the population, which, may result in a decrease in the number of products and services we sell, as well as in an increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration.
The market value of securities of Brazilian issuers is affected to varying degrees by economic and market conditions in other countries, including developed countries such as the United States and certain European and emerging market countries. Investors’ reactions to developments in these countries may adversely affect the market value of securities of Brazilian issuers, including our common shares. Trading prices on the B3, for example, have been historically affected by fluctuation in interest rates applicable in the United States and variation in the main U.S. stock indices. Any increase in interest rates in other countries, especially the United States, may decrease global liquidity and the interest of investors in the Brazilian capital markets, adversely affecting our common shares. Moreover, crises or significant developments in other countries and capital markets may diminish investors’ interest in
 
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securities of Brazilian issuers, including our common shares, and their trading price, limiting or preventing our access to capital markets and to funds to finance our future operations at acceptable terms. The financial crisis that originated in the United States in the third quarter of 2008, for example, resulted in the appreciation of the U.S. dollar against the real, the restriction of credit in the domestic market, an increase in unemployment rates, an increase in credit defaults and, consequently, a reduction of consumption in Brazil. Likewise, the political-economic crisis experienced in the country between 2015 and 2016 had a material impact on unemployment rates, reducing the population’s purchasing power and, consequently, general consumption in the country.
Recently, the world has been affected by the Covid-19 pandemic that has caused negative global economic impacts, of which we have not yet been able to quantify. As result of the pandemic, it is believed that the purchasing power of the Brazilian population will decrease, which could cause a significant reduction in the number of our students or, at least, materially decrease the number of our perspective students, as well as in an increase in payment delinquency or default by our students, or an increase in the proportion of students canceling their course registration. This impact may negatively affect our business, our operating and financial results and our cash flows.
Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our common shares.
In the past, Brazil has experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation, policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets.
According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, which is published by the IBGE, Brazilian inflation rates were 4.31%, 3.75% and 2.95% for the years ended as of December 31, 2019, 2018 and 2017, respectively. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our common shares. One of the tools used by the Brazilian government to control inflation levels is its monetary policy, specifically in regard to interest rates. An increase in the interest rate restricts the availability of credit and reduces economic growth, and vice versa. During recent years there has been significant volatility in the base interest rate (Sistema Especial de Liquidação e Custódia), or SELIC rate target, which ranged from 14.25%, on December 31, 2015, to 4.5% on December 31, 2019. This rate is set by the Monetary Policy Committee of the Brazilian Central Bank (Comitê de Política Monetária), or COPOM. On February 7, 2018, the Monetary Policy Committee reduced the SELIC rate target to 6.75% and further reduced the SELIC rate target to 6.50% on March 21, 2018. The Monetary Policy Committee reconfirmed the SELIC rate target of 6.50% on May 16, 2018 and subsequently on June 20, 2018. As of December 31, 2018, the SELIC rate target was 6.50%. The Monetary Policy Committee reconfirmed the SELIC rate target of 6.50% throughout the first half of 2019 and then began decreasing the rate to 6.00% on July 31, 2019, to 5.50% on September 18, 2019, to 5.00% on October 30, 2019 and to 4.50% on December 11, 2019. The Monetary Policy Committee subsequently decreased the SELIC rate target to 4.25%, 3.75%, 3.00% and then 2.25%. As of the date of this prospectus, the SELIC rate target was 2.00%. Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger increases in inflation and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.
Any change in interest rate, in particular any volatile swings, can adversely affect our growth, indebtedness and financial condition.
Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares.
The Brazilian currency has been historically volatile and has been devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various
 
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economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. In 2014, the real depreciated by 11.8% against the U.S. dollar, while in 2015 it further depreciated by 32%. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.2591 per US$1.00 on December 30, 2016, an appreciation of 16.5% against the rate of R$3.9048 per US$1.00 reported on December 31, 2015. In 2017, the real depreciated by 1.5%, with the exchange rate reaching R$3.308 per US$1.00 on December 29, 2017. In 2018, the real depreciated an additional 17.1%, to R$3.875 per US$1.00 on December 31, 2018. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.0307 per US$1.00 on December 31, 2019, which reflected a 4.0% depreciation of the real against the U.S. dollar during 2019. The real/​U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.476 per US$1.00 as of June 30, 2020, which reflected a depreciation of 35.9% of the real since December 31, 2019. As of September 4, 2020, the real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.2848 per US$1.00. There can be no assurance that the real will not appreciate or depreciate against the U.S. dollar or other currencies in the future.
A devaluation of the real relative to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would also reduce the U.S. dollar value of our results of operations. Restrictive macroeconomic policies could reduce the stability of the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.
On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts. Depending on the circumstances, either devaluation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy and affect our business, results of operations and profitability.
Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.
Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with contractions of 3.5% and 3.3% in 2015 and 2016, respectively, followed by growth of 1.3% in both 2017 and 2018. Brazilian GDP increased by 1.1% in 2019. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, general strikes, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.
Developments and the perceptions of risks in other countries, including other emerging markets, the United States and Europe, may harm the Brazilian economy and the price of our common shares.
The market for securities offered by companies with significant operations in Brazil is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging markets, as well as the United States, Europe and other countries. To the extent the conditions of the global markets or economy deteriorate, the business of companies with significant operations in Brazil may be harmed. The weakness in the global economy has been marked by,
 
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among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility, and limited availability of credit and access to capital. Developments or economic conditions in other emerging market countries have at times significantly affected the availability of credit to companies with significant operations in Brazil and resulted in considerable outflows of funds from Brazil, decreasing the amount of foreign investments in Brazil.
Crises and political instability in other emerging market countries, the United States, Europe or other countries, including increased international trade tensions and protectionist policies, could decrease investor demand for securities offered by companies with significant operations in Brazil, such as our common shares. In June 2016, the United Kingdom held a referendum in which the majority voted for the United Kingdom to leave the European Union (so-called “Brexit”). The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations. The United Kingdom formally left the European Union on January 31, 2020, at which point a transition period began. The United Kingdom is expected to continue to follow certain European Union rules during the transition period; however, the ongoing process of negotiations between the United Kingdom and the European Union will determine the future terms of the United Kingdom’s relationship with the European Union, including access to European Union markets, either during the transitional period or more permanently. We have no control over and cannot predict the effect of Brexit nor over whether and to which effect any other member state will decide to exit the European Union in the future.
The recent Covid-19 pandemic has had a significant effect on the share prices of companies listed on stock markets globally. The resulting volatility in share prices has triggered circuit-breakers (i.e., mechanisms which interrupt the trading of securities for a period of time following a significant fall in the aggregate market capitalization of the stock exchange affect) repeatedly in stock exchanges across the world, including the Nasdaq. The price of our common shares may be affected by this volatility following the conclusion of this offering. See “Summary — Recent Events,” “Risk Factors — Certain Risks Relating to Our Business and Industry — The Covid-19 outbreak may cause an adverse effect in our operations, including the partial closure of our business. The extension of the Covid-19 pandemic, the perception of its effects, or the way in which such pandemic will impact our business, either on a microeconomic or on a macroeconomic level, are subject to uncertain and unforeseeable future developments, which may have a material adverse effect on our business, financial condition, operating results and cash flow” and “Risk Factors — Certain Risks Relating to Our Business and Industry — Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.”
In addition, the 2020 United States presidential election and any unexpected shift in the U.S. Federal Reserve’s monetary policies could result in disruptions to the global economy. These developments, as well as potential crises and other forms of political instability or any other as-of-yet unforeseen development, may harm our business and the price of our common shares.
Any further downgrading of Brazil’s credit rating could reduce the trading price of our common shares.
We and the trading price of our common shares may be harmed by investors’ perceptions of risks related to Brazil’s sovereign debt credit rating. Rating agencies regularly evaluate Brazil and its sovereign credit ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.
The rating agencies began to review Brazil’s sovereign credit ratings in September 2015. Subsequently, the three major rating agencies downgraded Brazil’s investment-grade status:
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In 2015, Standard & Poor’s initially downgraded Brazil’s credit rating from BBB-negative to BB-positive and subsequently downgraded it again from BB-positive to BB, maintaining its negative outlook, citing a worse credit situation since the first downgrade. On January 11, 2018, Standard & Poor’s further downgraded Brazil’s credit rating from BB to BB-negative. The BB-negative rating was reaffirmed on February 7, 2019 with a stable outlook, which reflects
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the agency’s expectations that the Brazilian government will be able to implement policies to gradually improve the fiscal deficit, as well as a mild economic recovery, given improvements in consumer confidence.
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In December 2015, Moody’s reviewed and downgraded Brazil’s issue and bond ratings from Baa3 to below investment grade, Ba2 with a negative outlook, citing the prospect of a further deterioration in Brazil’s debt indicators, considering the low growth environment and the challenging political scenario. In April 2018, Moody’s reaffirmed its Ba2 rating, but altered its outlook from “negative” to “stable,” also supported by the projection that the Brazilian government would approve fiscal reforms and that economic growth in Brazil would resume gradually.
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In 2016, Fitch downgraded Brazil’s sovereign credit rating to BB-positive with a negative outlook, citing the rapid expansion of the country’s budget deficit and the worse-than-expected recession. In February 2018, Fitch downgraded Brazil’s sovereign credit rating again to BB-negative, citing, among other reasons, fiscal deficits, the increasing burden of public debt and an inability to implement reforms that would structurally improve Brazil’s public finances. The BB-negative rating was reaffirmed in May 2019.
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On April 7, 2020 and May 6, 2020, S&P and Fitch, respectively, changed their outlook on sovereign credit risk rating of Brazil to negative.
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Brazil’s sovereign credit rating is currently rated below investment grade by the three main credit rating agencies. Consequently, the prices of securities offered by companies with significant operations in Brazil have been negatively affected. A prolongation or worsening of the current Brazilian recession and continued political uncertainty, among other factors, could lead to further ratings downgrades. Any further downgrade of Brazil’s sovereign foreign credit ratings could heighten investors’ perception of risk and, as a result, cause the trading price of our common shares to decline.
Certain Risks Relating to Our Common Shares and the Offering
There is no existing market for our common shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of your investment.
Prior to this offering, there has not been a public market for our common shares. If an active trading market does not develop, you may have difficulty selling any of our common shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq, or otherwise how liquid that market might become. The initial public offering price for the common shares will be determined by negotiations between us, the selling shareholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our common shares may be influenced by many factors, some of which are beyond our control, including:
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technological innovations by us or competitors;
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the failure of financial analysts to cover our common shares after this offering or changes in financial estimates by analysts;
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actual or anticipated variations in our operating results;
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changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;
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announcements by us or our competitors of significant contracts or acquisitions;
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future sales of our shares; and
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investor perceptions of us and the industries in which we operate.
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In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations. If a market does not develop or is not maintained, the liquidity and price of our common shares could be seriously harmed.
Our Existing Shareholders will own 51.15% of our outstanding common shares and, in the event the underwriters choose not to exercise their option to purchase additional common shares, will have the ability to control certain matters requiring shareholder approval. Our Existing Shareholders’ ownership and voting power may limit your ability to influence corporate matters.
Immediately following this offering, our Existing Shareholders, in the event the underwriters choose not to exercise their option to purchase additional common shares, will own 51.15% of our issued share capital (or 46.06% if the underwriters’ option to purchase additional common shares is exercised in full), and Carlyle and Vinci Partners will have the right to appoint members to our board of directors. As a result, in the event the underwriters choose not to exercise their option to purchase additional common shares, our Existing Shareholders will have the ability to control certain of the decisions at our shareholders’ meetings, and will be able to elect the members of our board of directors. In the event the underwriters choose not to exercise their option to purchase additional common shares, our Existing Shareholders will also be able to direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses. For example, our Existing Shareholders may cause us to make acquisitions that increase the amount of our indebtedness or outstanding common shares, sell revenue-generating assets or inhibit change of control transactions that benefit other shareholders. Our Existing Shareholders’ decisions on these matters may be contrary to your expectations or preferences, and our Existing Shareholders may take actions that could be contrary to your interests. Our Existing Shareholders will be able to prevent any other shareholders, including you, from blocking these actions. For further information regarding shareholdings in our company, see “Principal and Selling Shareholders.”
Common shares eligible for future sale may cause the market price of our common shares to drop significantly.
The market price of our common shares may decline as a result of sales of a large number of our common shares in the market after this offering or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Following the completion of this offering, we will have outstanding 23,058,053 common shares (or 23,958,053 common shares, if the underwriters exercise in full their option to purchase additional shares). Subject to the lock-up agreements described below, the common shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.
Our Existing Shareholders or entities controlled by them or their permitted transferees will, subject to the lock-up agreements described below, be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If our Existing Shareholders, the affiliated entities controlled by them or their permitted transferees were to sell a large number of common shares, the market price of our common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our common shares to decline.
We have agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares in our share capital or securities convertible into or exchangeable or exercisable for any
 
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shares in our share capital during the 180-day period following the date of this prospectus. Our directors, executive officers and Existing Shareholders have agreed to substantially similar lock-up provisions. However, Goldman Sachs & Co. LLC and BofA Securities, Inc. may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in “Common Shares Eligible for Future Sale.”
Sales of a substantial number of our common shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your common shares at a time and price that you deem appropriate.
Our Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and adversely affect the rights of holders of our common shares.
Our Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. These provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume could decline.
The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or too few securities or industry analysts commence coverage of our company, the trading price for our common shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the price of our common shares and trading volume to decline.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the operation of our business and future growth. We do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only source of gain on an investment in our common shares.
Transformation into a public company may increase our costs and disrupt the regular operations of our business.
This offering will have a significant transformative effect on us. Our business historically has operated as a privately owned company, and we expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded common shares. We will also incur costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, increased directors’ and officers’ insurance, investor relations, and various other costs of a public company.
We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the Nasdaq. We expect these rules and regulations to increase our legal and financial compliance costs
 
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and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified independent board.
The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue-producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.
In addition, the public reporting obligations associated with being a public company in the United States may subject us to litigation as a result of increased scrutiny of our financial reporting. If we are involved in litigation regarding our public reporting obligations, this could subject us to substantial costs, divert resources and management attention from our business and seriously undermine our business.
We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association (as may be amended and restated from time to time) and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) a duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) a duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not improperly fetter the exercise of future discretion; (iv) a duty to exercise powers fairly as between different sections of shareholders; (v) a duty to exercise independent judgment; and (vi) a duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital — Principal Differences between Cayman Islands and U.S. Corporate Law.”
Furthermore, the Cayman Islands has recently enacted the International Tax Co-operation (Economic Substance) Law (2020 Revision), or the Cayman Economic Substance Law. We are required to comply with the Cayman Economic Substance Law. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any relevant activities and if so, whether we have satisfied economic substance tests to the extent required under the Cayman Economic Substance Law. As it is a new regime, it is anticipated that the Cayman Economic Substance Law will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments, and may have to make changes to our operations in order to comply with all requirements
 
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under the Cayman Economic Substance Law. Failure to satisfy these requirements may subject us to penalties under the Cayman Economic Substance Law.
Lastly, on February 18, 2020, it was announced that the Cayman Islands has been placed on the list of non-cooperative jurisdictions published by the European Union, or EU, for tax purposes. The Cayman Islands government issued a press release on February 18, 2020 affirming that the jurisdiction introduced appropriate legislative changes on February 7, 2020 relating to the EU’s criteria, but that the listing appears to stem from such legislation not being enacted by February 4, 2020, which was the date of the EU’s Code of Conduct Group meeting to advise the EU Finance Ministers prior to the Finance Ministers’ decision regarding the listing on February 18, 2020. The Cayman Islands government press release states that the Cayman Islands remains fully committed to cooperating with the EU, and will continue to constructively engage with them with the view to be delisted as soon as possible. It is unclear as to whether the Cayman Islands being placed on such list will have a significant, or any, effect on us.
New investors in our common shares will experience immediate and substantial book-value dilution after this offering.
The initial public offering price of our common shares will be substantially higher than the pro forma net tangible book value per share of the outstanding common shares immediately after the offering. Based on an assumed initial public offering price of US$23.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of June 30, 2020, if you purchase our common shares in this offering, you will pay more for your shares than the amounts paid by our Existing shareholders for their shares and you will suffer immediate dilution of approximately US$19.24 per share in pro forma net tangible book value. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation. See “Dilution.”
We may need to raise additional capital in the future by issuing securities or use our common shares as acquisition consideration, or may enter into corporate transactions with an effect similar to a merger, which may dilute your interest in our issued share capital and affect the trading price of our common shares.
We may need to raise additional funds to grow our business and implement our growth strategy going forward through public or private issuances of common shares or securities convertible into, or exchangeable for, our common shares, which may dilute your interest in our issued share capital or result in a decrease in the market price of our common shares. In addition, we may also use our common shares as acquisition consideration or enter into mergers or other similar transactions in the future, which may dilute your interest in our issued share capital or result in a decrease in the market price of our common shares. Any fundraising through the issuance of shares or securities convertible into or exchangeable for shares, the use of our common shares as acquisition consideration, or the participation in corporate transactions with an effect similar to a merger, may dilute your interest in our issued share capital or result in a decrease in the market price of our common shares.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common shares. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, results of operations and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. See “Use of Proceeds.”
As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act) following the completion of this offering, we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.
After the completion of this offering and as a foreign private issuer and emerging growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not
 
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subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules, which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
We will follow Cayman Islands laws and regulations that are applicable to Cayman Islands exempted companies. However, Cayman Islands laws and regulations applicable to Cayman Islands exempted companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Cayman Islands laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB (unless the SEC determines otherwise), and our auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds US$700.0 million as of the most recently completed second fiscal quarter, or (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company. We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year-end). We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our common shares.
Section 5605 of the Nasdaq equity rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive
 
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compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. See “Description of Share Capital — Principal Differences between Cayman Islands and U.S. Corporate Law.”
We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (a) more than 50% of our common shares must be either directly or indirectly owned of record by nonresidents of the United States or (b)(i) a majority of our executive officers or directors may not be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will incur as a foreign private issuer.
Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.
Our corporate affairs are governed by our Articles of Association, by the Companies Law and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.
While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.
Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.
 
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United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside the United States.
Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.
Judgments of Brazilian courts to enforce our obligations with respect to our common shares may be payable only in reais. The exchange rate in force at the time may not offer non-Brazilian investors full compensation for any claim arising from our obligations.
Most of our assets are located in Brazil. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our common shares, we may not be required to discharge our obligations in a currency other than the real. Under Brazilian exchange control laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares.
Our common shares may not be a suitable investment for all investors, as investment in our common shares presents risks and the possibility of financial losses.
The investment in our common shares is subject to risks. Investors who wish to invest in our common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our common shares, us, the sector in which we operate, our shareholder structure and the general macroeconomic environment in Brazil, among other risks.
Each potential investor in our common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
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have sufficient knowledge and experience to make a meaningful evaluation of our common shares, the merits and risks of investing in our common shares and the information contained in this prospectus;
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have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in our common shares and the impact our common shares will have on its overall investment portfolio;
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have sufficient financial resources and liquidity to bear all of the risks of an investment in our common shares;
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understand thoroughly the terms of our common shares and be familiar with the behavior of any relevant indices and financial markets; and
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be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
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There can be no assurance that we will not be a passive foreign investment company, or PFIC, for any taxable year, which could subject United States investors in our common shares to significant adverse U.S. federal income tax consequences.
Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain look-through rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, “passive income.” Passive income generally includes dividends, interest, certain non-active rents and royalties, and capital gains. Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the expected price of our common shares, we do not expect to be a PFIC for our 2020 taxable year. However, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion. In addition, whether we will be a PFIC in 2020 or any future year is uncertain because, among other things, (i) we will hold a substantial amount of cash following this offering, which is categorized as a passive asset, and (ii) our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our common shares, which could be volatile). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year.
If we are a PFIC for any taxable year during which a U.S. investor holds common shares, we generally would continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds common shares, even if we ceased to meet the threshold requirements for PFIC status. Such a U.S. investor may be subject to adverse U.S. federal income tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. We do not intend to provide the information that would enable investors to make a qualified electing fund election, or a QEF Election, that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC. A “mark-to-market” election may be available, however, if our common shares are regularly traded on a qualified exchange. For further discussion, see “Taxation — U.S. Federal Income Tax Considerations.”
 
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
All references to “U.S. dollars,” “dollars” or “$” are to the U.S. dollar. All references to “real,” “reais,” “Brazilian real,” “Brazilian reais,” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “IFRS” are to International Financial Reporting Standards, as issued by the IASB.
Financial Statements
Vitru, the company whose common shares are being offered in this prospectus, was incorporated on March 5, 2020, as a Cayman Islands exempted company, under registration number 360670, with limited liability duly incorporated with the Cayman Islands Registrar of Companies. Until the contribution of Vitru Brasil shares to it prior to the consummation of this offering, Vitru had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments.
We maintain our books and records in Brazilian reais, the presentation currency for our financial statements and also the functional currency of our operations in Brazil. We prepare our annual consolidated financial statements in accordance with IFRS, as issued by the IASB, and unaudited interim condensed consolidated financial statements in accordance with IAS 34, as issued by the IASB. Unless otherwise noted, Vitru Brasil’s financial information presented herein as of June 30, 2020 and for the six months ended June 30, 2020 and 2019, and as of and for the years ended December 31, 2019 and 2018 is stated in Brazilian reais, its reporting currency. The consolidated financial information of Vitru Brasil contained in this prospectus is derived from Vitru Brasil’s unaudited interim condensed consolidated financial statements as of June 30, 2020 and for the six months ended June 30, 2020 and 2019, and Vitru Brasil’s audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018, together with the notes thereto. All references herein to “our financial statements,” “our consolidated financial statements,” “our audited consolidated financial information,” “our audited consolidated financial statements” and “our unaudited interim condensed consolidated financial statements” are to Vitru Brasil’s consolidated financial statements included elsewhere in this prospectus.
This financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.
Following this offering, Vitru will begin reporting consolidated financial information to shareholders, and Vitru Brasil will not present consolidated financial statements, except as required by applicable law. We also maintain our books and records in Brazilian reais and our consolidated financial statements will be prepared in accordance with IFRS, as issued by the IASB.
Vitru Brasil and our fiscal year ends on December 31. References in this prospectus to a fiscal year, such as “fiscal year 2019,” relate to our fiscal year ended on December 31 of that calendar year.
Restatement of Certain Financial Information
As a result of our adoption of IFRS 16 — Leases, or IFRS 16, we were required to change our respective accounting policies. Given that we applied IFRS 16 based on the full retrospective transition approach to each prior reporting period presented, we were also required to restate certain of our financial information as of and for the fiscal year ended December 31, 2018. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Accounting Pronouncements — Year Ended December 31, 2019 — IFRS 16 — Leases” for further information.
For a reconciliation of our restatement of financial information for comparative purposes in connection with our adoption of IFRS 16, see note 2.6 to our audited consolidated financial statements included elsewhere in this prospectus.
Corporate Events
Our Incorporation
We are a Cayman Islands exempted company incorporated with limited liability on March 5, 2020 for purposes of effectuating our initial public offering. Prior to the consummation of this offering, our
 
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Existing Shareholders held 522,315,196 shares of Vitru Brasil, our wholly-owned subsidiary whose consolidated financial statements are included elsewhere in this prospectus.
Our Corporate Reorganization
Prior to the consummation of this offering, our Existing Shareholders contributed all of their shares in Vitru Brasil to us. In return for this contribution, we issued new common shares to our Existing Shareholders in a one-to-31 exchange for the shares of Vitru Brasil contributed to us, or the Share Contribution. Until the contribution of Vitru Brasil shares to us, we had not commenced operations and only had nominal assets and liabilities and no material contingent liabilities or commitments.
After accounting for the new common shares that will be issued and sold by us in this offering, we will have a total of 23,058,053 common shares issued and outstanding immediately following this offering, 11,794,212 of these shares will be common shares beneficially owned by our Existing Shareholders, and 11,230,126 of these shares will be common shares beneficially owned by investors purchasing in this offering, assuming no exercise of the underwriters’ option to purchase additional common shares. See “Principal and Selling Shareholders.”
The following chart shows our corporate structure, including our five subsidiaries and their respective business units, after giving effect to our corporate reorganization and this offering:
[MISSING IMAGE: tm2028928d4-fc_textbw.jpg]
Below is a brief description of our subsidiaries:
Vitru Brasil (Vitru Brasil Empreendimentos, Participações e Comércio S.A. (formerly known as Treviso Empreendimentos, Participações e Comércio S.A.))
Vitru Brasil is an operating subsidiary and the entity whose consolidated financial statements are included in this prospectus. Vitru Brasil was incorporated on June 27, 2014 in Florianópolis, state of Santa Catarina. It is a primarily a holding company through which we hold our remaining subsidiaries listed below, and through which we provide our postgraduate courses.
Uniasselvi — Sociedade Educacional Leonardo da Vinci S/S Ltda. (“Uniasselvi”)
Uniasselvi is our largest subsidiary and was incorporated on January 30, 2004 in Indaial, state of Santa Catarina. Vitru Brasil acquired sole control of Uniasselvi from Kroton on February 28, 2016. We conduct most of our distance learning undergraduate courses through Uniasselvi. Its activities also include
 
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conducting on-campus undergraduate and continuing education courses in seven different cities. Uniasselvi holds the following educational entities authorized by the MEC: Sociedade Educacional Leonardo da Vinci S/S Ltda., Centro Universitário Leonardo da Vinci — Uniasselvi, Centro Universitário Dante — Unidante, Faculdade Leonardo da Vinci — Santa Catarina, Faculdade Metropolitana de Rio do Sul — Famesul, Faculdade do Vale do Itajaí Mirim — Favim, Faculdade Metropolitana de Lages — Famelages.
FAMEG — Sociedade Educacional do Vale do Itapocu S/S Ltda (“FAMEG”); FAC Educacional Ltda. (“FAC/FAMAT”) and FAIR Educacional Ltda. (“FAIR”)
FAMEG, FAC/FAMAT and FAIR are the subsidiaries through which we provide on-campus undergraduate and continuing education courses. These subsidiaries were incorporated on July 8, 2008, October 21, 2014 and October 21, 2014, respectively, and were also acquired by us from Kroton in 2016 and 2017. FAMEG, FAC/FAMAT and FAIR hold the following educational entities authorized by the MEC: Sociedade Educacional do Vale do Itapocu S.S. Ltda., Centro Universitário Leonardo da Vinci — Univinci, FAC Educacional Ltda., Instituto de Ensino Superior de Cuiabá, Faculdade de Mato Grosso.
Additional Information
See note 2.2 to our audited consolidated financial statements included elsewhere in this prospectus for additional information on our subsidiaries.
Financial Information in U.S. Dollars
Solely for the convenience of the reader, we have translated some of the real amounts included in this prospectus from Reais into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$4.0307 to US$1.00, the commercial purchase rate for U.S. dollars at December 31, 2019 as reported by the Brazilian Central Bank.
Special Note Regarding Non-GAAP Financial Measures
This prospectus presents our Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations information for the convenience of investors, which are non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.
We calculate Adjusted EBITDA as net income (loss) for the period plus:
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deferred and current income tax, which is calculated based on our income, adjusted based on certain additions and exclusions provided for in applicable legislation. The income taxes in Brazil consist of corporate income tax (Imposto de Renda Pessoa Jurídica), or IRPJ, CSLL, which are social contribution taxes;
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financial results, which consists of interest expenses less interest income;
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depreciation and amortization;
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interest on tuition fees paid in arrears, which refers to interest received from students on late payments of monthly tuition fees and which is added back;
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impairment of non-current assets, which consists of impairment charges associated with our on-campus undergraduate courses segment, given the deterioration in the prospects of this business;
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share-based compensation plan, which consists of non-cash expenses related to the grant of share-based compensation, as well as fair value adjustments for share-based compensation expenses classified as a liability in our consolidated financial statements;
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•
other income (expenses), net, which consists of other expenses such as contractual indemnities and deductible donations among others;
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M&A, pre-offering expenses and restructuring expenses, which consists of adjustments that we believe are appropriate to provide additional information to investors about certain material non-recurring items. Such M&A, pre-offering expenses and restructuring expenses comprise:
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M&A and pre-offering expenses, which are expenses related to mergers, acquisitions and divestments (including due diligence, transaction and integration costs), as well as the expenses related to the preparation of offerings; and
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restructuring expenses, which refers to expenses related to employee dismissal costs in connection with organizational and academic restructurings.
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We calculate Adjusted Net Income as net income (loss) for the period plus:
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share-based compensation plan, as defined above;
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M&A, pre-offering expenses and restructuring expenses, as defined above;
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impairment of non-current assets, as defined above;
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amortization of intangible assets recognized as a result of business combinations, which refers to the amortization of the following intangible assets from business combinations: software, trademark, distance learning operation licenses, non-compete agreements, customer relationship and teaching-learning material. For more information, see note 10 to our unaudited interim condensed consolidated financial statements and note 15 to our audited consolidated financial statements, each included elsewhere in this prospectus;
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interest accrued at the original effective interest rate (excluding restatement as a result of inflation) on the accounts payable from the acquisition of subsidiaries, related to the acquisition of our operating units from Kroton in 2016 and 2017. See note 13 to our unaudited interim condensed consolidated financial statements and note 17 to our audited consolidated financial statements, each included elsewhere in this prospectus; and
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corresponding tax effects on adjustments, which represents the tax effect of pre-tax items excluded from adjusted net income (loss). The tax effect of pre-tax items excluded from adjusted net income (loss) is computed using the statutory rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances.
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We calculate Adjusted Cash Flow Conversion from Operations as adjusted cash flow from operations (which we calculate as cash from operations plus income tax paid) divided by Adjusted EBITDA (as defined above but without taking M&A, pre-offering expenses and restructuring expenses into consideration).
Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations are the key performance indicators used by us to measure the financial performance of our core operations and we believe that these measures facilitate period-to-period comparisons on a consistent basis. As a result, our management believes that these Non-GAAP financial measures provide useful information to investors and shareholders. The non-GAAP financial measures described in this prospectus are not a substitute for the IFRS measures of earnings. Additionally, our calculations of Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations may be different from the calculations used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies. For a reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations to the most directly comparable IFRS measure, see “Selected Financial and Other Information.”
Market Share and Other Information
This prospectus contains data related to economic conditions in the market in which we operate. The information contained in this prospectus concerning economic conditions is based on publicly
 
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available information from third-party sources that we believe to be reasonable. Market data and certain industry forecast data used in this prospectus were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the United States Securities and Exchange Commission website) and industry publications. We obtained the information included in this prospectus relating to the industry in which we operate, as well as the estimates concerning market shares, through internal research, a report dated February 27, 2020 by Educa Insights commissioned by us, public information and publications on the industry prepared by official public sources, such as the Brazilian Central Bank, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, the United Nations Educational, Scientific and Cultural Organization, or UNESCO, the Organisation for Economic Cooperation and Development, or OECD, the Brazilian Ministry of Education (Ministério da Educação), or the MEC, the Anísio Teixeira National Institute of Educational Studies and Research (Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira), or the INEP, the Secretariat of Specialized Modalities in Education (Secretário de Modalidades Especializadas de Educação), or Semesp, as well as private sources, such as Educa Insights, Hoper Consultoria and Gismarket, consulting and research companies in the Brazilian education industry, the Brazilian Economic Institute of Fundação Getúlio Vargas (Instituto Brasileiro de Economia da Fundação Getúlio Vargas), or FGV/IBRE, among others.
Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, neither we, the selling shareholders, the underwriters, nor their respective agents have independently verified it. Governmental publications and other market sources, including those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified by an independent source. Except as disclosed in this prospectus, none of the publications, reports or other published industry sources referred to in this prospectus were commissioned by us or prepared at our request. Except as disclosed in this prospectus, we have not sought or obtained the consent of any of these sources to include such market data in this prospectus.
Calculation of Net Promoter Score
Net Promoter Score, or NPS, is a widely known survey methodology that measures the willingness of customers to recommend a company’s products and services. It is used to gauge customers’ overall satisfaction with a company’s products and services and their loyalty to the brand, and it is typically based on customer surveys. NPS measures satisfaction using a scale of zero to 10 based on a customer’s response to the following question: “How likely is it that you would recommend Uniasselvi to a friend or colleague?” Responses of nine or 10 are considered “Promoters.” Responses of seven or eight are considered neutral. Responses of six or less are considered “Detractors.” The NPS, a percentage expressed as a numerical value, is calculated by subtracting the percentage of respondents who are Detractors from the percentage who are Promoters and dividing that number by the total number of respondents, which means that the higher the number, the higher the measure of customer satisfaction. The NPS calculation gives no weight to customers who decline to answer the survey question. The NPS calculation as of a given date reflects the average of the answers in the previous six months, e.g. the NPS as of December 2019 reflects the average of answers from July 2019 to December 2019.
Rounding
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
 
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “can,” “could,” “expect,” “should,” “plan,” “intend,” “is designed to,” “may,” “might,” “predict,” “estimate” and “potential,” or the negative of these words, among others.
Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to of various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:
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the impact of the Covid-19 outbreak on general economic and business conditions in Brazil and globally and any restrictive measures imposed by governmental authorities in response to the outbreak;
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our ability to implement, in a timely and efficient manner, any measure necessary to respond to, or reduce the impacts of the Covid-19 outbreak on our business, operations, cash flow, prospects, liquidity and financial condition;
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our ability to efficiently predict, and react to, temporary or long-lasting changes in consumer behavior resulting from the Covid-19 outbreak, including after the outbreak has been sufficiently controlled;
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the downgrading of Brazil’s investment ratings;
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general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on our business;
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fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future;
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our ability to implement our business strategy;
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our ability to adapt to technological changes in the educational sector;
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the availability of government authorizations on terms and conditions and within periods acceptable to us;
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our ability to continue attracting and retaining new students;
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our ability to maintain the academic quality of our programs;
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our ability to maintain the relationships with our hub partners;
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our ability to collect tuition fees;
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our ability to grow our business;
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the availability of qualified personnel and the ability to retain such personnel;
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changes in the financial condition of the students enrolling in our schools in general and in the competitive conditions in the education industry, or changes in the financial condition of our schools;
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our capitalization and level of indebtedness;
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the interests of our Exisiting Shareholders;
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changes in government regulations applicable to the education industry in Brazil;
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government interventions in education industry programs, that affect the economic or tax regime, the collection of tuition fees or the regulatory framework applicable to educational institutions;
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a decline in the number of students enrolled in our programs or the amount of tuition we can charge;
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our ability to compete and conduct our business in the future;
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the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors;
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changes in consumer demands and preferences and technological advances, and our ability to innovate to respond to such changes;
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changes in labor, distribution and other operating costs;
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our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us;
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other factors that may affect our financial condition, liquidity and results of operations; and
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other risk factors discussed under “Risk Factors.”
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Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
 
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USE OF PROCEEDS
We estimate that the net proceeds from our issuance and sale of 6,000,000 common shares in this offering will be approximately US$125.5 million (or US$145.0  million if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of US$23.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each US$1.00 increase (decrease) in the assumed initial public offering price of US$23.00 per share would increase (decrease) the net proceeds to us from this offering by approximately US$5.6 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately US$21.6 million, assuming the assumed initial public offering price stays the same.
We intend to use the net proceeds from this offering for organic growth through the expansion of our hybrid platform and course offerings, acquisitions and for other general corporate purposes.
Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including the factors described under “Risk factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities. No assurance can be given that we will invest the net proceeds from this offering in a manner that produces income or that does not result in a loss in value.
We will not receive any proceeds from the sale of shares by the selling shareholders.
 
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DIVIDENDS AND DIVIDEND POLICY
We have not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Certain Cayman Islands and Brazilian Legal Requirements Related to Dividends
Under the Companies Law and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For further information, see “Taxation — Cayman Islands Tax Considerations.”
Additionally, please refer to “Risk Factors — Certain Risks Relating to Our Business and Industry — We depend on dividend distributions by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive. In addition, during the last presidential campaign in Brazil, the current government proposed revoking certain tax exemptions relating to dividends, which could impact our ability to pay any future dividends or cash distributions and to receive dividends or cash distributions from our subsidiaries.” Our ability to comply with our financial obligations and to pay dividends to our shareholders depends on our ability to receive distributions from the companies we control, which in turn depends on the cash flow and profits of those companies. If, for any legal reasons due to new laws or bilateral agreements between countries, they are unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.
 
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CAPITALIZATION
The table below sets forth our total capitalization (defined as long-term debt, excluding current portion and total equity) as of June 30, 2020, as follows:
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historical financial information of Vitru Brasil, on an actual basis;
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Vitru, as adjusted to give effect to (i) the incorporation of Vitru and (ii) the contribution of Vitru Brasil to Vitru by the shareholder of Vitru Brasil; and
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Vitru, as further adjusted to give effect to (i) the incorporation of Vitru, (ii) the contribution of Vitru Brasil to Vitru by the shareholder of Vitru Brasil, and (iii) the issuance and sale by Vitru of the common shares in the offering, and the receipt of approximately US$125.5  million (R$687.4  million) in estimated net proceeds, considering an offering price of US$23.00 (R$125.95) per common share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom (and assuming no exercise of the underwriters’ option to purchase additional shares and placement of all offered common shares).
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Investors should read this table in conjunction with Vitru Brasil’s consolidated financial statements and the related notes included elsewhere in this prospectus, with the sections of this prospectus entitled “Summary Financial and Other Information,” “Selected Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with other financial information contained in this prospectus.
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As of June 30, 2020
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Vitru Brasil, actual
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Vitru, as adjusted
for the
contribution(2)
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Vitru, as further
adjusted for
the contribution
and the
offering(3)
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(in millions)
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(in US$)(1)
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(in R$)
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(in US$)(1)
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(in R$)
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(in US$)(1)
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(in R$)
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Non-current accounts payable from acquisition of subsidiaries(4)
​ ​ ​ ​ 46.7 ​ ​ ​ ​ ​ 256.0 ​ ​ ​ ​ ​ 46.7 ​ ​ ​ ​ ​ 256.0 ​ ​ ​ ​ ​ 46.7 ​ ​ ​ ​ ​ 256.0 ​ ​
Non-current lease liabilities(5)
​ ​ ​ ​ 19.1 ​ ​ ​ ​ ​ 104.8 ​ ​ ​ ​ ​ 19.1 ​ ​ ​ ​ ​ 104.8 ​ ​ ​ ​ ​ 19.1 ​ ​ ​ ​ ​ 104.8 ​ ​
Non-current loans and financing
​ ​ ​ ​ 27.4 ​ ​ ​ ​ ​ 150.0 ​ ​ ​ ​ ​ 27.4 ​ ​ ​ ​ ​ 150.0 ​ ​ ​ ​ ​ 27.4 ​ ​ ​ ​ ​ 150.0 ​ ​
Long-term debt(6)
​ ​ ​ ​ 93.2 ​ ​ ​ ​ ​ 510.8 ​ ​ ​ ​ ​ 93.2 ​ ​ ​ ​ ​ 510.8 ​ ​ ​ ​ ​ 93.3 ​ ​ ​ ​ ​ 510.8 ​ ​
Total equity(7)
​ ​ ​ ​ 92.0 ​ ​ ​ ​ ​ 503.7 ​ ​ ​ ​ ​ 92.0 ​ ​ ​ ​ ​ 503.7 ​ ​ ​ ​ ​ 217.5 ​ ​ ​ ​ ​ 1,191.1 ​ ​
Total capitalization(7)(8)
​ ​ ​ ​ 185.2 ​ ​ ​ ​ ​ 1,014.5 ​ ​ ​ ​ ​ 185.2 ​ ​ ​ ​ ​ 1,014.5 ​ ​ ​ ​ ​ 310.8 ​ ​ ​ ​ ​ 1,702.0 ​ ​
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(1)
For convenience purposes only, amounts in reais as of June 30, 2020 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
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(2)
As adjusted to reflect the (i) the incorporation of Vitru and (ii) the contribution of Vitru Brasil to Vitru by the shareholder of Vitru Brasil.
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(3)
As further adjusted to give effect to (i) the incorporation of Vitru, (ii) the contribution of Vitru Brasil to Vitru by the shareholder of Vitru Brasil, and (iii) the issuance and sale by Vitru of the common shares in the offering, and the receipt of approximately US$125.5  million (R$687.4  million) in estimated net proceeds, considering an offering price of US$23.00 (R$125.95) per common share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom (and assuming no exercise of the underwriters’ option to purchase additional shares and placement of all offered common shares).
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(4)
Non-current accounts payable from acquisition of subsidiaries consist of obligations related to the acquisition of our operating units from Kroton in 2016 and 2017, excluding current portion.
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(5)
Non-current lease liabilities consist of liabilities from right-of-use assets related to buildings used as offices and hubs, excluding current portion.
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(6)
Long-term debt consists of non-current accounts payable from acquisition of subsidiaries, non-current lease liabilities and non-current loans and financing.
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(7)
Each US$1.00 increase (decrease) in the offering price per common share would increase (decrease) our total capitalization and shareholders’ equity by R$30.88 million.
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(8)
Total capitalization consists of long-term debt, excluding current portion, and total equity.
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Other than as set forth above, there have been no material changes to our capitalization since June 30, 2020.
 
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DILUTION
Prior to the consummation of this offering and after the Share Contribution, our Existing Shareholders will hold all of our issued and outstanding shares, and we will hold all of the issued and outstanding shares in Vitru Brasil.
We have presented the dilution calculation below on the basis of Vitru Brasil net tangible book value as of June 30, 2020 because (i) until the contribution of Vitru Brasil shares to it, Vitru will not have commenced operations and will have only nominal assets and liabilities and no material contingent liabilities or commitments; and (ii) the number of common shares of Vitru in issuance prior to this offering was the same as the number of shares of Vitru Brasil in issuance as of June 30, 2020 (after accounting for the one-to-31 contribution).
As of June 30, 2020, Vitru Brasil had a net tangible book value of negative R$212 million, corresponding to an as adjusted net tangible book value of negative R$12.40 per share. As adjusted net tangible book value represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, and deferred income tax and social contribution divided by 17,058,053, the total number of Vitru shares outstanding (after giving effect to the one-to-31 contribution).
After giving effect to the Share Contribution and the sale of the common shares offered by us in the offering, and considering an offering price of US$23.00 per common share (the midpoint of the range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value estimated as of June 30, 2020 would have been approximately US$86.8 million, representing US$3.76 per share. This represents an immediate increase in net tangible book value of US$6.04 per share to the existing shareholder and an immediate dilution in net tangible book value of US$19.24 per share to new investors purchasing common shares in this offering. Dilution for this purpose represents the difference between the price per common shares paid by these purchasers and net tangible book value per common share immediately after the completion of the offering.
If you invest in our common shares, your interest will be diluted to the extent of the difference between the initial public offering price per common share (when converted into reais) and the pro forma net tangible book value per common share after accounting for the issuance and sale of new common shares in this offering.
The following table illustrates this dilution to new investors purchasing common shares in the offering.
​
Net tangible book value per share as of June 30, 2020
​ ​ ​ US$ (2.27) ​ ​
​
Increase in net tangible book value per share attributable to new investors
​ ​ ​ US$ 6.04 ​ ​
​
Pro forma as adjusted net tangible book value per share after the offering
​ ​ ​ US$ 3.76 ​ ​
​
Dilution per common share to new investors
​ ​ ​ US$ 19.24 ​ ​
​
Percentage of dilution in net tangible book value per common share for new investors
​ ​ ​ ​ 83.6% ​ ​
Each US$1.00 increase (decrease) in the offering price per common share, respectively, would increase (decrease) the pro forma as adjusted net tangible book value after this offering by US$0.24 per common share and the dilution to investors in the offering by US$0.76 per common share.
 
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EXCHANGE RATES
The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
The real depreciated against the U.S. dollar from mid-2011 to early 2016. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real depreciated at a rate that was much higher than in previous years. Overall in 2015, the real depreciated 47.0%, reaching R$3.9048 per US$1.00 on December 31, 2015. In 2016, the real fluctuated significantly, primarily as a result of Brazil’s political instability, appreciating 16.5% to R$3.2585 per US$1.00 on December 31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.3074 per US$1.00. In 2018, the real depreciated 17.1% against the U.S. dollar, ending the year at an exchange rate of R$3.8742 per US$1.00 mainly due to the result of lower interest rates in Brazil as well as uncertainty regarding the results of the Brazilian presidential elections, which were held in October 2018. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.0307 per US$1.00 on December 31, 2019, which reflected a 4.0% depreciation in the real against the U.S. dollar during 2019. As of June 30, 2020, the real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.4760 per US$1.00, which reflected a 35.9% depreciation in the real against the U.S. dollar during the first half of 2020. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar. The Brazilian Central Bank has previously intervened in the foreign exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad in the future.
The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed in Brazilian reais per U.S. dollar. The average rate is calculated by using the average of reported exchange rates by the Brazilian Central Bank on each business day during a monthly period and on the last day of each month during an annual period, as applicable. As of September 4, 2020, the exchange rate for the purchase of U.S. dollars as reported by the Brazilian Central Bank was R$5.2848 per US$1.00.
Year
​ ​
Period-end
​ ​
Average(1)
​ ​
Low(2)
​ ​
High(3)
​
2015
​ ​ ​ ​ 3.9048 ​ ​ ​ ​ ​ 3.3387 ​ ​ ​ ​ ​ 2.5754 ​ ​ ​ ​ ​ 4.1949 ​ ​
2016
​ ​ ​ ​ 3.2585 ​ ​ ​ ​ ​ 3.4833 ​ ​ ​ ​ ​ 3.1193 ​ ​ ​ ​ ​ 4.1558 ​ ​
2017
​ ​ ​ ​ 3.3074 ​ ​ ​ ​ ​ 3.1925 ​ ​ ​ ​ ​ 3.0510 ​ ​ ​ ​ ​ 3.3807 ​ ​
2018
​ ​ ​ ​ 3.8742 ​ ​ ​ ​ ​ 3.6558 ​ ​ ​ ​ ​ 3.1391 ​ ​ ​ ​ ​ 4.1879 ​ ​
2019
​ ​ ​ ​ 4.0307 ​ ​ ​ ​ ​ 3.9461 ​ ​ ​ ​ ​ 3.6519 ​ ​ ​ ​ ​ 4.2602 ​ ​
​
Source: Brazilian Central Bank.
(1)
Represents the average of the exchange rates on the closing of each business day during the year.
​
(2)
Represents the minimum of the exchange rates on the closing of each business day during the year.
​
(3)
Represents the maximum of the exchange rates on the closing of each business day during the year.
​
 
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Month
​ ​
Period-end
​ ​
Average(1)
​ ​
Low(2)
​ ​
High(3)
​
January 2020
​ ​ ​ ​ 4.2695 ​ ​ ​ ​ ​ 4.1495 ​ ​ ​ ​ ​ 4.0213 ​ ​ ​ ​ ​ 4.2695 ​ ​
February 2020
​ ​ ​ ​ 4.4987 ​ ​ ​ ​ ​ 4.3410 ​ ​ ​ ​ ​ 4.2381 ​ ​ ​ ​ ​ 4.4987 ​ ​
March 2020
​ ​ ​ ​ 5.1987 ​ ​ ​ ​ ​ 4.8839 ​ ​ ​ ​ ​ 4.4883 ​ ​ ​ ​ ​ 5.1987 ​ ​
April 2020
​ ​ ​ ​ 5.4270 ​ ​ ​ ​ ​ 5.3256 ​ ​ ​ ​ ​ 5.0779 ​ ​ ​ ​ ​ 5.6510 ​ ​
May 2020
​ ​ ​ ​ 5.3405 ​ ​ ​ ​ ​ 5.6434 ​ ​ ​ ​ ​ 5.2992 ​ ​ ​ ​ ​ 5.9372 ​ ​
June 2020
​ ​ ​ ​ 5.4760 ​ ​ ​ ​ ​ 5.1966 ​ ​ ​ ​ ​ 4.8894 ​ ​ ​ ​ ​ 5.4760 ​ ​
July 2020
​ ​ ​ ​ 5.2033 ​ ​ ​ ​ ​ 5.2802 ​ ​ ​ ​ ​ 5.1111 ​ ​ ​ ​ ​ 5.4288 ​ ​
August 2020
​ ​ ​ ​ 5.4713 ​ ​ ​ ​ ​ 5.4612 ​ ​ ​ ​ ​ 5.2760 ​ ​ ​ ​ ​ 5.6510 ​ ​
September 2020 (through September 4, 2020)
​ ​ ​ ​ 5.2848 ​ ​ ​ ​ ​ 5.3350 ​ ​ ​ ​ ​ 5.2848 ​ ​ ​ ​ ​ 5.3741 ​ ​
​
Source: Brazilian Central Bank.
(1)
Represents the average of the exchange rates on the closing of each business day during the month.
​
(2)
Represents the minimum of the exchange rates on the closing of each business day during the month.
​
(3)
Represents the maximum of the exchange rates on the closing of each business day during the month.
​
 
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MARKET INFORMATION
Prior to this offering, there has been no public market for our common shares. We cannot assure that an active trading market will develop for our common shares, or that our common shares will trade in the public market subsequent to the offering at or above the initial public offering price.
 
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SELECTED FINANCIAL AND OTHER INFORMATION
The following tables set forth, for the periods and as of the dates indicated, our selected financial and operating data. The selected consolidated statement of financial position as of June 30, 2020 and the selected consolidated statements of profit or loss and other comprehensive income for the six months ended June 30, 2020 and 2019 have been derived from the unaudited interim condensed consolidated financial statements of Vitru Brasil included elsewhere in this prospectus, prepared in accordance with IAS 34, as issued by the IASB. The selected consolidated statements of financial position as of December 31, 2019 and 2018 and the selected consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2019 and 2018 have been derived from the audited consolidated financial statements of Vitru Brasil included elsewhere in this prospectus, prepared in accordance with IFRS, as issued by the IASB.
For convenience purposes only, amounts in reais as of and for the six months ended June 30, 2020 and as of and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
Amounts as of and for the fiscal year ended December 31, 2018 have been restated as a result of the full retrospective method of adoption of IFRS 16 with the date of initial application of January 1, 2019. For more information, see note 2.6 to our audited consolidated financial statements included elsewhere in this prospectus.
This information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Summary Financial and Other Information” and the audited consolidated financial statements of Vitru Brasil, including the notes thereto, included elsewhere in this prospectus.
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Years Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions, except per share information)
​
Statement of Profit or Loss Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 46.9 ​ ​ ​ ​ ​ 256.7 ​ ​ ​ ​ ​ 234.5 ​ ​ ​ ​ ​ 84.2 ​ ​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 383.4 ​ ​
Revenue from distance-learning undergraduate courses
​ ​ ​ ​ 37.2 ​ ​ ​ ​ ​ 203.7 ​ ​ ​ ​ ​ 170.8 ​ ​ ​ ​ ​ 61.4 ​ ​ ​ ​ ​ 336.3 ​ ​ ​ ​ ​ 259.6 ​ ​
Revenue from continuing education
courses
​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 21.3 ​ ​ ​ ​ ​ 23.0 ​ ​ ​ ​ ​ 8.6 ​ ​ ​ ​ ​ 47.1 ​ ​ ​ ​ ​ 33.0 ​ ​
Revenue from on-campus undergraduate courses
​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 31.6 ​ ​ ​ ​ ​ 40.7 ​ ​ ​ ​ ​ 14.2 ​ ​ ​ ​ ​ 77.6 ​ ​ ​ ​ ​ 90.8 ​ ​
Cost of services rendered
​ ​ ​ ​ (19.4) ​ ​ ​ ​ ​ (106.0) ​ ​ ​ ​ ​ (105.2) ​ ​ ​ ​ ​ (38.6) ​ ​ ​ ​ ​ (211.5) ​ ​ ​ ​ ​ (184.2) ​ ​
Gross profit
​ ​ ​ ​ 27.5 ​ ​ ​ ​ ​ 150.6 ​ ​ ​ ​ ​ 129.3 ​ ​ ​ ​ ​ 45.6 ​ ​ ​ ​ ​ 249.5 ​ ​ ​ ​ ​ 199.3 ​ ​
Selling expenses
​ ​ ​ ​ (9.1) ​ ​ ​ ​ ​ (50.0) ​ ​ ​ ​ ​ (47.8) ​ ​ ​ ​ ​ (18.4) ​ ​ ​ ​ ​ (100.9) ​ ​ ​ ​ ​ (70.6) ​ ​
General and administrative expenses
​ ​ ​ ​ (4.4) ​ ​ ​ ​ ​ (24.4) ​ ​ ​ ​ ​ (61.3) ​ ​ ​ ​ ​ (22.9) ​ ​ ​ ​ ​ (125.3) ​ ​ ​ ​ ​ (90.7) ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ (6.4) ​ ​ ​ ​ ​ (34.9) ​ ​ ​ ​ ​ (25.3) ​ ​ ​ ​ ​ (10.6) ​ ​ ​ ​ ​ (58.2) ​ ​ ​ ​ ​ (44.6) ​ ​
Other income (expenses), net
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ (0.4) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (0.9) ​ ​ ​ ​ ​ (1.0) ​ ​
Operating expenses
​ ​ ​ ​ (19.7) ​ ​ ​ ​ ​ (107.6) ​ ​ ​ ​ ​ (134.7) ​ ​ ​ ​ ​ (52.1) ​ ​ ​ ​ ​ (285.4) ​ ​ ​ ​ ​ (206.9) ​ ​
Operating profit (loss)
​ ​ ​ ​ 7.9 ​ ​ ​ ​ ​ 43.0 ​ ​ ​ ​ ​ (5.4) ​ ​ ​ ​ ​ (6.6) ​ ​ ​ ​ ​ (35.9) ​ ​ ​ ​ ​ (7.6) ​ ​
 
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​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Years Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions, except per share information)
​
Financial income
​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ 9.5 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 3.5 ​ ​ ​ ​ ​ 19.2 ​ ​ ​ ​ ​ 22.0 ​ ​
Financial expenses
​ ​ ​ ​ (3.8) ​ ​ ​ ​ ​ (20.8) ​ ​ ​ ​ ​ (29.9) ​ ​ ​ ​ ​ (11.0) ​ ​ ​ ​ ​ (60.4) ​ ​ ​ ​ ​ (64.6) ​ ​
Financial results
​ ​ ​ ​ (2.1) ​ ​ ​ ​ ​ (11.2) ​ ​ ​ ​ ​ (20.5) ​ ​ ​ ​ ​ (7.5) ​ ​ ​ ​ ​ (41.2) ​ ​ ​ ​ ​ (42.6) ​ ​
Profit (loss) before taxes
​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 31.7 ​ ​ ​ ​ ​ (25.9) ​ ​ ​ ​ ​ (14.1) ​ ​ ​ ​ ​ (77.1) ​ ​ ​ ​ ​ (50.2) ​ ​
Current income taxes
​ ​ ​ ​ (3.6) ​ ​ ​ ​ ​ (19.6) ​ ​ ​ ​ ​ (8.6) ​ ​ ​ ​ ​ (2.7) ​ ​ ​ ​ ​ (14.8) ​ ​ ​ ​ ​ (10.6) ​ ​
Deferred income taxes
​ ​ ​ ​ 7.4 ​ ​ ​ ​ ​ 40.3 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 25.7 ​ ​ ​ ​ ​ 15.7 ​ ​
Income tax
​ ​ ​ ​ 3.8 ​ ​ ​ ​ ​ 20.6 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 2.0 ​ ​ ​ ​ ​ 10.9 ​ ​ ​ ​ ​ 5.0 ​ ​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
Earnings (loss) per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted earnings (loss) per common
share – R$(2)
​ ​ ​ ​ 0.02 ​ ​ ​ ​ ​ 0.10 ​ ​ ​ ​ ​ (0.05) ​ ​ ​ ​ ​ (0.02) ​ ​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (0.09) ​ ​
Pro forma Basic earnings (loss) per common
share – R$(3)
​ ​ ​ ​ 0.57 ​ ​ ​ ​ ​ 3.11 ​ ​ ​ ​ ​ (1.49) ​ ​ ​ ​ ​ (0.72) ​ ​ ​ ​ ​ (3.93) ​ ​ ​ ​ ​ (2.78) ​ ​
Pro forma Diluted earnings (loss) per common share – R$(3)
​ ​ ​ ​ 0.54 ​ ​ ​ ​ ​ 2.98 ​ ​ ​ ​ ​ (1.49) ​ ​ ​ ​ ​ (0.72) ​ ​ ​ ​ ​ (3.93) ​ ​ ​ ​ ​ (2.78) ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
Based on the weighted average number of outstanding common shares issued by Vitru Brasil for each period presented.
​
(3)
The pro forma basic and diluted earnings per share are presented using our historical earnings (loss) per share recast using the weighted average number of common shares in issue for each period and prior to completion of this offering, after giving effect to the Share Contribution.
​
​ ​ ​
As of June 30,
​ ​
As of December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Statement of Financial Position Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ ​ 28.7 ​ ​ ​ ​ ​ 157.2 ​ ​ ​ ​ ​ 0.5 ​ ​ ​ ​ ​ 2.5 ​ ​ ​ ​ ​ 2.4 ​ ​
Short-term investments
​ ​ ​ ​ 14.6 ​ ​ ​ ​ ​ 80.0 ​ ​ ​ ​ ​ 13.2 ​ ​ ​ ​ ​ 72.3 ​ ​ ​ ​ ​ 164.8 ​ ​
Trade receivables
​ ​ ​ ​ 20.1 ​ ​ ​ ​ ​ 110.3 ​ ​ ​ ​ ​ 16.1 ​ ​ ​ ​ ​ 88.1 ​ ​ ​ ​ ​ 71.4 ​ ​
Income taxes recoverable
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 5.5 ​ ​
Prepaid expenses
​ ​ ​ ​ 2.5 ​ ​ ​ ​ ​ 13.6 ​ ​ ​ ​ ​ 1.6 ​ ​ ​ ​ ​ 8.9 ​ ​ ​ ​ ​ 7.2 ​ ​
Other current assets
​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 1.1 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.9 ​ ​ ​ ​ ​ 1.2 ​ ​
​ ​ ​ ​ ​ 66.1 ​ ​ ​ ​ ​ 362.1 ​ ​ ​ ​ ​ 32.6 ​ ​ ​ ​ ​ 178.4 ​ ​ ​ ​ ​ 252.5 ​ ​
Assets classified as held for sale(2)
​ ​ ​ ​ 6.4 ​ ​ ​ ​ ​ 35.1 ​ ​ ​ ​ ​ 6.7 ​ ​ ​ ​ ​ 36.5 ​ ​ ​ ​ ​ — ​ ​
Total current assets
​ ​ ​ ​ 72.5 ​ ​ ​ ​ ​ 397.2 ​ ​ ​ ​ ​ 39.2 ​ ​ ​ ​ ​ 214.9 ​ ​ ​ ​ ​ 252.5 ​ ​
​
 
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​ ​ ​
As of June 30,
​ ​
As of December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Non-current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​ ​ ​ 0.6 ​ ​ ​ ​ ​ 3.3 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 3.8 ​ ​ ​ ​ ​ 5.4 ​ ​
Indemnification assets
​ ​ ​ ​ 2.4 ​ ​ ​ ​ ​ 12.9 ​ ​ ​ ​ ​ 2.7 ​ ​ ​ ​ ​ 14.8 ​ ​ ​ ​ ​ 16.5 ​ ​
Deferred tax assets
​ ​ ​ ​ 10.1 ​ ​ ​ ​ ​ 55.3 ​ ​ ​ ​ ​ 6.8 ​ ​ ​ ​ ​ 37.1 ​ ​ ​ ​ ​ 29.9 ​ ​
Other non-current assets
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ 1.2 ​ ​
Right-of-use assets
​ ​ ​ ​ 19.9 ​ ​ ​ ​ ​ 109.0 ​ ​ ​ ​ ​ 16.2 ​ ​ ​ ​ ​ 88.5 ​ ​ ​ ​ ​ 74.8 ​ ​
Property and equipment
​ ​ ​ ​ 15.5 ​ ​ ​ ​ ​ 85.1 ​ ​ ​ ​ ​ 12.8 ​ ​ ​ ​ ​ 70.0 ​ ​ ​ ​ ​ 63.4 ​ ​
Intangible assets
​ ​ ​ ​ 120.6 ​ ​ ​ ​ ​ 660.5 ​ ​ ​ ​ ​ 120.2 ​ ​ ​ ​ ​ 658.2 ​ ​ ​ ​ ​ 735.3 ​ ​
Total non-current assets
​ ​ ​ ​ 169.4 ​ ​ ​ ​ ​ 927.5 ​ ​ ​ ​ ​ 159.6 ​ ​ ​ ​ ​ 873.8 ​ ​ ​ ​ ​ 926.5 ​ ​
Total assets
​ ​ ​ ​ 241.9 ​ ​ ​ ​ ​ 1,324.7 ​ ​ ​ ​ ​ 198.8 ​ ​ ​ ​ ​ 1,088.7 ​ ​ ​ ​ ​ 1,179.0 ​ ​
Liabilities and Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade payables
​ ​ ​ ​ 5.2 ​ ​ ​ ​ ​ 28.2 ​ ​ ​ ​ ​ 5.5 ​ ​ ​ ​ ​ 30.0 ​ ​ ​ ​ ​ 17.1 ​ ​
Loans and financing
​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ 2.0 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Lease liabilities
​ ​ ​ ​ 3.7 ​ ​ ​ ​ ​ 20.3 ​ ​ ​ ​ ​ 3.2 ​ ​ ​ ​ ​ 17.3 ​ ​ ​ ​ ​ 15.4 ​ ​
Labor and social obligations
​ ​ ​ ​ 6.6 ​ ​ ​ ​ ​ 36.3 ​ ​ ​ ​ ​ 3.1 ​ ​ ​ ​ ​ 16.8 ​ ​ ​ ​ ​ 16.1 ​ ​
Income tax payable
​ ​ ​ ​ 1.0 ​ ​ ​ ​ ​ 5.2 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Taxes payable
​ ​ ​ ​ 0.5 ​ ​ ​ ​ ​ 3.0 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ 1.7 ​ ​
Prepayments from customers
​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 0.6 ​ ​ ​ ​ ​ 3.2 ​ ​ ​ ​ ​ 1.2 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 24.1 ​ ​ ​ ​ ​ 131.8 ​ ​ ​ ​ ​ 23.5 ​ ​ ​ ​ ​ 128.9 ​ ​ ​ ​ ​ 123.3 ​ ​
Other current liabilities
​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 0.3 ​ ​
​ ​ ​ ​ ​ 42.6 ​ ​ ​ ​ ​ 232.5 ​ ​ ​ ​ ​ 36.2 ​ ​ ​ ​ ​ 198.1 ​ ​ ​ ​ ​ 175.1 ​ ​
Liabilities directly associated with assets classified as held for sale(2)
​ ​ ​ ​ 4.4 ​ ​ ​ ​ ​ 24.5 ​ ​ ​ ​ ​ 4.3 ​ ​ ​ ​ ​ 23.3 ​ ​ ​ ​ ​ — ​ ​
Total current liabilities
​ ​ ​ ​ 47.0 ​ ​ ​ ​ ​ 257.0 ​ ​ ​ ​ ​ 40.4 ​ ​ ​ ​ ​ 221.4 ​ ​ ​ ​ ​ 175.1 ​ ​
Non-current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Loans and financing
​ ​ ​ ​ 27.4 ​ ​ ​ ​ ​ 150.0 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Lease liabilities
​ ​ ​ ​ 19.1 ​ ​ ​ ​ ​ 104.8 ​ ​ ​ ​ ​ 15.7 ​ ​ ​ ​ ​ 85.9 ​ ​ ​ ​ ​ 73.3 ​ ​
Share-based compensation
​ ​ ​ ​ 6.3 ​ ​ ​ ​ ​ 34.4 ​ ​ ​ ​ ​ 6.4 ​ ​ ​ ​ ​ 35.0 ​ ​ ​ ​ ​ 7.0 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 46.7 ​ ​ ​ ​ ​ 256.0 ​ ​ ​ ​ ​ 45.8 ​ ​ ​ ​ ​ 250.7 ​ ​ ​ ​ ​ 335.2 ​ ​
Provisions for contingencies
​ ​ ​ ​ 3.3 ​ ​ ​ ​ ​ 17.8 ​ ​ ​ ​ ​ 3.4 ​ ​ ​ ​ ​ 18.4 ​ ​ ​ ​ ​ 18.0 ​ ​
Deferred tax liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4.6 ​ ​ ​ ​ ​ 25.0 ​ ​ ​ ​ ​ 43.4 ​ ​
Other non-current liabilities
​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 1.1 ​ ​ ​ ​ ​ 7.5 ​ ​
Total non-current liabilities
​ ​ ​ ​ 103.0 ​ ​ ​ ​ ​ 564.0 ​ ​ ​ ​ ​ 76.0 ​ ​ ​ ​ ​ 416.0 ​ ​ ​ ​ ​ 484.5 ​ ​
Total liabilities
​ ​ ​ ​ 150.0 ​ ​ ​ ​ ​ 821.0 ​ ​ ​ ​ ​ 116.4 ​ ​ ​ ​ ​ 637.4 ​ ​ ​ ​ ​ 659.6 ​ ​
Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Share capital
​ ​ ​ ​ 100.1 ​ ​ ​ ​ ​ 548.4 ​ ​ ​ ​ ​ 100.1 ​ ​ ​ ​ ​ 548.4 ​ ​ ​ ​ ​ 546.5 ​ ​
Capital reserves
​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (1.2) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (1.3) ​ ​ ​ ​ ​ 2.5 ​ ​
Revenue reserves
​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ 0.4 ​ ​
 
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​ ​ ​
As of June 30,
​ ​
As of December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Retained earnings (accumulated losses)
​ ​ ​ ​ (8.0) ​ ​ ​ ​ ​ (43.8) ​ ​ ​ ​ ​ (17.6) ​ ​ ​ ​ ​ (96.2) ​ ​ ​ ​ ​ (30.1) ​ ​
Total equity
​ ​ ​ ​ 92.0 ​ ​ ​ ​ ​ 503.7 ​ ​ ​ ​ ​ 82.4 ​ ​ ​ ​ ​ 451.3 ​ ​ ​ ​ ​ 519.4 ​ ​
Total liabilities and equity
​ ​ ​ ​ 242.0 ​ ​ ​ ​ ​ 1,324.7 ​ ​ ​ ​ ​ 198.8 ​ ​ ​ ​ ​ 1,088.7 ​ ​ ​ ​ ​ 1,179.0 ​ ​
​
​
(1)
For convenience purposes only, amounts in reais as of June 30, 2020 and December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
In December 2019, we decided to sell our subsidiaries FAC/FAMAT and FAIR and the undergraduate operations on the campuses of Assevim and Famesul. As a result of this decision we classified the related assets and liabilities as held for sale, since we understand that the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for these types of transactions, that this sale is likely to occur given existing plans and is expected to occur within the next six months and that an active program to locate a buyer and complete the plan must be initiated. For more information, see note 8 to our unaudited interim condensed consolidated financial statements and note 12 to our audited consolidated financial statements, each included elsewhere in this prospectus.
​
Non-GAAP Financial Measures and Reconciliations
Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Net revenue
​ ​ ​ ​ 46.9 ​ ​ ​ ​ ​ 256.7 ​ ​ ​ ​ ​ 234.5 ​ ​ ​ ​ ​ 84.2 ​ ​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 383.4 ​ ​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
Adjusted EBITDA(2)
​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 75.2 ​ ​ ​ ​ ​ 66.1 ​ ​ ​ ​ ​ 21.5 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
Adjusted Net Income(3)
​ ​ ​ ​ 10.4 ​ ​ ​ ​ ​ 57.1 ​ ​ ​ ​ ​ 35.1 ​ ​ ​ ​ ​ 10.5 ​ ​ ​ ​ ​ 57.7 ​ ​ ​ ​ ​ 55.4 ​ ​
Cash flow from operations
​ ​ ​ ​ 12.3 ​ ​ ​ ​ ​ 67.2 ​ ​ ​ ​ ​ 50.0 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 98.0 ​ ​ ​ ​ ​ 88.0 ​ ​
Adjusted Cash Flow Conversion from
Operations(4)
​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 68% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 79% ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our loss for the year, see “— Reconciliations of Non-GAAP Financial Measures — Reconciliation between Adjusted EBITDA and loss for the year.”
​
(3)
For information on how we define Adjusted Net Income, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Net Income, see “— Reconciliations of Non-GAAP Financial Measures — Reconciliation of Adjusted Net Income.”
​
(4)
For information on how we define Adjusted Cash Flow Conversion from Operations, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted Cash Flow Conversion from Operations, see “— Reconciliations of Non-GAAP Financial Measures — Reconciliation of Adjusted Cash Flow Conversion from Operations.”
​
Reconciliations of Non-GAAP Financial Measures
The following tables set forth reconciliations of Adjusted EBITDA and Adjusted Net Income to our net income (loss) for the period for the six months ended June 30, 2020 and 2019, and for the years
 
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ended December 31, 2019 and 2018, our most recent directly comparable financial measures calculated and presented in accordance with IFRS.
For further information on why our management chooses to use these non-GAAP financial measures, and on the limits of using these non-GAAP financial measures, please see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
Reconciliation between Adjusted EBITDA and loss for the year
The following table below sets forth a reconciliation of our Adjusted EBITDA to our loss for each of the periods indicated:
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
(+) Deferred and current income tax
​ ​ ​ ​ (3.8) ​ ​ ​ ​ ​ (20.6) ​ ​ ​ ​ ​ (0.8) ​ ​ ​ ​ ​ (2.0) ​ ​ ​ ​ ​ (10.9) ​ ​ ​ ​ ​ (5.0) ​ ​
(+) Financial results
​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 11.2 ​ ​ ​ ​ ​ 20.5 ​ ​ ​ ​ ​ 7.5 ​ ​ ​ ​ ​ 41.2 ​ ​ ​ ​ ​ 42.6 ​ ​
(+) Depreciation and amortization
​ ​ ​ ​ 4.4 ​ ​ ​ ​ ​ 24.3 ​ ​ ​ ​ ​ 30.4 ​ ​ ​ ​ ​ 11.4 ​ ​ ​ ​ ​ 62.4 ​ ​ ​ ​ ​ 56.3 ​ ​
(+) Interest on tuition fees paid in arrears
​ ​ ​ ​ 1.3 ​ ​ ​ ​ ​ 7.2 ​ ​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 1.5 ​ ​ ​ ​ ​ 8.3 ​ ​ ​ ​ ​ 8.9 ​ ​
(+) Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 31.4 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 33.5 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ (0.6) ​ ​ ​ ​ ​ 3.1 ​ ​ ​ ​ ​ 4.8 ​ ​ ​ ​ ​ 26.4 ​ ​ ​ ​ ​ 7.5 ​ ​
(+) Other income (expenses), net
​ ​ ​ ​ (0.3) ​ ​ ​ ​ ​ (1.7) ​ ​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 1.0 ​ ​
(+) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 0.5 ​ ​ ​ ​ ​ 2.9 ​ ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 8.2 ​ ​
Adjusted EBITDA(2)
​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 75.2 ​ ​ ​ ​ ​ 66.1 ​ ​ ​ ​ ​ 21.5 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
We calculate Adjusted EBITDA as net income (loss) for the period plus deferred and current income tax plus financial results plus depreciation and amortization plus interest on tuition fees paid in arrears plus impairment of non-current assets plus share-based compensation plan plus other income (expenses), net, plus M&A, pre-offering expenses and restructuring expenses. Adjusted EBITDA is a non-GAAP measure. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
Reconciliation of Adjusted Net Income
The following table below sets forth a reconciliation of our profit to Adjusted Net Income for each of the periods indicated:
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Net income (loss) for the period
​ ​ ​ ​ 9.6 ​ ​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ (12.1) ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
(+) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 0.5 ​ ​ ​ ​ ​ 2.9 ​ ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 8.2 ​ ​
 
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​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
(+) Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 31.4 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 33.5 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ (0.6) ​ ​ ​ ​ ​ 3.1 ​ ​ ​ ​ ​ 4.8 ​ ​ ​ ​ ​ 26.4 ​ ​ ​ ​ ​ 7.5 ​ ​
(+) Amortization of intangible assets from business combinations
​ ​ ​ ​ 1.6 ​ ​ ​ ​ ​ 8.9 ​ ​ ​ ​ ​ 18.6 ​ ​ ​ ​ ​ 6.8 ​ ​ ​ ​ ​ 37.3 ​ ​ ​ ​ ​ 37.3 ​ ​
(+) Interest accrued on accounts payable from the acquisition of subsidiaries
​ ​ ​ ​ 1.6 ​ ​ ​ ​ ​ 8.9 ​ ​ ​ ​ ​ 11.5 ​ ​ ​ ​ ​ 4.3 ​ ​ ​ ​ ​ 23.4 ​ ​ ​ ​ ​ 27.1 ​ ​
(+) Corresponding tax effects on adjustments
​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (6.0) ​ ​ ​ ​ ​ (6.5) ​ ​ ​ ​ ​ (3.4) ​ ​ ​ ​ ​ (18.7) ​ ​ ​ ​ ​ (13.0) ​ ​
Adjusted Net Income(2)
​ ​ ​ ​ 12.1 ​ ​ ​ ​ ​ 66.5 ​ ​ ​ ​ ​ 35.2 ​ ​ ​ ​ ​ 10.5 ​ ​ ​ ​ ​ 57.7 ​ ​ ​ ​ ​ 55.4 ​ ​
​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
(2)
We calculate Adjusted Net Income as net income (loss) for the period plus share-based compensation plan plus M&A, pre-offering expenses and restructuring expenses, plus impairment of non-current assets plus amortization of intangible assets recognized as a result of business combinations plus interest accrued at the original effective interest rate (excluding restatement as a result of inflation) on the accounts payable from the acquisition of subsidiaries plus corresponding tax effects on adjustments. Adjusted Net Income is a non-GAAP measure. Our calculation of Adjusted Net Income may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
Reconciliation of Adjusted Cash Flow Conversion from Operations
The following table below sets forth a reconciliation of our Adjusted Cash Flow Conversion from Operations for each of the periods indicated:
​ ​ ​
For the Six Months
Ended June 30,
​ ​
For the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
US$(1)
​ ​
R$
​ ​
US$(1)
​ ​
R$
​
​ ​ ​
(in millions)
​
Cash flow from operations
​ ​ ​ ​ 12.3 ​ ​ ​ ​ ​ 67.2 ​ ​ ​ ​ ​ 50.0 ​ ​ ​ ​ ​ 4.4 ​ ​ ​ ​ ​ 98.0 ​ ​ ​ ​ ​ 88.0 ​ ​
(+) Income tax paid
​ ​ ​ ​ (1.8) ​ ​ ​ ​ ​ (9.7) ​ ​ ​ ​ ​ (6.8) ​ ​ ​ ​ ​ (0.6) ​ ​ ​ ​ ​ (12.7) ​ ​ ​ ​ ​ (9.4) ​ ​
Adjusted Cash Flow from Operations
​ ​ ​ ​ 10.5 ​ ​ ​ ​ ​ 57.5 ​ ​ ​ ​ ​ 43.2 ​ ​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 85.3 ​ ​ ​ ​ ​ 78.6 ​ ​
Adjusted EBITDA(2)
​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 75.2 ​ ​ ​ ​ ​ 66.1 ​ ​ ​ ​ ​ 5.3 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
(-) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ (0.5) ​ ​ ​ ​ ​ (2.9) ​ ​ ​ ​ ​ (2.1) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (4.5) ​ ​ ​ ​ ​ (8.2) ​ ​
Adjusted EBITDA excluding M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 13.2 ​ ​ ​ ​ ​ 72.3 ​ ​ ​ ​ ​ 64.0 ​ ​ ​ ​ ​ 5.1 ​ ​ ​ ​ ​ 113.1 ​ ​ ​ ​ ​ 99.6 ​ ​
Adjusted Cash Flow Conversion from Operations(3)(2)
​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 80% ​ ​ ​ ​ ​ 68% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 79% ​ ​
​
(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
 
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(2)
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our net income (loss) for the period, see “— Reconciliation between Adjusted EBITDA and loss for the year.”
​
(3)
We calculate Adjusted Cash Flow Conversion from Operations as adjusted cash flow from operations (which we calculate as cash from operations plus income tax paid) divided by Adjusted EBITDA (as defined above but without taking M&A, pre-offering expenses and restructuring expenses into consideration). Adjusted Cash Flow Conversion from Operations is a non-GAAP measure. Our calculation of Adjusted Cash Flow Conversion from Operations may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
Operating Data
The following table below sets forth certain of our operating data for each of the periods indicated:
​ ​ ​
As of and for the
Six Months Ended
June 30
​ ​
As of and for the Year Ended
December 31,
​
​ ​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​ ​
2017
​ ​
2016
​
Number enrolled students
​ ​ ​ ​ 287,798 ​ ​ ​ ​ ​ 244,188 ​ ​ ​ ​ ​ 240,946 ​ ​ ​ ​ ​ 189,295 ​ ​ ​ ​ ​ 140,363 ​ ​ ​ ​ ​ 115,325 ​ ​
Number of distance learning undergraduate students
​ ​ ​ ​ 236,838 ​ ​ ​ ​ ​ 193,068 ​ ​ ​ ​ ​ 195,613 ​ ​ ​ ​ ​ 148,711 ​ ​ ​ ​ ​ 106,576 ​ ​ ​ ​ ​ 81,406 ​ ​
Number of distance learning graduate
students
​ ​ ​ ​ 42,033 ​ ​ ​ ​ ​ 40,673 ​ ​ ​ ​ ​ 35,952 ​ ​ ​ ​ ​ 30,227 ​ ​ ​ ​ ​ 22,910 ​ ​ ​ ​ ​ 21,108 ​ ​
Number of hubs
​ ​ ​ ​ 608 ​ ​ ​ ​ ​ 436 ​ ​ ​ ​ ​ 545 ​ ​ ​ ​ ​ 370 ​ ​ ​ ​ ​ 221 ​ ​ ​ ​ ​ 72 ​ ​
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with Vitru Brasil’s our unaudited interim condensed consolidated financial statements as of June 30, 2020 and for the six months ended June 30, 2020 and 2019, and audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018 and the notes thereto, included elsewhere in this prospectus, as well as the information presented under “Presentation of Financial and Other Information,” “Summary Financial and Other Information” and “Selected Financial and Other Information.”
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”
Overview
We are the leading pure distance learning education group in the postsecondary digital education market in Brazil based on the number of enrolled undergraduate students as of December 31, 2018, according to the latest available data published in September 2019 by the MEC.
Between 2016 and 2018, we grew at a CAGR of 43.5% in terms of enrolled students in our undergraduate distance learning programs, as shown in the chart below.
[MISSING IMAGE: tm2028928d4-bc_evolu4c.jpg]
​
Note: The data presented in this chart for the period from 2010 to 2018 is derived from public information published by INEP, and for market share comparability purposes, it is calculated by INEP by applying the same metrics for all postsecondary education institutions in Brazil. The data presented for 2019 is marked by “*” because it is an estimate calculated by the Company for the number that will be released in September 2020 by INEP. This data may not be directly comparable with data derived from our internal records included elsewhere in this prospectus.
We provide a differentiated distance learning experience for our students through our disruptive hybrid model, which emphasizes flexibility, affordability and a strong relationship with all stakeholders engaged in our platform. Our hybrid and technology-enabled content is delivered both digitally and through in-person weekly encounters lectured by highly-trained tutors on our extensive hub network. We believe that this unique tutor-centered learning experience sets us apart, creating a stronger sense of community and belonging and contributing to higher engagement and retention rates of our student base.
Our hub partners, who own 82.7% of our hubs, are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus
 
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reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of lower tuition share allocated to our hub partners. We have built and nurtured strong relationships with our 151 hub partners, who play a key role in our expansion.
Our proven quality has allowed us to accelerate the pace of growth and further differentiate ourselves. On June 2019, our CI score, which is measured and published by the MEC, and is based on institutional planning and development, academic and management criteria, was upgraded to 5, from 4 previously (on a scale of 1 to 5), enabling us to open up to 250 hubs per year, compared to a maximum of 150 and 50 new hubs per year for the institutions scoring up to 4 and 3, respectively. Therefore, we have the highest quality standards in higher education in Brazil, as evaluated by the MEC.
Our Business Economics and Cohorts
We believe the combination of the elements of our business model and the strength of the value proposition for the students attracted to our ecosystem has resulted in best-in-class unit economics for our hubs network, which plays a pivotal role in our organic growth strategy.
We believe that an annualized cohort analysis is a useful indicator of demand for our services. We define a cohort as new hubs opened in a year.
We track the cohorts on a semi-annual basis. Our strong cohorts are driven by the maturation of our hubs, our high retention rates, especially after the first year of enrollment, the expansion of our offering (e.g. new courses) and annual tuition adjustments.
The result of our recent cohorts demonstrates our successful track record in developing our ecosystem as set out in the chart below.
[MISSING IMAGE: tm2028928d4-lc_fundam4c.jpg]
The percentages included in the body of each of the above figures show the growth in the overall number of students or tuition base, as applicable, over the periods indicated in relation to the initial year of each cohort which is set to equal 100%. The percentages on the vertical axis under the heading “CAGR” of each of the above figures show the CAGR of our cohorts over the periods indicated. The number of students in our base cohort (which comprises the hubs existing prior to 2017) grew at a CAGR of 4.1% between the first semester of 2017 and the first semester of 2020, while our 2017 cohort (which comprises the hubs opened in 2017), 2018 cohort (which comprises the hubs opened in 2018) and 2019 cohort (which comprises the hubs opened in 2019) grew at a CAGR of 102.5%, 129.0% and 321.0%, since their respective inception, driven by high intakes and retention rates, introduction of undergraduate courses already offered in other operating hubs, and the natural maturation of each hub.
 
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Moreover, the tuition of our base cohort, our 2017 cohort, our 2018 cohort and 2019 cohort grew even faster at a CAGR of 4.2%, 120.3%, 183.0% and 597.9%, respectively, as a result of the abovementioned factors, as well as our ability to increase tuition prices above inflation and the changes of our mix of courses through time.
Our Growth
We remain focused on our primary mission: to provide students full access to distance learning education and improve their experience through a disruptive student-centric model. We believe this focus helped us grow and expand our business to several regions in Brazil in recent years, and is a key driver for differentiating ourselves from our competition. A large part of this growth was based on the strategic decision to start expanding into small and medium-sized cities and being the first institution to implement educational units and provide access to higher education for residents of cities in the countryside. Based on the most recent available data of the MEC, as of December 31, 2018, we were ranked at least second in terms of market share in 89% of the cities in which we operate, which is a strong indication of the strength of our brand and unique value proposition. We aim to democratize access to higher education through distance learning and empower every student to create his or her own success story.
[MISSING IMAGE: tm2028928d4-bc_leaders4c.jpg]
​
Note: For the data presented in the chart titled “We have been growing +2x total market,” we selected the six biggest education companies in 2015 to show our growth.
Our revenue growth is a result of our business model, which has been based on the opening of new hubs, ramp-up of current hubs, annual price adjustments and expansion of course offerings:
•
Grow Our Base of Uniasselvi Hubs.   As of June 30, 2020, our network consisted of 608 hubs, compared to 436 hubs as of June 30, 2019 representing an annual growth rate of 39.4%. As of December 2019, our network consisted of 545 hubs, compared to, respectively, 370 hubs, 221 hubs and 72 hubs as of December 31, 2018, December 31, 2017 and December 31, 2016, representing a CAGR of 96.3%. We expect to continue to launch new hubs to increase our coverage and market penetration. We believe our strategy of targeting small-and-medium sized and underserved cities provides us with a significant growth opportunity. Moreover, we believe that we now have the critical mass to grow in denser regions, such as the states of São Paulo and Rio de Janeiro, where our presence is still relatively small.
​
•
Maturation of Recently-Opened Hubs.   Over the last years, we significantly increased the number of students per hub in the 2017, 2018 and 2019 cohorts. 88.2% of our hubs were opened in the last six semesters (i.e., in the last three years, or since the second semester of 2017) and are still ramping up, and we believe there is space to grow our operations, margins and student base. The maturation of a hub takes at least eight semesters, or four years, which is the average duration of a course, and the number of students per hub may continue to grow after such period as hubs gain more local recognition over time. As of June 30, 2020 and December 31, 2019, we operated 608 and 545 hubs at different maturation stages, respectively.
​
 
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•
Tuition Fees.   We typically adjust our tuition fees on an annual basis, at rates above the variation of inflation indices for the previous twelve months.
​
•
Mix of Courses.    We have continuously added high-value courses to our portfolio over time, such as engineering and health-related courses, contributing to higher margins.
​
Key Business Metrics
We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:
Contribution of Distance Learning to Total Enrolled Students
We believe the metric that best demonstrates our focus on distance learning education (comprising both undergraduate courses and continuing education courses) and its relevance to our services offering is enrolled students from distance learning as a percentage of our total enrolled students.
For the six months ended June 30, 2020 and 2019 and for the years ended December 31, 2019 and 2018, enrolled students related to distance learning businesses was 96.9%, 95.7%, 96.1 and 94.5% respectively, of our total enrolled students.
Enrolled Students
The number of enrolled students is one of the most significant operational metrics tracked by our management team. It represents the total number of students enrolled in the courses we provide.
As of June 30, 2020 and December 31, 2019, 2018, 2017 and 2016, we had 287,798, 240,946, 189,295, 140,363 and 115,325 enrolled students, respectively, representing a CAGR of 29.9%.
In our distance learning undergraduate courses, our most important business, we had 236,838, 195,613, 148,711, 106,576, and 81,406 students as of June 30, 2020 and December 31, 2019, 2018, 2017 and 2016, respectively, representing a CAGR of 35.7%. In our distance learning graduate courses, our second most important business, we had 42,033, 35,952, 30,227, 22,910 and 21,108 students as of June 30, 2020 and December 31, 2019, 2018, 2017 and 2016, respectively, representing a CAGR of 21.8%.
Number of Hubs
We have substantially expanded our operations and geographic presence throughout Brazil with the opening of new hubs in the last years. The number of hubs is one of the drivers that enable us to increase our base of enrolled students.
Our network as of June 30, 2020 and 2019 consisted of 608 and 436 hubs across all Brazilian states, respectively, compared with 545 hubs as of December 31, 2019, 370 hubs as of December 31, 2018, 221 hubs as of December 31, 2017 and 72 hubs as of December 31, 2016, representing a CAGR (2016 – 2019) of 96%.
The following table sets forth the number of hubs for the periods presented.
​ ​ ​
As of June 30,
​ ​
As of December 31
​
​ ​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​ ​
2017
​ ​
2016
​
Number of Hubs
​ ​ ​ ​ 608 ​ ​ ​ ​ ​ 436 ​ ​ ​ ​ ​ 545 ​ ​ ​ ​ ​ 370 ​ ​ ​ ​ ​ 221 ​ ​ ​ ​ ​ 72 ​ ​
Number of Students per Hub in Each Cohort
We believe that the number of students per hub in each cohort is useful in showing hub maturation and the ramp-up in attracting and maintaining new students.
We believe that our hubs currently have substantial growth potential due to the ramp-up of their operations, considering that the average period until the graduation of the first class of a hub is
 
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approximately four years or eight semesters. As of June 30, 2020, we had 536 hubs yet to mature, defined as hubs opened with less than four years, or eight semesters, of operations.
The analysis of the number of students per hub must be done for each cohort, given the different maturity levels of the cohorts. For example, as of June 30, 2020 and 2019 and December 31, 2019, 2018 and 2017, we had 422, 334, 353, 221 and 63 students per hub in the 2017 cohort hubs, respectively, representing a CAGR of 114%.
The following table sets forth the number of students per hub evolution for the periods presented, for each of the cohorts.
​ ​ ​
As of December 31
​
​ ​ ​
2019
​ ​
2018
​ ​
2017
​ ​
2016
​
Number of Hubs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Base Cohort
​ ​ ​ ​ 72 ​ ​ ​ ​ ​ 72 ​ ​ ​ ​ ​ 72 ​ ​ ​ ​ ​ 72 ​ ​
2017 Cohort
​ ​ ​ ​ 149 ​ ​ ​ ​ ​ 149 ​ ​ ​ ​ ​ 149 ​ ​ ​ ​ ​ — ​ ​
2018 Cohort
​ ​ ​ ​ 149 ​ ​ ​ ​ ​ 149 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
2019 Cohort
​ ​ ​ ​ 175 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Students per Hub ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Base Cohort
​ ​ ​ ​ 1,331 ​ ​ ​ ​ ​ 1,402 ​ ​ ​ ​ ​ 1,351 ​ ​ ​ ​ ​ 1,131 ​ ​
2017 Cohort
​ ​ ​ ​ 353 ​ ​ ​ ​ ​ 221 ​ ​ ​ ​ ​ 63 ​ ​ ​ ​ ​ — ​ ​
2018 Cohort
​ ​ ​ ​ 269 ​ ​ ​ ​ ​ 99 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
2019 Cohort
​ ​ ​ ​ 41 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
As can be seen in the table above, the number of students per hub in the base cohort has decreased over time. Before the regulatory change that was implemented in June 2017, the opening of a new hub was a long and cumbersome process. In that context, our 34 base cohort partners had 72 very dense and large hubs. With the new regulatory framework, our base cohort partners were able to easily open several new hubs in the same cities as the previous hubs, hence providing a more geographically spread out offering within each city, which was more convenient for our students and helped improve our intake and retention processes.
The following graph sets forth the number of students per hub as of June 30, 2020:
Number of Students per Hub Evolution (Aggregated, as of June 30, 2020)
[MISSING IMAGE: tm2028928d4-bc_number4c.jpg]
Tuition
We believe that the total amount of tuition we charge (which is the sum of our gross revenue and hub partners’ portion less other academic revenue) is a useful indicator to demonstrate the compelling strength of our growth and the maturation of our hubs.
​ ​ ​
As of and for the Six
Months Ended June 30
​ ​
As of and for the Year
Ended December 31,
​
​ ​ ​
2020
​ ​
2019
​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$millions)
​
Tuition
​ ​ ​ ​ 402.0 ​ ​ ​ ​ ​ 336.8 ​ ​ ​ ​ ​ 680.1 ​ ​ ​ ​ ​ 572.9 ​ ​
 
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Revenue Recognition and Seasonality
Our net revenue consists primarily of tuition fees charged for our undergraduate and graduate courses. Revenue from tuitions are recognized over time when services are rendered to the customer and we satisfy our performance obligations under the contract at an amount that reflects the consideration to which we expect to be entitled in exchange for those services. Revenue from tuition are recognized net of scholarships and other discounts, refunds and taxes. Other revenue are recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration to which we expect to be entitled in exchange for the service. Other revenue are presented net of the corresponding discounts, refunds and taxes.
Most of our net revenue is derived from students who study in hubs managed by our hub partners. We enter into these partnerships through contracts with hub partners who provide support centers with infrastructure for our students. Each hub partner is responsible for rental costs and property maintenance, as well as administrative services, cleaning, local student service and infrastructure of the hubs. We typically enter into contracts with our hub partners for an initial six-month term. The contracts are automatically renewable after the first six month period and every six months thereafter unless terminated in accordance with their terms.
Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of lower tuition share allocated to our hub partners. See “Business — Our Disruptive Student-Centric Model — Strong Network of Hub Partners” for additional information on our agreements with our hub partners.
Our distance learning undergraduate courses are structured around separate monthly modules. This enables students to enroll in distance learning courses at any time during a semester. Despite this flexibility, we generally experience a higher number of enrollments in distance learning courses in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, we generally experience a higher number of enrollments at the beginning of the first semester of each year than at the beginning of the second semester of each year. In order to attract and encourage potential new students to enroll in our undergraduate courses later in the semester, we often offer discounts, generally equivalent to the number of months that have passed in the semester. As a result, we generally record higher revenue in the second and fourth quarters of each year, as additional students enroll in our courses later in the semester. Revenue is also higher later in the semester due to lower dropout rates during that same period. For reference, below is the variation percentage of our net revenue over the financial years ended on December 31, 2018 and 2019 and the six months ended June 30, 2020:
​ ​ ​
Three Months Ended
​ ​
Year
Ended
​ ​
Three Months Ended
​ ​
Year
Ended
​ ​
Three Months
Ended
​
​ ​ ​
Mar 31,
2018
​ ​
Jun 30,
2018
​ ​
Sep 30,
2018
​ ​
Dec 31,
2018
​ ​
Dec 31,
2018
​ ​
Mar 31,
2019
​ ​
Jun 30,
2019
​ ​
Sep 30,
2019
​ ​
Dec 31,
2019
​ ​
Dec 31,
2019
​ ​
Mar 31,
2020
​ ​
Jun 30,
2020
​
​ ​ ​
(Unaudited) (in R$ millions, except percentages)
​
Net revenue
​ ​ ​ ​ 89.8 ​ ​ ​ ​ ​ 102.4 ​ ​ ​ ​ ​ 88.6 ​ ​ ​ ​ ​ 102.6 ​ ​ ​ ​ ​ 383.4 ​ ​ ​ ​ ​ 106.9 ​ ​ ​ ​ ​ 127.6 ​ ​ ​ ​ ​ 109.4 ​ ​ ​ ​ ​ 117.2 ​ ​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 128.6 ​ ​ ​ ​ ​ 128.1 ​ ​
Seasonality
(percentage of total
revenue)
​ ​ ​ ​ 23.4% ​ ​ ​ ​ ​ 26.7% ​ ​ ​ ​ ​ 23.1% ​ ​ ​ ​ ​ 26.8% ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 23.2% ​ ​ ​ ​ ​ 27.7% ​ ​ ​ ​ ​ 23.7% ​ ​ ​ ​ ​ 25.4% ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ n/a ​ ​ ​ ​ ​ n/a ​ ​
 
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A significant portion of our expenses are also seasonal. Due to the nature of our business cycle, a significant amount of selling and marketing expenses are required to cover costs in connection with the first semester intake, which in Brazil is typically in December, January and February.
As a result, we expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our performance, liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our results of operations.
Operating Segments
Our internal financial reports are based on three operating segments. They represent main lines of service from which we generate revenue. The operating segment reporting are:
•
Distance learning undergraduate courses.   What differentiates our distance learning model is its hybrid methodology, which consists of weekly in-person meetings with on-site tutors, besides the benefit of the virtual learning environment, where students are able to study where and when they prefer. Our portfolio of courses is composed mainly of pedagogy, business administration, accounting, physical education, vocational, engineering and health-related courses. The authorization of psychology courses in digital education is pending approval by the MEC;
​
•
Continuing education courses.   We offer continuing education courses predominantly in pedagogy, finance and business. We also offer continuing education courses in other subjects such as law, engineering, IT and health-related courses. Courses are offered in three different versions, consisting of (i) hybrid model, (ii) 100% online and (iii) on-campus; and
​
•
On-campus undergraduate courses.   We have 10 campuses that offers traditional on campus undergraduate courses, including business administration, accounting, physical education, vocational, engineering, law and health-related courses.
​
Brazilian Macroeconomic Environment
All of our operations are located in Brazil. As a result, our revenues and profitability are affected by political and economic developments in Brazil and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the industry in general, are particularly sensitive to changes in economic conditions.
Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S. dollar/​real exchange rate at the dates and for the periods indicated.
 
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​ ​ ​
As of and
for the Six
Months Ended
June 30,
​ ​
As of and for the Year Ended December 31,
​
​ ​ ​
2020
​ ​
2019
​ ​
2018
​ ​
2017
​
Real growth in gross domestic product
​ ​ ​ ​ N/A ​ ​ ​ ​ ​ 1.1% ​ ​ ​ ​ ​ 1.3% ​ ​ ​ ​ ​ 1.3% ​ ​
Inflation (deflation) (IGP-M)(1)
​ ​ ​ ​ 4.4% ​ ​ ​ ​ ​ 7.3% ​ ​ ​ ​ ​ 7.5% ​ ​ ​ ​ ​ (0.5)% ​ ​
Inflation (IPCA)(2)
​ ​ ​ ​ 0.10% ​ ​ ​ ​ ​ 4.3% ​ ​ ​ ​ ​ 3.7% ​ ​ ​ ​ ​ 2.9% ​ ​
CDI interest rate(3)
​ ​ ​ ​ 2.15% ​ ​ ​ ​ ​ 6.0% ​ ​ ​ ​ ​ 6.5% ​ ​ ​ ​ ​ 10.1% ​ ​
SELIC(4) ​ ​ ​ ​ 2.25% ​ ​ ​ ​ ​ 4.5% ​ ​ ​ ​ ​ 6.5% ​ ​ ​ ​ ​ 7.0% ​ ​
Period-end exchange rate – reais per US$1.00(5)
​ ​ ​ R$ 5.476 ​ ​ ​ ​ R$ 4.031 ​ ​ ​ ​ R$ 3.875 ​ ​ ​ ​ R$ 3.308 ​ ​
Average exchange rate – reais per US$1.00(6)
​ ​ ​ R$ 5.197 ​ ​ ​ ​ R$ 3.946 ​ ​ ​ ​ R$ 3.656 ​ ​ ​ ​ R$ 3.203 ​ ​
Depreciation of the real vs. US$ in the period(7)
​ ​ ​ ​ (35.8)% ​ ​ ​ ​ ​ (4.0)% ​ ​ ​ ​ ​ (17.1)% ​ ​ ​ ​ ​ (1.5)% ​ ​
Unemployment rate(8)
​ ​ ​ ​ 12.4% ​ ​ ​ ​ ​ 11.9% ​ ​ ​ ​ ​ 12.3% ​ ​ ​ ​ ​ 12.7% ​ ​
​
Source: FGV, IBGE, Brazilian Central Bank and Bloomberg.
(1)
Inflation (IGP-M) is the general market price index measured by the FGV.
​
(2)
Inflation (IPCA) is a broad consumer price index measured by the IBGE.
​
(3)
The CDI (certificado de depósito interbancário) interest rate is an average of interbank overnight rates in Brazil, accumulated during the corresponding period.
​
(4)
The SELIC rate is the base interest rate (Sistema Especial de Liquidação e Custódia) in Brazil.
​
(5)
Annual rate at the end of the period.
​
(6)
Average of the exchange rate on each business day of the year.
​
(7)
Comparing the US$ closing selling exchange rate as reported by the Brazilian Central Bank at the end of the period’s last day with the day immediately prior to the first day of the period discussed.
​
(8)
Average unemployment rate for year as measured by the IBGE.
​
Inflation directly affects most of our current operating costs and expenses, adjusted by reference to indexes that reflect the inflation rate such as the IGP-M or IPCA. For instance, our most important cost component is personnel, which accounted for 50.6%, 44.1%, 48.6% and 46.1% of our total costs and expenses in the six months ended June 30, 2020 and 2019 and the years ended December 31, 2019 and 2018, respectively, and is clearly impacted by inflation rates. Historically, inflation has been offset by our ability to adjust our tuition fees in rates that are typically above the variation of inflation indexes, due mostly to the increase in the content density and complexity over the course. Our financial performance is also tied to fluctuations in interest rates, such as the CDI rate, because such fluctuations affect the value of our financial investments.
In addition, the recent Covid-19 is expected to have a significant effect on demand in 2020. Business operations across Latin America, Asia, Europe and the United States are being affected with factory disruptions and closures, quarantined workers and shortages of components, with a direct impact on the availability of goods and services. These disruptions to global supply chains could impact businesses generally and weaken demand from consumers. The effects cannot be foreseen and are expected to lead to a global economic slowdown in 2020.
Components of Our Results of Operations
Net revenue
Our revenue consists primarily of tuition fees charged for distance-learning undergraduate courses, on-campus undergraduate courses, and continuing education courses. We also generate revenue from student fees and certain education-related activities.
 
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Revenue from tuition fees is recognized over time when services are rendered to the customer and we satisfy our performance obligation under the contract at an amount that reflects the consideration that we expect to receive for those services. Revenues from tuition fees is recognized net of scholarships and other discounts, refunds and taxes.
Other revenues are recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration that we expect to receive for those services. Other revenues are presented net of the corresponding discounts, returns and taxes.
Joint operations with hub partners
A hub is a local operating unit owned by us or by third party hub partners. Each hub partner is responsible for offering students access to audiovisual resources, a library and information technology support to enable students to take part in our distance-learning courses.
Our contractual agreements with each hub partner determine that the applicable is a joint operation. Such contractual agreements also establish the rights of each hub partner to receive revenues from the operation of the hub and include provisions relating to expenses incurred in the operation of the hub. Accordingly, the revenue from distance-learning courses and related accounts receivable are recognized only up to the portion of the joint revenue to which we are entitled. We therefore record an obligation to pay hub partners under our trade payables when we receive payments of monthly tuition fees from students.
Taxes deducted from gross revenue
Revenues, expenses and assets are recognized net of sales tax, except:
•
when the sales taxes incurred on the purchase of goods or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable; and
​
•
when the amounts receivable or payable are stated with the amount of sales taxes included.
​
The net amount of sales taxes, recoverable or payable to the tax authority, is included as part of receivables or payables in the statement of financial position, and net of corresponding revenue or cost/​expense, in our statement of profit or loss.
Sales revenues in Brazil are subject to taxes and contributions, at the following statutory rates:
•
The PIS and the COFINS are contributions levied by the Brazilian federal government on gross revenues. These amounts are invoiced to and collected from our customers. Given that we are acting as tax withholding agents on behalf of the tax authorities, these amounts are recognized as deductions to gross revenue against tax liabilities. PIS and COFINS paid on certain purchases may be claimed back as tax credits to offset amounts of PIS and COFINS which are payable. These amounts are recognized as recoverable taxes and are offset on a monthly basis against taxes payable and presented net, as the amounts are due to the same tax authority.
​
•
PIS and COFINS are contributions calculated on two different regimes pursuant to the applicable Brazilian tax legislation: cumulative method and non-cumulative method. The regulations applicable to PROUNI provide that the revenue from traditional and technical undergraduate courses are exempt from PIS and COFINS. For income from other teaching activities, PIS and COFINS are charged based on the cumulative method at rates of 0.65% and 3.00%, respectively, and for non-teaching activities, PIS and COFINS are charged based on the non-cumulative method at rate of 1.65% and 7.6%, respectively.
​
•
ISS is a tax levied by municipalities on revenues from the provision of services. ISS tax is added to amounts invoiced to our customers for the services we render. Given that we are acting as an agent collecting these taxes on behalf of municipal governments, these are recognized as deductions to gross revenue against tax liabilities. The applicable rates may vary from 2.00% to 5.00%.
​
 
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•
INSS is a social security charge levied on wages paid to employees.
​
Cost of services rendered
Cost of sales consist primarily of expenses related to services of providing classes and delivering our content and technology to our students, which are mainly composed of payroll, depreciation and amortization, print expenses, freight, leases, utilities, cleaning, security and maintenance of our hubs.
Costs of services rendered amounted to 41.3%, 44.8%, 45.9% and 48.0% of net revenue in the six months ended June 30, 2020 and 2019 and in the years ended December 31, 2019 and 2018, respectively.
Expenses
We classify our operating expenses as selling expenses, general and administrative expenses, net impairment losses on financial assets and other income and expenses. The largest component of our operating expenses is employee and labor-related expenses, which includes salaries and bonuses and employee benefit expenses.
Selling expenses.   Selling expenses consist of primarily expenses with personnel related to sales and marketing activities, marketing and sales expenses, as well as expenses with commercial consultants and projects.
General and administrative expenses.   General and administrative expenses consist of personnel expenses related to general and administrative activities, depreciation and amortization, leases, consulting and advisory services, leases, contingencies and maintenance of our corporate offices.
Net impairment losses on financial assets.   Net impairment losses on financial assets expenses consist of provision for losses, effective losses and recovery on receivables. The allowance for expected credit losses of trade receivables are calculated on a monthly basis by analyzing the amounts invoiced in the month, the monthly volume of receivables and the respective outstanding amounts by late payment range, calculating the recovery performance. When the delay of receivables exceeds 365 days, the receivable is written down. Collection efforts continue even for written-off receivables and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.
Other expenses.   The other expenses are contractual indemnities (such as insurance policies reimbursements), deductible donations and miscellaneous income and/or expense items.
Financial income (expenses)
Our financial income consists of interest on tuition fees paid in arrears and the financial investments yield. The interest on tuition fees paid in arrears is recognized based on the time elapsed, using the effective interest rate method. This financial income is calculated using the same effective interest rate used to calculate the recoverable amount, that is, the original rate of trade receivables.
Financial expenses include interest expenses on taxes payable in installments and other financial liabilities, including the interest accrued on accounts payable from the acquisition of subsidiaries and on lease liabilities.
Income tax
Tax incentives
The postsecondary education companies which we maintain are part of the PROUNI program. PROUNI provides, through Law No. 11,096, of January 13, 2005, exemption of certain federal taxes imposed to postsecondary institutions that grant scholarships to low-income students enrolled in undergraduate courses and technology graduate courses. The following federal taxes are included in the exemption: IRPJ, CSLL, PIS and COFINS.
 
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For additional information on PROUNI, see “Regulatory Overview — Financing Alternatives for Students: Incentive Programs — University for All Program (PROUNI).”
Current income taxes
Income taxes in Brazil consist of IRPJ and CSLL (which are social contribution taxes). According to Brazilian tax law, income taxes and social contribution are assessed and paid by each legal entity and not on a consolidated basis. The income tax payable by each entity is calculated based on the entity’s income, adjusted based on certain additions and exclusions provided for in the applicable legislation.
Current income taxes were calculated based on the criteria established in a normative instruction issued by the Brazilian internal revenue service (Receita Federal do Brasil) in relation to the PROUNI program. Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. We periodically evaluate positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income taxes
Deferred income tax and social contribution are recognized on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. We apply the liability method. However, deferred taxes are not accounted for if they arise from the initial recognition of an asset or liability in a transaction other than a business combination which, at the time of the transaction, does not affect accounting nor taxable profit or loss.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit against which the temporary differences and/or tax losses may be utilized will be available. Pursuant to Brazilian tax legislation, loss carry forwards can be used to offset up to 30% of taxable profit for the year and do not expire.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal of the temporary difference is controlled by us and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are presented net in the statement of financial position when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes. This generally occurs when the relevant assets and liabilities relate to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different jurisdictions are generally presented separately, and not on a net basis.
 
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Results of Operations
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
The following table sets forth our income statement data for the six months ended June 30, 2020 and 2019:
​ ​ ​
For the Six Months Ended June 30,
​
​ ​ ​
2020
​ ​
2019
​ ​
Variation (%)
​
​ ​ ​
(in R$ millions, except percentages)
​
Statement of Profit or Loss Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 256.7 ​ ​ ​ ​ ​ 234.5 ​ ​ ​ ​ ​ 9.5% ​ ​
Revenue from distance-learning undergraduate courses
​ ​ ​ ​ 203.7 ​ ​ ​ ​ ​ 170.8 ​ ​ ​ ​ ​ 19.3% ​ ​
Revenue from continuing education courses
​ ​ ​ ​ 21.3 ​ ​ ​ ​ ​ 23.0 ​ ​ ​ ​ ​ (7.3)% ​ ​
Revenue from on-campus undergraduate courses
​ ​ ​ ​ 31.6 ​ ​ ​ ​ ​ 40.7 ​ ​ ​ ​ ​ (22.2)% ​ ​
Cost of services rendered
​ ​ ​ ​ (106.0) ​ ​ ​ ​ ​ (105.2) ​ ​ ​ ​ ​ 0.8% ​ ​
Gross profit
​ ​ ​ ​ 150.6 ​ ​ ​ ​ ​ 129.3 ​ ​ ​ ​ ​ 16.5% ​ ​
Selling expenses
​ ​ ​ ​ (50.0) ​ ​ ​ ​ ​ (47.8) ​ ​ ​ ​ ​ 4.8% ​ ​
General and administrative expenses
​ ​ ​ ​ (24.4) ​ ​ ​ ​ ​ (61.3) ​ ​ ​ ​ ​ (60.2)% ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ (34.9) ​ ​ ​ ​ ​ (25.3) ​ ​ ​ ​ ​ 38.1% ​ ​
Net impairment losses on financial assets from distance-learning undergraduate courses
​ ​ ​ ​ (29.5) ​ ​ ​ ​ ​ (20.5) ​ ​ ​ ​ ​ 43.5% ​ ​
Net impairment losses on financial assets from continuing education courses
​ ​ ​ ​ (1.6) ​ ​ ​ ​ ​ (1.3) ​ ​ ​ ​ ​ 21.0% ​ ​
Net impairment losses on financial assets from on-campus undergraduate courses
​ ​ ​ ​ (3.8) ​ ​ ​ ​ ​ (3.4) ​ ​ ​ ​ ​ 12.2% ​ ​
Other income (expenses), net
​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ (0.4) ​ ​ ​ ​ ​ n.m. ​ ​
Operating expenses
​ ​ ​ ​ (107.6) ​ ​ ​ ​ ​ (134.7) ​ ​ ​ ​ ​ (20.1)% ​ ​
Operating profit (loss)
​ ​ ​ ​ 43.0 ​ ​ ​ ​ ​ (5.4) ​ ​ ​ ​ ​ n.m. ​ ​
Financial income
​ ​ ​ ​ 9.5 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 1.1% ​ ​
Financial expenses
​ ​ ​ ​ (20.8) ​ ​ ​ ​ ​ (29.9) ​ ​ ​ ​ ​ (30.5)% ​ ​
Financial results
​ ​ ​ ​ (11.2) ​ ​ ​ ​ ​ (20.5) ​ ​ ​ ​ ​ (45.1)% ​ ​
Profit (loss) before taxes taxes
​ ​ ​ ​ 31.7 ​ ​ ​ ​ ​ (25.9) ​ ​ ​ ​ ​ n.m. ​ ​
Current income taxes
​ ​ ​ ​ (19.6) ​ ​ ​ ​ ​ (8.6) ​ ​ ​ ​ ​ 128.3% ​ ​
Deferred income taxes
​ ​ ​ ​ 40.3 ​ ​ ​ ​ ​ 9.4 ​ ​ ​ ​ ​ 328.4% ​ ​
Income taxes
​ ​ ​ ​ 20.6 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 2,464.0% ​ ​
Net income (loss) for the period
​ ​ ​ ​ 52.4 ​ ​ ​ ​ ​ (25.1) ​ ​ ​ ​ ​ n.m. ​ ​
​
n.m. = not meaningful.
Net revenue
Net revenue for the six months ended June 30, 2020 was R$256.7 million, an increase of R$22.2 million, or 9.5%, from R$234.5 million for the six months ended June 30, 2019. This increase was attributable to an increase in net revenue from distance-learning undergraduate courses, which was partially offset by decreases in revenue from continuing education courses and on-campus undergraduate courses:
Revenue from distance-learning undergraduate courses.   Revenue from distance-learning undergraduate courses for the six months ended June 30, 2020 was R$203.7 million, an increase
 
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of R$32.9 million, or 19.3%, from R$170.8 million for the six months ended June 30, 2019. This increase was primarily attributable to (i) the 22.7% increase in the number of students enrolled in our distance-learning undergraduate courses, from 193,068 enrolled students as of June 30, 2019 to 236,838 enrolled students as of June 30, 2020, as a result of the maturation process of the operational hubs as of June 30, 2020, and the increase in the number of operational hubs during the period, from 436 operational hubs in the six months ended June 30, 2019 to 608 operational hubs in the six months ended June 30, 2020.
Revenue from continuing education courses.   Revenue from continuing education courses for the six months ended June 30, 2020 was R$21.3 million, a decrease of R$1.7 million, or 7.3%, from R$23.0 million for the six months ended June 30, 2019. This decrease was primarily attributable to the increase in number of students enrolled in our hub partners’ distance-learning graduate courses during the first half of 2020, which led to an increase in the tuition share allocated to our hub partners during that period.
Revenue from on-campus undergraduate courses.   Revenue from on-campus undergraduate courses for the six months ended June 30, 2020 was R$31.6 million, a decrease of R$9.0 million, or 22.2%, from R$40.7 million for the six months ended June 30, 2019. This decrease was primarily attributable to the 14.6% decrease in the number of enrolled students, as a result of the increased number and attractiveness of distance learning courses offered.
Cost of services rendered
Cost of services rendered for the six months ended June 30, 2020 was R$106.0 million, an increase of R$0.8 million, or 0.8%, from R$105.2 million for the six months ended June 30, 2019. This increase was primarily attributable to the increase in the costs of services rendered in our distance-learning undergraduate courses segment due to the segment’s growth in the six months ended June 30, 2020. On a relative basis, the 0.8% increase in cost of services rendered in the six months ended June 30, 2020 was lower than the 9.5% increase in net revenue during the period. Accordingly, our gross margin (defined as gross profit divided by net revenue) increased from 55.2% in the six months ended June 30, 2019 to 58.7% in the corresponding period of 2020, as a result of the increase in the scalability of our products and services.
Gross profit
As a result of the foregoing, gross profit for the six months ended June 30, 2020 was R$150.6 million, an increase of R$21.3 million, or 16.5%, from R$129.3 million for the six months ended June 30, 2019.
Operating expenses
Operating expenses for the six months ended June 30, 2020 were R$107.6 million, a decrease of R$27.1 million, or 20.1%, from R$134.7 million for the six months ended June 30, 2019. This decrease was attributable to the following:
Selling expenses.   Selling expenses for the six months ended June 30, 2020 amounted to R$50.0 million, an increase of R$2.3 million, or 4.8%, from R$47.8 million for the six months ended June 30, 2019. This increase was primarily attributable to (i) higher marketing expenses, which increased by R$10.4 million (mainly consisting of on-line advertisements and advertisements broadcast on open television); and (ii) higher expenses with consulting services, which increased by R$0.8 million. These increases in marketing expenses and expenses with consulting services were offset by a decrease of R$9.2 million in expenses relating to the amortization of intangibles assets related to customer relationships.
Net impairment losses on financial assets.   Net impairment losses on financial assets for the six months ended June 30, 2020 were R$34.9 million, an increase of R$9.6 million, or 38.1%, from R$25.3 million for the six months ended June 30, 2019. On a relative basis, the margin of net impairment losses on financial assets increased from 13.6% of net revenues in the six months ended June 30, 2019 to 10.8% of net revenue in the six months ended June 30, 2020. This increase was principally
 
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attributable to higher revenues in the six months ended June 30, 2020 and a R$2.2 million specific increase in our allowance for doubtful accounts in connection with the Covid-19 pandemic, reflected in increases in net impairment losses from distance-learning undergraduate courses, continuing education courses and on-campus undergraduate courses:
Net impairment losses on financial assets from distance-learning undergraduate courses.   Net impairment losses on financial assets from distance-learning undergraduate courses for the six months ended June 30, 2020 were R$29.5 million, an increase of R$8.9 million, or 43.5%, from R$20.5 million for the six months ended June 30, 2019. This was a result of an increase in the proportion of freshmen (instead of seniors) in our distance-learning undergraduate courses and an increase in the number of students from regions of Brazil with lower credit scores. Trade receivables increased year-over-year as a result of an increase in our revenues and the number of student enrollments, which led to higher losses on outstanding receivables.
Net impairment losses on financial assets from continuing education courses.   Net impairment losses on financial assets from continuing education courses for the six months ended June 30, 2020 were R$1.6 million, an increase of R$0.3 million, or 21.0%, from R$1.3 million for the six months ended June 30, 2019, as a result of the increase in the estimated credit losses of our trade receivables. Trade receivables increased year-over-year as a result of an increase in our revenues and the number of student enrollments, which led to higher losses on outstanding receivables.
Net impairment losses on financial assets from on-campus undergraduate courses.   Net impairment losses on financial assets from on-campus undergraduate courses for the six months ended June 30, 2020 were R$3.8 million, an increase of R$0.4 million, or 12.2%, from R$3.4 million for the six months ended June 30, 2019, as a result of the increase in the estimated credit losses of our trade receivables due to the Covid-19 pandemic.
General and administrative expenses.   General and administrative expenses for the six months ended June 30, 2020 were R$24.4 million, a decrease of R$36.9 million, or 60.2%, from R$61.3 million for the six months ended June 30, 2019. This decrease was primarily attributable to the recognition of R$25.3 million in impairment of non-current assets during the six months ended June 30, 2019.
Other income (expenses), net.   We recorded other income, net of R$1.7 million for the six months ended June 30, 2020, compared to other expenses, net of R$0.4 million for the corresponding period in 2019. This variation was primarily attributable to R$1.5 million in income from lease contract cancelation (IFRS 16) and temporary rent concessions recorded during the six months ended June 30, 2020, compared to none (R$0) during the six months ended June 30, 2019 as a result of the Covid-19 pandemic.
Operating profit (loss)
As a result of the foregoing, we recorded operating profit of R$43.0 million for the six months ended June 30, 2020, compared to operating loss of R$5.4 million for the six months ended June 30, 2019.
Financial results
Financial results for the six months ended June 30, 2020 were an expense of R$11.2 million, a decrease of R$9.2 million, or 45.1%, from an expense of R$20.5 million for the six months ended June 30, 2019. This decrease was primarily attributable to the decrease in our financial expenses and partially offset by the increase in our financial income, as follows:
Financial income.   Financial income for the six months ended June 30, 2020 was R$9.5 million, an increase of R$0.1 million, or 1.1%, from R$9.4 million for the six months ended June 30, 2019. This increase was primarily attributable to a R$3.3 million increase in interest on tuition fees paid in arrears during the period, primarily as a result of an increase in the rate at which late tuition fees bear interest, which was partially offset by a R$3.6 million decrease in financial investment yield during the period, primarily as a result of a reduction in the balance of financial instruments we held and the decrease in the rates of return on investments.
 
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Financial expenses.   Financial expenses for the six months ended June 30, 2020 were R$20.8 million, a decrease of R$9.1 million, or 30.5%, from R$29.9 million for the six months ended June 30, 2019. This decrease was primarily attributable to a R$14.7 million decrease in interest on accounts payable from acquisition of subsidiaries due to a reduction in the IPCA inflation index, which is the rate used to monetarily adjust this account payable, to 0.1% during the six months ended June 30, 2020 compared to 2.2% during the corresponding period of 2019.
Profit (loss) before taxes
As a result of the foregoing, we recorded profit before taxes for the six months ended June 30, 2020 of R$31.7 million, compared to loss before taxes of R$25.9 million for the six months ended June 30, 2019.
Income taxes
Income taxes for the six months ended June 30, 2020 were a credit of R$20.6 million, an increase of R$19.8 million, from a credit of R$0.8 million for the six months ended June 30, 2019. This increase was primarily attributable to the following:
Current income taxes.   Current income taxes expenses for the six months ended June 30, 2020 were an expense of R$19.6 million, an increase of R$11.0 million, or 128.3%, from an expense of R$8.6 million for the six months ended June 30, 2019. This increase was primarily attributable to higher taxable profits, due to an increase in taxable profits from continuing education courses and an increase in distance learning graduations.
Deferred income taxes.   Deferred income taxes for the six months ended June 30, 2020 were a credit of R$40.3 million, an increase of R$30.9 million, or 328.4%, from a credit of R$9.4 million for the six months ended June 30, 2019. This increase was primarily attributable to the recognition of deferred tax assets on tax loss carryforwards and temporary differences from prior years previously not recognized. We reviewed previously unrecognized tax losses and temporary differences, determining that it is now probable that taxable profits will be available against which the tax losses can be utilized and temporary differences will be realized.
Net income (loss) for the period
As a result of the foregoing, we recorded a net income for the six months ended June 30, 2020 of R$52.4 million, compared to a loss of R$25.1 million for the six months ended June 30, 2019.
 
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Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
The following table sets forth our income statement data for the years ended December 31, 2019 and 2018:
​ ​ ​
For the Years Ended December 31,
​
​ ​ ​
2019
​ ​
2018(1)
​ ​
Variation (%)
​
​ ​ ​
(in R$ millions, except percentages)
​
Statement of Profit or Loss Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 461.1 ​ ​ ​ ​ ​ 383.4 ​ ​ ​ ​ ​ 20.3% ​ ​
Revenue from distance-learning undergraduate courses
​ ​ ​ ​ 336.3 ​ ​ ​ ​ ​ 259.6 ​ ​ ​ ​ ​ 29.5% ​ ​
Revenue from continuing education courses
​ ​ ​ ​ 47.1 ​ ​ ​ ​ ​ 33.0 ​ ​ ​ ​ ​ 42.7% ​ ​
Revenue from on-campus undergraduate courses
​ ​ ​ ​ 77.6 ​ ​ ​ ​ ​ 90.8 ​ ​ ​ ​ ​ (14.5)% ​ ​
Cost of services rendered
​ ​ ​ ​ (211.5) ​ ​ ​ ​ ​ (184.2) ​ ​ ​ ​ ​ 14.8% ​ ​
Gross profit
​ ​ ​ ​ 249.5 ​ ​ ​ ​ ​ 199.3 ​ ​ ​ ​ ​ 25.2% ​ ​
Selling expenses
​ ​ ​ ​ (100.9) ​ ​ ​ ​ ​ (70.6) ​ ​ ​ ​ ​ 42.9% ​ ​
General and administrative expenses
​ ​ ​ ​ (125.3) ​ ​ ​ ​ ​ (90.7) ​ ​ ​ ​ ​ 38.1% ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ (58.2) ​ ​ ​ ​ ​ (44.6) ​ ​ ​ ​ ​ 30.5% ​ ​
Net impairment losses on financial assets from distance-learning undergraduate courses
​ ​ ​ ​ (43.7) ​ ​ ​ ​ ​ (31.9) ​ ​ ​ ​ ​ 37.0% ​ ​
Net impairment losses on financial assets from continuing education courses
​ ​ ​ ​ (4.0) ​ ​ ​ ​ ​ (3.7) ​ ​ ​ ​ ​ 8.1% ​ ​
Net impairment losses on financial assets from on-campus undergraduate courses
​ ​ ​ ​ (10.5) ​ ​ ​ ​ ​ (9.0) ​ ​ ​ ​ ​ 16.7% ​ ​
Other income (expenses), net
​ ​ ​ ​ (0.9) ​ ​ ​ ​ ​ (1.0) ​ ​ ​ ​ ​ (10.0)% ​ ​
Operating expenses
​ ​ ​ ​ (285.4) ​ ​ ​ ​ ​ (206.9) ​ ​ ​ ​ ​ 37.9% ​ ​
Operating profit (loss)
​ ​ ​ ​ (35.9) ​ ​ ​ ​ ​ (7.6) ​ ​ ​ ​ ​ 372.4% ​ ​
Financial income
​ ​ ​ ​ 19.2 ​ ​ ​ ​ ​ 22.0 ​ ​ ​ ​ ​ (12.7)% ​ ​
Financial expenses
​ ​ ​ ​ (60.4) ​ ​ ​ ​ ​ (64.6) ​ ​ ​ ​ ​ (6.5)% ​ ​
Financial results
​ ​ ​ ​ (41.2) ​ ​ ​ ​ ​ (42.6) ​ ​ ​ ​ ​ (3.3)% ​ ​
Loss before taxes
​ ​ ​ ​ (77.1) ​ ​ ​ ​ ​ (50.2) ​ ​ ​ ​ ​ 53.6% ​ ​
Current income taxes
​ ​ ​ ​ (14.8) ​ ​ ​ ​ ​ (10.6) ​ ​ ​ ​ ​ 39.6% ​ ​
Deferred income taxes
​ ​ ​ ​ 25.7 ​ ​ ​ ​ ​ 15.7 ​ ​ ​ ​ ​ 63.7% ​ ​
Income taxes
​ ​ ​ ​ 10.9 ​ ​ ​ ​ ​ 5.0 ​ ​ ​ ​ ​ 118.0% ​ ​
Loss for the year
​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​ ​ ​ ​ 46.5% ​ ​
​
(1)
Amounts have been restated as a result of the full retrospective method of adoption of IFRS 16 with the date of initial application of January 1, 2019. For more information, see note 2.6 to our audited consolidated financial statements included elsewhere in this prospectus.
​
Net revenue
Net revenue for the year ended December 31, 2019 was R$461.1 million, an increase of R$77.7 million, or 20.3%, from R$383.4 million for the year ended December 31, 2018. This increase was attributable an increase in net revenue from distance-learning undergraduate courses and continuing education courses, which was offset by a decrease in revenue from on-campus undergraduate courses:
Revenue from distance-learning undergraduate courses.   Revenue from distance-learning undergraduate courses for the year ended December 31, 2019 was R$336.3 million, an increase of R$76.7 million, or 29.5%, from R$259.6 million for the year ended December 31, 2018. This
 
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increase was primarily attributable to the 31.5% increase in the number of students enrolled in our distance-learning undergraduate courses, from 148,711 enrolled students in 2018 to 195,613 enrolled students in 2019, as a result of the increase in the number of operational hubs during the period, from 370 operational hubs in 2018 to 545 operational hubs in 2019, and the maturation of hubs.
Revenue from continuing education courses.   Revenue from continuing education courses for the year ended December 31, 2019 was R$47.1 million, an increase of R$14.1 million, or 42.7%, from R$33.0 million for the year ended December 31, 2018. This increase was primarily attributable to the 18.9% increase in number of students enrolled in our distance-learning graduate courses, from 30,227 enrolled students in 2018 to 35,952 enrolled students in 2019, as a result of the increase in the number of hubs offering distance learning graduate courses and the increase in the number of distance learning graduate courses offered.
Revenue from on-campus undergraduate courses.   Revenue from on-campus undergraduate courses for the year ended December 31, 2019 was R$77.6 million, a decrease of R$13.2 million, or 14.5%, from R$90.8 million for the year ended December 31, 2018. This decrease was primarily attributable to the decrease in number of enrolled students, as a result of the increased penetration of distance learning course alternatives.
Cost of services rendered
Cost of services rendered for the year ended December 31, 2019 was R$211.5 million, an increase of R$27.3 million, or 14.8%, from R$184.2 million for the year ended December 31, 2018. This increase was primarily attributable to the increase of our enrolled student base. On a relative basis, the 14.8% increase in cost of services in 2019 was lower than the 20.3% increase in net revenue during the period. Accordingly, our gross margin (defined as gross profit divided by net revenue) increased from 52.0% in 2018 to 54.1% to 2019, as a result of cost-saving initiatives, particularly the cost restructuring of the academic delivery process by our on-site tutors and employee dismissals in connection with organizational and academic restructurings.
Gross profit
As a result of the foregoing, gross profit for the year ended December 31, 2019 was R$249.5 million, an increase of R$50.2 million, or 25.2%, from R$199.3 million for the year ended December 31, 2018.
Operating expenses
Operating expenses for the year ended December 31, 2019 was R$285.4 million, an increase of R$78.5 million, or 37.9%, from R$206.9 million for the year ended December 31, 2018. This increase was attributable to the following:
Selling expenses.   Selling expenses for the year ended December 31, 2019 amounted to R$100.9 million, an increase of R$30.3 million, or 42.9%, from R$70.6 million for the year ended December 31, 2018. This increase was primarily attributable to higher marketing expenses, which increased by R$17.4 million (mainly comprised by R$14.2 million in on-line advertisements, R$1.3 million in advertisements broadcast on open television and R$1.1 million in agency fees). This increase was a result of the anticipation to December 2019 of marketing expenses (mainly digital marketing) that are typically incurred in January of each year in order to preempt the actions of our competitors and maximize the efficiency of our intake process. Additionally in 2019, there was an increase in the impairment totaling R$7.6 million relating to customer relationships in on-campus undergraduate courses segment (for more information, see note 15 to our audited consolidated financial statements included elsewhere in this prospectus). There was also an increase in payroll totaling R$5.2 million, attributable to the increase in the employee headcount in our hubs as a result of the increase in the number of enrolled students and the insourcing of certain services we historically outsourced.
Net impairment losses on financial assets.   Net impairment losses on financial assets for the year ended December 31, 2019 was R$58.2 million, an increase of R$13.6 million, or 30.5%, from R$44.6 million for the year ended December 31, 2018. On a relative basis, the margin of net impairment
 
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losses on financial assets increased from 11.6% of net revenues in 2018 to 12.6% of net revenue in 2019. This increase was attributable to an increase in net impairment losses from distance-learning undergraduate courses, continuing education courses and on-campus undergraduate courses:
Net impairment losses on financial assets from distance-learning undergraduate courses.   Net impairment losses on financial assets from distance-learning undergraduate courses for the year ended December 31, 2019 was R$43.7 million, an increase of R$11.8 million, or 37.0%, from R$31.9 million for the year ended December 31, 2018, as a result of the increase in the estimated credit losses of our trade receivables. Trade receivables increased year-over-year as a result of an increase in our revenues and the number of student enrollments, which led to higher losses on outstanding receivables.
Net impairment losses on financial assets from continuing education courses.   Net impairment losses on financial assets from continuing education courses for the year ended December 31, 2019 was R$4.0 million, an increase of R$0.3 million, or 8.1%, from R$3.7 million for the year ended December 31, 2018, as a result of the increase in the estimated credit losses of our trade receivables. Trade receivables increased year-over-year as a result of an increase in our revenues and the number of student enrollments, which led to higher losses on outstanding receivables.
Net impairment losses on financial assets from on-campus undergraduate courses.   Net impairment losses on financial assets from on-campus undergraduate courses for the year ended December 31, 2019 was R$10.5 million, an increase of R$1.5 million, or 16.7%, from R$9.0 million for the year ended December 31, 2018. This increase was primarily attributable to certain receivables related to a student financing program that was discontinued in 2016 and which were also written-off.
General and administrative expenses.   General and administrative expenses for the year ended December 31, 2019 was R$125.3 million, an increase of R$34.6 million, or 38.1%, from R$90.7 million for the year ended December 31, 2018. This increase was primarily attributable to: (i) the expense with our share option plan, which amounted to R$26.4 million for the year ended December 31, 2019 and R$7.5 million for the year ended December 31, 2018, representing an increase of R$18.9 million, upon vesting of options granted; (ii) the recognition of impairment losses of R$43.2 million and R$33.4 million in the years ended December 31, 2019 and 2018, respectively, representing an increase of R$9.8 million, which relates to the on-campus undergraduate courses segment, and is mainly due to decrease in the average monthly tuition fee per student recorded in 2019 and an increase in the number of students that are migrating to distance learning courses, which is also in line with changes in our strategy to focus on distance learning and recent decision by our management to dispose of on-campus units with lower performance; and (iii) personnel expenses, which amounted to R$22.6 million for the year ended December 31, 2019 and R$17.2 million for the year ended December 31, 2018, representing an increase of R$5.4 million, as a result of the relocation of our headquarters to the city of Florianopolis in the state of Santa Catarina, and the increase in our employee headcount, in anticipation of this offering.
Other income (expenses), net.   Other income (expenses), net for the year ended December 31, 2019 was R$0.9 million, a decrease of R$0.1 million, or 10.0%, from R$1.0 million for the year ended December 31, 2018. This decrease was primarily attributable to a R$0.1 million decrease in contractual indemnity payments during the period.
Operating loss
As a result of the foregoing, operating loss increased 372.4%, or R$28.3 million, to R$35.9 million for the year ended December 31, 2019 from R$7.6 million for the year ended December 31, 2018.
Financial results
Financial results for the year ended December 31, 2019 was an expense of R$41.2 million, a decrease of R$1.4 million, or 3.3%, from an expense of R$42.6 million for the year ended December 31,
 
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2018. This decrease was primarily attributable to the decrease in both our financial expense and financial income, as follows:
Financial income.   Financial income for the year ended December 31, 2019 was R$19.2 million, a decrease of R$2.8 million, or 12.7%, from R$22.0 million for the year ended December 31, 2018. This decrease was primarily attributable to a R$1.9 million decrease in financial investment yield during the period primarily as a result of the reduction in the rates of return on investments.
Financial expenses.   Financial expenses for the year ended December 31, 2019 was R$60.4 million, a decrease of R$4.2 million, or 6.5%, from R$64.6 million for the year ended December 31, 2018. This decrease was primarily attributable to a reduction in our indebtedness.
Loss before taxes
As a result of the foregoing, loss before taxes for the year ended December 31, 2019 was R$77.1 million, an increase of R$26.9 million, or 53.6%, from R$50.2 million for the year ended December 31, 2018.
Income taxes
Income taxes for the year ended December 31, 2019 was a credit of R$10.9 million, an increase of R$5.9 million, or 118.0%, from a credit of R$5.0 million for the year ended December 31, 2018. This increase was primarily attributable to the following:
Current income taxes.   Current income taxes for the year ended December 31, 2019 was an expense of R$14.8 million, an increase of R$4.2 million, or 39.6%, from an expense of R$10.6 million for the year ended December 31, 2018. This increase was primarily attributable the increase of the taxable profit, due to the significant increase in the earnings from our continuing education courses segment (which does not benefit from any tax benefits), as a result of the increase in number of enrolled students and hubs during the period.
Deferred income taxes.   Deferred income taxes for the year ended December 31, 2019 was a credit of R$25.7 million, an increase of R$10.0 million, or 63.7%, from a credit of R$15.7 million for the year ended December 31, 2018. This decrease was primarily attributable to the reduction on temporary differences mainly as a result of the amortization of intangible assets on business combinations.
Loss for the year
As a result of the foregoing, loss for the year ended December 31, 2019 was R$66.2 million, an increase of R$21.0 million, from a loss of R$45.2 million for the year ended December 31, 2018.
 
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Quarterly Financial Data (Unaudited) and Other Information
The table below sets forth our quarterly income statement data for the periods indicated:
​ ​ ​
For the Three Months Ended
​
​ ​ ​
March 31,
2018
​ ​
June 30,
2018
​ ​
September 30,
2018
​ ​
December 31,
2018
​ ​
March 31,
2019
​ ​
June 30,
2019
​ ​
September 30,
2019
​ ​
December 31,
2019
​ ​
March 31,
2020
​ ​
June 30,
2020
​
​ ​ ​
(in R$ millions, except per share data)
​
Income Statement Data
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 89.8 ​ ​ ​ ​ ​ 102.4 ​ ​ ​ ​ ​ 88.6 ​ ​ ​ ​ ​ 102.6 ​ ​ ​ ​ ​ 106.9 ​ ​ ​ ​ ​ 127.6 ​ ​ ​ ​ ​ 109.4 ​ ​ ​ ​ ​ 117.2 ​ ​ ​ ​ ​ 128.6 ​ ​ ​ ​ ​ 128.1 ​ ​
Cost of services rendered
​ ​ ​ ​ (41.8) ​ ​ ​ ​ ​ (51.6) ​ ​ ​ ​ ​ (45.9) ​ ​ ​ ​ ​ (44.8) ​ ​ ​ ​ ​ (49.5) ​ ​ ​ ​ ​ (55.7) ​ ​ ​ ​ ​ (56.3) ​ ​ ​ ​ ​ (50.1) ​ ​ ​ ​ ​ (57.1) ​ ​ ​ ​ ​ (48.9) ​ ​
Gross profit
​ ​ ​ ​ 48.0 ​ ​ ​ ​ ​ 50.8 ​ ​ ​ ​ ​ 42.7 ​ ​ ​ ​ ​ 57.8 ​ ​ ​ ​ ​ 57.4 ​ ​ ​ ​ ​ 71.9 ​ ​ ​ ​ ​ 53.1 ​ ​ ​ ​ ​ 67.1 ​ ​ ​ ​ ​ 71.5 ​ ​ ​ ​ ​ 79.2 ​ ​
Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative expenses
​ ​ ​ ​ (10.9) ​ ​ ​ ​ ​ (10.3) ​ ​ ​ ​ ​ (18.7) ​ ​ ​ ​ ​ (50.8) ​ ​ ​ ​ ​ (14.2) ​ ​ ​ ​ ​ (15.6) ​ ​ ​ ​ ​ (16.3) ​ ​ ​ ​ ​ (79.2) ​ ​ ​ ​ ​ (15.0) ​ ​ ​ ​ ​ (9.4) ​ ​
Selling expenses
​ ​ ​ ​ (21.9) ​ ​ ​ ​ ​ (17.5) ​ ​ ​ ​ ​ (14.8) ​ ​ ​ ​ ​ (16.4) ​ ​ ​ ​ ​ (30.1) ​ ​ ​ ​ ​ (17.7) ​ ​ ​ ​ ​ (19.5) ​ ​ ​ ​ ​ (33.7) ​ ​ ​ ​ ​ (32.6) ​ ​ ​ ​ ​ (17.4) ​ ​
Net impairment losses on
financial and contract
assets
​ ​ ​ ​ (15.3) ​ ​ ​ ​ ​ (10.2) ​ ​ ​ ​ ​ (1.3) ​ ​ ​ ​ ​ (17.8) ​ ​ ​ ​ ​ (13.4) ​ ​ ​ ​ ​ (11.9) ​ ​ ​ ​ ​ (6.5) ​ ​ ​ ​ ​ (26.4) ​ ​ ​ ​ ​ (16.6) ​ ​ ​ ​ ​ (18.3) ​ ​
Other income (expenses),
net
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.7) ​ ​ ​ ​ ​ (0.6) ​ ​ ​ ​ ​ (0.4) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.7) ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 3.6 ​ ​ ​ ​ ​ (1.9) ​ ​
Operating profit
​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 12.8 ​ ​ ​ ​ ​ 7.2 ​ ​ ​ ​ ​ (27.8) ​ ​ ​ ​ ​ (0.7) ​ ​ ​ ​ ​ 26.7 ​ ​ ​ ​ ​ 10.1 ​ ​ ​ ​ ​ (71.9) ​ ​ ​ ​ ​ 10.7 ​ ​ ​ ​ ​ 32.3 ​ ​
Financial income (expenses)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Financial income
​ ​ ​ ​ 5.7 ​ ​ ​ ​ ​ 4.3 ​ ​ ​ ​ ​ 6.9 ​ ​ ​ ​ ​ 5.1 ​ ​ ​ ​ ​ 5.1 ​ ​ ​ ​ ​ 4.3 ​ ​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 4.1 ​ ​ ​ ​ ​ 5.4 ​ ​
Financial expenses
​ ​ ​ ​ (15.7) ​ ​ ​ ​ ​ (20.0) ​ ​ ​ ​ ​ (14.7) ​ ​ ​ ​ ​ (14.2) ​ ​ ​ ​ ​ (15.7) ​ ​ ​ ​ ​ (14.2) ​ ​ ​ ​ ​ (12.6) ​ ​ ​ ​ ​ (17.8) ​ ​ ​ ​ ​ (12.5) ​ ​ ​ ​ ​ (8.3) ​ ​
Financial income, net
​ ​ ​ ​ (10.0) ​ ​ ​ ​ ​ (15.7) ​ ​ ​ ​ ​ (7.8) ​ ​ ​ ​ ​ (9.1) ​ ​ ​ ​ ​ (10.6) ​ ​ ​ ​ ​ (9.9) ​ ​ ​ ​ ​ (6.8) ​ ​ ​ ​ ​ (13.9) ​ ​ ​ ​ ​ (8.4) ​ ​ ​ ​ ​ (2.9) ​ ​
Profit (losses before taxes)
​ ​ ​ ​ (9.8) ​ ​ ​ ​ ​ (2.9) ​ ​ ​ ​ ​ (0.6) ​ ​ ​ ​ ​ (36.9) ​ ​ ​ ​ ​ (11.3) ​ ​ ​ ​ ​ 16.8 ​ ​ ​ ​ ​ 3.3 ​ ​ ​ ​ ​ (85.8) ​ ​ ​ ​ ​ 2.4 ​ ​ ​ ​ ​ 29.3 ​ ​
Current income taxes
​ ​ ​ ​ (2.5) ​ ​ ​ ​ ​ (2.4) ​ ​ ​ ​ ​ (3.2) ​ ​ ​ ​ ​ (2.5) ​ ​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ (8.5) ​ ​ ​ ​ ​ (2.2) ​ ​ ​ ​ ​ (4.0) ​ ​ ​ ​ ​ (9.7) ​ ​ ​ ​ ​ (9.9) ​ ​
Deferred income taxes
​ ​ ​ ​ 3.6 ​ ​ ​ ​ ​ 3.5 ​ ​ ​ ​ ​ 2.7 ​ ​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 5.0 ​ ​ ​ ​ ​ 4.4 ​ ​ ​ ​ ​ 2.9 ​ ​ ​ ​ ​ 13.4 ​ ​ ​ ​ ​ 12.0 ​ ​ ​ ​ ​ 28.3 ​ ​
Net income (loss) for the period
​ ​ ​ ​ (8.7) ​ ​ ​ ​ ​ (1.8) ​ ​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (33.6) ​ ​ ​ ​ ​ (6.4) ​ ​ ​ ​ ​ 12.7 ​ ​ ​ ​ ​ 4.0 ​ ​ ​ ​ ​ (76.4) ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 47.7 ​ ​
The table below sets forth certain details related to the tuition we charge (which is the sum of our gross revenue and hub partners’ portion less other academic services) for the periods indicated:
​ ​ ​
For the Three Months Ended
​ ​
For the Year
Ended
December 31,
​
​ ​ ​
March 31,
2018
​ ​
June 30,
2018
​ ​
September 30,
2018
​ ​
December 31,
2018
​ ​
March 31,
2019
​ ​
June 30,
2019
​ ​
September 30,
2019
​ ​
December 31,
2019
​ ​
March 31,
2020
​ ​
June 30,
2020
​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$ millions, except percentages)
​
Tuition (actual)
​ ​ ​ ​ 114.9 ​ ​ ​ ​ ​ 137.0 ​ ​ ​ ​ ​ 118.7 ​ ​ ​ ​ ​ 202.3 ​ ​ ​ ​ ​ 156.1 ​ ​ ​ ​ ​ 180.7 ​ ​ ​ ​ ​ 164.9 ​ ​ ​ ​ ​ 178.4 ​ ​ ​ ​ ​ 203.1 ​ ​ ​ ​ ​ 198.9 ​ ​ ​ ​ ​ 681.6 ​ ​ ​ ​ ​ 573.1 ​ ​
 
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Reconciliation between Adjusted EBITDA and loss for the year
The following table below sets forth a reconciliation of our Adjusted EBITDA to our net income (loss) for each of the periods indicated:
​ ​ ​
For the Three Months Ended
​ ​
For the Year
Ended
December 31,
​
​ ​ ​
March 31,
2018
​ ​
June 30,
2018
​ ​
September 30,
2018
​ ​
December 31,
2018
​ ​
March 31,
2019
​ ​
June 30,
2019
​ ​
September 30,
2019
​ ​
December 31,
2019
​ ​
March 31,
2020
​ ​
June 30,
2020
​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$ millions)
​
Reconciliation of Adjusted EBITDA
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net income (loss) for the period
​ ​ ​ ​ (8.7) ​ ​ ​ ​ ​ (1.8) ​ ​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (33.6) ​ ​ ​ ​ ​ (6.5) ​ ​ ​ ​ ​ 12.7 ​ ​ ​ ​ ​ 4.0 ​ ​ ​ ​ ​ (76.4) ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 47.7 ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
(+) Deferred and current income tax
​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ 0.5 ​ ​ ​ ​ ​ (3.4) ​ ​ ​ ​ ​ (4.9) ​ ​ ​ ​ ​ 4.1 ​ ​ ​ ​ ​ (0.7) ​ ​ ​ ​ ​ (9.4) ​ ​ ​ ​ ​ (2.3) ​ ​ ​ ​ ​ (18.4) ​ ​ ​ ​ ​ (10.9) ​ ​ ​ ​ ​ (5.0) ​ ​
(+) Financial result
​ ​ ​ ​ 10.0 ​ ​ ​ ​ ​ 15.7 ​ ​ ​ ​ ​ 7.8 ​ ​ ​ ​ ​ 9.1 ​ ​ ​ ​ ​ 10.6 ​ ​ ​ ​ ​ 9.9 ​ ​ ​ ​ ​ 6.8 ​ ​ ​ ​ ​ 13.9 ​ ​ ​ ​ ​ 8.3 ​ ​ ​ ​ ​ 2.9 ​ ​ ​ ​ ​ 41.2 ​ ​ ​ ​ ​ 42.6 ​ ​
(+) Depreciation and amortization
​ ​ ​ ​ 13.3 ​ ​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 14.0 ​ ​ ​ ​ ​ 15.4 ​ ​ ​ ​ ​ 15.1 ​ ​ ​ ​ ​ 15.4 ​ ​ ​ ​ ​ 15.6 ​ ​ ​ ​ ​ 16.4 ​ ​ ​ ​ ​ 13.8 ​ ​ ​ ​ ​ 10.5 ​ ​ ​ ​ ​ 62.4 ​ ​ ​ ​ ​ 56.3 ​ ​
(+) Interest on tuition fees paid in arrears
​ ​ ​ ​ 3.6 ​ ​ ​ ​ ​ 1.8 ​ ​ ​ ​ ​ 2.7 ​ ​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 2.6 ​ ​ ​ ​ ​ 1.3 ​ ​ ​ ​ ​ 2.7 ​ ​ ​ ​ ​ 1.7 ​ ​ ​ ​ ​ 3.9 ​ ​ ​ ​ ​ 3.3 ​ ​ ​ ​ ​ 8.3 ​ ​ ​ ​ ​ 8.9 ​ ​
(+) Impairment of non-current
assets
​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 33.5 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 33.5 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 5.6 ​ ​ ​ ​ ​ 1.5 ​ ​ ​ ​ ​ 1.6 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 22.6 ​ ​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ (2.0) ​ ​ ​ ​ ​ 26.4 ​ ​ ​ ​ ​ 7.5 ​ ​
(+) Other income (expenses), net
​ ​ ​ ​ (0.3) ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 0.6 ​ ​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (3.6) ​ ​ ​ ​ ​ 1.9 ​ ​ ​ ​ ​ 0.9 ​ ​ ​ ​ ​ 1.0 ​ ​
(+) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 6.0 ​ ​ ​ ​ ​ 1.9 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 2.6 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 8.2 ​ ​
Adjusted EBITDA(1)
​ ​ ​ ​ 18.5 ​ ​ ​ ​ ​ 29.2 ​ ​ ​ ​ ​ 26.0 ​ ​ ​ ​ ​ 34.1 ​ ​ ​ ​ ​ 20.7 ​ ​ ​ ​ ​ 45.2 ​ ​ ​ ​ ​ 31.9 ​ ​ ​ ​ ​ 19.8 ​ ​ ​ ​ ​ 28.8 ​ ​ ​ ​ ​ 46.2 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
​
(1)
We calculate Adjusted EBITDA as net income (loss) for the period plus deferred and current income tax plus financial results plus depreciation and amortization plus interest on tuition fees paid in arrears plus impairment of non-current assets plus share-based compensation plan plus other income (expenses), net, plus M&A, pre-offering expenses and restructuring expenses. Adjusted EBITDA is a non-GAAP measure. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
 
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Reconciliation of Adjusted Net Income
The following table below sets forth a reconciliation of our profit to Adjusted Net Income for each of the periods indicated:
​ ​ ​
For the Three Months Ended
​ ​
For the Year
Ended
December 31,
​
​ ​ ​
March 31,
2018
​ ​
June 30,
2018
​ ​
September 30,
2018
​ ​
December 31,
2018
​ ​
March 31,
2019
​ ​
June 30,
2019
​ ​
September 30,
2019
​ ​
December 31,
2019
​ ​
March 31,
2020
​ ​
June 30,
2020
​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$ millions)
​
Reconciliation of Adjusted Net Income
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net income (loss) for the period
​ ​ ​ ​ (8.7) ​ ​ ​ ​ ​ (1.8) ​ ​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (33.6) ​ ​ ​ ​ ​ (6.5) ​ ​ ​ ​ ​ 12.7 ​ ​ ​ ​ ​ 4.0 ​ ​ ​ ​ ​ (76.4) ​ ​ ​ ​ ​ 4.7 ​ ​ ​ ​ ​ 47.7 ​ ​ ​ ​ ​ (66.2) ​ ​ ​ ​ ​ (45.2) ​ ​
(+) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 6.0 ​ ​ ​ ​ ​ 1.9 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 2.6 ​ ​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 8.2 ​ ​
(+) Impairment of non-current
assets
​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 33.5 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 0.0 ​ ​ ​ ​ ​ 51.0 ​ ​ ​ ​ ​ 33.5 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ 0.3 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 5.6 ​ ​ ​ ​ ​ 1.5 ​ ​ ​ ​ ​ 1.6 ​ ​ ​ ​ ​ 0.7 ​ ​ ​ ​ ​ 22.6 ​ ​ ​ ​ ​ 1.4 ​ ​ ​ ​ ​ (2.0) ​ ​ ​ ​ ​ 26.4 ​ ​ ​ ​ ​ 7.5 ​ ​
(+) Amortization of intangible
assets from business
combinations
​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 9.3 ​ ​ ​ ​ ​ 6.1 ​ ​ ​ ​ ​ 2.8 ​ ​ ​ ​ ​ 37.3 ​ ​ ​ ​ ​ 37.3 ​ ​
(+) Interest accrued on
accounts payable from the
acquisition of subsidiaries
​ ​ ​ ​ 7.0 ​ ​ ​ ​ ​ 7.1 ​ ​ ​ ​ ​ 7.2 ​ ​ ​ ​ ​ 5.9 ​ ​ ​ ​ ​ 5.7 ​ ​ ​ ​ ​ 5.8 ​ ​ ​ ​ ​ 5.9 ​ ​ ​ ​ ​ 6.0 ​ ​ ​ ​ ​ 4.4 ​ ​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 23.4 ​ ​ ​ ​ ​ 27.1 ​ ​
(-) Corresponding tax effects
on adjustments
​ ​ ​ ​ (3.2) ​ ​ ​ ​ ​ (3.2) ​ ​ ​ ​ ​ (3.2) ​ ​ ​ ​ ​ (3.4) ​ ​ ​ ​ ​ (3.3) ​ ​ ​ ​ ​ (3.2) ​ ​ ​ ​ ​ (3.3) ​ ​ ​ ​ ​ (8.9) ​ ​ ​ ​ ​ (4.2) ​ ​ ​ ​ ​ (1.8) ​ ​ ​ ​ ​ (18.7) ​ ​ ​ ​ ​ (13.0) ​ ​
Adjusted Net Income(1)
​ ​ ​ ​ 4.5 ​ ​ ​ ​ ​ 12.2 ​ ​ ​ ​ ​ 13.7 ​ ​ ​ ​ ​ 25.1 ​ ​ ​ ​ ​ 8.7 ​ ​ ​ ​ ​ 26.4 ​ ​ ​ ​ ​ 18.8 ​ ​ ​ ​ ​ 3.8 ​ ​ ​ ​ ​ 25.6 ​ ​ ​ ​ ​ 43.8 ​ ​ ​ ​ ​ 57.7 ​ ​ ​ ​ ​ 55.4 ​ ​
​
(1)
We calculate Adjusted Net Income as net income (loss) for the period plus share-based compensation plan plus M&A, pre-offering expenses and restructuring expenses, plus impairment of non-current assets plus amortization of intangible assets recognized as a result of business combinations plus interest accrued at the original effective interest rate (excluding restatement as a result of inflation) on the accounts payable from the acquisition of subsidiaries plus corresponding tax effects on adjustments. Adjusted Net Income is a non-GAAP measure. Our calculation of Adjusted Net Income may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
 
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Reconciliation of Adjusted Cash Flow Conversion from Operations
The following table below sets forth a reconciliation of our Adjusted Cash Flow Conversion from Operations for each of the periods indicated:
​ ​ ​
For the Three Months Ended
​ ​
For the Year
Ended
December 31,
​
​ ​ ​
March 31,
2018
​ ​
June 30,
2018
​ ​
September 30,
2018
​ ​
December 31,
2018
​ ​
March 31,
2019
​ ​
June 30,
2019
​ ​
September 30,
2019
​ ​
December 31,
2019
​ ​
March 31,
2020
​ ​
June 30,
2020
​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$ millions, except per share data)
​
Reconciliation of Adjusted Cash Conversion from Operations
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash from Operations
​ ​ ​ ​ 17.8 ​ ​ ​ ​ ​ 23.3 ​ ​ ​ ​ ​ 25.1 ​ ​ ​ ​ ​ 21.9 ​ ​ ​ ​ ​ 20.5 ​ ​ ​ ​ ​ 29.6 ​ ​ ​ ​ ​ 33.3 ​ ​ ​ ​ ​ 14.6 ​ ​ ​ ​ ​ 27.6 ​ ​ ​ ​ ​ 39.6 ​ ​ ​ ​ ​ 98.0 ​ ​ ​ ​ ​ 88.0 ​ ​
(+) Income tax paid
​ ​ ​ ​ (2.2) ​ ​ ​ ​ ​ (2.1) ​ ​ ​ ​ ​ (2.8) ​ ​ ​ ​ ​ (2.4) ​ ​ ​ ​ ​ (4.0) ​ ​ ​ ​ ​ (2.8) ​ ​ ​ ​ ​ (2.8) ​ ​ ​ ​ ​ (3.1) ​ ​ ​ ​ ​ (2.3) ​ ​ ​ ​ ​ (7.4) ​ ​ ​ ​ ​ (12.7) ​ ​ ​ ​ ​ (9.4) ​ ​
Adjusted Cash from Operations
​ ​ ​ ​ 15.6 ​ ​ ​ ​ ​ 21.2 ​ ​ ​ ​ ​ 22.3 ​ ​ ​ ​ ​ 19.5 ​ ​ ​ ​ ​ 16.5 ​ ​ ​ ​ ​ 26.8 ​ ​ ​ ​ ​ 30.5 ​ ​ ​ ​ ​ 11.5 ​ ​ ​ ​ ​ 25.3 ​ ​ ​ ​ ​ 32.2 ​ ​ ​ ​ ​ 85.3 ​ ​ ​ ​ ​ 78.6 ​ ​
Adjusted EBITDA(1)
​ ​ ​ ​ 18.5 ​ ​ ​ ​ ​ 29.2 ​ ​ ​ ​ ​ 26.0 ​ ​ ​ ​ ​ 34.1 ​ ​ ​ ​ ​ 20.7 ​ ​ ​ ​ ​ 45.4 ​ ​ ​ ​ ​ 32.0 ​ ​ ​ ​ ​ 19.5 ​ ​ ​ ​ ​ 28.8 ​ ​ ​ ​ ​ 46.2 ​ ​ ​ ​ ​ 117.6 ​ ​ ​ ​ ​ 107.8 ​ ​
(-) M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ (1.4) ​ ​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ (0.7) ​ ​ ​ ​ ​ (6.0) ​ ​ ​ ​ ​ (1.9) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (2.2) ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (2.6) ​ ​ ​ ​ ​ (0.3) ​ ​ ​ ​ ​ (4.5) ​ ​ ​ ​ ​ (8.2) ​ ​
Adjusted EBITDA excluding M&A, pre-offering expenses and restructuring expenses
​ ​ ​ ​ 17.1 ​ ​ ​ ​ ​ 29.1 ​ ​ ​ ​ ​ 25.3 ​ ​ ​ ​ ​ 28.1 ​ ​ ​ ​ ​ 18.8 ​ ​ ​ ​ ​ 45.2 ​ ​ ​ ​ ​ 29.8 ​ ​ ​ ​ ​ 19.3 ​ ​ ​ ​ ​ 26.2 ​ ​ ​ ​ ​ 45.9 ​ ​ ​ ​ ​ 113.1 ​ ​ ​ ​ ​ 99.6 ​ ​
Adjusted Cash Flow Conversion from Operations(2)
​ ​ ​ ​ 91% ​ ​ ​ ​ ​ 73% ​ ​ ​ ​ ​ 88% ​ ​ ​ ​ ​ 69% ​ ​ ​ ​ ​ 88% ​ ​ ​ ​ ​ 59% ​ ​ ​ ​ ​ 102% ​ ​ ​ ​ ​ 60% ​ ​ ​ ​ ​ 97% ​ ​ ​ ​ ​ 70% ​ ​ ​ ​ ​ 75% ​ ​ ​ ​ ​ 79% ​ ​
​
(1)
For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.” For a reconciliation of Adjusted EBITDA to our loss for the year, see “— Reconciliation between Adjusted EBITDA and loss for the year.”
​
(2)
We calculate Adjusted Cash Flow Conversion from Operations as adjusted cash flow from operations (which we calculate as cash from operations plus income tax paid) divided by Adjusted EBITDA (as defined above but without taking M&A, pre-offering expenses and restructuring expenses into consideration). Adjusted Cash Flow Conversion from Operations is a non-GAAP measure. Our calculation of Adjusted Cash Flow Conversion from Operations may be different from the calculation used by other companies, including our competitors in the industry, and therefore, our measures may not be comparable to those of other companies. For further information see “Presentation of Financial and Other Information — Special Note Regarding Non-GAAP Financial Measures.”
​
 
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Liquidity and Capital Resources
Cash Flows
As of June 30, 2020 and December 31, 2019, we had R$237.1 million and R$74.8 million in cash and cash equivalents and financial investments, respectively. We believe that our current available cash and cash equivalents and short-term investments and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019
The following table shows the generation and use of cash in the six months ended June 30, 2020 and 2019.
​ ​ ​
For the Six Months Ended
June 30,
​
​ ​ ​
2020
​ ​
2019
​
​ ​ ​
(in R$ millions)
​
Cash Flow Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash flows provided by operating activities
​ ​ ​ ​ 49.6 ​ ​ ​ ​ ​ 36.5 ​ ​
Cash flows used in investing activities
​ ​ ​ ​ (41.9) ​ ​ ​ ​ ​ (35.1) ​ ​
Cash flows provided by (used in) financing activities
​ ​ ​ ​ 147.0 ​ ​ ​ ​ ​ (2.9) ​ ​
   
Operating Activities
Out net cash flows from operating activities increased by 35.9% from R$36.5 million in the six months ended June 30, 2019 to R$49.6 million in the six months ended June 30, 2020, as a result of the following variations. Our profit (loss) before taxes increased to R$31.7 million in the six months ended June 30, 2020 from a loss of R$25.9 million in the six months ended June 30, 2019. The adjustments to reconcile income before taxes to cash provided by operating activities decreased from R$117.4 million in the six months ended June 30, 2019 to R$71.0 million in the six months ended June 30, 2020, as a result of R$10.9 million and R$6.2 million decreases in accrued interests and depreciation and amortization, respectively, during the periods compared, which was partially offset by a R$9.6 million increase in net impairment losses on financial assets during the periods compared. Changes in our operating assets and liabilities were principally affected by (i) a R$54.4 million increase in trade receivables in the six months ended June 30, 2020 compared to a R$60.3 million increase in trade receivables in the six months ended June 30, 2019, primarily as a result of the increase in enrolled students and the expansion of our operations; and (ii) a R$1.9 million decrease in trade payables in the six months ended June 30, 2020 compared to a R$5.6 million increase in trade payables in the six months ended June 30, 2019 as a result of the increase in digital marketing campaigns, which offer shorter payment terms.
Investing Activities
Our net cash flows used in investing activities increased by 19.4%, from R$35.1 million in the six months ended June 30, 2019 to R$41.9 million in the six months ended June 30, 2020, primarily due to a R$10.6 million increase in purchases of property and equipment and purchases and capitalization of intangible assets during the periods compared, as further described below in “— Capital Expenditures.” In addition, we recorded net acquisitions of short-term investments of R$5.8 million and R$12.8 million in the six months ended June 30, 2020 and 2019, respectively,
Financing Activities
We recorded net cash from financing activities of R$147.0 million in the six months ended June 30, 2019 compared to net cash used in financing activities of R$2.9 million in the six months ended June 30,
 
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2020, primarily due to R$150.0 million in proceeds we received in connection with the loan agreement we entered into on April 16, 2020. For further information, see “— Indebtedness” and note 11 to our interim unaudited consolidated financial statements included elsewhere in this prospectus.
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
The following table shows the generation and use of cash in the years ended December 31, 2019 and 2018.
​ ​ ​
For the Year Ended
December 31,
​
​ ​ ​
2019
​ ​
2018
​
​ ​ ​
(in R$ millions)
​
Cash Flow Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash flows provided by operating activities
​ ​ ​ ​ 56.0 ​ ​ ​ ​ ​ 50.2 ​ ​
Cash flows used in investing activities
​ ​ ​ ​ (49.5) ​ ​ ​ ​ ​ (158.8) ​ ​
Cash flows provided by (used in) financing activities
​ ​ ​ ​ (6.5) ​ ​ ​ ​ ​ 108.7 ​ ​
Operating Activities
Out net cash flows from operating activities increased by 11.6% from R$50.2 million in 2018 to R$56.0 million in 2019, as a result of the following variations. Our loss before taxes increased to R$77.1 million in 2019 from R$50.2 million in 2018. The adjustments to reconcile income before taxes to cash provided by operating activities increased from R$212.4 million in 2018 to R$267.7 million in 2019, as a result of the impairment of fair value adjustment on intangibles related to business combinations (for more information, see note 15 to our audited consolidated financial statements included elsewhere in this prospectus) and an increase of R$18.9 million in share-based compensation. Changes in our operating assets and liabilities were principally affected by: (1) a R$101.3 million increase in trade receivables in 2019 compared to a R$70.9 million increase in trade receivables in 2018, primarily as a result of the increase of enrolled students and the expansion of our operations in cities with lower credit quality; and (2) a R$13.9 million increase in trade payables in 2019 compared to a R$0.9 million increase in trade payable in 2018 as a result of the anticipation of marketing expenses to December 2019 from the originally scheduled early 2020.
Investing Activities
Our net cash flows used in investing activities decreased by 68.8%, from R$158.8 million in 2018 to R$49.5 million in 2019, primarily due to our recording proceeds from short-term investments, net of R$103.2 million in 2019 compared to acquisitions of short-term investments, net of R$6.6 million in 2018 and a R$9.3 million decrease in payments for the acquisition of interests in subsidiaries during the years compared. In addition, we recorded increases of R$5.3 million and R$4.5 million in purchases of property and equipment and purchases and capitalization of intangible assets, as further described below in “— Capital Expenditures.”
Financing Activities
We recorded net cash from financing activities of R$108.7 million in 2018 compared to net cash used in financing activities of R$6.5 million in 2019, primarily due to capital contributions of R$112.5 million in 2018 which exceeded the capital contributions in 2019 which amounted to R$1.9 million. For further information, see note 19 to our audited consolidated financial statements included elsewhere in this prospectus.
Indebtedness
As of June 30, 2020 and December 31, 2019, our total consolidated indebtedness was R$665.0 million and R$482.7 million, respectively, of which R$152.0 million and zero, respectively,
 
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consist of a loan agreement with Banco Santander (Brasil) S.A., R$387.8 million and R$379.5 million, respectively, are accounts payable from the acquisition of subsidiaries, and R$125.2 million and R$103.2 million, respectively, are lease liabilities.
We completed the acquisitions of our subsidiaries in 2016 and 2017. The remaining purchase price is payable annually through 2022 (bearing interest at its original effective interest rate and as further adjusted by IPCA inflation rate). The subsidiaries, all of which we acquired from the Kroton group, are: Sociedade Educacional Leonardo da Vinci S/S Ltda., Sociedade Educacional do Vale do Itapocu S.S. Ltda., FAIR and FAC /FAMAT.
On April 16, 2020, we entered into a loan agreement with Banco Santander (Brasil) S.A. for R$150.0 million. The loan agreement matures on October 18, 2021. Interest accrues at the CDI rate plus 3.6% and is payable in five quarterly installments starting on July 16, 2020, whereas principal is repayable upon maturity. The loan agreement does not contain financial covenants and does not require guarantees. As of June 30, 2020, the amount outstanding under this loan agreement was R$152.0 million. Upon the outbreak of Covid-19 pandemic in late March 2020 and the then existing higher uncertainties related to the economic scenario, our management considered the benefit of favorable terms of the proposed financing and conservatively opted for a liquidity cushion by entering into the loan agreement to safeguard any possible liquidity need for the settlement of the next outstanding installment of our accounts payable from acquisition of subsidiaries in the approximate amount of R$140 million due in December 2020. Despite the Covid-19 pandemic and the loan agreement, there was no significant change to our liquidity risk and the way we manage it. Considering our current capability of generating cash in our operations, we do not foresee an issue in making the quarterly interest installment and principal payments from this new indebtedness, as well as in settling the remaining installments due on the accounts payable from acquisition of subsidiaries in 2021 and 2022.
For further information about our indebtedness, see notes 9, 11 and 13 to our unaudited interim condensed consolidated financial statements and notes 13 and 17 to our audited consolidated financial statements, each included elsewhere in this prospectus.
Capital Expenditures
In the six months ended June 30, 2020 and the years ended December 31, 2019 and 2018, we made capital expenditures of R$35.9 million, R$44.6 million and R$35.0 million, respectively. These capital expenditures mainly include expenditures related to the purchase of property and equipment and the purchase and capitalization of intangible assets.
Our capital expenditures in the six months ended June 30, 2020 totaled R$4.1 million for internal project development, R$4.8 million for furniture, equipment and facilities, R$1.4 million for IT equipment, R$13.2 million for improvements in leased properties and R$12.4 million for software acquisitions.
Our capital expenditures in 2019 totaled R$12.8 million for internal project development, R$9.5 million for furniture, equipment and facilities, R$9.0 million for refurbishments related to the accessibility and modernization of certain of our facilities, R$5.3 million for IT equipment, R$4.6 million for improvements in leased properties and R$3.4 million for software acquisitions.
Our capital expenditures in 2018 totaled R$10.2 million for internal project development, R$8.8 million for furniture, equipment and facilities, R$8.3 million for refurbishments related to the accessibility and modernization of certain of our facilities, R$3.9 million for IT equipment, R$2.2 million for improvements in leased properties and R$1.6 million for software acquisitions.
 
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Tabular Disclosure of Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2019:
​ ​ ​
Payments Due By Period as of December 31, 2019
​
​ ​ ​
Less than
1 year
​ ​
1 – 3 years
​ ​
3 – 5 years
​ ​
More than
5 years
​ ​
Total
​
​ ​ ​
(in thousands of reais)
​
Trade payables
​ ​ ​ ​ 29,978 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 29,978 ​ ​
Lease liabilities
​ ​ ​ ​ 21,999 ​ ​ ​ ​ ​ 39,218 ​ ​ ​ ​ ​ 38,430 ​ ​ ​ ​ ​ 93,373 ​ ​ ​ ​ ​ 193,020 ​ ​
Other leases(1)
​ ​ ​ ​ 2,804 ​ ​ ​ ​ ​ 1,402 ​ ​ ​ ​ ​ 1,038 ​ ​ ​ ​ ​ 402 ​ ​ ​ ​ ​ 5,646 ​ ​
Prepayments from customers
​ ​ ​ ​ 3,186 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,186 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 135,233 ​ ​ ​ ​ ​ 281,022 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 416,255 ​ ​
Share-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 78,455 ​ ​ ​ ​ ​ 78,455 ​ ​
Total ​ ​ ​ ​ 193,200 ​ ​ ​ ​ ​ 321,642 ​ ​ ​ ​ ​ 39,468 ​ ​ ​ ​ ​ 172,230 ​ ​ ​ ​ ​ 726,540 ​ ​
​
(1)
Refers to commitments from lease agreements that fall into the exemptions of short-term leases and low-value assets and therefore not recognized in lease liabilities.
​
Off-Balance Sheet Arrangements
As of June 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with IFRS. In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. Our significant accounting policies are described in note 2 to our unaudited interim condensed consolidated financial statements and our audited consolidated financial statements, each included elsewhere in this prospectus. We believe that the following critical accounting policies are more affected by the significant judgments and estimates used in the preparation of our consolidated financial statements.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit, or CGU, or group of CGUs exceeds its recoverable amount, defined as the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on data available from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a discounted cash flow model, or the DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities to which we have not yet committed or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as to expected future cash-inflows and the growth rate used for extrapolation purposes.
These estimates are most relevant to our goodwill and the indefinite lives of intangible assets. The key assumptions used to determine the recoverable amount for each CGU, including a sensitivity analysis, are disclosed and further explained in note 15 to our audited consolidated financial statements, included elsewhere in this prospectus.
 
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Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in our statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs into these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required to estimate fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. For more information, see note 4 to our unaudited interim condensed consolidated financial statements and note 5.4 to our audited consolidated financial statements, each included elsewhere in this prospectus.
Credit losses on trade receivables
We recognize an allowance for expected credit losses, or ECLs, for trade receivables applying a simplified approach in calculating ECLs. As a result, we do not track changes in credit risk, but rather recognize an allowance for doubtful accounts based on lifetime ECLs at each reporting date. We have established a provision matrix that is based on our historical credit losses, adjusted for forward looking factors specific to the debtors and the economic environment. We consider a trade receivable to be in default when contractual payments are 365 days past due. In certain cases, however, we may also consider a financial asset to be in default when internal or external information indicates that we are unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by us. A trade receivable is written off when there is no reasonable expectation of recovering the contractual cash flows. The information about our allowance for expected credit losses is disclosed in note 6 to our unaudited interim condensed consolidated financial statements and note 9 to our audited consolidated financial statements, each included elsewhere in this prospectus.
Provision for contingencies
We are a party to proceedings at judicial and administrative levels, as disclosed in note 18 to our audited consolidated financial statements, included elsewhere in this prospectus. The provision for legal proceedings is set up for all proceedings assessed as probable losses. The likelihood of loss is assessed based on available evidence, the hierarchy of laws, case law, most recent court decisions and their the relevance within the legal system and the assessment made by the outside legal counsel. Provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations, additional exposures identified based on new matters or court decisions.
Lease term of contracts with renewal options
We determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
We have the option, under some of our leases to lease the assets for additional terms. We apply judgements in evaluating whether it is reasonably certain to exercise the option to renew. That is, we consider all relevant factors that create an economic incentive for us to exercise the renewal. After the commencement date, we reassess the lease term if there is a significant event or change in circumstances that is within our control and affects our ability to exercise (or not to exercise) the option to renew (for example, a change in business strategy).
Incremental lease rate
We are unable to determine the implicit discount rate to be applied to our lease agreements. Therefore, the incremental rate on the lessee’s loan is used to calculate the present value of the lease liabilities at the initial registration of the lease.
The lessee’s incremental loan rate is the interest rate that the lessee would have to pay when borrowing funds for the acquisition of an asset similar to the asset object of the lease, for a similar term
 
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and with a similar guarantee, the funds required to obtain the asset with a value similar to the right of use asset in a similar economic environment.
Obtaining this rate involves a high degree of judgment and should be a function of the lessee’s credit risk, the term of the lease, the nature and quality of the collateral offered and the economic environment in which the transaction takes place. The rate calculation process preferably uses readily observable information from which to make the necessary adjustments to arrive at its incremental lending rate.
IFRS 16 allows the incremental rate to be determined for a group of agreements when such agreements have similar characteristics.
We have adopted the aforementioned practical method of determining groupings for our lease agreements as we understand that the effects of a grouped application do not materially differ from the application to individual leases. The size and composition of the portfolios were defined according to the following assumptions: (1) assets of a similar nature; and (2) remaining maturities with respect to the similar initial application date.
Share-based compensation
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms and conditions of the grant and the information available at the grant date and at each reporting period, for the liability portion on cash-settled transactions.
We use certain methodologies to estimate fair value which include the following:
•
estimation of fair value based on equity transactions with third parties close to the grant date; and
​
•
other valuation techniques including option pricing models such as Black-Scholes.
​
These estimates also require determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share option, expected volatility of the price of our shares and expected dividend yield.
Recent Accounting Pronouncements
Six Months Ended June 30, 2020
The following amended standards became applicable for the six months ended June 30, 2020. We did not have to change our accounting policies or make retrospective adjustments as a result of adopting these standards.
•
Definition of Material — amendments to IAS 1 and IAS 8
​
•
Definition of a Business — amendments to IFRS 3
​
•
Interest Rate Benchmark Reform — amendments to IFRS 9, IAS 39 and IFRS 7
​
•
Revised Conceptual Framework for Financial Reporting
​
We also elected to early adopt the amendments to IFRS 16 with respect to rent concessions, which have been granted to lessees as a result of the Covid-19 pandemic. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. In May 2020, the IASB made an amendment to IFRS 16 Leases which provides lessees with an option to treat qualifying rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concessions as variable lease payments in the period in which they are granted. Entities applying the practical expedients must disclose this fact, whether the expedient has been applied to all qualifying rent concessions or, if not, information about the nature of the contracts to which it has been applied, as well as the amount recognized in profit or loss arising from the rent concessions.
 
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The amendments listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.
Year Ended December 31, 2019
We have applied the following standards and amendments for the first time in our annual reporting period commencing January 1, 2019:
•
IFRS 16 — Leases;
​
•
IFRIC Interpretation 23 — Uncertainty over Income Tax Treatments;
​
•
Amendments to IFRS 9 — Prepayment Features with Negative Compensation;
​
•
Amendments to IAS 19 — Plan Amendment, Curtailment or Settlement; and
​
•
Annual Improvements to IFRS Standards 2015 — 2017 Cycle.
​
We changed our accounting policies as a result of adopting IFRS 16. A lessee can apply IFRS 16 either by a full retrospective approach or a modified retrospective approach. We applied the full retrospective transition approach to each prior reporting period presented. Under the full retrospective method, our comparative information was restated.
The other amendments listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect our current or future reporting periods.
IFRS 16 — Leases
IFRS 16 superseded IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases — Incentives and SIC — 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single methodology on their balance sheet, similar to accounting for finance leases under IAS 17.
In our transition to IFRS 16, we elected to use the practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. We also elected to use the recognition exemptions for leases that, at the commencement date, have a term of 12 months or less and do not contain a purchase option, or short-term leases, and lease contracts for which the underlying asset is of low value, or low-value assets, and the lessee must recognize the lease payments associated with such leases as an expense on either a straight-line basis over the term of the lease or another systematic basis if that basis is representative of the pattern of the lessee’s benefits, similar to the previous standard for operating leases under IAS 17.
Our leases mainly for the right of us to properties where our campuses and proprietary hubs are located, as well as certain equipment (personal computers, printing and photocopying machines and communicating equipment) that are considered low value. Before the adoption of IFRS 16, we classified each of our leases (as lessee) at the commencement date as either a financial lease or an operating lease. We did not have financial leases as of December 31, 2018. In an operating lease, the leased properties and equipment were not capitalized, and the lease payments were recognized as a rental expense in our statement of profit or loss on a straight-line basis over the term of the lease.
We adopted IFRS 16 using the full retrospective method with the date of initial application being January 1, 2019. Under this method, we adjusted the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy was already applied. As a result, we prepared a full retrospective restatement applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except for our short-term leases and leases of low-value assets.
A summary of our accounting policy upon adoption of IFRS 16 is described in note 2.5.f to our audited consolidated financial statements included elsewhere in this prospectus.
 
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For a reconciliation of our restatement of financial information for comparative purposes in connection with our adoption of IFRS 16, see note 2.6 to our audited consolidated financial statements included elsewhere in this prospectus.
IFRIC Interpretation 23 — Uncertainty over Income Tax Treatment
This interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 — Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. This interpretation specifically addresses the following:
•
whether an entity considers uncertain tax treatments separately;
​
•
the assumptions an entity makes about the examination of tax treatments by taxation authorities;
​
•
how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
​
•
how an entity considers changes in facts and circumstances.
​
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that best predicts a resolution to the uncertainty in question must be followed.
Our application of this interpretation did not have material impact on our consolidated financial statements.
Standards and interpretations not yet adopted
We have not early adopted certain new accounting standards and interpretations have been published that are not mandatory for December 31, 2019. These standards are not expected to have a material impact on our financial statements in current or future reporting periods and on our foreseeable future transactions.
JOBS Act
We are an emerging growth company under the JOBS Act. The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes. Information relating to quantitative and qualitative disclosures about these market risks is described below.
 
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Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Our exposure to the risk of changes in market interest rates relates primarily to our short-term investments and accounts payable from acquisition of subsidiaries, subject in each case to variable interest rates, principally the Brazilian interbank deposit CDI rate and IPCA inflation rate.
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on short-term investments and accounts payable from acquisition of subsidiaries. With all variables held constant, our profit before income taxes was affected through the impact on floating interest rate as follows as of December 31, 2019:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Increase/decrease in interest rate
​
​ ​ ​
Balance as of
December 31,
2019
​ ​
Index — %
per year
​ ​
Probable
scenario
​ ​
Risk
​ ​
Possible
scenario
25%
​ ​
Remote
scenario
75%
​
​ ​ ​
(in thousands of reais, unless otherwise indicated)
​
Short-term investments
​ ​ ​ ​ 72,321 ​ ​ ​
99.10% CDI + 5.81%
​ ​ ​ ​ 4,202 ​ ​ ​ ​ ​ Decrease ​ ​ ​
3,151
​ ​ ​ ​ 1,050 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 379,540 ​ ​ ​
IPCA + 4.31%
​ ​ ​ ​ 16,358 ​ ​ ​ ​ ​ Increase ​ ​ ​
20,448
​ ​ ​ ​ 28,627 ​ ​
In the tables above, the probable scenario reflects the closing rates of the fixed interest yield and inflation indices at year-end. The possible scenario projects a variation (a decrease in CDI and an increase in IPCA) of 25% in these rates and the remote scenario projects a variation of 75%, including both increases and decreases in each case, which are considered to be the largest hypothetical losses resulting from this risk factor.
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from our exposure to third parties, including cash and cash equivalents and short-term investments, as well as from its operating activities, primarily related to trade receivables from customers.
Customer credit risk is managed by us based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See note 8 to our audited consolidated financial statements, each included elsewhere in this prospectus, for additional information on our trade receivables.
Credit risk from balances with banks and financial institutions is managed by our treasury department in accordance with our policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.
Our maximum exposure to credit risk for the components of the statement of financial position as of June 30, 2020 and December 31, 2019 and 2018 is the carrying amounts of our financial assets.
Liquidity Risk
Our management has responsibility for monitor liquidity risk. In order to achieve the our objective, management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.
 
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The main requirements for financial resources used by us arise from the need to make payments for suppliers, operating expenses, labor and social obligations and accounts payable from acquisition of subsidiaries.
See “— Liquidity and Capital Resources” and “— Tabular Disclosure of Contractual Obligations.”
Foreign Exchange Risk
Our results are not subject to significant fluctuations resulting from the effects of the volatility of any exchange rate.
 
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INDUSTRY
Introduction to Brazil’s Postsecondary Education
Overview of Brazilian Postsecondary Education Framework
Education is a priority for Brazilians, irrespective of their age or income. It is viewed as a stepping stone into the job market, and as one of the most important decisions for parents to make with respect to their child’s development as well as for working adults wishing to progress their careers.
In Brazil, the education cycle begins with primary and secondary education, also known as K-12, with a student base of almost 48 million students. Primary and secondary education is mostly provided by public schools, which account for 81% of total students enrolled as of December 31, 2018 according to the MEC. Private institutions generally lead quality rankings, and there is significant variation in quality across public schools as a result of the different investments made by municipalities, states, or the Brazilian federal government based on results in the National Secondary Education Examination (Exame Nacional do Ensino Médio), or ENEM.
Postsecondary education is divided into undergraduate and graduate degrees. Undergraduate courses generally cater to incoming secondary school students. Graduate degrees encompass post-graduate, master’s and doctoral degrees. Institutions are classified as colleges, university centers or universities, depending on the courses offered, the level of education of faculty members and the autonomy granted to them by the MEC. There are three types of undergraduate degrees in Brazil: bachelor’s, licenses and technical degrees. These undergraduate degrees have flexible curricular schedules. Bachelor’s degrees typically have a duration three to six years and are designed to provide students with solid theoretical understanding of their subject matter and prepare them for their desired professions. License degrees are focused on training K-12 and secondary school teachers, and have a duration of three to five years. Technical degrees provide more focused training and typically last two to three years. Graduate degrees focus on deepening students’ understanding of their selected subject. There has been significant growth of lato sensu graduate degrees in Brazil. Post-graduate degrees, which also include master of business administration degrees, are more focused on preparing students for a specific profession and are typically provided over a total of 360 hours.
Postsecondary education in Brazil is provided in two formats:
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On-Campus:   This format is based on face-to-face interactions with students, although, pursuant to the applicable regulatory standards, up to 40% of the content of these courses may be provided in a digital format to complement face-to-face interactions (this applies to all private and public postsecondary courses, except for medical courses); and
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•
Distance Learning:   In this format, course delivery is primarily made in a digital format, which may be complemented by physical and online tutoring and support classes offered to students.
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Postsecondary education students in Brazil have been facing several challenges, including (1) high tuition fees with few financing alternatives, (2) long commutes, (3) lack of access to continuously available resources for studying, (4) teachers, tutors and materials which fail to engage students, and (5) poor support and student experience.
Given the limited and less-efficient nature of public postsecondary education, private education institutions have gained market share in Brazil through a combination of significant investments, more efficient learning models, and by enrolling new postsecondary education students into the system. Nevertheless, private education institutions charge fees. The tuition fees vary based on subject, price positioning and teaching format (on-campus and distance learning).
Postsecondary Education Market in Brazil
According to INEP and UNESCO, with 6.2 million students as of 2017, Brazil ranks as the third largest private postsecondary education market in the world, only behind India and China. Moreover,
 
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we believe Brazil has strong growth potential as a result of low penetration rates and increases in disposable income. Brazil has one of the lowest postsecondary education gross enrollment rates in the world, at only 35% in 2017, as compared to 88% for the United States and 94% for South Korea, according to UNESCO.
Brazil Is One of the Largest Private Postsecondary Education Markets Globally
Private Postsecondary Education Enrollments in Millions (2017), Gross Enrollment Ratio (2017)
[MISSING IMAGE: tm2028928d4-bc_brazil4c.jpg]
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Source: OECD, UNESCO, MEC
Note: In 2018, there were 6.4 million students in Brazil.
In Brazil, approximately 23 million people have completed secondary education, but have not attended a postsecondary education institution according to a study published in February 2020 by Educa Insights. It is expected that the penetration rate of private postsecondary education will continue to increase in the coming years, while the available seats in public universities are expected to remain limited given the lack of investments in this area by the Brazilian government. In addition, we note that the cost per student in public education is significantly higher than in private education, which demonstrates a more efficient private sector in this regard.
In 2014, the Brazilian federal government established a National Education Plan (Plano Nacional de Educação), or PNE, with 20 goals for improving and enhancing access to education, which is expected to be completed by 2024. Out of the 20 goals, the most important goal for the postsecondary education sector is to increase the penetration rate of postsecondary education to 50.0% of the target population (i.e., 18 to 24 years old) as compared to 30.3% in 2018. To reach this rate, the Brazilian government has enacted market friendly regulations to promote distance learning courses, mainly due to the affordability of these courses.
In 2018, there were 8.5 million students enrolled in private and public postsecondary courses in Brazil (6.4 million in the private sector and 2.1 million in the public sector), with private education accounting for 76% of total enrollments according to the MEC. The 3.7% CAGR in the number of students enrolled since 2008 was mainly driven by the private sector, which has grown at a pace 1.5 times faster than the public sector since 2008, as a result of (i) the increasing adoption of distance learning and (ii) governmental programs and incentives, such as the PROUNI and FIES.
 
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Total Undergraduate Enrollments
Million Enrollments
[MISSING IMAGE: tm2028928d4-bc_undergrad4c.jpg]
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Source: INEP
In the private education market, in which there have been over 5,000 new courses offered in the last five years, the increase in distance learning has been the driver behind the expansion of the student base and increasing penetration, which currently stands at 29.4% of the overall private offering, a 19% increase in comparison to 10.5% in 2008. According to INEP, distance learning expanded at a CAGR of 15.4% between 2008 and 2018, significantly greater than the CAGR of 1.7% for on-campus education in the same period.
Private Undergraduate Enrollments
Thousand Enrollments
[MISSING IMAGE: tm2028928d4-bc_private4c.jpg]
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Source: INEP
Distance learning courses have resulted in above-market performance over the past ten years, with a consistent increase in new undergraduate enrollments. While distance learning penetration in 2008 was only 17% of overall private undergraduate intakes, it stood at almost 46% of new students in 2018 following growth at a CAGR of 18.2% in the period and is expected to surpass annual on-campus enrollments, which have been almost flat in the last few years.
 
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Private Undergraduate Intakes
Thousand Enrollments
[MISSING IMAGE: tm2028928d4-bc_intake4c.jpg]
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Source: INEP
This trend is even more pronounced in post-graduate courses, which exhibited 50% annual growth over the last two years according to Semesp. Post-graduate courses are offered by approximately two thousand institutions, of which 91% are private, to 1.2 million students (a student base which is almost double the size of what it was three years ago). Despite still being the preferred choice for many students, on-campus has been losing market share. The number of students enrolled in distance learning courses increased by 125% from 2016 to 2018, by which time students enrolled in distance learning courses accounted for one third of the student population.
Number of Students Enrolled in Lato Sensu Post-Graduation Courses in Brazil
Thousands of students
[MISSING IMAGE: tm2028928d4-bc_students4c.jpg]
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Source: Semesp
In this context, distance learning courses, for both graduate and undergraduate courses, are becoming increasingly popular in Brazil due to a combination of (a) greater flexibility, as most students also work and would prefer a more flexible alternative, (b) higher affordability, as tuition fees are approximately 70% lower than average tuition fees for on-campus courses, (c) similar quality standards, with a more engaging and digital methodology and (d) a promising career path, with degrees which are the same as an on-campus degree, a proven increase in employability and a positive impact on average salaries.
Students from low-income families are able to become the first generation of their family to attend university by enrolling in a distance learning course. According to Educa Insights, a postsecondary
 
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education degree increases employability levels and salaries by 65.3%, with an additional 51.9% increment following the completion of post-graduate education.
Salary Gap of Students in Brazil
R$
[MISSING IMAGE: tm2028928d4-bc_salaryga4clr.jpg]
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Source: Educa Insights
On-Campus and Distance Learning Education Models
While on-campus education requires students to be present in person, distance learning is more flexible, and provides an engaging and efficient way to participate in classes. We believe that distance learning also provides a similar quality of education and a better user experience as it addresses most of the problems faced by students in Brazil.
In 2018, the average grades achieved by digital education in ENADE’s assessment of Grades in Private Institutions outpaced those achieved by on-campus education.
[MISSING IMAGE: tm2028928d4-lc_campus4c.jpg]
Distance learning became more effective with technology advances and improved access to the Internet, which makes it possible to offer teaching in multiple formats, including live streaming and recorded classes (with live chat support), among others.
 
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On-Campus and Digital Education Models Side by Side
[MISSING IMAGE: tm2028928d4-tbl_digital4clr.jpg]
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Source: INEP, Educa Insights
On-Campus and Digital Education Student Profile
There are significant differences between the typical on-campus and digital education student profiles. The former are typically recent secondary school graduates between 17 and 24 years old, whereas the latter are typically working adults, with over 85% of the digital education student consisting of persons who are over 25. In recent years, there has been a reduction in the average age of digital education students driven by the increase in the acceptance levels of this type of education among students between 18 to 24 years old.
As shown in the graph below, 80% of digital education students are working students, whereas just 56% of on-campus students have jobs. In addition, 68% of on-campus students are from the lower income families in Brazil, while in digital education the percentage is 77%.
There is no significant difference in the degree of acceptance of digital education acceptance across age groups, with only a 1.4 percentage points variation in students above 21 years old as compared to an overall acceptance level of 87.4% for students who are 20-year-old and under.
Despite the fact that digital education students typically completed their secondary education in public schools (only 14% of digital education students have attended private secondary schools), there are no disparities in quality between these two formats. According to the latest ENADE results released in 2019, which provides an individual assessment of postsecondary education students by course, there is no significant difference in grades.
In addition, 69% of digital education students are women, whereas only 57% of on-campus students are women. The different profiles of on-campus and digital education students in Brazil are illustrated in the graph below.
 
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On-Campus and Digital Education Student Profiles in Brazil
According to ABMES, based on INEP (2018)
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Source: ABMES, INEP 2018, Educa Insights
Digital Education Acceptance and Employability
As a result of students’ perception that the quality of on-campus and digital education courses is similar and given the abovementioned differences between these formats, there has been a major increase in the acceptance of digital education in the last few years, with a 25% improvement from 2017.
A 2017 survey conducted by Educa Insights across Brazil showed that 65.9% of the students would be willing to take a digital education course. This survey was conducted again in 2020 and the acceptance level reached 91.4%, showing a significant increase over the period from 2017 to 2020.
 
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Digital Education Acceptance
% of Students Interviewed
[MISSING IMAGE: tm2028928d4-bc_digedu4clr.jpg]
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Source: Educa Insights
In addition, according to Educa Insights, there is no significant difference in employability levels for graduates of on-campus and digital education courses. People with a postsecondary education degree experience less unemployment than those without one (there is an employment rate of 81% for people who complete digital education undergraduate courses and 89% for those who complete digital education graduate courses).
Digital Education
Digital Education Overview
In Brazil, digital education programs can provide the same graduation degrees as traditional on campus programs. As a condition to offering the same degrees for on campus courses, digital education courses are required to have the same defined duration, curriculum, and on-site final exams managed by accredited institutions.
There are three main postsecondary education digital education offerings in Brazil:
(i)
100% online:   pure online programs in which the student has online access to content and course activities, and goes to the hub only for end-of-semester exams;
​
(ii)
Video conference-based:   classes which are broadcast to several students via video conference; and
​
(iii)
Hybrid:   students have access to content through online platforms when/where appropriate, but also hold in-person weekly meetings and classes with on-site tutors.
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According Educa Insights, out of the 6.4 million students enrolled in private undergraduate courses in 2018, approximately 1.8 million students were enrolled in digital education courses. In addition, digital education represents an even higher share of new enrollments, at 46% of total new private enrollments in 2018 (a level which has been above 17% since 2008).
Students without a strong academic background are more likely to benefit from hybrid courses than in 100% online courses as a result of hybrid courses providing a greater degree of interaction with teachers and tutors. According to Educa Insights, 51% of secondary school students consider having at least one face-to-face interaction per week as the most relevant factor when choosing digital education courses.
We believe that postsecondary education students in Brazil require not only more affordable and flexible study alternatives, but an academic experience that involves personal contact with faculty and other students in order to develop their skills better. Given its flexibility, it is expected that the hybrid model will drive market share gains for digital education in the coming years. According to Educa Insights,
 
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hybrid courses, which accounted for 4% of the total student base as of December 31, 2018, are expected to account for 19% of the overall student base by the end of 2023. The overall share of students enrolled in digital education (both hybrid and online) is expected to increase to 49%. The growth in enrolments in the hybrid model is not expected to come at the expense of the 100% online offering model as the target students are not the same. However, it is expected that the on-campus offering model will be negatively impacted by the growth in the hybrid model, as it also combines face-to-face and online classes but is more expensive.
Evolution of Student Enrollment: Strong Growth of Hybrid Model
Student Base (MM and %)
[MISSING IMAGE: tm2028928d4-bc_evostu4clr.jpg]
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Source: Educa Insights
As a result of the Brazilian government’s phasing out of FIES, which supported almost 40% of enrolled students in private on-campus postsecondary education at its peak in 2014 (in comparison to 5% in 2018) and the low availability of private financing alternatives for education, digital education courses have proven to be resilient and well positioned to attract students in need of an affordable alternative. Demand for digital education courses has increased by almost 50% in the period while on-campus courses’ demand has decreased.
Given that tuition is a key consideration for students and that there is no difference between on-campus and digital education degrees, the digital education offering is typically more appealing to students. While average on-campus tuition is R$796 per month, which represents almost half the average student wage in private universities, the average digital education ticket is significantly lower and is at R$266 per month. Affordable digital education tickets are a result of lower personnel expenses and lease costs, combined with the scalability of online platforms for virtual/online classes. In addition, online platforms are able to access the national market while offering flexibility to students.
We believe that the Covid-19 pandemic has accelerated the digital transformation in the sector by bringing a virtual learning experience to all students. We believe that level of acceptance of digital education is growing continuously as a result of the positive experience that students have had with digital offerings. According to a poll conducted by Educa Insights between April and June 2020, 18% of students who intended to enroll in on-campus courses have opted for digital education solutions instead as a result of social distancing measures. We believe that this trend could enhance our ability to capture and enroll new students seeking a more structured and customizable hybrid solution.
In addition, it is expected that the macroeconomic environment in Brazil will be adversely affected by the pandemic, with a decrease in income levels and rising unemployment rates. We believe that the value proposition inherent in digital education value combined with its more affordable tuition fees should drive new enrollments in the sector, and accelerate the change in student base from on-campus
 
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to online or hybrid courses. Given the increasing numbers of enrollments in digital education as a result of the pandemic, Educa Insights estimates that digital education student base could surpass the on-campus student base in 2022.
Larger cities (mostly state capitals and their surrounding areas), usually have a broad educational offering with a comprehensive portfolio for students. Conversely, smaller towns (i.e. those with fewer than 30,000 students) lack quality alternatives. Therefore, we believe that digital education model provides a consistent regional offering, with quality levels equivalent to those found in major cities and attractiveness to local students while also creating an opportunity to increase postsecondary penetration across Brazil.
As shown in the chart below, almost all Brazilian cities with a population of over 30,000 (approximately 1,159 cities) have digital education units. Digital education units become rarer as cities decrease in size.
Number of Cities with Distance Learning Units by Size
Number
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Source: Educa Insights
Given the size of Brazil’s territory, expansion to cities with lower density can be challenging for on-campus players and provides opportunities for digital education players. The partnership model with local hubs results in the ability to deploy a complete product portfolio with limited local investment and own-site ownership, which we believe improves student experience and makes for a better financial profile. As a result, growth rates in terms of number of new students in the Brazilian countryside have been greater (39%) than in state capitals (20%), according to Educa Insights as of 2018.
Technology’s Role on Digital Education
Technological progress has eliminated classroom walls and the boundaries of learning environments. New technologies, such as artificial intelligence and machine learning, have been sweeping through the market and have resulted in innovations in how students and teachers perceive learning methodologies and engage with their students. Most importantly, with the democratization of internet connectivity, the general population can easily access information online. According to the Brazilian National Internet Committee (Comitê Gestor da Internet no Brasil), the number of Brazilian internet users has more than doubled in the last 10 years, from 34 million Brazilian internet users in the last three months of 2008 to 70 million users in 2018, 97% of whom had access to the internet on mobile platforms.
Innovations include cloud-based collaboration, which allows students and tutors to share documents in a flexible manner that reduces the need for face-to-face interactions. Over the past decade, as a result
 
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of the arrival of new learning models, traditional educational methods have evolved in line with digital education methods which have become more engaging and appealing to students. This has led to improvements in the overall learning experience and to a degree of business scalability. Investments in technology have become increasingly important to education providers. The importance of digital solutions has increased, making it possible to offer students a differentiated value proposition. We believe that students value adaptive learning methodology, which provides them with a tailored education experience. The tailored approach help students reach their full potential by identifying and tackling topics with which they struggle while also focusing on developing soft skills.
In this context, digital education models that incorporate technology-enabled tools for postsecondary education have driven an increase in acceptance levels by offering an accessible, affordable and fully digital platform. Their teachers and tutors are more focused on providing assistance rather than lecturing students. In a traditional classroom, students who were struggling to learn new concepts would quickly fall behind their peers, while in digital education assignments students can advance at their own pace. The “always-available” nature of technology enables students to access online resources whenever they desire. It also give instructors a better idea of which students require additional assistance.
Due to the Covid-19 pandemic, students and teachers have been required to adapt classes into a fully digital format as a result of social distancing measures. The high levels of satisfaction support the proposition that technology makes it possible to offer a complete learning experience and support all the necessary interactions between students, teachers and tutors. The population increasingly rely on technology equipment and tools. We expect an increase in households’ digital access in 2020 as a result of the increasing amount of time people are spending at home, including as a result of working from home measures implemented by several corporations.
Improvements in connectivity have also been an important recent development. Students are now able to connect from any location due to the improvement in overall connectivity (with 4G and soon 5G networks, as well as more capable devices). As a result, they are able to access content, do homework, or check their grades online. We believe that this increases the accessibility of digital education.
Finally, we believe that scale is an important factor in this technology-driven market, as it provides for a combination of low marginal cost per student and a highly diluted fixed cost structure. These factors make it possible to achieve the same quality levels of on-campus offerings but in a more affordable manner.
Brazil Has a Differentiated Digital Education Offering
Worldwide online postsecondary education courses have structural differences when compared to Brazilian online postsecondary education courses. Digital education courses in China and the US are offered purely online, with limited on-campus interactions, and with less focus on providing the same standards as for on-campus courses.
In the US, digital education courses are usually common for graduate degrees, such as MBAs, PhDs and master’s degrees, allowing working adults to complement their undergraduate education. The learning method is typically 100% online with access to institutions’ libraries and other academic resources. Regulation restricts online bachelor’s degrees to a limited number of courses, and online courses are allowed only in certain states. Digital education courses in the United Stated are more mature, and have a higher penetration level of 71% of total for-profit education according to Educa Insights.
We believe that the Brazilian offering is different because it is based on the combination of technology-based content offered online and tutor support. The hybrid models avoid most of the pitfalls of online offering as they incorporate strong in-person components and use digital materials mostly as a supplement, which leads to improved student satisfaction, as well as better learning and academic outcomes.
In this context, students without strong academic backgrounds are less likely to progress in fully online courses than in courses that involve personal contact with faculty and other students and when they do progress, they have weaker outcomes. However, technology has the potential to create meaningful opportunities for those students.
 
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Digital Education Market Opportunity
According to Educa Insights, there is an R$104.7 billion addressable market consisting of 31.4 million students across undergraduate, post-graduate, professional qualification and technical courses.
Digital Education Market Size
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Source: Educa Insights
Undergraduate courses account for 1.9 million students and R$6.1 billion of the digital education market and also have significant room for growth as the overall addressable market for undergraduate digital education courses is R$37.6 billion. Digital education post-graduate courses have an addressable market of R$31.7 billion (8.0 million students), which is almost 20 times the size of the existing market. Professional qualification and technical courses, which are not currently offered through digital education platforms, also represent a sizeable opportunity with an estimated total addressable market of R$14.1 billion and R$21.3 billion respectively. We believe that the market’s potential can be accessed by increasing penetration rates in basic education, technology-driven innovation, providing a more complete hybrid model and continued improvements in students’ perception of quality.
Total addressable market is calculated by Educa Insights based on current tuition paid and potential enrollments for each sector, through an assessment of Brazil’s population based on surveys for designated courses. Market size estimates are based primarily on social class distinctions within the Brazilian population, intentions to pursue a postsecondary degree, and the degree of acceptance of digital education. Current market size, on the other hand, derives from existing total enrollments and average tuitions paid.
According to Educa Insights, further growth is still expected in the medium term. The projected market value for digital education in Brazil will reach R$12.0 billion and 3.6 million students in 2023. While tuition is not expected to move considerably until 2023, there is an expected increase in gross enrollment penetration from 29.4% in 2018, of which only 3.9% is from students in hybrid courses, to 49.3% in 2023, of which 18.7% is from students in hybrid courses. However, as previously explained, the Covid-19 pandemic has accelerated this trend, and Educa Insights now believe that the distance learning student base will surpass the on-campus student base by 2022.
 
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Private Education: Market Value Projections
Thousand Students
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Source: Educa Insights, INEP
Historically, Brazilian regulations imposed mandatory bureaucratic preapproval procedures to request the opening of new learning units, which limited growth in the distance learning market. In order to increase offerings and attract investments to the sector, the Brazilian government issued Decree 9,057/17 and Normative Ruling 11/17, which eliminated the requirement of audit visits for new learning units and increased the number of new learning units allowed per institution, which, in turn, widened the range of course offerings and resulted in the increase of learning units from 7,100 to 12,100 from July 2017 to December 2018.
Decree 9,057/17 and Normative Ruling 11/17 simplified the opening of education units while maintaining the quality of digital education courses, as the number of preapproved units for each university depends on the institution’s score in the last ENADE. Lower-performing institutions cannot open any new units, while higher-performing institutions can open up to 250 units per year.
Another change in regulation under discussion is the offering of hybrid law courses. Based on the culture of pursuing a career in the public sector in Brazil, which requires a bachelor’s degree in law, law degrees are commonly the most popular courses and with the largest student base among private universities. Unlike medicine, law courses are not subject to strict regulatory requirements for the approval of new vacancies. Law courses show demand with stable growth and a relatively high return on investment.
Government discussions related to digital education law course offerings have taken place but are currently on hold. According to the MEC, there is a real possibility that law courses will start to be offered in digital education centers in the near future.
According to Educa Insights, on-campus law courses are likely to experience a decrease in enrollments as many prospective students are unable to incorporate face-to-face interactions into their daily routines. However, this is not a reflection of the attractiveness of the course. Rather, it is a side effect of the course offerings in digital education, which should begin with an estimated 18% share of total enrollments in 2021 and reach an estimated 30% in 2023, representing around 85,000 enrollments per year.
 
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New Enrollments in Law Courses
Private, Thousands of Total Enrollments
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Source: Educa Insights
According to Educa Insights, over 20.0% of prospective law students would prefer to be enrolled in digital education courses than in on-campus courses. As a result of the popularity of law degrees in Brazil, it is expected that a significant addressable market would result from the combination of on-campus students shifting towards digital education, and new students seeking a law degree.
While medicine courses have limitations related to digital education offerings, the opening of dentistry, psychology, and nursing courses also require the prior authorization of MEC. Launching medical courses requires approval from the Federal Councils of Health (Conselhos Federais da Área da Saúde).
Key Trends Driving Digital Education Expansion in Brazil
We believe the following factors are expected to contribute to the expansion of the digital education market in Brazil:
Hybrid digital education model creates an affordable option with great user experience.   The flexibility of technology-based platforms combined with active online and face-to-face tutoring presents a differentiated value proposition to students along with affordable tuition fees. With an increasing number of students who think the quality of digital education equals that of on-campus learning, it is expected that the growth in digital education will accelerate.
New courses offerings would increase penetration of digital education.   The ability to offer law degrees in a digital education format would represent a significant increase in the current addressable market. Law is a leading subject for undergraduate degrees in Brazil, a key requirement for public careers, and is often selected by students as a second major. If law-related courses are allowed to be offered in a digital education format, which is likely, we believe the demand for them would be equivalent to a third of the current course offerings in three years. The possibility of offering health-related digital education courses with a large student base, such as nursing and dentistry, would also be significant.
Postsecondary education degrees provide better employability and average salaries.   According to Educa Insights, people holding a postsecondary education degree can expect to earn 65.3% more on average than those who only completed secondary education, with no significant difference between on-campus and digital education courses. Similarly, the unemployment rate for people holding a postsecondary education degree is 21.0%, which is 32 percentage points lower than those with only secondary school education, according to Educa Insights.
Post-graduate courses to grow supported by salary differentials and low penetration rate.   We believe that the post-graduate education market still has significant room for growth as it only had
 
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1.2 million students served by two thousand institutions as of December 31, 2018. We expect to see increasing demand for lato sensu post-graduate courses thanks to the higher employability level and salaries these courses provide, as well as the higher number of undergraduate graduations.
Technology as an education lever.   With enhanced student experience and consistent quality education, the acceptance of technology in education has increased significantly in the past twenty years. For example, the acceptance rate of digital education has increased by 25% since 2015. As people born in the early 2000s are reaching postsecondary education, the demand for technology and online support tools is increasing across all institutions.
Positive K-12 outlook.   While more students are graduating than in previous generations, according to the OECD, Brazil is still lagging behind other Latin American countries in terms of number of students completing secondary education. In 2017 the MEC put in place measures to make secondary schools more attractive to students and to increase graduation rates. It is expected that an increase in graduation rates from secondary schools would lead to greater demand for undergraduate education by students between 18 and 24 years old. Enrollment in postsecondary education tends to benefit from increases in secondary school graduation rates.
Resilient postsecondary digital education market.   Digital education has proven to be resilient to macroeconomic downturns over the years primarily because of its value proposition. The ability to deliver better career prospects and higher wages in an affordable manner protects digital education from the negative impacts of economic cycles and enables off-cycle growth.
Macroeconomic environment is more favorable.   The new Brazilian government was able to approve significant regulatory changes that we believe are important for Brazil’s development. We believe that a positive outlook, mainly driven by a high GDP growth and confidence levels, combined with the possibility of additional reforms being approved, would be beneficial to our business.
PNE to drive further sector growth.   There are still significant deliverables to be completed as part of the PNE, which was launched in 2014 and sets forth certain goals to be achieved by 2024. In addition to providing incentives for students and universities, we believe that digital education’s unique value proposition and affordability place it in a good position to capture the growth necessary to fulfill the Brazilian government’s objectives.
 
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REGULATORY OVERVIEW
The Brazilian constitution establishes education as a right of all citizens, the provision of which is a duty of the state and the family. Accordingly, the government is required to provide all Brazilian citizens with access to free primary education that requires compulsory attendance. Private investment in education is permitted so long as entities providing regulated education services comply with the applicable rules and requirements.
The Brazilian education system is organized as a cooperation regime among federal, state and municipal governments. The federal government is responsible for organizing and coordinating the federal education system in order to guarantee equal opportunity and quality of education throughout Brazil. Brazilian states and the Brazilian Federal District are required to focus on primary and secondary education (which are similar to the final years of elementary school, junior high and high school in the United States), while municipalities are responsible for providing preschool and primary education (which are similar to kindergarten and the first years of elementary school), and each is responsible for establishing and implementing the relevant rules and regulations for each educational stage for which it is responsible, including monitoring and evaluating the service, as well as issuing all relevant authorizations, recognitions and qualifications required for each such educational stage.
Private higher education institutions are part of the federal educational system and their activities are regulated by the federal government, and universities have didactic, scientific and administrative autonomy as provided by the Brazilian constitution.
Law No. 9,394/1996, or the National Education Guidelines Law (Lei de Diretrizes e Bases da Educação Nacional), or the LDB, establishes the guidelines for the provision of education services in Brazil and sets forth the federal government’s duty to: (1) coordinate the national education system; (2) prepare the PNE; (3) provide technical and financial assistance to the states, the Federal District and municipalities; (4) define, in cooperation with other federal entities, the responsibilities and guidelines for primary and secondary education; and (5) issue rules and regulations regarding postsecondary courses, and carry out activities relating to the accreditation of institutions, authorization and recognition of courses and monitoring and evaluation of all the educational system.
In addition, the federal government, through Law No. 13,005 of June 25, 2014, implemented the PNE, with a duration of 10 years from the date of its publication. The PNE established objectives for Brazilian education. For postsecondary education, the objectives are: (1) increasing postsecondary education enrollment rates to 50% of the population aged 18 to 24; (2) increasing the quality of postsecondary education by raising the proportion of academic staff with master’s and doctorate degrees to 75%, of which at least 35% shall be doctorates; and (3) increasing progressively stricto sensu postgraduate courses. Such goals apply to each federation territory, and provide guidance for the private education market.
Accordingly, each of the federal, state and municipal governments was required to prepare a 10-year education plan and establish policies, guidelines and objectives applicable to the sector of the Brazilian education system over which it is responsible. In addition, these objectives act as guidelines for the private education market.
Postsecondary Education
The postsecondary education sector is subject to comprehensive government regulation. Its purpose is to ensure the quality of educational services, through evaluations of the ability of educational institutions to meet minimum standards established by the CNE and approved by the MEC. This evaluation includes the analysis of pedagogical projects, the infrastructure of educational institutions and the academic staff, and the results of such evaluations are considered in the proceedings for opening new units and new courses.
Therefore, activities and courses offered by education institutions in Brazil depend on authorizations and are subject to ongoing regulation. The federal responsibility to regulate, monitor and evaluate postsecondary education institutions and courses is exercised by the MEC, the CNE, the INEP, the CONAES, the SERES and the SETEC.
 
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Regulatory Bodies
The main regulatory bodies of postsecondary education in the Brazilian education system are:
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the MEC;
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the INEP;
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the CNE;
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Higher Education Board (Câmara de Educação Superior), or CES;
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the CONAES;
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the SERES; and
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Secretariat of Professional and Technical Education (Secretaria de Educação Profissional e Tecnológica), or SETEC.
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The MEC is the federal government agency responsible for education in Brazil. It formulates and evaluates Brazilian national education policy, ensuring the quality of education and compliance with education regulations. The INEP is a collegiate federal entity responsible for evaluating educational institutions and student performance, as well as conducting research in order to provide a reliable database for public use.
The MEC is assisted by the CNE, which is the entity with decision-making and deliberative powers to ensure the improvement of national education. The CNE is comprised of the CEB, which is the collegiate responsible for the regulation of primary and secondary school, and the CES, which is the collegiate responsible for the postsecondary education system. The CEB and CES are each composed of 12 members appointed by the President of Brazil.
Ministry of Education (MEC)
The MEC is the highest authority for postsecondary education within the Brazilian national education system, whose competence consists, among other prerogatives, of the following: (1) confirming the CNE’s accreditation decisions for postsecondary education institutions; (2) confirming evaluation systems and criteria adopted by the INEP; (3) confirming opinions and regulation proposals from the CNE; (4) issuing rules and instructions for compliance with laws, decrees and regulations pertaining to education issues; and (5) regulating and monitoring the postsecondary education system through its secretariats.
National Education Council (CNE)
The CNE is a consulting and decision-making body monitored by the MEC, collectively comprised of the Chamber of Primary and Secondary Education, or the CEB, and the Chamber of Postsecondary Education, or the CES, each composed of 12 members appointed by the President of Brazil.
The CNE is required, among other responsibilities, to: (1) issue regulations to implement the MEC’s guidelines, as well as advise and support the MEC in its activities and decisions; (2) decide on accreditation applications and renewals from postsecondary education institutions engaged in distance learning, based on the opinion of the relevant secretariats; (3) propose guidelines and deliberate on the preparation of the evaluation instruments for accreditation and reaccreditation of institutions to be elaborated by the INEP; (4) issue guidelines to be observed by the SERES for accreditation and reaccreditation of universities, university centers and colleges; (5) determine, through the CES, the inclusion and exclusion of course designation from the catalog of advanced technology courses; (6) decide appeals of decisions issued by the SERES, the CEB or the CES; and (7) analyze and propose questions regarding the application of postsecondary education legislation to the MEC.
Anísio Teixeira National Institute for Educational Research (INEP)
The INEP is a federal body linked to the MEC whose main responsibilities are, among others, to: (1) design, plan, coordinate and operationalize actions for the evaluation of HEI, undergraduate courses
 
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and government schools, as well as the National Exam for the Assessment of Student Performance (Exame Nacional de Desempenho de Estudantes), or the ENADE, the examinations and assessments of undergraduate students; (2) design, plan, coordinate, operationalize and evaluate indicators related to postsecondary education resulting from examinations and inputs from official databases and the establishment and maintenance of databases of specialized evaluators and collaborators, including the appointment of evaluation committees; (3) prepare and submit to the MEC the instruments for external evaluation (in loco), in accordance with the guidelines proposed by the SERES and by other competent bodies; (4) design, plan, evaluate and update the indicators for the external evaluation instruments in place, in accordance with the guidelines proposed by the CONAES; (5) chair the Technical Committee for Evaluation Monitoring; and (6) plan, coordinate, operationalize and evaluate the actions necessary to achieve its objectives.
National Higher Education Evaluation Commission (CONAES)
The CONAES is a coordination and monitoring body of the National Higher Education Evaluation System (Sistema Nacional de Avaliação da Educação Superior), or SINAES, monitored by the MEC, composed of a President and 13 members, including one representative of the INEP, one representative of the Foundation for the Coordination of Improvement of Postsecondary Education Personnel (Fundação de Coordenação de Aperfeiçoamento de Pessoal de Nível Superior), or CAPES, three representatives of the MEC (one of which must come from the body responsible for the regulation and monitoring of postsecondary education), one representative of the student body of postsecondary education institutions, one representative of the academic staff of postsecondary education institutions, one representative of the administrative body of postsecondary education institutions, and five members appointed by the Minister of Education, with distinguished scientific, philosophic and artistic knowledge and proven expertise in postsecondary evaluation or management.
Among other activities, the CONAES is required to: (1) propose and evaluate the dynamics, procedures and mechanisms for institutional evaluation, courses and student performance; (2) establish guidelines for the organization of evaluation committees, analyze reports, prepare opinions and submit recommendations to the competent bodies; (3) formulate proposals for the development of postsecondary education institutions, based on the analysis and recommendations produced in the evaluation processes; (4) communicate with the state educational systems, with the aim to establish common actions and criteria for the evaluation and supervision of postsecondary education; and (5) annually submit for approval by the Minister of Education the list of courses for which students will apply for the ENADE.
Secretaria de Regulação e Supervisão da Educação Superior (SERES)
The SERES is a federal body linked to the MEC, which is responsible for the formulation of public policies for regulation and supervision of private and public postsecondary education institutions. The main responsibilities of the SERES are: (1) to authorize, recognize and renew recognition of undergraduate and postgraduate lato sensu course; (2) to prepare opinions to the postsecondary education institutions’ accreditation and reaccreditation proceedings; and (3) to manage the e-MEC, a public registration information system for postsecondary institutions and courses.
Secretaria de Educação Profissional e Tecnológica (SETEC)
The SETEC is the federal body, linked to the MEC, which is required to: (1) formulate, plan, coordinate, implement, monitor and evaluate the public policies for professional and technological education; and (2) promote the innovation, expansion and improvement of the quality of professional and technological education.
 
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Organization of Postsecondary Education Institutions
In order to allow postsecondary education institutions to fulfill their objectives, the LDB also provides that postsecondary education includes the following programs:
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Undergraduate courses, including traditional and technological undergraduate courses, offering specific training and diplomas to students, open to candidates who have completed secondary school or equivalent and who have been approved in the respective selection or entrance examinations;
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Postgraduate courses, including master’s and doctoral degrees, specialization courses, further training courses and others, open to candidates who hold a diploma in an undergraduate course and who meet the requirements laid down by educational institutions; and
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Extension courses, understood as any academic, technical or cultural activity that is not included as an integral and compulsory part of the undergraduate and postgraduate curriculum, in which the students receive certificates. Such courses are open to candidates who meet the requirements established in each case by educational institutions.
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According to the LDB, postsecondary education can be provided by public or private institutions. A private postsecondary education institution must be controlled, managed and supported by an individual or a legal entity with responsibility for financing its supported entities. Postsecondary education institutions may be supported by for-profit or not-for-profit private institutions, or supporting entities, as follows:
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Private in the strict sense: private for-profit institutions created and maintained by one or more private individuals or legal entities;
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Community: incorporated by groups of individuals or by one or more legal entities and that include representatives of the community in their organizational structure;
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Confessional: incorporated by groups of individuals or by one or more legal entities that meet the specific confessional and ideological orientation and that include representatives of the community in their organizational structure; or
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Philanthropic, in the form of the law.
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According to their organization and academic prerogatives, postsecondary education institutions can be:
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Colleges: colleges are public or private educational institutions offering postsecondary courses in one or more areas, maintained by a single supporting entity and with isolated management and direction. Colleges are allowed to offer courses along several levels, namely bachelor’s, associate’s, specialization and graduate programs (master’s and doctorate degrees). Colleges have minimum requirements with regard to qualification of faculty members and their labor practices, and cannot establish new campuses, courses or spots without prior authorization from the MEC;
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University Centers: university centers are public or private education institutions offering several bachelor’s, associate’s and graduate programs, and are expected to provide appropriate conditions with respect to education and qualification opportunities for their professors. To be considered a university center, the institution shall comply with the following requirements: (1) at least one-third of the faculty members must hold a master’s or doctorate degree; (2) at least 20% of the faculty members must work on a full-time basis; (3) at least eight undergraduate courses shall be recognized and have obtained a satisfactory concept in the on-site external evaluation carried out by the INEP; (4) it shall have an institutionalized extension program in the areas of knowledge covered by their undergraduate courses; (5) it shall have a scientific initiation program with a project oriented by doctoral or master’s teachers, which may include programs of professional or technological initiation and initiation to teaching; (6) it shall have obtained CI greater than or equal to four in the on-site external evaluation performed by the INEP; and (7) it shall not have been penalized as a result of an administrative supervision process in the last two years.
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Universities: universities are public or private education institutions offering several postsecondary courses, continuing education and research development. Like University Centers, certain requirements for university reaccreditation must be observed, namely: (1) one-third of the academic staff is hired on a full-time basis; (2) one-third of the faculty members must have a master’s or doctoral degree; (3) at least 60 percent of the undergraduate courses shall be recognized and have a satisfactory concept obtained in the evaluation proceedings carried out by the INEP; (4) it shall have an institutionalized extension program in the areas of knowledge covered by their undergraduate courses; (5) it shall have a scientific initiation program with a project oriented by doctoral or master’s professors, which may include programs of professional or technological initiation and initiation to teaching; (6) it shall have obtained CI greater than or equal to four in the external evaluation carried out by the INEP; (7) it shall regularly offer four master’s degree courses and two PhD courses recognized by the MEC; and (8) it shall not have been penalized as a result of an administrative supervision process in the last two years.
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The LDB provides that the following powers are granted to universities and university centers in the exercise of their autonomy, among others: (1) to create, organize and discontinue postsecondary education programs on their premises, subject to the applicable regulation; (2) to establish the curricula for programs, subject to the applicable general guidelines; (3) to establish plans, programs and projects in connection with scientific research, artistic production and extracurricular activities; (4) to establish the number of student offerings available; (5) to create and change their bylaws in accordance with the applicable general rules, as well as to award degrees, diplomas and other certificates; (6) to grant degrees and diplomas; (7) to enter into contracts, agreements and covenants; (8) to approve and execute plans, programs and projects related to works, services and acquisitions in general, as well as manage income according to institutional provisions; (9) to manage available resources and available items as provided for in the act of incorporation, in the laws and in the bylaws; and (10) to receive grants, donations, inheritances, bequests and financial cooperation resulting from agreements with public and private entities.
Higher education institutions must adopt the procedures set forth in: (1) Ordinance No. 1,095/2018 to grant diplomas; and (2) Ordinance No. 554/2019 to grant digital diplomas.
Distance Learning
Distance learning in Brazil is regulated by article 80 of the LDB, by Decrees 9,057 and 9,235, both of 2017, by Ordinance Nos. 11 and 23, both of 2017, and the CNE’s Resolution No. 1, of 2016.
Distance learning is defined as the educational method in which didactic and pedagogic processes are conducted through information and communication media and technologies, with students and teachers interacting in educational activities while located in different locations or at different times.
Pursuant to the applicable regulations, distance learning is subject to different factors compared to traditional methods, including: (1) reduced transmission costs in commercial channels of sound and audiovisual broadcasting; (2) concession of channels with exclusive educational purposes; and (3) minimal time reservation, with no onus on the public authorities, by the concessionaries of commercial channels.
Distance learning can be offered at the following levels and as part of the following educational methods: (1) primary and secondary education, as long as it is used only to supplement learning processes or in emergency situations; (2) education for young people and adults, according to specific legal criteria; (3) special education, according to specific legal criteria; (4) professional education, covering technical programs at the secondary level and technological programs at the postsecondary level; and (5) postsecondary education, covering graduation, master’s programs, specializations and doctorate studies.
Graduation courses (bachelor’s, licentiate and technological) may be offered using distance learning methods whenever a postsecondary institution is regularly accredited with the MEC for this purpose. Currently, there is no educational regulation that bans the provision of distance learning
 
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courses. However, there are discussions and legislative proposals aimed at banning the provision of distance learning courses in with respect to health, architecture and law.
Pursuant to Decree No. 9,057/2017, institutional accreditation and reaccreditation, as well as the authorization and recognition of courses and their renewal, will be subject to on-site evaluation, with the aim to verify the existence and suitability of the method, infrastructure, technology and personnel that enable the execution of the activities provided for in the Institutional Development Plan and Educational Project of the Course.
The educational institutions accredited for the offering of postsecondary education in the distance modality that hold autonomy prerogatives (universities and university centers) do not require authorization for operation of the postsecondary course in the distance modality, but shall inform the MEC about the offering of the course within 60 days of the date of creation of such course, for the purposes of supervision, evaluation and recognition. Also, distance institutions must inform the MEC about the creation of educational centers and the alteration of their addresses.
Although distance learning is defined by the absence of direct contact between students and teachers, there are activities that must be conducted on-site, such as tutorials, evaluations, internships, professional practice, laboratory and dissertation defense, which are to be provided in the educational and development projects of the institution and the course. Accordingly, the distance learning institutions must provide the necessary infrastructure for the students to conduct those activities, using the headquarters of the education institution or smaller supporting units throughout the country. Distance learning supporting units are no longer subject to on-site evaluation or required to obtain prior authorization of the MEC in order to be set up or operated. Pursuant to Normative Ruling No. 11/2017, such units can be created by unilateral decision of the institution itself.
The distance courses and programs must be projected with the same defined duration for the respective on-site courses. The evaluation of performance of students for the purposes of promotion, conclusion of the course and attainment of diplomas and certificates must be conducted through the conclusion of the programmed activities and on-site exams drafted by the accredited education institution, following procedures and criteria defined in the educational project of the course.
The evaluation of the distance learning courses is performed in the same manner as the evaluation of the on-site courses. If there is any irregularity in or noncompliance to any of the previously established conditions, the competent body may initiate an administrative proceeding that may result in one or more penalties, such as: (1) forfeiture of accreditation or reaccreditation authorization to operate as a distance learning institution; (2) intervention; (3) temporary suspension of autonomy prerogatives; (4) initiation of reaccreditation proceedings; (5) reduction of available vacancies within courses; (6) temporary suspension of new student admissions; and (7) temporary suspension of course offerings.
Diplomas and certificates for distance learning courses and programs from accredited institutions are valid throughout the national territory, and institutions are not entitled to set different criteria for diplomas issued for distance learning courses and those issued for on-site courses. Only accredited education institutions, public or private, may offer distance courses and programs. It is the MEC’s responsibility to promote the accreditation acts of postsecondary institutions. To act outside the institution’s local geographic reach, the institution shall require an extraterritorial accreditation to the MEC.
Institutional accreditation for distance learning courses or programs requires periodic renewal. Also, the accredited institution must initiate the authorized coursework within 24 months from the accreditation, and if the institution does not implement the authorized activities in such time frame, it will be subject to an administrative proceeding that may result in the cancelling of the given authorization.
Pursuant to Decree No. 9,057/2017, postsecondary courses may be offered in the distance learning modality through a partnership between an accredited distance education institution and another company. In this case, applicable regulations establish that educational activities must be conducted in the facilities of the accredited education institution, which will be responsible before the MEC for the regularity of the teaching and learning processes. Accordingly, the education institution must
 
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inform the MEC of its partnerships, describing their purpose and most relevant aspects, in order for the MEC to be able to assess eventual irregularities.
In any case, distance learning courses and programs are subject to the evaluation rules of the SINAES in the same manner that on-site courses are.
It is also important to point out that, recently, Ordinance No. 2,117 of 2019 changed the maximum limit for distance learning hours in on-site courses from 20% to 40% of the overall course load. Courses will still be deemed to be offered on-site even if they include a distance learning portion provided that the students enrolled in the course must be aware of this. This limit does not apply to on-site medical courses.
Recently, as a result of the Covid-19 pandemic, Provisional Measure No. 934 of 2020 exempted schools and universities from adhering to the minimum daily requirement for school work, so long as the minimum annual requirement is adhered to. Furthermore, Ordinance No. 544 of 2020 authorized the substitution of on-site classes for remote classes in public universities until December 31, 2020.
Regulatory Processes of Postsecondary Education Institutions
Accreditation of Postsecondary Education Institutions and Authorization and Recognition of Courses
A postsecondary education institution is initially accredited as a college. The accreditation as a university or university center is only granted after the institution has operated as a college, met satisfactory quality standards, including positive assessments in the SINAES, and met all legal requirements applicable to each type of postsecondary education institution, such as minimum graduation rate and labor regime for the faculty.
The application for qualification of a postsecondary education institution must be supported by various documents, including:
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Supporting entity: (1) incorporation documents, duly registered with the competent body, evidencing its existence and legal capacity, in accordance with civil legislation; (2) certificates of tax and social security compliance; (3) proof of ownership of assets capable of supporting the education institution; (4) financial statements; and (5) a consent form executed by the supporting entity’s legal representative, vouching for the veracity and regularity of the provided information and the financial capability of the supporting entity; and
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Postsecondary education institution: (1) an educational development plan; (2) bylaws and internal regulations; (3) identification and qualification of managers, with a description of their academic and administrative experience; (4) a receipt of regularity and availability of the teaching facilities; (5) a plan of accessibility assurance, pursuant to the regulation and followed by a technical report by a competent professional or public body; and (6) compliance with the legal requirements related to the safety of the building, including having an escape route in case of fire, proved by a specific report issued by the competent public body.
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In relation to the accreditation process of a new postsecondary educational institution and linked course authorizations, the MEC may issue a temporary accreditation act to expedite the operation, pursuant to article 24 of Decree No. 9,235/2017, as long as the supporting entity complies with all the following requirements:
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all self-supporting postsecondary education institutions have been reaccredited in the last five years obtaining an average Institutional Concept (Conceito Institucional) greater or equal to 4;
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none of its postsecondary education institutions have been subject to administrative penalties by the MEC in the last two years; and
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the courses to be offered by the new postsecondary institution must already be offered by other institutions supported by the same supporting entity and duly recognized by the MEC in the last five years with a Course Concept (Conceito de Curso) greater or equal to 4.
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Following the initial accreditation as a postsecondary education institution, colleges depend on authorization from the MEC to offer postsecondary education courses. Institutional accreditation requires periodic renewal. Within their autonomy, universities and university centers do not depend on authorization from the MEC to create the majority of postsecondary education courses and campuses in the same city as their headquarters, except for medicine, dentistry, psychology, nursery and law courses, which necessarily must be previously authorized by the MEC. In any other cases, institutions are required to inform the MEC about the courses they offer for purposes of monitoring, evaluation and further recognition. In addition, Ordinance No. 328/2018, as amended by Ordinance No. 1,302/2018, suspended the opening of new undergraduate courses in medicine until 2023.
Except for medicine, dentistry, psychology, nursery and law courses, the external in loco evaluation in connection with the authorization for postsecondary on-site courses of the federal education system can be waived after documentary analysis if the following requirements are met: (1) having a CI greater than or equal to 3; (2) absence of an administrative supervision process; and (3) the institution offers other courses in the same area of knowledge which meet the minimum evaluation standards.
Requesting authorization for a course must be supported by the following documents, among others: (1) proof of payment of the local evaluation fee; (2) the pedagogic project of the course, outlining the number of positions, classes, description of the program and other relevant academic elements; (3) a list of faculty members, together with the relevant agreements entered into with the education institution, together with their respective titles, working hours and work regime; and (4) proof of availability of the teaching facilities.
Universities and university centers may also apply for the accreditation of a campus not located in the same city as their headquarters, provided that it is located in the same state. Such campuses and programs must integrate the same set of universities or university centers and will only enjoy autonomous prerogatives if there is compliance with the same headquarters requirements and if a high-quality degree is shown, through an average CI greater or equal to 4. Therefore, even in the case of universities or university centers, prior authorization from the MEC is necessary to create any courses on campuses not located in the same city as the university’s headquarters.
Once authorization for a given course has been issued, postsecondary education institutions, including university centers and universities, must also file a request for the recognition of the course as a condition for the national validation of the respective diploma. The requirement must be filed with the MEC after the midway point of the term established for the completion of the corresponding program and three-quarters completion of such term, and must include the following documents, among others: (1) a pedagogic project, including the number of students and other pertinent academic information; (2) a list of faculty members, listed in the national registry of instructors; and (3) proof of availability of the teaching facilities.
Authorization and recognition of courses, as well as accreditation of postsecondary education institutions, must have a limited term and be renewed periodically following the regular evaluation process, currently established according to the evaluation cycles of the SINAES.
Our postsecondary education institutions are accredited by the MEC and their courses are duly authorized. We also make every effort to comply with all applicable regulations to maintain our institutions and courses compliant with the MEC.
Modification of Supporting Entity
Pursuant to Decree No. 9,235/2017 and Ordinance No. 23/2017, modification of a supporting entity occurs whenever there is a change in the supporting entity or its controlling shareholder affecting the decision-making process. Although it no longer depends on the approval of the MEC, the MEC must be informed within 60 days of the consummation of the event for the purposes of updating our registration with the MEC. Such notice must be followed by all the legal documents related to the alteration, duly registered, and the term of commitment executed by the legal representatives of both the current and new supporting entities.
 
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If the new supporting entity or controlling shareholder already supports another postsecondary education institution, it must meet the requirements necessary for the accreditation of a postsecondary education institution, which will be assessed by the MEC in the context of the institution’s reaccreditation proceedings, in the period provided for in the accreditation of the transferred postsecondary education institution in force on the date of the modification of supporting entity. Additionally, the LDB also provides that educational institutions must inform the MEC of any change in their bylaws, which must be registered with the competent bodies.
The transfer of programs or courses between postsecondary education institutions is prohibited and may subject the involved entities to penalties such as: (1) suspension of new students’ admission; (2) suspension of the offering of undergraduate or postgraduate lato sensu courses; (3) suspension of the institution’s autonomy to, among other things, create new postsecondary courses and establish course curricula, if applicable; (4) suspension of the license to establish new distance-learning courses; (5) overriding of any ongoing regulatory requests filed by the institution and prohibition of the filing of any new regulatory requests; (6) suspension of the participation in the New FIES; (7) suspension of the participation in PROUNI; and (8) suspension of or restriction on the ability to participate in other federal educational programs.
Financing Alternatives for Students: Incentive Programs
Programs providing for public funding to students enrolled with private higher education institutions has been a major public policy to expand access to postsecondary education in Brazil, especially for the low-income segment of the population. The most important programs are the following.
University for All Program (PROUNI)
PROUNI is a tax incentive program created through the Provisional Measure No. 213, of September 10, 2004, later converted into Law No. 11,096, of January 13, 2005, that addresses the exemption of certain federal taxes imposed to postsecondary institutions that grant scholarships to low-income students enrolled in undergraduate courses and technology graduate courses. By granting tax incentives to postsecondary education institutions, PROUNI has played an important role in inciting the growth and private investment in the postsecondary education sector.
Private postsecondary institutions may adhere to PROUNI by the execution of a specific agreement with the MEC, valid for 10 years and renewable for the same period. Such agreement must be amended every semester with an additional term establishing the number of scholarships to be offered in each course, unit and class, and what percentage of scholarships shall be granted to indigenous and afro-Brazilians. In order to participate in PROUNI, an educational institution must:
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be up to date with its tax obligations; and
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comply with the following requirements: (1) offer at least one full-time scholarship to every 10.7 regularly paying students enrolled at the end of the past school year, excluding the full-time scholarships granted through PROUNI or by the institution; or (2) offer one full-time scholarship to every 22 regularly paying students enrolled in traditional and technological graduation courses, provided that it also offers scholarships (25% or 50% of the tuition) in the value equal to 8.5% of the paying students’ annual revenue, available to students enrolled in traditional and technological graduation courses at the school year.
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The ratio between the number of scholarships and the number of regularly paying students must be complied with annually. If the entity does not comply with the ratio during a school year because of the withdrawal of students, the institution must adjust the number of scholarships in a proportionate manner for the subsequent school year.
Pursuant to Normative Ruling No. 1.394, of September 12, 2013, a postsecondary education institution that has adhered to PROUNI is exempt, totally or partly, from the following taxes for the duration of the adherence period:
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IRPJ and CSLL with respect to the net income proportionate to the revenue derived from the undergraduate degree courses and extension courses; and
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PIS and COFINS, with respect to the revenue derived from the traditional and technological graduation courses.
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In case a postsecondary education institution requires its exclusion from PROUNI, its tax incentives will be suspended from the date of the solicitation and will not be applicable for the entire period of the basis of calculation.
Normative Ruling No. 1,394, of September 12, 2013, introduced new provisions regarding the tax exemptions granted by PROUNI, in particular the form to calculate the extension of the benefits. According to this Normative Ruling, in addition to the tax exemptions obtained by higher education institutions signatories to PROUNI, tax exemptions are calculated based on the Proportion of Effective Occupation of the Scholarships (Proporção de Ocupação Efetiva de Bolsas), or POEB, and the exemption related to IRPJ would be calculated without taking into account the additional 10%.
According to Article 7, II, amended by Normative Ruling No. 1,417, dated September 6, 2013, the calculation of the exemption also includes the additional 10% of IRPJ, in addition to the CSLL rate. The amount calculated is the amount of the IRPJ and CSLL exemption, respectively, which may be deducted from the IRPJ and CSLL in relation to the totality of the Company’s activities.
Accordingly, with the issuance of Normative Ruling No. 1,417, of September 6, 2013, the IRPJ/​CSLL exemption on the Company’s operating income proportionate to the POEB will also include the additional 10% of IRPJ.
Moreover, considering that Normative Ruling No. 1,417, dated September 6, 2013, creates a potential limit to the amount of the tax exemption, the application of these new provisions will result in a reduction in value of the tax exemption obtained. Nevertheless, the legality of the provisions introduced by Normative Ruling No. 1,417, of September 6, 2013, is being discussed before the judiciary, with several motions still pending.
Other modifications of the fiscal incentive granted by PROUNI were established by Normative Ruling No. 1,476, of July 1, 2014, which also amends the aforementioned Normative Ruling No. 1,417, of September 6, 2013, in order to (1) exclude several amounts from the concept of profit of the holding, which impacts the enjoyment of the exemption related to CSLL and IRPJ; and (2) exclude the POEB from the applicable calculation, specifically for higher education institutions with terms of adherence to PROUNI signed up to June 26, 2011, which also affects the calculation of the exemption specifically enjoyed for the terms of adhesion celebrated in the period prior to that date.
Student Financing Program (FIES)
The FIES, created by Law No. 10,260, of July 12, 2001, is a MEC program to finance students that cannot bear the total costs of their education. FIES has been the most important program for the expansion of access to higher education in Brazil during the last decade, and it is currently responsible for a significant part of the revenues of the majority of private higher education institutions.
FIES consists of funding granted by FNDE to students regularly enrolled in an on-site course of a postsecondary private higher education institutions registered in FIES that has been positively evaluated by the MEC. After a specific selection proceeding, students may be partially or wholly funded by FIES and, in that case, FNDE will be responsible for crediting the correspondent amount due by the student to the private higher education institution.
Payments are made with government bonds whose primary purpose is to compensate tax debts from the private higher education institution. In case there are no debts to be compensated, the institution can resell the bonds to the government by means of a specific proceeding that currently occurs on a monthly basis. The frequency of these proceedings could vary according to public financial constraints and the discretion of FNDE.
FIES has been substantially reshaped by Law No. 13,530, dated December 7, 2017, and currently the program is not as broad as it used to be. According to applicable regulations, in order to enroll students that have been selected by FIES, private higher education institutions are required to contribute
 
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to the fund 13% of the amount due by the student to the institution as consideration for the educational services rendered in the first year of studies. This amount is subject to change in the following years and could vary between 10% and 25% of the consideration due, depending on specific circumstances.
As a result of the Covid-19 pandemic, Law No. 14.024 of 2020 suspended the financial obligations of FIES students for the duration of the period of public calamity established by Legislative Decree No. 6 of 2020. Furthermore, several 2020 FIES internal procedure deadlines were extended, including enrollments and contract signings.
University Scholarship Program from Santa Catarina (UNIEDU)
UNIEDU is a program of the state of Santa Catarina that provides scholarships for students to attend universities. UNIEDU is governed by articles 170 and 171 of the constitution of the state of Santa Catarina and regulated by Complementary Law No. 583/2012 and Ordinance No. 3155/2017.
Pursuant to the abovementioned legislation, the Department of Education of the State of Santa Catarina (Secretaria de Estado da Educação do Estado de Santa Catarina), or the Santa Catarina Education Department, enters into agreements with state-based educational institutions duly accredited by the MEC and registered with the Santa Catarina Education Department that will receive funds for payment of scholarships.
Scholarships should be offered to those who meet the following criteria: (1) having attended all secondary school in public schools or private institutions, with a full scholarship; (2) complying with the per capita family income limit established annually by the governor of the state of Santa Catarina; and (3) be selected by the responsible committee appointed by the Santa Catarina Education Department.
National Higher Education Evaluation System (SINAES)
The SINAES was created by Law No. 10,861 of April 14, 2004, with the purpose of evaluating postsecondary education institutions and undergraduate courses and measuring student academic performance. The main objectives of this evaluation system are to assess the quality of education in the country and to provide guidelines for the MEC to decide upon institutional reaccreditation, recognition and renewal of recognition of courses. Additionally, the SINAES is responsible for improving the quality of postsecondary education in Brazil given that the MEC can identify deficiencies and establish specific conditions for institutions to remedy their issues and resume their operations.
The SINAES is monitored and coordinated by the CONAES, and the INEP has a very important role in all processes. The results of the evaluation of postsecondary education institutions and their courses are public and represented on a five-level scale as follows:
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Level 5 indicates excellent conditions;
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Level 4 indicates more than satisfactory conditions;
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Level 3 indicates satisfactory conditions; and
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Levels 1 and 2 indicate unsatisfactory conditions.
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Pursuant to applicable regulations, evaluation processes consist of a preliminary assessment of several conditions relating to the institution and its courses, such as infrastructure, titles of faculty members, work schedule of faculty members and student performance. Every year, the INEP establishes a method to evaluate those elements and for them to correspond to a number in the five-level scale.
The preliminary assessment is a complex process based on quality indicators as follows:
(a) National Student Performance Examination — ENADE
The ENADE is a test applied to a number of students that are completing courses. It evaluates students’ knowledge regarding the content provided in the curricular guidelines of the respective undergraduate course and their skills and competencies. The ENADE’s results are considered in the composition of quality indexes for courses and institutions.
 
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(b) Preliminary Course Concept — CPC
The Preliminary Course Concept (Conceito de Curso Preliminar), or CPC, is composed of the ENADE score, the Indicator of Difference between Observed and Expected Performance (Indicador de Diferença entre os Desempenhos Observado e Esperado), or IDD, and factors that include teacher titles, the work schedule of faculty staff and infrastructure of the institution. It is an indicator of the state of undergraduate courses in the country. The rules for conducting the on-site verification of teaching conditions are defined annually. Certain courses with a concept equal to or greater than 3, as defined annually by the MEC, may not receive the visit of the evaluators as a result of which the CPC becomes a permanent concept (the Course Concept). The CPC is released every year for a specific group of courses that consists in the same areas evaluated at the ENADE.
(c) General Course Index — IGC
The IGC of the institution summarizes in a single indicator the results of the CPC and the evaluation of master’s and doctorate courses of each educational institution. With regard to graduate courses, CAPES indexes are used and adapted to the scale according to a methodology provided by the INEP, given that they are organized in a different manner. The IGC also goes from 1 to 5 and is published by the INEP/MEC, after the release of the results of the ENADE and the CPC. The IGC is a criterion in the accreditation and reaccreditation processes of institutions and also in the authorization process for new courses: institutions with IGCs less than 3, for example, may have their applications for new courses rejected by the MEC. Similarly, the indicator is used to guide the expansion of quality education: institutions with good performance are exempted from the authorization of the MEC to open courses.
(d) Indicator of Difference between Observed and Expected Performance — IDD
The IDD is intended to provide a reference of the contribution of the course to the learning of each student. For that purpose, it compares the results of the ENADE with the performance of the same student in the ENEM. The indicator has a scale of 1 to 5.
Following preliminary assessments, all institutions are typically subject to an on-site evaluation to confirm the results. However, given the size of the system, the MEC gives institutions the option to convert the results of the preliminary assessments into final results and, therefore, forego on-site evaluations. For institutions that obtain unsatisfactory levels, the MEC on-site evaluations are mandatory.
Even before the on-site evaluation, the MEC is entitled to apply precautionary measures when preliminary assessments of the institution or course is not considered satisfactory, such as: (1) suspension of new enrollments within the respective course or the entire institution; (2) reduction of vacancies; and (3) suspension of all regulatory proceedings for institutional reaccreditation, new authorizations, recognitions or renewals of recognitions.
Should the level be confirmed as less than 3 by the on-site evaluation, the MEC may propose a term of commitment to the institution, in order for it to correct the unsatisfactory conditions within a specific deadline. Failure to uphold, in full or in part, the conditions established in the term of commitment may result in one or more penalties to be applied by the MEC, such as: (1) temporary suspension of the opening of a selection process of graduation courses; (2) disqualification from the operating authorization of the higher education institution or recognition of courses offered; and (3) warning, suspension or cancellation of the mandate of the officer responsible for the action not executed, in the case of public postsecondary education institutions.
After the on-site evaluations, institutions and courses obtain definitive quality concepts as follows:
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an Institutional Concept, which is the result of the on-site evaluation of the institution performed by the INEP; and
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a Course Concept, which is the result of the on-site evaluation of the course performed by the INEP.
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Registration of the Brazilian Educational System — SEB
The Register was established by Ordinance No. 1,773/2019 and aims to support the formulation, implementation, execution, evaluation and monitoring of public policies.
All educational institutions must provide personal data of the academic staff and students, as well as information on the enrollment, attendance and school records of students.
School Census
The school census is conducted annually by the INEP and the provision of information is mandatory for all public and private education institutions, as provided by the LDB.
Accreditation for Postgraduate Programs
Lato sensu
Postsecondary education institutions accredited for offering undergraduate courses and that have at least one regular undergraduate course or a stricto sensu postgraduate course can offer lato sensu postgraduate courses in the subjects in which they are accredited, either on-site or through distance learning.
The offering of postgraduate programs does not require an authorization to operate, even if it is offered by a college. However, it must be reported to the MEC, through the MEC’s system (e-MEC), within 60 days of the date of creation of such course.
The lato sensu postgraduate courses are aimed at students who hold a diploma in an undergraduate course and satisfy the criteria of the institution that is offering the postgraduate course. The postgraduate courses must meet the following requirements: (1) a curriculum with a minimum study load of 360 hours; and (2) a teaching staff composed of at least 30% graduates of stricto sensu postgraduate courses.
Stricto sensu
The authorization and recognition of stricto sensu postgraduate courses (master’s and doctorates) must be evaluated by CAPES, submitted to the CNE’s deliberation and approved by the MEC.
The educational institutions can only initiate master’s and doctorate course activities following publication of the homologation of the CNE’s favorable opinion by the MEC in the Official Gazette.
As part of its analysis, CAPES must consider the general requirements and the specific parameters of the subject area to which each course is linked. The general requirements are: (1) alignment of the proposal with the postgraduate planning of the institution; (2) suitability and justification of the proposal for the regional or national development and its economic and social importance; (3) clarity and consistency of the proposal with detailed information on its objectives, area of concentration, lines of research, curricular structure, subject and bibliographic references; (4) clarity of the criteria adopted to select the students, justifications for the profile of the aimed formation and profile of the egress; (5) proof that the teaching staff has academic, didactic, technical and scientific competence and qualifications related to the purpose of the course; (6) a permanent teaching staff to ensure the regularity and quality of teaching, research and orientation activities; (7) indication of up to five intellectual productions of each permanent teacher; and (8) physical and technological infrastructure of teaching and research adequate for the development of the proposed activities.
Authorizations of new stricto sensu postgraduate courses must be requested at specific dates, as defined by CAPES and published in the Official Gazette.
 
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BUSINESS
Our Mission
Our mission is to democratize access to education in Brazil through a digital ecosystem and empower every student to create their own success story.
Postsecondary education students in Brazil have been facing several challenges, including (1) high tuition fees with few to no financing alternatives, (2) long commutes, (3) lack of access to continuously available resources for studying, (4) teachers, tutors and materials which fail to engage students, and (5) poor support and student experience.
We believe that the future of postsecondary education consists of a combination of quality, engagement, flexibility, affordability, technology and innovation. We believe by incorporating all these elements in our value proposition, we not only provide an unparalleled hybrid learning experience for our students in their academic journey, but also help them to increase their professional opportunities, which translates into higher employability levels and wages.
Overview
We are the leading pure distance learning education group in the postsecondary digital education market in Brazil based on the number of enrolled undergraduate students as of December 31, 2018, according to the latest available data published in September 2019 by the MEC.
We provide a complete pedagogical ecosystem focused on hybrid digital education experience for undergraduates and continuing education. We provide course offerings in over 200 subjects through our VLE which is delivered in multiple formats (videos, eBook, podcasts and html text, among others). Our model also incorporates in-person weekly meetings hosted by our tutors who are mostly local working professionals in the subject area they teach. We have approximately 3,600 tutors who were all hired and trained by us in order to ensure they meet our quality requirements. We believe that this unique tutor-centered learning experience sets us apart, creating a stronger sense of community and belonging and contributing to higher engagement and retention rates of our student base.
At the core of our ecosystem are our digital education centers, or hubs, which offer in-person tutoring, supported by virtual mentoring. We operate our hubs mainly through joint operations in a scalable partnership model based on symbiotic, financially aligned and self-reinforcing relationships with our hub partners, who manage day to day operations and financial planning. Approximately 82.7% of our hubs are managed by hub partners and we have built and nurtured strong relationships with our 151 hub partners, who play a key role in our expansion.
We have one of the largest nationwide digital education footprints in Brazil, driven by an asset-light, highly scalable and profitable business model that maintains resiliency through macroeconomic cycles. Our learning methodology and technology-enabled online educational platform enable us to deliver affordable content digitally and through hubs with in-person and virtual mentoring. Our hybrid platform and unique offerings lead to higher retention rates than our competitors and supports our growth strategy. We expect our ecosystem to include a lifelong postsecondary education journey with a growing offering of undergraduate and continuing education programs, in which we will leverage students’ learning methods, performance and interests as data to drive tailored and engaging educational solutions.
We have an asset-light, highly scalable and profitable business model that maintains resiliency through macroeconomic cycles, with a tech-enabled value proposition for all stakeholders. Our revenue is driven primarily by tuition fees charged for digital education undergraduate courses. Although we focus on undergraduate digital education courses, we also offer digital continuing education and certain on-campus undergraduate courses. We operate mainly through joint operations in a scalable partnership model with strong cash flow generation. Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership
 
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agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. Therefore, as hubs mature, we should experience an increase in our gross revenue (higher than the increase in tuition fees in the same period) as a result of lower tuition share allocated to our hub partners.
As of June 30, 2020, our network consisted of 608 hubs, compared to 436 hubs as of June 30, 2019 representing an annual growth rate of 39.4%. As of December 2019, our network consisted of 545 hubs, compared to, respectively, 370 hubs, 221 hubs and 72 hubs as of December 31, 2018, December 31, 2017 and December 31, 2016, representing a CAGR of 96.3%. Approximately 88% of our hubs have been opened in the last six semesters (i.e., in the last three years, or since the second half of 2017) and are still ramping up, representing a substantial opportunity for growth.
As of June 30, 2020, we had 287,798 enrolled students across all Brazilian states, compared to 244,188 students as of June 30, 2019 representing an annual growth rate of 17.9%. As of December 31, 2019, we had 240,946 enrolled students, compared to 189,295 enrolled students as of December 31, 2018, 140,363 enrolled students as of December 31, 2017 and 115,325 enrolled students as of December 31, 2016, representing a CAGR of 27.8%.
We believe that the characteristics of our platform, together with proven academic outcomes, a differentiated student experience and the highest quality standards measured by CI score, have driven our significant growth, allowing us to quickly and efficiently cement our leadership across Brazil in digital education. Based on the most recent available data of the MEC, as of December 31, 2018, we were ranked at least second in terms of market share in 89% of the cities in which we operate, which is a strong indication of the strength of our brand and differentiated value proposition.
Our business model has allowed us to successfully grow since our foundation, with 88.2% of our hubs still ramping up. In the six months ended June 30, 2020, we generated R$256.7 million of net revenue, compared to R$234.5 million in the six months ended June 30, 2019, representing growth of 9.5%. Our net revenue totaled R$461.1 million for the year ended December 31, 2019 and R$383.4 million for the year ended December 31, 2018, representing an annual growth rate of 20.3%. In the six months ended June 30, 2020, we generated R$52.4 million of net income, compared to R$25.1 million of loss in the six months ended June 30, 2019, representing growth of 308.8%. We generated R$66.2 million of loss for the year ended December 31, 2019 compared to R$45.2 million of loss for the year ended December 31, 2018, representing a 46.5% increase. In the six months ended June 30, 2020, we generated R$75.2 million of Adjusted EBITDA, compared to R$66.1 million of Adjusted EBITDA in the six months ended June 30, 2019, representing growth of 13.7%. We generated Adjusted EBITDA of R$117.6 million and R$107.8 million for the year ended December 31, 2019 and the fiscal year ended December 31, 2018, respectively, representing a 9.1% growth. In the six months ended June 30, 2020, we generated R$57.1 million of Adjusted Net Income, compared to R$35.1 million of Adjusted Net Income in the six months ended June 30, 2019, representing growth of 62.7%. We generated R$57.7 million of Adjusted Net Income for the year ended December 31, 2019, compared to R$55.4 million of Adjusted Net Income for the year ended December 31, 2018, representing a 4.2% increase.
Our History
We have a 20-year unparalleled history of growth among the largest digital education players in Brazil, throughout which we have been able to consistently improve our hybrid education model in several phases.
Uniasselvi was founded in 1999 as a college in Indaial, in the state of Santa Catarina, in the southern region of Brazil. Up until 2004, we operated primarily in the surrounding region as a local group of integrated institutions that provided traditional on-campus postsecondary education courses. In that year, we were granted the status of university center, a credential given by the MEC to postsecondary education institutions, as a result of which we achieved greater academic autonomy to offer new courses and research programs in multiple academic subjects.
 
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We were accredited by the MEC to offer digital education courses in 2006. Since then, our disruptive student-centric model has been taking advantage of technology to make the postsecondary education learning process more accessible and affordable. As a consequence of our differentiated value proposition, we were able to achieve a regional leadership position in the south of Brazil and become a well-recognized brand nationwide.
In 2016, we were acquired by Carlyle and Vinci Partners and we appointed a new executive team with extensive experience and a strong track record in the education industry. Our strategic focus was fully directed to the expansion of our digital education operations across Brazil.
Our expansion strategy was accelerated by the new regulatory framework for distance learning in 2017, which is centered on postsecondary education institutions’ achievements in a quality index. This new regulatory framework has made it easier to open new hubs, thereby unlocking a major market opportunity. In that year, we worked together with a well-recognized consulting firm to develop a robust expansion plan, which mapped several opportunities to be captured in the following five years. In addition, we have created a new business intelligence unit to support intake cycles and our marketing strategy.
In 2018, we became the leading pure digital education player in Brazil, according to the MEC.
In 2019, our CI score, which is measured and reported by the MEC using institutional planning and development, academic and management criteria, was upgraded to the maximum grade of 5, from a previous score of 4.
As of June 30, 2020, we operate 608 hubs with a student base of 236,838 digital education undergraduate students. As illustrated by our CI score, we grew our hubs and student base while increasing quality.
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Note:
The data presented in this chart for the period from 2010 to 2018 is derived from public information published by INEP, and for market share comparability purposes, it is calculated by INEP by applying the same metrics for all postsecondary education institutions in Brazil. The data presented for 2019 is marked by “*” because it is an estimate calculated by the Company for the number that will be released in September 2020 by INEP. This data may not be directly comparable with data derived from our internal records included elsewhere in this prospectus.
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Our Market
Education is a priority in Brazilian families’ budget allocation preferences, given that a postsecondary education degree increases a student’s average salary by 65.3%, according to Educa Insights. Brazil ranks as the third largest private postsecondary education market in the world, only behind India and China, according to INEP and UNESCO. According to the MEC, there were more than eight million students enrolled in postsecondary undergraduate courses as of December 31, 2018, 75.4% of whom were enrolled in private institutions. However, only 21.0% of the population between the ages of 25 and 34 in Brazil attend postsecondary education institutions, well below the OECD average of 44.0%, which shows significant room for growth.
 
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In 2014, the Brazilian federal government established a PNE, with 20 goals for improving and enhancing access to education, which is expected to be completed by 2024. Out of the 20 goals, the most important goal for the postsecondary education sector is to increase the penetration rate of postsecondary education to 50.0% of the target population (i.e. 18 to 24 years old) as compared to 30.3% in 2018. To reach this rate, the Brazilian government has enacted market friendly regulations to promote digital education courses, mainly due to the affordability of these courses.
We believe that due to its higher flexibility, lower tuitions and improved quality, the digital education business will be the main driver of the expected increase in Brazil’s postsecondary education penetration rate. The digital education business has consistently gained share over the on-campus business for the past 10 years. According to a study conducted by Educa Insights, out of the 6.4 million students enrolled in private undergraduate courses in 2018, approximately 1.8 million students, or 28.4% of the student base, were enrolled in digital education courses. This compares to approximately 749,000 students in 2010, or 15.8% of all students. The percentage of students who enroll in digital education courses was expected to surpass the enrollments in on-campus by 2023.
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However, we believe that the Covid-19 pandemic has accelerated the natural digital transformation in the sector, bringing a virtual learning experience to all students and further supporting the trends described elsewhere in this prospectus. Furthermore, the percentage of students who enroll in digital education courses is now expected to surpass the enrollments in on-campus courses as soon as 2022.
This is principally due to: (1) decreasing income levels and rising unemployment rates in Brazil due to the impact of Covid-19, which has led students to opt for more affordable courses, such as digital education, and (2) the continuous migration to the digital environment during periods of social distancing. In addition, according to Educa Insights, between April and June 2020, 91% of students demonstrated interest in enrolling in digital education while only 42% of students demonstrated an intention to enroll in on-campus courses.
In addition, distance learning represents an even higher share of new enrollments, at 46% of total new private enrollments in 2018 (a level which has been above 17% since 2008).
 
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Key Challenges Faced by Postsecondary Education Students in Brazil
The vast majority of students in Brazil struggle to have access to quality postsecondary education: public institutions are difficult to access given the highly competitive admissions process. Additionally, when students seek on-campus private alternatives, they face several constraints, such as high tuition costs with limited financing alternatives, commuting challenges, limited flexibility, teachers and tutors who fail to engage with students and low-quality content and materials.
Key Market Trends in Digital Education and Market Opportunities
A key reason for pursuing a postsecondary education degree in Brazil is the financial outcome for the future employee. For example, students who completed K-12 education present an employability index of 47.1%, while students who completed postsecondary education and a graduate program present an employability index of 78.8% and 91.0%, respectively, according to Educa Insights. A postsecondary education degree increases students’ average salaries by 65.3% and a graduate degree further increases students’ average salaries by an additional 51.9%, according to the same report by Educa Insights.
We believe that digital education is an alternative that addresses the abovementioned issues. Tuition for distance-learning courses is approximately one-third of on-campus tuition given its scale and leaner cost structure. This lower cost, combined with the fact that distance-learning programs reduce the time and geographic limitations involved in attending postsecondary education, makes digital education accessible to a wide range of students.
According to the 2018 Postsecondary Education Census by the MEC, total on-campus private undergraduate enrollments fell 3.2% in 2018, while total distance learning private undergraduate enrollments grew 18.3%, boosted by the affordability of tuition and the flexibility of distance learning education. At this rate, the aggregate distance learning student base is expected to reach 49.3% of the total student base by 2023, according to Educa Insights.
Also according to Educa Insights, the acceptance of distance learning among students has considerably improved in Brazil in the past four years. In 2017, 81.1% of the overall student base spontaneously intended to take on-campus courses, compared to 14.5% for distance learning. As of 2020, however, the percentage of the overall student base who have the spontaneous intention to enroll in on-campus courses has decreased to 62.8%, compared to 31.6% for distance learning. With an increase of 17.1 percentage points, the acceptance rate for distance learning has more than doubled within four years.
 
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We believe the world is changing, and postsecondary education has to stay ahead of the curve and be ready to accommodate students’ needs and demands. Traditional methodologies are outdated, and students are not looking for pure on-campus or pure online education. Accordingly, we believe that our hybrid model is the best solution.
We believe that the compelling strength of our business model and our strong growth prospects are supported by clear underlying market and industry trends, including:
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increasing demand for undergraduate courses, with accelerated growth of digital education;
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increasing number of courses offered through digital education (deregulation);
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higher relevance of hybrid experience for students, combining the best of digital education with the hand-holding support provided by local tutors;
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increasing demand for education technologies to improve students’ experience;
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gradual blurring of intersections of online education and viral content;
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extension of postsecondary education journey through graduate and continuing education courses; and
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budget allocation priorities.
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Our Disruptive Student-Centric Model
We believe that by incorporating quality, engagement, flexibility, affordability and innovation into our value proposition in a differentiated manner, we provide a hybrid learning experience for our students. In this context, postsecondary education students in Brazil need alternatives that are not only more affordable and flexible, but also provide a quality education with real-person interactions throughout the learning process. This is why our goal is to democratize access to education through digital education in Brazil and empower every student to create their own success story.
Hybrid Model
Our value proposition differentiates us from other players in the Brazilian market, as we address what students value the most by providing a personalized student experience which combines the advantages of digital education and on-campus education. We believe our hybrid model incorporates
 
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the flexibility of online learning when and wherever appropriate, while also giving students the opportunity to network and to experience a sense of belonging through frequent interactions with tutors and other classmates during weekly meetings. According to a survey conducted by Educa Insights in December 2019, the majority (51.3%) of our students feel that the weekly in-person meetings are the most important feature in our model. Traditional digital education providers are either 100% online, requiring students to be present at hubs only for final exams, or rely on video conferences for classes, which can be live or prerecorded and are broadcast to students collectively. We believe that these methods create environments that lack proximity, personalized student support and interactions with other students and tutors, which ultimately lead to low engagement and high dropout rates.
Superior Product Offering:   We provide four different digital education offerings, which are tailored for each type of course and to provide flexibility to students. They are:
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Hybrid digital education:   our core product, which consists of one weekly in-person meeting with dedicated local tutors;
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Hybrid digital education double:   specific to engineering and some health-related courses, which consists of two weekly in-person meetings;
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Flex:   the first year of the course is given in the hybrid digital education format and the subsequent years are fully online. More recently, we launched a new flex course offering which allows tutors to assist classes formed by students from anywhere in Brazil in the same virtual lab. Through this format, we can serve smaller regions where demand is insufficient to form a class of a specific course; and
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100% Flex:   The entire course is given in a fully online format.
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In January 2020, 74% of our intakes were enrolled in hybrid courses (i.e., courses including hybrid digital education, hybrid digital education double and flex methodologies). 26% of our intakes were enrolled in 100% flex courses. The diagram below illustrates our digital education offerings and provides a breakdown of enrolled intakes by methodology:
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Our digital education undergraduate courses follow an academic structure based on modules, with each module consisting of five subjects that last a month (or four weekly meetings). We ensure that every student has a thoughtful, personalized and full academic experience with networking opportunities, a
 
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sense of belonging and flexibility, which allows maximum engagement, performance and development. Our modular structure also allows for better classroom utilization between different semesters and courses, resulting in a more efficient management of our student/class ratio.
Our flipped classroom methodology gives the best of both in-person and virtual resources to our students to facilitate the learning process. Students have access to all the course materials online in multiples formats (videos, eBook, podcasts and html text, among others), as well as to online tutors. We had already developed over 8.5 terabytes of digital content and approximately 1,673 hours of educational videos. The in-person meetings provide an opportunity for students to improve their understanding of the subject through discussion, activities and explanations from the local dedicated tutor.
Classes include four in-person meetings at our hubs, which have up to 40 students per class and are organized as follows:
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First meeting:   The first in-person meeting is primarily intended to introduce the course’s content and learning objectives. Students are also introduced to the Unit 1 content and first activities and are encouraged to use our VLE inside and outside the classroom. As part of our hybrid content delivery method, we also display introductory videos for both the course and the unit;
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Second meeting:   The second in-person meeting begins as an open space for students to ask questions and discuss Unit 1’s content. We then provide general explanations regarding Unit 2 content and activities, and present an introductory video. We also assess students on their understanding of Unit 1. This assessment accounts for 15% of a student’s final grade;
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Third meeting:   The third in-person meeting follows the structure of the second meeting, providing an open space for students to ask questions and discuss the previous unit’s content, followed by general explanations regarding Unit 3 content and activities, and the presentation of the introductory video. We also assess students on their understanding of Unit 2. This assessment accounts for 15% of the final grade; and
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Fourth meeting:   The fourth and last in-person meeting also allows an open space for students to ask questions and discuss the previous unit’s content. This is followed by a review of the course’s full content and the final course exam which covers all four units and accounts for 70% of the final grade.
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Additionally, we give our students the opportunity to take 100% online cross-disciplinary courses offered from the fourth module onwards. These courses enhance our students’ skills beyond the classroom and help prepare them for the labor market, by focusing on soft and 21st century skills, current global topics and support for tests needed for government procurement jobs in Brazil. We have been developing our methodology not only to support our students in their academic journey, but also increasingly in their professional endeavors.
Given that most of our students attended low-quality public secondary schools, we offer support to help them compensate for possible learning deficiencies with online classes. We make available modules covering basic school subjects, such as the Portuguese language and mathematics, which can be taken concurrently with the undergraduate course.
Tutor-Based model:   We believe that our local, on-site dedicated tutors are a key part of the success of our model. Our tutors are available not only during the weekly meetings, but also online to assist each student individually with their learning, to provide attentive guidance for their studies and activities and answer any questions that students may have.
Around 67% of our tutors hold a postgraduate, master’s or doctoral degree. In addition, our tutors are local experienced professionals who work in their areas of expertise. We believe that the fact that our tutors are employed in professions relating to the matters which they teach gives them practical business insights (e.g., an accountant who takes a part-time job as a tutor to support undergraduate accounting students). We believe that the relationship between student and tutor is very important. Our local tutors are part of the community and face the same reality and conditions as our students,
 
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which paves the way for a close relationship and gives tutors the ability to play a fundamental role in the development of our students inside and outside the classroom.
We believe that the relationship between the student and the tutor is very important. Our local tutors are part of the community and face the same reality and conditions as our students, which paves the way for a close relationship. Each of our tutors accompanies their students throughout the whole course, across all modules, supported by a data-oriented methodology that enables them to measure and manage students’ learning experience in a single, exclusive digital platform that provides insights on performance, enrollments, grades, dropouts and achievement of goals. We believe this helps to create a personal bond and gives tutors the ability to play a fundamental role in the development of our students inside and outside the classroom. Students evaluate their tutors monthly. As of December 31, 2019 the average grade assigned to tutors by students was 4.07 out of 5.
The success of our tutor-based model requires well-prepared professionals who must not only have an academic background, but also industry experience. We invest a significant amount of time and resources to train our tutors constantly:
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Initial training:   Averaging 20 hours, to discuss (i) our digital education academic platform and pedagogical trends and (ii) our story, mission and values.
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Continuous training:   Averaging approximately 40 hours per tutor per year, in-person at the beginning of each semester and online throughout the rest of the semester, with the objective of developing new competences and preparing the tutor for the upcoming module.
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Specialized training:   Focused on subjects with a historical student failure rate above the Brazilian national average for all subjects we offer. The tutor is taught methodologies, tips and ways of approaching the content that we believe help improve the student experience.
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Finally, tutors are our employees and we control the entire hiring and training process and monitor their performance. This helps us ensure that adequate quality levels are maintained.
We believe that this careful process allows us to provide a quality service to our students at our hubs, supported by our online, technology-enabled platform and printed content. This model allows for higher student satisfaction and higher retention rates.
Technology-Enabled Platform
Our hybrid, technology-enabled platform empowers the entire ecosystem:
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We have developed an integrated suite of technology platforms which provides data intelligence for all stakeholders involved in the education process. This enables us to differentiate our hybrid digital education model in the market, manage all of our hubs, conduct all of our commercial activities and
 
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operate efficiently across Brazil. Through our in-house platform, Gioconda, and our mobile application, Leo, we offer the following features that benefit students, tutors, hub partners and our management:
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Students’ Portal, which is an online portal that gathers all academic content, as well as student information, such as grades, deadlines, attendance and financial situation. It also allows students to access online after-class support from tutors.
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App Leo, which is a mobile application where students can find all course subjects; simulators and 3D laboratories; all student services, including a WhatsApp center; online support with tutors; course learning results, tracks and learning activities; student and class benchmarks; as well as academic and finance metrics.
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Tutor’s Portal, which is an online tool, available to all of our tutors that tracks general performance indicators relating to the classes to which they are assigned. This allows tutors to keep track of their students’ development by understanding their individual characteristics and following their engagement, as well as to monitor their classes’ progress. It also gives them access to data that they can use to improve their planning methods and teach their classes effectively.
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Teacher’s Portal, which allows teachers in charge of content production to monitor the delivery of the academic subjects and quickly change, update and add new content to support all students or students from a certain region who have specific difficulties. We also develop our own academic content internally, which allows us to continuously improve it according to students’ feedback and achieve superior satisfaction levels.
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Manager’s Portal, which supports all our hub partners and our management team by providing financial and operational performance indicators relating to our hubs, on an individual or consolidated basis, and information about the competitive landscape. It allows partners to monitor the hub’s progress and plan their decision-making based on performance and data. Our partners can also use this platform to create their own advertising campaign with a standardized visual identity and centralized support.
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Sales Management System, which is a platform that allows us and our hub partners to execute a dynamic pricing strategy adapted to each of the geographic markets in which we operate with enhanced discount and promotions controls. We believe that this tool helps us maximize our revenues in each hub and in each market by giving us and our partners across Brazil access to a complete sales interface. This system also provides georeferenced technology through a “heat map” that helps us choose the right place to open a new hub based on an analysis of data on potential students.
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Quick and Seamless Adaptation to Covid-19
The outbreak of Covid-19 in Brazil posed a series of challenges to companies across different economic sectors, including as a result of social distancing measures imposed by governmental authorities. While restrictions have been imposed on in-person meetings which have affected our business, our operations have not been materially affected since the beginning of the outbreak.
We have migrated from weekly in-person meetings with students to weekly virtual meetings conducted through the Microsoft Teams platform. We have also expanded the use of social media tools to interact with our students and prospective students. Our face-to-face or virtual meetings are based on highly interactive activities that can be provided anywhere, anytime.
In this context, we have accelerated the delivery of digital content, including by rapidly developing a new version of the Leo application, which now supports and concentrates all features relevant to our students’ learning experience in a single, intuitive tool. We have also provided additional training sessions to our tutors using Microsoft Teams and have been supporting them with methodologies to keep the student engaged.
Since we already delivered most of our services remotely, we did not experience a significant disruption to our business from the adaptation of our learning model.
In addition, we believe that what is most important is to have tutors who follow the student throughout the whole course, regardless of whether meetings between tutor and student are held in-person or
 
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virtually. Due to the ongoing Covid-19 pandemic, we continue to conduct meetings between tutors and students virtually, with the same class and tutor with which students had in-person meetings before the pandemic, and despite the Covid-19 pandemic, course schedules and curricula remain unchanged.
Strong Network of Hub Partners
Throughout the years, we have built and kept strong relationships with our 151 hub partners who have played a key role in our expansion. We expect to maintain the relationships as we grow because it is essential given our business’s scalability. Our hub strategy is proximity at scale. We believe that a solid partnership network is critical to execute our digital education strategy and expand our operations in an asset-light manner.
Our business model is financially aligned with that of our hub partners. Our hub partners are remunerated by their respective share represented by a given percentage over the tuition fee collected by us from students. The total amount to be transferred to the hub partners on a monthly basis is derived from the pricing terms agreed upon with each student on the service contract. This percentage is similar across all our partnership agreements and varies in accordance with the type of course the student is enrolled in, which are higher for continuing education courses and lower for undergraduate courses. In addition, this percentage is higher in the beginning of the hubs’ operations and decreases throughout their life cycle, thus reducing their payback period and increasing the attractiveness of their investment. We believe that the share of the tuition fee paid to our hub partners represents an amount that allows our hub partners to maintain educational facilities and provide needed services for our students. We also believe that this structure incentivizes our hub partners to attract a higher number of students, which will in turn increase such hub partner’s profitability.
Each hub partner is responsible for rental costs and property maintenance, as well as administrative services, cleaning, local student service and infrastructure of the classrooms. Our partners are also responsible for local advertising campaigns and contact with the local community, as well as to provide us with intelligence about the local competitive landscape, context and demographics. This allows us to set individual prices for each course, in each hub, in each city we operate.
We typically enter into contracts with our hub partners for an initial six-month term. The contracts are automatically renewable after the first six month period. We or the hub partners may terminate the relevant agreement with or without cause. Termination without cause by us or the hub partners requires the party initiating the termination to provide a ninety-day prior written notice. However, we may require, at our exclusive discretion, that the hub partner render services to our students until the end of the relevant semester.
In addition to termination without cause, any of the parties to such agreements may terminate them in case of (i) default on a contractual obligation and/or failure to comply with relevant regulations of the MEC or other governmental authorities; (ii) bankruptcy or judicial or extrajudicial liquidation, or termination of our activities or the activities of the hub partners; (iii) underperformance of the hub, evidenced by a reduced number of students enrolled in the courses offered by that hub, or (iv) any impediment to the hub’s operations resulting from the actions of a competent authority. The agreements may provide for the parties to indemnify each other in such cases.
Our hub partners may not transfer or assign the agreements or any obligations thereunder. In addition, the agreements provide that we must receive thirty days’ prior written notice of any change of control of our hub partners, and that we may terminate the agreement at our exclusive discretion in such circumstances.
We believe that our partners choose to work with us for the following reasons, among others: (1) our highly profitable partnership model; (2) our strong brand; (3) our effective tutor-centered methodology with higher retention rates; (3) our distinctive digital marketing strategy; (4) our technology-enabled platform and sales tools designed to help partners manage their businesses more efficiently on a daily basis, and (5) our comprehensive product portfolio.
Partners are typically not business managers; they are entrepreneurs or pedagogical consultants with extensive backgrounds in the education sector — e.g., former school principals or former executives
 
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of our Company. The features of our technology-enabled platform help them to follow their operational and financial key performance indicators, or KPIs, in real time. These KPIs include active students per hub, internal evaluation (CPA) application, drop-out rates, and students’ failure and attendance rates, on both an individual and a consolidated basis if they own more than one hub. In addition, our partners can track the competitive environment, such as pricing promotions and discounts offered by other companies.
We further provide specialized training programs for our hub partners so they can become specialists in the day-to-day operations and ultimately be able to deal with financial and academic difficulties. Based on a manager’s portal that provides standard performance indicators, we also host monthly meetings to discuss financial and pedagogical performance. These meetings are an opportunity to discuss the implementation of KPI monitoring routines, train hub partners on presentation skills, provide guidance on turnaround strategies when hubs are performing below their stipulated goals, and monitor the evolution of such strategies.
These online meetings bring together hub partners from across Brazil and provide an opportunity to share best practices and experiences, and help us to implement the same tracking system across hub partners. We believe this is a win-win-win approach because, as a result, hub partners improve their results and become more satisfied and loyal as they feel closer to our operations, students enjoy a better user experience and academic performance, and we improve our financial and academic results.
These initiatives are part of our Management Excellence Program, or MEP. The MEP was created to standardize various processes in our hubs through an evaluation and recognition methodology which encourages the hubs to invest in their development and growth. Its purpose is to ensure a level of governance appropriate to our size and strategic objectives. The MEP is focused on the program’s five pillars: academic, service, commercial, people, and management and infrastructure. The evaluations measure the performance of each pillar through a self-evaluation and a corporate evaluation.
We keep strong and close relationships with our partners. We have a commercial support team for partners that is in continuous contact with them, for quick troubleshooting and standardized communication and training. This effort is supported by a “CRM for partners” platform in order to maximize our partners’ financial results. We are now working on dividing our partners into clusters according to their size and/or stage of the maturity of their hub. This will allow us to offer a more tailored and efficient service, and to support and communicate better with our growing network. In addition, we host annual regional meetings with all of our partners to celebrate the achievements of the previous year, set new goals and align our plans to pursue targets for the next year.
We have developed an efficient playbook that enables seamless onboarding and financially aligned operations between us and our partners, as well as organized hub expansion with defined responsibilities for each party, which reinforces the asset-light nature of our business. We are developing an “internal certification” for partners with two categories: basic training (for new partners) and advanced training (for those who are experienced). We are also developing sales simulators to standardize the commercial approach of our and our partners’ marketing teams.
In our view, the increase in the number of average hubs owned by each of our partners demonstrates the strength of our relationships. On average, after four years, our partners operate six hubs. Our hub partners’ attrition rate is very low, and most terminations or suspensions of partnerships are attributable to us (usually as a result of our partners’ failure to manage the business).
 
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The number of hubs per base partner (i.e., hub partners with whom we entered into contracts prior to 2017) averaged 1.7 hubs per partner. As of June 30, 2020, this average increased to 5.5 hubs per partner. Moreover, the number of hubs per 2017 partner (i.e., hub partners with whom we entered into contracts in 2017) increased from 3.7 hubs per 2017 partner as of December 31, 2017 to 4.9 hubs per 2017 partner as of June 30, 2020. Similarly the number of hubs per 2018 partner (i.e., hub partners with whom we entered into contracts in 2018) increased from 2.8 hubs per 2018 partner as of December 31, 2018 to 3.3 hubs per 2018 partner as of June 30, 2020. Likewise the number of hubs per 2019 partner (i.e., hub partners with whom we entered into contracts in 2019) increased from 1.7 hubs per 2019 partner as of December 31, 2019 to 2.1 hubs per 2019 partner as of June 30, 2020. The current numbers of hubs per 2020 partner is 1.5. We believe this demonstrates the strength of our relationships with our partners.
As shown above, the number of hubs per new partner in year decreased from 3.7 in 2017 to 2.8 in 2018, to 1.8 in 2019 and to 1.5 in 2020. This is due to the fact that the expansion of new hubs in 2017 started in more densely populated areas and then progressed into less densely populated regions, and the number of hubs per new partner therefore decreased as a result of the geographic position of the new hubs.
Data-Driven Student Experience
Our students’ experience is evaluated based on a continual improvement process. Our students assess all of their contact points with us on a periodic basis (eight times per year). We call this internal evaluation process “CPA”. It is designed to support our and our partners’ decision-making based on the data collected. We ask students to assess their experience with us based on three aspects:
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Infrastructure:   The quality of infrastructure of our hubs, such as classrooms, common spaces, practice laboratories, computer laboratories, library and virtual learning environment.
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Course:   The quality of the course, subjects and content. The questions are about: the teaching organization; teaching materials such as textbooks, video classes, learning objectives and interactive learning tools; academic and professional training, course coordinator’s performance and tutor performance, both online and during the weekly in-person encounters.
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Institution:   The perception of the quality of the academic service, institution management and the institution’s values.
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We have an extensive database from this pool of KPIs that guides our analysis and shapes our plans to constantly improve the student experience. Below are three of the most frequently followed indicators:
 
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Tutor:   As of December 31, 2019, the tutor performance increased to 4.07, from 3.96 previously (December 31, 2018), on a scale of 0 to 5. This assessment takes place on a monthly basis and is available for monitoring by the coordinator and the tutor.
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Student Service:   This is a tool used to evaluate our efficiency in addressing administrative issues. As of December 31, 2019, student service performance increased to 3.53, from 3.41 previously (December 31, 2018), on a scale of 0 to 5. This assessment takes place semiannually and is available for monitoring by our hub partners. Our team keeps in contact with the administrative staff of our hubs, host training sessions, and share the best practices to improve service delivery.
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Infrastructure:   As of December 31, 2019, this KPI increased to 3.40, from 3.11 previously (December 31, 2018). This assessment takes place semiannually, and we share this KPI with our hub partners in order to support them.
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Integrated Marketing Model
We developed a marketing model for our operations, which focuses on managing the student’s entire life cycle from the moment they are first identified as prospective students, and which integrates communication, commercial and sales strategies as well as management tools. This model allows all teams involved in our marketing process to have a 360-degree view of the student’s growth.
We understand that our student’s life cycle is similar to other industries. From finding potential customers to enrolling them as new students, we establish and develop relationships with students. We endeavor to avoid dropouts and maintain ongoing relationships with our alumni. The strategy to manage this complex process is one of our competitive advantages.
Our current Life Time Value (the average revenue to us that we expect a student will generate while our customer), or LTV, to CAC Ratio is 5.7x, which combines high retention (especially after year one) and an asset light operation with low customer cost driven by business intelligence and targeted marketing.
However, we are still looking for opportunities to enhance this ratio, including: increasing retention rates by using artificial intelligence, improving penetration of continuing education, efficiencies through marketing mix modelling (also known as M3), and economies of scale in marketing expenses.
The marketing process has three cornerstones:
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Communication Strategy:   we developed our strategy by focusing on managing investments and sales volumes in each region of Brazil, assessing our performance and CAC hub by hub;
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Integration and management of sales efforts:   we developed an integrated operation process with our hub partners using successful internal teams from each hub, focused on supporting commercial teams across the network; and
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Relationship:   our strategies are based on sharing relevant information for the use of our services, engaging students with the course and retaining students.
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Communication Strategy
We developed our strategy focusing on managing investments and sales volumes in each region of Brazil, assessing our performance and CAC hub by hub, and adjusting our execution whenever needed. Media investments are made transparently with hub partners, according to the local market share of our brand and the number of competitors by location.
Our marketing strategy is divided into national and local campaigns, with digital and offline marketing as the main pillars of our communication.
We plan our national campaigns according to our goals in each micro-region previously identified by our managers. The main media channels we use in an integrated way are digital marketing — consisting of a fully functional digital platform with Google, YouTube, Facebook and
 
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Instagram services — in parallel with radio, TV, billboards and print media. Locally, hubs run additional campaigns, increasing the reach and frequency of marketing communication.
In local marketing campaigns, the strategy (designed by the type of media based on national audience tools) is shared with our hubs, who contribute by choosing the best resources to be employed locally. This interaction is crucial to supplement audience data provided by specialized suppliers, which is largely available to the market, since it makes our co-creation process much more robust and integrated.
In 2019, we achieved significant results from digital marketing. According to statistics from Google, between October 2019 and January 2020 (first months of the summer 2020 selection process), we were the Brazilian brand with the highest increase in search volumes, with a 32.0% growth. Additionally, we were the second-best brand in the Google Smart Challenge, Display Heroes category, competing with major brands across all economic sectors in Brazil. Our Christmas campaign reached 36 million views on YouTube, becoming the seventh-most-watched video on the platform in Brazil, among all brands, in December 2019.
According to statistics from Google, we were the educational brand with the highest growth in Google searches in Brazil in the six months ended June 30, 2020, with 27% growth when compared to the same period in 2019, as compared to a market average of 8%.
In addition, through data management efforts on the My Business platform, we were able to measure the number of people impacted by our campaigns for each of our hubs. This integrated communication strategy has proven to be effective, with low CAC and sustained growth of our annual funding.
We use research resources such as Kantar Millward Brown, an opinion polling platform, to define the contents of our annual brand campaigns.
We purchase audience studies from IBOPE Monitor (the main advertising audience platform in Brazil) to help us select the media vehicles we use and, in the case of radio — which is of great importance due to its popularity and reach of the entire population — we use an artificial intelligence software that monitors and ensures broadcasts of all the agreed advertising content.
To promote correct brand usage by our hubs, we use a customization tool for print and online advertising materials, which is fully automated and supervised by our internal marketing team. In addition to the standardized parts distribution system, an internal communication team (composed of designers, digital strategists and content creators) supports our hub network.
Integration and Management of Sales Efforts
We developed an integrated operation process with our hub partners using successful internal teams from each hub, focused on supporting commercial teams across the network. We operate as a single team, with an eye on the entire business process within our systems.
The teams work based on our commercial portal and our customer relationship management system, or CRM, Campus Nexus. The commercial portal is a robust and exclusive tool fully developed by our team. The CRM Campus Nexus is one of the most robust technological solutions for the postsecondary education market in Brazil, being completely customized to suit our needs.
We define the goals of each local market and each hub within that market based on studies from our commercial planning team. We calculate our goals for each hub using Microsoft Power BI and consider a set of variables that includes (i) our potential estimate for each market, (ii) the media investments made in the marketplace, (iii) the established competitors, (iv) the market volume already activated and (v) our history of operations in the analyzed and comparable marketplaces.
Starting with the definition of goals, every detail in the commercial process is monitored and results are measured on an hourly basis, including conversion rates (i.e. the rates at which we convert potential candidates into enrolled students). All the information exchanged between the commercial teams and our prospective students is registered in a single timeline in our CRM system before being uploaded
 
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to their history when they become students. Our sales funnel (i.e. the journey that our potential candidates go through with us) is closely monitored. This allows both the hub and the corporate team to view the contacts and offers made for each candidate, thereby standardizing our communications at all points of contact.
A series of indicators allows hubs and teams of managers to continuously adjust their strategies. In addition to their daily goal, hubs have access to hourly uptake trends, information about age, location, use of offers, comparisons with the previous year, and other variables that would affect sales behavior.
The commercial portal also allows hubs to use strategic tools that increase their local competitiveness, such as:
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Heat-Map:    The platform links the addresses of prospective students to Google’s georeferencing tool, building a demand map and student base for each region of each city in Brazil. Based on this information, our teams are able to select regions in which to step up marketing efforts, open new hubs and compare such strategies to the location of our competitors.
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Pricing:   We have prices and offers that vary according to each local competitive environment and our strategic objectives: whether we are new entrants, late entrants, pioneers, and whether we want to gain market share, defend a position or maintain our growth rate. All hubs feed the platform with the prices and offers of our competitors in each of the cities in Brazil. This is a recurring process, which we believe allows for a correct and agile reading of the competitive dynamics in each location. Based on this information, we are able to refine our local strategy in order to maximize our profitability without losing competitiveness. Our geographic pricing strategy is then refined with local variables that are constantly changing. The enrollment management system limits the granting of discounts, and we monitor the average ticket to visualize the circulation of funding and revenue in each marketplace.
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Average Ticket Evolution:   All hubs in Brazil are able to follow the student intake average ticket (both in the current month and projections for the end of the semester). This ensures a more assertive management of commercial strategies in each hub.
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Students’ tickets are adjusted on an annual basis, in line with inflation, throughout their academic journey. In addition, tickets are also gradually increased by approximately 5% with the inclusion of new “cross-disciplinary” subjects (in line with MEC guidelines) in three periods of the course. For example, if in the first semester the monthly ticket is R$250, normally in the eighth semester it will reach R$334, assuming an annual inflation rate of 3% and an annual ticket increase of 2% above inflation. This process helps to increase the ticket higher throughout the course’s duration. In the first semester of 2020, our average ticket was approximately R$280.
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Monthly
tuition
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Average ticket freshman
​ ​ ​ ​ 1stsemester ​ ​ ​ ​ R$ 250 ​ ​
​ ​ ​ ​ ​ 2ndsemester ​ ​ ​ ​ R$ 250 ​ ​
Annual adjustments (Inflation(1) + 2%)
​ ​ ​ ​ 3rdsemester ​ ​ ​ ​ R$ 263 ​ ​
New subjects (5% increase)
​ ​ ​ ​ 4thsemester ​ ​ ​ ​ R$ 276 ​ ​
Annual adjustments (Inflation(1) + 2%) + New subjects (5% increase)
​ ​ ​ ​ 5thsemester ​ ​ ​ ​ R$ 303 ​ ​
​ ​ ​ ​ ​ 6thsemester ​ ​ ​ ​ R$ 303 ​ ​
Annual adjustments (Inflation(1) + 2%) + New subjects (5% increase)
​ ​ ​ ​ 7thsemester ​ ​ ​ ​ R$ 334 ​ ​
​ ​ ​ ​ ​ 8thsemester ​ ​ ​ ​ R$ 334 ​ ​
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(1)
considering an annual inflation rate of 3%
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MEC Census Analysis:   The portal presents a structured analysis of the official data from the MEC’s Census, allowing our partners to understand the main competitors in each city, and thereby direct their sales efforts, offers and local competitive strategies.
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Commercial Action Plan:   Each hub is able to register the actions planned alongside our corporate team in our commercial portal. A workflow and action schedule is then designed, monitored and assessed within the platform in order to address the market adequately. We therefore have a uniform execution strategy and an appropriate approach to the main stakeholders and events that need to happen in each region.
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Our sales team is constantly updated on new strategies through our digital education system. Our sales academy, which uses standard content to educate the entire sales force, broadcast tools for periodic meetings with the entire hub network and mobile groups in order to streamline urgent demands.
Our commercial teams work in a fully integrated manner with a set of supporting processes and systems to generate an intense sales effort.
Relationship with Students
Our student relationship strategies have three main pillars: (i) sharing relevant information for the use of our services; (ii) engaging students with the course and (iii) retention. To support relationship planning, we evaluate all classes taking place in Brazil. In each subject, students evaluate all main factors affecting our courses: the tutor, the content and the infrastructure of the hub. We also measure our Net Promoter Score, or NPS, which, as of December 2019, was 51. This is one of the highest scores in the entire industry according to Educa Insights. This continuous process, known as CPA, allows a constant flow of information to our management team, who are focused on maximizing the experience delivered to students.
Information sharing: We map our student’s entire journey and determine the contact points to increase prospective and existing students’ awareness of our products and services. The entire process is configured in the CRM, which collects information automatically and organizes all data in a single timeline for each student, directing communication for all points of contact. In addition to our communications with the student, we have a tutor in each classroom who plays a fundamental role in shaping our brand, acting, primarily, in the engagement of students in the course.
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Student Engagement:   The learning process is maximized with our hybrid model. In all subjects, the student has a tutor who mediates weekly meetings at our hubs, with the sole objective of ensuring the best results for each student. This close and direct interaction is supported by all online services, generating the lowest dropout rates in the digital education business in Brazil. In the partner’s portal, the CPA results of each classroom in Brazil are analyzed and serve as a basis for our management team to build action plans with the objective of making constant improvements. This process has led to significant improvements in student experience as shown by our evaluations.
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Retention:   The entire retention process is structured and supported by our hubs and is also registered in our systems. Students may not cancel their enrollment without going through an interview, made by the hub coordinator and/or tutor, during which a first retention effort is made. The content of the interview is recorded in our learning management system and the main reasons for a potential dropout are considered for later decision-making. This process receives special monitoring from our operations management team. Our dropouts are concentrated in the first semesters of our courses and, in the past four years (i.e., from 2016 to 2019), we have grown our enrollment volume by more than 400.0% while maintaining the ratio of dropout students per semester. According to the 2018 Postsecondary Education Census by the MEC, our dropout rate for new enrollments was 36.7% whereas the market average was 58.7%.
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Redesign of the Student’s Journey:   The academic journey of the student, from enrollment to post-graduation, was redesigned with the help of Flwow! — Customer Experience Solutions, one of the best institutions focused on customer experience in Brazil. Through our collaboration with a team of specialists, we are incorporating the best practices in the market for managing student satisfaction. Several changes in processes and indicators are being implemented to maximize our results of operations and the success of our students.
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Based on our already positive relationship with students, demonstrated by high levels of satisfaction and low dropout rates, we incorporated additional strategies in an attempt to further improve our results of operations, among which we highlight the use of Artificial Intelligence, or AI, and the adoption of best practices for customer experience.
In partnership with one of the largest software companies in Brazil, we connected artificial intelligence software to our database in order to establish a profile of our graduating students. Starting with data enrichment and analysis, together with the use of machine-learning algorithms, we are refining the profile of students who have completed our courses and comparing the variables that explain their profile in relation to other students. With this strategy, we refine our commercial policies to attract students with high likelihood of graduation. Studies such as these will reveal what variables would most affect student experience and satisfaction, so our teams of managers could better allocate their focuses. Deliverables in connection with this project include variables such as a student’s ability to pay, relevance of CPA and NPS correlations, among others. We expect that, with these initiatives, we could increase our graduation rate and in turn improve our results of operations.
Improvements in our quality indicators are the best confirmation of the success of our student relationship policies and strategies, as well as our efforts to integrate of their experience with our brand. The improvements in our CPA, NPS and Institutional Concept evaluated by the MEC indicate that we are on the right path.
Regulatory Quality Indicators
Our model is recognized by certain regulatory quality indicators, such as:
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Institutional Concept, or CI:   A quality indicator for postsecondary education institutions measured and published by the MEC through on-campus evaluations that comprise educational organization subjects, such as institutional planning and development, academic and management. As of June 2019, our CI score was upgraded to 5 out of 5 possible points.
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General Courses Index, or IGC:   This is the most important indicator for a course. The IGC considers the average of the last three CPC grades, the distribution of students across undergraduate and graduate, and the average evaluation of graduate programs. As of September 2019, our IGC score was 13% higher than the market average.
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Difference Between Observed and Expected Performance Index, or IDD:   A quality indicator that is intended to capture the institution’s contribution to the student’s development. As of September 2019, our IDD score was 3.1, 11% higher than the market average, which was 2.8.
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Preliminary Course Concept, or CPC:   A quality indicator for postsecondary education institutions measured and published by ENADE that comprises educational and organization subjects, such as student and faculty performance, infrastructure, didactic-pedagogical resources and other inputs, in order to measure general courses quality. As of September 2019, our CPC score was 5% higher than market average.
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After the institutional assessment visit, the MEC evaluators wrote an opinion about our school. Transcribed below are certain excerpts from the opinions received:
“This committee gives a favorable opinion with praise for the actions demonstrated, because there is an alignment between the institutional development plan and institutional policies for economic and social development, considering the improvement of the living conditions of the population and the inclusion and entrepreneurship actions, articulating the objectives and values of the educational institution and the promotion of actions known to be successful or innovative.”
“Once again, it is necessary to emphasize the commitment, dedication, attention to detail and constant search for excellence in education of the entire team of employees of this educational institution.”
“It would be unfair not to point out that there is something very special about this educational institution that is rarely seen in the private sector across Brazil.”
 
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“It is worth highlighting the involvement of everyone in this educational institution, with attitudes of care, respect, zeal and dedication to the noble mission of teaching, from the outstanding presence of the Dean as a natural leader, to the administrative employee who participates effectively in the whole process; it is really an educational institution that has a great market differential, going beyond what is required and looking for excellence as a daily motivation.”
About Gioconda:
“All data is integrated. It was noted that the communication between areas is facilitated by the use of this application and that the academic community already has developed a culture for the system. In addition to the web version of Gioconda, there is also a mobile app, as well as a chat service developed by the educational institution itself, which facilitates communication between the external community (potential students) and the educational institution, as well as communication between student and faculty. This committee considers Gioconda to be an innovative technology, since it has increased productivity and strengthened ties between the institution and the student.”
“Additionally, more than 50% of the professors have master’s degree or doctorate and there are other actions that are known to be successful or innovative, with emphasis on the entire process and mechanics of the system’s operation, which work very close to perfection in terms of understanding the needs of the institution’s students.”
“People’s participation in the educational institution’s sustainability process was evident. The culture of integrating the KPIs collected and tabulated by the questionnaires applied by the CPA stands out as guidance for clear and achievable goals and objectives, providing assertive action plans for correcting operational deviations during the operating process.”
“The historical series of documents presented, employee reports and opinions from managers and companies confirm a mature, organized institution with a well-defined work purpose, with the necessary conditions for the development of updated and innovative teaching and learning activities for the transformation of students through education.”
Our Products and Services
We believe that by incorporating quality, engagement, flexibility, affordability and innovation in our offerings, we provide a hybrid learning experience to our students. Our core business is digital education undergraduate courses, however, we also offer digital education graduate and on-campus undergraduate courses.
Digital Education Undergraduate Courses
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What differentiates our digital education model is its hybrid methodology, with weekly in-person meetings with on-site tutors. Accordingly, in addition to students being able to study when and where they choose through our VLE, students can ask and have their questions answered in-person by a tutor, as well as perform group work and interact with other students. This creates network opportunities and a sense of belonging. Digital education is the best option for those who do not have time to go to class every day and need flexibility in their schedule, but want to have access to quality postsecondary education.
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Our portfolio of courses is composed mainly of pedagogy, business administration, accounting, physical education, vocational education, engineering and health-related courses;
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Our courses cover three undergraduate degrees:
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Bachelor: Courses with wide portfolio of theoretical and practical subjects, with an average duration of four to five years;
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Licenciatura: Courses focused on the formation of professionals who intend to act as teachers or professors, with average duration of four years; and
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Vocational: Courses with practical skills for a specific profession, with average duration of two to three years.
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We also offer educational content and support via internet and mobile devices. Our VLE is intuitive and dynamic.
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As of June 30, 2020, our digital education undergraduate student base was 236,838 enrolled students;
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Over 167,000 people have graduated from our courses in this modality over the last 11 years.
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Digital Continuing Education Courses
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We offer continuing education courses predominantly in pedagogy, finance and business. We also offer continuing education courses in other subjects such as law, engineering, IT and health-related courses;
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There are over 200 digital education graduate courses and more than 60 online short continuing education courses;
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Courses are offered in two different versions, which are (i) hybrid model, and (ii) 100% online;
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As of June 30, 2020, there were over 42,000 students enrolled in our digital continuing education courses.
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We intend to implement new commercial initiatives focused on our graduate courses over time, as it represents a huge cross-sell opportunity for hubs that offer only undergraduate courses.
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Other Businesses
Although it is not our focus, we also offer on-campus undergraduate courses, including those that are currently not allowed to be offered through digital education, such as law and health-related courses, and others such as business administration, accounting, physical education, and engineering. As of June 30, 2020, there were almost 9,000 students enrolled in our on-campus undergraduate courses.
Distribution and Geographic Presence
As a consequence of the new regulatory framework in 2017, which eased the process to open new hubs, we were able to expand our operations and geographic presence. As of June 30, 2020, our network consisted of 608 hubs, compared to 436 hubs as of June 30, 2019 representing an annual growth rate of 39.4%. As of December 2019, our network consisted of 545 hubs, compared to, respectively, 370 hubs, 221 hubs and 72 hubs as of December 31, 2018, December 31, 2017 and December 31, 2016, representing a CAGR of 96.3%. As a result of our differentiated value proposition, we were able to increase our number of hubs and student base while improving quality.
As of June 30, 2020, our network consisted of 503 partner hubs and 105 proprietary hubs. We are present in all states of Brazil with considerable market share of enrollments in all regions. We have operating hubs in 537 cities and in 50.4% of all cities with over 40,000 inhabitants — which, according to our business model, is the optimal population to accommodate a digital education hub. We are also present in 16 of the 17 cities in Brazil with over a million inhabitants. We note that as soon as we enter a new city, we usually quickly gain market share and become the market leaders of the city through our combination of hybrid offering, efficient pricing strategy and student-centric business model.
We have worked together with an international consulting firm to develop a robust expansion plan, which has mapped several opportunities to pursue in the next five years. Additionally, we also employ a heat map tool (which we developed in-house) that allows us to efficiently position new hubs geographically. Our heat map searches and analyses the locations of potential students’ homes and workplaces and optimizes our decisions as to the location of our hubs, whether to open new hubs or to relocate already operational hubs.
We have a very strong presence in the south region of Brazil, with around 169 hubs and a 26.0% market share in terms of student enrollments. We are also present in locations where access to on-campus education is difficult or deficient, with a large amount of hubs in small cities. We believe that our
 
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strong distribution network serves our purpose of democratizing access to postsecondary education and cementing our leadership nationwide.
We currently have a strategy to further penetrate the southeast region, as it is the largest market in Brazil. The charts below illustrate our market share and the representativeness of each region in terms of total market, as well as the breakdown of hubs per region:
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Since Uniasselvi’s foundation, our headquarters have been located in Indaial, in the State of Santa Catarina. However, we decided to expand the executive management and strategic departments, such as Commercial, Sales and Financial, to Florianópolis, in order to be closer to one of the main technology hubs in the Brazil.
Our Students
We are focused in our 287,798 undergraduate and graduate students, of whom over 82.3% are enrolled in our digital education undergraduate courses. From this audience, 86.0% are under 40 years old, 85.0% came from public secondary school (K-12), 87.0% work while studying with us, 83.0% pay their own tuition, 77.0% have a monthly household income of up to US$2,000 per household and 67.0% are women.
The composition of our current intake is as follows: 35% enrolled in vocational courses, 24% in pedagogy and related courses, 13% in business administration and related courses, 9% in physical education courses, 7% in healthcare courses, 4% in engineering courses and 7% in other bachelor courses.
Our students consistently value their experience with us and we have excellent results in terms of satisfaction and recommendation of our brand. As of December 31, 2019, our students rated key aspects of their learning experience — location of our hubs, tutors, teaching quality, curricula and online student portal — and attributed an average satisfaction rate of 65.0%. As a result, our Net Promoter Score, or NPS, was 51, out of which 63.0% of our students are promoters, 26.0% are neutral and only 12.0% are detractors of our brand. In addition, 50.0% of our undergraduate alumni intend to enroll in a graduate course with us, whereas only 27.0% of these individuals intend to continue their education elsewhere. We believe these results demonstrate that we are delivering our value proposition successfully.
 
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Below are excerpts from our students describing their experience studying with us:
“When I started postsecondary education I always paid for it myself. And I was able to do it only because Uniasselvi is the most accessible. I highly recommend Uniasselvi, because it made all the difference in my career. Today I have my own business and I am writing my own story.” Carol, Advertising Undergraduate
“My life has been very difficult since I was 14 years old, but I wanted something bigger. That’s when I met Uniasselvi. There you can manage your time, there is a tutor who helps you. Before Uniasselvi I had no perspective. And now, after graduating, I have no limit.” Jonni, History Undergraduate
“My dream was to be a teacher, and this dream seemed very distant. I had no means of studying. Then I met Uniasselvi, and digital education courses. I managed to achieve my dreams and there’s still more!” Patrícia, Teaching Undergraduate
“The methodology was interesting, the teaching material corresponded to expectations and the tutor was dedicated full time to the students. Infrastructure satisfied our needs. Tuitions were accessible to my budget and my professional training was qualified with knowledge acquired at the institution.” Human Resources Management Undergraduate Student, January 2019
“Uniasselvi offers great support material to the student, has good space organization and transmits a feeling of safety to the student.” Pedagogy Undergraduate Student, February 2017
“I can only thank Uniasselvi for the care and competence of my tutor in the classroom. Without the welcome of Uniasselvi, perhaps I would not have reached the end of the course. I’m grateful and recommend (Uniasselvi) to friends. Thank you Uniasselvi!” Geography Undergraduate Student, February 2016
“Quality education; flexibility in the hybrid modality to study where and when you want; weekly meetings with a tutor in the classroom; online platform and support; institution with courses recognized by the MEC; tuition fees compatible with education.” Mathematics Undergraduate Student, January 2016
“The hub team treats its students with affection and cordiality, I felt well received, well supported. Despite being a hybrid education, the tutor went to great lengths to pass us all the content and her vast market experience.” — Business Undergraduate Student, February 2017
“All employees work with great respect, responsibility and transparency with students and teachers. A family that just wants to see everyone graduate. I love this hub that always welcomes me with open arms. They are always open to dialogue.” Pedagogy Undergraduate Student, February 2018
“An institution with ethical and moral values. Easy access for all social classes, and for all types of citizens. I refer to those who have a lot of time to study and those who have little time to travel to the hubs. Easy-access, long-distance studying makes the difference.” Accounting Undergraduate Student, February 2018
Our Culture and DNA
Our operations and corporate culture are guided by the following values:
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Ethics and Respect:   To always abide by the rules, with transparency and respect, is one of the key basis of our relationships with students, employees and partner hubs.
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Appreciation of Knowledge:   It is not enough to just know something, it is necessary to know how to do it. We value knowledge as a way of inspiring people and bringing them closer together.
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Vocation to Teach:   Our professionals take pleasure in educating and contributing to our students’ growth.
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Ownership Attitude:   We think and act as owners of the business.
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Simplicity and Collaboration:   We work together as a team, with an open and direct dialogue.
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Focus on Results and Meritocracy:   Our team grows by merit through the overcoming of goals and dedication of each individual.
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We believe that every step we take and every milestone we achieve brings us closer to our mission of democratizing access to high-quality, accessible, flexible and affordable postsecondary education in Brazil. Our 6,324 employees as of June 30, 2020, 63.6% of which are women, share the same goal and common values. Over 86.7% of our employee base has a postsecondary education degree and almost 57.6% hold a postgraduate qualification, master’s degree or doctorate.
Leading us is a management team with over 100 years of aggregate experience in renowned education companies, as well as diverse backgrounds across banking, financial management and technology.
Our internal corporate environment survey shows positive results regarding satisfaction of our employees and how they feel about working with us:
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92.0% of our employees are proud to tell other people that they work with us.
​
•
91.0% of our employees believe that their job has a special meaning; it isn’t “just another job.”
​
•
90.0% of our employees feel good about the way they contribute towards a better society.
​
We closely monitor our employees’ satisfaction rate, which was above 81 on a scale of 0 to 100 in 2019, 2018 and 2017, as measured by Great Place to Work. We were also awarded the Great Place to Work certificate as one of the top 10 companies to work for in the state of Santa Catarina in 2019 (out of a study of over 130 companies with over 1,000 employees each).
We are active in our community and continuously seek to develop and participate in social and environmental initiatives. Our corporate responsibility extension policy has already reached over 110,000 people and comprises several initiatives centered on our community, including environmental, cultural, sporting and artistic aspects, among others. In 2019, we were recognized as a Socially Responsible Organization by ABMES.
We have also created projects tackling social and environmental issues, such as: Project Green Classroom, endorsed by the Brazilian Ministry of the Environment, which democratizes access to information while promoting awareness, reflection and construction of social and environmental action; and AutismoS, an educational support group that has the objective of informing professionals from the education sector about Autism Spectrum Disorder (ASD) and raising awareness, in which 15,050 people across 110 hubs have participated, with over 360 volunteer tutors.
During the Covid-19 pandemic, we provided free online courses for students on various subjects through our engaging “Trilha de Aprendizagem” program. Since the beginning of the social distancing measures and shelter in place orders in Brazil, over 190,000 people have completed these digital courses, totaling more than 450 thousand sessions. More recently, in July 2020, we have also structured a free online training program, “Como Ensinar à Distância,” in order to assist public school teachers with teaching using digital methods, including exclusive live sessions with specialists. We had over 50,000 subscriptions from participants from more than 2,000 municipalities across Brazil just in the first week of the program, which we believe has contributed to solidifying our reputation among teachers, tutors and professors as a leading digital player in education.
Our Competitive Strengths
Over the last 20 years, we have built a set of capabilities and attributes in our hybrid digital education business model and we believe this provides us with meaningful sustainable competitive advantages:
Digital Education Approach to Postsecondary Education
Our value proposition differentiates us from other players in the Brazilian market, as we address what students value the most by providing a personalized student experience which combines the advantages of digital education and on-campus education.
 
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We believe our platform is difficult to replicate and it would take a significant amount of time and investments for competitors to be able to compete with our know-how, brand awareness, content production and methodology, infrastructure, as well as build a solid partner network to reach the scale of our operations.
We have been developing and improving our digital education platform not only to support our students in their academic journey, but also increasingly to support them in their professional endeavors. We are passionate about democratizing access to postsecondary education in Brazil because we know the power of affordable education and its ability to transform our students’ lives.
Through our technology-enabled platform, we support all of our stakeholders. While we produce and deliver content that is centralized and constantly evolving, we enable hub partners and tutors to distribute it in multiple formats that cater to students’ needs and prioritize a personalized, engaging, effective and simple experience. We also enable our partners to actively manage hubs’ activities in a comprehensive manner, providing a 360-degree vision of their operations, through a data-driven online portal. This technological platform gathers data regarding their student base, student performance, financial indicators, tutor and infrastructure evaluations, commercial performance, pricing and others — highlighting key insights, such as students in need of special attention, and helping predict and avoid potential dropouts.
The combination of these aspects enables us to enroll a large student base and attract loyal partners and trained tutors, ultimately increasing our ability to expand geographically at an even faster rate, while maintaining our differentiated customer support.
Asset-Light and Scalable Business Model
We have an asset-light, highly scalable business model that emphasizes operational efficiency and profitability. We are able to do so by taking charge of hiring and training tutors, developing content, and managing students’ experience as well as incurring faculty and marketing costs, while leaving partner hubs’ day-to-day operations, and expenses (general and administrative, rental, equipment) to the care of our partners, who are remunerated by their respective share of the tuition fee collected by us from students, based on a given percentage which is similar across all our partnership agreements. This allows us to quickly expand our operation and geographic footprint with a modest effort.
Leading Student Experience, Brand Awareness and Strong Academic Standards
Our disruptive, student-centric model has achieved the highest satisfaction levels in terms of quality, employability, affordability, infrastructure, recommendation and location consistently across all regions where we are present.
We believe brand awareness is also a key metric to students’ decision-making process. According to statistics from Google, we were the educational brand with the highest growth in Google searches in Brazil in the six months ended June 30, 2020, with 27% growth when compared to the same period in 2019, as compared to a market average of 8%. Furthermore, according to Educa Insights, as of December 31, 2019, we had the highest levels of intention to enroll, first choice and top-of-mind brand, reaching on average 61.1%, 26.5% and 24.3%, respectively. This compares to 39.8%, 13.2% and 12.6%, respectively, for the second place brand. This data relates solely to digital education.
The results from the study conducted by Educa Insights also establish five strategic drivers (employability, quality, tradition, accessibility, and product and infrastructure), that integrate our brand equity and its nationwide presence. Below are certain highlights from the study:
Nationwide perception of quality.   We are positioned as one of the best options for digital education in every region of Brazil, with results for the “product,” “employability” and “quality” dimensions significantly above average when compared to our competitors.
Superior quality maintained in the new waves of hubs.   Our perceived quality has no relation whatsoever with the maturity level of our hubs, which we believe highlights the scalability of our model.
A winning hybrid model.   We present superior growth driven by superior intake indicators and brand perception in markets currently dominated by established Brazilian players.
 
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An academic model that impacts enrollment intentions.   Our hybrid model has high levels of acceptance in that it is perceived as far better than traditional digital education alternatives.
Our best-in-class quality standards.   Our academic standards are a testament to the quality of our methodology, infrastructure and stakeholders. As of June 2019, our CI score was a five on a scale of one to five.
Our Business Economics and Cohorts
We believe the combination of the elements of our business model and the strength of the value proposition for the students attracted to our ecosystem has resulted in best-in-class unit economics for our hubs network, which plays a pivotal role in our organic growth strategy.
We track the cohorts on a semi-annual basis. We have cohorts showing substantial growth from our current hubs, 536 of which opened in the past three years (between the second half of 2017 and the first half of 2020) and are still maturing. New hubs usually concentrate first and second semester students who tend to have higher drop-out rates compared to students in other semesters. In addition, in the initial years after opening a new hub, we have a strategy of accelerated payback for the hub partners, by means of their higher shares over the tuition fee in the initial years, based on regressive percentages defined in each partnership agreement, which is important to sustain our partners’ profitability. We typically achieve a positive Adjusted EBITDA margin after three semesters of operation, considering hub partners’ lower shares over the tuition fee and a higher student base. In addition, our average student base per mature hub is approximately six times higher than the student base of a recently opened hub, which is ramping up.
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Our strong cohorts are driven by the maturation of our hubs, our high retention rates, the expansion of our offerings such as new courses and our cross-selling opportunities. We also closely monitor CAC and lifetime value to our student base, as well as the average payback and internal rate of return for our hubs.
Our Growth Strategies
We aim to continue generating value for our shareholders by implementing the following strategic initiatives:
Maturation of Our Hubs
We expect to grow significantly with the maturation of our hubs. Our hubs normally have a four-year maturation cycle, which begins when a hub becomes operational with a first intake cycle that progresses through these four years. Nevertheless, a hub only reaches full capacity after approximately eight years of existence, in function of the increasing brand awareness locally and continued optimizations in the average size of classes. Given that our hubs have an average life of 2.5 years, or five semesters and are still ramping up, we see considerable room to grow our operations and student base. As of December 31, 2019, we operated 545 hubs in different maturation stages, of which 11.8% are mature and 88.2% are ramping-up. This illustrates the compelling strength of our business model.
We believe we have significant potential to increase our margins through the maturation of our hubs. Because of our strategy to accelerate the payback to our hub partners with higher shares of the tuition fee in the initial years, as hubs mature their share decreases to approximately 21%, thus increasing our profitability and allowing us to reach an average Adjusted EBITDA margin at maturity of approximately 40%.
Opening of New Hubs and Expansion to New Markets
We have worked with a leading international consulting firm to develop a robust expansion plan which has mapped several opportunities that may be captured in the next five years. Additionally, we also employ a heat map tool, which we developed in-house, that we believe allows us to geographically position new hubs more efficiently. Our heat map searches and analyzes the locations of potential students’ homes and workplaces, thereby optimizing the location of our hubs by determining whether to open new hubs or to relocate already operational hubs.
We intend to continue to expand to sizeable Brazilian states which have a significant market opportunity and where we have limited presence in states of the southeastern region of Brazil, such as São Paulo, Rio de Janeiro, Minas Gerais and Paraná. We have adopted a distinct strategy regarding these locations by investing less in media and choosing out hub locations more selectively. As a result, we have had encouraging results in markets where our brand is not well known. We use locations with heavy traffic, such as malls, subway stations and supermarkets, to accelerate our expansion in these markets. We have recently entered into a partnership with one of the largest supermarket chains in Brazil. This has enabled us to install hubs inside their stores which generally enjoy a privileged location with heavy traffic.
We believe we have the right attributes to strengthen our presence in the Southeastern Region of Brazil, which represents 39.7% of the total digital education enrollments in 2018 in the country according to the INEP.
Offering of New Undergraduate Courses
We currently offer 118 digital education undergraduate courses, which is much higher than in 2016 when we only offered 41 courses. We believe there will be a significant increase in digital education enrollments if the MEC authorizes the offering of additional undergraduate courses, such as law and health-related courses like nursing, which, as of now, can only be provided on-campus. Because of our
 
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state-of-the-art infrastructure, we believe we are better positioned to capture this market opportunity and further increase our ecosystem relative to our competitors.
According to Educa Insights, if the MEC allows law courses to be offered in a digital education format, 20.8% of new enrollments in that subject are expected to migrate to digital education in the short-term. Educa Insights estimates that there could be as many as 104,100 students enrolled in digital education law courses by 2023.
Further Extension of Postsecondary Education Journey (Cross-selling)
We also seek to offer a broader range of graduate, vocational and continuing education programs. Currently, 22.2% of our undergraduate students enroll in graduate courses with us once they have completed their undergraduate education. In addition, 50.0% of our undergraduate alumni intend to enroll in a graduate course with us, whereas only 27.0% of these individuals intend to continue their education elsewhere. We believe that the expansion of these programs will enable us to increase our serviceable addressable market, improve our economics and position ourselves as the trusted knowledge partner of our students while continuously diversifying our operations. We believe this means there is potential to expand student’s life time value and cross-sell opportunities at marginal cost.
Although all of our hubs are able to offer our entire portfolio of graduate courses, our partners choose to offer these courses after gaining significant expertise in offering undergraduate courses. Given that 88.2% of our hubs have less than three years of operations, we see a considerable potential for growth in offering our graduate courses.
Selective Pursuit of M&A Opportunities
We intend to selectively pursue acquisitions that we believe resonate with and enhance our value proposition. We are interested in (i) technology companies, such as education technology companies whose solutions can be quickly incorporated into our learning platform, thus improving the learning experience of our students and/or providing useful information for our intake and overall management processes; (ii) life-long complementary digital education courses that enhance our offering in order to expand the relationship cycle with our students, such as preparatory programs for their entrance into the labor market, among others, which we can accommodate in our hub distribution model; and (iii) consolidation opportunities through the acquisition of mid-sized digital education players which have low margins and lack scale, with whom we can leverage our business and academic expertise to improve operational results and margins. We have already begun discussions with a number of selected potential targets in order to move this process forward after our initial public offering. We have already identified over 100 education technology companies and are in on-going conversations with six players. We have also identified a few digital education peers with the required minimum size.
Our Market Opportunity
We believe Brazil is the largest market in Latin America and is among the most attractive private education market opportunities in the world for the following reasons:
•
It is one of the largest private education markets in the world. Brazil ranks as the third largest private postsecondary education market in the world, only behind India and China, according to INEP and UNESCO, but still has significant room for growth. We believe there is an addressable digital education market of R$104.7 billion in revenues and with 31.4 million students, which can be accessed by increasing the penetration rate;
​
•
Postsecondary education penetration rates have been increasing, but are still well below other countries. According to the OECD, as of 2018, Brazil has one of the lowest postsecondary education penetration rates in the world, with only 18.0% of the Brazilian population between 25 and 64 years having completed any sort of postsecondary education degree. This is much lower than the OECD average of 39.0% and also below other countries in Latin America, such as Argentina and Chile (with 36.0% and 25.0%, respectively);
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•
The Brazilian National Education Plan targets. In 2014, the Brazilian federal government established a PNE with 20 goals for improving and enhancing access to education, which is expected to be completed by 2024. Out of the 20 goals, the most important goal for the postsecondary education sector is to increase the penetration rate of postsecondary education to 50.0% of the target population (i.e. 18 to 24 years old) as compared to 30.3% in 2018;
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•
Postsecondary Education Degree in Brazil leads to higher employability levels and higher average salaries. According to Educa Insights, people holding a postsecondary education degree can expect to earn 65.3% more on average than those who only completed secondary education, with no significant difference between on-campus and digital education courses. Similarly, the unemployment rate for people holding a postsecondary education degree is 21.0%, which is 32 percentage points lower than those with only secondary school education, according to Educa Insights;
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•
Digital Education has driven recent private sector growth. According to INEP, digital education expanded at a CAGR of 15.4% between 2008 and 2018, significantly greater than the CAGR of 1.7% for on-campus education in during the same period. In this context, digital education courses are becoming increasingly popular in Brazil due to (1) greater flexibility for students who also work, and (2) greater affordability in that tuitions are approximately one third of on-campus tuition fees; and
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•
Hybrid delivery offering is dictating the pace. Postsecondary education students in Brazil need more affordable and flexible alternatives to study, as well as an academic experience that involves personal contact with faculty and other students. According to the MEC, as of December 31, 2018, 87% of Brazil’s secondary school (K-12) students were enrolled in public schools. In this context, we believe students without strong academic secondary school backgrounds are less likely to continue their education through 100% online courses and are more likely to continue their education in courses that provide a hybrid combination of both on-campus and online offerings.
​
Our Addressable Market
According to a study published in February 2020 by Educa Insights, the digital education business for adults in Brazil has a total addressable market of 31.4 million students, equivalent to R$104.7 billion in revenues as of 2019. Out of the total addressable market of students, approximately 11.8 million are undergraduate students in digital education, 8.0 million are postgraduate students in digital education, 5.6 million are students on technical courses and 6.1 million are students potentially enrolled in professional qualification courses. Out of the total addressable market, in revenue terms, approximately R$37.6 billion is concentrated in undergraduate courses, R$31.7 billion in postgraduate courses, R$21.3 billion in technical courses and R$14.1 billion in professional qualification courses.
Our Competition
We believe there are no pure digital education providers in Brazil with a business model which is perfectly comparable to ours. This is due to the fact that our value proposition combines digital and technology driven and in-person offerings. Several companies compete in postsecondary education industry and the market is very fragmented. As of December 31, 2018, according to INEP, there were 2,501 private postsecondary education institutions in Brazil and 259 offering digital education undergraduate courses. According to the MEC, we were the third largest digital education postsecondary education group in Brazil, as of December 31, 2018 in terms of enrollments.
 
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Seasonality
Our operating results normally fluctuate as a result of seasonal variations in our business. For further information, see “Risk Factors — Certain Risks Relating to Our Business and Industry — Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Revenue Recognition and Seasonality.”
Properties
Our corporate headquarters, which include our academic core and business operations are located in the state of Santa Catarina. Our corporate headquarters consist of 3,977.43 square meters of space under a lease that expires in 2022. We also lease 758.10 square meters in the city of Florianópolis, in the state of Santa Catarina, for certain administrative activities and our principal executive offices under a lease that expires in 2024. We believe our facilities are sufficient for our current needs.
In addition to our corporate headquarters and to our corporate center, and as of June 30, 2020, we leased all operational and administrative facilities. We believe that our facilities are suitable and adequate for our business as presently conducted, however, we periodically review our facility requirements and may acquire or lease new space to meet the needs of our business or consolidate and dispose of facilities that are no longer required.
Employees
As of June 30, 2020 we had 6,324 employees. As of December 31, 2019, 2018 and 2017, we had 5,711, 4,889 and 4,150 employees, respectively. As of June 30, 2020, 14.4% of our employees were based in our offices in the cities of Indaial and Florianópolis, in the state of Santa Catarina, and 85.6% were based in other cities elsewhere in Brazil.
In addition, as of June 30, 2020, we had 37 temporary personnel among our employees and third party contractors.
The table below breaks down our full-time personnel by function as of June 30, 2020:
 
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Function
​ ​
Number of
Employees
​ ​
% of Total
​
Management
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ 0.1% ​ ​
Technology and Content Development
​ ​ ​ ​ 237 ​ ​ ​ ​ ​ 3.7% ​ ​
Sales and Marketing
​ ​ ​ ​ 151 ​ ​ ​ ​ ​ 2.5% ​ ​
Student Support and Academic Staff
​ ​ ​ ​ 1,893 ​ ​ ​ ​ ​ 29.9% ​ ​
Local tutors
​ ​ ​ ​ 3,599 ​ ​ ​ ​ ​ 56.9% ​ ​
General and Administrative
​ ​ ​ ​ 437 ​ ​ ​ ​ ​ 6.9% ​ ​
Total ​ ​ ​ ​ 6,324 ​ ​ ​ ​ ​ 100.0% ​ ​
Our employees in Brazil are subject to certain collective bargaining agreements with labor unions of educational services for the geographic area in which they render services. The collective bargaining agreements are valid for a one-year term. We believe we have a constructive relationship with these unions, as we have not experienced strikes, work stoppages or disputes leading to any form of downtime.
Legal Proceedings
We are, and may from time to time be, involved in disputes that arise in the ordinary course of our business. Any claims against us, whether meritorious or not, can be time consuming, result in costly litigation, require significant management time and result in the diversion of significant operational resources.
We are subject to a number of judicial and administrative proceedings in the Brazilian court systems, including civil, environmental, labor and tax law and social security claims and other proceedings, which we believe are common and incidental to business operations in Brazil in general. We recognize provisions for legal proceedings in our financial statements, in accordance with accounting rules, when we are advised by independent outside counsel that (i) it is probable that an outflow of resources will be required to settle the obligation and (ii) a reliable estimate can be made of the amount of the obligation. The assessment of the likelihood of loss includes analysis by outside counsel of available evidence, available case law, recent court rulings and their relevance in the legal system. Our provisions for probable losses arising from these matters are estimated and periodically adjusted by management. In making these adjustments our management relies on the opinions of our external legal advisers.
As of June 30, 2020, we were parties to 1,071 proceedings in an aggregate amount of R$112.0 million, and we had recorded provisions in our financial statements in connection with legal proceedings for which we believe a loss is probable in accordance with accounting rules in an aggregate amount of R$17.8 million. As of the same date, we had surety bonds in an aggregate amount of R$29.9 million. However, legal proceedings are inherently unpredictable and subject to significant uncertainties. If one or more cases were to result in a judgment against us in any reporting period for amounts that exceeded our management’s expectations, the impact on our operating results or financial condition for that reporting period could be material. See “Risk Factors — Certain Risks Relating to Our Business and Industry — Unfavorable decisions in our legal or administrative proceedings may adversely affect us.”
Civil Matters
As of June 30, 2020, we were party to 848 judicial and administrative proceedings of a civil nature in a total aggregate amount of R$16.8 million. Out of the 848 judicial and administrative civil proceedings in which we are involved, (i) 100 are classified as having a remote chance of loss, (ii) 541 are classified as having a possible chance of loss, and (iii) 207 are classified as having a probable risk of loss. As of June 30, 2020, we have recorded a provision of R$2.8 million for the proceedings with a probable chance of loss. The civil claims to which we are a party generally relate to consumer claims, including those related to alleged undue collection of tuition fees and rates, delay in the issuance of certificates and diplomas, undue collection of tuition fees for students that have been grated scholarships and public
 
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financing and denial of enrollment in courses, among others. We believe these proceedings are unlikely to have a material adverse impact, individually, or in the aggregate, on our results of operations or financial condition.
Labor Matters
As of June 30, 2020, we were party to 218 labor-related judicial and administrative proceedings in a total aggregate amount of R$33.3 million. Out of the 218 labor-related judicial and administrative proceedings in which we are involved, (i) 10 are classified as having a remote risk of loss, (ii) 109 are classified as having a possible chance of loss, and (iii) 99 are classified as having a probable risk of loss. We have recorded a provision of R$15.1 million for the proceedings with a probable chance of loss. In general, the labor claims to which we are a party were filed by former employees or third parties employees seeking our joint and/or subsidiary liability for the acts of our suppliers and service providers. The principal claims involved in these labor suits relate to overtime, salary equalization, vacation payments and/or failure to provide vacation, severance payments and termination fees, and indemnification obligations arising under Brazilian labor laws. We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate, on our results of operations or financial condition.
Tax and Social Security Matters
As of June 30, 2020, we were party to four judicial and administrative tax and social security proceedings in a total aggregate amount of R$34.9 million as a result of which we may be held liable for a payment to tax and social security authorities. Out of the four tax-related judicial and administrative proceedings in which are involved, (i) two are classified as having a remote risk of loss and (ii) two are classified as having a possible chance of loss. Accordingly, we have not recorded any provision for tax and social security proceedings. As of June 30, 2020, we had surety bonds in an aggregate amount of R$29.9 million. We believe these proceedings are unlikely to have a material adverse impact, individually or in the aggregate, on our results of operations or financial condition.
As of June 30, 2020, we were party to an administrative proceeding in relation to a tax infraction notice issued by the Finance Department of the Municipality of the City of Porto Alegre for the total amount of R$31.2 million. We estimate that the chance of loss in these proceedings is possible. The infraction notice relates to amounts of ISS tax allegedly due by us (plus a 150% fine and late payment interest, for the period from January 2012 to June 2017). According to the Porto Alegre tax authorities, the distance learning educational services we provide from our headquarters in Indaial in the state of Santa Catarina are subject to ISS tax levied by the City of Porto Alegre, in which we maintain a digital education center. We have challenged this interpretation in administrative proceedings. Pursuant to the purchase and sale agreement relating to our acquisition of Sociedade Educacional Leonardo da Vinci S/S Ltda., Sociedade Educacional do Vale do Itapocu S.S. Ltda., FAIR and FAC/FAMAT, the sellers are liable to reimburse us for amounts accrued prior to February 29, 2016 in connection with these proceedings if a decision unfavorable to us is issued. See note 18 to our audited consolidated financial statements included elsewhere in this prospectus.
Intellectual Property
We rely and expect to continue to rely on a combination of copyright, trademark and trade secret laws, as well as employee and third-party non-disclosure, confidentiality and other types of contractual arrangements to establish, maintain and enforce our intellectual property rights, including with respect to our proprietary rights related to our products and services. In addition, we license technology and copyright from third parties.
As of June 30, 2020, we owned 29 trademarks, including “Vitru” and “Uniasselvi” and a number of additional brands which we use in certain parts of Brazil, such as “Fameblu,” “Univinci,” “Fameg,” “ICPG” and “Asselvi.” We also have the right to use of a number of registered copyrights, most notably copyrights for physical and digital teaching materials.
 
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Additional Information
We are a Cayman Islands exempted company incorporated with limited liability. We were incorporated as Vitru Limited on March 5, 2020. Our principal executive offices are located at Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, in the state of Santa Catarina, 88032-005, Brazil. Our telephone number at our principal executive offices is +55 (47) 3281-9500. Our principal website is www.vitru.com.br. The information that appears on our website is not part of, and is not incorporated into, this prospectus.
 
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MANAGEMENT
We are managed by our board of directors and by our senior management, pursuant to our memorandum and articles of association, or our Articles of Association, and the Companies Law.
Board of Directors
As of the date of this prospectus, our board of directors is composed of six members. Within one year of the date of this prospectus, the size of our board of directors is expected to increase to seven members. Each director is appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).
The following table presents the names of the current members of our board of directors.
Name
​ ​
Age
​ ​
Position
​
Bruno Augusto Sacchi Zaremba ​ ​
45
​ ​
Chairman
​
Edson Gustavo Georgette Peli ​ ​
38
​ ​
Director(1)
​
Fernando Cezar Dantas Porfírio Borges ​ ​
50
​ ​
Director
​
Lywal Salles Filho ​ ​
73
​ ​
Director
​
Rivadávia Correa Drummond de Alvarenga Neto ​ ​
51
​ ​
Independent Director(1)
​
Claudia Jordão Ribeiro Pagnano ​ ​
53
​ ​
Independent Director(1)
​
​
(1)
Member of our Audit Committee.
​
The following is a brief summary of the business experience of our directors. Unless otherwise indicated, the current business addresses for our directors is Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, SC, 88032-005, Brazil.
Bruno Augusto Sacchi Zaremba is the chairman of our board of directors, a position he has held since September 2, 2020. Mr. Zaremba has previously served on the board of directors of Vitru Brasil, a position he has held since October 2015, as well as on the boards of directors of BK Brasil Operação e Assessoria a Restaurantes S.A. (the owner and operator of Burger King and affiliated brands in Brazil), Cecrisa S.A. and PDG and, in addition to our company, currently serves on the boards of directors of: Austral Holding S.A.; Oceana Offshore S.A. (holding company of the CBO Group); Lojas Le Biscuit S.A.; Domino’s Pizza Brasil, Grupo CURA, Vero Internet and ABVCAP, the Brazilian Private Equity and Venture Capital association. Mr. Zaremba is also head of Vinci Partners’ private equity team and member of the Executive Committee of such company. He joined Vinci Partners in 2009 as a partner, and since the beginning has been fully involved with private equity strategy. Prior to joining Vinci Partners, Mr. Zaremba, worked at UBS Pactual Gestora de Investimentos Alternativos Ltda. between 2006 and 2009, where he had substantial involvement with private equity. Prior to his time with UBS Pactual Gestora de Investimentos Alternativos Ltda., Mr. Zaremba worked as a sell side equity research analyst at Banco Pactual, leading research for banks, beverages, retail, food and tobacco from 1996 to 2001, when he became a partner, and was assigned to lead Banco Pactual’s proprietary equity and debt investments in the United States. Mr. Zaremba holds an economics degree in Economics from Pontifícia Universidade Católica do Rio de Janeiro, is a certified Chartered Financial Analyst and completed the OPM 50 program at the Harvard Business School.
Edson Gustavo Georgette Peli is a member of our board of directors, a position he has held since September 2, 2020. Mr. Peli has previously served on the board of directors of Vitru Brasil, a position he has held since October 2015. In addition to our company, Mr. Peli currently serves on the boards of directors of Ri Happy Brinquedos S.A. Mr. Peli is also currently a Managing Director at Carlyle, based in São Paulo, Brazil, focusing on buyout investment opportunities primarily in Brazil and other selected South American countries. Mr. Peli joined Carlyle in 2008 and since then has been involved in investing and managing over US$1.5 billion in equity investments in the healthcare, consumer and retail, and education sectors. Prior to joining Carlyle, Mr. Peli worked in investment banking at Credit
 
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Suisse Brasil S.A., or Credit Suisse Brazil, from December 2004 to January 2008, where he was involved in mergers and acquisitions and capital markets, having participated in over 30 completed transactions across several sectors. Prior to his time at Credit Suisse Brazil, Mr. Peli worked in credit risk at Banco Citibank S.A., or Citi Brazil, from February 2004 to December 2004. Mr. Peli holds a bachelor of science degree in Business Administration from Escola de Administração de Empresas de São Paulo from Fundação Getulio Vargas with a specialization program in Corporate Finance and Capital Markets at the University of Texas at Austin.
Fernando Cezar Dantas Porfírio Borges is a member of our board of directors, a position he has held since September 2, 2020. Mr. Porfírio has previously served on the board of directors of Vitru Brasil, a position he has held since October 2015. In addition to our company, Mr. Borges currently serves on the boards of directors of Ri-Happy Brinquedos S.A., Estok Comércio e Participações Ltda., or Tok & Stok, Tempo Participações S.A. and Grupo Madero and is Vice-Chairman of the board of directors of the Brazilian Association of Private Equity & Venture Capital, or ABVCAP, a member of the board of EMPEA — Emerging Market Private Equity Association and of LAVCA — Latin American Private Equity & Venture Capital Association. Mr. Borges is also a managing Director and head of the Carlyle’s South American buyout group focused on private equity investment opportunities in South America. He joined Carlyle in 2007 and has been involved in Carlyle’s investments in portfolio companies in Brazil. Prior to joining Carlyle, Mr. Borges was a managing director at AIG Capital Partners and chief executive officer of AIG Capital Investments do Brasil, being responsible for managing AIG’s private equity activities in Brazil. Prior to his time at the AIG Capital Group, Mr. Borges was a director of Bozano, Simonsen’s private equity division, where he was responsible for managing a private equity fund sponsored by Bozano, Simonsen Group and Advent International. Cumulatively, Mr. Borges has 18 years of private equity experience in Brazil, having participated in more than 20 transactions in the region. Mr. Borges holds a graduate degree from the Bologna Center of the School of Advanced International Studies of Johns Hopkins University and a bachelor of the arts degree in international relations from Universidade de Brasilia.
Lywal Salles Filho is a member of the board of directors a position he has held since September 2, 2020, and of the strategic committee of Vinci Partners. Mr. Salles Filho has previously served on the board of directors of Vitru Brasil, a position he has held since October 2015. He is also one of the directors of ANBIMA and sits on the board of Cecrisa S.A. Between 2010 and 2013, he was Chairman and CEO of UBS AG for Brazil. Prior to that, he was Senior Managing Director of Itaú Unibanco S.A. in charge of its domestic and international Private Bank businesses and led the investment product committee of the Capital Market Sector. He was also the Chairman of the board of Banco Itaú International and of Itaú Securities in the U.S., and CEO of banco Itaú (Suisse) in Zurich. Mr. Lywal held also several senior positions at Citibank N.A., in the US and in Brazil including being the Latin America Regional CEO of the Affluent Client Segment. Previously, he spent 15 years at The Chase Manhattan Bank N.A in Hong Kong, the U.S. and in Latin America. He has a B.S. in economics and a Postgraduate certificate in Economics Engineering, both from UFRJ, the Federal University of Rio de Janeiro. He also has a M.S. degree in Administration from Syracuse University, New York.
Rivadávia Correa Drummond de Alvarenga Neto is an independent member of our board of directors, a position he has held since September 2, 2020. Dr. Drummond is Clinical Assistant Professor at the W. P. Carey School of Business at Arizona State University, Faculty Lead for Arizona State University’s new M.S. degree in Innovation & Venture Development. Prior to joining the W. P. Carey School of Business at Arizona State University, Dr. Drummond was an original partner and board member of the Anima Educational Group Brazil, he was a Visiting Associate Professor at the Hong Kong Polytechnic University and The University of Hong Kong, Hong Kong, SAR, China. Dr. Drummond is also founding partner and Executive Director of Rivadavia & Associates. Dr. Drummond was a post-doctoral fellow and visiting scholar at the University of Toronto, Canada, in 2009, holds (1) a PhD in Information Studies, I-School from the Federal University of Minas Gerais (UFMG), in which he had his PhD Dissertation nominated for the award “Best Brazilian Dissertation in the field,” (2) a MSc in Information Studies, I-School, from the Federal University of Minas Gerais (UFMG), (3) an MBA in International Business, from the Catholic University of Minas Gerais and (4) a bachelor’s degree in Business from the Federal University of Minas Gerais.
 
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Claudia Pagnano is an independent member of our board of directors, a position she has held since September 2, 2020. Ms. Pagnano has been an independent member of the board of directors of Condor S.A. from 2017 to 2020, as well as the Chairperson of its Strategy and Market Committee. She is also an advisor to Excellence Ltda. where she focuses on the personal care and beauty segment. In addition, Ms. Pagnano acts as an independent pro bono advisor to Inventação, an education-focused start up, and to Vioo, a digital platform designed to help students connect with U.S. and European universities. Ms. Pagnano is also one of the nine founders of WCD (Women Corporate Directors), Brazil chapter, a non-profit foundation that aims to increase the participation of women in positions of boards of directors. Prior to that, she was Chief Executive Officer at Abrakidabra, Chief Commercial Officer at Gol Linhas Aéreas, Managing Director of the Brazilian Division of Brazil Foods-BRF, Chief Marketing Officer and Private Label Vice-President of Grupo Pão de Açucar, Chief Marketing Officer at BankBoston and Unibanco, Consumer Films Business Director for Brazil and Latin America at Eastman Kodak Company and Marketing Category Director at Colgate Palmolive. Ms. Pagnano has a bachelor’s degree in Communication and Marketing from Escola Superior de Propaganda e Marketing, has completed an extension course in Finance at Fundação Getúlio Vargas (FGV) and has also received a certificate in Digital Transformation & Innovation from the University of California, Berkeley. In addition, Ms. Pagnano has been certified as an independent director by the Brazilian Institute of Corporate Governance since 2018, in addition to having completed a degree in Corporate Governance and Capital Markets from BI International School in São Paulo in 2014. She also participated in the second class of the Women’s Mentoring program of the Brazilian Institute of Corporate Governance in 2018.
Executive Officers
Our executive officers are responsible for the management and representation of our company. We have a strong centralized management team led by Pedro Jorge Guterres Quintans Graça, our chief executive officer, with broad experience in the education industry. Our executive officers were appointed by our board of directors for a two-year term until September 2022.
The following table lists our current executive officers:
Name
​ ​
Age
​ ​
Position
​
Pedro Jorge Guterres Quintans Graça ​ ​
53
​ ​
Chief Executive Officer
​
Carlos Henrique Boquimpani de Freitas ​ ​
44
​ ​
Chief Financial Officer
​
Ana Paula Rodrigues ​ ​
46
​ ​
People and Management and Services Officer
​
Luiz Gonzaga Victor Foureaux Neto ​ ​
42
​ ​
Marketing and Innovation Officer
​
Unless otherwise indicated, the current business addresses for our executive officers is Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, SC, 88032-005, Brazil.
Pedro Jorge Guterres Quintans Graça is our chief executive officer, a position he has held since September 2, 2020. Mr. Graça has been the chief executive officer of the companies of our group since April 2016. Prior to becoming our chief executive officer, Mr. Graça held various managerial positions at YDUQS Participações S.A., or YDUQS, from November 2007 to March 2016, including distance learning director and market director. He began his career as an entrepreneur, as a partner and owner of Sistema Energia de Ensino (focused on teaching K-12) from May 1995 to December 2003 and ENAD — Ensino a Distância, from January 2004 to October 2007. He was also a pioneer in the distance education market in Brazil and founded a satellite content transmission company. Cumulatively, Mr. Graça has over 24 years of experience in the education industry. Mr. Graça holds a bachelor’s degree in systems analysis from Universidade Presbiteriana Mackenzie and completed a specialization course in business at Fundação Getúlio Vargas (FGV).
Carlos Henrique Boquimpani de Freitas is our Chief Financial Officer, a position he has held since September 2, 2020. Mr. Freitas has been the chief financial officer of the companies of our group since March 2019. Prior to joining our company, Mr. Freitas began his career in the Mergers and Acquisitions department of Banco Brascan (part of the Brookfield Group) in Rio de Janeiro from May 1997 to June 2000. In 2000, he joined the French group ENGIE, which operates in the electricity, gas and services sectors where he worked from June 2000 to March 2019. At ENGIE he held various positions,
 
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such as Senior Strategy and Portfolio Manager at ENGIE Latin America from January 2008 to January 2009; Head of Finance, Treasury and Insurance at ENGIE Brasil Energia (formerly Tractebel Energia, a company listed in Brazil with a market capitalization exceeding U.S.$10 billion) from February 2009 to January 2013; and Chief Financial and Investor Relations Officer and Head of Human Resources at ECL, a listed company in Chile, from February 2013 to December 2016. Most recently, he was the Chief Financial and Investor Relations Officer of ENGIE Brasil Energia from January 2017 to March 2019. Mr. Freitas has a bachelor’s degree in Production Engineering from Universidade Federal do Rio de Janeiro and an MBA from INSEAD, France.
Ana Paula Rodrigues is our People and Management and Services Officer, a position she has held since September 2, 2020. Ms. Rodrigues has been the People and Management and Services Officer of the companies of our group since July 2018. Prior to that, she worked at YDUQS from April 1999 to July 2018, including 15 years in leadership positions. During her last two years at YDUQS, she was in charge of the shared services center and the information technology department, which provided services to over 90 campuses throughout Brazil. She also worked in several other departments, including the Student Relations Department. She participated in the creation of the management excellence program and the implementation of the quality control system at YDUQS. She was also the Chief Operations Officer of the distance learning department and in charge of student relations, in which capacity she focused on reducing drop-out rates. She was also responsible for the integration of the largest private educational institution launched by YDUQS. Ms. Rodrigues has an MBA in Strategic Management and a bachelor’s degree in Information Technology from Universidade Estácio de Sá.
Luiz Gonzaga Victor Foureaux Neto is our Marketing and Innovation Officer, a position he has held since September 2, 2020. Mr. Foureaux has been the Chief Marketing Officer of the companies of our group since June 2016. Prior to that, Mr. Foureaux held leadership positions at Ânima Educação from October 2005 to May 2016, including acting as marketing and communication officer at Ânima Educação from January 2012 to May 2016. Mr. Foureaux has over 18 years of experience in sales, customer relations and marketing planning, and has also worked in the telecommunications sectors (at TIM Brasil, from August 1999 to October 2005) and in the post-secondary education sector. Mr. Foureaux holds a bachelor’s degree in Business Administration from the Pontifícia Universidade Católica de Minas Gerais and an MBA in Marketing from the Fundação Dom Cabral.
Committees
Audit Committee
The audit committee, which is expected to consist of Edson Gustavo Georgette Peli, Rivadávia Correa Drummond de Alvarenga Neto and Claudia Jordão Ribeiro Pagnano, will assist our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee will be directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Edson Gustavo Georgette Peli will serve as Chairman of the committee. The audit committee will consist exclusively of members of our supervisory board who are financially literate, and Edson Gustavo Georgette Peli is considered an “audit committee financial expert” as defined by the SEC. Our board of directors has determined that Rivadávia Correa Drummond de Alvarenga Neto and Claudia Jordão Ribeiro Pagnano satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act.
The audit committee will be governed by a charter that complies with Nasdaq rules. Upon the completion of this offering, the audit committee will be responsible for, among other things:
•
the appointment, compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services;
​
•
pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;
​
 
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•
reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit;
​
•
obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and the Company consistent with the applicable PCAOB requirements regarding the independent auditor’s communications with the audit committee concerning independence;
​
•
confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law;
​
•
reviewing with management and the independent auditor, in separate meetings whenever the Audit Committee deems appropriate, any analyses or other written communications prepared by the Management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS methods on the financial statements; and other critical accounting policies and practices of the Company;
​
•
reviewing, in conjunction with the Chief Executive Officer and Chief Financial Officer of the Company, the Company’s disclosure controls and procedures and internal control over financial reporting;
​
•
establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;
​
•
approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy.
​
The audit committee will meet as often as it determines is appropriate to carry out its responsibilities, but in any event will meet at least four times per year.
Compensation of Directors and Officers
Under Cayman Islands law, we are not required to disclose compensation paid to our senior management on an individual basis and we have not otherwise publicly disclosed this information elsewhere.
Our executive officers, directors and management receive fixed and variable compensation. They also receive benefits in line with market practice in Brazil. The fixed component of their compensation is set on market terms and adjusted annually.
The variable component consists of cash bonuses and awards of shares (or the cash equivalent). Cash bonuses or paid to executive officers and members of our management based on previously agreed targets for the business. Shares (or the cash equivalent) are awarded under our share options long-term incentive program, as discussed below.
Employment agreements
Certain of our executive officers have entered into employment agreements with the Company, certain of which provide for notice of termination periods and include restrictive covenants. None of our directors have entered into service agreements with the Company.
Long-Term Incentive Plan
Existing Share Option Plan
Certain members of our management participate in the first share option plan of Vitru Brasil, which was approved on June 8, 2017. The first share option plan is administered and managed by our board
 
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of directors and the share option plan management committee. We currently have four separate programs to grant rights in place under the first share option plan (approved on June 23, 2017 with respect to the first, July 31, 2018 with respect to the second, and August 30, 2019 with respect to the third and fourth programs).
Each share option grants its holder the right to purchase one share issued by us, under the terms and conditions set forth in the corresponding plan. Options are not entitled to dividends on the underlying shares.
Rights under each of programs vest in five installments of 20%, starting and expiring as provided for in each specific program. If a beneficiary is dismissed by us, resigns or retires, the portion of his or her rights under the share option plan that has vested at that date will be satisfied, but the non-vested portion will be cancelled. If a beneficiary dies or becomes permanently incapacitated, the portion of his or her rights under the share option plan that has vested at that date will be satisfied, and 50% of the non-vested portion will be cancelled. If a beneficiary is terminated for cause, all of his or her rights under the share option plan will be cancelled. Furthermore, beneficiaries have the right to turn all their vested options into shares by paying in cash the option exercise price set forth in the applicable program. The difference between the stipulated price in the program and the fair value of the share at the measurement date is recorded as equity. Upon the occurrence of a change of our control, all options would become fully vested and may be fully or partially exercised by the beneficiaries. Upon the occurrence of a secondary public offering of our common shares, the number of shares that may be sold by the beneficiaries would be proportional to the quantity of shares sold by the Existing Shareholders. In addition, participants have the right to require us to acquire all the common shares held by them to be held in treasury or for cancellation, upon payment, in cash, of the put option exercise price, for a given period as from the last vesting date, provided that no exit event has occurred up to the end of said period. When all conditions applicable to the buyback of shares provided for in applicable laws and/or regulations are met, we will pay the participant the price equivalent to a certain multiple of our EBITDA less Net Debt, as set forth in each program, to be recorded as a liability.
All unvested share options under the second, third and fourth programs will automatically vest upon the consummation of this offering. Unvested options under the first program will not vest as a result of the offering. However, beneficiaries will only be able to sell shares in this offering proportionally to the percentage of shares sold by the Existing Shareholders. In addition, any other common shares acquired by the beneficiaries of the share option plan as a result of the exercise of their options will be subject to a lock-up for a period of one year from the exercise date. This will, immediately following this offering, dilute by approximately 2.2% the interest in our issued share capital of holders of our common shares, assuming no exercise of the underwriters’ option to purchase additional common shares.
The first share option plan provides for the granting of up to 25,471,110 common share options with no par value (before the issuance of new common shares to our Existing Shareholders in a one-to-31 exchange for the shares of Vitru Brasil contributed to us, equivalent to 821,649 options after the one-to- 31 contribution), representing up to approximately 5% of the number of common issued by Vitru Brasil as of the date the plan was approved. In 2019 and 2018, 1,834,105 and 1,487,665 vested shares (before the one-to-31 contribution), respectively, were exercised under the first program at an average exercise price of R$1.02 and R$0.98, respectively. Vitru Brasil recorded a gain for the share option plan of R$0.6 million in the six months ended June 30, 2020 and an expense for the share option plan of R$26.4 million and R$7.5 million in the years ended December 31, 2019 and 2018, respectively. As of June 30, 2020, Vitru Brasil had a total of 22,727,218 share options outstanding, equivalent to 733,136 options outstanding after the one-to-31 contribution.
See also notes 3(g) and 21 to our audited consolidated financial statements included elsewhere in this prospectus.
New Long-Term Incentive Plan
Following the consummation of this offering, we intend to establish a new equity incentive plan, or the New LTIP, with the purpose of advancing the interests of our shareholders by enhancing our ability to attract, retain and motivate individuals to perform at the highest level. The New LTIP will govern
 
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issuances of equity-related incentive awards following the closing of this offering. We intend to reserve up to 5.0% of our common shares for issuance under our equity incentive plan.
Directors’ and Officers’ Insurance
Prior to the consummation of this offering, we intend to contract civil liability insurance coverage for acts carried out by our directors and executive officers in the course of their duties.
Share Ownership
The shares and any outstanding beneficially owned by our directors and officers and/or entities affiliated with these individuals are disclosed in the section entitled “Principal and Selling Shareholders.”
Our Relationship with our Directors, Executive Officer and Members of Senior Management
There are no family relationships between any of our directors, executive officers and members of our senior management.
Existing Shareholders’ Agreements
On February 29, 2016, Carlyle, Vinci Partners and Vitru Brasil entered into a shareholders’ agreement and, on June 15, 2018, the NB Funds, Carlyle, Vinci Partners and Vitru Brasil amended such shareholders’ agreement and the Existing Shareholders and Vitru Brasil entered into a minority shareholders’ agreement, or the Shareholders’ Agreements. Prior to the completion of this offering, the Shareholders’ Agreements will be terminated.
Proceedings Involving Management
Pedro Jorge Guterrez Quintans Graça, our chief executive officer, was recently summoned by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or “CVM”), as part of a sanction administrative proceeding, for allegedly not complying with the obligation to preserve certain documents related to the management of YDUQS Participações S.A., a company listed in B3 (the Brazilian stock exchange) in which he held various managerial positions from November 2007 to March 2016. YDUQs Participações as well as all other members of that company’s management at the time were also summoned as part of the administrative proceeding.
 
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table and accompanying footnotes presents information relating to the beneficial ownership of our common shares immediately prior to the completion of this offering, (2) following the sale of common shares in this offering, assuming no exercise of the underwriters’ option to purchase additional common shares, and (3) following the sale of common shares in this offering, assuming the underwriters’ option to purchase additional common shares is exercised in full, by:
•
each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding shares;
​
•
each of our executive officers and directors individually;
​
•
all executive officers and directors as a group; and
​
•
the selling shareholders, which consists of the entities shown as having shares listed in the column “Shares to be Sold in Offering.”
​
The number of common shares beneficially owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares held by that person.
The percentages of beneficial ownership in the table below are calculated on the basis of the following numbers of shares outstanding:
•
immediately prior to the completion of this offering: 17,058,053 common shares;
​
•
following the sale of common shares in this offering, assuming no exercise of the underwriters’ option to purchase additional common shares: 23,058,053 common shares; and
​
•
following the sale of common shares in this offering, assuming exercise in full of the underwriters’ option to purchase additional common shares: 23,958,053 common shares.
​
 
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Unless otherwise indicated below, the address for each beneficial owner is c/o Vitru Limited, at Rodovia José Carlos Daux, 5500, Torre Jurerê A, 2nd floor, Saco Grande, Florianópolis, in the state of Santa Catarina, 88032-005, Brazil.
​ ​ ​
Shares
Beneficially
Owned
Prior to
Offering
​ ​
% of
Total Voting
Power Before
Offering
​ ​
Shares to
be Sold in
Offering
​ ​
Shares
Beneficially
Owned After
Offering
Without
Exercise of
Underwriters’
Option
​ ​
% of Total
Voting Power
After
Offering
Without
Exercise of
Underwriters’
Option
​ ​
Shares
Beneficially
Owned
After
Offering With
Full Exercise of
Underwriters’
Option
​ ​
% of Total
Voting Power
After
Offering
With Full
Exercise of
Underwriters’
Option
​
​ ​ ​
Shares
​ ​
%
​ ​
Shares
​ ​
%
​ ​
Shares
​ ​
%
​
5% Shareholders ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Carlyle(1)
​ ​ ​ ​ 6,246,471 ​ ​ ​ ​ ​ 36.6% ​ ​ ​ ​ ​ 36.62% ​ ​ ​ ​ ​ 1,873,941 ​ ​ ​ ​ ​ 4,372,530 ​ ​ ​ ​ ​ 18.96% ​ ​ ​ ​ ​ 18.96% ​ ​ ​ ​ ​ 4,091,439 ​ ​ ​ ​ ​ 17.08% ​ ​ ​ ​ ​ 17.08% ​ ​
Vinci Partners(2)
​ ​ ​ ​ 6,246,471 ​ ​ ​ ​ ​ 36.6% ​ ​ ​ ​ ​ 36.62% ​ ​ ​ ​ ​ 1,873,941 ​ ​ ​ ​ ​ 4,372,530 ​ ​ ​ ​ ​ 18.96% ​ ​ ​ ​ ​ 18.96% ​ ​ ​ ​ ​ 4,091,439 ​ ​ ​ ​ ​ 17.08% ​ ​ ​ ​ ​ 17.08% ​ ​
NB Funds(3)
​ ​ ​ ​ 4,355,932 ​ ​ ​ ​ ​ 25.5% ​ ​ ​ ​ ​ 25.54% ​ ​ ​ ​ ​ 1,306,780 ​ ​ ​ ​ ​ 3,049,152 ​ ​ ​ ​ ​ 13.22% ​ ​ ​ ​ ​ 13.22% ​ ​ ​ ​ ​ 2,853,135 ​ ​ ​ ​ ​ 11.91% ​ ​ ​ ​ ​ 11.91% ​ ​
Other Selling Shareholders ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Valdir Gomes Barbosa Sobrinho
​ ​ ​ ​ 17,860 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 15,530 ​ ​ ​ ​ ​ 2,330 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Gabriel Simoes Guioto Ribeiro
​ ​ ​ ​ 1,814 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 1,577 ​ ​ ​ ​ ​ 237 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Raphael Ribeiro Rodrigues
​ ​ ​ ​ 4,763 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 4,142 ​ ​ ​ ​ ​ 621 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Herminio Kloch
​ ​ ​ ​ 10,206 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 8,875 ​ ​ ​ ​ ​ 1,331 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Carlos Fabiano Fistarol
​ ​ ​ ​ 9,861 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 8,575 ​ ​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Peter Kim Woo
​ ​ ​ ​ 4,536 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 3,430 ​ ​ ​ ​ ​ 1,106 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 592 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Erico Coelho Ribeiro
​ ​ ​ ​ 30,500 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 26,522 ​ ​ ​ ​ ​ 3,978 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Ricardo Grima Fernandes
​ ​ ​ ​ 6,100 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 5,304 ​ ​ ​ ​ ​ 796 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Executive Officers and Directors ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Bruno Augusto Sacchi Zaremba
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Edson Gustavo Georgette Peli
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Fernando Cezar Dantas Porfírio Borges
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Lywal Salles Filho
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Rivadávia Correa Drummond de Alvarenga Neto
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Claudia Jordão Ribeiro Pagnano
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Pedro Jorge Guterres Quintans Graça
​ ​ ​ ​ 45,359 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 35,498 ​ ​ ​ ​ ​ 9,861 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 4,536 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Carlos Henrique Boquimpani de Freitas
​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 21,739 ​ ​ ​ ​ ​ 3,261 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Ana Paula Rodrigues
​ ​ ​ ​ 30,500 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 26,522 ​ ​ ​ ​ ​ 3,978 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 0 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
Luiz Gonzaga Victor Foureaux Neto
​ ​ ​ ​ 22,680 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 17,750 ​ ​ ​ ​ ​ 4,930 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 2,268 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
All directors and executive officers as a group (ten persons)
​ ​ ​ ​ 123,539 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 101,509 ​ ​ ​ ​ ​ 22,030 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ 6,804 ​ ​ ​ ​ ​ *% ​ ​ ​ ​ ​ *% ​ ​
​
*
Represents beneficial ownership of less than 1% of our issued and outstanding common shares.
​
(1)
Carlyle includes Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C.
​
(2)
Vinci Partners includes Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC.
​
(3)
NB Funds includes NB Verrocchio LP.
​
 
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RELATED PARTY TRANSACTIONS
Related Party Transactions
We have set forth below a summary of our principal related party transactions. See also note 16 to our unaudited interim condensed consolidated financial statements and note 22 to our audited consolidated financial statements, each included elsewhere in this prospectus.
We hold shares (quotas) in certain investments funds managed by FI Vinci Renda Fixa Crédito Privado. We also carry an insurance policy issued by Austral Seguradora S.A. and use the services of Kloch Advocacia, a legal services company. FI Vinci Renda Fixa Crédito Privado, Austral Seguradora S.A. and Kloch Advocacia are indirect related parties. The balance of these investments is as follows as of the dates indicated:
​ ​ ​
As of and for
the six months ended
June 30, 2020
​ ​
As of and for
the year ended
December 31,
​
​ ​ ​
2020(1)
​ ​
2020
​ ​
2019(1)
​ ​
2019
​ ​
2018
​
​ ​ ​
US$
​ ​
R$
​ ​
US$
​ ​
R$
​
​ ​ ​
(in millions)
​
FI Vinci Renda Fixa Crédito Privado ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Short-term investments (balance)
​ ​ ​ ​ 7.1 ​ ​ ​ ​ ​ 39.0 ​ ​ ​ ​ ​ 7.0 ​ ​ ​ ​ ​ 38.5 ​ ​ ​ ​ ​ 36.6 ​ ​
Financial income
​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.6 ​ ​ ​ ​ ​ 0.4 ​ ​ ​ ​ ​ 2.1 ​ ​ ​ ​ ​ 2.1 ​ ​
Austral Seguradora S.A. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Prepaid expenses (balance)
​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.6 ​ ​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 0.8 ​ ​ ​ ​ ​ — ​ ​
General and administrative expenses
​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ — ​ ​
Kloch Advocacia ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative expenses
​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.2) ​ ​ ​ ​ ​ (0.2) ​ ​
​
(1)
For convenience purposes only, amounts in reais as of June 30, 2020 and December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.476 to US$1.00, the commercial purchase rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.
​
Related Person Transactions Policy
Prior to the consummation of this offering, we intend to enter into a new related person transaction policy. We expect that this related party transaction policy will require certain related party transactions to be approved by our board of directors or a designated committee thereof, which may include our audit committee, once implemented.
Registration Rights Agreement
Prior to the completion of this offering, we intend to enter into a registration rights agreement, or the Registration Rights Agreement, with the Existing Shareholders.
At any time that the Existing Shareholders are no longer subject to restrictions on transfer of their shares pursuant to the lock-up agreements entered into with the underwriters of our initial public offering, subject to several exceptions, including underwriter cutbacks and our right to defer a demand registration under certain circumstances, the Existing Shareholders may require that we register for public resale under the Securities Act all common shares constituting Registrable Securities (as defined in the Registration Rights Agreement) that they request be registered so long as the securities requested to be registered in each registration statement have an aggregate estimated market value of at least US$25 million (unless the initiating holder is seeking to register the sale of its entire interest
 
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in our share capital). If we become eligible to register the sale of Registrable Securities on Form F-3 under the Securities Act, which will not be until at least twelve months after the date of the initial public offering, our Existing Shareholders have the right to require us to register the sale of the Registrable Securities held by them on Form F-3, subject to certain restrictions.
If we propose to register the sale of any of our securities under the Securities Act for our own account or the account of any other holder (excluding any securities to be registered on Form S-8 relating to shares issued in connection with an employee benefit plan or Form F-4 relating to shares issued in connection with any transaction), our Existing Shareholders are entitled to notice of such registration and to request that we include Registrable Securities for resale on such registration statement, and we are required, subject to certain exceptions, to include such Registrable Securities in such registration statement.
In connection with the transfer of their Registrable Securities, the parties to the Registration Rights Agreement may assign certain of their respective rights under the Registration Rights Agreement under certain circumstances. In connection with the registrations described above, we will indemnify any selling shareholders in certain situations, subject to certain restrictions, and the selling shareholders will indemnify us in certain situations, subject to certain restrictions.
Indemnification agreements
We intend to enter into indemnification agreements with our directors and executive officers. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
 
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DESCRIPTION OF SHARE CAPITAL
General
Vitru Limited, the company whose common shares are being offered in this prospectus, was incorporated on March 5, 2020, as a Cayman Islands exempted company with limited liability duly registered with the Cayman Islands Registrar of Companies under registration number 360670. Our corporate purposes are unrestricted and we have the authority to carry out any object not prohibited by any law as provided by Section 7(4) of Companies Law.
Our affairs are governed principally by: (1) our Memorandum and Articles of Association; (2) the Companies Law; and (3) the common law of the Cayman Islands. As provided in our Articles of Association, subject to Cayman Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered office is c/o PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.
Our Memorandum and Articles of Association authorize the issuance of up to 1,000,000,000 shares of our authorized share capital. As of the date of this prospectus, 17,058,053 common shares of our authorized share capital were issued, fully paid and outstanding. Upon the completion of this offering, we will have 23,058,053 common shares of our authorized share capital issued and outstanding, assuming the underwriters do not elect to exercise their option to purchase additional common shares.
We have applied to list our common shares, on the Nasdaq under the symbol “VTRU.”
Initial settlement of our common shares will take place on the closing date of this offering through The Depository Trust Company, or DTC, in accordance with its customary settlement procedures for equity securities. Each person owning common shares held through DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of the common shares. Persons wishing to obtain certificates for their common shares must make arrangements with DTC.
The following is a summary of the material provisions of our authorized share capital and our Articles of Association.
Share Capital
The Memorandum and Articles of Association authorize common shares, which are entitled to one vote per share.
At the date of this prospectus, Vitru’s total authorized share capital was US$50,000, divided into 1,000,000,000 shares par value US$0.00005 each, all of which are undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.
Following this offering, Vitru will have a total issued and outstanding share capital of US$1,152.9, divided into 23,058,053 common shares.
Treasury Shares
At the date of this prospectus, Vitru has no shares in treasury.
Issuance of Shares
Except as expressly provided in Vitru’s Articles of Association, the board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increase to issued share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of
 
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capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Law. In accordance with its Articles of Association, Vitru shall not issue bearer shares. Vitru’s Articles of Association also provide that the issuance of non-voting shares requires the affirmative vote of a majority of the of then-outstanding common shares.
Fiscal Year
Vitru’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.
Voting Rights
The holders of the common shares are entitled to one vote per share.
Vitru’s Articles of Association provide as follows regarding the respective rights of holders of shares:
(i) Class consents from the holders of shares shall be required for any variation to the rights attached to their respective class of shares, however, the directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal;
(ii) the rights conferred on holders of shares of any class shall not be deemed to be varied by the creation or issue of further shares of that class; and
(iii) the rights attaching to shares of any class shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.
Preemptive or Similar Rights
The common shares are not entitled to preemptive or similar rights.
Record Dates
For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting of shareholders or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, Vitru’s board of directors may set a record date which shall not exceed forty (40) clear days prior to the date where the determination will be made.
General Meetings of Shareholders
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of Vitru at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to Vitru in respect of the shares that such shareholder holds must have been paid.
Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation or company, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per common share.
As a Cayman Islands exempted company, Vitru is not obliged by the Companies Law to call annual general meetings. The Articles of Association provide that the Company will in each year hold a general meeting as its annual general meeting. At any annual general meeting of shareholders the agenda will include, among other things, the presentation of the annual accounts and the report of the directors. In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.
 
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Also, Vitru may, but is not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings of shareholders are generally expected to take place in the city of Florianópolis in the state of Santa Catarina, Brazil, but may be held elsewhere if the directors so decide.
The Companies Law provides shareholders a limited right to request a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s Articles of Association. However, these rights may be provided in a company’s Articles of Association. Vitru’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear days’ notice prior to the relevant shareholders meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
Vitru will give notice of each general meeting of shareholders by publication on its website and in any other manner that it may be required to follow in order to comply with Cayman Islands law, Nasdaq and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.
Holders whose shares are registered in the name of DTC or its nominee, which we expect will be the case for all holders of common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the common shares.
A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.
A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Law and our Articles of Association.
Pursuant to Vitru’s Articles of Association, general meetings of shareholders are to be chaired by the chairman of our board of directors or in his absence the vice-chairman of the board of directors. If the chairman or vice-chairman of our board of directors is absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.
 
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Liquidation Rights
If Vitru is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between Vitru and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between Vitru and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the company and any person or persons) and subject to any agreement between Vitru and any person or persons to waive or limit the same, shall apply Vitru’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in Vitru.
Changes to Capital
Pursuant to the Articles of Association, Vitru may from time to time by ordinary resolution:
•
increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;
​
•
consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;
​
•
convert all or any of its paid-up shares into stock and reconvert that stock into paid up shares of any denomination;
​
•
subdivide its existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or
​
•
cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled.
​
Vitru’s shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce its share capital or any capital redemption reserve in any manner permitted by law.
In addition, subject to the provisions of the Companies Law and our Articles of Association, Vitru may:
•
issue shares on terms that they are to be redeemed or are liable to be redeemed;
​
•
purchase its own shares (including any redeemable shares); and
​
•
make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Law, including out of its own capital.
​
Transfer of Shares
Subject to any applicable restrictions set forth in the Articles of Association, any shareholder of Vitru may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the Nasdaq or any other form approved by the Company’s board of directors.
The common shares sold in this offering will be traded on the Nasdaq in book-entry form and may be transferred in accordance with Vitru’s Articles of Association and Nasdaq’s rules and regulations.
However, Vitru’s board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:
 
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•
a fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to Vitru in respect thereof;
​
•
the instrument of transfer is lodged with Vitru, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
​
•
the instrument of transfer is in respect of only one class of shares;
​
•
the instrument of transfer is properly stamped, if required;
​
•
the common shares transferred are free of any lien in favor of Vitru; and
​
•
in the case of a transfer to joint holders, the transfer is not to more than four joint holders.
​
If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
Share Repurchase
The Companies Law and the Articles of Association permit Vitru to purchase its own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of Vitru, subject to the Companies Law, the Articles of Association and to any applicable requirements imposed from time to time by the SEC, the Nasdaq, or by any recognized stock exchange on which our securities are listed.
Dividends and Capitalization of Profits
We have not adopted a dividend policy with respect to payments of any future dividends by Vitru. Subject to the Companies Law, Vitru’s shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors (and, for the avoidance of doubt, no dividend shall be declared by the shareholders unless previously recommend by the board of directors). The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to Vitru. Except as otherwise provided by the rights attached to shares and the Articles of Association of Vitru, all dividends shall be paid in proportion to the number of common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (i) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly, and (ii) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.
The holders of common shares shall be entitled to share equally in any dividends that may be declared in respect of Vitru’s common shares from time to time.
Appointment, Disqualification and Removal of Directors
Vitru is managed by its board of directors. The Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to nine directors, with the number being determined by a majority of the directors then in office with the consent of The Carlyle Group and Vinci Partners, in each case for so long as it enjoys director appointment rights (it being understood that The Carlyle Group and Vinci Partners shall consent to an increase in the size of the board of directors if necessary to accommodate the right of the NB Funds to appoint a director). Notwithstanding any resolution adopted by the board of directors or the shareholders of Vitru which determines the number of directors constituting the whole board of directors, the size of the board of directors shall not be increased above nine directors without the consent of each of The Carlyle Group and Vinci Partners so long as The Carlyle Group or Vinci Partners, as applicable, has the right to designate at least one director (it being understood that The Carlyle Group and Vinci Partners shall consent to an increase in the size of the board of directors above nine directors if necessary to accommodate the right of the NB Funds to appoint a director). There are no provisions relating to
 
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retirement of directors upon reaching any age limit. The Articles of Association also provide that, while Vitru’s shares are admitted to trading on Nasdaq, the board of directors must always comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.
The Articles of Association also provide that each of The Carlyle Group and Vinci Partners, for so long as it holds not less than 15 per cent of the voting shares in issue, shall be entitled to appoint up to two persons to act as directors, and that each of The Carlyle Group and Vinci Partners, for so long as it holds not less than 5 per cent and not more than 15 per cent of the voting shares in issue, shall be entitled to appoint one person to act as a director. Each of The Carlyle Group and Vinci Partners shall be entitled to remove any of the directors so appointed.
If the initial public offering does not close on or before June 15, 2021 or prior to the closing of the initial public offering, the Company grants the right to appoint a director (other than an independent director) to any person other than The Carlyle Group or Vinci Partners, then the NB Funds shall, for so long as it holds not less than 435,593 common shares, be entitled to appoint and remove one person to act as a director by notice in writing addressed to Vitru.
The Articles of Association otherwise provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed to a two year term, unless they resign, are removed or their office is vacated earlier, provided however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed).
Each director shall be appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed). Directors are eligible for re-election.
By the listing date of this offering, the directors will be Bruno Augusto Sacchi Zaremba, Edson Gustavo Georgette Peli, Fernando Cezar Dantas Porfírio Borges, Lywal Salles Filho, Rivadávia Correa Drummond de Alvarenga Neto and Claudia Jordão Ribeiro Pagnano. Rivadávia Correa Drummond de Alvarenga Neto and Claudia Jordão Ribeiro Pagnano are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the Nasdaq. We intend to appoint one additional independent director within one year following the offering.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders.
Additions to the existing board (within the limits set pursuant to the Articles of Association) may be made by ordinary resolution of the shareholders.
Prior to the closing of the initial public offering, the NB Funds shall be entitled to appoint one person to act as an observer to the board of directors and any committee of the board of directors established from time to time. From and after the closing of the initial public offering, for so long as the NB Funds hold not less than 5 per cent of the voting shares in issue, the NB Funds shall be entitled to appoint an observer to the board of directors and any committee of the board of directors established from time to time. In each case, the observer shall be entitled to attend and speak at all such meetings and receive copies of all board papers as if they were a director but shall not be entitled to vote on any resolutions proposed at a board meeting.
Upon the completion of the offering, the board of directors will have in place an audit committee. See “Management — Committees — Audit Committee.”
Grounds for Removing a Director
A director may be removed with or without cause by ordinary resolution. The notice of general meeting must contain a statement of the intention to remove the director and must be served on the
 
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director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
The office of a director will be vacated automatically if he or she (1) becomes prohibited by law from being a director, (2) becomes bankrupt or makes an arrangement or composition with his creditors, (3) dies or is in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (4) he or she wilfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, are considered to be a breach of the performance of his or her duties and/or obligations, including: (i) the uninterrupted or repeated omission or refusal to perform the duties and/or obligations established in the Articles of Association or by applicable law; and/or (ii) he or she is unable to comply with such duties and/or obligations as a result of an alcohol or drug addiction; (5) he or she willfully performs (or fails to perform) any actions that, in the opinion of all his or her co-directors, cause material damages to or adversely affects the financial situation or commercial reputation of the Company; (6) resigns his office by notice to us or (7) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.
Proceedings of the Board of Directors
The Articles of Association provide that Vitru’s business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office (subject to there being a minimum of two directors present) provided that such a majority must include at least one director appointed by The Carlyle Group and one director appointed by Vinci Partners, for so long as each of them enjoys director appointment rights under the Articles of Association. If such a quorum is not present within half an hour from the time appointed for a board meeting, or if during a meeting such quorum ceases to be present, the meeting shall stand adjourned to the same day in the next week at the same time and place or at such time and place as determined by the directors present at such meeting. If a quorum is not present at any such adjourned meeting within half an hour from the time appointed, then the meeting shall proceed. Business at any board meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a casting vote.
Subject to the provisions of the Articles of Association, the board of directors may regulate its proceedings as they determine is appropriate.
Subject to the provisions of the Articles of Association, to any directions given by ordinary resolution of the shareholders and the listing rules of the Nasdaq, the board of directors may from time to time at its discretion exercise all powers of Vitru, including, subject to the Companies Law, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
Business Opportunities
The Articles of Association also provide that, to the fullest extent permitted by applicable law and except as may be otherwise expressly agreed in writing by Vitru, on the one hand, and The Carlyle Group, Vinci Partners or the NB Funds, on the other hand, Vitru, on behalf of itself and its subsidiaries, renounces and waives any interest or expectancy of Vitru and its subsidiaries in, or in being offered an opportunity to participate in, directly or indirectly, any potential transactions, matters or business opportunities (including, without limitation, any business activities or lines of business that are the same as or similar to those pursued by, or competitive with, Vitru or any of its subsidiaries or any dealings with customers or clients of Vitru or any of its subsidiaries) that are from time to time presented to The Carlyle Group, Vinci Partners or the NB Funds or any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries (other than the Company and its subsidiaries), even if the transaction, matter or opportunity is one that Vitru or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of The Carlyle Group, Vinci Partners nor the NB Funds, nor any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries shall be liable to Vitru or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer
 
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or otherwise, by reason of the fact that such person pursues, acquires or participates in such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to Vitru or its subsidiaries, unless, in the case of any such person who is a director or officer of Vitru, such business opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer of Vitru.
Inspection of Books and Records
Holders of Vitru shares will have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent Vitru’s accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Articles of Association provide shareholders with the right to receive annual financial statements. Such right to receive annual financial statements may be satisfied by publishing the same on the company’s website or filing such annual reports as we are required to file with the SEC.
The Articles of Association also provide that the Company may provide shareholders (that are incorporated under Brazilian laws and subject to Brazilian Exchange Commission regulations or otherwise) copies of any and all: (i) agreements entered into by the Company with its related parties; (ii) shareholders’ agreements entered into by the Company; and (iii) stock option or other securities-based remuneration programs of the Company.
Register of Shareholders
The common shares offered in this offering will be held through DTC, and DTC or Cede & Co., as nominee for DTC, will be recorded in the shareholders’ register as the holder of our common shares.
Under Cayman Islands law, Vitru must keep a register of shareholders that includes:
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the names and addresses of the shareholders, a statement of the class and number of shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member;
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the date on which the name of any person was entered on the register as a member; and
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the date on which any person ceased to be a member.
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Under Cayman Islands law, the register of shareholders of Vitru is prima facie evidence of the matters set out therein (i.e. the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders. Upon the completion of this offering, the register of shareholders will be immediately updated to record and give effect to the issuance of new common shares in this offering. Once the register of shareholders has been updated, the shareholders recorded in the register of shareholders should be deemed to have legal title to the shares set against their name.
If the name of any person is incorrectly entered in or omitted from the register of shareholders, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of Vitru, the person or member aggrieved (or any shareholder of Vitru, or Vitru itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register of shareholders.
Exempted Company
Vitru is an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply
 
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to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
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an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;
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an exempted company’s register of shareholders is not open to inspection;
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an exempted company does not have to hold an annual general meeting;
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an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
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an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
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an exempted company may register as a limited duration company; and
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an exempted company may register as a segregated portfolio company.
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“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Upon the closing of this offering, Vitru will be subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this prospectus, Vitru currently intends to comply with the Nasdaq rules in lieu of following home country practice after the closing of this offering.
Anti-Takeover Provisions in our Articles of Association
Some provisions of the Articles of Association may discourage, delay or prevent a change in control of Vitru or management that shareholders may consider favorable. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of Vitru to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of the common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the management of Vitru. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.
Controlling Shareholders
So long as the Existing Shareholders have the ability to determine the outcome of most matters submitted to a vote of shareholders as well as the overall management and direction of Vitru, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the election of directors.
Preferred Shares
Vitru’s board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.
Despite the anti-takeover provisions described above, under Cayman Islands law, Vitru’s board of directors may only exercise the rights and powers granted to them under the Articles of Association, for what they believe in good faith to be in the best interests of Vitru.
 
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Protection of Non-Controlling Shareholders
The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of the shares of Vitru in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.
Subject to the provisions of the Companies Law, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.
Notwithstanding the U.S. securities laws and regulations that are applicable to Vitru, general corporate claims against Vitru by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by Vitru’s Articles of Association.
The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against Vitru, or derivative actions in Vitru’s name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control Vitru, and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.
Registration Rights and Restricted Shares
Our Existing Shareholders or entities controlled by them or their permitted transferees will, subject to the lock-up agreements described below, be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. Prior to the completion of this offering, we intend to enter into the Registration Rights Agreement with the Existing Shareholders. See “Related Party Transactions — Registration Rights Agreement.”
We, our directors and executive officers who will hold shares upon completion of this offering and our Existing Shareholders have agreed to lock-up agreements that restrict us and them, subject to specified exceptions, from selling or otherwise disposing of any shares for a period of 180 days after the date of this prospectus without the prior written consent of Goldman Sachs & Co. LLC and BofA Securities, Inc. However, Goldman Sachs & Co. LLC and BofA Securities, Inc. may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in “Common Shares Eligible for Future Sale”.
Handling of mail
Mail addressed to the Company and received at its registered office will be forwarded unopened to the forwarding address supplied by Company to be dealt with. None of the Company, its directors, officers, advisers or service providers (including the organization which provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
Certain Anti-Money Laundering Matters
If any person in the Cayman Islands knows or suspects, or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or money laundering, or is involved with terrorism or terrorist financing and property, and the information for that knowledge or suspicion came to their attention in the course of business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) the Financial Reporting Authority of the Cayman Islands (“FRA”), pursuant to the Proceeds of Crime Law (2020 Revision) of the Cayman Islands, if the disclosure relates to criminal conduct or money laundering, or (ii) a police officer of the rank of constable or higher, or the FRA, pursuant to the Terrorism Law (2018 Revision) of the Cayman Islands, if the disclosure relates to involvement with terrorism or terrorist financing and property.
 
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Data Protection — Privacy Notice
Scope
The legal basis for this notification is to meet the standards required in respect of, and ensure compliance with, the requirements of the Cayman Islands’ Data Protection Law, 2017 or the “DPL,” which came into effect in the Cayman Islands on 30 September 2019. This privacy notice puts investors in the Company on notice that through your investment into Vitru you may provide us with certain personal information which constitutes personal data within the meaning of the DPL (“personal data”). The Company collects, uses, discloses, retains and secures personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. The Company will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct the activities of the Company on an ongoing basis or to comply with legal and regulatory obligations to which the Company is subject. The Company will only transfer personal data in accordance with the requirements of the DPL, and will apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction or damage to the personal data. In our use of this personal data, we will be characterized as a “data controller” for the purposes of the DPL, while our affiliates and service providers who may receive this personal data from us in the conduct of our activities may either act as our “data processors” for the purposes of the DPL or may process personal information for their own lawful purposes in connection with services provided to the Company.
If you are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason in relation to your investment into the Company, this will be relevant for those individuals and you should inform such individuals of the content.
What rights do individuals have in respect of personal data?
Under the DPL, individuals must be informed of the purposes for which their personal data is processed and this privacy notice fulfils the Company’s obligation in this respect.
Individuals have rights under the DPL in certain circumstances. These may include the right to request access to their personal data, the right to request rectification or correction of personal data, the right to request that processing of personal data be stopped or restricted and the right to require that the Company cease processing personal data for direct marketing purposes.
If you consider that your personal data has not been handled correctly, or you are not satisfied with the Company’s responses to any requests you have made regarding the use of your personal data, you have the right to complain to the Cayman Islands’ Ombudsman. The Ombudsman can be contacted by calling: +1 (345) 946-6283 or by email at info@ombudsman.ky.
Contacting the Company
For further information on the collection, use, disclosure, transfer or processing of your personal data or the exercise of any of the rights listed above, please contact us through the address and telephone number of our principal executive office. Our principal website is www.vitru.com.br. The information contained in, or accessible through, our website is not incorporated into this prospectus or the registration statement of which it forms a part.
Principal Differences between Cayman Islands and U.S. Corporate Law
The Companies Law was modelled originally after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the
 
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significant differences between the provisions of the Companies Law applicable to Vitru and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements
The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.
For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company; and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be approved by the directors of each constituent company and filed with the Cayman Islands Registrar of Companies together with a declaration as to: (1) the solvency of the consolidated or surviving company, (2) the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies; (3) no petition or other similar proceeding has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction, (4) no receiver, trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company, its affairs or property, (5) no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction with creditors; (6) a list of the assets and liabilities of each constituent company; (7) the non-surviving constituent company has retired from any fiduciary office held or will do so; (8) that the constituent company has complied with any requirements under the regulatory laws, where relevant; and (9) an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette.
Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, may be determined by the Grand Court of the Cayman Islands) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
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Vitru is not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with;
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the shareholders have been fairly represented at the meeting in question;
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the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
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the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would amount to a “fraud on the minority.”
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When a takeover offer is made and accepted by holders of 90.0% in value of the shares affected within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
 
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If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which might otherwise ordinarily be available to dissenting shareholders of U.S. corporations and allow such dissenting shareholders to receive payment in cash for the judicially determined value of their shares.
Shareholders’ Suits
Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar. However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws and regulations.
In principle, Vitru itself would normally be the proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on behalf of Vitru in a Cayman Islands court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court judge, who will only allow the action to continue if the shareholder can demonstrate that Vitru has a good case against the Defendant, and that it is proper for the shareholder to continue the action rather than the Company’s board of directors. Examples of circumstances in which derivative actions would be permitted to continue are where:
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a company is acting or proposing to act illegally or beyond the scope of its authority;
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the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote that has not been obtained; and
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those who control the company are perpetrating a “fraud on the minority.”
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Corporate Governance
Cayman Islands law restricts transactions between a company and its directors unless there are provisions in the Articles of Association which provide a mechanism to alleviate possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary duties to the companies which they serve. Under Vitru’s Articles of Association, a director must disclose the nature and extent of his interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, the interested director may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.
Subject to the foregoing and our Articles of Association, our directors may exercise all the powers of Vitru to vote compensation to themselves or any member of their body in the absence of an independent quorum. We currently have no intention to establish a Compensation Committee.
As a foreign private issuer, we are permitted to follow home country practice in lieu of certain Nasdaq corporate governance rules, subject to certain requirements. We currently rely, and will continue to rely, on the foreign private issuer exemption with respect to the following rules:
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Nasdaq Rule 5605(b), which requires that independent directors comprise a majority of a company’s board of directors. As allowed by the laws of the Cayman Islands, independent directors do not comprise a majority of our board of directors.
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Nasdaq Rule 5605(e)(1), which requires that a company have a nominations committee comprised solely of “independent directors” as defined by Nasdaq. As allowed by the laws of the Cayman Islands, we do not have a nominations committee nor do we have any current intention to establish one.
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Nasdaq Rule 5605(d) & (e), which require that compensation for our executive officers and selection of our director nominees be determined by a majority of independent directors. As
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allowed by the laws of the Cayman Islands, we do not have a nomination and corporate governance committee or remuneration committee nor do we have any current intention to establish either.
Borrowing Powers
Vitru’s directors may exercise all the powers of Vitru to raise capital or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, bonds and other such securities whether outright or as security for any debt, liability or obligation of Vitru or of any third party. Such powers may be varied by a special resolution of shareholders (requiring a two-thirds majority vote).
Indemnification of Directors and Executive Officers and Limitation of Liability
The Companies Law does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Vitru’s Articles of Association provide that we shall indemnify and hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any losses suffered as a result of all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning Vitru or our affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Vitru’s directors, officers or persons controlling the Company under the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors owe fiduciary duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their personal interests and their duty to the company. Accordingly, a director owes a company a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. However, this obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board of directors. Vitru’s Articles of Association provides that a director must disclose the nature and extent of his or her interest in any transaction or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
A director of a Cayman Islands company also owes to the company duties to exercise independent judgment in carrying out his functions and to exercise reasonable skill, care and diligence, which has both objective and subjective elements. Recent Cayman Islands case law confirmed that directors must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having
 
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the general knowledge, skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge, skill and experience which he or she actually possesses.
A general notice may be given to the board of directors to the effect that (1) the director is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (2) he or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice shall specify the nature of the interest in question. Following the disclosure being made pursuant to Vitru’s Articles of Association and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
In comparison, under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Vitru’s Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As
 
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permitted under Cayman Islands law, Vitru’s Articles of Association do not provide for cumulative voting. As a result, the shareholders of Vitru are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Transaction with Interested Shareholders
The Delaware General Corporation Law provides that; unless the corporation has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that this person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, Vitru cannot avail itself of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that the board of directors owe duties to ensure that these transactions are entered into bona fide in the best interests of the company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. If the dissolution is initiated by the board of directors it may be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution that it be wound up because it is unable to pay its debts as they fall due. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Companies Law, Vitru may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote). Vitru’s Articles of Association also give its board of directors authority to petition the Cayman Islands Court to wind up Vitru.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. Under Vitru’s Articles of Association, if the share capital is divided into more than one class of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.
Also, except with respect to share capital (as described above), alterations to Vitru’s Articles of Association may only be made by special resolution of shareholders (requiring a two-thirds majority vote).
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority
 
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of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under Cayman Islands law, Vitru’s Articles of Association generally (and save for certain amendments to share capital described in this section) may only be amended by special resolution of shareholders (requiring a two-thirds majority vote).
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by Vitru’s Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on Vitru’s shares. In addition, there are no provisions in the Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
 
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COMMON SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common shares. Future sales of substantial amounts of common shares, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market price for our common shares or impair our ability to raise equity capital.
Upon the completion of this offering, we will have an aggregate of 23,058,053 common shares outstanding. Of these shares, the common shares sold in this offering by us or the selling shareholders will be freely tradable without restriction or further registration under the Securities Act, unless purchased by “affiliates” as that term is defined under Rule 144 of the Securities Act, who may sell only the volume of shares described below and whose sales would be subject to additional restrictions described below. The remaining common shares, representing 51.15% of our outstanding shares will be held by our existing shareholders, assuming no exercise of the option granted to the underwriters to purchase additional common shares. These shares will be “restricted securities” as that phrase is defined in Rule 144 under the Securities Act. Subject to certain contractual restrictions, including the lock-up agreements described below, holders of restricted shares will be entitled to sell those shares in the public market pursuant to an effective registration statement under the Securities Act or if they qualify for an exemption from registration under Rule 144. Sales of these shares in the public market after the restrictions under the lock-up agreements lapse, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions. As a result of lock-up agreements and market standoff agreements described below, and the provisions of Rules 144 and 701 under the Securities Act, the restricted securities will be available for sale in the public market.
Sales of these shares in the public market after the restrictions under the lock-up agreements lapse, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions.
Lock-up Agreements
We, our directors, executive officers and our Existing Shareholders, have agreed, subject to certain exceptions, not to sell or transfer any common shares or securities convertible into, exchangeable for, exercisable for, or repayable with common shares, for 180 days after the date of this prospectus without first obtaining the written consent of Goldman Sachs & Co. LLC and BofA Securities, Inc. See “Underwriting.”
Eligibility of restricted shares for sale in the public market
The common shares that are not being sold in this offering, but which will be outstanding at the time this offering is complete, will be eligible for sale into the public market, under the provisions of Rule 144 commencing after the expiration of the restrictions under the lock-up agreements, subject to volume restrictions discussed below under “— Rule 144.”
Rule 144
In general, under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common shares or the average weekly trading volume of our common shares on the during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
 
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TAXATION
The following summary contains a description of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the common shares; it is not applicable to all categories of investors, some of which may be subject to special rules; and it does not address all of the Cayman Islands and U.S. federal income tax considerations applicable to any particular investor in the common shares. The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change, possibly with retroactive effect.
Prospective purchasers of our common shares should consult their own tax advisers about the particular Cayman Islands and U.S. federal, state, local and other tax consequences to them of the acquisition, ownership and disposition of our common shares.
Cayman Islands Tax Considerations
The Cayman Islands laws currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of common shares. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
As a Cayman Islands exempted company with limited liability, we are entitled, upon application, to receive an undertaking as to tax concessions pursuant to Section 6 of the Tax Concessions Law (2018 Revision). This undertaking would provide that, for a period of 20 years from the date of issue of the undertaking, no law thereafter enacted in the Cayman Islands imposing any taxes to be levied on profits, income, gains or appreciation will apply to us or our operations.
Payments of dividends and capital in respect of our common shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our common shares, nor will gains derived from the disposal of our common shares be subject to Cayman Islands income or corporation tax.
There is no income tax treaty or convention currently in effect between the United States and the Cayman Islands.
U.S. Federal Income Tax Considerations
In the opinion of Davis Polk & Wardwell LLP, our U.S. tax counsel, the following is a description of the material U.S. federal income tax consequences to the U.S. Holders (as defined below) of owning and disposing of common shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to acquire the securities. This discussion applies to you only if you are a U.S. Holder that acquires common shares in this offering and holds those common shares as capital assets for U.S. federal income tax purposes. In addition, this discussion does not describe all of the tax consequences that may be relevant in light of your particular circumstances, including alternative minimum tax consequences, the Medicare contribution tax and tax consequences applicable to you if you are subject to special rules, such as rules applicable to you if you are:
•
one of certain financial institutions;
​
•
a dealer or trader in securities who uses a mark-to-market method of tax accounting;
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•
a person holding common shares as part of a straddle, wash sale, conversion transaction or integrated transaction or entering into a constructive sale with respect to common shares;
​
•
a person whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
​
•
an entity classified as a partnership for U.S. federal income tax purposes;
​
•
a tax-exempt entity, including an “individual retirement account” or “Roth IRA”;
​
•
a person that owns or is deemed to own ten percent or more of our stock (by vote or value); or
​
•
a person holding common shares in connection with a trade or business conducted outside of the United States.
​
If you are an entity classified as a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and your activities. Partnerships holding common shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the common shares.
This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions, and final, temporary and proposed Treasury regulations all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
You are a “U.S. Holder” if for U.S. federal income tax purposes you are a beneficial owner of common shares and:
•
a citizen or individual resident of the United States;
​
•
a corporation created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
​
•
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
​
Except where otherwise indicated, this discussion assumes that we are not, and will not become, a passive foreign investment company, as described below.
Taxation of Distributions
As discussed above under “Dividends and Dividend Policy,” we do not currently intend to pay dividends. In the event that we pay dividends, distributions paid on our common shares will be treated as dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to you as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable to long-term capital gains, provided the common shares are treated as readily tradeable on an established securities market in the United States. You should consult your tax adviser regarding the availability of the reduced tax rate on dividends in your particular circumstances. The amount of any dividend will be treated as foreign-source dividend income and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in your income on the date of receipt.
As discussed in “— Cayman Island Tax Considerations,” there are currently no applicable withholding taxes under Cayman Island law. However, if there were a change in law resulting in the imposition of a withholding tax, then, subject to applicable limitations, some of which vary depending upon your circumstances, the amount of Cayman Island income taxes withheld from distributions on your common shares that are treated as dividends for U.S. federal income tax purposes would be includible in your income as dividends, and would be potentially creditable against your U.S. federal income tax
 
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liability. The rules governing foreign tax credits are complex, and you should consult your tax adviser regarding the creditability of non-U.S. taxes in your particular circumstances.
Sale or Other Disposition of Common Shares
For U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of a common share will be capital gain or loss, and will be long-term capital gain or loss if you have held the common share for more than one year. The amount of the gain or loss will equal the difference between your tax basis in the common share disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.
Passive Foreign Investment Company Rules
Under the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, “passive income.” For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation. Passive income generally includes dividends, interest, rents, certain non-active royalties and capital gains. Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the current market price of our common shares, we do not expect to be a PFIC for our 2020 taxable year. However, there can be no assurance that the IRS will agree with our conclusion. In addition, whether we will be a PFIC for 2020 or any future year is uncertain because, among other things, (i) we will hold a substantial amount of cash following this offering, which is categorized as a passive asset and (ii) our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our common shares, which could be volatile). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year. If we are a PFIC for any year during which you hold common shares, we generally would continue to be treated as a PFIC with respect to you for all succeeding years during which you hold common shares, even if we ceased to meet the threshold requirements for PFIC status.
If we were a PFIC for any taxable year and any of our subsidiaries or other companies in which we owned or were treated as owning equity interests were also a PFIC (any such entity, a “Lower-tier PFIC”), you would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and would be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each case as if you held such shares directly, even though you will not have received the proceeds of those distributions or dispositions.
If we were a PFIC for any taxable year during which you held any of our common shares, you could be subject to adverse tax consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a pledge) of common shares would be allocated ratably over your holding period for the shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax on such amount. Further, to the extent that any distribution received on your common shares exceeded 125% of the average of the annual distributions on those shares during the preceding three years or your holding period, whichever was shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above.
Alternatively, if we were a PFIC and if the common shares were “regularly traded” on a “qualified exchange,” you could be eligible to make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. The common shares would be treated
 
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as “regularly traded” in any calendar year in which more than a de minimis quantity of the common shares were traded on a qualified exchange on at least 1/6 of the days remaining in the quarter in which the offering occurs, and on at least 15 days during each remaining calendar quarter. The Nasdaq, on which we intend to list the common shares, is a qualified exchange for this purpose. Once made, the election cannot be revoked without the consent of the IRS unless the shares cease to be marketable.
If you make the mark-to-market election, you generally will recognize as ordinary income any excess of the fair market value of your common shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the common shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If you make the election, your tax basis in your common shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of common shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). This election will not apply to any of our non-U.S. subsidiaries. Accordingly, you may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier PFICs notwithstanding your mark-to-market election for the common shares.
In addition, in order to avoid the application of the foregoing rules, a United States person that owns stock in a PFIC for U.S. federal income tax purposes may make a “qualified electing fund” election (“QEF Election”) with respect to such PFIC if the PFIC provides the information necessary for such election to be made. If a United States person makes a QEF Election with respect to a PFIC, the United States person will be currently taxable on its pro rata share of the PFIC’s ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that the entity is classified as a PFIC and will not be required to include such amounts in income when actually distributed by the PFIC. We do not intend to provide information necessary for you to make QEF Elections.
In addition, if we were a PFIC for any taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
If you own common shares during any year in which we are a PFIC, you generally must file annual reports on IRS Form 8621 (or any successor form) with respect to us, generally with your federal income tax return for that year. A failure to file one or more of these forms as required may toll the running of the statute of limitations in respect of each of your taxable years for which such form is required to be filed. As a result, the taxable years with respect to which you fail to file the form may remain open to assessment by the IRS indefinitely, until the form is filed.
You should consult your tax adviser regarding whether we are a PFIC and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) you are a corporation or other exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you will be allowed as a refund or credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the IRS.
Foreign Financial Asset Reporting
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax
 
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returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of U.S.$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. You are encouraged to consult your own tax advisers regarding the possible application of these rules, including the application of the rules to your particular circumstances.
 
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UNDERWRITING
We, the selling shareholders and the underwriters named below have entered into an underwriting agreement dated                 , 2020 with respect to the common shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, BofA Securities, Inc., Itau BBA USA Securities, Inc. and Morgan Stanley & Co. LLC are the representatives of the underwriters.
Underwriters
​ ​
Number of
Common Shares
​
Goldman Sachs & Co. LLC(1)
​ ​
           
​
BofA Securities, Inc.(2)
​ ​ ​ ​
Itau BBA USA Securities, Inc.(3)
​ ​ ​ ​
Morgan Stanley & Co LLC(4)
​ ​ ​ ​
Banco Bradesco BBI S.A.(5)
​ ​ ​ ​
Banco BTG Pactual S.A.—Cayman Branch(6)
​ ​ ​ ​
Credit Suisse Securities (USA) LLC(7)
​ ​ ​ ​
Santander Investment Securities Inc.(8)
​ ​ ​ ​
XP Investments US, LLC(9)
​ ​ ​ ​
Total
​ ​ ​ ​
​
(1)
Located at 200 West Street, New York, New York 10282-2198.
​
(2)
Located at One Bryant Park, New York, New York 10036.
​
(3)
Located at 540 Madison Avenue, 24th Floor, New York, New York 10022.
​
(4)
Located at 1585 Broadway, New York, New York 10036.
​
(5)
Located at Av Presidente Juscelino Kubitschek, n.º 1309, 10th Floor, São Paulo, SP, 04543-011, Brazil.
​
(6)
Located at Harbour Place, 5th Floor, 103 South Church Street, P.O. Box 1353GT, Grand Cayman, Cayman Islands, KYI-1108.
​
(7)
Located at Eleven Madison Avenue, New York, New York 10010.
​
(8)
Located at 45 East 53rd Street, New York, New York 10022.
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(9)
Located at 55 West 46 Street, 30 Floor, New York, New York, 10036.
​
Banco Bradesco BBI S.A. is not a broker-dealer registered with the SEC, and therefore may not make sales of any shares in the United States or to U.S. persons except in compliance with applicable U.S. laws and regulations. To the extent Banco Bradesco BBI S.A. intends to effect sales of the shares in the United States, it will do so only through Bradesco Securities Inc. or one or more U.S. registered broker-dealers, or otherwise as permitted by applicable U.S. law.
Banco BTG Pactual S.A. — Cayman Branch is not a broker-dealer registered with the SEC, and therefore may not make sales of any shares in the United States or to U.S. persons except in compliance with applicable U.S. laws and regulations. To the extent Banco BTG Pactual S.A. — Cayman Branch intends to effect sales of the shares in the United States, it will do so only through BTG Pactual US Capital, LLC or one or more U.S. registered broker-dealers, or otherwise as permitted by applicable U.S. law.
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the common shares sold under the underwriting agreement, if any of these common shares are purchased, other than the shares covered by the option described below unless and until this option is exercised. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
The underwriters have an option to buy up to an additional 900,000 common shares from us and up to an additional 784,518 common shares from the selling shareholders to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may
 
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exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total public offering price, underwriting discounts and commissions to be paid to the underwriters by us and by the selling shareholders, and proceeds before expenses to us and to the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 1,684,518 common shares.
​ ​ ​
Total
​
​ ​ ​
Per Share
​ ​
No Exercise
​ ​
Full Exercise
​
​ ​ ​
(US$)
​
Offering Price
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Underwriting discounts and commissions to be paid by us
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Underwriting discounts and commissions to be paid by the selling shareholders
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Proceeds, before expenses, to us
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Proceeds, before expenses, to the selling shareholders
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately US$      . We have agreed to reimburse the underwriters for expenses of up to US$      related to clearance of this offering with FINRA.
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to US$      per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.
We, our executive officers, directors and our Existing Shareholders have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common shares or securities convertible into or exchangeable for common shares during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC and BofA Securities, Inc. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly to (i) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any common shares, or any options or warrants to purchase any common shares, or any securities convertible into, exchangeable for or that represent the right to receive common shares, whether now owned or later acquired, (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) which is designed to or which reasonably would be expected to lead to or result in a sale, loan, pledge or other disposition (whether by the signatory or someone other than the signatory), or transfer of any of the economic consequences of ownership, in whole or in part, directly or indirectly, of any common shares, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of common shares or other securities, in cash or otherwise or (iii) otherwise publicly announce any intention to engage in or cause any action or activity described in clause (i) above or transaction or arrangement described in clause (ii) above. These lock-up restrictions will not apply to: (a) bona fide gifts, provided that such donee or donees agree to be bound in writing by the terms of the lock-up agreement and provided further that the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers, (b) any trust for the direct or indirect benefit of the signatories of the lock-up agreement or their immediate family, provided that (x) the trustee of such a trust agrees to be bound in writing by the terms of the lock-up agreement, (y) provided further that any such transfer shall not involve a disposition for value and (z) the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers, (c) transfers that occur
 
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by reason of a will or under the laws of descent, or pursuant to statutes governing the effects of a qualified domestic order or divorce settlement, provided that the transferee or transferees agree to bound in writing by the terms of the lock-up agreement and provided further that the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers, (d) transactions relating to our common shares or other securities acquired in open market transactions after the completion of this offering, provided that no public filings shall be required or shall be voluntarily made in connection with subsequent sales of our common shares or other securities acquired in such open market transactions, (e) transfers following the consummation of our initial public offering, pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all holders of our issued share capital involving a “change of control” (meaning a change in our ownership of not less than 50.1%) that has been approved by the our board of directors, provided that should such a transaction not be completed, the lock-up restrictions will continue to apply to the signatories of the lock-up agreement and provided further that the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers other than filings under Section 13 of the Exchange Act, (f) pursuant to the underwriting agreement and any reclassification, conversion or exchange in connection with such sale of shares to be sold thereby, provided that the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers other than filings under Section 13 of the Exchange Act, (g) as a result of the operation of law, or pursuant to an order of a court or regulatory agency, provided that the signatory is not required to and does not voluntarily effect any public filing or report regarding such transfers other than filings under Section 13 of the Exchange Act, (h) transfers whereby a signatory of the lock-up agreement that is an entity transfers its common shares to a subsidiary or an “affiliate” (as defined by Rule 405 of the Securities Act) or distributes its common shares to direct or indirect partners, members, shareholders or holders of similar equity interest in the signatory to the lock-up agreement, or transfers whereby a signatory of the lock-up agreement that is an individual its common shares to any immediate family member or any entity controlled by the signatory, provided that the transferee or transferees agree to remain subject to the restrictions set forth in the lock-up agreement and the undersigned is not required to and does not voluntarily effect any public filing or report regarding such transfers other than filings under Section 13 of the Exchange Act, (i) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act, provided that such a plan does not provide for the transfer of common shares during the lock-up period and provided further that to the extent a public announcement or filing under the Exchange Act is required of or voluntarily made during the lock-up period by or on behalf of the signatory or us regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common shares may be made under such plan during the lock-up period, (h) any third-party pledge in a bona fide transaction as collateral to secure the obligations pursuant to lending or other arrangements between such third parties (or their affiliates or designees) and the signatory and its affiliates, provided, that (x) any such pledgee or other party shall, upon foreclosure on the pledged common shares, execute and deliver an agreement stating that the transferee is receiving and holding such common shares subject to the provisions of the lock-up agreement and (y) none of us, the signatory, nor such pledgee or other party shall effect any public filing or report regarding such pledge, foreclosure or otherwise relating to the pledge or (j) if the signatory of the lock-up agreement is our director or officer, the exercise of any rights to purchase, exchange or convert any stock options granted to the undersigned pursuant to the our equity incentive plans referred to in this prospectus, or any options, warrants or other securities convertible into or exercisable or exchangeable for our common shares, which options, warrants or other securities are described in this prospectus, provided that (x) no filings shall be required or made during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, (y) the underlying common shares continue to be subject to the restrictions set forth in the lock-up agreement, and (z) neither us nor the signatory otherwise voluntarily effects any other public filings, announcements or reports regarding such exercise during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus. We also agreed not to file with the SEC a registration statement under the Securities Act relating to, any securities that are substantially similar to the common shares, including but not limited to any options or warrants to purchase common shares or any securities that are convertible into or exchangeable for, or that represent the right to receive, common shares or any such substantially similar securities, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing or enter into any swap or other agreement that transfers, in whole or in part, any of the economic
 
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consequences of ownership of common shares or any such other securities. These restrictions will not apply to: (a) the issuance of common shares to be sold pursuant to this offering, (b) the grant by us of any options, warrants or shares, provided that, if such options or warrants are exercised, the recipients of the shares shall be bound by the lock-up agreement, or the issuance of common shares upon the exercise of an option or warrant or under the LTIP, provided that the recipients of such common shares who are our directors or executive officers enter into a written letter agreement agreeing to remain subject to the lock-up restrictions set forth in such agreement with the underwriters, (c) the issuance of common shares upon the conversion of a security described in this prospectus outstanding as of the date of this prospectus, provided that the recipients of such common shares who are our directors or executives enter into a written letter agreement agreeing to remain subject to the lock-up restrictions set forth in such agreement with the underwriters, (d) the issuance of common shares in connection with a merger, acquisition, joint venture or strategic participation entered into by us, provided that the aggregate number of such common shares issued thereby shall not exceed 5% of the total number of common shares issued and outstanding as of the date of such merger, acquisition, joint venture or strategic participation and the recipients of such common shares enter into a written letter agreement agreeing to remain subject to the lock-up restrictions set forth in such agreement with the underwriters, (e) the filing by us of any registration statement on Form S-8 or a successor form thereto relating to our long term incentive plans described in this prospectus, or (f) the issuance of common shares in connection with the establishment of a trading plan pursuant to Rule 10b5-1 of the Exchange Act, provided that such a plan does not provide for the transfer of common shares during the lock-up period and no public announcement under the Exchange Act whether required or voluntary will be made.
We and the selling shareholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933 or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and may actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers or affiliates, and such investment and trading activities may involve or relate to assets, securities and/or instruments of ours (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Prior to the offering, there has been no public market for our common shares. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price our common shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
An application has been made to list the common shares on the Nasdaq under the symbol “VTRU”. In order to meet one of the requirements for listing the common stock on the Nasdaq, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial holders.
 
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In connection with the offering, the underwriters may purchase and sell common shares in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common shares made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our common shares, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common shares. As a result, the price of the common shares may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the Nasdaq, in the over-the-counter market or otherwise.
European Economic Area
In relation to each member state of the European Economic Area (each a “Member State”), our common shares have not been offered or will not be offered pursuant to this offering to the public in that Member State prior to the publication of a prospectus in relation to our common shares which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that an offer to the public in that Member State of our common shares may be made at any time under the following exemptions under the Prospectus Regulation:
(a)
To any legal entity which is a qualified investor as defined in the Prospectus Regulation;
​
(b)
To fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
​
(c)
In any other circumstances falling within Article 1(4) of the Prospectus Regulation,
​
provided that no such offer or shares of our common shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
The common shares are also not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “Insurance Distribution Directive”),
 
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where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in the Prospectus Regulation. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling our common shares or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling our common shares or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to our common shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common shares to be offered so as to enable an investor to decide to purchase or subscribe for our common shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
This European Economic Area selling restriction is in addition to any other selling restrictions set out below.
United Kingdom
Each underwriter has represented and agreed that:
(a)
it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (FSMA)) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us or the selling shareholders; and
​
(b)
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
​
Argentina
The common shares are not authorized for public offering in Argentina by the Comisión Nacional de Valores pursuant to Argentine Public Offering Law No. 17,811, as amended, and they shall not be sold publicly. Therefore, any transaction carried out in Argentina must be made privately.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged or will be lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the common shares may only be made to persons (the Exempt Investors) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the common shares without disclosure to investors under Chapter 6D of the Corporations Act.
The common shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring common shares must observe such Australian on-sale restrictions.
The Company is not licensed in Australia to provide financial product advice in relation to the common shares. This prospectus contains general information only and does not take account of the
 
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investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Any advice contained in this document is general advice only. Before making an investment decision on the basis of this document, investors should consider the appropriateness of the information in this document, having regard to their own objectives, financial situation and needs, and, if necessary, seek expert advice on those matters. No cooling off period applies to an acquisition of the common shares.
Brazil
Notice to Prospective Investors in Brazil
The offer and sale of our common shares has not been, and will not be, registered (or exempted from registration) with the Brazilian Securities Commission (Comissão de Valores Mobiliários, or “CVM”) and, therefore, will not be carried out by any means that would constitute a public offering in Brazil under Law No. 6,385, of December 7, 1976, as amended, under CVM Rule No. 400, of December 29, 2003, as amended, or under CVM Rule No. 476, of January 16, 2009, as amended. Any representation to the contrary is untruthful and unlawful. As a consequence, our common shares cannot be offered and sold in Brazil.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal adviser.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Cayman Islands
This prospectus does not constitute a public offer of the common shares, whether by way of sale or subscription, in the Cayman Islands. The common shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.
Chile
The offer of the common shares is subject to CMF Rule 336. The common shares being offered will not be registered under the Chilean Securities Market Law in the Securities Registry (Registro de Valores) or in the Foreign Securities Registry (Registro de Valores Extranjeros) of the CMF and, therefore, the common shares are not subject to the supervision of the CMF. As unregistered securities, we are not required to disclose public information about the common shares in Chile. Accordingly, the common shares cannot and will not be publicly offered to persons in Chile unless they are registered in the corresponding securities registry. The common shares may only be offered in Chile in circumstances that do not constitute a public offering under Chilean law or in compliance with CMF Rule 336. Pursuant to CMF Rule 336, the common shares may be privately offered in Chile to certain “qualified investors” identified as such therein (which in turn are further described in Rule No. 216, dated June 12, 2008 and in Rule No. 410, dated July 27, 2016, both issued by the CMF).
 
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LA OFERTA DE LAS ACCIONES COMUNES CLASE A SE ACOGE A LA NORMA DE CARÁCTER GENERAL N°336 DE LA CMF. LAS ACCIONES COMUNES CLASE A QUE SE OFRECEN NO ESTÁN INSCRITOS BAJO LA LEY DE MERCADO DE VALORES EN EL REGISTRO DE VALORES O EN EL REGISTRO DE VALORES EXTRANJEROS QUE LLEVA LA CMF, POR LO QUE TALES VALORES NO ESTÁN SUJETOS A LA FISCALIZACIÓN DE ÉSTA. POR TRATARSE DE VALORES NO INSCRITOS, NO EXISTE OBLIGACIÓN POR PARTE DEL EMISOR DE ENTREGAR EN CHILE INFORMACIÓN PÚBLICA RESPECTO DE ESTOS VALORES. LAS ACCIONES COMUNES CLASE A NO PODRÁN SER OBJETO DE OFERTA PÚBLICA EN CHILE MIENTRAS NO SEAN INSCRITOS EN EL REGISTRO DE VALORES CORRESPONDIENTE. LAS ACCIONES COMUNES CLASE A SOLO PODRÁN SER OFRECIDOS EN CHILE EN CIRCUNSTANCIAS QUE NO CONSTITUYAN UNA OFERTA PÚBLICA O CUMPLIENDO CON LO DISPUESTO EN LA NORMA DE CARÁCTER GENERAL N°336 DE LA CMF. EN CONFORMIDAD CON LO DISPUESTO POR LA NORMA DE CARÁCTER GENERAL N°336, LAS ACCIONES COMUNES CLASE A PODRÁN SER OFRECIDOS PRIVADAMENTE A CIERTOS “INVERSIONISTAS CALIFICADOS,” IDENTIFICADOS COMO TAL EN DICHA NORMA (Y QUE A SU VEZ ESTÁN DESCRITOS EN LA NORMA DE CARÁCTER GENERAL N°216 DE LA CMF DE FECHA 12 DE JUNIO DE 2008 Y EN LA NORMA DE CARÁCTER GENERAL N°410 DE LA CMF DE FECHA 27 DE JULIO DE 2016).
China
The common shares may not be offered or sold directly or indirectly to the public in the People’s Republic of China (“China”) and neither this prospectus, which has not been submitted to the Chinese Securities and Regulatory Commission, nor any offering material or information contained herein relating to the common shares may be supplied to the public in China or used in connection with any offer for the subscription or sale of common shares to the public in China. The common shares may only be offered or sold to China-related organizations which are authorized to engage in foreign exchange business and offshore investment from outside of China. Such China-related investors may be subject to foreign exchange control approval and filing requirements under the relevant Chinese foreign exchange regulations. For the purpose of this paragraph, China does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Colombia
The common shares have not been and will not be registered on the Colombian National Registry of Securities and Issuers or in the Colombian Stock Exchange. Therefore, the common shares may not be publicly offered in Colombia. This material is for your sole and exclusive use as a determined entity, including any of your shareholders, administrators or employees, as applicable. You acknowledge the Colombian laws and regulations (specifically foreign exchange and tax regulations) applicable to any transaction or investment consummated pursuant hereto and represent that you are the sole party responsible for full compliance with any such laws and regulations.
Hong Kong
The common shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (“Companies (Winding Up and Miscellaneous Provisions) Ordinance”) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“Securities and Futures Ordinance”), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the common shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to common shares which are or are intended to be disposed
 
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of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, and any offer of the common shares is directed only at, (i) a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisers, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case, purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors are required to submit written confirmation that they fall within the scope of the Addendum, are aware of its meaning and agree to it.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Kuwait
The common shares have not been authorized or licensed for offering, marketing or sale in the State of Kuwait. The distribution of this prospectus and the offering and sale of the common shares in the State of Kuwait is restricted by law unless a license is obtained from the Kuwait Ministry of Commerce and Industry in accordance with Law 31 of 1990. Persons into whose possession this prospectus comes are required by us and the international underwriters to inform themselves about and to observe such restrictions. Investors in the State of Kuwait who approach us or any of the international underwriters to obtain copies of this prospectus are required by us and the international underwriters to keep such prospectus confidential and not to make copies thereof or distribute the same to any other person and are also required to observe the restrictions provided for in all jurisdictions with respect to offering, marketing and the sale of the common shares.
Mexico
The common shares have not been registered in Mexico with the Securities Section (Sección de Valores) of the National Securities Registry (Registro Nacional de Valores) maintained by the Comisión Nacional Bancaria y de Valores, and no action has been or will be taken that would permit the offer or sale of the common shares in Mexico absent an available exemption under Article 8 of the Mexican Securities Market Law (Ley del Mercado de Valores).
Peru
The common shares and this prospectus have not been registered in Peru under the Decreto Supremo Nº 093-2002-EF: Texto Único Ordenado de la Ley del Mercado de Valores, (the “Peruvian Securities Law”) or before the Superintendencia del Mercado de Valores, and cannot be offered or sold in Peru except in a private offering under the meaning of the Peruvian Securities Laws. The Peruvian Securities Law provides that an offering directed exclusively to “institutional investors” (as defined in the Institutional Investors Market Regulations) qualifies as a private offering. The common shares acquired
 
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by institutional investors in Peru cannot be transferred to a third party, unless such transfer is made to another institutional investor or the common shares have been previously registered with the Registro Público del Mercado de Valores.
Qatar
The common shares described in this prospectus have not been, and will not be, offered, sold or delivered, at any time, directly or indirectly in the State of Qatar (including the Qatar Financial Centre) in a manner that would constitute a public offering. This prospectus has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority, the Qatar Central Bank, Qatar Financial Centre Regulatory Authority or any other relevant Qatar governmental body or securities exchange and may not be publicly distributed. This prospectus is intended for the original recipient only and must not be provided to any other person. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose.
Saudi Arabia
Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a Saudi Investor) who acquires the common shares pursuant to the offering should note that the offer of the common shares is an exempt offer under sub-paragraph (3) of paragraph (a) of Article 16 of the “Offer of Securities Regulations” as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated October 4, 2004 and amended by the resolution of the Board of Capital Market Authority resolution number 1-33-2004 dated December 21, 2004 (the KSA Regulations). The common shares may be offered to no more than 60 Saudi Investors, and the minimum amount payable per Saudi Investor must not be less than Saudi Riyal (SR) 1 million or an equivalent amount. The offer of common shares is therefore exempt from the public offer provisions of the KSA Regulations, but is subject to the following restrictions on secondary market activity: (a) A Saudi Investor (the transferor) who has acquired common shares pursuant to this exempt offer may not offer or sell common shares to any person (referred to as a transferee) unless (i) the price to be paid by the transferee for such common shares equals or exceeds SR1 million or an equivalent amount, (ii) the common shares are offered or sold to a sophisticated investor, or (iii) the common shares are being offered or sold in such other circumstances as the Capital Market Authority may prescribe for these purposes. (b) If the provisions of paragraph (a)(i) cannot be fulfilled because the price of the common shares being offered or sold to the transferee has declined since the date of the original exempt offer, the transferor may offer or sell the common shares to the transferee if their purchase price during the period of the original exempt offer was equal to or exceeded SR1 million. (c) If the provisions of paragraphs (a) and (b) cannot be fulfilled, the transferor may offer or sell the common shares if he/she sells his entire holding of the common shares to one transferee. (d) The provisions of paragraphs (a), (b) and (c) above shall apply to all subsequent transferees of the common shares.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”). Accordingly, each underwriter has not offered or sold any common shares or caused such common shares to be made the subject of an invitation for subscription or purchase and will not offer or sell such common shares or cause such common shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such common shares, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the common shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A
 
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of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the common shares pursuant to an offer made under Section 275 of the SFA, except: (i) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), or to any person arising from an offer referred to in Section 275(1A), or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Singapore Securities and Futures Act Product Classification-Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the SFA, we have determined, and hereby notify all relevant persons (as defined in Section 309A of the SFA) that the common shares are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
South Korea
The common shares have not been and will not be registered with the Financial Services Commission of Korea for public offering in Korea under the Financial Investment Services and Capital Markets Act, or the FSCMA. The common shares may not be offered, sold or delivered, or offered or sold for reoffering or resale, directly or indirectly, in Korea or to any Korean resident (as such term is defined in the Foreign Exchange Transaction Law of Korea, or FETL) other than to the Accredited Investors (as such term is defined in Article 11 of the Presidential Decree of the FSCMA), for a period of one year from the date of issuance of the common shares, except pursuant to the applicable laws and regulations of Korea, including the FSCMA and the FETL and the decrees and regulations thereunder. The common shares may not be resold to Korean residents unless the purchaser of the common shares complies with all applicable regulatory requirements (including but not limited to government reporting requirements under the FETL and its subordinate decrees and regulations) in connection with the purchase of the common shares.
Switzerland
The common shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the common shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the common shares have been, or will be filed with, or approved by, any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of common shares will not be supervised by, the Swiss Financial Market Supervisory Authority (“FINMA”), and the offer of common shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (the “CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of common shares.
United Arab Emirates
The common shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (including the Dubai International Financial Centre) other than in compliance
 
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with the laws of the United Arab Emirates (and the Dubai International Financial Centre) governing the issue, offering and sale of securities. Furthermore, this prospectus does not constitute a public offer of securities in the United Arab Emirates (including the Dubai International Financial Centre) and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Securities and Commodities Authority of the United Arab Emirates or the Dubai Financial Services Authority.
 
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EXPENSES OF THE OFFERING
We estimate that our expenses in connection with this offering, other than underwriting discounts and commissions, will be as follows:
Expenses
​ ​
Amount
​
U.S. Securities and Exchange Commission registration fee
​ ​
US$42,834
​
Nasdaq listing fee
​ ​
170,000
​
FINRA filing fee
​ ​
47,550
​
Printing and engraving expenses
​ ​
150,000
​
Legal fees and expenses
​ ​
2,000,000
​
Transfer agent and registrar fees
​ ​
25,000
​
Accounting fees and expenses
​ ​
1,200,000
​
Miscellaneous costs
​ ​
     550,000
​
Total
​ ​
US$4,185,384
​
All amounts in the table are estimates except the U.S. Securities and Exchange Commission registration fee, the Nasdaq listing fee and the FINRA filing fee. The Company will pay certain of the expenses of this offering.
 
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LEGAL MATTERS
Certain matters of U.S. federal and New York State law will be passed upon for us by Davis Polk & Wardwell LLP, and for the underwriters by White & Case LLP. The validity of the common shares offered in this offering and other legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder and for the underwriters by Conyers Dill & Pearman. Certain other matters of Brazil law will be passed upon for us by Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados and for the underwriters by Trench, Rossi e Watanabe Advogados.
EXPERTS
The consolidated financial statements of Treviso Empreendimentos, Participações e Comércio S.A. as of December 31, 2019 and 2018 and for the years then ended included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers Auditores Independentes, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
 
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ENFORCEABILITY OF CIVIL LIABILITIES
We are registered under the laws of the Cayman Islands as an exempted company with limited liability. We are registered in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands have a less developed body of securities laws as compared to the United States and provide protections for investors to a significantly lesser extent. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States. Maples and Calder, our counsel as to Cayman Islands law, and Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, our counsel as to Brazilian law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands or Brazil would, respectively, (1) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (2) entertain original actions brought in the Cayman Islands or Brazil against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Our Cayman Islands counsel has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands’ company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.
Our Cayman Islands counsel has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.
Substantially all of our assets are located outside the United States, in Brazil. In addition, a majority of the members of our board of directors and all of our officers are nationals or residents of Brazil and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed Cogency Global Inc., with offices at 122 East 42nd Street, 18th Floor, New York, NY 10168, as our agent to receive service of process with respect to any action brought against us in the United States under the federal securities laws of the United States or of any state in the United States arising out of this offering.
We have been advised by Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, our Brazilian counsel, that a judgment of a United States court for civil liabilities predicated upon the federal securities laws of the United States may be enforced in Brazil, subject to certain requirements described below. Such counsel has advised that a judgment against us, the members of our board of directors or our executive officers obtained in the United States would be enforceable in Brazil without retrial or re-examination of the merits of the original action including, without limitation, any final judgment for payment of a certain amount rendered by any such court, provided that such judgment has been previously recognized by the Brazilian Superior Tribunal of Justice (Superior Tribunal de Justiça), or STJ. That recognition will only be available, pursuant to Articles 963 and 964 of the Brazilian Code of Civil Procedure (Código de Processo Civil, Law No. 13,105, dated March 16, 2015, as amended), if the U.S. judgment:
•
complies with all formalities for enforceability in the jurisdiction where it was granted;
​
•
is issued by a court of competent jurisdiction after proper service of process is made, which service must comply with Brazilian law if made in Brazil or after sufficient evidence of our absence has been given, pursuant to applicable law;
​
 
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•
is final and, therefore, not subject to appeal (res judicata) in the United States;
​
•
does not conflict with a previous final and unappealable decision issued by a Brazilian court on the same matter and involving the same parties (res judicata);
​
•
is duly apostilled by a competent authority of the United States, according to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents dated as of October 5, 1961 authentication, or the Hague Convention;
​
•
is accompanied by a translation into Portuguese made by a certified translator in Brazil; and
​
•
is not contrary to Brazilian national sovereignty or public policy and does not violate the dignity of the human person, as set forth in Brazilian law.
​
The judicial recognition process may be time-consuming and may also give rise to difficulties in enforcing such foreign judgment in Brazil. Accordingly, we cannot assure you that judicial recognition of a foreign judgment would be successful, that the judicial recognition process would be conducted in a timely manner or that a Brazilian court would enforce a judgment of countries other than Brazil.
We have been further advised by Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados that:
•
original claims may be brought in connection with this initial public offering predicated on the federal securities laws of the United States in Brazilian courts and that, subject to applicable law, Brazilian courts may enforce liabilities in such actions against us or the members of our board of directors or our executive officers and certain advisers named herein (provided that provisions of the federal securities laws of the United States do not contravene Brazilian public policy, good morals or national sovereignty, and provided further that Brazilian courts can assert jurisdiction over the particular action); and
​
•
the ability of a creditor or other persons named above to satisfy a judgment by attaching certain of our or any selling shareholder’s assets, respectively, is limited by provisions of Brazilian law, to the extent that assets are located in Brazil.
​
A plaintiff, whether Brazilian or non-Brazilian, who resides outside Brazil or is outside Brazil during the course of litigation in Brazil and who does not own real estate property in Brazil must post a bond to guarantee the payment of the defendant’s legal fees and court expenses in connection with court procedures for the collection of money according to Article 83 of the Brazilian Code of Civil Procedure (Código de Processo Civil). This is so except in the case of: (1) claims for collection on a título executivo extrajudicial (an instrument which may be enforced in Brazilian courts without a review on the merits), or enforcement of foreign judgments that have been duly recognized by the Superior Court of Justice; (2) counterclaims as established; and (3) when an exemption is provided by an international agreement or treaty to which Brazil is a signatory.
If proceedings are brought in Brazilian courts seeking to enforce our obligations with respect to our common shares, payment shall be made in reais. Any judgment rendered in Brazilian courts in respect of any payment obligations with respect to our common shares would be expressed in reais. See “Risk Factors — Certain Risks Relating to Our Common Shares and the Offering — Judgments of Brazilian courts to enforce our obligations with respect to our common shares may be payable only in reais. The exchange rate in force at the time may not offer non-Brazilian investors full compensation for any claim arising from our obligations.”
 
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.
Upon completion of this offering we will be subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal and selling shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
We will send the transfer agent a copy of all notices of shareholders’ meetings and other reports, communications and information that are made generally available to shareholders. The transfer agent has agreed to mail to all shareholders a notice containing the information (or a summary of the information) contained in any notice of a meeting of our shareholders received by the transfer agent and will make available to all shareholders such notices and all such other reports and communications received by the transfer agent.
 
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EXPLANATORY NOTE TO THE FINANCIAL STATEMENTS
The Registrant was incorporated on March 5, 2020, to become the holding entity of Vitru Brasil in connection with this offering. Prior to the consummation of this offering, the Registrant had not commenced operations and had nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, the financial statements of the Registrant have been omitted from this prospectus. The financial statements presented in this prospectus are those of Vitru Brasil, which, upon the contribution of Vitru Brasil shares to the Company prior to the consummation of this offering, became the Company’s principal wholly-owned subsidiary.
 
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INDEX TO FINANCIAL STATEMENTS
​ ​ ​
Page
​
Unaudited Interim Condensed Consolidated Financial Statements — Treviso Empreendimentos, Participações e Comércio S.A.
​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ F-2 ​ ​
​ ​ ​ ​ F-4 ​ ​
​ ​ ​ ​ F-5 ​ ​
​ ​ ​ ​ F-6 ​ ​
​ ​ ​ ​ F-7 ​ ​
Audited Consolidated Financial Statements — Treviso Empreendimentos, Participações
e Comércio S.A.
​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ F-28 ​ ​
​ ​ ​ ​ F-29 ​ ​
​ ​ ​ ​ F-31 ​ ​
​ ​ ​ ​ F-32 ​ ​
​ ​ ​ ​ F-33 ​ ​
​ ​ ​ ​ F-34 ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Unaudited interim condensed consolidated statements of financial position at
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
June, 30
2020
​ ​
December 31,
2019
​
ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ ​ 5 ​ ​ ​ ​ ​ 157,158 ​ ​ ​ ​ ​ 2,457 ​ ​
Short-term investments
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 79,970 ​ ​ ​ ​ ​ 72,321 ​ ​
Trade receivables
​ ​ ​ ​ 6 ​ ​ ​ ​ ​ 110,274 ​ ​ ​ ​ ​ 88,130 ​ ​
Income taxes recoverable
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,711 ​ ​
Prepaid expenses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,558 ​ ​ ​ ​ ​ 8,938 ​ ​
Other current assets
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,124 ​ ​ ​ ​ ​ 1,858 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 362,084 ​ ​ ​ ​ ​ 178,415 ​ ​
Assets classified as held for sale
​ ​ ​ ​ 8 ​ ​ ​ ​ ​ 35,083 ​ ​ ​ ​ ​ 36,433 ​ ​
TOTAL CURRENT ASSETS
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 397,167 ​ ​ ​ ​ ​ 214,848 ​ ​
NON-CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,326 ​ ​ ​ ​ ​ 3,786 ​ ​
Indemnification assets
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12,932 ​ ​ ​ ​ ​ 14,801 ​ ​
Deferred tax assets
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ 55,305 ​ ​ ​ ​ ​ 37,146 ​ ​
Other non-current assets
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,379 ​ ​ ​ ​ ​ 1,359 ​ ​
Right-of-use assets
​ ​ ​ ​ 9 ​ ​ ​ ​ ​ 108,972 ​ ​ ​ ​ ​ 88,534 ​ ​
Property and equipment
​ ​ ​ ​ 10 ​ ​ ​ ​ ​ 85,087 ​ ​ ​ ​ ​ 70,033 ​ ​
Intangible assets
​ ​ ​ ​ 10 ​ ​ ​ ​ ​ 660,487 ​ ​ ​ ​ ​ 658,170 ​ ​
TOTAL NON-CURRENT ASSETS
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 927,488 ​ ​ ​ ​ ​ 873,829 ​ ​
TOTAL ASSETS
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,324,655 ​ ​ ​ ​ ​ 1,088,677 ​ ​
The accompanying notes are an integral part of the unaudited interim
condensed consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Unaudited interim condensed consolidated statements of financial position at
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
June, 30
2020
​ ​
December 31,
2019
​
LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CURRENT LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade payables
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 28,217 ​ ​ ​ ​ ​ 29,978 ​ ​
Loans and financing
​ ​ ​ ​ 11 ​ ​ ​ ​ ​ 2,007 ​ ​ ​ ​ ​ — ​ ​
Lease liabilities
​ ​ ​ ​ 9 ​ ​ ​ ​ ​ 20,310 ​ ​ ​ ​ ​ 17,265 ​ ​
Labor and social obligations
​ ​ ​ ​ 12 ​ ​ ​ ​ ​ 36,331 ​ ​ ​ ​ ​ 16,784 ​ ​
Income taxes payable
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ 5,238 ​ ​ ​ ​ ​ — ​ ​
Taxes payable
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,970 ​ ​ ​ ​ ​ 1,657 ​ ​
Prepayments from customers
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,746 ​ ​ ​ ​ ​ 3,186 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 13 ​ ​ ​ ​ ​ 131,801 ​ ​ ​ ​ ​ 128,888 ​ ​
Other current liabilities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 831 ​ ​ ​ ​ ​ 349 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 232,451 ​ ​ ​ ​ ​ 198,107 ​ ​
Liabilities directly associated with assets classified as held for sale
​ ​ ​ ​ 8 ​ ​ ​ ​ ​ 24,534 ​ ​ ​ ​ ​ 23,284 ​ ​
TOTAL CURRENT LIABILITIES
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 256,985 ​ ​ ​ ​ ​ 221,391 ​ ​
NON-CURRENT ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Loans and financing
​ ​ ​ ​ 11 ​ ​ ​ ​ ​ 150,000 ​ ​ ​ ​ ​ — ​ ​
Lease liabilities
​ ​ ​ ​ 9 ​ ​ ​ ​ ​ 104,848 ​ ​ ​ ​ ​ 85,923 ​ ​
Share-based compensation
​ ​ ​ ​ 4 ​ ​ ​ ​ ​ 34,384 ​ ​ ​ ​ ​ 34,950 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 13 ​ ​ ​ ​ ​ 255,964 ​ ​ ​ ​ ​ 250,652 ​ ​
Provisions for contingencies
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,823 ​ ​ ​ ​ ​ 18,403 ​ ​
Deferred tax liabilities
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 24,958 ​ ​
Other non-current liabilities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 933 ​ ​ ​ ​ ​ 1,067 ​ ​
TOTAL NON-CURRENT LIABILITIES
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 563,952 ​ ​ ​ ​ ​ 415,953 ​ ​
TOTAL LIABILITIES
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 820,937 ​ ​ ​ ​ ​ 637,344 ​ ​
EQUITY
​ ​ ​ ​ 14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Share capital
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 548,380 ​ ​ ​ ​ ​ 548,380 ​ ​
Capital reserves
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1,248) ​ ​ ​ ​ ​ (1,248) ​ ​
Revenue reserves
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ 429 ​ ​
Accumulated losses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (43,843) ​ ​ ​ ​ ​ (96,228) ​ ​
TOTAL EQUITY
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 503,718 ​ ​ ​ ​ ​ 451,333 ​ ​
TOTAL LIABILITIES AND EQUITY
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,324,655 ​ ​ ​ ​ ​ 1,088,677 ​ ​
The accompanying notes are an integral part of the unaudited interim
condensed consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Unaudited interim condensed consolidated statements of
profit or loss and other comprehensive
income for the six months period ended June 30,
(In thousands of Brazilian Reais, except earnings per share)
​ ​ ​
Note
​ ​
2020
​ ​
2019
​
NET REVENUE
​ ​ ​ ​ 17 ​ ​ ​ ​
​
256,650
 ​ ​ ​ ​
​
234,460
 ​ ​
Cost of services rendered
​ ​ ​ ​ 18 ​ ​ ​ ​ ​ (106,036) ​ ​ ​ ​ ​ (105,152) ​ ​
GROSS PROFIT
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 150,614 ​ ​ ​ ​ ​ 129,308 ​ ​
General and administrative expenses
​ ​ ​ ​ 18 ​ ​ ​ ​ ​ (24,355) ​ ​ ​ ​ ​ (61,251) ​ ​
Selling expenses
​ ​ ​ ​ 18 ​ ​ ​ ​ ​ (50,047) ​ ​ ​ ​ ​ (47,758) ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ 6 ​ ​ ​ ​ ​ (34,896) ​ ​ ​ ​ ​ (25,273) ​ ​
Other income (expenses), net
​ ​ ​ ​ 19 ​ ​ ​ ​ ​ 1,673 ​ ​ ​ ​ ​ (444) ​ ​
Operating expenses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (107,625) ​ ​ ​ ​ ​ (134,726) ​ ​
OPERATING PROFIT (LOSS)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 42,989 ​ ​ ​ ​ ​ (5,418) ​ ​
Financial income
​ ​ ​ ​ 20 ​ ​ ​ ​ ​ 9,535 ​ ​ ​ ​ ​ 9,428 ​ ​
Financial expenses
​ ​ ​ ​ 20 ​ ​ ​ ​ ​ (20,779) ​ ​ ​ ​ ​ (29,909) ​ ​
Financial results
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (11,244) ​ ​ ​ ​ ​ (20,481) ​ ​
PROFIT (LOSS) BEFORE TAXES
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 31,745 ​ ​ ​ ​ ​ (25,899) ​ ​
Current income taxes
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ (19,618) ​ ​ ​ ​ ​ (8,592) ​ ​
Deferred income taxes
​ ​ ​ ​ 7 ​ ​ ​ ​ ​ 40,258 ​ ​ ​ ​ ​ 9,397 ​ ​
Income taxes
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 20,640 ​ ​ ​ ​ ​ 805 ​ ​
NET INCOME (LOSS) FOR THE PERIOD
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 52,385 ​ ​ ​ ​ ​ (25,094) ​ ​
Other comprehensive income
​ ​ ​ ​ ​ ​ ​ ​ ​
​
—
 ​ ​ ​ ​ ​ — ​ ​
TOTAL COMPREHENSIVE INCOME (LOSS)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 52,385 ​ ​ ​ ​ ​ (25,094) ​ ​
Basic earnings (loss) per share (R$)
​ ​ ​ ​ 15 ​ ​ ​ ​
​
0.10
 ​ ​ ​ ​
​
(0.05)
 ​ ​
Diluted earnings (loss) per share (R$)
​ ​ ​
​
15
 ​ ​ ​ ​ ​ 0.10 ​ ​ ​ ​ ​ (0.05) ​ ​
The accompanying notes are an integral part of the unaudited interim
condensed consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Unaudited interim condensed consolidated statement of changes in equity for the six months period ended June 30, 2020 and 2019
(In thousands of Brazilian Reais)
​ ​ ​ ​ ​ ​ ​ ​ ​
Capital reserves
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​
Share
capital
​ ​
Treasury
Shares
​ ​
Share-based
compensation
​ ​
Revenue
reserves
​ ​
Accumulated
losses
​ ​
Total
​
DECEMBER 31, 2018
​ ​ ​ ​ 546,509 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,523 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (30,068) ​ ​ ​ ​ ​ 519,393 ​ ​
Loss for the period
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (25,094) ​ ​ ​ ​
​
(25,094)
 ​ ​
Employee share program
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Value of employee services
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,671 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
2,671
 ​ ​
JUNE 30, 2019
​ ​ ​ ​ 546,509 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,194 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (55,162) ​ ​ ​ ​ ​ 496,970 ​ ​
DECEMBER 31, 2019
​ ​ ​ ​ 548,380 ​ ​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ 990 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (96,228) ​ ​ ​ ​ ​ 451,333 ​ ​
Net income for the period
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 52,385 ​ ​ ​ ​
​
52,385
 ​ ​
JUNE 30, 2020
​ ​ ​ ​ 548,380 ​ ​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ 990 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (43,843) ​ ​ ​ ​ ​ 503,718 ​ ​
The accompanying notes are an integral part of the unaudited interim
condensed consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Unaudited interim condensed consolidated statement of cash flows
for the six months period ended June 30,
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
2020
​ ​
2019
​
Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Income (loss) before taxes
​ ​ ​ ​ ​ ​ ​ 31,745 ​ ​ ​ ​ ​ (25,899) ​ ​
Adjustments to reconcile income before taxes to cash provided on operating activities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Depreciation and amortization
​ ​
9 / 10
​ ​ ​ ​ 24,269 ​ ​ ​ ​ ​ 30,448 ​ ​
Impairment of non-current assets
​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,431 ​ ​
Net impairment losses on financial assets
​ ​
6
​ ​ ​ ​ 34,896 ​ ​ ​ ​ ​ 25,273 ​ ​
Provision for revenue cancellation
​ ​
6
​ ​ ​ ​ 3,581 ​ ​ ​ ​ ​ 5,353 ​ ​
Provision for contingencies
​ ​ ​ ​ ​ ​ ​ 1,675 ​ ​ ​ ​ ​ 2,172 ​ ​
Accrued interests
​ ​ ​ ​ ​ ​ ​ 8,670 ​ ​ ​ ​ ​ 19,574 ​ ​
Share-based compensation
​ ​ ​ ​ ​ ​ ​ (566) ​ ​ ​ ​ ​ 3,112 ​ ​
Lease contracts modification and rent concession
​ ​
9
​ ​ ​ ​ (1,525) ​ ​ ​ ​ ​ — ​ ​
Changes in operating assets and liabilities:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​ ​ ​ ​ ​ ​ (54,388) ​ ​ ​ ​ ​ (60,327) ​ ​
Prepayments
​ ​ ​ ​ ​ ​ ​ (4,504) ​ ​ ​ ​ ​ 987 ​ ​
Other assets
​ ​ ​ ​ ​ ​ ​ 726 ​ ​ ​ ​ ​ (2,449) ​ ​
Trade payables
​ ​ ​ ​ ​ ​ ​ (1,887) ​ ​ ​ ​ ​ 5,564 ​ ​
Labor and social obligations
​ ​ ​ ​ ​ ​ ​ 21,069 ​ ​ ​ ​ ​ 14,824 ​ ​
Other taxes payable
​ ​ ​ ​ ​ ​ ​ 1,346 ​ ​ ​ ​ ​ 49 ​ ​
Prepayments from customers
​ ​ ​ ​ ​ ​ ​ 1,789 ​ ​ ​ ​ ​ (156) ​ ​
Other payables
​ ​ ​ ​ ​ ​ ​ 348 ​ ​ ​ ​ ​ 86 ​ ​
Cash from operations
​ ​ ​ ​ ​ ​ ​ 67,244 ​ ​ ​ ​ ​ 50,042 ​ ​
Income tax paid
​ ​ ​ ​ ​ ​ ​ (9,669) ​ ​ ​ ​ ​ (6,766) ​ ​
Interest paid
​ ​
9
​ ​ ​ ​ (7,566) ​ ​ ​ ​ ​ (6,065) ​ ​
Contingencies paid
​ ​ ​ ​ ​ ​ ​ (386) ​ ​ ​ ​ ​ (706) ​ ​
Net cash provided by operating activities
​ ​ ​ ​ ​ ​ ​ 49,623 ​ ​ ​ ​ ​ 36,505 ​ ​
Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Purchase of property and equipment
​ ​
10
​ ​ ​ ​ (19,541) ​ ​ ​ ​ ​ (16,388) ​ ​
Purchase and capitalization of intangible assets
​ ​
10
​ ​ ​ ​ (16,522) ​ ​ ​ ​ ​ (5,908) ​ ​
Acquisition of short-term investments, net
​ ​ ​ ​ ​ ​ ​ (5,813) ​ ​ ​ ​ ​ (12,799) ​ ​
Net cash used in investing activities
​ ​ ​ ​ ​ ​ ​ (41,876) ​ ​ ​ ​ ​ (35,095) ​ ​
Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Payments of lease liabilities
​ ​
9
​ ​ ​ ​ (3,046) ​ ​ ​ ​ ​ (2,862) ​ ​
Proceeds from loans and financing
​ ​
11
​ ​ ​ ​ 150,000 ​ ​ ​ ​ ​ — ​ ​
Net cash provided by (used in) financing activities
​ ​ ​ ​ ​ ​ ​ 146,954 ​ ​ ​ ​ ​ (2,862) ​ ​
Net increase (decrease) in cash and cash equivalents
​ ​ ​ ​ ​ ​ ​ 154,701 ​ ​ ​ ​ ​ (1,452) ​ ​
Cash and cash equivalents at the beginning of the period
​ ​ ​ ​ ​ ​ ​ 2,457 ​ ​ ​ ​ ​ 2,375 ​ ​
Cash and cash equivalents at the end of the period
​ ​ ​ ​ ​ ​ ​ 157,158 ​ ​ ​ ​ ​ 923 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 154,701 ​ ​ ​ ​ ​ (1,452) ​ ​
See Note 21 for the main transactions in investing and financing activities not affecting cash.
The accompanying notes are an integral part of the unaudited interim
condensed consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
1. Corporate information
Treviso Empreendimentos, Participações e Comércio S.A. (“Treviso” or the “Company”) is a Brazilian private company, organized and existing under the Laws of Brazil, established on June 27, 2014. The registered office is located at Rod. José Carlos Daux, 5500 Torre Jurerê A — Sala 212, Florianópolis in the state of Santa Catarina, Brazil.
Treviso is a holding company jointly controlled by Vinci Partners, through the investment fund “Vinci Capital Partners II FIP Multiestratégia”, and the Carlyle Group, through the investment funds “Fundo Brasil de Internacionalização de Empresas FIP Multiestratégia II” and “Miquerinos FIP Multiestratégia”.
Treviso and its subsidiaries (collectively, the “Group” or “Uniasselvi”) are principally engaged in providing educational services in Brazil, mainly undergraduate and continuing education courses, presentially through its eight campuses in two states, or via distance learning, though 606 (December 31, 2019 — 526) learning centers (“hubs”) across the country.
These unaudited interim condensed consolidated financial statements for the six months period ended June 30, 2020 were authorized for issue by the Board of Directors on August 6, 2020.
1.1. Significant events during the period
a) Operating events
Seasonality:
The distance learning undergraduate courses are structured around separate monthly modules. This enables students to enroll in distance learning courses at any time during a semester. Despite this flexibility, generally a higher number of enrollments in distance learning courses occurs in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, there is a higher number of enrollments at the beginning of the first semester of each year than at the beginning of the second semester of each year. In order to attract and encourage potential new students to enroll in undergraduate courses later in the semester, the Group often offers discounts, generally equivalent to the number of months that have passed in the semester. As a result, given revenue from semiannual contracts are recorded over the time in a semester, revenue is generally higher in the second and fourth quarters of each year, as additional students enroll in later in the semester. Revenue is also higher later in the semester due to lower dropout rates during that same period.
Recognition of tax losses and temporary differences (Note 7):
Given the continuous growth in Continuing Education activities for the last two years and recent changes to the structure of its operations, the Group reviewed previously unrecognized tax losses and temporary differences, determining that it is now probable that taxable profits will be available against which the tax losses can be utilized and temporary differences will be realized. Accordingly, a deferred tax asset of R$ 22,448 was recognized in 2020.
Leases (Note 9):
With the opening of new hubs according to the Group’s expansion strategy, new lease contracts were signed for the Group’s own hubs during the six months period ended June 30, 2020. During this period, the Group also concluded renegotiation of terms of a few lease contracts for the extension of lease
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
period at reduced prices. Such new and amended lease contracts resulted in an increment of R$ 32,308 to both right-of-use assets and lease liabilities.
Loans and Financing (Note 11):
Seeking to guarantee the same rates and conditions that would be available in a scenario without the Coronavirus pandemic, On April 16, 2020, the Company entered into a loan agreement of R$ 150,000, with no financial covenants, anticipating a loan which proceeds will be used to settle installments coming due in December 2020 on the accounts payable from acquisition of subsidiaries in prior years.
b) Coronavirus pandemic
The Group is closely monitoring the situation of the 2019 novel coronavirus, or Covid-19, and taking the necessary measures for the safety and well-being of employees, students, associates and partners. The global impact of the outbreak has been rapidly evolving, and the outbreak presents material uncertainty and risk with respect to the Group´s future performance and financial results. In particular and in the interest of public health and safety, state and local governments in Brazil have required mandatory school closures, which has resulted in the closure of on-campus learning facilities and hubs.
In response to the outbreak, the Group has efficiently implemented several measures aimed at safeguarding the health of employees, students and hub partners and the stability of operations, including: (1) creating a crisis management committee and a financial committee to discuss the action plan for the Group to address the challenges posed by the Covid-19 pandemic; (2) temporarily replacing in-person weekly meetings at the hubs with online meetings between students and tutors across all units, as a result of which since March 30, 2020 all students have had real-time meetings with their tutors; (3) training teachers and tutors to support students in this new format; (4) remote support to deliver high-quality content to students and maintain high levels of engagement and a superior learning experience; (5) making no changes to the course schedule or curriculum; (6) putting in place remote emotional and psychological support to students and employees, provided by the Group´s psychology department; and (7) making home office available for all the employees.
As of June 30, 2020, there has been no material impact on the Group’s operations, as most of the Group’s services are already delivered remotely (Distance learning undergraduate courses and most of continuing education courses) or capable of being delivered remotely (some of Continuing education courses and On-campus undergraduate courses). In addition, based on the information available until the approval of these unaudited interim condensed consolidated financial statements:
•
There was no relevant impact on revenue for the six months period ended June 30, 2020, which was slightly below the expected for the period but presented a growth of 10% when compared to the same period in prior year. Student defaults have remained within the expected levels and the engagement of students, compared to the same period in 2019, deteriorated very slightly.
​
•
Expected credit losses were revised considering estimated increases in financial defaults, which resulted in an increase of R$ 2,247 in allowance for estimated credit losses as of June 30, 2020.
​
•
The Group intake for the six months period ended June 30, 2020 was 30% higher than for the corresponding period in 2019 and has not experienced significant increase in drop-out rates.
​
•
The Group assessed the existence of potential impairment indicators and the possible impacts on the key assumptions and projections caused by the pandemic on the recoverability of long-lived assets (impairment tests) and concluded that no additional provision for impairment of long-lived assets needed to be recorded in the interim financial statements.
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
•
The Group has obtained rent concessions on lease contracts due to the temporary suspension of classes in the on-campus learning facilities and hubs caused by the mandatory school closures during the pandemic. A gain of R$ 661 was recognized as Other income (expenses), net, in the statement of profit and loss. Except for these concessions and the modification mentioned in Note 1.1.a above, there were no changes to contractual obligations regarding leased buildings and there were no changes in the expected useful life and residual amount of properties and equipment as a result of Covid-19.
​
•
No changes in the provision for contingencies against the Group were identified as a result of Covid-19.
​
•
As an incentive for the students to keep the payment of tuition fees up to the due date, the Group has granted an additional discount of 5% to all the students that payed their tuitions fees up to the due date in April and May 2020. The amounts of additional discounts granted was of R$ 4,005.
​
•
The Group currently has sufficient working capital and other undrawn financing facilities to service its operating activities and ongoing investments.
​
•
The Group has also taken benefit of measures made available by the federal government as follows:
​
i.
Postponement of tax and social charges obligations due date: Certain federal taxes and social charges obligations in the total amount of R$ 10,805 that became due in the second quarter of 2020 have not been paid at their respective original maturity and will be paid until the end of the year, according to schedule published by the government.
​
ii.
Emergency employment and income preservation benefit program: The Brazilian federal government offered the option of either reducing workload and salary payment for up to three months or suspending employment contracts for up to two months in exchange for the guarantee of maintaining the employee after the suspension for the same period as the contract is effectively suspended. The Group has suspended 165 employment contracts through May and June 2020 and had a corresponding expense reduction of R$ 541. No workload reduction was necessary until June and is not expected for next months while the measures are in effect.
​
Due to uncertainties regarding the dynamics of Covid-19’s spread, the effects on the economic activities on customers and suppliers and the measures to be adopted in Brazil, it is impossible to predict the impact the pandemic will have on the global economy, as well as on the Group’s business. The extent of the impact of Covid-19 on the Group’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and its impact on students, hub partners and employees, all of which are uncertain and cannot be predicted.
2. Basis of preparation of the unaudited interim condensed consolidated financial statements
The unaudited interim condensed consolidated financial statements of the Group as of June 30, 2020 and for the six months period ended June 30, 2020 have been prepared in accordance with IAS 34 — Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). The information does not meet all disclosure requirements for the presentation of full annual financial statements and thus should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2019, prepared in accordance with International Financial Reporting Standards (“IFRS”).
The accounting policies adopted are consistent with those of the previous fiscal year and corresponding interim reporting period.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.
There were no changes since December 31, 2019 in the accounting practices adopted for consolidation and in the direct and indirect interests of the Company in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements.
2.1. New and amended standards adopted by the group
The following amended standards became applicable for the current reporting period. The group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.
•
Definition of Material — amendments to IAS 1 and IAS 8
​
•
Definition of a Business — amendments to IFRS 3
​
•
Interest Rate Benchmark Reform — amendments to IFRS 9, IAS 39 and IFRS 7
​
•
Revised Conceptual Framework for Financial Reporting
​
The group also elected to early adopt the amendments to IFRS 16 with respect to rent concessions, which have been granted to lessees as a result of the Covid-19 pandemic. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. In May 2020, the IASB made an amendment to IFRS 16 Leases which provides lessees with an option to treat qualifying rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concessions as variable lease payments in the period in which they are granted. Entities applying the practical expedients must disclose this fact, whether the expedient has been applied to all qualifying rent concessions or, if not, information about the nature of the contracts to which it has been applied, as well as the amount recognized in profit or loss arising from the rent concessions. Details on the rent concessions received by the Group are described in Note 9.
The amendments listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.
2.2. Significant accounting estimates and assumptions
The preparation of unaudited interim condensed consolidated financial statements of the Group requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the reporting date. Actual results may differ from these estimates.
In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2019.
2.3. Financial instruments risk management objectives and policies
The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statements as of December 31, 2019. There have been no changes in the risk management department or in any risk management policies since the year-end.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
3. Segment reporting
Segment information is presented consistently with the internal reports provided to the Senior management team, consisting of the chief executive officer, the chief financial officer and other executives, and which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Group’s operating segments, and making the Group’s strategic decisions.
In reviewing the operational performance of the Group and allocating resources, the CODM reviews selected items of the statement of profit or loss and of comprehensive income, based on relevant financial data for each of the Group’s operating segments, represented by the Group’s main lines of service from which it generates revenue, as follows:
•
Distance learning undergraduate courses
​
•
Continuing education courses
​
•
On-campus undergraduate courses
​
Segment performance is primarily evaluated based on net revenue and on adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA). The Adjusted EBITDA is calculated as operating profit plus depreciation and amortization plus interest received on late payments of monthly tuition fees and adjusted by the elimination of effects from share-based compensation plus/​minus exceptional expenses. General and administrative expenses (except for intangible assets’ amortization and impairment expenses), finance results (other than interest on tuition fees paid in arrears) and income taxes are managed on a Group’s consolidated basis and are not allocated to operating segments.
There were no inter-segment revenues in the six months period ended June 30, 2020 and 2019. There were no adjustments or eliminations in the profit or loss between segments.
The CODM do not make strategic decisions or evaluate performance based on geographic regions. Currently, the Group operates solely in Brazil and all the assets, liabilities and results are allocated in Brazil.
a) Measures of performance
Six months period ended June 30,
​ ​
Distance
learning
undergraduate
courses
​ ​
Continuing
education
courses
​ ​
On-campus
undergraduate
courses
​ ​
Total
allocated
​
2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 203,727 ​ ​ ​ ​ ​ 21,280 ​ ​ ​ ​ ​ 31,643 ​ ​ ​ ​ ​ 256,650 ​ ​
Adjusted EBITDA
​ ​ ​ ​ 70,669 ​ ​ ​ ​ ​ 16,133 ​ ​ ​ ​ ​ 9,951 ​ ​ ​ ​ ​ 96,753 ​ ​
% Adjusted EBITDA margin
​ ​ ​ ​ 34.69% ​ ​ ​ ​ ​ 75.81% ​ ​ ​ ​ ​ 31.45% ​ ​ ​ ​ ​ 37.70% ​ ​
2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 170,825 ​ ​ ​ ​ ​ 22,956 ​ ​ ​ ​ ​ 40,679 ​ ​ ​ ​ ​ 234,460 ​ ​
Adjusted EBITDA
​ ​ ​ ​ 59,596 ​ ​ ​ ​ ​ 16,961 ​ ​ ​ ​ ​ 12,957 ​ ​ ​ ​ ​ 89,514 ​ ​
% Adjusted EBITDA margin
​ ​ ​ ​ 34.89% ​ ​ ​ ​ ​ 73.88% ​ ​ ​ ​ ​ 31.85% ​ ​ ​ ​ ​ 38.18% ​ ​
The total of the reportable segments’ net revenues represents the Group’s net revenue. A reconciliation of the Group’s loss before taxes to the allocated Adjusted EBITDA is shown below:
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
​ ​ ​
Six months period ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Income before taxes
​ ​ ​ ​ 31,745 ​ ​ ​ ​ ​ (25,899) ​ ​
(+) Financial result
​ ​ ​ ​ 11,244 ​ ​ ​ ​ ​ 20,481 ​ ​
(+) Depreciation and amortization
​ ​ ​ ​ 24,269 ​ ​ ​ ​ ​ 30,448 ​ ​
(+) Interest on tuition fees paid in arrears
​ ​ ​ ​ 7,238 ​ ​ ​ ​ ​ 3,920 ​ ​
(+) Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,431 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ (566) ​ ​ ​ ​ ​ 3,112 ​ ​
(+) Other income (expenses), net
​ ​ ​ ​ (1,673) ​ ​ ​ ​ ​ 444 ​ ​
(+) Restructuring expenses
​ ​ ​ ​ 2,894 ​ ​ ​ ​ ​ 2,141 ​ ​
(+) Other operational expenses unallocated
​ ​ ​ ​ 21,602 ​ ​ ​ ​ ​ 23,436 ​ ​
Adjusted EBITDA allocated to segments
​ ​ ​ ​ 96,753 ​ ​ ​ ​ ​ 89,514 ​ ​
b) Other profit and loss disclosure
Six months period ended June 30,
​ ​
Distance
learning
undergraduate
courses
​ ​
Continuing
education
courses
​ ​
On-campus
undergraduate
courses
​ ​
Unallocated
​ ​
Total
​
2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ 29,461 ​ ​ ​ ​ ​ 1,615 ​ ​ ​ ​ ​ 3,819 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 34,895 ​ ​
Depreciation and amortization
​ ​ ​ ​ 15,944 ​ ​ ​ ​ ​ 983 ​ ​ ​ ​ ​ 4,644 ​ ​ ​ ​ ​ 2,698 ​ ​ ​ ​ ​ 24,269 ​ ​
Interest on tuition fees paid in arrears
​ ​ ​ ​ 5,410 ​ ​ ​ ​ ​ 236 ​ ​ ​ ​ ​ 1,592 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,238 ​ ​
2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net impairment losses on financial assets
​ ​ ​ ​ 20,535 ​ ​ ​ ​ ​ 1,335 ​ ​ ​ ​ ​ 3,403 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 25,273 ​ ​
Depreciation and amortization
​ ​ ​ ​ 18,437 ​ ​ ​ ​ ​ 1,812 ​ ​ ​ ​ ​ 7,490 ​ ​ ​ ​ ​ 2,764 ​ ​ ​ ​ ​ 30,503 ​ ​
Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,431 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,431 ​ ​
Interest on tuition fees paid in arrears
​ ​ ​ ​ 3,350 ​ ​ ​ ​ ​ 9 ​ ​ ​ ​ ​ 562 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,921 ​ ​
4. Fair Value Measurement
As of June 30, 2020, the Group have only Share-based compensation liabilities measured at fair value, in the amount of R$ 34,384, which are classified in Level 3 of fair value measurement hierarchy given significant unobservable inputs used.
There were no transfers between Levels during the six months period ended in June 30, 2020.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
The following table presents the changes in level 3 items for the six months period ended in June 30, 2020, for recurring fair value measurements:
​ ​ ​
Share-based
compensation
​
Opening balance at December 31, 2019
​ ​ ​ ​ 34,950 ​ ​
Gain recognized – general and administrative
​ ​ ​ ​ (566) ​ ​
Balance at June 30, 2020
​ ​ ​ ​ 34,384 ​ ​
The Group assessed that the fair values of financial instruments at amortized cost such as cash and cash equivalents, short-term investments, current trade receivables, trade payables and prepayments from customers approximate their carrying amounts largely due to the short-term maturities of these instruments. Non-current trade receivables, lease liabilities, accounts payable from acquisition of subsidiaries and loans and financing have their carrying amount adjusted by their respective effective interest rate in order to be presented as close as possible to its fair value.
The following table summarizes the quantitative information about the significant inputs used in level 3 fair value measurements:
Unobservable inputs
​ ​
Weighted
average inputs
​ ​
Relationship with of unobservable inputs to fair value
​
Net operating revenue growth rate(i)
​ ​ ​ ​ 19.3% ​ ​ ​
Increased growth rate (+200 basis points (bps)) and lower discount rate (-100 bps) would increase FV by R$553; lower growth rate (-200 bps) and higher discount rate (+100 bps) would decrease FV by R$548.
​
Pre-tax discount rate(ii)
​ ​ ​ ​ 13.7% ​ ​ ​
Increasing/decreasing the growth rate and the discount rate by +/- 50bps and 100 bps respectively would change the FV by +R$153 / -R$305.
​
​
(i)
The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development.
​
(ii)
Pre-tax discount rate reflects specific risks relating to the segment and country in which the Group operates.
​
5. Cash and cash equivalents
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​
Short-term deposits
​ ​ ​ ​ 157,158 ​ ​ ​ ​ ​ 2,457 ​ ​
​ ​ ​ ​ ​ 157,158 ​ ​ ​ ​ ​ 2,457 ​ ​
Cash and cash equivalents are comprised of short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value, readily convertible into cash.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
6. Trade receivables
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​
Tuition fees
​ ​ ​ ​ 190,363 ​ ​ ​ ​ ​ 161,049 ​ ​
FIES and UNIEDU Guaranteed Credits
​ ​ ​ ​ 10,180 ​ ​ ​ ​ ​ 7,196 ​ ​
PEP – Special Installment Payment(i)
​ ​ ​ ​ 7,569 ​ ​ ​ ​ ​ 8,542 ​ ​
Provision for revenue cancellation
​ ​ ​ ​ (7,079) ​ ​ ​ ​ ​ (5,212) ​ ​
Allowance for expected credit losses of trade receivables
​ ​ ​ ​ (87,433) ​ ​ ​ ​ ​ (79,659) ​ ​
Total trade receivables
​ ​ ​ ​ 113,600 ​ ​ ​ ​ ​ 91,916 ​ ​
Current
​ ​ ​ ​ 110,274 ​ ​ ​ ​ ​ 88,130 ​ ​
Non-current
​ ​ ​ ​ 3,326 ​ ​ ​ ​ ​ 3,786 ​ ​
​
(i)
In 2015, a special private installment payment program (PEP) was introduced to facilitate the entry of students who could not qualify for FIES, due to changes occurred to the program at the time. These receivables bear interests of 1.87% and, given the long term of the installments, they have been discounted at an interbank rate of 4.60%.
​
The aging list of trade receivables is as follows:
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​
Receivables falling due
​ ​ ​ ​ 48,380 ​ ​ ​ ​ ​ 72,647 ​ ​
Receivables past due ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
From 1 to 30 days
​ ​ ​ ​ 26,849 ​ ​ ​ ​ ​ 22,322 ​ ​
From 31 to 60 days
​ ​ ​ ​ 20,615 ​ ​ ​ ​ ​ 15,135 ​ ​
From 61 to 90 days
​ ​ ​ ​ 32,036 ​ ​ ​ ​ ​ 13,473 ​ ​
From 91 to 180 days
​ ​ ​ ​ 30,556 ​ ​ ​ ​ ​ 27,968 ​ ​
From 181 to 365 days
​ ​ ​ ​ 49,676 ​ ​ ​ ​ ​ 25,242 ​ ​
Provision for revenue cancellation
​ ​ ​ ​ (7,079) ​ ​ ​ ​ ​ (5,212) ​ ​
Allowance for estimated credit losses
​ ​ ​ ​ (87,433) ​ ​ ​ ​ ​ (79,659) ​ ​
​ ​ ​ ​ ​ 113,600 ​ ​ ​ ​ ​ 91,916 ​ ​
Cancellations consist of deductions of the revenue to adjust it to the extension it is probable that it will not be reversed, generally related to students that have not attended classes and do not recognize the service provided or are dissatisfied with the services being provided. A provision for cancellation is estimated using the expected value method, which considers accumulated experience and is updated at the end of each period for changes in expectations.
Changes in the Group’s revenue cancellation provision are as follows:
​ ​ ​
June 30,
2020
​ ​
June 30,
2019
​
At the beginning of the year
​ ​ ​ ​ (5,212) ​ ​ ​ ​ ​ (5,655) ​ ​
Additions
​ ​ ​ ​ (3,581) ​ ​ ​ ​ ​ (5,353) ​ ​
Write-off
​ ​ ​ ​ 1,714 ​ ​ ​ ​ ​ 6,773 ​ ​
At the end of the period
​ ​ ​ ​ (7,079) ​ ​ ​ ​ ​ (4,235) ​ ​
​
 
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Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
The Group records the allowance for expected credit losses of trade receivables on a monthly basis by analyzing the amounts invoiced in the month, the monthly volume of receivables and the respective outstanding amounts by late payment range, calculating the recovery performance. Under this methodology, the monthly billed amount and each late payment range is assigned a percentage of probability of loss that is accrued for on a recurring basis.
When the delay exceeds 365 days, the receivable is written down. Even for written-off receivables, collection efforts continue, and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.
Changes in the Group’s allowance for expected credit losses are as follows:
​ ​ ​
June 30,
2020
​ ​
June 30,
2019
​
At the beginning of the year
​ ​ ​ ​ (79,659) ​ ​ ​ ​ ​ (66,199) ​ ​
Write-off of uncollectible receivables
​ ​ ​ ​ 27,083 ​ ​ ​ ​ ​ 16,371 ​ ​
Reversal
​ ​ ​ ​ 12,818 ​ ​ ​ ​ ​ 1,866 ​ ​
Allowance for expected credit losses
​ ​ ​ ​ (47,675) ​ ​ ​ ​ ​ (27,139) ​ ​
At the end of the period
​ ​ ​ ​ (87,433) ​ ​ ​ ​ ​ (75,101) ​ ​
The allowance for expected credit losses related to trade receivables of the disposal group held for sale (note 8) increased in R$ 39 in the six months period ended June 30, 2020.
 
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Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
7. Current and deferred income tax
a) Reconciliation of income tax in the statement of profit or loss
Income tax differ from the theoretical amount that would have been obtained by using the nominal income tax rates applicable to the income of the Group entities, as follows:
​ ​ ​
Six months period ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Profit (loss) before taxes
​ ​ ​ ​ 31,745 ​ ​ ​ ​ ​ (25,899) ​ ​
Statutory combined income tax rate – %
​ ​ ​ ​ 34% ​ ​ ​ ​ ​ 34% ​ ​
Income tax at statutory rates
​ ​ ​ ​ (10,793) ​ ​ ​ ​ ​ 8,806 ​ ​
Income exempt from taxation – ProUni benefit(i)
​ ​ ​ ​ 12,671 ​ ​ ​ ​ ​ 10,175 ​ ​
Previously unrecognized tax losses used to reduce deferred tax(ii)
​ ​ ​ ​ 10,632 ​ ​ ​ ​ ​ — ​ ​
Previously unrecognized temporary differences(ii)
​ ​ ​ ​ 11,816 ​ ​ ​ ​ ​ — ​ ​
Unrecognized deferred tax asset on tax losses and temporary differences(ii)
​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,265) ​ ​
Impairment of goodwill
​ ​ ​ ​ — ​ ​ ​ ​ ​ (10,687) ​ ​
Interest on accounts payable from acquisition of subsidiaries
​ ​ ​ ​ (3,021) ​ ​ ​ ​ ​ (3,921) ​ ​
Other non-deductible expenses
​ ​ ​ ​ (352) ​ ​ ​ ​ ​ (228) ​ ​
Other
​ ​ ​ ​ (313) ​ ​ ​ ​ ​ (75) ​ ​
Total income tax and social contribution
​ ​ ​ ​ 20,640 ​ ​ ​ ​ ​ 805 ​ ​
Effective tax rate – %
​ ​ ​ ​ -65% ​ ​ ​ ​ ​ 3% ​ ​
Current income tax expense
​ ​ ​ ​ (19,618) ​ ​ ​ ​ ​ (8,592) ​ ​
Deferred income tax income
​ ​ ​ ​ 40,258 ​ ​ ​ ​ ​ 9,397 ​ ​
​
(i)
The University for All Program — ProUni, establishes, through Law 11,096, dated January 13, 2005, exemption from certain federal taxes for higher education institutions that provide full and partial scholarships to low-income students enrolled in traditional undergraduate and technological undergraduate programs. The Group’s higher education companies are included in this program.
​
(ii)
As mentioned in Note 1.1.a, the Group has unused tax loss carryforwards and temporary differences previously unrecognized, especially related to share-based compensation, that are now expected to be used against taxable profit. The deferred tax asset on tax loss carryforwards is expected to be realized until 2022. During the six months period ended June 30, 2020, the Group already used R$ 3,127 of tax loss carryforwards.
​
b) Current income tax
As of June 30, 2020, the Group has R$ 7,019 of income tax payable as a result of current period taxation. As of December 31, 2019, given higher monthly anticipated payments, the Group presented R$ 4,711 of income tax recoverable, which were already compensated with current income tax in the beginning of 2020.
 
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Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
c) Deferred income tax
​ ​ ​
Balance sheet
​ ​
Profit or loss
​
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​ ​
June 30,
2020
​ ​
June 30,
2019
​
Tax loss carryforwards
​ ​ ​ ​ 7,505 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,505 ​ ​ ​ ​
​
—
 ​ ​
Intangible assets on business combinations
​ ​ ​ ​ (22,354) ​ ​ ​ ​ ​ (24,958) ​ ​ ​ ​ ​ 2,604 ​ ​ ​ ​ ​ 6,334 ​ ​
Allowance for expected credit losses
​ ​ ​ ​ 44,723 ​ ​ ​ ​ ​ 27,362 ​ ​ ​ ​ ​ 17,361 ​ ​ ​ ​ ​ 6,881 ​ ​
Share-based compensation
​ ​ ​ ​ 11,691 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 11,691 ​ ​ ​ ​ ​ — ​ ​
Lease contracts
​ ​ ​ ​ 6,460 ​ ​ ​ ​ ​ 8,902 ​ ​ ​ ​ ​ (2,442) ​ ​ ​ ​ ​ (648) ​ ​
Provision for revenue cancellation
​ ​ ​ ​ 2,401 ​ ​ ​ ​ ​ 1,772 ​ ​ ​ ​ ​ 629 ​ ​ ​ ​ ​ 1,712 ​ ​
Provision for contingencies
​ ​ ​ ​ 1,699 ​ ​ ​ ​ ​ 1,225 ​ ​ ​ ​ ​ 474 ​ ​ ​ ​ ​ (308) ​ ​
Other provisions
​ ​ ​ ​ 3,180 ​ ​ ​ ​ ​ 744 ​ ​ ​ ​ ​ 2,436 ​ ​ ​ ​ ​ (4,574) ​ ​
Total ​ ​ ​ ​ 55,305 ​ ​ ​ ​ ​ 15,047 ​ ​ ​ ​ ​ 40,258 ​ ​ ​ ​ ​ 9,397 ​ ​
Deferred tax assets
​ ​ ​ ​ 55,305 ​ ​ ​ ​ ​ 37,146 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deferred tax liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ (24,958) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
The above deferred taxes were recorded at the nominal rate of 34%. Under Brazilian tax law, temporary differences and tax losses can be carried forward indefinitely, however tax loss carryforwards can only be used to offset up to 30% of taxable profit for the year.
8. Assets and liabilities held for sale
In December 2019, the Group has decided to sell its subsidiaries FAC/FAMAT and FAIR, and for the UNIASSELVI’s undergraduate operation in the campuses Assevim and Famesul. The transaction consists of (i) the sale of the operations from the following campuses located in Brazil in the cities of: Brusque-SC and Rio do Sul-SC, as well as all related assets and liabilities, including the “ASSEVIM” and “FAMESUL” trademarks and (ii) the sale of 100% of the shares issued by the entities “FAC/FAMAT” and “FAIR”, its campuses and trademarks.
The Group decided on the sale of these specific assets, that are a portion of the on-campus undergraduate courses segment, in order to raise funds to invest in the distance learning undergraduate courses segment expansion.
The Group understands that has the disposal group available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups and its sale is highly probable within the next six months due to a plan to sell the disposal group, and an active program to locate a buyer and complete the plan that has been initiated.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
The financial position of the assets reclassified to assets held for sale and liabilities as directly associated with assets held for sale at June 30, 2020 are presented below.
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​
Assets classified as held for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​ ​ ​ 6,453 ​ ​ ​ ​ ​ 7,935 ​ ​
Income taxes recoverable
​ ​ ​ ​ 349 ​ ​ ​ ​ ​ 207 ​ ​
Prepaid expenses
​ ​ ​ ​ 56 ​ ​ ​ ​ ​ 172 ​ ​
Other taxes recoverable
​ ​ ​ ​ 91 ​ ​ ​ ​ ​ 195 ​ ​
Other assets
​ ​ ​ ​ 214 ​ ​ ​ ​ ​ 122 ​ ​
Right-of-use assets
​ ​ ​ ​ 16,090 ​ ​ ​ ​ ​ 16,090 ​ ​
Property and equipment
​ ​ ​ ​ 11,822 ​ ​ ​ ​ ​ 11,704 ​ ​
Intangible assets
​ ​ ​ ​ 8 ​ ​ ​ ​ ​ 8 ​ ​
Total of assets disposal group held for sale
​ ​ ​ ​ 35,083 ​ ​ ​ ​ ​ 36,433 ​ ​
Liabilities directly associated with assets classified as held for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade payables
​ ​ ​ ​ 853 ​ ​ ​ ​ ​ 979 ​ ​
Lease liabilities
​ ​ ​ ​ 18,802 ​ ​ ​ ​ ​ 19,210 ​ ​
Taxes payable
​ ​ ​ ​ 214 ​ ​ ​ ​ ​ 181 ​ ​
Labor and social obligations
​ ​ ​ ​ 4,217 ​ ​ ​ ​ ​ 2,695 ​ ​
Prepayments from customers
​ ​ ​ ​ 341 ​ ​ ​ ​ ​ 112 ​ ​
Provisions for contingencies
​ ​ ​ ​ 107 ​ ​ ​ ​ ​ 107 ​ ​
Total liabilities of disposal group held for sale
​ ​ ​ ​ 24,534 ​ ​ ​ ​ ​ 23,284 ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
9. Leases
Set out below, are the carrying amounts of the Group’s right-of-use assets related to buildings used as offices and hubs and lease liabilities and the movements during the period:
​ ​ ​
Right-of-use
assets
​ ​
Lease
Liabilities
​
As of December 31, 2019
​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ 103,188 ​ ​
New contracts
​ ​ ​ ​ 32,308 ​ ​ ​ ​ ​ 32,308 ​ ​
Re-measurement by index(i)
​ ​ ​ ​ 3,109 ​ ​ ​ ​ ​ 3,109 ​ ​
Lease modification(ii)
​ ​ ​ ​ (9,284) ​ ​ ​ ​ ​ (10,148) ​ ​
Depreciation expense
​ ​ ​ ​ (5,695) ​ ​ ​ ​ ​ — ​ ​
Accrued interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,566 ​ ​
Payment of principal
​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,638) ​ ​
Rent concession(iii)
​ ​ ​ ​ — ​ ​ ​ ​ ​ (661) ​ ​
Payment of interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ (7,566) ​ ​
As of June 30, 2020
​ ​ ​ ​ 108,972 ​ ​ ​ ​ ​ 125,158 ​ ​
Current
​ ​ ​ ​ — ​ ​ ​ ​ ​ 20,310 ​ ​
Non-current
​ ​ ​ ​ 108,972 ​ ​ ​ ​ ​ 104,848 ​ ​
​
(i)
Lease liabilities and right-of-use assets were incremented with respect to variable lease payments that depend on an index or a rate, as a result of annual rental prices contractually adjusted by market inflation rate General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M.
​
(ii)
During the six months period ended June 30, 2020, the Group partially reduced the scope of a lease contract with a corresponding liability in the amount of R$ 1,967, and early terminated other five lease contracts with a corresponding liability in the amount of R$ 8,181. As a result, a gain of R$ 864 was recognized as Other income (expenses), net, in the statement of profit and loss.
​
(iii)
The Group has received Covid-19 related rent concessions and has applied the practical expedient introduced by the amendments made to IFRS 16 in May 2020, applied to all qualifying rent concessions. As a result, gains of R$ 661 arising from rent concessions were recognized as Other income (expenses), net, in the statement of profit and loss.
​
Lease liabilities of the disposal group held for sale (Note 8) have changed in the six months period ended June 30, 2020 with respect to interest accrued in the amount of R$ 602, and payments of R$ 408 (principal) and R$ 602 (interest). Right-of-use assets of such group are not being depreciated.
The Group recognized rent expense from short-term leases and low-value assets of R$ 1,802 for the six months period ended June 30, 2020, mainly represented by leased equipment.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
10. Property and equipment and Intangible assets
Changes between December 31, 2019 and June 30, 2020.
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
June 30, 2020
​
​ ​ ​
Carrying
amount at
December 31,
2019
​ ​
Purchase
and
capitalization
​ ​
Depreciation
and
amortization
​ ​
Carrying
amount
​ ​
Cost
​ ​
Accumulated
depreciation,
amortization
and
impairment
​
Leasehold improvements
​ ​ ​ ​ 34,389 ​ ​ ​ ​ ​ 13,225 ​ ​ ​ ​ ​ (857) ​ ​ ​ ​
​
46,757
 ​ ​ ​ ​ ​ 57,332 ​ ​ ​ ​ ​ (10,575) ​ ​
Furniture, equipment and facilities
​ ​ ​ ​ 20,173 ​ ​ ​ ​ ​ 4,842 ​ ​ ​ ​ ​ (1,413) ​ ​ ​ ​
​
23,602
 ​ ​ ​ ​ ​ 42,363 ​ ​ ​ ​ ​ (18,761) ​ ​
Other property and equipment
​ ​ ​ ​ 15,471 ​ ​ ​ ​ ​ 1,356 ​ ​ ​ ​ ​ (2,099) ​ ​ ​ ​
​
14,728
 ​ ​ ​ ​ ​ 39,747 ​ ​ ​ ​ ​ (25,019) ​ ​
Property and equipment
​ ​ ​ ​ 70,033 ​ ​ ​ ​ ​ 19,423 ​ ​ ​ ​ ​ (4,369) ​ ​ ​ ​ ​ 85,087 ​ ​ ​ ​ ​ 139,442 ​ ​ ​ ​ ​ (54,355) ​ ​
Software
​ ​ ​ ​ 20,044 ​ ​ ​ ​ ​ 12,429 ​ ​ ​ ​ ​ (4,628) ​ ​ ​ ​
​
27,845
 ​ ​ ​ ​ ​ 58,552 ​ ​ ​ ​ ​ (30,707) ​ ​
Internal project development
​ ​ ​ ​ 19,667 ​ ​ ​ ​ ​ 4,093 ​ ​ ​ ​ ​ (3,017) ​ ​ ​ ​
​
20,743
 ​ ​ ​ ​ ​ 26,333 ​ ​ ​ ​ ​ (5,590) ​ ​
Goodwill
​ ​ ​ ​ 304,815 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
304,815
 ​ ​ ​ ​ ​ 372,268 ​ ​ ​ ​ ​ (67,453) ​ ​
Operation licenses for distance learning
​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
245,721
 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ — ​ ​
Trademarks
​ ​ ​ ​ 61,102 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,779) ​ ​ ​ ​
​
59,323
 ​ ​ ​ ​ ​ 85,163 ​ ​ ​ ​ ​ (25,840) ​ ​
Customer relationship
​ ​ ​ ​ 3,251 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,251) ​ ​ ​ ​
​
—
 ​ ​ ​ ​ ​ 100,695 ​ ​ ​ ​ ​ (100,695) ​ ​
Other intangible assets
​ ​ ​ ​ 3,570 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,530) ​ ​ ​ ​
​
2,040
 ​ ​ ​ ​ ​ 18,170 ​ ​ ​ ​ ​ (16,130) ​ ​
Intangible assets
​ ​ ​ ​ 658,170 ​ ​ ​ ​ ​ 16,522 ​ ​ ​ ​ ​ (14,205) ​ ​ ​ ​ ​ 660,487 ​ ​ ​ ​ ​ 906,902 ​ ​ ​ ​ ​ (246,415) ​ ​
Property and equipment of the disposal group held for sale (Note 8) have changed in the six months period ended June 30, 2020 with respect to purchases in the amount of R$ 118. Property and equipment and Intangible assets of such group are not being depreciated and amortized.
The Group performs its annual impairment test in December and when circumstances indicates that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2019.
As of June 30, 2020, there were no indicators of a potential impairment of goodwill. Additionally, there are no significant changes to the assumptions in the annual consolidated financial statements for the year ended December 31, 2019. Also, there has been no evidence that the carrying amounts of property and equipment and finite-life intangible assets exceed their recoverable amounts as of June 30, 2020.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
11. Loans and financing
a) Breakdown
Type
​ ​
Interest rate
​ ​
Maturity
​ ​
June 30,
2020
​ ​
December 31,
2019
​
Standby Letter of Credit
​ ​
CDI + 3.6% p.a.
​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ 152,007 ​ ​ ​ ​ ​ — ​ ​
Current
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,007 ​ ​ ​ ​ ​ — ​ ​
Non-current
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 150,000 ​ ​ ​ ​ ​ — ​ ​
b) Variation
​ ​ ​
Loans and
financing
​
As of December 31, 2019
​ ​ ​ ​ — ​ ​
Proceeds from loans and financing(i)
​ ​ ​ ​ 150,000 ​ ​
Accrued interest
​ ​ ​ ​ 2,007 ​ ​
As of June 30, 2020
​ ​ ​ ​ 152,007 ​ ​
​
(i)
On April 16, 2020, the Company entered into a loan agreement of R$ 150,000, with no financial covenants or guarantees. The loan accrues interest at the Brazilian interbank deposit (Certificado de Depósito Interbancário), or CDI rate +3.6% per annum and its interests are repayable in five quarterly installments starting on July 16, 2020 and the principal in one installment on October 18, 2021.
​
12. Labor and social obligations
​ ​ ​
June 30, 2020
​ ​
December 31,
2019
​
Salaries payable
​ ​ ​ ​ 8,924 ​ ​ ​ ​ ​ 4,235 ​ ​
Social charges payable(i)
​ ​ ​ ​ 14,342 ​ ​ ​ ​ ​ 5,906 ​ ​
Accrued vacation
​ ​ ​ ​ 13,065 ​ ​ ​ ​ ​ 1,972 ​ ​
Accrual for bonus
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,668 ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 3 ​ ​
Total ​ ​ ​ ​ 36,331 ​ ​ ​ ​ ​ 16,784 ​ ​
​
(i)
Comprised of contributions to Social Security (“INSS”) and to Government Severance Indemnity Fund for Employees (“FGTS”) as well as withholding income tax (“IRRF”) over salaries. As described in Note 1.1.b, social charges that became due during second quarter of 2020 were postponed for the end of the year as per government measures of tax relief during the Covid-19 pandemic.
​
13. Accounts payable from acquisition of subsidiaries
On February 28, 2016, the Company completed the acquisition of 100% of Uniasselvi and Fameg, and, on August 31, 2017, the acquisition of 100% of FAC/FAMAT and FAIR. The payable amount regarding these acquisitions is of R$ 387,765 at June 30, 2020 (December 31, 2019 — R$ 379,540). Interests in the amount of R$ 8,225 were accrued during the six months period ended June 30, 2020.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
14. Equity
a) Authorized capital
The Company is authorized to increase capital up to the limit of 600 million shares, subject to approval of the Board of Directors, which will decide the conditions of payment, characteristics of the shares to be issued and the issue price.
b) Subscribed and paid-in capital and Capital reserve
The Company has issued only common shares, entitled to one vote per share on all matters to be voted on shareholders’ general meetings, including the election of directors.
The Articles of Incorporation establish the possibility of issue of preferred shares, not entitled to votes on shareholders’ general meetings but with priority in reimbursement of the paid capital, with no premium, in case of liquidation of the Company. Dividends would be equally shared between common and preferred shares, proportionally to the total interest of each shareholder.
As of June 30, 2020, subscribed and paid-in capital was R$ 548,380 (December 31, 2019 — R$ 548,380) divided into 522,315,196 (December 31, 2019 — 522,315,196) registered common shares with no par-value, as follows:
​ ​ ​
June 30, 2020
​
​ ​ ​
Number of
shares
​ ​
%
​
Fundo Brasil de Internacionalização de empresas Fundos de Investimento em
Participações II
​ ​ ​ ​ 64,546,881 ​ ​ ​ ​ ​ 12.36 ​ ​
Miquerinos Fundo de Investimento em Participações
​ ​ ​ ​ 129,093,761 ​ ​ ​ ​ ​ 24.72 ​ ​
Vinci Capital Partners II Fundo de Investimento em Participações
​ ​ ​ ​ 193,640,642 ​ ​ ​ ​ ​ 37.07 ​ ​
NB Pitman Brazil Fundo de Investimentos e Participações Multiestratégia
​ ​ ​ ​ 135,033,912 ​ ​ ​ ​ ​ 25.85 ​ ​
​ ​ ​ ​ ​ 522,315,196 ​ ​ ​ ​ ​ 100.00 ​ ​
Treasury shares
​ ​ ​ ​ 1,834,105 ​ ​ ​ ​ ​ ​ ​ ​
Total ​ ​ ​ ​ 524,149,301 ​ ​ ​ ​ ​ ​ ​ ​
15. Earnings per share
15.1. Basic
Basic earnings per share is calculated by dividing the net income attributable to the holders of Company’s common shares by the weighted average number of common shares held by stockholders (excluding those held in treasury) during the period.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
The following table contains the earnings (loss) per share of the Group for the six months period ended June 30, 2020 and 2019 (in thousands except per share amounts):
​ ​ ​
Six months period ended in June 30,
​
Basic earnings (loss) per share
​ ​
2020
​ ​
2019
​
Net income (loss) attributable to the shareholders of the Company
​ ​ ​ ​ 52,385 ​ ​ ​ ​ ​ (25,094) ​ ​
Weighted average number of outstanding common shares (thousands)
​ ​ ​ ​ 522,315 ​ ​ ​ ​ ​ 522,315 ​ ​
Basic earnings (loss) per common share (R$)
​ ​ ​ ​ 0.10 ​ ​ ​ ​ ​ (0.05) ​ ​
15.2. Diluted
As of June 30, 2020, the Group had outstanding and unexercised options to purchase 22,727 thousand ordinary shares (2019 — 23,345 thousand) which are included in diluted earnings per share calculation. In June 2019, outstanding options were all anti-dilutive.
​ ​ ​
Six months period ended
in June 30,
​
Diluted earnings (loss) per share
​ ​
2020
​ ​
2019
​
Net income (loss) attributable to the shareholders of the Company
​ ​ ​ ​ 52,385 ​ ​ ​ ​ ​ (25,094) ​ ​
Weighted average number of outstanding common shares (thousands)
​ ​ ​ ​ 545,042 ​ ​ ​ ​ ​ 522,315 ​ ​
Diluted earnings (loss) per common share (R$)
​ ​ ​ ​ 0.10 ​ ​ ​ ​ ​ (0.05) ​ ​
16. Related parties
The Company holds quotas of investments funds managed by Vinci Partners, an insurance policy issued by Austral Seguradora S/A and uses the services of the lawyer firm Kloch Advocacia. All the companies are an indirect related party.
​ ​ ​
Balance sheet
​ ​
Profit or loss
​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Six months period
ended June 30,
​
​ ​ ​
June 30,
2020
​ ​
December 31,
2019
​ ​
2020
​ ​
2019
​
FI Vinci Renda Fixa Credito Privado ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Short-term investments
​ ​ ​ ​ 39,033 ​ ​ ​ ​ ​ 37,607 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Financial income
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 635 ​ ​ ​ ​ ​ 1,104 ​ ​
Austral Seguradora S/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Prepaid expenses
​ ​ ​ ​ 607 ​ ​ ​ ​ ​ 8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative expenses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (151) ​ ​ ​ ​ ​ (1) ​ ​
Kloch Advocacia ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative expenses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (108) ​ ​ ​ ​ ​ (106) ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
17. Revenue
​ ​ ​
Six months period ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Gross revenue
​ ​ ​ ​ 328,556 ​ ​ ​ ​ ​ 297,015 ​ ​
(-) Cancellation
​ ​ ​ ​ (3,581) ​ ​ ​ ​ ​ (5,353) ​ ​
(-) Discounts
​ ​ ​ ​ (11,184) ​ ​ ​ ​ ​ (9,160) ​ ​
(-) ProUni scholarships(i)
​ ​ ​ ​ (48,515) ​ ​ ​ ​ ​ (40,547) ​ ​
(-) Taxes and contributions on revenue
​ ​ ​ ​ (8,626) ​ ​ ​ ​ ​ (7,495) ​ ​
Net revenue
​ ​ ​ ​ 256,650 ​ ​ ​ ​ ​ 234,460 ​ ​
Timing of revenue recognition ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Transferred over time
​ ​ ​ ​ 256,398 ​ ​ ​ ​ ​ 233,051 ​ ​
Transferred at a point in time(ii)
​ ​ ​ ​ 252 ​ ​ ​ ​ ​ 1,409 ​ ​
Net revenue
​ ​ ​ ​ 256,650 ​ ​ ​ ​ ​ 234,460 ​ ​
​
(i)
Scholarships granted by the federal government to students under the ProUni program are based on a fixed percentage approved by the government upon each student’s request and deducted from tuition gross revenue during the entire duration of such student’s undergraduate studies (regardless of the tuition fee set out in the service contract) and as long as the student continues to comply with the scholarship requirements imposed by the government for each semester during the undergraduate course. The Group recognizes the economic benefits from the ProUni scholarships as tax deductions, as applicable, following the policies described in Note 7.
​
(ii)
Revenue recognized at a point in time relates to revenue from student fees and certain education-related activities.
​
The Group`s revenues from contracts with customers are all provided in Brazil.
In the six months period ended June 30, 2020, the amount billed to students for the portion to be transferred to the hub partner, in respect to the joint operation, is R$ 73,425 (2019 — R$ 41,216). As of June 30, 2020, the balance payable to the hub partner is R$ 8,214 (December 31, 2019 — R$ 6,697).
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
18. Costs and expenses by nature
​ ​ ​
Six months period ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Payroll(i) ​ ​ ​ ​ 91,386 ​ ​ ​ ​ ​ 94,343 ​ ​
Sales and marketing
​ ​ ​ ​ 39,134 ​ ​ ​ ​ ​ 28,730 ​ ​
Depreciation and amortization(ii)
​ ​ ​ ​ 24,058 ​ ​ ​ ​ ​ 30,503 ​ ​
Material
​ ​ ​ ​ 6,515 ​ ​ ​ ​ ​ 10,054 ​ ​
Impairment losses(iii)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,431 ​ ​
Consulting and advisory services
​ ​ ​ ​ 5,724 ​ ​ ​ ​ ​ 5,413 ​ ​
Maintenance
​ ​ ​ ​ 4,175 ​ ​ ​ ​ ​ 2,958 ​ ​
Utilities, cleaning and security
​ ​ ​ ​ 2,850 ​ ​ ​ ​ ​ 3,546 ​ ​
Contingencies
​ ​ ​ ​ 2,070 ​ ​ ​ ​ ​ 2,210 ​ ​
Leases
​ ​ ​ ​ 1,802 ​ ​ ​ ​ ​ 2,006 ​ ​
Taxes
​ ​ ​ ​ 1,013 ​ ​ ​ ​ ​ 763 ​ ​
Other expenses
​ ​ ​ ​ 1,711 ​ ​ ​ ​ ​ 2,204 ​ ​
Total ​ ​ ​ ​ 180,438 ​ ​ ​ ​ ​ 214,161 ​ ​
Costs of services
​ ​ ​ ​ 106,036 ​ ​ ​ ​ ​ 105,152 ​ ​
General and administrative expenses
​ ​ ​ ​ 24,355 ​ ​ ​ ​ ​ 61,251 ​ ​
Selling expenses
​ ​ ​ ​ 50,047 ​ ​ ​ ​ ​ 47,758 ​ ​
Total ​ ​ ​ ​ 180,438 ​ ​ ​ ​ ​ 214,161 ​ ​
​
(i)
Payroll expenses include R$ 91,952 (2019 — R$ 91,231) related to salaries, bonuses, short-term benefits, related social charges and other employee related expenses, and gains of R$ 566 (2019 — R$ 3,112 of expenses) related to share-based compensation.
​
(ii)
From the total depreciation and amortization, R$ 15,454 (2019 — R$ 11,822) relates Cost of services, R$ 5,353 (2019 — R$ 6,248) relates to General and administrative expenses and R$ 3,251 (2019 — R$ 12,434) relates to Selling expenses.
​
(iii)
In June 2019, additional impairment losses in the amount of R$ 31,431 were identified on the on-campus undergraduate courses segment, represented by the excess of the segment’s carrying amount over its respective recoverable amount, fully allocated to segment’s goodwill, mainly due to decrease in the average monthly tuition fee per student observed in 2019 and increase in the number of students that are migrating to distance learning courses. As further described in Notes 1.1.b and 10, there were no additional provision for impairment of long-lived assets as of June 30, 2020.
​
19. Other income (expenses), net
​ ​ ​
Six months period
ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Deductible donations
​ ​ ​ ​ (150) ​ ​ ​ ​ ​ (150) ​ ​
Contractual indemnities
​ ​ ​ ​ — ​ ​ ​ ​ ​ (373) ​ ​
Lease contracts modification and rent concession
​ ​ ​ ​ 1,525 ​ ​ ​ ​ ​ — ​ ​
Other revenues
​ ​ ​ ​ 320 ​ ​ ​ ​ ​ 187 ​ ​
Other expenses
​ ​ ​ ​ (22) ​ ​ ​ ​ ​ (108) ​ ​
Total ​ ​ ​ ​ 1,673 ​ ​ ​ ​ ​ (444) ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the unaudited interim condensed consolidated financial statements
for the six months period ended June 30, 2020
(In thousands of Brazilian Reais, except as otherwise indicated)
20. Financial results
​ ​ ​
Six months period
ended June 30,
​
​ ​ ​
2020
​ ​
2019
​
Financial income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest on tuition fees paid in arrears
​ ​ ​ ​ 7,238 ​ ​ ​ ​ ​ 3,921 ​ ​
Financial investment yield
​ ​ ​ ​ 1,836 ​ ​ ​ ​ ​ 5,449 ​ ​
Other
​ ​ ​ ​ 461 ​ ​ ​ ​ ​ 58 ​ ​
Total ​ ​ ​ ​ 9,535 ​ ​ ​ ​ ​ 9,428 ​ ​
Financial expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest on accounts payable from acquisition of subsidiaries(i)
​ ​ ​ ​ (8,225) ​ ​ ​ ​ ​ (22,878) ​ ​
Interest on lease
​ ​ ​ ​ (7,566) ​ ​ ​ ​ ​ (6,066) ​ ​
Interest on loans and financing
​ ​ ​ ​ (2,007) ​ ​ ​ ​ ​ — ​ ​
Other
​ ​ ​ ​ (2,981) ​ ​ ​ ​ ​ (965) ​ ​
Total ​ ​ ​ ​ (20,779) ​ ​ ​ ​ ​ (29,909) ​ ​
Financial results
​ ​ ​ ​ (11,244) ​ ​ ​ ​ ​ (20,481) ​ ​
​
(i)
Interest on accounts payable from acquisitions of subsidiaries has decreased in the six months period ended June 30, 2020 mainly due to a negative inflationary index of 0.16% for the period (2019 — positive 2.22%).
​
21. Other disclosures on cash flows
Non-cash transactions
In the six months period ended June 30, 2020:
•
The amount of R$ 32,308 (2019 — R$ 17,028) regarding additions on right-of-use assets, was also added in the lease liabilities line item.
​
•
The amount of R$ 1,869 (2019 — R$ 2,192) regarding provision for contingencies of responsibility of the sellers of subsidiaries acquired in prior years, was reversed to the indemnification assets line item in non-current assets.
​
***
 
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[MISSING IMAGE: lg_uniasselvi-bwlr.jpg]  
Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated financial statements and independent auditor’s report
As at December 31, 2019 and 2018
 
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[MISSING IMAGE: lg_pwc-4c.jpg]  
Report of independent registered
public accounting firm
To the Board of Directors and Shareholders of
Treviso Empreendimentos, Participações e Comércio S.A.
Opinion on the financial statements
We have audited the accompanying consolidated statements of financial position of Treviso Empreendimentos, Participações e Comércio S.A. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 2.6 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers Auditores Independentes
Florianópolis, Brazil
March 28, 2020
We have served as the Company’s auditor since 2016.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated statements of financial position at
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
December, 31
2019
​ ​
December, 31
2018
​ ​
January, 1
2018
​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Restated
Note 2.6)
​ ​
(Restated
Note 2.6)
​
ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ ​ ​ ​ ​ 2,457 ​ ​ ​ ​ ​ 2,375 ​ ​ ​ ​ ​ 2,311 ​ ​
Short-term investments
​ ​
8
​ ​ ​ ​ 72,321 ​ ​ ​ ​ ​ 164,822 ​ ​ ​ ​ ​ 145,592 ​ ​
Trade receivables
​ ​
9
​ ​ ​ ​ 88,130 ​ ​ ​ ​ ​ 71,318 ​ ​ ​ ​ ​ 61,927 ​ ​
Income taxes recoverable
​ ​
10
​ ​ ​ ​ 4,711 ​ ​ ​ ​ ​ 5,474 ​ ​ ​ ​ ​ 1,445 ​ ​
Prepaid expenses
​ ​
11
​ ​ ​ ​ 8,938 ​ ​ ​ ​ ​ 7,171 ​ ​ ​ ​ ​ 5,947 ​ ​
Other current assets
​ ​ ​ ​ ​ ​ ​ 1,858 ​ ​ ​ ​ ​ 1,234 ​ ​ ​ ​ ​ 1,528 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 178,415 ​ ​ ​ ​ ​ 252,394 ​ ​ ​ ​ ​ 218,750 ​ ​
Assets classified as held for sale
​ ​
12
​ ​ ​ ​ 36,433 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
TOTAL CURRENT ASSETS
​ ​ ​ ​ ​ ​ ​ 214,848 ​ ​ ​ ​ ​ 252,394 ​ ​ ​ ​ ​ 218,750 ​ ​
NON-CURRENT ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​
9
​ ​ ​ ​ 3,786 ​ ​ ​ ​ ​ 5,432 ​ ​ ​ ​ ​ 2,909 ​ ​
Indemnification assets
​ ​
18
​ ​ ​ ​ 14,801 ​ ​ ​ ​ ​ 16,480 ​ ​ ​ ​ ​ 19,628 ​ ​
Deferred tax assets
​ ​
10
​ ​ ​ ​ 37,146 ​ ​ ​ ​ ​ 29,924 ​ ​ ​ ​ ​ 26,678 ​ ​
Other non-current assets
​ ​ ​ ​ ​ ​ ​ 1,359 ​ ​ ​ ​ ​ 1,230 ​ ​ ​ ​ ​ 896 ​ ​
Right-of-use assets
​ ​
13
​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ 74,822 ​ ​ ​ ​ ​ 51,534 ​ ​
Property and equipment
​ ​
14
​ ​ ​ ​ 70,033 ​ ​ ​ ​ ​ 63,428 ​ ​ ​ ​ ​ 50,330 ​ ​
Intangible assets
​ ​
15
​ ​ ​ ​ 658,170 ​ ​ ​ ​ ​ 735,260 ​ ​ ​ ​ ​ 796,944 ​ ​
TOTAL NON-CURRENT ASSETS
​ ​ ​ ​ ​ ​ ​ 873,829 ​ ​ ​ ​ ​ 926,576 ​ ​ ​ ​ ​ 948,919 ​ ​
TOTAL ASSETS
​ ​ ​ ​ ​ ​ ​ 1,088,677 ​ ​ ​ ​ ​ 1,178,970 ​ ​ ​ ​ ​ 1,167,669 ​ ​
The accompanying notes are an integral part of the consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated statements of financial position at
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
December, 31
2019
​ ​
December, 31
2018
​ ​
January, 1
2018
​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Restated
Note 2.6)
​ ​
(Restated
Note 2.6)
​
LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CURRENT LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade payables
​ ​ ​ ​ ​ ​ ​ 29,978 ​ ​ ​ ​ ​ 17,051 ​ ​ ​ ​ ​ 16,125 ​ ​
Lease liabilities
​ ​
13
​ ​ ​ ​ 17,265 ​ ​ ​ ​ ​ 15,397 ​ ​ ​ ​ ​ 10,875 ​ ​
Labor and social obligations
​ ​
16
​ ​ ​ ​ 16,784 ​ ​ ​ ​ ​ 16,052 ​ ​ ​ ​ ​ 15,251 ​ ​
Taxes payable
​ ​ ​ ​ ​ ​ ​ 1,657 ​ ​ ​ ​ ​ 1,720 ​ ​ ​ ​ ​ 819 ​ ​
Prepayments from customers
​ ​ ​ ​ ​ ​ ​ 3,186 ​ ​ ​ ​ ​ 1,194 ​ ​ ​ ​ ​ 3,134 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​
17
​ ​ ​ ​ 128,888 ​ ​ ​ ​ ​ 123,310 ​ ​ ​ ​ ​ 118,390 ​ ​
Other current liabilities
​ ​ ​ ​ ​ ​ ​ 349 ​ ​ ​ ​ ​ 308 ​ ​ ​ ​ ​ — ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 198,107 ​ ​ ​ ​ ​ 175,032 ​ ​ ​ ​ ​ 164,594 ​ ​
Liabilities directly associated with assets classified as held for sale
​ ​
12
​ ​ ​ ​ 23,284 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
TOTAL CURRENT LIABILITIES
​ ​ ​ ​ ​ ​ ​ 221,391 ​ ​ ​ ​ ​ 175,032 ​ ​ ​ ​ ​ 164,594 ​ ​
NON-CURRENT ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Lease liabilities
​ ​
13
​ ​ ​ ​ 85,923 ​ ​ ​ ​ ​ 73,342 ​ ​ ​ ​ ​ 50,764 ​ ​
Share-based compensation
​ ​
21
​ ​ ​ ​ 34,950 ​ ​ ​ ​ ​ 7,045 ​ ​ ​ ​ ​ 191 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​
17
​ ​ ​ ​ 250,652 ​ ​ ​ ​ ​ 335,225 ​ ​ ​ ​ ​ 416,524 ​ ​
Provisions for contingencies
​ ​
18
​ ​ ​ ​ 18,403 ​ ​ ​ ​ ​ 18,034 ​ ​ ​ ​ ​ 22,997 ​ ​
Deferred tax liabilities
​ ​
10
​ ​ ​ ​ 24,958 ​ ​ ​ ​ ​ 43,441 ​ ​ ​ ​ ​ 56,108 ​ ​
Other non-current liabilities
​ ​ ​ ​ ​ ​ ​ 1,067 ​ ​ ​ ​ ​ 7,458 ​ ​ ​ ​ ​ 4,925 ​ ​
TOTAL NON-CURRENT LIABILITIES
​ ​ ​ ​ ​ ​ ​ 415,953 ​ ​ ​ ​ ​ 484,545 ​ ​ ​ ​ ​ 551,509 ​ ​
TOTAL LIABILITIES
​ ​ ​ ​ ​ ​ ​ 637,344 ​ ​ ​ ​ ​ 659,577 ​ ​ ​ ​ ​ 716,103 ​ ​
EQUITY
​ ​
19
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Share capital
​ ​ ​ ​ ​ ​ ​ 548,380 ​ ​ ​ ​ ​ 546,509 ​ ​ ​ ​ ​ 434,000 ​ ​
Capital reserves
​ ​ ​ ​ ​ ​ ​ (1,248) ​ ​ ​ ​ ​ 2,523 ​ ​ ​ ​ ​ 1,927 ​ ​
Revenue reserves
​ ​ ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ — ​ ​
Retained earnings (Accumulated losses)
​ ​ ​ ​ ​ ​ ​ (96,228) ​ ​ ​ ​ ​ (30,068) ​ ​ ​ ​ ​ 15,639 ​ ​
TOTAL EQUITY
​ ​ ​ ​ ​ ​ ​ 451,333 ​ ​ ​ ​ ​ 519,393 ​ ​ ​ ​ ​ 451,566 ​ ​
TOTAL LIABILITIES AND EQUITY
​ ​ ​ ​ ​ ​ ​ 1,088,677 ​ ​ ​ ​ ​ 1,178,970 ​ ​ ​ ​ ​ 1,167,669 ​ ​
The accompanying notes are an integral part of the consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated statements of profit or loss and other comprehensive income for the years ended December 31
(In thousands of Brazilian Reais, except earnings per share)
​ ​ ​
Note
​ ​
2019
​ ​
2018
​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Restated
Note 2.6)
​
NET REVENUE
​ ​
23
​ ​ ​
​
461,067
 ​ ​ ​ ​
​
383,449
 ​ ​
Cost of services rendered
​ ​
24
​ ​ ​ ​ (211,547) ​ ​ ​ ​ ​ (184,161) ​ ​
GROSS PROFIT
​ ​ ​ ​ ​ ​ ​ 249,520 ​ ​ ​ ​ ​ 199,288 ​ ​
General and administrative expenses
​ ​
24
​ ​ ​ ​ (125,344) ​ ​ ​ ​ ​ (90,667) ​ ​
Selling expenses
​ ​
24
​ ​ ​ ​ (100,949) ​ ​ ​ ​ ​ (70,646) ​ ​
Net impairment losses on financial assets
​ ​
9
​ ​ ​ ​ (58,178) ​ ​ ​ ​ ​ (44,578) ​ ​
Other income (expenses), net
​ ​
25
​ ​ ​ ​ (905) ​ ​ ​ ​ ​ (1,041) ​ ​
Operating expenses
​ ​ ​ ​ ​ ​ ​ (285,376) ​ ​ ​ ​ ​ (206,932) ​ ​
OPERATING PROFIT (LOSS)
​ ​ ​ ​ ​ ​ ​ (35,856) ​ ​ ​ ​ ​ (7,644) ​ ​
Financial income
​ ​
26
​ ​ ​ ​ 19,194 ​ ​ ​ ​ ​ 22,026 ​ ​
Financial expenses
​ ​
26
​ ​ ​ ​ (60,390) ​ ​ ​ ​ ​ (64,597) ​ ​
Financial results
​ ​ ​ ​ ​ ​ ​ (41,196) ​ ​ ​ ​ ​ (42,571) ​ ​
LOSS BEFORE TAXES
​ ​ ​ ​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (50,215) ​ ​
Current income taxes
​ ​
10
​ ​ ​ ​ (14,813) ​ ​ ​ ​ ​ (10,640) ​ ​
Deferred income taxes
​ ​
10
​ ​ ​ ​ 25,705 ​ ​ ​ ​ ​ 15,651 ​ ​
Income taxes
​ ​ ​ ​ ​ ​ ​ 10,892 ​ ​ ​ ​ ​ 5,011 ​ ​
LOSS FOR THE YEAR
​ ​ ​ ​ ​ ​ ​ (66,160) ​ ​ ​ ​ ​ (45,204) ​ ​
Other comprehensive income
​ ​ ​ ​ ​ ​
​
—
 ​ ​ ​ ​ ​ — ​ ​
TOTAL COMPREHENSIVE LOSS
​ ​ ​ ​ ​ ​ ​ (66,160) ​ ​ ​ ​ ​ (45,204) ​ ​
Basic and diluted loss per share (R$)
​ ​
20
​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (0.09) ​ ​
The accompanying notes are an integral part of the consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated statement of changes in equity
(In thousands of Brazilian Reais)
​ ​ ​ ​ ​ ​ ​ ​ ​
Capital reserves
​ ​ ​ ​ ​ ​ ​ ​
Retained
earnings
​ ​ ​ ​ ​ ​ ​
​ ​ ​
Share
capital
​ ​
Treasury
Shares
​ ​
Share-based
compensation
​ ​
Revenue
reserves
​ ​
(Accumulated
losses)
​ ​
Total
​
DECEMBER 31, 2017
​ ​ ​ ​ 434,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,927 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 22,308 ​ ​ ​ ​ ​ 458,235 ​ ​
Change in accounting policy (Note 2.6)
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (6,669) ​ ​ ​ ​
​
(6,669)
 ​ ​
JANUARY 1,2018
​ ​ ​ ​ 434,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,927 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 15,639 ​ ​ ​ ​ ​ 451,566 ​ ​
Loss for the year
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (45,204) ​ ​ ​ ​
​
(45,204)
 ​ ​
Capital increase (Note 19.b)
​ ​ ​ ​ 111,054 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
111,054
 ​ ​
Transfer to legal reserve
(Note 19.d)
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (429) ​ ​ ​ ​
​
—
 ​ ​
Dividends (Note 19.c)
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (74) ​ ​ ​ ​
​
(74)
 ​ ​
Employee share program (Note 21) Value of employee services
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,821 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
2,821
 ​ ​
Issue of shares to employees
​ ​ ​ ​ 1,455 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
1,455
 ​ ​
Reclassification to cash-settled
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,225) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
(2,225)
 ​ ​
DECEMBER 31, 2018
​ ​ ​ ​ 546,509 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,523 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (30,068) ​ ​ ​ ​ ​ 519,393 ​ ​
Loss for the year
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (66,160) ​ ​ ​ ​
​
(66,160)
 ​ ​
Employee share program (Note 21)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Value of employee services
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,372 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
5,372
 ​ ​
Issue of shares to employees
​ ​ ​ ​ 1,871 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,844) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
27
 ​ ​
Share repurchase
​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ 2,238 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
—
 ​ ​
Reclassification to cash-settled
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (7,299) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
(7,299)
 ​ ​
DECEMBER 31, 2019
​ ​ ​ ​ 548,380 ​ ​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ 990 ​ ​ ​ ​ ​ 429 ​ ​ ​ ​ ​ (96,228) ​ ​ ​ ​ ​ 451,333 ​ ​
The accompanying notes are an integral part of the consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Consolidated statement of cash flows for the year ended December 31,
(In thousands of Brazilian Reais)
​ ​ ​
Note
​ ​
2019
​ ​
2018
​
Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Income before taxes
​ ​ ​ ​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (50,215) ​ ​
Adjustments to reconcile income before taxes to cash provided on operating activities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Depreciation and amortization
​ ​
13 / 14 / 15
​ ​ ​ ​ 62,445 ​ ​ ​ ​ ​ 56,284 ​ ​
Impairment of non-current assets
​ ​
15
​ ​ ​ ​ 51,022 ​ ​ ​ ​ ​ 33,537 ​ ​
Net impairment losses on financial assets
​ ​
9
​ ​ ​ ​ 58,178 ​ ​ ​ ​ ​ 44,578 ​ ​
Provision for revenue cancellation
​ ​
9
​ ​ ​ ​ 20,890 ​ ​ ​ ​ ​ 16,283 ​ ​
Provision for contingencies
​ ​
18
​ ​ ​ ​ 3,781 ​ ​ ​ ​ ​ 3,384 ​ ​
Accrued interests, net of financial investment yield
​ ​
26
​ ​ ​ ​ 45,018 ​ ​ ​ ​ ​ 49,577 ​ ​
Share-based compensation
​ ​
21
​ ​ ​ ​ 26,372 ​ ​ ​ ​ ​ 7,450 ​ ​
Loss on sale or disposal of non-current assets
​ ​
14
​ ​ ​ ​ 2 ​ ​ ​ ​ ​ 1,330 ​ ​
Changes in operating assets and liabilities:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade receivables
​ ​ ​ ​ ​ ​ ​ (101,302) ​ ​ ​ ​ ​ (70,880) ​ ​
Prepayments
​ ​ ​ ​ ​ ​ ​ (1,939) ​ ​ ​ ​ ​ (1,224) ​ ​
Other assets
​ ​ ​ ​ ​ ​ ​ (875) ​ ​ ​ ​ ​ (40) ​ ​
Trade payables
​ ​ ​ ​ ​ ​ ​ 13,906 ​ ​ ​ ​ ​ 926 ​ ​
Labor and social obligations
​ ​ ​ ​ ​ ​ ​ 3,427 ​ ​ ​ ​ ​ 801 ​ ​
Other taxes payable
​ ​ ​ ​ ​ ​ ​ (1,636) ​ ​ ​ ​ ​ (4,586) ​ ​
Prepayments from customers
​ ​ ​ ​ ​ ​ ​ 2,104 ​ ​ ​ ​ ​ (1,940) ​ ​
Other payables
​ ​ ​ ​ ​ ​ ​ (6,350) ​ ​ ​ ​ ​ 2,767 ​ ​
Cash from operations
​ ​ ​ ​ ​ ​ ​ 97,991 ​ ​ ​ ​ ​ 88,032 ​ ​
Income tax paid
​ ​ ​ ​ ​ ​ ​ (12,697) ​ ​ ​ ​ ​ (9,444) ​ ​
Interest paid
​ ​
13 / 17
​ ​ ​ ​ (27,543) ​ ​ ​ ​ ​ (23,201) ​ ​
Contingencies paid
​ ​
18
​ ​ ​ ​ (1,702) ​ ​ ​ ​ ​ (5,237) ​ ​
Net cash provided by operating activities
​ ​ ​ ​ ​ ​ ​ 56,049 ​ ​ ​ ​ ​ 50,150 ​ ​
Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Purchase of property and equipment
​ ​
14
​ ​ ​ ​ (28,470) ​ ​ ​ ​ ​ (23,191) ​ ​
Purchase and capitalization of intangible assets
​ ​
15
​ ​ ​ ​ (16,266) ​ ​ ​ ​ ​ (11,769) ​ ​
Payments for the acquisition of interests in subsidiaries
​ ​
17
​ ​ ​ ​ (107,988) ​ ​ ​ ​ ​ (117,247) ​ ​
Proceeds from (acquisition of) short-term investments, net
​ ​ ​ ​ ​ ​ ​ 103,227 ​ ​ ​ ​ ​ (6,595) ​ ​
Net cash used in investing activities
​ ​ ​ ​ ​ ​ ​ (49,497) ​ ​ ​ ​ ​ (158,802) ​ ​
Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Payments of lease liabilities
​ ​
13
​ ​ ​ ​ (6,103) ​ ​ ​ ​ ​ (3,793) ​ ​
Capital contributions
​ ​
19
​ ​ ​ ​ 1,871 ​ ​ ​ ​ ​ 112,509 ​ ​
Share repurchase
​ ​
19
​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ — ​ ​
Net cash (used in) provided by financing activities
​ ​ ​ ​ ​ ​ ​ (6,470) ​ ​ ​ ​ ​ 108,716 ​ ​
Net increase in cash and cash equivalents
​ ​ ​ ​ ​ ​ ​ 82 ​ ​ ​ ​ ​ 64 ​ ​
Cash and cash equivalents at the beginning of the year
​ ​ ​ ​ ​ ​ ​ 2,375 ​ ​ ​ ​ ​ 2,311 ​ ​
Cash and cash equivalents at the end of the year
​ ​ ​ ​ ​ ​ ​ 2,457 ​ ​ ​ ​ ​ 2,375 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 82 ​ ​ ​ ​ ​ 64 ​ ​
See Note 27 for the main transactions in investing and financing activities not affecting cash
The accompanying notes are an integral part of the consolidated financial statements.
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
1. Corporate information
Treviso Empreendimentos, Participações e Comércio S.A. (“Treviso” or the “Company”) is a Brazilian private company, organized and existing under the Laws of Brazil, established on June 27, 2014. The registered office is located at Rod. José Carlos Daux, 5500 Torre Jurerê A — Sala 212, Florianópolis in the state of Santa Catarina, Brazil.
Treviso is a holding company jointly controlled by Vinci Partners, through the investment fund “Vinci Capital Partners II FIP Multiestratégia”, and the Carlyle Group, through the investment funds “Fundo Brasil de Internacionalização de Empresas FIP Multiestratégia II” and “Miquerinos FIP Multiestratégia”.
Treviso and its subsidiaries (collectively, the “Group” or “Uniasselvi”) are principally engaged in providing educational services in Brazil, mainly undergraduate and continuing education courses, presentially through its eight campuses in two states, or via distance learning, though 526 learning centers (“hubs”) across the country.
These consolidated financial statements were authorized for issue by the Board of Directors on March 28, 2020.
1.1. Acquisition of Uniasselvi and other subsidiaries
On February 28, 2016, the Company completed the acquisition of sole control of the subsidiaries Sociedade Educacional Leonardo da Vinci S/S Ltda. (“Uniasselvi”) and Sociedade Educacional do Vale do Itapocu S.S. Ltda. (“Fameg”), and, on August 31, 2017, the acquisition of sole control of the subsidiaries FAIR Educacional Ltda. (“FAIR”) and FAC Educacional Ltda. (“FAC/FAMAT”), all from Kroton Group, for a total combined consideration of R$ 986,528, of which R$ 400,000 was paid in cash and the remaining balance is being paid in annual instalments, as described in Note 17.
As a result of the business combinations, which were accounted for based on the acquisition method, the Company recognized the fair value of identifiable assets and liabilities, including intangible assets, such as software, trademark, distance learning operation licenses, non-compete agreements, customer relationship and teaching-learning material. The excess amount paid was recorded as goodwill, comprising the value of expected synergies arising in the business combinations. Additional information on goodwill and other intangibles assets are described in Note 15.
Indemnification assets are currently registered when certain conditions are met, as determined in the purchase and sale agreement. The movement and breakdown of the indemnification assets are disclosed in Note 18.
2. Significant accounting policies
The main accounting policies applied in the preparation of these consolidated financial statements of the Group are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. The financial statements are for the group consisting of Treviso and its subsidiaries.
2.1. Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), and disclose all (and only) the applicable significant information related to the financial statements, which is consistent with the information utilized by Management in the performance of its duties.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
The financial statements have been prepared under the historical cost convention, except for share-based compensation, which are adjusted to reflect fair value measurement.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires Management to exercise its judgment in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. Actual results may differ from estimates.
All amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated
2.2. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group for the years ended December 31, 2019 and 2018.
The table below list the Company’s subsidiaries:
​ ​ ​ ​ ​ ​ ​ ​ ​
Investment
type
​ ​
Direct and indirect
interest
​
Name
​ ​
Main activities
​ ​
Location
​ ​
2019
​ ​
2018
​
UNIASSELVI – 
Sociedade Educacional Leonardo da Vinci S/S Ltda
​ ​
Distance learning, on-campus undergraduate and continuing education courses
​ ​
Indaial – SC
​ ​ ​ ​ Subsidiary ​ ​ ​ ​ ​ 100% ​ ​ ​ ​ ​ 100% ​ ​
FAMEG – Sociedade Educacional do Vale do Itapocu S/S
Ltda.
​ ​
On-campus undergraduate and continuing education courses
​ ​
Guaramirim – SC
​ ​ ​ ​ Subsidiary ​ ​ ​ ​ ​ 100% ​ ​ ​ ​ ​ 100% ​ ​
FAIR Educacional Ltda. ​ ​
On-campus undergraduate and continuing education courses
​ ​
Rondonópolis – MT
​ ​ ​ ​ Subsidiary ​ ​ ​ ​ ​ 100% ​ ​ ​ ​ ​ 100% ​ ​
FAC Educacional
Ltda.
​ ​
On-campus undergraduate and continuing education courses
​ ​
Cuiabá – MS
​ ​ ​ ​ Subsidiary ​ ​ ​ ​ ​ 100% ​ ​ ​ ​ ​ 100% ​ ​
The Group consolidates the financial information for all entities it controls. Control is achieved when the Group is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
a) Subsidiaries
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and it ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognized the related assets
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
(including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of profit or loss.
b) Joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Group has only joint operations.
Joint operations
The Group recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. These have been incorporated in the financial statements under the appropriate headings. Details of the joint operation are set out in Note 2.5.p.
2.3. Functional and presentation currency
The items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in Brazilian Reais (R$), which is the Group’s functional currency and the Group’s presentation currency.
2.4. Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset is current when it is:
•
Expected to be realized or intended to be sold or consumed in the normal operating cycle;
​
•
Held primarily for the purpose of trading;
​
•
Expected to be realized within twelve months after the reporting period; or
​
•
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
​
All other assets are classified as non-current.
A liability is current when:
•
It is expected to be settled in the normal operating cycle;
​
•
It is held primarily for the purpose of trading;
​
•
It is due to be settled within twelve months after the reporting period; or
​
•
There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
​
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
2.5. Summary of accounting policies
a) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) in the principal market for the asset or liability; or (ii) in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
​
•
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
​
•
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
​
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
At each reporting date, the Group analyzes the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the Group’s accounting policies. For this analysis, the Group verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.
The Group also compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
b) Financial instruments — initial recognition and measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
i. Financial assets
Initial recognition and measurement
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income (“OCI”), it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified as: financial assets at amortized cost or financial assets at fair value through profit or loss.
Financial assets at amortized cost
The Group measures financial assets at amortized cost if both of the following conditions are met:
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and
​
•
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
​
Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss when the asset is derecognized, modified or impaired.
The Group’s financial assets at amortized cost mainly includes ‘Cash and cash equivalents’, ‘Short-term investments’ and ‘Trade receivables’.
The Company reclassifies financial assets only when its business approach for managing those assets changes.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit and loss (“FVPL”) include held for trading financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair value. At the balance sheet date there are no financial assets measured at FVPL.
Financial assets are classified as fair value through profit and loss if they either fail the contractual cash flow test or in the Group’s business model are acquired for the purpose of selling or repurchasing in the near term. Financial assets may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at FVPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of income. The net gain or loss recognized in the
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
statement of income includes any dividend or interest earned on the financial asset. At the balance sheet date there are no financial assets measured at FVPL.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Group’s statement of financial position) when:
•
The rights to receive cash flows from the asset have expired; or
​
•
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
​
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
•
Significant accounting estimates and assumptions — Note 3
​
•
Trade receivables — Note 9
​
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and the cash flows the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes an allowance for credit losses based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are 365 days past due. In certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
ii. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss or amortized cost, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of amortized cost, net of directly attributable transaction costs.
The Group’s financial liabilities include trade payables, lease liabilities, prepayments from customers, accounts payable from acquisition of subsidiaries and share-based compensation.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.
Financial liabilities are considered as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes financial instruments entered by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9 — Financial Instruments.
Gains or losses on liabilities at fair value through PL are recognized in the statement of profit or loss.
Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 — Financial Instruments are satisfied. The Group has designated its financial liability related to share-based compensation as at FVPL.
Amortized cost
After initial recognition, interest-bearing financial liabilities are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the statement of profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as financial expenses in the statement of profit or loss.
The Group’s financial liabilities at amortized cost include trade payables, lease liabilities, prepayments from costumers and accounts payable from acquisition of subsidiaries.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
c) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short-term financial investments with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash, bank deposits and short-term highly liquid financial investments, as they are readily convertible to known amounts of cash, subject to an insignificant risk of changes in value and considered an integral part of the Group’s cash management.
d) Prepaid expenses
Prepaid expenses are recognized as an asset in the statement of financial position. These expenditures include prepaid software licenses, insurance premiums and prepaid vacations to employees.
e) Indemnification assets
When the selling shareholders of acquired entities have contractually agreed to indemnify the Group for amounts that may become payable in respect of lawsuits pertaining to the period under their responsibility, indemnification assets are recorded to the proportion of the respective provision. Subsequent changes in the amount recognized for the indemnification asset may occur in relation to the provision for contingencies, according to changes in the range of outcomes or the assumptions used to develop the estimate of the liability at the time of the acquisition.
f) Leases
The group leases offices, buildings and equipment. Rental contracts are typically made for fixed periods of 1 to 20 years but may have extension options.
Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
To determine the incremental borrowing rate, the Group:
•
where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received.
​
•
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk when the individual lessee does not have recent third-party financing; and
​
•
makes adjustments specific to the lease, e.g. term, country, currency and security.
​
The group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of use assets are subject to impairment.
g) Non-current assets (or disposal groups) held for sale
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, which are specifically exempt from this requirement.
An impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognized for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
previously recognized. A gain or loss not previously recognized by the date of the sale of the non-current asset (or disposal group) is recognized at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
The group has no disposal groups that are component classified as held for sale and representing a separate major line of business or geographical area of operations that qualify as a discontinued operation.
h) Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes acquisition, formation or construction cost. Historical cost also includes financial expenses related to the acquisition of qualifying assets.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to the Group and they can be measured reliably. The carrying amount of the replaced items or parts is derecognized. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to reduce their cost to their residual value over their estimated useful lives, as follows:
​ ​ ​
Annual average rate
​
Buildings
​ ​
4%
​
IT equipment
​ ​
20%
​
Furniture, fittings and facilities
​ ​
10%
​
Leasehold improvements
​ ​
4% - 10%
​
Library
​ ​
10%
​
An asset’s carrying amount is immediately written down to the recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the amounts of sales with the carrying amounts and are recognized within “Other operating income (expenses)” in the statement of profit or loss.
The Group annually reviews the useful lives and residual value of its assets. Based on review completed for December 31, 2019, the Group concluded that the depreciation rates used are consistent with its operations and that there are no changes to residual value of assets.
i) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
•
fair values of the assets transferred;
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
•
liabilities incurred to the former owners of the acquired business;
​
•
equity interests issued by the Group;
​
•
fair value of any asset or liability resulting from a contingent consideration arrangement; and
​
•
fair value of any pre-existing equity interest in the subsidiary.
​
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.
Acquisition-related costs are expensed as incurred.
The excess of the
•
consideration transferred or to be transferred;
​
•
amount of any non-controlling interest in the acquired entity; and
​
•
acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase.
​
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration, when applicable, is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss.
j) Intangible assets
Computer programs (software) and internal project development
Computer software licenses are capitalized and amortized under the straight-line method over their useful lives.
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:
•
It is technically feasible to complete the software/project so that it will be available for use or sale;
​
•
Management intends to complete the software/project and to use it or sell it;
​
•
The software/project may be sold or used;
​
•
Future benefits associated with the software can be demonstrated;
​
•
Adequate technical, financial and other resources are available to complete the design, and for the use or sale of the software/project; and
​
•
The expenses attributable to the software/project during its development can be measured reliably.
​
Directly attributable costs that are capitalized as part of the software/project product include the software/project development employee costs and an appropriate portion of relevant overheads.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period.
Computer software and project development costs recognized as assets are amortized using the straight-line method over their estimated useful lives. The average estimated useful lives of the software is 5 years and project development costs is 4 years.
Trademarks and licenses
Trademarks and licenses acquired in a business combination are recognized at fair value at the acquisition date. Subsequently, trademarks and licenses with a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives.
Goodwill
Goodwill is measured as the positive difference between the amount paid or payable and the net fair value of the acquiree’s assets and liabilities and other equity instruments that are acquired/​exchanged. In the case of a bargain purchase, the excess of the net fair value of acquiree’s assets and liabilities over the purchase price is recognized in the statement of profit or loss at the acquisition date.
Goodwill is tested annually or more frequently if events or changes in circumstances indicate a potential impairment and carried at cost less accumulated impairment losses, which are not reversed. Gains and losses on disposal of an entity include the carrying amount of the goodwill on the entity disposed of.
Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship, estimated at 4 years.
Operation licenses for distance learning
Distance learning licenses correspond to the right to operate distance learning in a given municipality, with authorization from the Ministry of Education, and in order to obtain such rights, an institution must meet a number of requirements, where the academic and physical infrastructure is assessed. Accordingly, this has been identified and allocated to the Group’s business combination and was assessed as having an indefinite useful life, since as from the time such a license is granted the likelihood of losing it is virtually nil.
Operation licenses for distance learning are tested annually or more frequently if events or changes in circumstances indicate a potential impairment and carried at cost less accumulated impairment losses, which are not reversed.
Teaching/learning materials — TLM
TLMs acquired in a business combination are recognized at fair value at the acquisition date. The TLMs have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the use of the TLM at classes, estimated at 5 years.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Non-compete agreements
Non-compete agreements acquired in a business combination are recognized at fair value at the acquisition date. The non-compete agreements have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the non-compete agreement, estimated at 5 years.
k) Impairment of non-financial assets
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination and licenses with indefinite useful lives in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.
Impairment losses of continuing operations are recognized in the statement of profit or loss in expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss.
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
l) Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business also includes amounts related to tuition fees to be transferred to hub partners as described in note 2.5.p.
m) Provision for contingencies
Provisions for losses related to legal and administrative proceedings involving labor, tax and civil matters are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the liability, and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the liability, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the time elapsed is recognized as interest expense.
n) Labor and social obligations
Labor and social obligations are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
o) Share-based payments
The Group offers its managers and executives employee share schemes for the granting of share options issued by the Group, which can be settled either by delivering equity instruments (equity-settled transactions) or by payments in cash (cash-settled transactions).
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by the fair value at the date options are granted by using an appropriate valuation model. Cost is recognized as an employee benefits expense, with a corresponding increase in equity (other capital reserves) The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of options, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an option, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an option and lead to an immediate expensing of an option unless there are also service and/or performance conditions.
No expense is recognized for options that do not ultimately vest because non-market performance and/or service conditions have not been met. Where options include a market or non-vesting condition,
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
The relevant services period may commence prior to the grant date. In this situation, the Company estimates the grant date fair value of the equity instruments for the purposes of recognizing the services received during the period between service commencement date and grant date. Once the grant date has been established, the entity revises the earlier estimate so that the amounts recognized for services received is ultimately based on the grant date fair value of the equity instruments.
Any proceeds received as a result of an exercise price, net of any directly attributable transaction costs, are credited directly to equity, as a capital increase for the issuance of new shares of the Company or a deduction of treasury shares when available.
Cash-settled transactions
A liability is recognized for the fair value of cash-settled transactions. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognized as an employee benefits expense. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The fair value is determined using an appropriate valuation model. The approach used to account for vesting conditions when measuring equity-settled transactions also applies to cash-settled transactions.
At the balance sheet date, the Group revises its estimates of liability fair value (for the cash-settled transactions) and of the number of options whose rights are to be vested based on the established non-market vesting and service conditions (for both equity and cash-settled transactions). The impact of revising initial estimates, if any, is recognized in the statement of profit or loss prospectively. The significant judgments, estimates and assumptions regarding share-based payments are described further in Note 3(g). Refer to Note 21 for detailed information relating to these share schemes.
p) Revenue from contracts with customers
The Group’s revenue consists primarily of tuition fees charged for distance learning undergraduate courses, on-campus undergraduate courses and continuing education courses. The Group also generates revenue from student fees and certain education-related activities.
Revenue from tuitions are recognized over time when services are rendered to the customer and the Group satisfies its performance obligation under the contract at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. Revenues from tuitions are recognized net of scholarships and other discounts, refunds and taxes.
Other revenues are recognized at a point in time when the service is rendered to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for the service. Other revenues are presented net of the corresponding discounts, returns and taxes.
Trade receivables
Trade receivables represent the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in Financial instruments — initial recognition and subsequent measurement.
Prepayments from customers
Prepayments from customers (a contract liability) are the obligation to transfer services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer, as a result of pre-paid tuition received from students and is recognized separately in current
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
liabilities, when the payment is received. Prepayments from customers are recognized as revenue when the Group performs all obligations related to the contract, generally in the following month.
Joint operations with hub partners
A hub is a local operating unit that can be owned by the Group or third parties (hub partners) and has the responsibility for offering to students the necessary structure in terms of audiovisual resources, library and information technology, to support the distance learning courses.
The contractual agreement between the Group and each hub partner is a joint operation and establishes the rights of each hub partner on the related revenues and obligations for the related expenses. In this sense, the revenue from distance learning and related accounts receivable are recognized only to the portion of the Group’s right to the jointly revenue. As a result, when the Group receives the student’s monthly tuition fee in whole, an obligation to the hub partner is accrued under trade payables.
q) Financial results
Financial income is recognized based on the time elapsed, using the effective interest rate method. When a loss is identified in relation to trade receivables, the carrying amount is reduced to its recoverable amount, which corresponds to the estimated future cash flows, discounted at the original effective interest rate of the instrument. Subsequently, as time elapses, interest rates are incorporated into trade receivables, matched against financial income. This financial income is calculated by the same effective interest rate used to calculate the recoverable amount, i.e., the original rate of trade receivables.
Financial expenses include interest expenses on taxes payable in installments and other financial liabilities, including the interests accrued on accounts payable from acquisition of subsidiaries and lease liabilities.
r) Earnings per share
Basic earnings per share is calculated by dividing:
•
the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares
​
•
by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares (note 20).
​
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
•
the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
​
•
the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
​
s) Taxes
Tax incentives
The higher education companies maintained by the Group are part of the University for All Program — ProUni, which establishes, through Law 11,096, dated January 13, 2005, exemption from
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
certain federal taxes for post-secondary education institutions that provide in exchange full and partial scholarships to a certain number of low-income students enrolled in traditional undergraduate and technological undergraduate programs. The following federal taxes are included in the exemption:
•
Income taxes:   Corporate Income Tax (“IRPJ”) and Social Contribution on Net Income (“CSLL”)
​
•
Contributions on revenue:   Social Integration Program tax (Programa de Integração Social or “PIS”) and the Social Contribution on Revenues tax (Contribuição para o Financiamento da Seguridade Social, or “COFINS”)
​
Current income taxes
Income taxes in Brazil are comprised of IRPJ and CSLL. According to Brazilian tax law, income taxes and social contribution are assessed and paid by each legal entity and not on a consolidated basis. Income tax of each entity is calculated based on income, adjusted to taxable income by the additions and exclusions provided for in legislation.
Current income taxes were calculated based on the criteria established by the Normative Instruction of the Brazilian Internal Revenue Service, specifically regarding the PROUNI program, which allows exemption of these taxes from traditional and technological graduation activities.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income taxes
Deferred income tax and social contribution are recognized, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either accounting nor taxable profit or loss.
Deferred tax assets are recognized only to the extent it is probable that future taxable profit will be available against which the temporary differences and/or tax losses can be utilized. In accordance with the Brazilian tax legislation, loss carryforwards can be used to offset up to 30% of taxable profit for the year and do not expire.
Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are presented net in the statement of financial position when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes, generally when related to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not on a net basis.
Sales and other taxes
Revenues, expenses and assets are recognized net of sales tax, except:
•
When the sales taxes incurred on the purchase of goods or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable.
​
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
•
When the amounts receivable or payable are stated with the amount of sales taxes included.
​
The net amount of sales taxes, recoverable or payable to the tax authority, is included as part of receivables or payables in the statement of financial position, and net of corresponding revenue or cost / expense, in the statement of profit or loss.
Sales revenues in Brazil are subject to taxes and contributions, at the following statutory rates:
PIS and COFINS are contributions levied by the Brazilian Federal government on gross revenues. These amounts are invoiced to and collected from the Group’s customers and recognized as deductions to gross revenue against tax liabilities, as we are acting as tax withholding agents on behalf of the tax authorities. PIS and COFINS paid on certain purchases may be claimed back as tax credits to offset PIS and COFINS payable. These amounts are recognized as Recoverable taxes and are offset on a monthly basis against Taxes payable and presented net, as the amounts are due to the same tax authority. PIS and COFINS are contributions calculated on two different regimes according to Brazilian tax legislation: cumulative method and non-cumulative method.
The regulation of PROUNI defines that the revenue from traditional and technological under-graduation courses are exempt from PIS and COFINS. For income from other teaching activities, PIS and COFINS are charged based on the cumulative method at rates of 0.65% and 3.00%, respectively, and for non-teaching activities, PIS and COFINS are charged based on the non-cumulative method at rate of 1.65% and 7.6%, respectively.
ISS is a tax levied by municipalities on revenues from the provision of services. ISS tax is added to amounts invoiced to the Group’s customers for the services the Group renders. These are recognized as deductions to gross revenue against tax liabilities, as the Group acts as agent collecting these taxes on behalf of municipal governments. The rates may vary from 2.00% to 5.00%.
INSS is a social security charge levied on wages paid to employees
2.6. Changes in accounting policies and disclosures
New standards, interpretations and amendments adopted by the Group.
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:
•
IFRS 16 — Leases
​
•
IFRIC Interpretation 23 — Uncertainty over Income Tax Treatments
​
•
Amendments to IFRS 9 — Prepayment Features with Negative Compensation
​
•
Amendments to IAS 19 — Plan Amendment, Curtailment or Settlement
​
•
Annual Improvements to IFRS Standards 2015 – 2017 Cycle
​
The Group had to change its accounting policies as a result of adopting IFRS 16. A lessee can apply IFRS 16 either by a full retrospective approach or a modified retrospective approach. The Group applied the full retrospective transition approach to each prior reporting period presented. Under the full retrospective method, the comparative information was restated.
The other amendments listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.
a) IFRS 16 — Leases
IFRS 16 superseded IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases — Incentives and SIC- 27 Evaluating the Substance of Transactions
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model, similar to accounting for finance leases under IAS 17.
The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’), to which the lessee should recognize the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis if that basis is representative of the pattern of the lessee’s benefits, similar to the previous accounting for operating leases under IAS 17.
The Group has lease contracts mainly for properties, related to its campuses and proprietary hubs, as well as certain equipment (i.e., personal computers, printing and photocopying machines and communicating equipment) that are considered of low value. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. The Group did not have finance leases as of December 31, 2018. In an operating lease, the leased properties and equipment were not capitalized, and the lease payments were recognized as rent expense in the statement of profit or loss on a straight-line basis over the lease term.
The Group adopted IFRS 16 using the full retrospective method of adoption with the date of initial application of January 1, 2019. Under this method, the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. As a result, the Group applied full retrospective restatement applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except for short-term leases and leases of low-value assets.
A summary of the accounting policy of the Group upon adoption of IFRS 16 is described in note 2.5.f.
The table below shows the effect of adoption of IFRS 16 on the consolidated financial statements and the adjustments recognized for each individual line item as of January 1, 2018, December 31, 2018 and December 31, 2019. Line items that were not affected by the changes have not been included.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Impact on consolidated statements of financial position — increase (decrease):
Statement of financial position (extract)
​ ​
12.31.2019
(IAS 17)
​ ​
IFRS 16
​ ​
12.31.2019
as presented
​ ​
12.31.2018
as originally
presented
​ ​
IFRS 16
​ ​
12.31.2018
restated
​
Assets classified as held for sale
​ ​ ​ ​ 20,343 ​ ​ ​ ​ ​ 16,090 ​ ​ ​ ​ ​ 36,433 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total Current Assets
​ ​ ​ ​ 198,758 ​ ​ ​ ​ ​ 16,090 ​ ​ ​ ​ ​ 214,848 ​ ​ ​ ​ ​ 252,394 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 252,394 ​ ​
Right-of-use assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 74,822 ​ ​ ​ ​ ​ 74,822 ​ ​
Deferred tax assets
​ ​ ​ ​ 36,690 ​ ​ ​ ​ ​ 456 ​ ​ ​ ​ ​ 37,146 ​ ​ ​ ​ ​ 25,192 ​ ​ ​ ​ ​ 4,732 ​ ​ ​ ​ ​ 29,924 ​ ​
Non-current assets
​ ​ ​ ​ 784,839 ​ ​ ​ ​ ​ 88,990 ​ ​ ​ ​ ​ 873,829 ​ ​ ​ ​ ​ 847,022 ​ ​ ​ ​ ​ 79,554 ​ ​ ​ ​ ​ 926,576 ​ ​
Total assets
​ ​ ​ ​ 983,597 ​ ​ ​ ​ ​ 105,080 ​ ​ ​ ​ ​ 1,088,677 ​ ​ ​ ​ ​ 1,099,416 ​ ​ ​ ​ ​ 79,554 ​ ​ ​ ​ ​ 1,178,970 ​ ​
Lease liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 17,265 ​ ​ ​ ​ ​ 17,265 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 15,397 ​ ​ ​ ​ ​ 15,397 ​ ​
Liabilities directly associated with assets classified as held for sale
​ ​ ​ ​ 4,074 ​ ​ ​ ​ ​ 19,210 ​ ​ ​ ​ ​ 23,284 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Current liabilities
​ ​ ​ ​ 184,916 ​ ​ ​ ​ ​ 36,475 ​ ​ ​ ​ ​ 221,391 ​ ​ ​ ​ ​ 159,635 ​ ​ ​ ​ ​ 15,397 ​ ​ ​ ​ ​ 175,032 ​ ​
Lease liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 85,923 ​ ​ ​ ​ ​ 85,923 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 73,342 ​ ​ ​ ​ ​ 73,342 ​ ​
Non-current liabilities
​ ​ ​ ​ 330,030 ​ ​ ​ ​ ​ 85,923 ​ ​ ​ ​ ​ 415,953 ​ ​ ​ ​ ​ 411,203 ​ ​ ​ ​ ​ 73,342 ​ ​ ​ ​ ​ 484,545 ​ ​
Total liabilities
​ ​ ​ ​ 514,946 ​ ​ ​ ​ ​ 122,398 ​ ​ ​ ​ ​ 637,344 ​ ​ ​ ​ ​ 570,838 ​ ​ ​ ​ ​ 88,739 ​ ​ ​ ​ ​ 659,577 ​ ​
Accumulated losses
​ ​ ​ ​ (78,910) ​ ​ ​ ​ ​ (17,318) ​ ​ ​ ​ ​ (96,228) ​ ​ ​ ​ ​ (20,883) ​ ​ ​ ​ ​ (9,185) ​ ​ ​ ​ ​ (30,068) ​ ​
Total equity
​ ​ ​ ​ 468,651 ​ ​ ​ ​ ​ (17,318) ​ ​ ​ ​ ​ 451,333 ​ ​ ​ ​ ​ 528,578 ​ ​ ​ ​ ​ (9,185) ​ ​ ​ ​ ​ 519,393 ​ ​
Total liabilities and equity
​ ​ ​ ​ 983,597 ​ ​ ​ ​ ​ 105,080 ​ ​ ​ ​ ​ 1,088,677 ​ ​ ​ ​ ​ 1,099,416 ​ ​ ​ ​ ​ 79,554 ​ ​ ​ ​ ​ 1,178,970 ​ ​
​
Statement of financial position (extract)
​ ​
01.01.2018
as originally
presented
​ ​
IFRS 16
​ ​
01.01.2018
restated
​
Right-of-use assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 51,534 ​ ​ ​ ​ ​ 51,534 ​ ​
Deferred tax assets
​ ​ ​ ​ 23,242 ​ ​ ​ ​ ​ 3,436 ​ ​ ​ ​ ​ 26,678 ​ ​
Non-current assets
​ ​ ​ ​ 893,949 ​ ​ ​ ​ ​ 54,970 ​ ​ ​ ​ ​ 948,919 ​ ​
Total assets
​ ​ ​ ​ 1,112,699 ​ ​ ​ ​ ​ 54,970 ​ ​ ​ ​ ​ 1,167,669 ​ ​
Lease liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 10,875 ​ ​ ​ ​ ​ 10,875 ​ ​
Current liabilities
​ ​ ​ ​ 153,719 ​ ​ ​ ​ ​ 10,875 ​ ​ ​ ​ ​ 164,594 ​ ​
Lease liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 50,764 ​ ​ ​ ​ ​ 50,764 ​ ​
Non-current liabilities
​ ​ ​ ​ 500,745 ​ ​ ​ ​ ​ 50,764 ​ ​ ​ ​ ​ 551,509 ​ ​
Total liabilities
​ ​ ​ ​ 654,464 ​ ​ ​ ​ ​ 61,639 ​ ​ ​ ​ ​ 716,103 ​ ​
Accumulated losses
​ ​ ​ ​ 22,308 ​ ​ ​ ​ ​ (6,669) ​ ​ ​ ​ ​ 15,639 ​ ​
Total equity
​ ​ ​ ​ 458,235 ​ ​ ​ ​ ​ (6,669) ​ ​ ​ ​ ​ 451,566 ​ ​
Total liabilities and equity
​ ​ ​ ​ 1,112,699 ​ ​ ​ ​ ​ 54,970 ​ ​ ​ ​ ​ 1,167,669 ​ ​
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Impact on consolidated statements of profit or loss and comprehensive income- increase (decrease):
Statement of profit and loss
(extract) 		​ ​
2019
(IAS 17)
​ ​
IFRS 16
​ ​
2019
as presented
​ ​
2018
as originally
presented
​ ​
IFRS 16
​ ​
2018
restated
​
Cost of services rendered
​ ​ ​ ​ (219,887) ​ ​ ​ ​ ​ 8,340 ​ ​ ​ ​ ​ (211,547) ​ ​ ​ ​ ​ (191,127) ​ ​ ​ ​ ​ 6,966 ​ ​ ​ ​ ​ (184,161) ​ ​
Gross profit
​ ​ ​ ​ 241,180 ​ ​ ​ ​ ​ 8,340 ​ ​ ​ ​ ​ 249,520 ​ ​ ​ ​ ​ 192,322 ​ ​ ​ ​ ​ 6,966 ​ ​ ​ ​ ​ 199,288 ​ ​
General and administrative expenses
​ ​ ​ ​ (125,541) ​ ​ ​ ​ ​ 197 ​ ​ ​ ​ ​ (125,344) ​ ​ ​ ​ ​ (90,667) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (90,667) ​ ​
Operating expenses
​ ​ ​ ​ (285,573) ​ ​ ​ ​ ​ 197 ​ ​ ​ ​ ​ (285,376) ​ ​ ​ ​ ​ (206,932) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (206,932) ​ ​
Operating profit
​ ​ ​ ​ (44,393) ​ ​ ​ ​ ​ 8,537 ​ ​ ​ ​ ​ (35,856) ​ ​ ​ ​ ​ (14,610) ​ ​ ​ ​ ​ 6,966 ​ ​ ​ ​ ​ (7,644) ​ ​
Financial expenses
​ ​ ​ ​ (47,996) ​ ​ ​ ​ ​ (12,394) ​ ​ ​ ​ ​ (60,390) ​ ​ ​ ​ ​ (53,819) ​ ​ ​ ​ ​ (10,778) ​ ​ ​ ​ ​ (64,597) ​ ​
Financial results
​ ​ ​ ​ (28,802) ​ ​ ​ ​ ​ (12,394) ​ ​ ​ ​ ​ (41,196) ​ ​ ​ ​ ​ (31,793) ​ ​ ​ ​ ​ (10,778) ​ ​ ​ ​ ​ (42,571) ​ ​
Loss before taxes
​ ​ ​ ​ (73,195) ​ ​ ​ ​ ​ (3,857) ​ ​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (46,403) ​ ​ ​ ​ ​ (3,812) ​ ​ ​ ​ ​ (50,215) ​ ​
Deferred income taxes
​ ​ ​ ​ 24,394 ​ ​ ​ ​ ​ 1,311 ​ ​ ​ ​ ​ 25,705 ​ ​ ​ ​ ​ 14,355 ​ ​ ​ ​ ​ 1,296 ​ ​ ​ ​ ​ 15,651 ​ ​
Income taxes
​ ​ ​ ​ 9,581 ​ ​ ​ ​ ​ 1,311 ​ ​ ​ ​ ​ 10,892 ​ ​ ​ ​ ​ 3,715 ​ ​ ​ ​ ​ 1,296 ​ ​ ​ ​ ​ 5,011 ​ ​
Loss for the year
​ ​ ​ ​ (63,614) ​ ​ ​ ​ ​ (2,546) ​ ​ ​ ​ ​ (66,160) ​ ​ ​ ​ ​ (42,688) ​ ​ ​ ​ ​ (2,516) ​ ​ ​ ​ ​ (45,204) ​ ​
Other comprehensive income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total comprehensive loss
​ ​ ​ ​ (63,614) ​ ​ ​ ​ ​ (2,546) ​ ​ ​ ​ ​ (66,160) ​ ​ ​ ​ ​ (42,688) ​ ​ ​ ​ ​ (2,516) ​ ​ ​ ​ ​ (45,204) ​ ​
Impact on earnings per share — increase (decrease):
​ ​ ​
2019
(IAS 17)
​ ​
IFRS 16
​ ​
2019
as presented
​ ​
2018
as originally
presented
​ ​
IFRS 16
​ ​
2018
restated
​
Basic and diluted loss per share (R$)
​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (0.09) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (0.09) ​ ​
Impact on consolidated statement of cash flows — increase (decrease):
Statement of cash flows
(extract) 		​ ​
2019
(IAS 17)
​ ​
IFRS 16
​ ​
2019
as presented
​ ​
2018
as originally
presented
​ ​
IFRS 16
​ ​
2018
restated
​
Income before taxes
​ ​ ​ ​ (73,195) ​ ​ ​ ​ ​ (3,857) ​ ​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (46,403) ​ ​ ​ ​ ​ (3,812) ​ ​ ​ ​ ​ (50,215) ​ ​
Depreciation and amortization
​ ​ ​ ​ 52,485 ​ ​ ​ ​ ​ 9,960 ​ ​ ​ ​ ​ 62,445 ​ ​ ​ ​ ​ 48,679 ​ ​ ​ ​ ​ 7,605 ​ ​ ​ ​ ​ 56,284 ​ ​
Accrued interest
​ ​ ​ ​ 32,625 ​ ​ ​ ​ ​ 12,393 ​ ​ ​ ​ ​ 45,018 ​ ​ ​ ​ ​ 38,799 ​ ​ ​ ​ ​ 10,778 ​ ​ ​ ​ ​ 49,577 ​ ​
Cash from operations
​ ​ ​ ​ 79,495 ​ ​ ​ ​ ​ 18,496 ​ ​ ​ ​ ​ 97,991 ​ ​ ​ ​ ​ 73,461 ​ ​ ​ ​ ​ 14,571 ​ ​ ​ ​ ​ 88,032 ​ ​
Interest paid
​ ​ ​ ​ (15,150) ​ ​ ​ ​ ​ (12,393) ​ ​ ​ ​ ​ (27,543) ​ ​ ​ ​ ​ (12,423) ​ ​ ​ ​ ​ (10,778) ​ ​ ​ ​ ​ (23,201) ​ ​
Net cash provided by operating activities
​ ​ ​ ​ 49,946 ​ ​ ​ ​ ​ 6,103 ​ ​ ​ ​ ​ 56,049 ​ ​ ​ ​ ​ 46,357 ​ ​ ​ ​ ​ 3,793 ​ ​ ​ ​ ​ 50,150 ​ ​
Payments of lease liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ (6,103) ​ ​ ​ ​ ​ (6,103) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,793) ​ ​ ​ ​ ​ (3,793) ​ ​
Net cash provided by (used in) financing activities
​ ​ ​ ​ (367) ​ ​ ​ ​ ​ (6,103) ​ ​ ​ ​ ​ (6,470) ​ ​ ​ ​ ​ 112,509 ​ ​ ​ ​ ​ (3,793) ​ ​ ​ ​ ​ 108,716 ​ ​
Net (decrease) increase in cash and cash equivalents
​ ​ ​ ​ 82 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 82 ​ ​ ​ ​ ​ 64 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 64 ​ ​
​
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
b) IFRIC Interpretation 23 — Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
•
Whether an entity considers uncertain tax treatments separately
​
•
The assumptions an entity makes about the examination of tax treatments by taxation authorities
​
•
How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
​
•
How an entity considers changes in facts and circumstances
​
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.
The Group applied the interpretation and did not have material impact on the consolidated financial statements.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for December 31, 2019 reporting periods and have not been early adopted by the group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions
3. Significant accounting estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are recognized prospectively.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
•
Capital management — Note 7
​
•
Financial instruments risk management and policies — Note 5.4
​
•
Sensitivity analyses disclosures — Note 5.4.1
​
Estimates and assumptions
The key assumptions about the future and other key sources of estimated uncertainty as of the reporting date that include a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances that arise and that are beyond the Group’s control. Such changes are reflected in the assumptions where they occur.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
a) Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) or group of CGUs exceeds its recoverable amount, defined as the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on data available from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a discounted cash flow model (“DCF” model). The cash flows are derived from the budget for the next five years and do not include restructuring activities to which the Group has not yet committed or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as to expected future cash-inflows and the growth rate used for extrapolation purposes.
These estimates are most relevant to goodwill and indefinite lived intangible assets recognized by the Group. The key assumptions used to determine the recoverable amount for each CGU, including a sensitivity analysis, are disclosed and further explained in Note 15.
b) Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques. The inputs into these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required to estimate fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. See Note 5 for further disclosures.
c) Credit losses on trade receivables
The Group recognizes an allowance for expected credit losses (ECLs) for trade receivables applying a simplified approach in calculating ECLs. As a result, the Group does not track changes in credit risk, but rather recognizes an allowance for doubtful accounts based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group considers a trade receivable to be in default when contractual payments are 365 days past due. In certain cases, however, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A trade receivable is written off when there is no reasonable expectation of recovering the contractual cash flows. The information about the allowance for expected credit losses is disclosed in Note 9.
d) Provision for contingencies
The Group is party to proceedings at judicial and administrative levels, as disclosed in Note 18. The provision for legal proceedings is set up for all proceedings assessed as probable losses. The likelihood of loss is assessed based on available evidence, the hierarchy of laws, case law, most recent court decisions and their relevance within the legal system, and the assessment made by the outside legal counsel. Provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations, additional exposures identified based on new matters or court decisions.
e) Lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
f) Incremental lease rate
The Group is unable to determine the implicit discount rate to be applied to its lease agreements. Therefore, the incremental rate on the lessee’s loan is used to calculate the present value of the lease liabilities at the initial registration of the lease.
The lessee’s incremental loan rate is the interest rate that the lessee would have to pay when borrowing funds for the acquisition of an asset similar to the asset object of the lease, for a similar term and with a similar guarantee, the funds required to obtain the asset with a value similar to the right of use asset in a similar economic environment.
Obtaining this rate involves a high degree of judgment and should be a function of the lessee’s credit risk, the term of the lease, the nature and quality of the collateral offered and the economic environment in which the transaction takes place. The rate calculation process preferably uses readily observable information from which to make the necessary adjustments to arrive at its incremental lending rate
The IFRS 16 allows the incremental rate to be determined for a grouping of contracts, since this choice is associated with the validation that the grouped contracts have similar characteristics.
The Group has adopted the aforementioned practical method of determining groupings for its scope lease agreements as it understands that the effects of their application do not materially differ from the application to individual leases. The size and composition of the portfolios were defined according to the following assumptions: (a) assets of a similar nature and (b) remaining maturities with respect to the similar initial application date.
g) Share-based compensation
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms and conditions of the grant and the information available at the grant date and at each reporting period, for the liability portion on cash-settled transactions.
The Group uses certain methodologies to estimate fair value which include the following
• estimation of fair value based on equity transactions with third parties close to the grant date;
• other valuation techniques including option pricing models such as Black-Scholes.
These estimates also require determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share option, expected volatility of the price of the Group’s shares and expected dividend yield.
4. Segment reporting
Segment information is presented consistently with the internal reports provided to the Senior management team, consisting of the chief executive officer, the chief financial officer and other
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
executives, and which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Group’s operating segments, and making the Group’s strategic decisions.
In reviewing the operational performance of the Group and allocating resources, the CODM reviews selected items of the statement of profit or loss and of comprehensive income, based on relevant financial data for each of the Group’s operating segments, represented by the Group’s main lines of service from which it generates revenue, as follows:
• Distance learning undergraduate courses
• Continuing education courses
• On-campus undergraduate courses
Segment performance is primarily evaluated based on net revenue and on adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA). The Adjusted EBITDA is calculated as operating profit plus depreciation and amortization plus interest received on late payments of monthly tuition fees and adjusted by the elimination of effects from share-based compensation plus/​minus exceptional expenses. General and administrative expenses (except for intangible assets’ amortization and impairment expenses), finance results (other than interest on tuition fees paid in arrears) and income taxes are managed on a Group’s consolidated basis and are not allocated to operating segments.
There were no inter-segment revenues in the years ended December 31, 2019 and 2018. There were no adjustments or eliminations in the profit or loss between segments.
The CODM do not make strategic decisions or evaluate performance based on geographic regions. Currently, the Group operates solely in Brazil and all the assets, liabilities and results are allocated in Brazil.
a) Measures of performance
​ ​ ​
Distance
learning
undergraduate
courses
​ ​
Continuing
education
courses
​ ​
On-campus
undergraduate
courses
​ ​
Total allocated
​
2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 336,317 ​ ​ ​ ​ ​ 47,103 ​ ​ ​ ​ ​ 77,647 ​ ​ ​ ​ ​ 461,067 ​ ​
Adjusted EBITDA
​ ​ ​ ​ 112,919 ​ ​ ​ ​ ​ 33,335 ​ ​ ​ ​ ​ 20,871 ​ ​ ​ ​ ​ 167,125 ​ ​
% Adjusted EBITDA margin
​ ​ ​ ​ 33.58% ​ ​ ​ ​ ​ 70.77% ​ ​ ​ ​ ​ 26.88% ​ ​ ​ ​ ​ 36.25% ​ ​
2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net revenue
​ ​ ​ ​ 259,591 ​ ​ ​ ​ ​ 33,044 ​ ​ ​ ​ ​ 90,814 ​ ​ ​ ​ ​ 383,449 ​ ​
Adjusted EBITDA
​ ​ ​ ​ 93,427 ​ ​ ​ ​ ​ 21,175 ​ ​ ​ ​ ​ 28,374 ​ ​ ​ ​ ​ 142,976 ​ ​
% Adjusted EBITDA margin
​ ​ ​ ​ 35.99% ​ ​ ​ ​ ​ 64.08% ​ ​ ​ ​ ​ 31.24% ​ ​ ​ ​ ​ 37.29% ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
The total of the reportable segments’ net revenues represents the Group’s net revenue. A reconciliation of the Group’s loss before taxes to the allocated Adjusted EBITDA is shown below:
​ ​ ​
2019
​ ​
2018
​
Loss before taxes
​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (50,215) ​ ​
(+) Financial result
​ ​ ​ ​ 41,196 ​ ​ ​ ​ ​ 42,571 ​ ​
(+) Depreciation and amortization
​ ​ ​ ​ 62,445 ​ ​ ​ ​ ​ 56,284 ​ ​
(+) Interest on tuition fees paid in arrears
​ ​ ​ ​ 8,265 ​ ​ ​ ​ ​ 8,887 ​ ​
(+) Impairment of non-current assets
​ ​ ​ ​ 51,022 ​ ​ ​ ​ ​ 33,537 ​ ​
(+) Share-based compensation plan
​ ​ ​ ​ 26,372 ​ ​ ​ ​ ​ 7,450 ​ ​
(+) Other income (expenses), net
​ ​ ​ ​ 905 ​ ​ ​ ​ ​ 1,041 ​ ​
(+) M&A expenses and pre-offering costs
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,000 ​ ​
(+) Restructuring expenses
​ ​ ​ ​ 4,484 ​ ​ ​ ​ ​ 2,231 ​ ​
(+) Other operational expenses unallocated
​ ​ ​ ​ 49,488 ​ ​ ​ ​ ​ 35,190 ​ ​
Adjusted EBITDA allocated to segments
​ ​ ​ ​ 167,125 ​ ​ ​ ​ ​ 142,976 ​ ​
b) Other profit and loss disclosure
​ ​ ​
Distance
learning
undergraduate
courses
​ ​
Continuing
education
courses
​ ​
On-campus
undergraduate
courses
​ ​
Unallocated
​ ​
Total
​
2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net impairment losses on financial
assets
​ ​ ​ ​ 43,701 ​ ​ ​ ​ ​ 3,958 ​ ​ ​ ​ ​ 10,519 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 58,178 ​ ​
Depreciation and amortization
​ ​ ​ ​ 38,402 ​ ​ ​ ​ ​ 4,085 ​ ​ ​ ​ ​ 14,259 ​ ​ ​ ​ ​ 5,699 ​ ​ ​ ​ ​ 62,445 ​ ​
Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 51,022 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 51,022 ​ ​
2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net impairment losses on financial
assets
​ ​ ​ ​ 31,934 ​ ​ ​ ​ ​ 3,672 ​ ​ ​ ​ ​ 8,972 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 44,578 ​ ​
Depreciation and amortization
​ ​ ​ ​ 31,981 ​ ​ ​ ​ ​ 3,927 ​ ​ ​ ​ ​ 15,969 ​ ​ ​ ​ ​ 4,407 ​ ​ ​ ​ ​ 56,284 ​ ​
Impairment of non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 33,537 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 33,537 ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
5. Financial assets and financial liabilities
5.1. Financial assets
​ ​ ​
2019
​ ​
2018
​
At amortized cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ ​ 2,457 ​ ​ ​ ​ ​ 2,375 ​ ​
Short-term investments
​ ​ ​ ​ 72,321 ​ ​ ​ ​ ​ 164,822 ​ ​
Trade receivables
​ ​ ​ ​ 91,916 ​ ​ ​ ​ ​ 76,750 ​ ​
Total ​ ​ ​ ​ 166,694 ​ ​ ​ ​ ​ 243,947 ​ ​
Current
​ ​ ​ ​ 162,908 ​ ​ ​ ​ ​ 238,515 ​ ​
Non-current
​ ​ ​ ​ 3,786 ​ ​ ​ ​ ​ 5,432 ​ ​
5.2. Financial liabilities
​ ​ ​
2019
​ ​
2018
​
At amortized cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Trade payables
​ ​ ​ ​ 29,978 ​ ​ ​ ​ ​ 17,051 ​ ​
Lease liabilities
​ ​ ​ ​ 103,188 ​ ​ ​ ​ ​ 88,739 ​ ​
Prepayments from customers
​ ​ ​ ​ 3,186 ​ ​ ​ ​ ​ 1,194 ​ ​
Accounts payable from acquisition of subsidiaries
​ ​ ​ ​ 379,540 ​ ​ ​ ​ ​ 458,535 ​ ​
At FVPL ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Share-based compensation
​ ​ ​ ​ 34,950 ​ ​ ​ ​ ​ 7,045 ​ ​
Total ​ ​ ​ ​ 550,842 ​ ​ ​ ​ ​ 572,564 ​ ​
Current
​ ​ ​ ​ 179,317 ​ ​ ​ ​ ​ 156,952 ​ ​
Non-current
​ ​ ​ ​ 371,525 ​ ​ ​ ​ ​ 415,612 ​ ​
5.3. Fair Values
The Group assessed that the fair values of cash and cash equivalents, short-term investments, current trade receivables, trade payables and prepayments from customers approximate their carrying amounts largely due to the short-term maturities of these instruments. Non-current trade receivables, lease liabilities and the accounts payable from acquisition of subsidiaries have their carrying amount discounted by their respective effective interest rate in order to be presented as close as possible to its fair value. Share-based compensation is measured at FVPL.
5.4. Financial instruments risk management objectives and policies
The Group’s principal financial liabilities comprise accounts payable from acquisition of subsidiaries, trade payables, prepayments from customers, lease liabilities and share-based compensation. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include trade receivables, short-term investments and cash and cash equivalents that derive directly from its operations.
The Group is exposed to market risk, credit risk and liquidity risk. The Group monitors market, credit and operational risks in line with the objectives in capital management and counts with the support, monitoring and oversight of the Board of Directors in decisions related to capital management and its alignment with the objectives and risks. The Group’s policy is that no trading of derivatives for
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.
5.4.1. Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s exposure to market risk is related to interest rate risk.
The sensitivity analysis in the following sections relate to the position as at December 31, 2019
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s short-term investments and accounts payable from acquisition of subsidiaries, subject in each case to variable interest rates, principally the Brazilian interbank deposit (Certificado de Depósito Interbancário), or CDI rate, and the Broad National Consumer Price Index (Índice nacional de Preços ao Consumidor Amplo), or IPCA inflation rate.
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on short-term investments and accounts payable from acquisition of subsidiaries. With all variables held constant, the Group’s income before income taxes is affected through the impact on floating interest rate, as follows:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Increase / decrease in
interest rate
​
​ ​ ​
Balance as
of
12/31/2019
​ ​
Index – % per year
​ ​
Probable
scenario
​ ​
Risk
​ ​
Possible
scenario
25%
​ ​
Remote
scenario
75%
​
Short-term investments
​ ​ ​ ​ 72,321 ​ ​ ​
99,10% CDI – 5,81%
​ ​ ​ ​ 4,202 ​ ​ ​
Decrease
​ ​ ​ ​ 3,151 ​ ​ ​ ​ ​ 1,050 ​ ​
Accounts payable from
acquisition of
subsidiaries
​ ​ ​ ​ 379,540 ​ ​ ​
IPCA – 4,31%
​ ​ ​ ​ 16,358 ​ ​ ​
Increase
​ ​ ​ ​ 20,448 ​ ​ ​ ​ ​ 28,627 ​ ​
Probable scenario reflects the closing rates of the fixed interest yield and inflation indexes at year-end. The possible scenario projects a variation of 25 percent in these rates and, the remote scenario, a variation of 75 percent, both rise and fall, being considered the largest losses resulting by risk factor.
5.4.2. Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from the Group’s exposure to third parties, including cash and cash equivalents and short-term investments, as well as from its operating activities, primarily related to trade receivables from customers.
Customer credit risk is managed by the Group based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 8 for additional information on the Group’s trade receivables.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.
The Group’s maximum exposure to credit risk for the components of the statement of financial position at December 31, 2019 and 2018 is the carrying amounts of its financial assets.
5.4.3. Liquidity risk
The Group’s Management has responsibility for monitor liquidity risk. In order to achieve the Group’s objective, Management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.
The main requirements for financial resources used by the Group arise from the need to make payments for suppliers, operating expenses, labor and social obligations and accounts payable from acquisition of subsidiaries.
The tables below summarize the maturity profile of the Group’s financial liabilities based on contractual undiscounted amounts:
As of December 31, 2019
​ ​
Less than
1 year
​ ​
1 to 3 years
​ ​
3 to 5 years
​ ​
More than
5 years
​ ​
Total
​
Trade payables
​ ​ ​ ​ 29,978 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 29,978 ​ ​
Lease liabilities
​ ​ ​ ​ 21,999 ​ ​ ​ ​ ​ 39,218 ​ ​ ​ ​ ​ 38,430 ​ ​ ​ ​ ​ 93,373 ​ ​ ​ ​ ​ 193,020 ​ ​
Other leases(i)
​ ​ ​ ​ 2,804 ​ ​ ​ ​ ​ 1,402 ​ ​ ​ ​ ​ 1,038 ​ ​ ​ ​ ​ 402 ​ ​ ​ ​ ​ 5,646 ​ ​
Prepayments from customers
​ ​ ​ ​ 3,186 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,186 ​ ​
Accounts payable from acquisition of
subsidiaries
​ ​ ​ ​ 135,233 ​ ​ ​ ​ ​ 281,022 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 416,255 ​ ​
Share-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 78,455 ​ ​ ​ ​ ​ 78,455 ​ ​
Total ​ ​ ​ ​ 193,200 ​ ​ ​ ​ ​ 321,642 ​ ​ ​ ​ ​ 39,468 ​ ​ ​ ​ ​ 172,230 ​ ​ ​ ​ ​ 726,540 ​ ​
​
As of December 31, 2018
​ ​
Less than
1 year
​ ​
1 to 3 years
​ ​
3 to 5 years
​ ​
More than
5 years
​ ​
Total
​
Trade payables
​ ​ ​ ​ 17,051 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 17,051 ​ ​
Lease liabilities
​ ​ ​ ​ 16,453 ​ ​ ​ ​ ​ 31,726 ​ ​ ​ ​ ​ 30,988 ​ ​ ​ ​ ​ 84,716 ​ ​ ​ ​ ​ 163,883 ​ ​
Other leases(i)
​ ​ ​ ​ 3,796 ​ ​ ​ ​ ​ 1,402 ​ ​ ​ ​ ​ 1,304 ​ ​ ​ ​ ​ 837 ​ ​ ​ ​ ​ 7,339 ​ ​
Prepayments from customers
​ ​ ​ ​ 1,194 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,194 ​ ​
Accounts payable from acquisition of
subsidiaries
​ ​ ​ ​ 129,653 ​ ​ ​ ​ ​ 259,304 ​ ​ ​ ​ ​ 129,653 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 518,610 ​ ​
Share-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 34,644 ​ ​ ​ ​ ​ 34,644 ​ ​
Total ​ ​ ​ ​ 168,147 ​ ​ ​ ​ ​ 292,432 ​ ​ ​ ​ ​ 161,945 ​ ​ ​ ​ ​ 120,197 ​ ​ ​ ​ ​ 742,721 ​ ​
​
(i)
Refer to commitments from lease agreements that fall into the exemptions of short-term leases and low-value assets and therefore not recognized in lease liabilities.
​
6. Fair Value Measurement
As of December 31, 2019 and 2018, the Group have only Share-based compensation liabilities measured at fair value, in the amount of R$ 34,950 and R$ 7,045, respectively, which are classified in Level 3 of fair value measurement hierarchy given significant unobservable inputs used.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
There were no transfers between Levels during 2019 and 2018.
The following table presents the changes in level 3 items for the years ended December 31, 2019 and 2018 for recurring fair value measurements:
​ ​ ​
Share-based
compensation
​
​ ​ ​
2019
​ ​
2018
​
Opening balance at January 1
​ ​ ​ ​ 7,045 ​ ​ ​ ​ ​ 191 ​ ​
Issue of shares to employees
​ ​ ​ ​ 1,844 ​ ​ ​ ​ ​ — ​ ​
Settlement in cash
​ ​ ​ ​ (2,238) ​ ​ ​ ​ ​ — ​ ​
Reclassification from equity
​ ​ ​ ​ 7,299 ​ ​ ​ ​ ​ 2,225 ​ ​
Expenses recognized – general and administrative
​ ​ ​ ​ 21,000 ​ ​ ​ ​ ​ 4,629 ​ ​
​ ​ ​ ​ ​ 34,950 ​ ​ ​ ​ ​ 7,045 ​ ​
The following table summarizes the quantitative information about the significant inputs used in level 3 fair value measurements (see Note 2.5. for the valuation techniques adopted):
​ ​ ​
Weighted average
inputs
​ ​
Relationship with of unobservable
inputs to fair value
​
Unobservable inputs
​ ​
2019
​ ​
2018
​ ​
Net operating revenue growth rate(i)
​ ​ ​ ​ 20.3% ​ ​ ​ ​ ​ 14.1% ​ ​ ​
Increased growth rate (+200 basis
points (bps)) and lower discount
rate (-100 bps) would increase FV
by R$291; lower growth rate (-200
bps) and higher discount rate (+100
bps) would decrease FV by R$874.
​
Pre-tax discount rate(ii)
​ ​ ​ ​ 13.5% ​ ​ ​ ​ ​ 16.9% ​ ​ ​
2018: increasing/decreasing the growth rate and the discount rate by +/- 50bps and 100 bps respectively would change the FV by +R$59 / -R$76.
​
​
(i)
The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development.
​
(ii)
Pre-tax discount rate reflects specific risks relating to the segment and country in which the Group operates.
​
7. Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital, maximizing the return to stockholders.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and to maintain and adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
At December 31, 2019, the Group had a capital structure designed to enable its growth strategy, either organically or through acquisitions. Investment decisions take into consideration the expected return potential. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31, 2019 and 2018.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Capital is managed considering the consolidated position. The Group has no transaction subjected to any financial covenant.
8. Short-term investments
​ ​ ​
2019
​ ​
2018
​
Investment funds
​ ​ ​ ​ 72,321 ​ ​ ​ ​ ​ 164,822 ​ ​
​ ​ ​ ​ ​ 72,321 ​ ​ ​ ​ ​ 164,822 ​ ​
Short-term investments correspond to financial investments in Investment Funds, with highly rated financial institutions. As of December 31, 2019, the average interest on these Investment Funds are 5.81%, corresponding to 99.10% of CDI (2018 — 6.37% — 99.28% of CDI). Despite the fact these investments have high liquidity and have insignificant risk of changes in value, they do not qualify as cash equivalents given the nature of investment portfolio and their maturity.
Due to the short-term nature of these investments, their carrying amount is considered to be the same as their fair value.
9. Trade receivables
​ ​ ​
2019
​ ​
2018
​
Tuition fees
​ ​ ​ ​ 161,049 ​ ​ ​ ​ ​ 131,654 ​ ​
FIES and UNIEDU Guaranteed Credits
​ ​ ​ ​ 7,196 ​ ​ ​ ​ ​ 4,091 ​ ​
PEP – Special Installment Payment(i)
​ ​ ​ ​ 8,542 ​ ​ ​ ​ ​ 12,859 ​ ​
Provision for revenue cancellation
​ ​ ​ ​ (5,212) ​ ​ ​ ​ ​ (5,655) ​ ​
Allowance for expected credit losses of trade receivables
​ ​ ​ ​ (79,659) ​ ​ ​ ​ ​ (66,199) ​ ​
Total trade receivables
​ ​ ​ ​ 91,916 ​ ​ ​ ​ ​ 76,750 ​ ​
Current
​ ​ ​ ​ 88,130 ​ ​ ​ ​ ​ 71,318 ​ ​
Non-current
​ ​ ​ ​ 3,786 ​ ​ ​ ​ ​ 5,432 ​ ​
​
(i)
In 2015, a special private installment payment program (PEP) was introduced to facilitate the entry of students who could not qualify for FIES, due to changes occurred to the program at the time. These receivables bear interests of 3.75% and, given the long term of the installments, they have been discounted at an interbank rate of 5.81%.
​
The aging list of trade receivables is as follows:
​ ​ ​
2019
​ ​
2018
​
Receivables falling due
​ ​ ​ ​ 72,647 ​ ​ ​ ​ ​ 68,261 ​ ​
Receivables past due ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
From 1 to 30 days
​ ​ ​ ​ 22,322 ​ ​ ​ ​ ​ 22,262 ​ ​
From 31 to 60 days
​ ​ ​ ​ 15,135 ​ ​ ​ ​ ​ 6,031 ​ ​
From 61 to 90 days
​ ​ ​ ​ 13,473 ​ ​ ​ ​ ​ 10,847 ​ ​
From 91 to 365 days
​ ​ ​ ​ 53,210 ​ ​ ​ ​ ​ 41,203 ​ ​
Provision for revenue cancellation
​ ​ ​ ​ (5,212) ​ ​ ​ ​ ​ (5,655) ​ ​
Allowance for estimated credit losses
​ ​ ​ ​ (79,659) ​ ​ ​ ​ ​ (66,199) ​ ​
​ ​ ​ ​ ​ 91,916 ​ ​ ​ ​ ​ 76,750 ​ ​
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Cancellations consist of deductions to revenue to adjust it to the extension it is probable that it will not be reversed, related to requests from students that have not attended classes and do not acknowledge the service provided or are dissatisfied with the services being provided, generally because did not adapt to the platform or to their own choice of subject matter. A provision for cancellation is estimated using the expected value method, which considers accumulated experience and is updated at the end of each period for changes in expectations.
Changes in the Group’s provision for revenue cancellation are as follows:
​ ​ ​
2019
​ ​
2018
​
At the beginning of the year
​ ​ ​ ​ (5,655) ​ ​ ​ ​ ​ (5,421) ​ ​
Additions
​ ​ ​ ​ (20,890) ​ ​ ​ ​ ​ (16,283) ​ ​
Write-off
​ ​ ​ ​ 21,333 ​ ​ ​ ​ ​ 16,049 ​ ​
At the end of the year
​ ​ ​ ​ (5,212) ​ ​ ​ ​ ​ (5,655) ​ ​
The Group records the allowance for expected credit losses of trade receivables on a monthly basis by analyzing the amounts invoiced in the month, the monthly volume of receivables and the respective outstanding amounts by late payment range, calculating the recovery performance. Under this methodology, the monthly billed amount and each late payment range is assigned a percentage of probability of loss that is accrued for on a recurring basis.
When the delay exceeds 365 days, the receivable is written down. Even for written-off receivables, collection efforts continue, and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.
Changes in the Group’s allowance for expected credit losses are as follows:
​ ​ ​
2019
​ ​
2018
​
At the beginning of the year
​ ​ ​ ​ (66,199) ​ ​ ​ ​ ​ (55,649) ​ ​
Write-off of uncollectible receivables
​ ​ ​ ​ 39,385 ​ ​ ​ ​ ​ 34,028 ​ ​
Reversal
​ ​ ​ ​ 20,739 ​ ​ ​ ​ ​ 22,469 ​ ​
Reclassified as held for sale
​ ​ ​ ​ 5,333 ​ ​ ​ ​ ​ — ​ ​
Allowance for expected credit losses
​ ​ ​ ​ (78,917) ​ ​ ​ ​ ​ (67,047) ​ ​
At the end of the year ​ ​ ​ ​ (79,659) ​ ​ ​ ​ ​ (66,199) ​ ​
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
10. Current and deferred income tax
a)
Reconciliation of income tax in the statement of profit or loss
​
​ ​ ​
2019
​ ​
2018
​
Loss before taxes
​ ​ ​ ​ (77,052) ​ ​ ​ ​ ​ (50,215) ​ ​
Statutory combined income tax rate – %
​ ​ ​ ​ 34% ​ ​ ​ ​ ​ 34% ​ ​
Income tax at statutory rates
​ ​ ​ ​ 26,198 ​ ​ ​ ​ ​ 17,073 ​ ​
Income exempt from taxation – ProUni benefit(i)
​ ​ ​ ​ 19,106 ​ ​ ​ ​ ​ 14,844 ​ ​
Unrecognized deferred tax asset on tax losses(ii)
​ ​ ​ ​ (32,505) ​ ​ ​ ​ ​ (26,873) ​ ​
Non-deductible expenses
​ ​ ​ ​ (1,902) ​ ​ ​ ​ ​ — ​ ​
Other
​ ​ ​ ​ (5) ​ ​ ​ ​ ​ (33) ​ ​
Total income tax and social contribution
​ ​ ​ ​ 10,892 ​ ​ ​ ​ ​ 5,011 ​ ​
Effective tax rate – %
​ ​ ​ ​ 14% ​ ​ ​ ​ ​ 10% ​ ​
Current income tax expense
​ ​ ​ ​ (14,813) ​ ​ ​ ​ ​ (10,640) ​ ​
Deferred income tax income
​ ​ ​ ​ 25,705 ​ ​ ​ ​ ​ 15,651 ​ ​
​
Income tax differ from the theoretical amount that would have been obtained by using the nominal income tax rates applicable to the income of the Group entities, as follows:
(i)
The University for All Program — ProUni, establishes, through Law 11,096, dated January 13, 2005, exemption from certain federal taxes for higher education institutions that provide full and partial scholarships to low-income students enrolled in traditional undergraduate and technological undergraduate programs. The Group’s higher education companies are included in this program.
​
(ii)
Deferred tax asset was not recognized on tax losses from the Company. The Group has accumulated tax loss carryforwards in Treviso of R$ 30,589 (2018 — R$ 19.337) for which a deferred tax asset was not recognized but that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized with respect of these losses as they cannot be used to offset taxable profits between subsidiaries of the Group, and there is no other evidence of recoverability in the near future.
​
b)
Deferred income tax
​
​ ​ ​
Balance Sheet
​ ​
Profit or loss
​
​ ​ ​
2019
​ ​
2018
​ ​
2019
​ ​
2018
​
Intangible assets on business combinations
​ ​ ​ ​ (24,958) ​ ​ ​ ​ ​ (43,441) ​ ​ ​ ​ ​ 18,483 ​ ​ ​ ​ ​ 12,667 ​ ​
Allowance for expected credit losses
​ ​ ​ ​ 27,362 ​ ​ ​ ​ ​ 22,449 ​ ​ ​ ​ ​ 5,138 ​ ​ ​ ​ ​ 3,587 ​ ​
Changes in accounting policies and disclosures
​ ​ ​ ​ 6,043 ​ ​ ​ ​ ​ 4,732 ​ ​ ​ ​ ​ 1,311 ​ ​ ​ ​ ​ 1,296 ​ ​
Provision for revenue cancellation
​ ​ ​ ​ 1,772 ​ ​ ​ ​ ​ 1,923 ​ ​ ​ ​ ​ (151) ​ ​ ​ ​ ​ 79 ​ ​
Provision for contingencies
​ ​ ​ ​ 1,225 ​ ​ ​ ​ ​ 528 ​ ​ ​ ​ ​ 697 ​ ​ ​ ​ ​ (617) ​ ​
Other provisions
​ ​ ​ ​ 744 ​ ​ ​ ​ ​ 292 ​ ​ ​ ​ ​ 452 ​ ​ ​ ​ ​ (1,361) ​ ​
Total ​ ​ ​ ​ 12,188 ​ ​ ​ ​ ​ (13,517) ​ ​ ​ ​ ​ 25,930 ​ ​ ​ ​ ​ 15,651 ​ ​
Deferred tax assets
​ ​ ​ ​ 37,146 ​ ​ ​ ​ ​ 29,924 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deferred tax liabilities
​ ​ ​ ​ (24,958) ​ ​ ​ ​ ​ (43,441) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
The above deferred taxes were recorded at the nominal rate of 34%. Under Brazilian tax law, temporary differences and tax losses can be carried forward indefinitely, however the loss carryforward can only be used to offset up to 30% of taxable profit for the year.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
11. Prepaid expenses
​ ​ ​
2019
​ ​
2018
​
Prepayments to employees
​ ​ ​ ​ 2,513 ​ ​ ​ ​ ​ 2,555 ​ ​
Prepayments to suppliers
​ ​ ​ ​ 4,219 ​ ​ ​ ​ ​ 3,927 ​ ​
Prepayments to hub partners
​ ​ ​ ​ 905 ​ ​ ​ ​ ​ 28 ​ ​
Software licensing
​ ​ ​ ​ 502 ​ ​ ​ ​ ​ 589 ​ ​
Insurance
​ ​ ​ ​ 239 ​ ​ ​ ​ ​ 72 ​ ​
Others
​ ​ ​ ​ 560 ​ ​ ​ ​ ​ — ​ ​
Prepaid expenses
​ ​ ​ ​ 8,938 ​ ​ ​ ​ ​ 7,171 ​ ​
12. Assets and liabilities held for sale
In December 2019, the Group has decided to sell its subsidiaries FAC/FAMAT and FAIR, and for the UNIASSELVI’s undergraduate operation in the campuses Assevim and Famesul. The transaction consists of (i) the sale of the operations from the following campuses located in Brazil in the cities of: Brusque-SC and Rio do Sul-SC, as well as all related assets and liabilities, including the “ASSEVIM” and “FAMESUL” trademarks and (ii) the sale of 100% of the shares issued by the entities “FAC/FAMAT” and “FAIR”, its campuses and trademarks.
The Group decided on the sale of these specific assets, that are a portion of the on-campus undergraduate courses segment, in order to raise funds to invest in the ODL undergraduate courses segment expansion.
The Group understands that has the disposal group available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups and its sale is highly probable over the next year due to a plan to sell the disposal group, and an active program to locate a buyer and complete the plan that has been initiated.
The balances of the assets reclassified to assets held for sale and liabilities directly associated with assets held for sale are presented below.
​ Assets classified as held for sale ​ ​ ​ ​ ​ ​ ​
​
Trade receivables
​ ​ ​ ​ 7,935 ​ ​
​
Income taxes recoverable
​ ​ ​ ​ 207 ​ ​
​
Prepaid expenses
​ ​ ​ ​ 172 ​ ​
​
Other taxes recoverable
​ ​ ​ ​ 195 ​ ​
​
Other assets
​ ​ ​ ​ 122 ​ ​
​
Right-of-use assets
​ ​ ​ ​ 16,090 ​ ​
​
Property and equipment
​ ​ ​ ​ 11,704 ​ ​
​
Intangible assets
​ ​ ​ ​ 8 ​ ​
​
Total of assets disposal group held for sale
​ ​ ​ ​ 36,433 ​ ​
​ Liabilities directly associated with assets classified as held for sale ​ ​ ​ ​ ​ ​ ​
​
Trade payables
​ ​ ​ ​ 979 ​ ​
​
Lease liabilities
​ ​ ​ ​ 19,210 ​ ​
​
Taxes payable
​ ​ ​ ​ 181 ​ ​
​
Labor and social obligations
​ ​ ​ ​ 2,695 ​ ​
​
Prepayments from customers
​ ​ ​ ​ 112 ​ ​
​
Provisions for contingencies
​ ​ ​ ​ 107 ​ ​
​
Total liabilities of disposal group held for sale
​ ​ ​ ​ 23,284 ​ ​
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
When reclassifying to assets held for sale, assets began to be measured at the lower of it carrying amount and the fair value less cost to sell. This reclassification triggered the necessity for impairment test of the related non-current assets which resulted in an impairment in the amount of R$ 31,977. For more information on the impairment test, see Note 15.
13. Leases
Set out below, are the carrying amounts of the Group’s right-of-use assets related to buildings used as offices and hubs and lease liabilities and the movements during the period:
​ ​ ​
Right-of-use assets
​ ​
Lease Liabilities
​
​ ​ ​
2019
​ ​
2018
​ ​
2019
​ ​
2018
​
As of January 1,
​ ​ ​ ​ 74,822 ​ ​ ​ ​ ​ 51,534 ​ ​ ​ ​ ​ 88,739 ​ ​ ​ ​ ​ 61,639 ​ ​
New contracts
​ ​ ​ ​ 36,021 ​ ​ ​ ​ ​ 29,335 ​ ​ ​ ​ ​ 36,021 ​ ​ ​ ​ ​ 29,335 ​ ​
Re-measurement by index(i)
​ ​ ​ ​ 3,741 ​ ​ ​ ​ ​ 1,558 ​ ​ ​ ​ ​ 3,741 ​ ​ ​ ​ ​ 1,558 ​ ​
Depreciation expense
​ ​ ​ ​ (9,960) ​ ​ ​ ​ ​ (7,605) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Accrued interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,393 ​ ​ ​ ​ ​ 10,778 ​ ​
Payment of principal
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (6,103) ​ ​ ​ ​ ​ (3,793) ​ ​
Payment of interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (12,393) ​ ​ ​ ​ ​ (10,778) ​ ​
Classified as held for sale
​ ​ ​ ​ (16,090) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (19,210) ​ ​ ​ ​ ​ ​ ​ ​
As of December 31,
​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ 74,822 ​ ​ ​ ​ ​ 103,188 ​ ​ ​ ​ ​ 88,739 ​ ​
Current
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 17,265 ​ ​ ​ ​ ​ 15,397 ​ ​
Non-current
​ ​ ​ ​ 88,534 ​ ​ ​ ​ ​ 74,822 ​ ​ ​ ​ ​ 85,923 ​ ​ ​ ​ ​ 73,342 ​ ​
​
(i)
Lease liabilities and right-of-use assets were incremented with respect to variable lease payments that depend on an index or a rate, as a result of annual rental prices contractually adjusted by market inflation rate General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M.
​
The Group recognized rent expense from short-term leases and low-value assets of R$ 3,796 for the period ended December 31, 2019 (2018 — R$ 6,170), mainly represented by leased equipment.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
14. Property and equipment
​ ​ ​
IT
equipment
​ ​
Furniture,
equipment
and facilities
​ ​
Library
books
​ ​
Leasehold
improvements
​ ​
Construction
in progress(i)
​ ​
TOTAL
​
At December 31, 2017 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost
​ ​ ​ ​ 13,125 ​ ​ ​ ​ ​ 29,896 ​ ​ ​ ​ ​ 20,949 ​ ​ ​ ​ ​ 28,376 ​ ​ ​ ​ ​ 2,668 ​ ​ ​ ​ ​ 95,014 ​ ​
Accumulated depreciation
​ ​ ​ ​ (8,424) ​ ​ ​ ​ ​ (17,580) ​ ​ ​ ​ ​ (11,170) ​ ​ ​ ​ ​ (7,510) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (44,684) ​ ​
Net book value
​ ​ ​ ​ 4,701 ​ ​ ​ ​ ​ 12,316 ​ ​ ​ ​ ​ 9,779 ​ ​ ​ ​ ​ 20,866 ​ ​ ​ ​ ​ 2,668 ​ ​ ​ ​ ​ 50,330 ​ ​
Purchases
​ ​ ​ ​ 3,915 ​ ​ ​ ​ ​ 8,750 ​ ​ ​ ​ ​ 10 ​ ​ ​ ​ ​ 2,216 ​ ​ ​ ​ ​ 8,300 ​ ​ ​ ​ ​ 23,191 ​ ​
Transfers
​ ​ ​ ​ — ​ ​ ​ ​ ​ 90 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,269 ​ ​ ​ ​ ​ (1,359) ​ ​ ​ ​ ​ — ​ ​
Disposals
​ ​ ​ ​ (112) ​ ​ ​ ​ ​ (1,217) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,330) ​ ​
Depreciation
​ ​ ​ ​ (2,141) ​ ​ ​ ​ ​ (2,790) ​ ​ ​ ​ ​ (1,933) ​ ​ ​ ​ ​ (1,899) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (8,763) ​ ​
At December 31, 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net book value
​ ​ ​ ​ 6,363 ​ ​ ​ ​ ​ 17,149 ​ ​ ​ ​ ​ 7,856 ​ ​ ​ ​ ​ 22,451 ​ ​ ​ ​ ​ 9,609 ​ ​ ​ ​ ​ 63,428 ​ ​
Cost
​ ​ ​ ​ 15,357 ​ ​ ​ ​ ​ 35,772 ​ ​ ​ ​ ​ 20,959 ​ ​ ​ ​ ​ 31,860 ​ ​ ​ ​ ​ 9,609 ​ ​ ​ ​ ​ 113,557 ​ ​
Accumulated depreciation
​ ​ ​ ​ (8,994) ​ ​ ​ ​ ​ (18,623) ​ ​ ​ ​ ​ (13,103) ​ ​ ​ ​ ​ (9,409) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (50,129) ​ ​
Purchases
​ ​ ​ ​ 5,261 ​ ​ ​ ​ ​ 9,520 ​ ​ ​ ​ ​ 36 ​ ​ ​ ​ ​ 4,636 ​ ​ ​ ​ ​ 9,017 ​ ​ ​ ​ ​ 28,470 ​ ​
Transfers
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 17,132 ​ ​ ​ ​ ​ (17,132) ​ ​ ​ ​ ​ — ​ ​
Disposals
​ ​ ​ ​ — ​ ​ ​ ​ ​ (2) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2) ​ ​
Transfer to held for sale
​ ​ ​ ​ (84) ​ ​ ​ ​ ​ (3,249) ​ ​ ​ ​ ​ (1,192) ​ ​ ​ ​ ​ (7,111) ​ ​ ​ ​ ​ (68) ​ ​ ​ ​ ​ (11,704) ​ ​
Depreciation
​ ​ ​ ​ (2,565) ​ ​ ​ ​ ​ (3,245) ​ ​ ​ ​ ​ (1,630) ​ ​ ​ ​ ​ (2,719) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (10,159) ​ ​
At December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net book value
​ ​ ​ ​ 8,975 ​ ​ ​ ​ ​ 20,173 ​ ​ ​ ​ ​ 5,070 ​ ​ ​ ​ ​ 34,389 ​ ​ ​ ​ ​ 1,426 ​ ​ ​ ​ ​ 70,033 ​ ​
Cost
​ ​ ​ ​ 19,174 ​ ​ ​ ​ ​ 37,521 ​ ​ ​ ​ ​ 17,789 ​ ​ ​ ​ ​ 44,107 ​ ​ ​ ​ ​ 1,426 ​ ​ ​ ​ ​ 120,017 ​ ​
Accumulated depreciation
​ ​ ​ ​ (10,199) ​ ​ ​ ​ ​ (17,348) ​ ​ ​ ​ ​ (12,719) ​ ​ ​ ​ ​ (9,718) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (49,984) ​ ​
There has been no evidence that the carrying amounts of Property and equipment exceed their recoverable amounts.
​
(i)
These refer to construction in progress for improvements to the facilities used by the Group, related to the accessibility and modernization of facilities.
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
15. Intangible assets
​ ​ ​
Software
​ ​
Internal
project
development
​ ​
Trademarks(i)
​ ​
Operation
licenses for
distance
learning
​ ​
Non-compete
agreements
​ ​
Customer
relationship
​ ​
Teaching/​
learning
material -
TLM
​ ​
Goodwill
​ ​
TOTAL
​
At December 31, 2017 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost
​ ​ ​ ​ 35,701 ​ ​ ​ ​ ​ 4,905 ​ ​ ​ ​ ​ 85,163 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 10,826 ​ ​ ​ ​ ​ 100,695 ​ ​ ​ ​ ​ 7,344 ​ ​ ​ ​ ​ 372,268 ​ ​ ​ ​ ​ 862,623 ​ ​
Accumulated amortization
​ ​ ​ ​ (11,792) ​ ​ ​ ​ ​ (1) ​ ​ ​ ​ ​ (7,435) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,684) ​ ​ ​ ​ ​ (40,074) ​ ​ ​ ​ ​ (2,693) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (65,679) ​ ​
Net book value
​ ​ ​ ​ 23,909 ​ ​ ​ ​ ​ 4,904 ​ ​ ​ ​ ​ 77,728 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 7,142 ​ ​ ​ ​ ​ 60,621 ​ ​ ​ ​ ​ 4,651 ​ ​ ​ ​ ​ 372,268 ​ ​ ​ ​ ​ 796,944 ​ ​
Purchase and capitalization
​ ​ ​ ​ 1,561 ​ ​ ​ ​ ​ 10,208 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 11,769 ​ ​
Transfers
​ ​ ​ ​ 2,619 ​ ​ ​ ​ ​ (2,619) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Amortization
​ ​ ​ ​ (6,882) ​ ​ ​ ​ ​ (478) ​ ​ ​ ​ ​ (4,055) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,165) ​ ​ ​ ​ ​ (24,867) ​ ​ ​ ​ ​ (1,469) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (39,916) ​ ​
Impairment losses
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (33,537) ​ ​ ​ ​ ​ (33,537) ​ ​
At December 31, 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net book value
​ ​ ​ ​ 21,207 ​ ​ ​ ​ ​ 12,015 ​ ​ ​ ​ ​ 73,673 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 4,977 ​ ​ ​ ​ ​ 35,754 ​ ​ ​ ​ ​ 3,182 ​ ​ ​ ​ ​ 338,731 ​ ​ ​ ​ ​ 735,260 ​ ​
Cost
​ ​ ​ ​ 39,881 ​ ​ ​ ​ ​ 12,494 ​ ​ ​ ​ ​ 85,163 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 10,826 ​ ​ ​ ​ ​ 100,695 ​ ​ ​ ​ ​ 7,344 ​ ​ ​ ​ ​ 372,268 ​ ​ ​ ​ ​ 874,392 ​ ​
Accumulated amortization and
impairment
​ ​ ​ ​ (18,674) ​ ​ ​ ​ ​ (479) ​ ​ ​ ​ ​ (11,490) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,849) ​ ​ ​ ​ ​ (64,941) ​ ​ ​ ​ ​ (4,162) ​ ​ ​ ​ ​ (33,537) ​ ​ ​ ​ ​ (139,132) ​ ​
Purchase and capitalization
​ ​ ​ ​ 3,449 ​ ​ ​ ​ ​ 12,817 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 16,266 ​ ​
Transfers
​ ​ ​ ​ 3,071 ​ ​ ​ ​ ​ (3,071) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Transfer to held for sale
​ ​ ​ ​ (8) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (8) ​ ​
Amortization
​ ​ ​ ​ (7,675) ​ ​ ​ ​ ​ (2,094) ​ ​ ​ ​ ​ (4,056) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,165) ​ ​ ​ ​ ​ (24,868) ​ ​ ​ ​ ​ (1,468) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (42,326) ​ ​
Impairment losses
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (8,515) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (769) ​ ​ ​ ​ ​ (7,635) ​ ​ ​ ​ ​ (187) ​ ​ ​ ​ ​ (33,916) ​ ​ ​ ​ ​ (51,022) ​ ​
At December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net book value
​ ​ ​ ​ 20,044 ​ ​ ​ ​ ​ 19,667 ​ ​ ​ ​ ​ 61,102 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 2,043 ​ ​ ​ ​ ​ 3,251 ​ ​ ​ ​ ​ 1,527 ​ ​ ​ ​ ​ 304,815 ​ ​ ​ ​ ​ 658,170 ​ ​
Cost
​ ​ ​ ​ 46,123 ​ ​ ​ ​ ​ 22,240 ​ ​ ​ ​ ​ 85,163 ​ ​ ​ ​ ​ 245,721 ​ ​ ​ ​ ​ 10,826 ​ ​ ​ ​ ​ 100,695 ​ ​ ​ ​ ​ 7,344 ​ ​ ​ ​ ​ 372,268 ​ ​ ​ ​ ​ 890,380 ​ ​
Accumulated amortization and
impairment
​ ​ ​ ​ (26,079) ​ ​ ​ ​ ​ (2,573) ​ ​ ​ ​ ​ (24,061) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (8,783) ​ ​ ​ ​ ​ (97,444) ​ ​ ​ ​ ​ (5,817) ​ ​ ​ ​ ​ (67,453) ​ ​ ​ ​ ​ (232,210) ​ ​
​
(i)
The group has the rights of many trademarks, such as Assevim, FAC, FAIR, FAMESUL and others, but Uniasselvi is the only trademark recognized as an intangible asset, as a result of the business combination described in Note 1.1. Its estimated useful life is 21 years, with a remaining amortization period of 17 years.
​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Impairment tests of intangible assets with indefinite useful life
Goodwill and operation licenses for distance learning were allocated to the Cash-generating units (CGUs), which are identified at the level of Group’s operating segments identified in Note 4.
The operating segment-level summary of the goodwill and intangible assets allocation and the key assumptions for those CGUs that have significant goodwill allocated to them are presented below:
​ ​ ​
Distance learning
undergraduate courses
​ ​
Continuing education
courses
​ ​
On-campus undergraduate
courses
​
Segment Level
​ ​
2019
​ ​
2018
​ ​
2019
​ ​
2018
​ ​
2019
​ ​
2018
​
Allocation of carrying amount:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Goodwill
​ ​ ​ ​ 285,826 ​ ​ ​ ​ ​ 285,826 ​ ​ ​ ​ ​ 18,989 ​ ​ ​ ​ ​ 18,989 ​ ​ ​ ​ ​ 33,916 ​ ​ ​ ​ ​ 67,453 ​ ​
Intangible assets with indefinite useful life
​ ​ ​ ​ 213,406 ​ ​ ​ ​ ​ 213,406 ​ ​ ​ ​ ​ 32,315 ​ ​ ​ ​ ​ 32,315 ​ ​ ​ ​
​
—
 ​ ​ ​ ​
​
—
 ​ ​
Other intangible assets
​ ​ ​ ​ 55,893 ​ ​ ​ ​ ​ 82,178 ​ ​ ​ ​ ​ 5,547 ​ ​ ​ ​ ​ 8,910 ​ ​ ​ ​ ​ 29,072 ​ ​ ​ ​ ​ 36,680 ​ ​
Impairment test result: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Impairment losses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 51,022 ​ ​ ​ ​ ​ 33,537 ​ ​
Key assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net operating revenue growth rate(i)
​ ​ ​ ​ 20.3% ​ ​ ​ ​ ​ 14.1% ​ ​ ​ ​ ​ 22.3% ​ ​ ​ ​ ​ 14.1% ​ ​ ​ ​ ​ -6.5% ​ ​ ​ ​ ​ 3.6% ​ ​
Pre-tax discount rate(ii)
​ ​ ​ ​ 13.6% ​ ​ ​ ​ ​ 16.9% ​ ​ ​ ​ ​ 13.6% ​ ​ ​ ​ ​ 16.9% ​ ​ ​ ​ ​ 13.6% ​ ​ ​ ​ ​ 16.9% ​ ​
Long-term growth
rate(iii)
​ ​ ​ ​ 3.5% ​ ​ ​ ​ ​ 4.0% ​ ​ ​ ​ ​ 3.5% ​ ​ ​ ​ ​ 4.0% ​ ​ ​ ​ ​ 3.5% ​ ​ ​ ​ ​ 4.0% ​ ​
Gross margin(iv)
​ ​ ​ ​ 69.8% ​ ​ ​ ​ ​ 71.0% ​ ​ ​ ​ ​ 86.8% ​ ​ ​ ​ ​ 86.0% ​ ​ ​ ​ ​ 60.2% ​ ​ ​ ​ ​ 59.0% ​ ​
​
(i)
The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development.
​
(ii)
Pre-tax discount rate reflects specific risks relating to the segment and country in which the Group operates.
​
(iii)
The long-term growth rate does not exceed the long-term average growth rate for the education sector in which the CGU operates and is mostly comprised by expected inflation.
​
(iv)
Gross margin is the average margin as a percentage of revenue over the five-year forecast period. It is based on the current sales margin levels and is in line with the Group’s operating history and management’s expectations for the future performance.
​
Based on the recent changes to legislation and growth of the distance learning market in Brazil, Management expects to have strong growth in the distance learning undergraduate courses, mainly based from the increase of hubs. In addition to the investments with new hubs, Management also considers investment for improvements to expand their existing units.
The test performed by Management on December 31, 2019 showed an additional impairment loss of R$ 51,022 (2018 R$ 33,537) on the on-campus undergraduate courses segment, mainly due to decrease in the average monthly tuition fee per student observed in 2019 and increase in the number of students that are migrating to distance learning courses, which is also aligned to changes in the strategy of the Company focusing on distance learning business and recent decision of management in selling on-campus units with lower performance (Note 12).
The impairment losses have been recognized in the statement of profit or loss (Note 24) for the excess of the segment’s carrying amount over its respective recoverable amount, firstly allocated to segment’s goodwill and the remainder proportionally allocated to other intangible assets.
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
For the 2019 and 2018, the recoverable amount of the cash-generating units (CGUs) was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated long-term growth rates stated above.
Impact of possible changes in key assumptions
Distance learning undergraduate courses
The recoverable amount of the distance learning undergraduate courses segment is estimated to exceed the carrying amount of the segment level as of December 31, 2019 by R$ 903,369 (2018 — R$ 445,633).
If the net operating revenue growth used in the value-in-use calculation for the distance learning undergraduate courses segment had been 15% lower than management’s estimates as of December 31, 2019 and the pre-tax discount rate applied to the cash flow projections of this segment had been 17.0% instead of 13.6%, the recoverable amount of this segment would be approximate to its carrying amount.
Continuing education courses
The recoverable amount of the continuing education courses segment is estimated to exceed the carrying amount of the segment level as of December 31, 2019 by R$ 341,243 (2018 — R$ 73,583).
If the net operating revenue growth used in the value-in-use calculation for the continuing education courses segment had been 15% lower than management’s estimates as of December 31, 2019 and the pre-tax discount rate applied to the cash flow projections of this segment had been 17.0% instead of 13.6%, it would still not result in the impairment of the goodwill and intangible assets with indefinite useful life.
Management have considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amount of the distance learning undergraduate courses and continuing education segments to exceed its recoverable amount.
16. Labor and social obligations
​ ​ ​
2019
​ ​
2018
​
Salaries payable
​ ​ ​ ​ 4,235 ​ ​ ​ ​ ​ 3,855 ​ ​
Social charges payable(i)
​ ​ ​ ​ 5,906 ​ ​ ​ ​ ​ 6,539 ​ ​
Accrued vacation
​ ​ ​ ​ 1,972 ​ ​ ​ ​ ​ 2,396 ​ ​
Accrual for bonus
​ ​ ​ ​ 4,668 ​ ​ ​ ​ ​ 3,166 ​ ​
Other
​ ​ ​ ​ 3 ​ ​ ​ ​ ​ 96 ​ ​
Total ​ ​ ​ ​ 16,784 ​ ​ ​ ​ ​ 16,052 ​ ​
​
(i)
Comprised of contributions to Social Security (“INSS”) and to Government Severance Indemnity Fund for Employees (“FGTS”) as well as withholding income tax (“IRRF”) over salaries.
​
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
17. Accounts payable from acquisition of subsidiaries
​ ​ ​
2019
​ ​
2018
​
As at January 1,
​ ​ ​ ​ 458,535 ​ ​ ​ ​ ​ 534,914 ​ ​
Accrued Interest
​ ​ ​ ​ 44,143 ​ ​ ​ ​ ​ 53,291 ​ ​
Payment of principal
​ ​ ​ ​ (107,988) ​ ​ ​ ​ ​ (117,247) ​ ​
Payment of interests
​ ​ ​ ​ (15,150) ​ ​ ​ ​ ​ (12,423) ​ ​
As at December 31,
​ ​ ​ ​ 379,540 ​ ​ ​ ​ ​ 458,535 ​ ​
Current
​ ​ ​ ​ 128,888 ​ ​ ​ ​ ​ 123,310 ​ ​
Non-current
​ ​ ​ ​ 250,652 ​ ​ ​ ​ ​ 335,225 ​ ​
On February 28, 2016, the Company completed the acquisition of 100% of Uniasselvi and the amount of R$ 400,000 was paid on the act, R$ 119,159 was paid in December 2018 and R$ 112,301 was paid in December 2019, and the remaining amounts are payable in three equal installments, payable on December 31, 2020, December 31, 2021 and December 31, 2022 and adjusted by the IPCA inflation rate.
On August 31, 2016, the Company completed the acquisition of 100% of FAC and FAIR and the amounts of R$ 10,511 was paid in December 2018 and R$ 10,837 was paid in December 2019, and the remaining amounts are payable in three equal installments, payable on December 31, 2020, December 31, 2021 and December 31, 2022 and adjusted by the IPCA inflation rate.
18. Contingencies
a) Provision for contingencies
The provisions related to labor and civil proceedings whose likelihood of loss is assessed as probable are as follows:
Liabilities
​ ​
Civil
​ ​
Labor
​ ​
Total
​
At December 31, 2017
​ ​ ​ ​ 2,356 ​ ​ ​ ​ ​ 20,641 ​ ​ ​ ​ ​ 22,997 ​ ​
Additions
​ ​ ​ ​ 3,305 ​ ​ ​ ​ ​ 4,750 ​ ​ ​ ​ ​ 8,055 ​ ​
Accrued interest
​ ​ ​ ​ 59 ​ ​ ​ ​ ​ 581 ​ ​ ​ ​ ​ 640 ​ ​
Payments
​ ​ ​ ​ (390) ​ ​ ​ ​ ​ (5,126) ​ ​ ​ ​ ​ (5,516) ​ ​
Reversals
​ ​ ​ ​ (3,477) ​ ​ ​ ​ ​ (4,665) ​ ​ ​ ​ ​ (8,142) ​ ​
At December 31, 2018
​ ​ ​ ​ 1,853 ​ ​ ​ ​ ​ 16,181 ​ ​ ​ ​ ​ 18,034 ​ ​
Additions
​ ​ ​ ​ 2,924 ​ ​ ​ ​ ​ 6,770 ​ ​ ​ ​ ​ 9,694 ​ ​
Accrued interest
​ ​ ​ ​ 71 ​ ​ ​ ​ ​ 481 ​ ​ ​ ​ ​ 552 ​ ​
Payments
​ ​ ​ ​ (834) ​ ​ ​ ​ ​ (2,257) ​ ​ ​ ​ ​ (3,091) ​ ​
Reversals
​ ​ ​ ​ (42) ​ ​ ​ ​ ​ (6,637) ​ ​ ​ ​ ​ (6,679) ​ ​
Classified as held for sale
​ ​ ​ ​ (32) ​ ​ ​ ​ ​ (75) ​ ​ ​ ​ ​ (107) ​ ​
At December 31, 2019
​ ​ ​ ​ 3,940 ​ ​ ​ ​ ​ 14,463 ​ ​ ​ ​ ​ 18,403 ​ ​
The Group’s subsidiaries are parties to legal and administrative proceedings. These proceedings generally refer to legal and administrative disputes involving unions, employees, suppliers and students. Provisions are recorded for legal proceedings that represent probable loss. The assessment of the likelihood of loss includes an analysis of available evidence, including the opinion of internal and external legal counsel. Management believes that the provisions are sufficient and properly stated in the financial statements.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
In 2018, a reversal of R$ 3,149 resulted from the agreement and corresponding payment of court settlements, already definitively ratified, which terminated the lawsuits previously filed by the Union of Teachers for Rio Grande do Sul State (“SINPRO/RS”) in the jurisdictions of Porto Alegre, Camaquã and Passo Fundo.
b) Indemnification assets
Pursuant to the terms and conditions of the purchase and sale agreement described in note 1.1, the periods of responsibility for each party in relation to such claims, value limits, notification criteria and reciprocal indemnity were defined. The rights generated by the purchase and sale agreement are as follows:
Assets
​ ​
Civil
​ ​
Labor
​ ​
Total
​
At December 31, 2017
​ ​ ​ ​ 2,210 ​ ​ ​ ​ ​ 17,418 ​ ​ ​ ​
​
19,628
 ​ ​
Additions
​ ​ ​ ​ 2,840 ​ ​ ​ ​ ​ 3,580 ​ ​ ​ ​
​
6,420
 ​ ​
Accrued interest
​ ​ ​ ​ 56 ​ ​ ​ ​ ​ 546 ​ ​ ​ ​
​
602
 ​ ​
Realized
​ ​ ​ ​ (33) ​ ​ ​ ​ ​ (246) ​ ​ ​ ​
​
(279)
 ​ ​
Reversals
​ ​ ​ ​ (3,379) ​ ​ ​ ​ ​ (6,512) ​ ​ ​ ​
​
(9,891)
 ​ ​
At December 31, 2018
​ ​ ​ ​ 1,694 ​ ​ ​ ​ ​ 14,786 ​ ​ ​ ​ ​ 16,480 ​ ​
Additions
​ ​ ​ ​ 131 ​ ​ ​ ​ ​ 4,760 ​ ​ ​ ​
​
4,891
 ​ ​
Accrued interest
​ ​ ​ ​ 55 ​ ​ ​ ​ ​ 421 ​ ​ ​ ​
​
476
 ​ ​
Realized
​ ​ ​ ​ (77) ​ ​ ​ ​ ​ (1,312) ​ ​ ​ ​
​
(1,389)
 ​ ​
Reversals
​ ​ ​ ​ (735) ​ ​ ​ ​ ​ (4,922) ​ ​ ​ ​
​
(5,657)
 ​ ​
At December 31, 2019
​ ​ ​ ​ 1,068 ​ ​ ​ ​ ​ 13,733 ​ ​ ​ ​ ​ 14,801 ​ ​
c) Possible losses, not provided for in the balance sheet
No provision has been recorded for proceedings classified as possible losses, based on the opinion of the Group’s legal counsel. The breakdown of existing contingencies as of December 31, 2019 and 2018 is as follows:
​ ​ ​
2019
​ ​
2018
​
Civil
​ ​ ​ ​ 11,263 ​ ​ ​ ​ ​ 6,880 ​ ​
Labor
​ ​ ​ ​ 15,460 ​ ​ ​ ​ ​ 11,690 ​ ​
Tax
​ ​ ​ ​ 30,491 ​ ​ ​ ​ ​ 29,094 ​ ​
Total ​ ​ ​ ​ 57,214 ​ ​ ​ ​ ​ 47,664 ​ ​
Civil proceedings classified as possible loss
As of December 31, 2019, the Company’s subsidiaries were subject to 502 civil claims. Most of the lawsuits are related to consumer claims, including discussions regarding undue collection of tuition fees and rates, delay in the issuance of certificates and diplomas, undue collection of tuition fees for students that have been grated scholarships and public financing and denial of enrollment in courses, among others.
Labor proceedings classified as possible loss
As of December 31, 2019, the Company’s subsidiaries were subject to 103 labor claims. Most of these claims are related to overtime, salary equalization, vacation payments and/or non-enjoyment of vacation periods, severance payments and termination fees, and indemnities based on Brazilian labor laws.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
Tax proceedings classified as possible loss
At December 31, 2019, the Group had a tax administrative proceeding related to Tax Infraction Notice No. 000204.00/2017, issued by the Porto Alegre City Hall Municipal Finance Department, in the total amount of R$ 28,024, corresponding to alleged Service Tax (ISS) debt, plus a 150% fine and late payment interest, for the period from January 2012 to June 2017.
The interpretation of the Porto Alegre City Hall Tax Authorities is that the educational services provided at a distance by the Group, from its headquarters in Indaial/SC, would be subject to ISS taxation in the City of Porto Alegre, where it maintains a distance learning center. This interpretation is contested at an administrative level by the Group’s external law firm.
Liability for any payment of such debt shall be in accordance with the liability periods defined in accordance with the terms and conditions of the purchase and sale agreement described in note 1, and Sellers shall be liable for any debts relating to the period prior to the closing date of the acquisition (February 29, 2016).
19. Equity
a) Authorized capital
The Company is authorized to increase capital up to the limit of 600 million shares, subject to approval of the Board of Directors, which will decide the conditions of payment, characteristics of the shares to be issued and the issue price.
b) Subscribed and paid-in capital and Capital reserve
The Company has issued only common shares, entitled to one vote per share on all matters to be voted on shareholders’ general meetings, including the election of directors.
The Articles of Incorporation establish the possibility of issue of preferred shares, not entitled to votes on shareholders’ general meetings but with priority in reimbursement of the paid capital, with no premium, in case of liquidation of the Company. Dividends would be equally shared between common and preferred shares, proportionally to the total interest of each shareholder
On June 15, 2018, a capital increase of R$ 112,509 was made through the issuance of 38,315,096 registered, common shares, with no par-value. From these capital increase, a total of 36,827,431 shares were fully subscribed and paid in by NB Pitman Brazil Fundo de Investimento em Participações Multiestratégia (“NB Pitman Brazil”), in local currency. The remaining 1,487,665 shares were fully subscribed and paid in, as a resulted of vested options exercised by employees under the Share Option Plan and immediately sold to NB Pitman Brazil, along and in the same proportion of shares sold by the controlling shareholders.
On October 07, 2019, a capital increase of R$ 1,871 was made through the issuance of 1,834,105 registered, common shares, with no par-value, which were fully subscribed and paid in, as a resulted of vested options exercised by employees under the Share Option Plan, and which were immediately repurchased by the Company upon employee termination and held in treasury.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
As of December 31, 2019, subscribed and paid-in capital was R$ 548,380 (2018 — R$ 546,509) divided into 522,315,196 (2018 — 522,315,196) registered common shares with no par-value, as follows:
​ ​ ​
2019
​ ​
2018
​
​ ​ ​
Number of
shares
​ ​
%
​ ​
Number of
shares
​ ​
%
​
Fundo Brasil de Internacionalização de empresas Fundos de Investimento em Participações II
​ ​ ​ ​ 64,546,881 ​ ​ ​ ​ ​ 12.31 ​ ​ ​ ​ ​ 64,546,881 ​ ​ ​ ​ ​ 12.36 ​ ​
Miquerinos Fundo de Investimento em
Participações
​ ​ ​ ​ 129,093,761 ​ ​ ​ ​ ​ 24.63 ​ ​ ​ ​ ​ 129,093,761 ​ ​ ​ ​ ​ 24.72 ​ ​
Vinci Capital Partners II Fundo de Investimento em Participações
​ ​ ​ ​ 193,640,642 ​ ​ ​ ​ ​ 36.94 ​ ​ ​ ​ ​ 193,640,642 ​ ​ ​ ​ ​ 37.07 ​ ​
NB Pitman Brazil Fundo de Investimentos e Participações Multiestratégia
​ ​ ​ ​ 135,033,912 ​ ​ ​ ​ ​ 25.76 ​ ​ ​ ​ ​ 135,033,912 ​ ​ ​ ​ ​ 25.85 ​ ​
Treasury shares
​ ​ ​ ​ 1,834,105 ​ ​ ​ ​ ​ 0.35 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 0.00 ​ ​
Total ​ ​ ​ ​ 524,149,301 ​ ​ ​ ​ ​ 100.00 ​ ​ ​ ​ ​ 522,315,196 ​ ​ ​ ​ ​ 100.00 ​ ​
c) Distribution of dividends
The Parent Company’s bylaws require the distribution of dividends in the amount of 1% of the net income for the year. In the year ended December 31, 2018, the amount of R$ 74 was recognized as liability, based on net income prior to the adoption of new standards retrospectively.
d) Revenue reserve
The legal reserve is credited annually with 5% of the net income for the year and cannot exceed 20% of capital. The purpose of the legal reserve is to protect capital, and it can only be used to offset losses and increase capital. In the year ended December 31, 2018, the legal reserve was set up in the amount of R$ 429, based on net income prior to the adoption of new standards retrospectively.
e) Capital reserve
Share based compensation
The capital reserve is represented by reserve for share-based compensation programs classified as equity-settled, as detailed in Note 21.
The share-based payments reserve is used to recognize:
•
the grant date fair value of options issued to employees but not exercised.
​
•
the grant date fair value of shares issued to employees upon exercise of options.
​
Treasury shares
Treasury shares activity on 2019 were as follows:
​ ​ ​
Quantity
​ ​
Amount
​
At December 31, 2018
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Share repurchase from share option plan
​ ​ ​ ​ 1,834,105 ​ ​ ​ ​ ​ (2,238) ​ ​
At December 31, 2019
​ ​ ​ ​ 1,834,105 ​ ​ ​ ​ ​ (2,238) ​ ​
20. Earnings per share
Basic earnings per share is calculated by dividing the net income attributable to the holders of Company’s common shares by the weighted average number of common shares held by stockholders (excluding those held in treasury) during the period.
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
As of December 31, 2019, and 2018, the Group had outstanding and unexercised options to purchase 24,697 thousand and 24,434 thousand ordinary shares, respectively, all of which were anti-dilutive. As such, basic and diluted EPS are the same for the years presented
The following table contains the loss per share of the Group for the years ended December 31, 2019 and 2018 (in thousands except share and per share amounts):
Basic and diluted earnings per share
​ ​
2019
​ ​
2018
​
Loss attributable to the stockholders of the Company
​ ​ ​ ​ (66,160) ​ ​ ​ ​ ​ (45,204) ​ ​
Weighted average number of outstanding common shares (thousands)
​ ​ ​ ​ 522,315 ​ ​ ​ ​ ​ 504,889 ​ ​
Basic and diluted loss per common share
​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (0.09) ​ ​
21. Share-based compensation
The Group offers to its managers and executives a Share Option Plan with general conditions for the granting of share options issued by the Company to the participants appointed by the Board of Directors who, at its discretion, fulfill the conditions for participation, thereby aligning the interests of the participants to the interests of its stockholders, so as to maximize the Group’s results and increase the economic value of its shares, thus generating benefits for the participants and other stockholders. It also provides participants with a long-term incentive, increasing their motivation and enabling the Group to retain quality human capital.
The Share Option Plan was approved on June 8, 2017 and comprises the granting of up to 25,471,110 common share options with no par value, representing up to approximately five percent (5%) of the number of Company-issued common shares on the Plan’s approval date. The Plan is administered and managed by the Company’s Board of Directors and the SOP Management Committee.
In the event of any change in the number of common shares issued by the Company resulting from any split, reverse split, amortization, repurchase, cancellation or exchange of shares, the Share Options limit stated in the heading shall be automatically adjusted to reflect any new number of Share Options, regardless of the approval of any amendment to this Plan.
Each share option grants its holder the right to purchase one (1) Company share, strictly under the terms and conditions set forth in that plan. Options are not entitled to dividends on the underlying shares.
In order to satisfy the exercise of share options granted under the plan, the Company may, at the discretion of the Board of Directors issue new shares within the Company’s authorized capital limit or may even sell treasury shares.
The share options granted to a participant are subject to a vesting period so that they are exercisable, subject to the applicable rules set forth in the each grant program, in accordance with the schedule (as from each schedule date a given lot of share options shall be exercisable, a “Vesting Date”), where each year, twenty percent (20%) of the share options granted may be exercised.
When exercised, the vested options are settled in shares issued by Company which can be sold by the employee along with controlling shareholders on exit events or hold by the employee until the end of the plan in exchange for cash consideration by selling shares back to the Company. This represents a compound instrument, thus the expense is recognized with an increase in liability, to the limit of its fair value, derived from a formula based on the Group’s performance and remeasured at each reporting date, and any residual difference between the fair value of the compound instrument and the liability as of each reporting date will be attributed to the equity component of the instrument.
Participants have the right to turn all vested options into shares upon payment in cash, paying the Option Exercise Price as defined in the respective program that each participant is associated. The
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
difference between the stipulated price in the program and the fair value of the share at the measurement date is recorded as equity.
Upon an exit event, which may be either a transfer of control of the Company or secondary public offerings of Company-issued shares on the Brazilian or international publicly traded market, all options may become fully vested and may be fully or partially exercised by the participants.
Participants also shall have the right to require the Company to acquire all shares under its ownership to be held in treasury or for cancellation, upon payment, in cash, of the Put Option Exercise Price, for a given period as from the last Vesting Date, provided that no exit event has occurred up to the end of said period.
When all conditions applicable to the buyback of shares provided for in applicable laws and/or regulations are met, the Company shall pay the Participant the price equivalent to a certain amount of multiples of the Group’s EBITDA minus the Net Debt, as set forth in each grant program, recorded as a liability.
a)
Set out below are summaries of the number and weighted average exercise prices (“WAEP”) of options granted under the plan:
​
​ ​ ​
2019
​ ​
2018
​
​ ​ ​
Number of
options
​ ​
WAEP
per option
​ ​
Number of
options
​ ​
WAEP
per option
​
As of January 1
​ ​ ​ ​ 19,863,650 ​ ​ ​ ​ ​ 1.16 ​ ​ ​ ​ ​ 18,595,793 ​ ​ ​ ​ ​ 0.97 ​ ​
Granted during the year
​ ​ ​ ​ 5,207,147 ​ ​ ​ ​ ​ 2.06 ​ ​ ​ ​ ​ 5,481,207 ​ ​ ​ ​ ​ 1.74 ​ ​
Exercised during the year
​ ​ ​ ​ (1,834,105) ​ ​ ​ ​ ​ 1.02 ​ ​ ​ ​ ​ (1,487,665) ​ ​ ​ ​ ​ 0.98 ​ ​
Forfeited during the year
​ ​ ​ ​ (509,474) ​ ​ ​ ​ ​ 1.02 ​ ​ ​ ​ ​ (2,725,685) ​ ​ ​ ​ ​ 1.00 ​ ​
As of December 31
​ ​ ​ ​ 22,727,218 ​ ​ ​ ​ ​ 1.49 ​ ​ ​ ​ ​ 19,863,650 ​ ​ ​ ​ ​ 1.16 ​ ​
Exercisable at December 31
​ ​ ​ ​ 16,873,011 ​ ​ ​ ​ ​ 1.34 ​ ​ ​ ​ ​ 13,956,380 ​ ​ ​ ​ ​ 1.07 ​ ​
Repurchased during the year(i)
​ ​ ​ ​ (1,834,105) ​ ​ ​ ​ ​ 1.22 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​
(i)
Represent shares repurchased upon termination of employee and held in treasury (Note 19(e)).
​
No options expired during the years ended December 31, 2019 and 2018.
b)
Share options outstanding at the end of the year have the following remaining periods and prices:
​
​ ​ ​
December 31, 2019
​ ​
December 31, 2018
​
Weighted average remaining vesting period
​ ​
2.3 years
​ ​
2.3 years
​
Weighted average remaining expiring period
​ ​
2.9 years
​ ​
3.9 years
​
Purchase option exercise price range
​ ​
R$1.05 – R$3.13
​ ​
R$1.01 – R$1.79
​
Weighted average remaining selling period
​ ​
4.9 years
​ ​
5.9 years
​
Expected selling / repurchase price
​ ​
R$3.41
​ ​
R$1.58
​
c) Options granted during the year ended December 31, 2019
Options are granted for no consideration and vest over a five-year period. Vested options are exercisable for a period of one year after vesting. The model inputs for options granted during the year ended December 31, 2019 included:
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
​ ​ ​
December 31, 2019
​ ​
December 31, 2018
​
Grant date
​ ​
September 1, 2019
​ ​
August 1, 2018
​
Expiry date
​ ​
March 1, 2025
​ ​
May 1, 2024
​
Share price at grant date
​ ​
R$3.02
​ ​
R$3.02
​
Exercise price
​ ​
R$3.12
​ ​
R$1.74
​
Expected price volatility
​ ​
40.6%
​ ​
42.4%
​
Risk-free interest rate
​ ​
5.2%
​ ​
6.9%
​
Model used
​ ​
Black-Scholes
​ ​
Black-Scholes
​
Given the fact that Company’s shares are not publicly traded, the expected price volatility is based on the historical volatility of similar listed entities in the same industry following comparable periods for the remaining life of the options.
d) The expense recognized for employee services received during the year is as follows:
Expense arising from share-based payment transactions
​ ​
December 31,
2019
​ ​
December 31,
2018
​
Equity-settled
​ ​ ​ ​ 5,372 ​ ​ ​ ​ ​ 2,821 ​ ​
Cash-settled
​ ​ ​ ​ 21,000 ​ ​ ​ ​ ​ 4,629 ​ ​
​ ​ ​ ​ ​ 26,372 ​ ​ ​ ​ ​ 7,450 ​ ​
The fair value of cash-settled transactions were calculated based on discounted cash flows. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs (Note 6).
22. Key management compensation and related parties
a) Key management compensation
Key management includes professionals selected at the sole discretion of the Board of Directors from among the Group’s managers and executives.
The total compensation expense with key management for their services is shown below:
​ ​ ​
2019
​ ​
2018
​
Salaries and related charges
​ ​ ​ ​ 5,967 ​ ​ ​ ​ ​ 5,834 ​ ​
Share-based compensation
​ ​ ​ ​ 26,372 ​ ​ ​ ​ ​ 7,450 ​ ​
Variable compensation(i)
​ ​ ​ ​ 1,732 ​ ​ ​ ​ ​ 2,665 ​ ​
Total ​ ​ ​ ​ 34,071 ​ ​ ​ ​ ​ 15,949 ​ ​
​
(i)
Variable compensation as defined by the Board of Directors in an agreement with Group executives.
​
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
b) Related parties
The Company has quotas of investments funds managed by Vinci Partners, an insurance policy issued by Austral Seguradora S/A and uses the services of the lawyer company Kloch Advocacia. All the companies are an indirect related party. The amount of the investments, which make up the balance of short-term investments disclosed in Note 8, is as follows:
​ ​ ​
2019
​ ​
2018
​
FI Vinci Renda Fixa Crédito Privado ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Short-term investments
​ ​ ​ ​ 38,493 ​ ​ ​ ​ ​ 36,566 ​ ​
Financial income
​ ​ ​ ​ 2,136 ​ ​ ​ ​ ​ 2,122 ​ ​
Austral Seguradora S/A ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Prepaid expenses
​ ​ ​ ​ 758 ​ ​ ​ ​ ​ — ​ ​
General and administrative expenses
​ ​ ​ ​ (151) ​ ​ ​ ​ ​ — ​ ​
Kloch Advocacia ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative expenses
​ ​ ​ ​ (214) ​ ​ ​ ​ ​ (178) ​ ​
23. Revenue
​ ​ ​
2019
​ ​
2018
​
Gross revenue
​ ​ ​ ​ 598,344 ​ ​ ​ ​ ​ 497,850 ​ ​
(-) Cancellation
​ ​ ​ ​ (20,890) ​ ​ ​ ​ ​ (16,283) ​ ​
(-) Discounts
​ ​ ​ ​ (19,104) ​ ​ ​ ​ ​ (16,997) ​ ​
(-) ProUni scholarships
​ ​ ​ ​ (82,132) ​ ​ ​ ​ ​ (68,008) ​ ​
(-) Taxes and contributions on revenue
​ ​ ​ ​ (15,151) ​ ​ ​ ​ ​ (13,113) ​ ​
Net revenue
​ ​ ​ ​ 461,067 ​ ​ ​ ​ ​ 383,449 ​ ​
Timing of revenue recognition ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Transferred over time
​ ​ ​ ​ 459,658 ​ ​ ​ ​ ​ 382,589 ​ ​
Transferred at a point in time(i)
​ ​ ​ ​ 1,409 ​ ​ ​ ​ ​ 860 ​ ​
Net revenue
​ ​ ​ ​ 461,067 ​ ​ ​ ​ ​ 383,449 ​ ​
​
(i)
Revenue recognized at a point in time relates to revenue from student fees and certain education-related activities.
​
The Company`s revenues from contracts with customers are all provided in Brazil.
In 2019, the amount billed to students for the portion to be transferred to the hub partner, in respect to the joint operation, is R$ 83,259 (2018 — R$ 75,206). As of December 31, 2019, the balance payable to the hub partner is R$ 6,697 (2018 — R$ 21,537).
 
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Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
24. Costs and expenses by nature
​ ​ ​
2019
​ ​
2018
​
Payroll(i) ​ ​ ​ ​ 212,683 ​ ​ ​ ​ ​ 159,428 ​ ​
Depreciation and amortization(ii)
​ ​ ​ ​ 62,445 ​ ​ ​ ​ ​ 56,284 ​ ​
Impairment losses(iii)
​ ​ ​ ​ 51,022 ​ ​ ​ ​ ​ 33,537 ​ ​
Sales and marketing
​ ​ ​ ​ 54,212 ​ ​ ​ ​ ​ 36,804 ​ ​
Material
​ ​ ​ ​ 17,911 ​ ​ ​ ​ ​ 16,911 ​ ​
Consulting and advisory services
​ ​ ​ ​ 11,927 ​ ​ ​ ​ ​ 16,843 ​ ​
Utilities, cleaning and security
​ ​ ​ ​ 7,085 ​ ​ ​ ​ ​ 7,013 ​ ​
Maintenance
​ ​ ​ ​ 6,420 ​ ​ ​ ​ ​ 5,644 ​ ​
Leases
​ ​ ​ ​ 3,796 ​ ​ ​ ​ ​ 6,170 ​ ​
Contingencies
​ ​ ​ ​ 3,707 ​ ​ ​ ​ ​ 317 ​ ​
Taxes
​ ​ ​ ​ 1,705 ​ ​ ​ ​ ​ 1,235 ​ ​
Other expenses
​ ​ ​ ​ 4,927 ​ ​ ​ ​ ​ 5,288 ​ ​
Total ​ ​ ​ ​ 437,840 ​ ​ ​ ​ ​ 345,474 ​ ​
Costs of services
​ ​ ​ ​ 211,547 ​ ​ ​ ​ ​ 184,161 ​ ​
General and administrative expenses
​ ​ ​ ​ 125,344 ​ ​ ​ ​ ​ 90,667 ​ ​
Selling expenses
​ ​ ​ ​ 100,949 ​ ​ ​ ​ ​ 70,646 ​ ​
Total ​ ​ ​ ​ 437,840 ​ ​ ​ ​ ​ 345,474 ​ ​
​
(i)
Payroll expenses include R$ 186,311 (2018 — R$ 151,978) related to salaries, bonuses, short-term benefits, related social charges and other employee related expenses, and R$ 26,372 (2018 — R$ 7,450) related to share-based compensation.
​
(ii)
From the total depreciation and amortization, R$ 24,857 (2018 — R$ 20,472) relates to Cost of services, R$ 12,721 (2018 — R$ 10,945) relates to General and administrative expenses and R$ 24,867 (2018 — R$ 24,867) relates to Selling expenses.
​
(iii)
From the total impairment losses, R$ 186 relates to Cost of services, R$ 43,200 (2018 — R$ 33,357) relates to General and administrative expenses and R$ 7,636 relates to Selling expenses.
​
25. Other income (expenses), net
​ ​ ​
2019
​ ​
2018
​
Deductible donations
​ ​ ​ ​ (300) ​ ​ ​ ​ ​ (300) ​ ​
Contractual indemnities
​ ​ ​ ​ (647) ​ ​ ​ ​ ​ (712) ​ ​
Other revenues
​ ​ ​ ​ 437 ​ ​ ​ ​ ​ 332 ​ ​
Other expenses
​ ​ ​ ​ (395) ​ ​ ​ ​ ​ (361) ​ ​
Total ​ ​ ​ ​ (905) ​ ​ ​ ​ ​ (1,041) ​ ​
 
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Treviso Empreendimentos, Participações e Comércio S.A.
Notes to the Financial Statements December 31, 2019 and 2018
(In thousands of Brazilian Reais except as otherwise indicated)
26. Financial result
​ ​ ​
2019
​ ​
2018
​
Financial income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest on tuition fees paid in arrears
​ ​ ​ ​ 8,265 ​ ​ ​ ​ ​ 8,887 ​ ​
Financial investment yield
​ ​ ​ ​ 10,726 ​ ​ ​ ​ ​ 12,635 ​ ​
Other
​ ​ ​ ​ 203 ​ ​ ​ ​ ​ 504 ​ ​
Total ​ ​ ​ ​ 19,194 ​ ​ ​ ​ ​ 22,026 ​ ​
Financial expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest on accounts payable from acquisition of subsidiaries
​ ​ ​ ​ (44,258) ​ ​ ​ ​ ​ (51,739) ​ ​
Interest on lease
​ ​ ​ ​ (12,393) ​ ​ ​ ​ ​ (10,778) ​ ​
Other
​ ​ ​ ​ (3,739) ​ ​ ​ ​ ​ (2,080) ​ ​
Total ​ ​ ​ ​ (60,390) ​ ​ ​ ​ ​ (64,597) ​ ​
Financial results
​ ​ ​ ​ (41,196) ​ ​ ​ ​ ​ (42,571) ​ ​
27. Other disclosures on cash flows
Non-cash transactions
In 2019:
•
The amount of R$ 39,763 regarding additions on right-of-use assets, was also added in the lease liabilities line item.
​
•
The amount of R$ 2,155 regarding provision for contingencies of responsibility of the sellers, was reversed to the indemnification assets line item in non-current assets.
​
In 2018:
•
The amount of R$ 30,892 regarding additions on right-of-use assets, was also added in the lease liabilities line item.
​
•
The amount of R$ 3,750 regarding provision for contingencies of responsibility of the sellers, was reversed to the indemnification assets line item in non-current assets.
​
28. Subsequent events
Coronavirus
The Group is closely monitoring the situation of the Coronavirus and taking the necessary measures for the safety and well-being of its employees, students, associates and partners. At the current stage of this situation, there was no material impact on the business, due to the structure of virtual classrooms being available to keep all of classes through distance learning, including those in the on-campus businesses. In-person weekly meetings have been suspended and replaced with online meetings across all the Group units for an undetermined period. These online meetings are held between students and tutor at certain scheduled times and are a temporary solution.
Due to uncertainties regarding the dynamics of the Coronavirus evolution, the effects on the economic activities of its customers and suppliers and the measures to be adopted in Brazil, it is impossible to predict the impact the pandemic will have on the global economy, as well as on the Group’s business. On the other hand, there is the possibility of the Group leveraging its robust distance learning platform and helping Brazilian students across the country.
* * *
 
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​
​
Common Shares
[MISSING IMAGE: lg_vitru-4clr.jpg]
Vitru Limited
​
PROSPECTUS
​
Goldman Sachs & Co. LLC BofA SecuritiesItaú BBAMorgan Stanley
Bradesco BBIBTG PactualCredit SuisseSantanderXP Investimentos
           , 2020
Through and including           , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
​
​
TABLE OF CONTENTS
 
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6.
Indemnification of Directors and Officers
​
Cayman Islands law does not limit the extent to which a company’s articles of association may provide indemnification of officers and directors, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as providing indemnification against civil fraud or the consequences of committing a crime.
The registrant’s Articles of Association provide that each director or officer of the registrant shall be indemnified out of the assets of the registrant against all actions, proceedings, costs, charges, expenses, losses, damages, or liabilities, judgments, fines, settlements and other amounts (including reasonable attorneys’ fees and expenses and amounts paid in settlement and costs of investigation) (collectively “Losses”) incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of such person’s duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any Losses incurred by such director or officer in defending or investigating (whether successfully or otherwise) any civil, criminal, investigative and administrative proceedings concerning or in any way related to our Company or its affairs in any court whether in the Cayman Islands or elsewhere.
Also, the registrant expects to maintain director’s and officer’s liability insurance covering its directors and officers with respect to general civil liability, including liabilities under the Securities Act, which he or she may incur in his or her capacity as such.
The form of underwriting agreement to be filed as Exhibit 1.1 to this registration statement will also provide for indemnification by the underwriters of the registrant and its directors and officers for certain liabilities, including liabilities arising under the Securities Act, but only to the extent that these liabilities are caused by information relating to the underwriters that was furnished to us by the underwriters in writing expressly for use in this registration statement and certain other disclosure documents.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 7.
Recent Sales of Unregistered Securities
​
During the past three years, we have not issued any securities exempt from registration under the Securities Act.
Item 8.
Exhibits
​
(a) The following documents are filed as part of this registration statement:
​
Exhibit
No.
​ ​
Exhibit
​
​ ​ ​ Form of Underwriting Agreement. ​
​ ​ ​ Memorandum and Articles of Association of Vitru. ​
​ ​ ​ Opinion of Maples and Calder, Cayman Islands counsel of Vitru, as to the validity of the common shares. ​
​ ​ ​ Form of Indemnification Agreement. ​
 
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​
Exhibit
No.
​ ​
Exhibit
​
​ ​ ​ Form of Registration Rights Agreement among Vitru Limited, funds and accounts advised by The Carlyle Group, funds and accounts advised by Vinci Partners and funds and accounts advised by Neuberger Berman. ​
​ ​ ​ English translation of the Code of Ethics of Vitru.* ​
​ ​ ​ List of subsidiaries.* ​
​ ​ ​ Consent of PricewaterhouseCoopers Auditores Independentes ​
​ ​ ​ Consent of Maples and Calder, Cayman Islands counsel of Vitru (included in Exhibit 5.1). ​
​ ​ ​ Consent of Educa Estudos de Mercado S.A.* ​
​ ​ ​ Powers of attorney (included on signature page to the registration statement). ​
​
*
Previously filed.
​
(b)
Financial Statement Schedules
​
No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements or notes thereto.
Item 9.
Undertakings
​
The undersigned hereby undertakes:
(a)
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
​
(b)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
​
(c)
The undersigned registrant hereby undertakes that:
​
(1)
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
​
(2)
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
​
 
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Florianopolis, state of Santa Catarina, Brazil, on this 8th day of September 2020.
​ ​ ​ ​ VITRU LIMITED ​
​ ​ ​ ​
By:
/s/ Pedro Jorge Guterres Quintans Graça
​
​
Name:  Pedro Jorge Guterres Quintans Graça
Title:      Chief Executive Officer
​
​ ​ ​ ​
By:
/s/ Carlos Henrique Boquimpani de Freitas
​
​
Name:  Carlos Henrique Boquimpani de Freitas
Title:      Chief Financial Officer
​
 
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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Pedro Jorge Guterres Quintans Graça and Carlos Henrique Boquimpani de Freitas and each of them, individually, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, in connection with this registration statement, including to sign in the name and on behalf of the undersigned, this registration statement and any and all amendments thereto, including post-effective amendments and registrations filed pursuant to Rule 462 under the U.S. Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
​
Name
​ ​
Title
​ ​
Date
​
​
/s/ Pedro Jorge Guterres
Quintans Graça
​
Pedro Jorge Guterres Quintans Graça
​ ​
Chief Executive Officer
(principal executive officer)
​ ​
September 8, 2020
​
​
/s/ Carlos Henrique Boquimpani de Freitas
​
Carlos Henrique Boquimpani de Freitas
​ ​
Chief Financial Officer
(principal financial officer and principal accounting officer)
​ ​
September 8, 2020
​
​
*
​
Bruno Augusto Sacchi Zaremba
​ ​
Director
​ ​
September 8, 2020
​
​
*
​
Edson Gustavo Georgette Peli
​ ​
Director
​ ​
September 8, 2020
​
​
*
​
Fernando Cezar Dantas Porfírio Borges
​ ​
Director
​ ​
September 8, 2020
​
​
*
​
Lywal Salles Filho
​ ​
Director
​ ​
September 8, 2020
​
​
   
​
Rivadávia Correa Drummond de Alvarenga Neto
​ ​
Director
​ ​ ​ ​
​
​
Claudia Pagnano
​ ​
Director
​ ​ ​ ​
​
/s/ Colleen A. De Vries
​
Name: Colleen A. De Vries
Title: Senior Vice President
​ ​
Cogency Global Inc.
Authorized representative in the United States
​ ​
September 8, 2020
​
 
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​ *By:    ​ ​
/s/ Pedro Jorge Guterres Quintans Graça
​
Name: Pedro Jorge Guterres Quintans Graça
Title:   Attorney-in-fact
​
​ *By:    ​ ​
/s/ Carlos Henrique Boquimpani de Freitas
​
Name: Carlos Henrique Boquimpani de Freitas
Title:   Attorney-in-fact
​
 
II-5

 

Exhibit 1.1

 

Vitru Limited

 

Common Shares, par value U.S.$[●] per share

 

 

 

Underwriting Agreement

 

[●], 2020

 

Goldman Sachs & Co. LLC,

BofA Securities, Inc.,

Itau BBA USA Securities, Inc.,

Morgan Stanley & Co. LLC,

 

As representatives of the several Underwriters named in Schedule I hereto,

 

c/o Goldman Sachs & Co. LLC

200 West Street

New York, New York 10282-2198

 

c/o BofA Securities, Inc.

One Bryant Park

New York, New York 10036

 

c/o Itau BBA USA Securities, Inc.

540 Madison Avenue, 24th Floor

New York, New York 10022

 

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

 

Ladies and Gentlemen:

 

Vitru Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “Company”), proposes, subject to the terms and conditions stated in this agreement (the “Agreement”), to issue and sell to the Underwriters named in Schedule I hereto (the “Underwriters”) for whom you are acting as representatives (the “Representatives”), an aggregate of [●] common shares, par value U.S.$0.00005 per share (the “Common Shares”) and, at the election of the Underwriters, up to [●] additional Common Shares of the Company solely to cover over-allotments, if any, and the shareholders of the Company named in Schedule II hereto (the “Selling Shareholders”) propose, subject to the terms and conditions stated in this Agreement, to sell to the Underwriters an aggregate of [●] Common Shares and, at the election of the Underwriters, up to [●] additional Common Shares solely to cover over-allotments, if any. The aggregate of [●] Common Shares to be sold by the Company and the Selling Shareholders is herein called the “Firm Shares” and the aggregate of [●] additional Common Shares to be sold by the Company and the Selling Shareholders is herein called the “Optional Shares”. The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the “Shares.”

 

 

 

 

1.            (a)               The Company represents and warrants to, and agrees with, each of the Underwriters that:

 

(i)                A registration statement on Form F-1 (File No. 333-248272) (the “Initial Registration Statement”) in respect of the Shares has been filed with the U.S. Securities and Exchange Commission (the “Commission”); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a “Rule 462(b) Registration Statement”), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Act”), which became effective upon filing, no other document with respect to the Initial Registration Statement has been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the Company’s knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) under the Act is hereinafter called a “Preliminary Prospectus”; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the “Registration Statement”; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(a)(iii) hereof) is hereinafter called the “Pricing Prospectus”; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the “Prospectus”; any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act or Rule 163B under the Act is hereinafter called a “Testing-the-Waters Communication”; and any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act is hereinafter called a “Written Testing-the-Waters Communication”; and any “issuer free writing prospectus” as defined in Rule 433 under the Act relating to the Shares is hereinafter called an “Issuer Free Writing Prospectus”);

 

(ii)               (A) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued, or, to the Company’s knowledge, threatened by the Commission, and (B) each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information (as defined in Section 9(c) of this Agreement) or any Selling Shareholder Information (as defined in Section 1(b)(vii) of this Agreement);

 

 2 

 

 

(iii)              For the purposes of this Agreement, the “Applicable Time” is [●] [a.m.][p.m.] (Eastern time) on the date of this Agreement; the Pricing Prospectus, as supplemented by the information listed on Schedule III(b) hereto, taken together (collectively, the “Pricing Disclosure Package”), as of the Applicable Time, did not, and as of each Time of Delivery (as defined in Section 4(a) of this Agreement) will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus, and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication, as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not, and as of each Time of Delivery, will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements or omissions made in reliance upon and in conformity with the Underwriter Information or any Selling Shareholder Information;

 

(iv)             The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to each part of the Registration Statement, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, and as of each Time of Delivery, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information or any Selling Shareholder Information;

 

(v)               Neither the Company nor any of its subsidiaries has, since the date of the latest audited consolidated financial statements included in the Pricing Prospectus, (A) sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree or (B) entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole, in each case otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus, there has not been (x) any change in the share capital (other than as a result of (i) the exercise, if any, of share options or the award, if any, of share options or restricted shares in the ordinary course of business pursuant to the Company’s equity plans that are described in the Pricing Prospectus and the Prospectus or (ii) the issuance, if any, of shares upon conversion of Company securities as described in the Pricing Prospectus and the Prospectus) or long-term debt of the Company or any of its subsidiaries or (y) any Material Adverse Effect (as defined below); as used in this Agreement, “Material Adverse Effect” shall mean any material adverse change or effect, or any development involving a prospective material adverse change or effect, in or affecting (i) the condition (financial or other), the business, properties, general affairs, management, financial position, shareholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus or (ii) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus;

 

(vi)              The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Pricing Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries;

 

 3 

 

 

(vii)            Each of the Company and each of its subsidiaries has been (A) duly organized and is validly existing and in good standing (to the extent such concept is applicable) under the laws of its jurisdiction of organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Pricing Prospectus, and (B) duly qualified as a foreign corporation for the transaction of business and is in good standing (to the extent such concept is applicable) under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except, in the case of this clause (B), where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect; and each subsidiary of the Company has been listed in the Registration Statement;

 

(viii)          The Company has an authorized capitalization as set forth in the Pricing Prospectus under the caption “Capitalization” and all of the issued share capital of the Company, including the Common Shares to be sold by the Selling Shareholders, have been duly and validly authorized and issued and are fully paid and non-assessable and conform to the description of the Company’s share capital contained in the Pricing Disclosure Package and the Prospectus; and all of the issued share capital of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except, in the case of any foreign subsidiary, for directors’ qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for such liens or encumbrances described in the Pricing Prospectus and the Prospectus;

 

(ix)             The Shares (A) to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, and entered in the shareholder register of the Company, will be duly and validly issued and fully paid and non-assessable and will conform to the description of the Company’s share capital contained in the Pricing Disclosure Package and the Prospectus and the issuance of the Shares is not subject to any preemptive or similar rights; and (B) to be sold by the Selling Shareholders are duly and validly issued and are fully paid and non-assessable and conform in all material respects to the descriptions thereof in the Registration Statement, the Pricing Prospectus and the Prospectus;

 

(x)              The issue and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement and the consummation of the transactions contemplated in this Agreement and the Pricing Prospectus will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except, in the case of this clause (A) for such defaults, breaches, or violations that would not, individually or in the aggregate, have a Material Adverse Effect, (B) the certificate of incorporation or by-laws (or other applicable organizational document) of the Company or any of its subsidiaries, or (C) any statute or any judgment, order, rule or regulation of any court or governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental or regulatory agency or body is required for the issue of the Shares to be sold by the Company and the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such as have been obtained under the Act, the approval by the Financial Industry Regulatory Authority (“FINRA”) of the underwriting terms and arrangements and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;

 

 4 

 

 

(xi)              Neither the Company nor any of its subsidiaries is (A) in violation of its respective certificate of incorporation or by-laws (or other applicable organizational document), (B) in violation of any statute or any judgment, order, rule or regulation of any court or governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries, as the case may be, or any of their properties, or (C) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except, in the case of the foregoing clauses (B) and (C), for such violations or defaults as would not, individually or in the aggregate, have a Material Adverse Effect;

 

(xii)             The statements set forth in the Pricing Prospectus and the Prospectus under the caption [“Description of Share Capital”], insofar as they purport to constitute a summary of the terms of the Company’s share capital, under the caption [“Taxation”], and under the caption [“Underwriting”], insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects;

 

(xiii)            Other than as set forth in the Pricing Prospectus, there are no legal, governmental or regulatory proceedings pending to which the Company or any of its subsidiaries or, to the Company’s knowledge, any officer or director of the Company is a party or of which any property of the Company or any of its subsidiaries or, to the Company’s knowledge, any officer or director of the Company (A) is the subject which, if determined adversely to the Company or any of its subsidiaries (or such officer or director), would individually or in the aggregate have a Material Adverse Effect; and, to the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or others against the Company or any of its subsidiaries; (B) that are required to be described in the Registration Statement, Pricing Disclosure Package or the Prospectus and are not so described; and, to the Company’s knowledge, there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement, Pricing Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required;

 

(xiv)           The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof, will not be required to register as an “investment company”, as such term is defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”);

 

(xv)            At the time of filing the Initial Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Act) of the Shares, and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Act;

 

(xvi)           PricewaterhouseCoopers Auditores Independentes (“PwC”), who have audited certain financial statements of the Company and its subsidiaries included in the Registration Statement, Pricing Disclosure Package and Prospectus, is an independent registered public accounting firm as required by the Act and the rules and regulations of the Commission thereunder whose registration has not been suspended or revoked and who have not requested such registration be withdrawn;

 

 5 

 

 

(xvii)          The Company maintains a system of internal control over financial reporting that is sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”) and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and, except as disclosed in the Pricing Prospectus and the Prospectus, the Company’s internal control over financial reporting is effective and the Company is not aware of any material weaknesses in its internal control over financial reporting;

 

(xviii)         Since the date of the latest audited consolidated financial statements included in the Pricing Prospectus, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting;

 

(xix)            The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Company’s chief executive officer and chief financial officer by others within those entities; and such disclosure controls and procedures are effective;

 

(xx)             This Agreement has been duly authorized, executed and delivered by the Company;

 

(xxi)            None of the Company or any of its subsidiaries, or any director or officer, nor, to the knowledge of the Company, any agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (A) taken or will take any action in furtherance of an offer, payment, promise to pay or authorization or approval of the payment or receipt of any unlawful contribution, gift, entertainment or other unlawful expense or made, offered, promised or authorized any direct or indirect unlawful payment; or (B) violated, is in violation of or will violate any provision of the Foreign Corrupt Practices Act of 1977, the Bribery Act 2010 of the United Kingdom, Brazil’s Anticorruption Law (Laws No. 12,846/2013 and 8,429/1992) and Brazilian Decree 8,420/2015 or any other applicable anti-bribery or anti-corruption law, or made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment. The Company and its subsidiaries have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain policies and procedures reasonably designed to promote and achieve compliance with such laws. None of the Company or its subsidiaries will, directly or indirectly, use the proceeds of the sale of the Shares, or lend, contribute or otherwise make available such proceeds to any subsidiary, affiliate, joint venture partner or other person or entity, for the purpose of financing or facilitating any activity that would violate any applicable anti-corruption law or regulation;

 

(xxii)           The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with the requirements of applicable anti-money laundering laws, including, but not limited to, the Bank Secrecy Act of 1970, as amended by the USA PATRIOT ACT of 2001, and the rules and regulations promulgated thereunder, to the extent applicable, and the anti-money laundering laws of the various jurisdictions in which the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules or regulations issued, administered or enforced by any governmental agency having jurisdiction over the Company or any of its subsidiaries (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened;

 

 6 

 

 

(xxiii)          None of the Company or any of its subsidiaries, or any director or officer, nor, to the knowledge of the Company, any agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is owned or controlled by one or more individual or entities (“Person”) that is, currently (A) the subject or the target of any sanctions administered or enforced by the U.S. Government, including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury, the Bureau of Industry and Security (“BIS”), or the U.S. Department of State (including, without limitation, the designation as a “specially designated national” or “blocked person”), the European Union, Her Majesty’s Treasury, the United Nations Security Council, or other relevant sanctions authority (collectively, “Sanctions”), (B) otherwise named on any restricted parties list administered by such authorities, including the Denied Persons List or Entity List, or (C) located, organized, or resident in a country or territory that is subject to a general export, import, financial or investment embargo under any Sanctions (currently, Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine) (a “Sanctioned Country”), and the Company will not, and will not permit subsidiaries to, directly or indirectly use all or part of the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (x) to fund or facilitate any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject or the target of Sanctions or (y) in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions or applicable export control laws and regulations administered by BIS, including the Export Administration Regulations (collectively, “Export Controls”). For the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not knowingly engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions in a manner that would violate Sanctions or Export Controls;

 

(xxiv)          The financial statements, including (A) the audited consolidated financial statements of the Company as of and for the years ended December 31, 2019 and 2018 and (B) the unaudited interim condensed consolidated financial statements of the Company as of June 30, 2020 and for the six months period ended June 30, 2020 and 2019, included in the Registration Statement, the Pricing Prospectus and the Prospectus, together with the related notes, present fairly in all material respects the consolidated financial position of the Company and its subsidiaries at the dates indicated and the statement of operations, shareholders’ equity and cash flows of the Company and its subsidiaries for the periods specified; said financial statements have been prepared in conformity with IAS 34—“Interim Financial Reporting” applied on a consistent basis throughout the periods involved. The selected financial and other data, the summary financial and other data and the quarterly financial data under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Registration Statement, the Pricing Prospectus and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited consolidated financial statements included therein. Except as included therein, no historical or pro forma financial statements, or other financial statements required by Regulation S-X under the Act, including Rule 3-09 thereof, or supporting schedules are required to be included in the Registration Statement, the Pricing Prospectus or the Prospectus under the Act or the rules and regulations promulgated thereunder. All disclosures contained in the Registration Statement, the Pricing Prospectus and the Prospectus regarding “Non-GAAP Financial Measures” comply with the requirements for “Non-GAAP Financial Measures” under Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Act, to the extent applicable, and the Company and its subsidiaries do not have any material off-balance sheet liabilities and obligations, except as otherwise disclosed in the Pricing Disclosure Package and the Prospectus;

 

 7 

 

 

(xxv)           From the time of initial confidential submission of a registration statement relating to the Shares with the Commission (or, if earlier, the first date on which a Testing-the-Waters Communication was made) through the date hereof, the Company has been and is an “emerging growth company” as defined in Section 2(a)(19) of the Act (an “Emerging Growth Company”);

 

(xxvi)          The Company is a “foreign private issuer” as defined in Rule 405 under the Act (a “Foreign Private Issuer”);

 

(xxvii)         Based upon the manner in which the Company currently operates its business, management’s estimates of the Company’s gross income, assets and goodwill for the current taxable year, the Company’s business plans and the Company’s current interpretation of the “passive foreign investment company” (“PFIC”) provisions in the Internal Revenue Code of 1986, as amended (the “Code”) and the Treasury regulations promulgated thereunder, the Company believes that after giving effect to the offering of the Shares it will likely not be treated as a PFIC as defined in Section 1297 of the Code for the current taxable year or for the foreseeable future;

 

(xxviii)        The Company and its subsidiaries own or possess sufficient rights to use all relevant licenses, copyrights, know how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names and other intellectual property (collectively, “Intellectual Property”) used in, held for use in or necessary for the conduct of the business now operated by them, except where the failure to own or possess any of the foregoing would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any written notice or claim alleging any infringement, misappropriation, violation of or conflict with any such rights of others, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by any party challenging the validity, scope, enforceability or ownership of any Intellectual Property owned by the Company or its subsidiaries, and all Intellectual Property owned by the Company or its subsidiaries is owned solely by the Company or its subsidiaries, is valid and enforceable, and is owned free and clear of all liens, encumbrances, defects or other restrictions, except for such liens, encumbrances, defects or other restrictions that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;

 

(xxix)          The Company and its subsidiaries have complied in all material respects with their respective privacy policies and other legal obligations regarding the collection, use, transfer, storage, protection, disposal and disclosure by the Company and its subsidiaries of personal and user information gathered or accessed in the course of their respective operations, and, to the knowledge of the Company, there has been no unauthorized access to or other misuse of such information that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;

 

 8 

 

 

(xxx)           The Company and its subsidiaries (A) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, individually or in the aggregate, have a Material Adverse Effect;

 

(xxxi)          There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, individually or in the aggregate, have a Material Adverse Effect;

 

(xxxii)         Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (A) each employee benefit plan (each, a “Plan”), within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), for which the Company would have any liability has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to, ERISA and the Code, (B) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan that would result in material liability to the Company, excluding transactions effected pursuant to a statutory or administrative exemption, (C) for each Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, as applicable, has been satisfied (without taking into account any waiver thereof or extension of any amortization period) and is, to the knowledge of the Company, reasonably expected to be satisfied in the future (without taking into account any waiver thereof or extension of any amortization period), (D) the fair market value of the assets of each Plan subject to Title IV of ERISA exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan), (E) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or, to the knowledge of the Company, is reasonably expected to occur with respect to any Plan subject to Title IV of ERISA, (F) neither the Company nor any member of the Controlled Group (within the meaning of section 4001(a)(14) of ERISA) has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA) and (G) there is no pending audit or investigation by the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any other governmental agency or any foreign regulatory agency with respect to any Plan that could reasonably be expected to result in material liability to the Company or its subsidiaries;

 

(xxxiii)       The Company and its subsidiaries possess all licenses, permits, certificates and other authorizations from, and have made all declarations and filings with, all governmental and regulatory authorities, required or necessary to own or lease, as the case may be, and to operate their respective properties and to carry on their respective businesses as now or proposed to be conducted as set forth in the Pricing Prospectus (“Permits”), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect;

 

(xxxiv)        Except as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Act by reason of the filing of the Registration Statement with the Commission, or the issuance and sale of the Shares;

 

 9 

 

 

(xxxv)         The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, have a Material Adverse Effect) and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not, individually or in the aggregate, have a Material Adverse Effect, or, except as currently being contested in good faith and for which reserves required by IFRS have been created in the financial statements of the Company), and no unpaid tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had a Material Adverse Effect; neither the Company nor any of its subsidiaries have notice or knowledge of any unpaid tax deficiency which is reasonably expected to be determined adversely to the Company or its subsidiaries and would reasonably be expected to have a Material Adverse Effect;

 

(xxxvi)        The Company and its subsidiaries taken as a whole are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are ordinary and customary in the businesses in which they are engaged;

 

(xxxvii)       No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, shareholders, customers, suppliers or other affiliates of the Company or any of its subsidiaries, on the other, that is required by the Act to be described in the Registration Statement or the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package;

 

(xxxviii)      Except for the appointment of the Underwriters, who may engage in stabilization activities and as to whose actions the Company makes no representation, the Company has not taken, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;

 

(xxxix)        Any market and statistical information provided in the Pricing Disclosure Package and the Prospectus are based on or furnished by sources that the Company in good faith believes to be reliable and accurate in all material respects and, to the extent required, the Company has obtained written consent for the use of such data from such sources;

 

(xl)              No forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Exchange Act) contained in any of the Pricing Disclosure Package and the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith;

 

(xli)            There are no contracts, agreements or understandings between the Company and any person (other than this Agreement) that would give rise to a valid claim against the Company or any Underwriter for a broker’s commission, finder’s fee or other like payment in connection with the issuance and sale of the Shares to the Underwriters;

 

(xlii)           Except as described in the Pricing Disclosure Package, the Company has not sold, issued or distributed any Common Shares during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Act, other than shares issued pursuant to employee benefit plans, qualified share option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants;

 

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(xliii)        The Company has no reason to believe that the indemnification provisions set forth in Section 9 hereof contravene Cayman Islands or Brazilian law or public policy;

 

(xliv)        Except as otherwise disclosed in the Registration Statement, the Pricing Prospectus and the Prospectus, no stamp or other issuance or transfer taxes or duties and no other similar taxes are payable by or on behalf of the Underwriters, or otherwise imposed on any payments made to the Underwriters, to any Cayman or Brazilian authority or to any political subdivision or taxing authority thereof in connection with the execution, delivery or performance by the Company of this Agreement;

 

(xlv)          Neither the Company nor any of its subsidiaries or their properties or assets has immunity under the laws of the Cayman Islands or Brazil, or U.S. federal or New York state law from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of the courts of the Cayman Islands or Brazil, or the U.S. federal or New York state court, from service of process, attachment upon or prior to judgment, or attachment in aid of execution of judgment, or from execution of a judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of a judgment, in any such court with respect to their respective obligations, liabilities or any other matter under or arising out of or in connection herewith; and, to the extent that the Company or any of its subsidiaries or any of its properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings arising out of, or relating to the transactions contemplated by this Agreement, may at any time be commenced, the Company has, pursuant to Section 20 of this Agreement, waived, and it will waive, or will cause its subsidiaries to waive, such right to the extent permitted by law;

 

(xlvi)        Any final judgment for a fixed or determined sum of money (other than a sum payable in respect of taxes, fines, penalties or similar charges) or a non-monetary judgment (in respect of which specific performance could be ordered) rendered by any U.S. federal or New York state court located in the State of New York having jurisdiction under its own laws in respect of any suit, action or proceeding against the Company based upon this Agreement would be declared enforceable against the Company by the courts of the Cayman Islands and Brazil, without reconsideration or reexamination of the merits, provided that, in the case of the Cayman Islands, such judgment: (i) is given by a foreign court of competent jurisdiction; (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; (iii) is final; (iv) is not in respect of taxes, a fine or a penalty; and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands; and (upon recognition of such judgment by the Brazilian Superior Court of Justice) provided that, with respect to Brazil, such judgment (a) fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment was granted; (b) is issued by a competent court and/or authority in the jurisdiction where it was awarded after proper service of process on the parties, which service must be in accordance with Brazilian law if made in Brazil, or after sufficient evidence of the parties’ absence has been given, as required under applicable law; (c) is not against Brazilian public policy, national sovereignty or public morality; (d) is final and conclusive and, therefore, not subject to appeal in the jurisdiction where it was rendered; (e) is authenticated by a Brazilian consular office in the country where the foreign judgment is issued, except if it is apostilled by a competent authority of the State in which the decision was issued, according to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Document; (f) is translated into Portuguese by a sworn translator in Brazil, unless an exemption is provided by an international treaty to which Brazil is a signatory; (g) such judgment does not conflict with a previous final and binding judgment on the same matter and involving the same parties issued in Brazil (res judicata); and (h) the applicable procedure under the law of Brazil with respect to the enforcement of foreign judgments is complied with;

 

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(xlvii)      The choice of laws of the State of New York as the governing law of this Agreement (the “Governing Law”) is a valid choice of law under the laws of the Cayman Islands and Brazil (to the extent such jurisdiction is applicable for purposes of this Agreement) and will be recognized and given effect by the courts of the Cayman Islands and Brazil (to the extent such jurisdiction is applicable for purposes of this Agreement), provided, with respect to Brazil (to the extent such jurisdiction is applicable for purposes of this Agreement), that (A) the contractual language makes it clear that the New York courts have exclusive jurisdiction; (B) the contract is considered to be international by Brazilian courts; (C) the clause of submission to an exclusive jurisdiction is not considered abusive by Brazilian courts and (D) Brazilian courts do not have exclusive jurisdiction over any dispute arising therefrom and subject to the restrictions described under the caption [“Enforcement of Civil Liabilities”] in the Registration Statement, the Pricing Disclosure Package and the Prospectus and provided that, in the case of the Cayman Islands, such choice of law has been made in good faith and will be upheld by the courts of New York as a matter of the Governing Law. For the purposes of (D) of this paragraph, Brazilian courts have exclusive jurisdiction over matters involving real estate located in Brazil, inventory and legal partition of assets located in Brazil, judicial divorce and distribution of assets located in Brazil and the declaration of bankruptcy by a Brazilian individual or entity. The Company has the power to submit, and pursuant to Section 18 of this Agreement and to the extent permitted by law, has legally, validly, effectively and irrevocably submitted, to the personal jurisdiction of each New York state and United States federal court sitting in the City of New York and has validly and irrevocably waived any objection to the laying of venue of any suit, action or proceeding brought in such court;

 

(xlviii)    The legality, validity, enforceability or admissibility into evidence of this Agreement in any jurisdiction in which the Company is organized or does business is not dependent upon this Agreement being submitted into, filed or recorded with any court or other authority in any such jurisdiction on or before the date hereof or that any tax, imposition or charge be paid in any such jurisdiction on or in respect of this Agreement, other than court costs (including, without limitation, filing fees), except that, (A) Cayman Islands stamp duty would be required to be paid before this Agreement could be admitted into evidence before the courts of the Cayman Islands, and (B) for the purpose of enforcing and admitting this Agreement executed outside Brazil into evidence before the public agencies and courts in Brazil (to the extent such jurisdiction is applicable for purposes of this Agreement): (i)(a) the signatures of the parties executing this Agreement outside Brazil shall have been notarized by a notary public licensed as such under the law of the place of signing and the signature of such notary public shall have been legalized by a Brazilian Consulate; (b) this Agreement shall have been translated into Portuguese by a sworn translator; and (c) this Agreement shall have been registered with the appropriate Registry of Titles and Deeds in Brazil, together with its sworn translations; or (ii) if the state in which this Agreement was executed is party to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Document, (a) an authority designated by the state in which this Agreement is executed shall have issued a certificate that authenticates the origin of this Agreement (“Apostille”) and (b) the Apostille and this Agreement shall have been translated into the Portuguese language by a sworn translator;

 

(xlix)        (A)(i) There has been no security breach or attack or other compromise of or relating to any of the Company’s and its subsidiaries’ information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of them), equipment or technology (“IT Systems and Data”), except where such security breach, attack or other compromise would not, individually or in the aggregate, have a Material Adverse Effect and (ii) the Company and its subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in, any material security breach, attack or compromise to their IT Systems and Data and (B) the Company and its subsidiaries have complied, and are presently in compliance, with, all applicable laws, statutes or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority and all internal policies and contractual obligations relating to the privacy and security of IT Systems and Data, except where such noncompliance with such laws, statutes, judgment, order, rule or regulations or internal policies or contractual obligations would not, individually or in the aggregate, have a Material Adverse Effect; and

 

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(l)                 The Company does not have any debt securities or preferred shares that are rated by any “nationally recognized statistical rating organization,” as defined in Section 3(a)(62) of the Exchange Act.

 

(b)                Each of the Selling Shareholders, severally and not jointly, represents and warrants to, and agrees with, each of the Underwriters and the Company that:

 

(i)                 Each of this Agreement, with respect to each Selling Shareholder other than NB Verrocchio LP, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C. and the Vinci Entities (as defined in Section 7 hereof), the Power of Attorney and, with respect to each Selling Shareholder other than Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C., the Custody Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder;

 

(ii)               The execution and delivery by or on behalf of such Selling Shareholder of, and performance by such Selling Shareholder of its obligations under this Agreement, with respect to each Selling Shareholder other than NB Verrocchio LP, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C. and the Vinci Entities, the Power of Attorney and, with respect to each Selling Shareholder other than Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C., the Custody Agreement, and the consummation of the transactions herein and therein contemplated, as applicable, will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder is bound or to which any of the property or assets of such Selling Shareholder is subject, (B) with respect to each Selling Shareholder other than a natural person, result in any violation of the provisions of the charter, by-laws, partnership agreement, or similar organizational documents of such Selling Shareholder or (C) result in any conflict, breach or violation of any statute or any judgment, order, rule or regulation of any court or governmental or regulatory agency or body having jurisdiction over such Selling Shareholder or any of its properties; except, in the case of clauses (A) and (C) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, materially and adversely affect the sale of the Shares to be sold by such Selling Shareholder and the performance by such Selling Shareholder of any of its obligations under this Agreement; and no consent, approval, authorization or order of, or registration or qualification with any such court or governmental or regulatory agency having jurisdiction over such Selling Shareholder is required for the performance by such Selling Shareholder of its obligations under this Agreement and, as applicable, the Power of Attorney and the Custody Agreement and the consummation by such Selling Shareholder of the transactions contemplated by this Agreement and, as applicable, the Power of Attorney and the Custody Agreement in connection with the Shares to be sold by such Selling Shareholder hereunder, except (i) such consents, approvals, authorizations, orders and registrations or qualifications as may be required by FINRA or the Exchange, (ii) the registration under the Act of the Shares and (iii) such consents, approvals, authorizations, orders, registrations or qualifications (x) as may be required under the Exchange Act or applicable state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters, (y) that have already been obtained or (z) for which failure to obtain such consents, approvals, authorizations, orders, registrations or qualifications would not reasonably be expected to materially impact the ability of such Selling Shareholder to perform its obligations under this Agreement;

 

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(iii)             Such Selling Shareholder has, and at the Time of Delivery will have, valid title to, or a valid “security entitlement” within the meaning of Section 8-501 of the Uniform Commercial Code then in effect in the State of New York (the “UCC”) in respect of, the Shares to be sold by such Selling Shareholder free and clear of all security interests, claims, liens, equities or other encumbrances;

 

(iv)              Upon payment for the Shares to be sold by such Selling Shareholder pursuant to this Agreement, delivery of such Shares, as directed by the Representatives, to Cede & Co. (“Cede”) or such other nominee as may be designated by the Depository Trust Company (“DTC”), registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim (within the meaning of Section 8-105 of the UCC) to such Shares), (A) DTC shall be a “protected purchaser” of such Shares within the meaning of Section 8-303 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (C) no action based on any “adverse claim”, within the meaning of Section 8-102 of the UCC, to such Shares may be asserted against the Underwriters with respect to such security entitlement; for purposes of this representation, such Selling Shareholder may assume that when such payment, delivery and crediting occur, (x) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with its Memorandum and Articles of Association and applicable law, (y) DTC will be registered as a “clearing corporation” within the meaning of Section 8-102 of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to Section 8-501 of the UCC.

 

(v)                On or prior to the date of the Pricing Prospectus, such Selling Shareholder has executed and delivered to the Underwriters an agreement substantially in the form of Annex VI hereto;

 

(vi)              Such Selling Shareholder has not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or might reasonably be expected to cause or result in stabilization or manipulation of the price of the Shares to facilitate the sale or resale of the Shares;

 

(vii)            Solely to the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Shareholder expressly for use therein, it being understood and agreed upon that the only such information furnished by any Selling Shareholder consists of the following information: the name, address and the number of Common Shares owned by such Selling Shareholder before and after the offering contemplated hereby and the other information relating to such Selling Shareholder (other than percentages) that appears in the table and corresponding footnotes under the caption “Principal and Selling Shareholders” in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto (such information, the “Selling Shareholder Information”), such Registration Statement and Preliminary Prospectus did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

 

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(viii)          Further, each Selling Shareholder listed in Schedule V hereto (each a “Management Selling Shareholder”) represents, warrants to, and agrees with, each of the Underwriters and the Company that such Registration Statement and Preliminary Prospectus did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;

 

(ix)              If requested by the Representatives or their counsel with reasonable advance notice, in order to facilitate the Underwriters’ documentation of their compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Shareholder will deliver to you prior to or at the First Time of Delivery a properly completed and executed United States Treasury Department Form W-8 or a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by the United States Treasury Department regulations in lieu thereof);

 

(x)                Excluding Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C., each other Selling Shareholder agrees that certificates in negotiable form or book-entry securities entitlements representing all of the Shares to be sold by such Selling Shareholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the “Custody Agreement”), duly executed and delivered by such Selling Shareholder to [●], as custodian (the “Custodian”), and excluding NB Verrocchio LP, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C. and the Vinci Entities, each Selling Shareholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the “Power of Attorney”), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Shareholder’s attorneys-in-fact (the “Attorneys-in-Fact”) with authority to execute and deliver this Agreement on behalf of such Selling Shareholder, to determine the purchase price to be paid by the Underwriters to the Selling Shareholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Shareholder hereunder and otherwise to act on behalf of such Selling Shareholder in connection with the transactions contemplated by this Agreement and the Custody Agreement; and

 

(xi)              Excluding Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C., each other Selling Shareholder agrees that the Shares held in custody for such Selling Shareholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Shareholder for such custody, and, as applicable, the appointment by such Selling Shareholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Shareholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Shareholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership, limited liability company or corporation, or by the occurrence of any other event; if any individual Selling Shareholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership, limited liability company or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares to be sold by such Selling Shareholder hereunder, certificates or book-entry securities representing the Shares to be sold by such Selling Shareholder hereunder shall be delivered by or on behalf of such Selling Shareholder in accordance with the terms and conditions of this Agreement and, as applicable, of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event.

 

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2.                   Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell and each of the Selling Shareholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Shareholders, at a purchase price per share of U.S.$[●], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by the Company and each of the Selling Shareholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Shareholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company and each of the Selling Shareholders, as and to the extent indicated in Schedule II hereto agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Shareholders, at the purchase price per share set forth in clause (a) of this Section 2 (provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares), that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.

 

The Company and the Selling Shareholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to [●] Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. Any such election to purchase Optional Shares shall be made in proportion to the maximum number of Optional Shares to be sold by the Company and all Selling Shareholders as set forth in Schedule II hereto. Any such election to purchase Optional Shares may be exercised only by written notice from the Representatives to the Company, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C., NB Verrocchio LP, the Vinci Entities and the Attorneys-in-Fact, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by the Representatives but in no event earlier than the First Time of Delivery (as defined in Section 4(a) hereof) or, unless the Representatives and the Company, Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C., NB Verrocchio LP, the Vinci Entities and the Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.

 

3.                   Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus.

 

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4.                   (a)        The Shares to be purchased by each Underwriter hereunder, in definitive or book-entry form, and registered in such names as the Representatives may request upon at least forty-eight hours’ prior notice to the Company and the Selling Shareholders shall be delivered by or on behalf of the Company and the Selling Shareholders to the Representatives, through the facilities of DTC, for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the accounts specified by the Company and the Custodian to the Representatives at least forty-eight hours in advance. The Company and the Selling Shareholders will cause the certificates, if any, representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the “Designated Office”). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on [●], 2020 or such other time and date as the Representatives, the Company, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C., NB Verrocchio LP, the Vinci Entities and the Attorneys-in-Fact may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by the Representatives in each written notice given by the Representatives of the Underwriters’ election to purchase such Optional Shares, or such other time and date as the Representatives, the Company, Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C., NB Verrocchio LP, the Vinci Entities and the Attorneys-in-Fact may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the “First Time of Delivery”, each such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called a “Subsequent Time of Delivery”, and each such time and date for delivery is herein called a “Time of Delivery”.

 

(b)                The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(q) hereof will be delivered at the offices of White & Case LLP, 1221 Avenue of the Americas, New York, NY 10020 (the “Closing Location”), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at [4:00] p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, “New York Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are generally authorized or obligated by law or executive order to close.

 

5.                   The Company agrees with each of the Underwriters:

 

(a)                To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission’s close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish you with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;

 

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(b)                Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction;

 

(c)                Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;

 

(d)                To make generally available to its securityholders as soon as practicable, but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);

 

(e)                (i)          During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the “Company Lock-Up Period”), not to (1) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any securities of the Company that are substantially similar to the Shares, including but not limited to any options or warrants to purchase Common Shares or any securities that are convertible into or exchangeable for, or that represent the right to receive, Common Shares or any such substantially similar securities or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Shares or any such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise (other than the Shares to be sold hereunder or pursuant to employee share option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), or to publicly disclose the intention to undertake any of the transactions described in clause (1) or (2) above, without the prior written consent of Goldman Sachs & Co. LLC and BofA Securities, Inc. The restrictions contained in the preceding sentence shall not apply to (a) the Shares to be sold hereunder; (b) the grant by the Company of any options, warrants or shares, provided that, if such options or warrants are exercised, the recipients of the shares shall be bound by the terms of the letter, substantially in the form of Annex VI, or the issuance by the Company of Common Shares upon the exercise of an option or warrant or under the Company’s long-term incentive plan described in the Registration Statement, the Pricing Prospectus and the Prospectus, provided that, for the avoidance of doubt, the recipients of such Common Shares who are directors or executive officers of the Company shall be bound by the terms of the letter or letters, substantially in the form of Annex VI hereto; (c) the issuance by the Company of Common Shares upon the conversion of a security, described in the Registration Statement, the Pricing Prospectus, and the Prospectus, outstanding on the date hereof, provided that, for the avoidance of doubt, the recipient of such Common Shares shall be bound by the terms of the letter or letters, substantially in the form of Annex VI hereto; (d) any issuance by the Company of Common Shares in connection with a merger, acquisition, joint venture or strategic participation entered into by the Company, provided that the aggregate number of Common Shares issued or issuable under this clause (d) shall not exceed (i) 5% of the total number of Common Shares issued and outstanding as of the date of such merger, acquisition, joint venture or strategic participation, as the case may be, and (ii) the recipient of such Common Shares shall have executed and delivered to the Underwriters a letter or letters, substantially in the form of Annex VI hereto, (e) the filing by the Company of any registration statement on Form S-8 or a successor form thereto relating to the Company’s long term incentive plans described in the Registration Statement, the Pricing Prospectus and the Prospectus or (f) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Shares, provided that (i) such trading plan does not provide for the transfer of Common Shares during the Company Lock-up Period and (ii) no public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by the Company regarding the establishment of such plan;

 

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(ii)               If Goldman Sachs & Co. LLC and BofA Securities, Inc., in their sole discretion, agree to release or waive the restrictions set forth in the lock-up letter described in Section 8(o) hereof and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Annex V hereto through a major news service at least two business days before the effective date of the release or waiver;

 

(f)                 To furnish to its shareholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders’ equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its shareholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail;

 

(g)                During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to shareholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its shareholders generally or to the Commission);

 

(h)                To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Pricing Prospectus under the caption “Use of Proceeds”;

 

(i)                 To use its best efforts to list for trading, subject to official notice of issuance, the Shares on the NASDAQ Stock Market (the “Exchange”);

 

(j)                 To file with the Commission such information on Form 20-F as may be required by Rule 463 under the Act;

 

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(k)               If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 3a(c) of the Commission’s Informal and Other Procedures (16 CFR 202.3a);

 

(l)                Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Company’s trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the “License”); provided, however, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred;

 

(m)              To promptly notify you if the Company ceases to be an Emerging Growth Company or a Foreign Private Issuer at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Act and (ii) the completion of the Company Lock-Up Period referred to in Section 5(e) hereof; and

 

(n)               If requested by the Representatives or their counsel with reasonable advance notice, the Company and each Selling Shareholder will deliver to each Underwriter (or its agent), on the date of execution of this Agreement, a properly completed and executed “Certification Regarding Beneficial Owners of Legal Entity Customers”, together with copies of identifying documentation, and the Company undertakes to provide such additional supporting documentation as each Underwriter may reasonably request in connection with the verification of the foregoing certification.

 

6.                 (a) The Company represents and agrees that, without the prior consent of the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 405 under the Act; each Selling Shareholder represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; and each Underwriter represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus required to be filed with the Commission; any such free writing prospectus the use of which has been consented to by the Company and the Representatives is listed on Schedule III(a) hereto;

 

(b)               The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;

 

(c)               The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus or Written Testing-the-Waters Communication any event occurred or occurs as a result of which such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus, Written Testing-the-Waters Communication or other document which will correct such conflict, statement or omission; provided however, that this representation and warranty shall not apply to any statements or omissions in an Issuer Free Writing Prospectus made in reliance upon and in conformity with the Underwriter Information or any Selling Shareholder Information;

 

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(d)                The Company and each Selling Shareholder represents and agrees that (i) it has not engaged in, or authorized any other person other than the Representatives to engage in, any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the prior consent of the Representatives with entities that the Company or such Selling Shareholder reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act; and (ii) it has not distributed, or authorized any other person to distribute, any Written Testing-the-Waters Communications, other than those distributed with the prior consent of the Representatives that are listed on Schedule III hereto; and the Company reconfirms that the Underwriters have been authorized to act on its behalf in engaging in Testing-the-Waters Communications;

 

(e)                Each Selling Shareholder, severally and not jointly, covenants with each Underwriter that such Selling Shareholder will not, directly or, knowingly, indirectly use all or part of the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (x) to fund or facilitate any activities of or business with any Person, or in any country or territory, that, at the time of such funding or facilitation, is the subject or the target of Sanctions or (y) in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions or Export Controls; and

 

(f)                Each Underwriter represents and agrees that any Testing-the-Waters Communications undertaken by it were with entities that such Underwriter reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8).

 

7.                  The Company and each of the Selling Shareholders covenant and agree with one another and with the several Underwriters that the Company will pay or cause to be paid the following: (a) the fees, disbursements and expenses of the Company’s counsels and accountants in connection with the registration and sale of the Shares under the Act and all other expenses in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (b) the cost of printing or producing any agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (c) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (d) all fees and expenses in connection with listing the Shares on the Exchange; (e) the filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (f) the cost of preparing share certificates; if applicable; (g) the cost and charges of any transfer agent or registrar, (h) all expenses of the Company incurred in connection with any “road show” presentation to potential investors, excluding the expenses incurred by the Underwriters in connection therewith; (i) the fees and expenses of the Attorneys in Fact and the Custodian; (j) all expenses and taxes incident to the sale and delivery of the Shares to be sold to the Underwriters hereunder; (k) any fees and expenses of counsel for the Selling Shareholders, provided that notwithstanding the foregoing, the fees and expenses of Debevoise & Plimpton LLP shall be borne solely by Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C. the fees and expenses of Haynes and Boone, LLP shall be borne solely by NB Verrocchio LP, and the fees and expenses of Mayer Brown LLP and Tauil & Chequer Advogados a Mayer Brown shall be borne solely by Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC (collectively, the “Vinci Entities”); and (l) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. Furthermore, it is understood that the Company shall bear, and the Selling Shareholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that except as provided in this Section 7, and Sections 9 and 12, the Underwriters will pay all of their own costs and expenses, including the fees and disbursements of their counsel, share transfer taxes on resale of any of the Shares by them, “road show” and other out of pocket expenses payable by the Underwriters and any advertising expenses connected with any offers they may make.

 

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8.                 The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all respective representations and warranties and other statements of the Company and the Selling Shareholders herein are, at and as of the Applicable Time and such Time of Delivery, true and correct, the condition that the Company and the Selling Shareholders shall have performed all of its and their respective obligations hereunder theretofore to be performed, and the following additional conditions:

 

(a)                The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; all materials required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission no stop order suspending or preventing the use of the Pricing Prospectus, Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;

 

(b)                White & Case LLP, U.S. counsel for the Underwriters, shall have furnished to you its opinion and negative assurance letter, dated such Time of Delivery, in form and substance satisfactory to you, with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;

 

(c)                Trench, Rossi e Watanabe Advogados, Brazilian counsel for the Underwriters, shall have furnished to you its opinion and negative assurance letter, dated such Time of Delivery, in form and substance satisfactory to you with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;

 

(d)                Conyers Dill & Pearman, Cayman counsel for the Underwriters, shall have furnished to you its opinion, dated such Time of Delivery, in form and substance satisfactory to you with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;

 

(e)                Davis Polk & Wardwell LLP, U.S. counsel for the Company, shall have furnished to you its opinion and negative assurance letter, dated such Time of Delivery, in form and substance previously agreed upon and satisfactory to you;

 

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(f)                 Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, Brazilian counsel for the Company, shall have furnished to you its opinion and negative assurance letter, dated such Time of Delivery, in form and substance previously agreed upon and satisfactory to you;

 

(g)                Maples and Calder, Cayman counsel for the Company, shall have furnished to you its opinion, dated such Time of Delivery, in form and substance previously agreed upon and satisfactory to you;

 

(h)                The respective counsel for each of the Selling Shareholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Shareholders for whom they are acting as counsel, dated such Time of Delivery, in form and substance reasonably satisfactory to you;

 

(i)                 On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, PwC shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided that the letter delivered on a Time of Delivery shall use a “cut-off date” no more than three business days prior to the date of this Agreement, the Closing Date or such Subsequent Closing Date, as the case may be;

 

(j)                 On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time and also at each Time of Delivery, the Underwriters shall have received a certificate, dated the respective dates of delivery thereof, in form and substance satisfactory to you, signed by the Chief Financial Officer of the Company;

 

(k)                (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited consolidated financial statements included in the Pricing Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental or regulatory action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Pricing Prospectus there shall not have been any change in the share capital or long-term debt of the Company or any of its subsidiaries or any change or effect, or any development involving a prospective change or effect, in or affecting (x) the business, properties, general affairs, management, financial position, shareholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, or (y) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;

 

(l)                 There are no debt or preferred securities issued, or guaranteed, by the Company or its subsidiaries that are rated by any “nationally recognized statistical rating organization”, as defined in Section 3(a)(62) of the Exchange Act;

 

(m)               On or after the Applicable Time there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Nasdaq Global Market Exchange (“Nasdaq”) or the New York Stock Exchange (“NYSE”); (ii) a suspension or material limitation in trading in the Company’s securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;

 

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(n)                The Shares to be sold at such Time of Delivery shall have been duly listed, subject to official notice of issuance, on the Exchange;

 

(o)               The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from each Selling Shareholder, director, officer and security holder (including those holding options) of the Company listed on Schedule IV hereto, substantially to the effect set forth in Annex VI hereto;

 

(p)                The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and

 

(q)                The Company and each Selling Shareholder shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of such Selling Shareholder, respectively, reasonably satisfactory to you as to the accuracy of the representations and warranties of the Company and such Selling Shareholder, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and such Selling Shareholder of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (k) of this Section 8.

 

9.                  (a)        The Company will indemnify and hold harmless each of the Underwriters , each of Mundi Holdings I, L.L.C., Mundi Holdings II, L.L.C., NB Verrocchio LP, the Vinci Entities (collectively, the “Fund Selling Shareholders”), and each of their respective officers, partners, members, directors and affiliates and each person, if any, who controls any such Underwriter and Fund Selling Shareholder, as applicable, within the meaning of Section 15 of the Act and Section 20 of the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter or Fund Selling Shareholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any “roadshow” as defined in Rule 433(h) under the Act (a “roadshow”), or any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Act or any Written Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter and Fund Selling Shareholder for any legal or other expenses reasonably incurred by such Underwriter and Fund Selling Shareholder in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information (as defined below) or the Selling Shareholder Information, as applicable.

 

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(b)                Each Selling Shareholder, severally and not jointly, will indemnify and hold harmless each of the Underwriters and each of their respective officers, partners, members, directors and affiliates and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Act and Section 20 of the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any “roadshow” or any Written Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that a Selling Shareholder shall be liable only with respect to untrue statements or alleged untrue statements, or omissions or alleged omissions, made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow or any Written Testing-the-Waters Communication, in reliance upon and in conformity with the applicable Selling Shareholder Information; provided, further, that a Selling Shareholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow or any Written Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information; and provided, further, that the liability under this subsection of each Selling Shareholder shall be limited to an amount equal to the net proceeds (after deducting underwriting commissions and discounts, but before expenses) received by such Selling Shareholder from the sale of Shares sold by such Selling Shareholder hereunder (in relation to each such Selling Shareholder, the “Selling Shareholder Proceeds”).

 

(c)                Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company, each Selling Shareholder, their respective officers, partners, members, directors and their respective affiliates and each person, if any, who controls the Company or any Selling Shareholder, as applicable, within the meaning of Section 15 of the Act and Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which such indemnified party may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Written Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Written Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information; and will reimburse the Company and each Selling Shareholder for any legal or other expenses reasonably incurred by the Company or such Selling Shareholder in connection with investigating or defending any such action or claim as such expenses are incurred. As used in this Agreement with respect to an Underwriter and an applicable document, “Underwriter Information” shall mean the written information furnished to the Company by such Underwriter through the Representatives expressly for use therein; it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the name of each Underwriter, the concession and reallowance figures appearing in the [sixth] paragraph under the caption “Underwriting” and the information contained in the [sixth] and [fourteenth] paragraphs under the caption “Underwriting”.

 

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(d)                Promptly after receipt by an indemnified party under subsection (a), (b) or (c) of this Section 9 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under the preceding paragraphs of this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation unless (i) such indemnified party shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party, (ii) the indemnifying party has failed within a reasonable time to retain counsel reasonably satisfactory to the indemnified party, or (iii) the named parties in any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interest between them. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

 

(e)                If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and/or the Selling Shareholders, as applicable on the one hand and the Underwriters on the other from the offering of the Shares and with the proportion among the Company and the Selling Shareholders to reflect the relative fault of the Company and the Selling Shareholders. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and/or the Selling Shareholders, as applicable, on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations and with the proportion among the Company and the Selling Shareholders to reflect the relative fault of the Company and the Selling Shareholders. The relative benefits received by the Company and/or the Selling Shareholders, as applicable, on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and/or the Selling Shareholders, as applicable, bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders on the one hand or the Underwriters on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Selling Shareholders or Underwriters, as applicable, were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any documented legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and no Selling Shareholder shall be required to contribute any amount in excess of the amount by which its Selling Shareholder Proceeds exceeds any damages which such Selling Shareholder has otherwise been required to pay by reason of untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. Notwithstanding the provisions of this subsection (e), each Selling Shareholder’s obligation to contribute any amount under this subsection (e) is limited in the manner and to the extent set forth in Section 9(b) hereof and in no event shall the aggregate liability of each Selling Shareholder under this Section 9 exceed the limit set forth in Section 9(b).

 

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(f)                 The obligations of the Company under this Section 9 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each employee, officer and director of each Underwriter or Selling Shareholder and each person, if any, who controls any Underwriter or Selling Shareholder within the meaning of the Act and the Exchange Act and each broker-dealer or other affiliate of any Underwriter or Selling Shareholder; the obligations of the Selling Shareholders under this Section 9 shall be in addition to any liability which the respective Selling Shareholder may otherwise have and shall extend, upon the same terms and conditions, to each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act and the Exchange Act and each broker-dealer or other affiliate of any Underwriter; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and the Selling Shareholders (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Shareholder within the meaning of the Act and the Exchange Act and any affiliate of the Selling Shareholders.

 

10.               (a)        If any Underwriter shall default in its obligation to purchase the Shares that it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Shareholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Shareholders that you have so arranged for the purchase of such Shares, or the Company or a Selling Shareholder notifies you that it has so arranged for the purchase of such Shares, you or the Company or the Selling Shareholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any person substituted under this Section 10 with like effect as if such person had originally been a party to this Agreement with respect to such Shares.

 

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(b)                If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Shareholders as provided in subsection 10(a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Shareholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.

 

(c)                If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Shareholders as provided in subsection 10(a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Shareholders shall not exercise the right described in subsection 10(b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to a Subsequent Time of Delivery, the obligations of the Underwriters to purchase and of the Company and the Selling Shareholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter, the Company or the Selling Shareholders, except for the expenses to be borne by the Company, the Selling Shareholders and the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.

 

11.               The indemnity and contribution provisions contained in Section 9, the agreements regarding expense reimbursement and the respective representations, warranties and other statements of the Company, the Selling Shareholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Shareholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Shareholder, and shall survive delivery of and payment for the Shares.

 

12.                If this Agreement shall be terminated pursuant to Section 10 hereof, neither the Company nor the Selling Shareholders shall then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company and the Selling Shareholders as provided herein, or the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Shareholders shall then be under no further liability to any Underwriter except as provided in Sections 7 and 9 hereof.

 

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13.                In all dealings hereunder, the Representatives shall act jointly on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly as the Representatives; and in all dealings with any Selling Shareholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Shareholder made or given by any or all of the Attorneys-in-Fact for such Selling Shareholder, if any.

 

In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and the Selling Shareholders, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.

 

All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, e-mail, telex or facsimile transmission to you as the Representatives at (i) Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Registration Department; (ii) BofA Securities, Inc., One Bryant Park, New York, New York 10036, Facsimile: (646) 855-3073, Attention: Syndicate Department, with a copy to facsimile: (212) 230-8730, Attention: ECM Legal; (iii) Itau BBA USA Securities, Inc., 540 Madison Avenue, 24th Floor, New York, NY 10022-3263, Attention: Chief Compliance Officer; and (iv) Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention:  Equity Syndicate Desk, with a copy to the Legal Department; if to any Selling Shareholder shall be delivered or sent by mail, e-mail, telex or facsimile transmission to such Selling Shareholder at its address set forth in Schedule II hereto; if to the Company shall be delivered or sent by mail, e-mail, telex or facsimile transmission to the address of the Company set forth on the cover of the Registration Statement, Attention: [Secretary]; and if to any shareholder that has delivered a lock-up letter described in Section 8(o) hereof shall be delivered or sent by mail to his or her respective address provided in Schedule IV hereto or such other address as such shareholder provides in writing to the Company; provided, however, that any notice to an Underwriter pursuant to Section 9(d) hereof shall be delivered or sent by mail, e-mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriter’s Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Shareholders by you on request; provided further that notices under subsection 5(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail, e-mail, telex or facsimile transmission to you as Representatives at (i) Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Control Room; (ii) BofA Securities, Inc., One Bryant Park, New York, New York 10036, Facsimile: (646) 855-3073, Attention: Syndicate Department, with a copy to facsimile: (212) 230-8730, Attention: ECM Legal; (iii) Itau BBA USA Securities, Inc., 540 Madison Avenue, 24th Floor, New York, NY 10022-3263, Attention: Chief Compliance Officer; and (iv) Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention:  Equity Syndicate Desk, with a copy to the Legal Department. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.

 

14.                This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Shareholders and, to the extent provided in Sections 9 and 11 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Shareholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.

 

29

 

 

15.                Time shall be of the essence of this Agreement. As used herein, the term “business day” shall mean any day when the Commission’s office in Washington, D.C. is open for business.

 

16.                The Company and the Selling Shareholders, severally and not jointly, acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement is an arm’s-length commercial transaction between the Company and the Selling Shareholders, on the one hand, and the several Underwriters, on the other, and does not constitute a recommendation, investment advice, or solicitation of any action by the Underwriters, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company or any Selling Shareholder, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company or any Selling Shareholders with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Shareholder on other matters) or any other obligation to the Company or any Selling Shareholder except the obligations expressly set forth in this Agreement, (iv) the Company and each Selling Shareholder has consulted its own respective legal and financial advisors to the extent it deemed appropriate, and (v) none of the activities of the Underwriters in connection with the transactions contemplated herein constitutes a recommendation, investment advice or solicitation of any action by the Underwriters with respect to any entity or natural person. The Company and each Selling Shareholder agrees that it will not claim that the Underwriters, or any of them, has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Company or any Selling Shareholder, in connection with such transaction or the process leading thereto.

 

17.               This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Selling Shareholders and the Underwriters, or any of them, with respect to the subject matter hereof.

 

18.               THIS AGREEMENT AND ANY TRANSACTION CONTEMPLATED BY THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD RESULT IN THE APPLICATION OF ANY OTHER LAW THAN THE LAWS OF THE STATE OF NEW YORK. The Company and each Selling Shareholder agree that any suit or proceeding arising in respect of this Agreement or any transaction contemplated by this Agreement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York and the Company and each Selling Shareholder agree to submit to the jurisdiction of, and to venue in, such courts. The Company waives any objection which it may now or hereafter have to the laying of venue of any such suit or proceeding in such courts. The Company agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and may be enforced in any court to the jurisdiction in which the Company is subject by a suit upon such judgment. The Company and each Selling Shareholder irrevocably appoints Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY, 10168, as its authorized agent to receive service of process or other legal summons for purposes of any suit or proceeding, and agrees that service of process upon such authorized agent, and written notice of such service to the Company or each Selling Shareholder, as the case may be, by the person serving the same to the address provided in this Section 18, shall be deemed in every respect effective service of process upon the Company or such Selling Shareholder in any such suit or proceeding. The Company and each Selling Shareholder hereby represents and warrants that such authorized agent has accepted such appointment and has agreed to act as such authorized agent for service of process. The Company and each Selling Shareholder further agrees to take any and all action as may be necessary to maintain such designation and appointment of such authorized agent in full force and effect for a period of seven years from the date of this Agreement. 

 

30

 

 

19.               The Company and the Selling Shareholders, severally and not jointly, agree to indemnify each Underwriter, its directors, officers, affiliates and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any loss incurred by such Underwriter as a result of any judgment or order being given or made for any amount due hereunder and such judgment or order being expressed and paid in a currency (the “judgment currency”) other than U.S. dollars and as a result of any variation as between (i) the rate of exchange at which the U.S. dollar amount is converted into the judgment currency for the purpose of such judgment or order, and (ii) the rate of exchange at which such indemnified person is able to purchase U.S. dollars with the amount of the judgment currency actually received by the indemnified person. The foregoing indemnity shall constitute a separate and independent obligation of the Company and the Selling Shareholders and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The foregoing indemnity made by each Selling Shareholder is made only with respect to any judgment or order against such Selling Shareholder and only to the extent of the loss directly attributable to such judgment or order. The term “rate of exchange” shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, the relevant currency.

 

20.               To the extent that the Company has or hereafter may acquire any immunity (sovereign or otherwise) from jurisdiction of any court of (i) the Cayman Islands, or any political subdivision thereof, (ii) Brazil, or any political subdivision thereof, (iii) the United States or the State of New York, or (iv) any jurisdiction in which it owns or leases property or assets or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution, set-off or otherwise) with respect to itself or its property and assets or this Agreement, the Company hereby irrevocably waives such immunity in respect of its obligations under this Agreement to the fullest extent permitted by applicable law.

 

21.               The Company, each Selling Shareholder and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

22.               This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

23.               Notwithstanding anything herein to the contrary, the Company and the Selling Shareholders are authorized to disclose to any persons the U.S. federal and state income tax treatment and tax structure of the potential transaction and all materials of any kind (including tax opinions and other tax analyses) provided to the Company and the Selling Shareholders relating to that treatment and structure, without the Underwriters imposing any limitation of any kind. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, “tax structure” is limited to any facts that may be relevant to that treatment.

 

24.               Recognition of the U.S. Special Resolution Regimes.

 

(a)                In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

 

31

 

 

(b)                In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.

 

(c)                As used in this section:

 

“BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).

 

“Covered Entity” means any of the following:

 

(i)                 a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);

 

(ii)               a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or

 

(iii)             a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

 

“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.

 

“U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

 

If the foregoing is in accordance with your understanding, please sign and return to us counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Shareholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Shareholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof.

 

32

 

 

  Very truly yours,
   
  Vitru Limited
   
   
  By:  
    Name:
    Title:

 

 

 

 

  Very truly yours,
   
  NB Verrocchio LP
   
   
  By:  
    Name:
    Title:

 

2

 

 

SIGNED for and on behalf of MUNDI HOLDINGS I, L.L.C., by: )  
  )  
  ) Duly Authorised Signatory
  )  
  ) Name:  
  )  
  ) Title: Officer

 

SIGNED for and on behalf of MUNDI HOLDINGS II, L.L.C., by: )  
  )  
  ) Duly Authorised Signatory
  )  
  ) Name:  
  )  
  ) Title: Officer

 

3

 

 

  Very truly yours,
   
  Vinci Capital Partners II J Beta Fundo de
  Investimento Em Participações
  Multiestratégia
   
  By:  
    Name:
    Title:
   
  Agresti Investments LLC
   
  By:  
    Name:
    Title:
   
  Botticelli Investments LLC
   
  By:  
    Name:
    Title:
   
  Caravaggio Investments LLC
   
  By:  
    Name:
    Title:
   
  Raffaello Investments LLC
   
  By:  
    Name:
    Title:

 

 

 

 

Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Shareholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and binding Power of Attorney that authorizes such Attorney-in-Fact to take such action.

 

  Pedro Jorge Guterres Quintans Graça

 

  By:  
    Name: Pedro Jorge Guterres Quintans Graça
    Title: Chief Executive Officer

 

  Carlos Henrique Boquimpani de Freitas

 

  By:  
    Name: Carlos Henrique Boquimpani de Freitas
    Title: Chief Financial Officer

 

  As Attorney-in-Fact acting on behalf of each of the Selling Shareholders named in Schedule II to this Agreement other than Mundi Holdings I, L.L.C, Mundi Holdings II, L.L.C, NB Verrocchio LP and the Vinci Entities.

 

 

 

 

Accepted as of the date hereof

in New York, New York.

 

Goldman Sachs & Co. LLC

 

By:    
  Name:  
  Title:  

 

On behalf of each of the Underwriters

 

2

 

 

BofA Securities, Inc.

 

By:    
  Name:  
  Title:  

 

On behalf of each of the Underwriters

 

3

 

 

Itau BBA USA Securities, Inc.

 

By:    
  Name:  
  Title:  

 

On behalf of each of the Underwriters

 

4

 

  

Morgan Stanley & Co. LLC

  

By:    
  Name:  
  Title:  

 

On behalf of each of the Underwriters

  

5

 

 

Schedule I

 

Underwriter   Total Number of Firm
Shares to be Purchased  		   Number of Optional
Shares to be Purchased
if Maximum Option
Exercised  		  
Goldman Sachs & Co. LLC          
BofA Securities, Inc.          
Itau BBA USA Securities Inc..          
Morgan Stanley & Co LLC.          
Banco Bradesco BBI S.A.          
Banco BTG Pactual S.A.—Cayman Branch          
Credit Suisse Securities (USA) LLC          
Santander Investment Securities Inc.          
XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A.          
Total          

 

6

 

 

Schedule II

 

    Total Number of
Firm Shares
to be Sold		   Number of Optional
Shares to be
Sold if
Maximum Option
Exercised		  
The Company.          
The Selling Shareholder(s):          
Mundi Holdings I, L.L.C.(a)          
Mundi Holdings II, L.L.C.(a)          
NB Verrocchio LP(b)          
Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia (c)          
Agresti Investments LLC(c)          
Botticelli Investments LLC(c)          
Caravaggio Investments LLC(c)          
Raffaello Investments LLC(c)          
Pedro Jorge Guterres Quintans Graça(d)          
Carlos Henrique Boquimpani de Freitas(d)          
Luiz Gonzaga Victor Foureaux Neto(d)          
Ana Paula Rodrigues(d)          
Valdir G. Barbosa Sobrinho(d)          
Gabriel Simoes Guioto Ribeiro(d)          
Raphael Ribeiro Rodrigues(d)          
Herminio Kloch(d)          
Carlos Fabiano Fistarol(d)          
Peter Kim Woo(d)          
Erico Coelho Ribeiro(d)          
Ricardo Grima(d)          
Total          

 

 

(a)       This Selling Shareholder is represented by Debevoise & Plimpton LLP and Walkers. Any notice to this Selling Shareholder as contemplated by Section 13 of this Agreement shall be delivered to c/o The Carlyle Group, 1001 Pennsylvania Avenue NW, Washington, DC 20004-2505, Attention: Robert Rosen (Robert.Rosen@carlyle.com),with a copy (which shall not constitute notice) to Debevoise & Plimpton LLP, 919 Third Avenue, New York, NY 10022, Attention: Paul M. Rodel (pmrodel@debevoise.com).

 

(b)       For purposes of the written opinion contemplated by Section 8(h), this Selling Shareholder is represented by Haynes and Boone, LLP and Maples and Calder. Any notice to this Selling Shareholder as contemplated by Section 13 shall be delivered to NB Verrocchio LP, 325 N. Saint Paul Street, Suite 4900, Dallas, TX 75201, Attention: NB Alternatives Legal (Email: NB.Alts.Legal@nb.com), with a copy (which shall not constitute notice) to Haynes and Boone, LLP, 2323 Victory Avenue, Suite 700, Dallas, Texas 75219, Attention: Matthew L. Fry (Email: matt.fry@haynesboone.com).

 

(c)       This Selling Shareholder is represented by Mayer Brown LLP and Tauil & Chequer Advogados Associado a Mayer Brown.

 

(d)       This Selling Shareholder is represented by Davis Polk & Wardwell LLP and has appointed Pedro Jorge Guterres Quintans Graça and Carlos Henrique Boquimpani de Freitas, and each of them, as the Attorneys-in-Fact for such Selling Shareholder.

 

7

 

 

Schedule III

 

(a)Issuer Free Writing Prospectuses not included in the Pricing Disclosure Package

 

[Electronic Roadshow dated [●].]

 

(b)Information other than the Pricing Prospectus that comprise the Pricing Disclosure Package

 

(i)The initial public offering price per share for the Shares is U.S.$[●] (“Public Offering Price”); [and]              

 

(ii)The aggregate number of Shares purchased by the Underwriters is [●].

 

(iii)[●].

 

(c)Written Testing-the-Waters Communications

 

[None.]

 

8

 

 

Schedule IV

 

Names of parties signing lock-up agreement

Bruno Augusto Sacchi Zaremba

Edson Gustavo Georgetti Peli

Fernando Cezar Dantas Porfírio Borges

Lywall Salles Filho

Rivadávia Correa Drummond de Alvarenga Neto

Claudia Jordão Ribeiro Pagnano

Mundi Holdings I, L.L.C.

Mundi Holdings II, L.L.C.

Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia

Agresti Investments LLC

Botticelli Investments LLC

Caravaggio Investments LLC

Raffaello Investments LLC

NB Verrocchio LP

Pedro Jorge Guterres Quintans Graça

Carlos Henrique Boquimpani de Freitas

Luiz Gonzaga Victor Foureaux Neto

Ana Paula Rodrigues

Valdir G. Barbosa Sobrinho

Gabriel Simoes Guioto Ribeiro

Raphael Ribeiro Rodrigues

Herminio Kloch

Carlos Fabiano Fistarol

Peter Kim Woo

Erico Coelho Ribeiro

Ricardo Grima

 

9

 

 

Schedule V

 

Name of Shareholder   Position  
Pedro Jorge Guterres Quintans Graça   Chief Executive Officer  
Carlos Henrique Boquimpani de Freitas   Chief Financial Officer  
Luiz Gonzaga Victor Foureaux Neto   Marketing and Innovation Officer  
Ana Paula Rodrigues   People and Management and Services Officer  

 

 

 

 

Annex V

 

FORM OF PRESS RELEASE

 

Vitru Limited

 

[Date]

 

Vitru Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “Company”) announced today that Goldman Sachs & Co. LLC and BofA Securities, Inc., the Global Coordinators in the recent public sale of [●] shares of the Company’s Common Shares, are [waiving] [releasing] a lock-up restriction with respect to [●] shares of the Company’s Common Shares held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on [●], 2020, and the shares may be sold on or after such date.

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

 

 

 

Annex VI

 

FORM OF LOCK-UP AGREEMENT

 

[Date]

 

Goldman Sachs & Co. LLC,

c/o Goldman Sachs & Co. LLC

200 West Street

New York, New York 10282-2198

 

BofA Securities, Inc.

c/o BofA Securities, Inc.

One Bryant Park

New York, New York 10036

 

Itau BBA USA Securities, Inc.

c/o Itau BBA USA Securities, Inc.

540 Madison Avenue, 24nd Floor

New York, New York 10022

 

Morgan Stanley & Co. LLC

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

 

Re: Vitru Limited - Lock-Up Agreement

 

Ladies and Gentlemen:

 

The undersigned (as listed on Annex A hereto) understands that you, as representatives (the “Representatives”), propose to enter into an underwriting agreement (the “Underwriting Agreement”) on behalf of the several Underwriters named in Schedule I to such agreement (collectively, the “Underwriters”), with Vitru Limited, an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “Company”), and the Selling Shareholders named in Schedule II to such agreement, providing for the initial public offering (the “Initial Public Offering”) of common shares of the Company, par value U.S.$0.00005 per share (the “Common Shares”) pursuant to a Registration Statement on Form F-1 filed with the Securities and Exchange Commission. Capitalized terms used but not defined herein shall have the respective meanings given to them in the Underwriting Agreement.

 

In consideration of the agreement by the Underwriters to offer and sell the Shares, and of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned agrees that, during the period beginning from the date of this lock-up agreement (this “Lock-Up Agreement”) and continuing to and including the date 180 days after the date set forth on the final prospectus used to sell the Shares (the “Lock-Up Period”), the undersigned shall not, directly or indirectly, (i) offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of any Common Shares, or any options or warrants to purchase any Common Shares, or any securities convertible into, exchangeable for or that represent the right to receive Common Shares (such options, warrants or other securities, collectively, “Derivative Instruments”), including without limitation any such Common Shares or Derivative Instruments now owned or hereafter acquired by the undersigned, (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) which is designed to or which reasonably could be expected to lead to or result in a sale, loan, pledge or other disposition (whether by the undersigned or someone other than the undersigned), or transfer of any of the economic consequences of ownership, in whole or in part, directly or indirectly, of any Common Shares or Derivative Instruments, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Common Shares or other securities, in cash or otherwise or (iii) otherwise publicly announce any intention to engage in or cause any action or activity described in clause (i) above or transaction or arrangement described in clause (ii) above. For the avoidance of doubt, the undersigned agrees that the foregoing provisions shall be equally applicable to any issuer-directed or other Common Shares the undersigned may purchase in the Initial Public Offering.

 

 

 

 

If the undersigned is an officer or director of the Company, (i) Goldman Sachs & Co. LLC and BofA Securities, Inc. (the “Releasing Underwriters”) agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Common Shares, the Releasing Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Releasing Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

Notwithstanding the foregoing, and provided that the undersigned is (x) not required to and does not voluntarily effect any public filing or report regarding such transfers described in clauses (i) through (iii), and (y) not required to and does not voluntarily effect any public filing or report regarding such transfers described in clauses (v) through (viii) other than filings under Section 13 of the Exchange Act, the undersigned may transfer the undersigned’s Common Shares, directly or indirectly:

 

(i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein;

 

(ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value (for purposes of this Lock-Up Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin);

 

(iii) if such transfer occurs by reason of a will or under the laws of descent, or pursuant to statutes governing the effects of a qualified domestic order or divorce settlement, provided that the transferee agrees to be bound in writing by the restrictions set forth herein;

 

(iv) in transactions relating to the Common Shares or other securities acquired in open market transactions after the completion of the Initial Public Offering, provided that no public filings shall be required or shall be voluntarily made in connection with subsequent sales of Common Shares or other securities acquired in such open market transactions;

 

(v) after the consummation of the Initial Public Offering, pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all holders of the Company’s share capital involving a change of control of the Company that has been approved by the Company’s board of directors, provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the undersigned’s Common Shares shall remain subject to the provisions of this Lock-Up Agreement, and provided further that “change of control” as used herein, shall mean a change in ownership of not less than 50.1% of all of the voting shares of the Company;

 

 

 

 

(vi) pursuant to the Underwriting Agreement and any reclassification, conversion or exchange in connection with such sale of the Shares;

 

(vii) as a result of the operation of law, or pursuant to an order of a court or regulatory agency; or

 

(viii) with the prior written consent of the Releasing Underwriters.

 

In addition, notwithstanding the foregoing, the undersigned may transfer the undersigned’s Common Shares (i) if the undersigned is an entity, to any subsidiary or “affiliate” (as such term is defined under the Securities Act of 1933, as amended) of such entity (including without limitation, if the undersigned is a fund, to funds under common management or control), (ii) if the undersigned is an entity, as a distribution to direct or indirect partners, members, shareholders or holders of similar equity interests in the undersigned, and (iii) if the undersigned is an individual, to any immediate family member or any entity controlled by the undersigned; provided, however, that in any such case, it shall be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding such Common Shares subject to the provisions of this Lock-Up Agreement and there shall be no further transfer of such Common Shares except in accordance with this Lock-Up Agreement, and provided further that (1) any such transfer shall not involve a disposition for value and (2) the undersigned is not required to and does not voluntarily effect any public filing or report regarding such transfers other than filings under Section 13 of the Exchange Act.

 

In addition, notwithstanding the foregoing, this Lock-Up Agreement shall not restrict (i) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Shares, provided that (a) such plan does not provide for the transfer of Common Shares during the Lock-Up Period and (b) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made during the Lock-Up Period by or on behalf of the undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Shares may be made under such plan during the Lock-Up Period or (ii) any third-party pledge in a bona fide transaction as collateral to secure the obligations pursuant to lending or other arrangements between such third parties (or their affiliates or designees) and the undersigned and its affiliates; provided, that (a) any such pledgee or other party shall, upon foreclosure on the pledged Common Shares, execute and deliver an agreement stating that the transferee is receiving and holding such Common Shares subject to the provisions of this Lock-Up Agreement and (b) none of the Company, the undersigned, nor such pledgee or other party shall effect any public filing or report regarding such pledge, foreclosure or otherwise relating to the pledge.

 

In addition, notwithstanding the foregoing, if the undersigned is a director or officer of the Company, without the prior written consent of the Releasing Underwriters, the undersigned may exercise any rights to purchase, exchange or convert any stock options granted to the undersigned pursuant to the Company’s equity incentive plans referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or any options, warrants or other securities convertible into or exercisable or exchangeable for Common Shares, which options, warrants or other securities are described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided that (1) no filings shall be required or made during the Lock-Up Period, (2) the underlying Common Shares continue to be subject to the restrictions set forth in this Lock-Up Agreement, and (3) neither the Company nor the undersigned otherwise voluntarily effects any other public filings, announcements or reports regarding such exercise during the Lock-Up Period.

 

[The undersigned now has, and, except in the case of permitted transfers as contemplated above, for the duration of this Lock-Up Agreement will have, good and marketable title to the undersigned’s Common Shares, free and clear of all liens, encumbrances, and claims whatsoever.]1 The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Common Shares except in compliance with the foregoing restrictions.

 

 

1 To be inserted for lock-up parties other than NB Verrocchio LP, Mundi Holdings I, L.L.C, Mundi Holdings II, L.L.C. and the Vinci Entities.

 

 

 

 

The Releasing Underwriters agree that should a discretionary release or waiver be granted to any officer or director, or any holder of 1% or more of the Common Shares as measured immediately prior to the Initial Public Offering, other than the undersigned, then the undersigned will be released from the restrictions set forth in this Lock-Up Agreement subject to the same terms and conditions as the releasee and as to the same percentage of Common Shares held by the undersigned as is held by the releasee. The Releasing Underwriters shall provide at least three business days’ written notice to the Chief Financial Officer of the Company prior to the effective date of any such release or waiver under this Lock-Up Agreement (the effective date of such release or waiver, the “Release Date”), stating the percentage of Common Shares held by such person or entity to be released; provided that the failure to provide such notice shall not give rise to any claim or liability against the Releasing Underwriters or the other Underwriters. The Company shall, within four business days thereafter, send written notice to the undersigned stating the same percentage of Common Shares held by the undersigned as is held by the releasee that shall be released from the restrictions set forth herein on the Release Date. Notwithstanding the foregoing, the provisions of this paragraph will not apply (i) if the release or waiver is effected solely to permit a transfer not involving a disposition for value and (ii) if the transferee agrees in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of transfer. Notwithstanding any other provisions of this Lock-Up Agreement, if the Releasing Underwriters in their sole judgment determine that a record or beneficial owner of any securities should be granted an early release from this Lock-Up Agreement due to circumstances of an emergency or hardship, then the undersigned shall not have any right to be granted an early release pursuant to the terms of this paragraph.

 

This Lock-Up Agreement shall automatically terminate, and the undersigned will be released from all obligations hereunder, upon the earliest to occur, if any, of (a) the date on which the Company, or the Representatives on behalf of the Underwriters, advises the other party in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Initial Public Offering, (b) termination of the Underwriting Agreement before the closing of the Initial Public Offering, (c) October 31, 2020, in the event that the Underwriting Agreement has not been executed by such date, (d) if the Company files an application to withdraw the Registration Statement with respect to the Initial Public Offering, the date that the Securities and Exchange Commission consents to the withdrawal of the Registration Statement, or (e) the date that NB Verrocchio LP exercises its right to veto the Initial Public Offering pursuant to Section 7.1 of the Shareholders’ Agreement dated June 15, 2018.

 

The undersigned understands that the Company and the Underwriters are relying upon this Lock-Up Agreement in proceeding toward consummation of the Initial Public Offering. The undersigned further understands that this Lock-Up Agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors, and assigns. This Lock-Up Agreement may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com or www.echosign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

The undersigned acknowledges and agrees that the underwriters have not provided any recommendation or investment advice nor have the underwriters solicited any action from the undersigned with respect to the offering of the securities and the undersigned has consulted their own legal, accounting, financial, regulatory and tax advisors to the extent deemed appropriate.

 

 

 

 

This Lock-Up Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

  Very truly yours,
   
  Exact Name of Shareholder
   
   
  Authorized Signature
   
   
  Title

 

 

 

 

Annex A

 

Names of parties signing lock-up agreement

Bruno Augusto Sacchi Zaremba

Edson Gustavo Georgetti Peli

Fernando Cezar Dantas Porfírio Borges

Lywall Salles Filho

Rivadávia Correa Drummond de Alvarenga Neto

Claudia Jordão Ribeiro Pagnano

Mundi Holdings I, L.L.C.

Mundi Holdings II, L.L.C.

Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia

Agresti Investments LLC

Botticelli Investments LLC

Caravaggio Investments LLC

Raffaello Investments LLC

NB Verrocchio LP

Pedro Jorge Guterres Quintans Graça

Carlos Henrique Boquimpani de Freitas

Luiz Gonzaga Victor Foureaux Neto

Ana Paula Rodrigues

Valdir G. Barbosa Sobrinho

Gabriel Simoes Guioto Ribeiro

Raphael Ribeiro Rodrigues

Herminio Kloch

Carlos Fabiano Fistarol

Peter Kim Woo

Erico Coelho Ribeiro

Ricardo Grima

 

 

 

Exhibit 3.1

 

THE COMPANIES LAW (AS REVISED)

 

EXEMPTED COMPANY LIMITED BY SHARES

 

AMENDED AND RESTATED

 

MEMORANDUM AND ARTICLES OF ASSOCIATION

 

OF

 

VITRU LIMITED

 

(adopted by Special Resolution passed on 2 September 2020)

 

 

 

 

THE COMPANIES LAW (AS REVISED)

 

EXEMPTED COMPANY LIMITED BY SHARES

 

AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION

 

OF

 

VITRU LIMITED

 

(adopted by Special Resolution passed on 2 September 2020)

 

1The name of the Company is Vitru Limited.

 

2The registered office of the Company shall be at the offices of of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other place within the Cayman Islands as the Directors may decide.

 

3Subject to the following provisions of this Memorandum, the objects for which the Company is established are unrestricted.

 

4Subject to the following provisions of this Memorandum, the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided by Section 27(2) of the Companies Law.

 

5Nothing in this Memorandum shall permit the Company to carry on a business for which a licence is required under the laws of the Cayman Islands unless duly licensed.

 

6The Company shall not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this clause shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.

 

7The liability of each Shareholder is limited to the amount from time to time unpaid on such Shareholder's shares.

 

8The share capital of the Company is US$50,000 divided into 1,000,000,000 shares of a nominal or par value of US$0.00005 each, of such class or classes (howsoever designated) and having the rights as the Board may determine from time to time in accordance with Article 4 of the Articles of Association of the Company, PROVIDED THAT, subject to the Law and the Articles of Association, the Company shall have the power to issue all or any part of its capital, whether original, redeemed, increased or reduced, with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any condition or restriction whatsoever and so that, unless the conditions of issue shall otherwise expressly provide, every issue of shares, whether stated to be common, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided.

 

2

 

 

9The Company may exercise the power contained in the Law to deregister in the Cayman Islands and be registered by way of continuation in another jurisdiction.

 

10The Shareholders acknowledge and agree that:

 

(a) the Shareholders’ Agreements are in full force and effect as of the date of adoption of this Memorandum of Association and the Articles of Association, and shall remain in full force and effect until terminated in accordance with their respective terms;

 

(b) until the Trigger Date, in the event of any conflict or disagreement between the provisions of the Shareholders’ Agreements and this Memorandum of Association or the Articles of Association, the provisions of the Shareholders’ Agreements shall prevail;

 

(c) until the Trigger Date, the Shareholders shall take all actions available to them to ensure that the Shareholders’ Agreements control, including voting to amend any conflicting provisions in this Memorandum of Association or the Articles of Association; and

 

(d) the Shareholders’ Agreements are governed by and construed in accordance with Brazilian law and that any and all disputes arising out of or related to the Shareholders’ Agreements shall be settled in the manner set forth in the Shareholders’ Agreements.

 

11Capitalised terms that are not defined in this Memorandum of Association bear the meaning given in the Articles of Association of the Company.

 

3

 

 

THE COMPANIES LAW (AS REVISED)

 

EXEMPTED COMPANY LIMITED BY SHARES

 

AMENDED AND RESTATED ARTICLES OF ASSOCIATION

 

OF

 

VITRU LIMITED

 

(adopted by Special Resolution passed on 2 September 2020)

 

1Preliminary

 

1.1The regulations contained in Table A in the First Schedule of the Law shall not apply to the Company and the following regulations shall be the Articles of Association of the Company.

 

1.2In these Articles:

 

(a)the following terms shall have the meanings set opposite if not inconsistent with the subject or context:

 

“Allotment” shares are taken to be allotted when a person acquires the unconditional right to be included in the Register of Shareholders in respect of those shares;
   
“Articles” these articles of association of the Company as from time to time amended by Special Resolution;
   
“Audit Committee” the audit committee of the Company formed by the Board pursuant to Article 24 hereof, or any successor of the audit committee;
   
“Board or Board of Directors” the board of directors of the Company;
   
“Carlyle Director” means a director appointed by The Carlyle Group in accordance with Article 21.1;
   
“The Carlyle Group” means Mundi Holdings I, L.L.C. and Mundi Holdings II, L.L.C. and any of their affiliates;
   
“Chairman” the chairman of the Board of Directors appointed in accordance with Article 20.2;
   
“clear days” in relation to a period of notice means that period excluding both the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect;

 

4

 

 

“Clearing House” a clearing house recognized by the laws of the jurisdiction in which shares in the capital of the Company (or depository receipts thereof) are listed or quoted on a stock exchange or interdealer quotation system in such jurisdiction;
   
“Common Shares” Common Shares and shares of such other classes as may from time to time be designated by the Board pursuant to these Articles as being common shares;
   
“Company” the above named company;
 
“Company’s Website” the website of the Company and/or its web-address or domain name;
   

“Designated Stock Exchange”

 the Nasdaq Global Market and any other stock exchange or interdealer quotation system listed in Schedule 4 of the Law on which shares in the capital of the Company are listed or quoted;
   
“Directors” the Directors for the time being of the Company or, as the case may be, those Directors assembled as a Board or as a committee of the Board;
   
“Dividend” includes a distribution or interim dividend or interim distribution;
   
“Electronic” has the same meaning as in the Electronic Transactions Law (as revised);
   
“Electronic Communication” a communication sent by electronic means, including electronic posting to the Company’s Website, transmission to any number, address or internet website (including the SEC’s website) or other electronic delivery methods as otherwise decided and approved by the Board;
   
“Electronic Record” has the same meaning as in the Electronic Transactions Law (as revised);
   
“Electronic Signature” has the same meaning as in the Electronic Transactions Law (as revised);
   
“Exchange Act” the Securities Exchange Act of 1934, as amended of the United States of America;
   
“Executed” includes any mode of execution;
   
“Holder” in relation to any share, the Shareholder whose name is entered in the Register of Shareholders as the holder of the share;
   
“Indemnified Person” every Director, alternate Director, Secretary or other officer for the time being or from time to time of the Company;
   
“Independent Director” a Director who is an independent director as defined in the rules of any Designated Stock Exchange or in Rule 10A-3 under the Exchange Act, as the case may be;
   
“Initial Public Offering” an initial underwritten public offering of Shares pursuant to a registration statement filed in accordance with the Securities Act;

 

5

 

 

“Islands” the British Overseas Territory of the Cayman Islands;
   
“Law” the Companies Law (as revised);
   
“Memorandum” the memorandum of association of the Company as from time to time amended;
   
“Month” a calendar month;
   
“Neuberger Berman Group” means the funds and accounts, and other entities associated with, managing or controlling NB Verrocchio LP or any of its affiliates;
   

“Nominating and Corporate Governance Committee”

 the nominating and corporate governance committee of the Company formed by the Board pursuant to Article 24 hereof, or any successor of the nominating and corporate governance committee;
   
“Officer” includes a Director and any Secretary;
   
“Ordinary Resolution” a resolution (i) of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Shareholders entitled to vote present in person or by proxy and voting at the meeting, or (ii) approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed;
   
“Other Indemnitors” persons or entities other than the Company that may provide indemnification, advancement of expenses and/or insurance to the Indemnified Persons in connection with such Indemnified Persons’ involvement in the management of the Company;
   
“Paid up” paid up as to the par value of the shares and includes credited as paid up;
   
“Person” any individual, corporation, general or limited partnership, limited liability company, joint stock company, joint venture, estate, trust, association, organization or any other entity or governmental entity;
   
“Register of Shareholders” the register of Shareholders required to be kept pursuant to the Law;
   
“Seal” the common seal of the Company including every duplicate seal;
   
“SEC” the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act;
   
“Secretary” any person appointed by the Directors to perform any of the duties of the secretary of the Company, including a joint, assistant or deputy secretary;

 

6

 

 

“Securities Act” the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time;
   
“Share” a share in the share capital of the Company, and includes stock (except where a distinction between shares and stock is expressed or implied) and includes a fraction of a share;
   
“Shareholder” has the same meaning as "member" in the Law;
   
“Shareholders’ Agreements” means (i) that certain Acordo de Acionistas e Outras Avenças, dated February 29, 2016, by and among Mundi Holdings II, L.L.C (as successor thereunder to Fundo Brasil de Internacionalização de Empresas Fundo de Investimento em Participações II), Mundi Holdings I, L.L.C (as successor thereunder to Miquerinos Fundo de Investimento em Participações), Vinci Capital Partners II J Beta Fundo de Investimento em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC (as successors thereunder to Vinci Capital Partners II J Fundo de Investimento em Participações) and the Company (as successor thereunder to Treviso Empreendimentos e Participações S.A.), as amended from time to time, and (ii) that certain Shareholders’ Agreement, dated June 15, 2018, by and among Mundi Holdings II, L.L.C (as successor thereunder to Fundo Brasil de Internacionalização de Empresas Fundo de Investimento em Participações II), Mundi Holdings I, L.L.C (as successor thereunder to Miquerinos Fundo de Investimento em Participações), Vinci Capital Partners II J Beta Fundo de Investimento em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC (as successors thereunder to Vinci Capital Partners II J Fundo de Investimento em Participações), NB Verrocchio LP (as successor thereunder to NB Pitman Brazil Fundo de Investimento em Participações Multiestratégia) and the Company (as successor thereunder to Treviso Empreendimentos e Participações S.A.), as amended from time to time;
   
“Signed” includes an electronic signature or a representation of a signature affixed by mechanical means;
   
“Special Resolution” has the same meaning as in the Law (thus requiring a two-thirds majority) and includes a unanimous written resolution of all Shareholders entitled to vote and expressed to be a special resolution;

 

7

 

 

“Subsidiary” a company is a subsidiary of another company if that other company: (i) holds a majority of the voting rights in it; (ii) is a member of it and has the right to appoint or remove a majority of its board of directors; or (iii) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it; or if it is a subsidiary of a company which is itself a subsidiary of that other company. For the purpose of this definition the expression “company” includes any body corporate established in or outside of the Islands;
   
“Treasury Share” a share held in the name of the Company as a treasury share in accordance with the Law;
   
“Trigger Date” the closing date of the Initial Public Offering;
   
“U.S. Person” a Person who is a citizen or resident of the United States of America;
   
“Vinci Group” means Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC and any of their affiliates;
   
“Vinci Director” means a director appointed by Vinci in accordance with Article 21.1; and
   
“Written and in Writing” includes all modes of representing or reproducing words in visible form including in the form of an electronic record.

 

(b)unless the context otherwise requires, words or expressions defined in the Law shall have the same meanings herein but excluding any statutory modification thereof not in force when these Articles become binding on the Company;

 

(c)unless the context otherwise requires: (i) words importing the singular number shall include the plural number and vice-versa; (ii) words importing the masculine gender only shall include the feminine gender; and (iii) words importing persons only shall include companies or associations or bodies of person whether incorporated or not;

 

(d)the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative;

 

(e)the headings herein are for convenience only and shall not affect the construction of these Articles;

 

(f)references to statutes are, unless otherwise specified, references to statutes of the Islands and, subject to paragraph (b) above, include any statutory modification or re-enactment thereof for the time being in force; and

 

(g)where an Ordinary Resolution is expressed to be required for any purpose, a Special Resolution is also effective for that purpose.

 

2Formation Expenses

 

The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration.

 

3Situation of offices of the Company

 

3.1The registered office of the Company shall be at such address in the Islands as the Board shall from time to time determine.

 

8

 

 

3.2The Company, in addition to its registered office, may establish and maintain such other offices, places of business and agencies in the Islands and elsewhere as the Board may from time to time determine.

 

4Shares

 

4.1(a) Subject to the rules of any Designated Stock Exchange and to the provisions, if any, in the Memorandum and these Articles, the Board has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the capital of the Company without the approval of Shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the Board may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Law.

 

(b)In particular and without prejudice to the generality of paragraph (a) above, the Board is hereby empowered to authorise by resolution or resolutions from time to time and without the approval of Shareholders;

 

(i)the creation of one or more classes or series of preferred shares, to cause to be issued such preferred shares and to fix the designations, powers, preferences and relative participating, optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if any, including, without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting rights and powers (including full or limited or no voting rights or powers) and liquidation preferences, and to increase or decrease the number of shares comprising any such class or series (but not below the number of shares of any class or series of preferred shares then outstanding) to the extent permitted by law. Without limiting the generality of the foregoing, the resolution or resolutions providing for the establishment of any class or series of preferred shares may, to the extent permitted by law, provide that such class or series shall be superior to, rank equally with or be junior to the preferred shares of any other class or series;

 

(ii)to designate for issuance as Common Shares from time to time any or all of the authorised but unissued shares of the Company which have not at that time been designated by the Memorandum or by the Directors as being shares of a particular class; and

 

(iii)to create one or more further classes of shares which represent common shares for the purposes of Article 5.2.

 

(c)The Company shall not issue shares or warrants to bearer.

 

(d)Subject to the rules of any Designated Stock Exchange, the Board shall have general and unconditional authority to issue options, warrants or convertible securities of similar nature conferring the right upon the holders thereof to subscribe for, purchase or receive any class of shares or securities in the capital of the Company to such persons, on such terms and conditions and at such times as the Board may decide.

 

9

 

 

4.2Notwithstanding Article 4.1: (i) no non voting Shares shall be issued without such issuance first being approved by an Ordinary Resolution; and (ii) the Company shall not issue participation certificates (partes beneficiárias) or any equivalent securities.

 

4.3The Company may issue fractions of a share of any class and a fraction of a share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contribution, calls or otherwise howsoever), limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of that class of shares.

 

4.4The Company may, in so far as the Law permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the capital of the Company. Such commissions may be satisfied by the payment of cash or the allotment of fully or partly paid up shares or partly in one way and partly in the other. The Company may also, on any issue of shares, pay such brokerage fees as may be lawful.

 

4.5Except as required by law, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share (except only as by these Articles or by law otherwise provided) or any other rights in respect of any share except an absolute right to the entirety thereof in the holder.

 

4.6(a) If at any time the share capital is divided into different classes of shares, the rights attached to any class of shares (unless otherwise provided by these Articles or the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a Special Resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting, the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be any one or more persons holding or representing by proxy not less than one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll;

 

(b)For the purposes of Article 4.6, the Directors may treat all classes of shares or any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposals under consideration.

 

(c)The rights conferred upon the holders of the shares of any class shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by:

 

(i)the creation or issue of further shares ranking pari passu therewith;

 

(ii)by the redemption or purchase of any shares of any class by the Company;

 

(iii)the cancellation of authorised but unissued shares of that class; or

 

(iv)the creation or issue of shares with preferred or other rights including, without limitation, the creation of any class or issue of shares with enhanced or weighted voting rights.

 

10

 

 

4.7The Directors may accept contributions to the capital of the Company otherwise than in consideration of the issue of shares and the amount of any such contribution may, unless otherwise agreed at the time such contribution is made, be treated by the Company as a distributable reserve, subject to the provisions of the Law and these Articles.

 

5Common Shares

 

5.1Holders of Common Shares have the right to receive notice of, attend, speak and vote at general meetings of the Company. Holders of Common Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Shareholders in general meetings. Each Common Share shall entitle the holder to one (1) vote on all matters subject to a vote at general meetings of the Company.

 

5.2Without prejudice to any special rights conferred thereby on the holders of any other shares or class of shares established pursuant to the Memorandum and/or these Articles from time to time, holders of Common Shares shall:

 

(a)Be entitled to such dividends as the Board may from time to time declare;

 

(b)In the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purposes of a reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and

 

(c)Generally be entitled to enjoy all of the rights attaching to shares.

 

6Share Certificates

 

6.1A Shareholder shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other person authorised by the Directors. The Directors may authorise certificates to be issued with the authorised signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer or conversion shall be cancelled and subject to the Articles and, save as provided in Articles 6.3, 7 and 8 below, no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled.

 

6.2Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act.

 

6.3If a share certificate is defaced, worn-out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and payment of the expenses reasonably incurred by the Company in investigating evidence as the Directors may determine but otherwise free of charge, and (in the case of defacement or wearing-out) on delivery to the Company of the old certificate.

 

7Lien

 

7.1The Company shall have a first and paramount lien on every share (not being a share which is fully paid as to its par value and share premium) for all moneys (whether presently payable or not) payable at a fixed time or called in respect of that share (including any premium payable). The Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a share shall extend to any amount in respect of it.

 

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7.2The Company may sell in such manner as the Directors determine any shares on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within fourteen (14) clear days after notice has been given to the holder of the share or to the person entitled to it in consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the shares may be sold.

 

7.3To give effect to a sale, the Directors may authorise some person to execute an instrument of transfer of the shares sold to, or in accordance with the directions of, the purchaser. The title of the transferee to the shares shall not be affected by any irregularity or invalidity in the proceedings in reference to the sale.

 

7.4The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable, and any residue shall (upon surrender to the Company for cancellation of the certificate for the shares sold, if any, and subject to a like lien for any moneys not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.

 

8Calls on Shares and Forfeiture

 

8.1Subject to the terms of allotment, the Directors may make calls upon the Shareholders in respect of any moneys unpaid on their shares (whether in respect of nominal value or premium) and each Shareholder shall (subject to receiving at least fourteen (14) clear days’ notice specifying when and where payment is to be made) pay to the Company as required by the notice the amount called on his shares. A call may be required to be paid by instalments. A call may, before receipt by the Company of any sum due thereunder, be revoked in whole or in part and payment of a call may be postponed in whole or in part. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made.

 

8.2A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed.

 

8.3The joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share.

 

8.4If a call remains unpaid after it has become due and payable, the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or, if no rate is fixed, at an annual rate of ten percent (10%), but the Directors may waive payment of the interest wholly or in part.

 

8.5An amount payable in respect of a share on allotment or at any fixed date, whether in respect of nominal value or premium or as an instalment of a call, shall be deemed to be a call, and if it is not paid when due, all the provisions of the Articles shall apply as if that amount had become due and payable by virtue of a call.

 

8.6Subject to the terms of allotment, the Directors may make arrangements on the issue of shares for a difference between the holders in the amounts and times of payment of calls on their shares.

 

8.7If a call remains unpaid after it has become due and payable, the Directors may give to the person from whom it is due not less than fourteen (14) clear days’ notice requiring payment of the amount unpaid, together with any interest which may have accrued. The notice shall name the place where payment is to be made and shall state that if the notice is not complied with the shares in respect of which the call was made will be liable to be forfeited.

 

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8.8If the notice is not complied with, any share in respect of which it was given may, before the payment required by the notice has been made, be forfeited by a resolution of the Directors and the forfeiture shall include all dividends or other moneys payable in respect of the forfeited shares and not paid before the forfeiture.

 

8.9Subject to the provisions of the Law, a forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Directors determine either to the person who was before the forfeiture the holder or to any other person, and at any time before a sale, re-allotment or other disposition, the forfeiture may be cancelled on such terms as the Directors think fit. Where, for the purposes of its disposal a forfeited share is to be transferred to any person, the Directors may authorise any person to execute an instrument of transfer of the share to that person.

 

8.10A person any of whose shares have been forfeited shall cease to be a Shareholder in respect of them and shall surrender to the Company for cancellation the certificate for the shares forfeited, if any, but shall remain liable to the Company for all moneys which at the date of forfeiture were presently payable by him to the Company in respect of those shares with interest at the rate at which interest was payable on those moneys before the forfeiture or, if no interest was so payable, at an annual rate of ten percent (10%), from the date of forfeiture until payment but the Directors may waive payment wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or for any consideration received on their disposal.

 

8.11A statutory declaration by a Director or the Secretary that a share has been forfeited on a specified date shall be conclusive evidence of the facts stated in it as against all persons claiming to be entitled to the share and the declaration shall (subject to the execution of an instrument of transfer if necessary) constitute a good title to the share and the person to whom the share is disposed of shall not be bound to see to the application of the consideration, if any, nor shall his title to the share be affected by any irregularity in or invalidity of the proceedings in reference to the forfeiture or disposal of the share.

 

9Transfer of Shares

 

9.1Subject to these Articles, any Shareholder may transfer all or any of his shares by an instrument of transfer in the usual or common form or in a form prescribed by any Designated Stock Exchange or in any other form approved by the Board and may be under hand or, if the transferor or transferee is a Clearing House, by hand or by electronic signature or by such other manner of execution as the Board may approve from time to time. Without prejudice to the generality of the foregoing, title to listed shares of the Company may be evidenced and transferred in accordance with the laws applicable to and the rules and regulations of the Designated Stock Exchange on which such shares are listed.

 

9.2The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. Without prejudice to Article 9.1, the Board may also resolve, either generally or in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers including, where applicable, in accordance with the laws and rules applicable to the Designated Stock Exchange. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register of Shareholders in respect thereof. Nothing in these Articles shall preclude the Board from recognizing a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person.

 

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9.3The Board may in its absolute discretion and without giving any reason therefor, refuse to register a transfer of any share:

 

(a)that is not fully paid up (as to both par value and any premium) to a person of whom it does not approve;

 

(b)issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists;

 

(c)to more than four joint holders; or

 

(d)on which the Company has a lien.

 

9.4Without limiting the generality of Article 9.3, the Board may also decline to recognise any instrument of transfer unless:

 

(a)a fee of such maximum sum as any Designated Stock Exchange may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof;

 

(b)the instrument of transfer is in respect of only one class of shares;

 

(c)the Shares are fully paid (as to both par value and any premium) and free of any lien;

 

(d)the instrument of transfer is lodged at the registered office or such other place at which the Register of Shareholders is kept in accordance with the Law accompanied by any relevant share certificate(s), if any, and/or such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and

 

(e)if applicable, the instrument of transfer is duly and properly stamped.

 

9.5If the Directors refuse to register a transfer of a share, they shall within two (2) months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal.

 

9.6The registration of transfers of shares or of any class of shares may, after compliance with any notice requirement of any Designated Stock Exchange, be suspended and the Register of Shareholders be closed at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may determine.

 

9.7The Company shall be entitled to retain any instrument of transfer which is registered, but any instrument of transfer which the Directors refuse to register shall be returned to the person lodging it when notice of the refusal is given.

 

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10Transmission of Shares

 

10.1If a Shareholder dies, the survivor, or survivors where he was a joint holder, and his personal representatives where he was a sole holder or the only survivor of joint holders shall be the only persons recognised by the Company as having any title to his interest; but nothing in these Articles shall release the estate of a deceased Shareholder from any liability in respect of any share which had been jointly held by him.

 

10.2A person becoming entitled to a share in consequence of the death or bankruptcy of a Shareholder may, upon such evidence being produced as the Directors may properly require, elect either to become the holder of the share or to have some person nominated by him registered as the transferee. If he elects to become the holder he shall give notice to the Company to that effect. If he elects to have another person registered he shall execute an instrument of transfer of the share to that person. All the Articles relating to the transfer of shares shall apply to the notice or instrument of transfer as if it were an instrument of transfer executed by the Shareholder and the death or bankruptcy of the Shareholder had not occurred.

 

10.3A person becoming entitled to a share by reason of the death or bankruptcy of a Shareholder shall have the rights to which he would be entitled if he were the holder of the share, except that he shall not, before being registered as the holder of the share, be entitled in respect of such share to attend or vote at any meeting of the Company or at any separate meeting of the holders of any class of shares in the Company.

 

11Changes of Capital

 

11.1(a) Subject to and in so far as permitted by the provisions of the Law and these Articles, the Company may from time to time by Ordinary Resolution alter or amend the Memorandum to:

 

(i)increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;

 

(ii)consolidate and divide all or any of its share capital into shares of larger amounts than its existing shares;

 

(iii)convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination;

 

(iv)sub-divide its existing shares, or any of them, into shares of smaller amounts than is fixed by the Memorandum provided that in the subdivision, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; and

 

(v)cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

 

(b)Except so far as otherwise provided by the conditions of issue, the new shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.

 

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11.2Whenever as a result of a consolidation of shares any Shareholders would become entitled to fractions of a share, the Directors may, on behalf of those Shareholders, sell the shares representing the fractions for the best price reasonably obtainable to any person (including, subject to the provisions of the Law, the Company) and distribute the net proceeds of sale in due proportion among those Shareholders, and the Directors may authorise some person to execute an instrument of transfer of the shares to, or in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale.

 

11.3The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner and with and subject to any incident, consent, order or other matter required by law.

 

12Redemption and Purchase of Own Shares

 

12.1Subject to the provisions of the Law and these Articles, the Company may:

 

(a)issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Shareholder on such terms and in such manner as the Directors may, before the issue of shares, determine;

 

(b)purchase its own shares (including any redeemable shares) in such manner and on such terms as the Directors may determine and agree with the relevant Shareholder; and

 

(c)make a payment in respect of the redemption or purchase of its own shares in any manner authorised by the Law, including out of capital.

 

12.2The Directors may, when making a payment in respect of the redemption or purchase of shares, if so authorised by the terms of issue of the shares (or otherwise by agreement with the holder of such shares) make such payment in cash or in specie (or partly in one and partly in the other).

 

12.3Upon the date of redemption or purchase of a share, the holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive (i) the price therefor and (ii) any dividend which had been declared in respect thereof prior to such redemption or purchase being effected) and accordingly his name shall be removed from the Register of Shareholders with respect thereto and the share shall be cancelled.

 

13Treasury Shares

 

13.1The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share.

 

13.2The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration).

 

14Register of Shareholders

 

14.1The Company shall maintain or cause to be maintained an overseas or local Register of Shareholders in accordance with the Law.

 

14.2The Directors may determine that the Company shall maintain one or more branch registers of Shareholders in accordance with the Law. The Directors may also determine which Register of Shareholders shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time.

 

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15Closing Register of Shareholders or Fixing Record Date

 

15.1For the purpose of determining Shareholders entitled to notice of, or to vote at any meeting of Shareholders or any adjournment thereof, or Shareholders entitled to receive payment of any dividend or other distribution, or in order to make a determination of Shareholders for any other purpose, the Directors may provide that the Register of Shareholders shall be closed for transfers for a stated period which shall not in any case exceed thirty (30) days. If the Register shall be so closed for the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders, the Register shall be so closed for at least ten (10) clear days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register.

 

15.2In lieu of, or apart from, closing the Register of Shareholders, the Directors may fix, in advance or in arrears, a date as the record date for any such determination of Shareholders entitled to notice of, or to vote at any meeting of the Shareholders or any adjournment thereof, or for the purpose of determining the Shareholders entitled to receive payment of any dividend or other distribution, or in order to make a determination of Shareholders for any other purpose, provided that such a record date shall not exceed forty (40) clear days prior to the date where the determination will be made.

 

15.3If the Register of Shareholders is not so closed and no record date is fixed for the determination of Shareholders entitled to notice of, or to vote at, a meeting of Shareholders or Shareholders entitled to receive payment of a dividend or other distribution, the date on which notice of the meeting is sent or posted or the date on which the resolution of the Directors resolving to pay such dividend or other distribution is passed, as the case may be, shall be the record date for such determination of Shareholders. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof.

 

16General Meetings

 

16.1An annual general meeting of the Company may at the discretion of the Board be held in the year in which these Articles were adopted and shall be held in each year thereafter at such time as determined by the Board and the Company may, but shall not (unless required by the Law) be obliged to, in each year hold any other general meeting.

 

16.2The agenda of the annual general meeting shall be set by the Board and shall include the presentation of the Company’s annual accounts and the report of the Directors (if any).

 

16.3Annual general meetings may be held in any place as the Directors may determine.

 

16.4All general meetings other than annual general meetings shall be called extraordinary general meetings and the Company shall specify the meeting as such in the notices calling it.

 

16.5The Directors may, whenever they think fit, convene an extraordinary general meeting of the Company, and they shall on a Shareholders’ requisition in accordance with these Articles forthwith proceed to convene an extraordinary general meeting of the Company.

 

16.6A Shareholders’ requisition is a requisition of one or more Shareholders holding at the date of deposit of the requisition shares representing in the aggregate not less than one-third of the votes entitled to be cast at general meetings of the Company.

 

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16.7The Shareholders’ requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office, and may consist of several documents in like form each signed by one or more requisitionists.

 

16.8If there are no Directors as at the date of the deposit of the Shareholders’ requisition or if the Directors do not within fourteen (14) days from the date of the deposit of the Shareholders’ requisition duly proceed to convene a general meeting to be held within a further fourteen (14) days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of the requisitionists, may themselves convene a general meeting, but any meeting so convened shall be held no later than the day which falls three (3) months after the expiration of the first said fourteen (14) day period.

 

16.9A general meeting convened as aforesaid by requisitionists shall be convened in as close to the same manner as possible as that in which general meetings are to be convened by Directors.

 

16.10Save as set out in Articles 16.1 to 16.9, the Shareholders have no right to propose resolutions to be considered or voted upon at annual general meetings or extraordinary general meetings of the Company.

 

17Notice of General Meetings

 

17.1At least ten (10) clear days’ notice specifying the place, the day and the hour of each general meeting and the general nature of such business to be transacted thereat shall be given in the manner hereinafter provided, including, but not limited to, as described in Article 36, or in such other manner (if any) as may be prescribed by Ordinary Resolution, to such persons as are entitled to vote or may otherwise be entitled under these Articles to receive such notices from the Company; provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed:

 

(a)in the case of an annual general meeting, by all of the Shareholders entitled to attend and vote thereat; and

 

(b)in the case of an extraordinary general meeting, by a majority in number of the Shareholders having a right to attend and vote at the meeting, together holding not less than 95%, in par value of the Shares giving that right.

 

17.2The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that general meeting.

 

18Proceedings at General Meetings

 

18.1No business shall be transacted at any meeting unless a quorum is present at the time when the meeting proceeds to business. One or more Shareholders holding not less than one-third in aggregate of the voting power of all Shares in issue and entitled to vote, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorised representative, shall represent a quorum.

 

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18.2If a quorum is not present within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, the meeting, if convened upon a Shareholders’ requisition, shall be dissolved and in any other case it shall stand adjourned and shall reconvene on the same day in the next week at the same time and/or place or to such other day, time and/or place as the Directors may determine, and if at the reconvened meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the Shareholders present shall be a quorum.

 

18.3A person may participate in a general meeting by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a Shareholder in a meeting in this manner is treated as presence in person at that meeting and is counted in a quorum and entitled to vote.

 

18.4The Chairman or in his absence the vice-chairman of the Board (if any) shall preside as chairman of the meeting, but if neither the Chairman nor such vice-chairman (if any) is present within fifteen (15) minutes after the time appointed for holding the meeting and willing to act, the Directors present shall elect one of their number to be chairman and, if there is only one Director present and willing to act, he shall be chairman. If no Director is willing to act as chairman, or if no Director is present within fifteen (15) minutes after the time appointed for holding the meeting, the Shareholders present in person or by proxy and entitled to vote shall choose one of their number to be chairman.

 

18.5The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls. The chairman of the meeting shall announce at each such meeting the date and time of the opening and the closing of the polls for each matter upon which the Shareholders will vote at such meeting.

 

18.6A Director shall, notwithstanding that he is not a Shareholder, be entitled to attend and speak at any general meeting and at any separate meeting of the holders of any class of shares in the Company.

 

18.7The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than business which might properly have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen (14) days or more, at least seven (7) clear days’ notice shall be given in the manner herein provided, including, but not limited to, as described in Article 36, specifying the time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any such notice.

 

18.8At each meeting of the Shareholders, all corporate actions, including the election of Directors, to be taken by vote of the Shareholders (except as otherwise required by applicable law and except as otherwise provided in these Articles) shall be authorised by Ordinary Resolution. Where a separate vote by a class or classes or series is required, save as provided in Article 4.6, the affirmative vote of the majority of Shares of such class or classes or series present in person or represented by proxy at the meeting and voting shall be the act of such class or series (unless provided otherwise in the resolutions providing for the issuance of such class or series).

 

18.9At any general meeting a resolution put to the vote of the meeting shall be decided on a poll.

 

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18.10A poll shall be taken in such manner as the chairman directs and he may appoint scrutineers (who need not be Shareholders) and fix a place and time for declaring the result of the poll. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was taken.

 

18.11In the case of equality of votes, the chairman of the meeting shall be entitled to a casting vote in addition to any other vote he may have.

 

18.12If for so long as the Company has only one Shareholder:

 

(a)in relation to a general meeting, the sole Shareholder or a proxy for that Shareholder or (if the Shareholder is a corporation) a duly authorised representative of that Shareholder is a quorum and Article 18.1 is modified accordingly;

 

(b)the sole Shareholder may agree that any general meeting be called by shorter notice than that provided for by the Articles; and

 

(c)all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise).

 

19Votes of Shareholders

 

19.1Subject to any rights or restrictions attached to any shares, every Shareholder who (being an individual) is present in person or by proxy or (being a corporation) is present by a duly authorised representative (not being himself a Shareholder entitled to vote) or by proxy, shall on a poll have one vote for every share of which he is the holder.

 

19.2In the case of joint holders, the vote of the senior joint holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and seniority shall be determined by the order in which the names of the holders stand in the Register of Shareholders.

 

19.3A Shareholder in respect of whom an order has been made by any court having jurisdiction (whether in the Islands or elsewhere) in matters concerning mental disorder may vote, by his receiver, curator bonis or other person authorised in that behalf appointed by that court, and any such receiver, curator bonis or other person may vote by proxy. Evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote shall be received at the registered office of the Company, or at such other place as is specified in accordance with these Articles for the deposit or delivery of forms of appointment of a proxy, or in any other manner specified in these Articles for the appointment of a proxy, not less than forty-eight (48) hours before the time appointed for holding the meeting or adjourned meeting at which the right to vote is to be exercised and in default the right to vote shall not be exercisable.

 

19.4No Shareholder shall, unless the Directors otherwise determine, be entitled to vote at any general meeting or at any separate meeting of the holders of any class of shares in the Company, either in person or by proxy or by a corporate representative, in respect of any share held by him unless all moneys presently payable by him in respect of that share have been paid.

 

19.5No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman of the meeting whose decision shall be final and conclusive.

 

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19.6Votes may be given either personally or by proxy. Deposit or delivery of a form of appointment of a proxy does not preclude a Shareholder from attending and voting at the meeting or at any adjournment of it, save that only the Shareholder or his proxy may cast a vote.

 

19.7A Shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all votes he uses the same way.

 

19.8Subject as set out herein, an instrument appointing a proxy shall be in writing in any usual form or in any other form which the Directors may approve and shall be executed by or on behalf of the appointor save that, subject to the Law, the Directors may accept the appointment of a proxy received in an electronic communication at an address specified for such purpose, on such terms and subject to such conditions as they consider fit. The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment pursuant to this Article.

 

19.9Subject to Article 19.10 below, the form of appointment of a proxy and any authority under which it is executed or a copy of such authority certified notarially or in some other way approved by the Directors may:

 

(a)in the case of an instrument in writing, be left at or sent by post to the registered office of the Company or such other place within the Islands or elsewhere as is specified in the notice convening the meeting or in any form of appointment of proxy sent out by the Company in relation to the meeting at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote;

 

(b)in the case of an appointment of a proxy contained in an electronic communication, where an address has been specified by or on behalf of the Company for the purpose of receiving electronic communications:

 

(i)in the notice convening the meeting; or

 

(ii)in any form of appointment of a proxy sent out by the Company in relation to the meeting; or

 

(iii)in any invitation contained in an electronic communication to appoint a proxy issued by the Company in relation to the meeting;

 

be received at such address at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote;

 

(c)in the case of a poll taken more than forty-eight (48) hours after it is demanded, be deposited or delivered as required by paragraphs (a) or (b) of this Article after the poll has been demanded and at any time before the time appointed for the taking of the poll; or

 

(d)where the poll is taken immediately but is taken not more than forty-eight (48) hours after it was demanded, be delivered at the meeting at which the poll was demanded to the chairman of the meeting or to the secretary or to any Director;

 

and a form of appointment of proxy which is not deposited or delivered in accordance with this Article or Article 19.10 is invalid.

 

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19.10Notwithstanding Article 19.9 above, the Directors may by way of note to or in any document accompanying the notice of a general meeting (or adjourned meeting) fix the latest time by which the appointment of a proxy must be communicated to or received by the Company (being not more than 48 hours before the relevant meeting).

 

19.11A vote or poll demanded by proxy or by the duly authorised representative of a corporation shall be valid notwithstanding the previous determination of the authority of the person voting or demanding a poll unless notice of the determination was received by the Company at the registered office of the Company or, in the case of a proxy, any other place specified for delivery or receipt of the form of appointment of proxy or, where the appointment of a proxy was contained in an electronic communication, at the address at which the form of appointment was received, before the commencement of the meeting or adjourned meeting at which the vote is given or the poll demanded or (in the case of a poll taken otherwise than on the same day as the meeting or adjourned meeting) the time appointed for taking the poll.

 

19.12Any corporation or other non-natural person which is a Shareholder of the Company may in accordance with its constitutional documents, or, in the absence of such provision, by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Shareholders, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Shareholder.

 

19.13If a Clearing House (or its nominee(s)) or depositary (or its nominee(s)) is a Shareholder of the Company, it may, by resolution of its directors or other governing body or by power or attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any class of shareholders of the Company, provided that, if more than one Person is so authorised, the authorisation shall specify the number and class of shares in respect of which such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) which he represents as that recognized clearing house (or its nominee(s)) or depositary (or its nominee(s)) could exercise if it were an individual Shareholder holding the number and class of shares specified in such authorisation.

 

20Number of Directors and Chairman

 

20.1Subject to Article 21.4, the Board shall consist of such number of Directors as a majority of the Directors then in office may, with the consent of: (i) The Carlyle Group; and (ii) the Vinci Group, in each case for so long as it enjoys director appointment rights under Article 21.1, determine from time to time (it being understood that The Carlyle Group and the Vinci Group shall consent to an increase in the size of the Board if necessary to accommodate the right of the Neuberger Berman Group to appoint a Director pursuant to Article 21.1), provided that, unless otherwise determined by the Shareholders acting by Special Resolution, the Board shall consist of not less than four (4) Directors and not more than nine (9) Directors; provided, further, that notwithstanding any resolution adopted by the Board or the Shareholders which determines the number of Directors constituting the whole Board, the size of the Board shall not be increased above nine (9) Directors without the consent of each of The Carlyle Group and the Vinci Group so long as The Carlyle Group or the Vinci Group, as applicable, has the right to designate at least one Director pursuant to Article 21.1 (it being understood that The Carlyle Group and the Vinci Group shall consent to an increase in the size of the Board above nine (9) Directors if necessary to accommodate the right of the Neuberger Berman Group to appoint a Director pursuant to Article 21.1).

 

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20.2The Board of Directors shall have a chairman of the Board of Directors elected and appointed by the Directors. The Directors may also elect a vice-chairman of the Board of Directors. The period for which the Chairman and the vice-chairman shall hold office shall also be determined by the Directors. The Chairman shall preside as chairman at every meeting of the Board of Directors at which he is present. Where the Chairman is not present at a meeting of the Board of Directors, the vice-chairman of the Board of Directors (if any) shall act as chairman, or in his absence, the attending Directors may choose one Director to be the chairman of the meeting.

 

21Appointment, Disqualification and Removal of Directors

 

21.1Each of The Carlyle Group and the Vinci Group, for so long as it holds not less than 15 per cent of the voting Shares in issue, shall be entitled to appoint up to two persons to act as Directors by notice in writing addressed to the Company from time to time and the other holders of Shares shall not vote their Shares so as to remove those Directors from office. Each of The Carlyle Group and the Vinci Group, for so long as it holds not less than 5 per cent and not more than 15 per cent of the voting Shares in issue, shall be entitled to appoint one person to act as a Director by notice in writing addressed to the Company from time to time and the other holders of Shares shall not vote their Shares so as to remove those Directors from office. Each of The Carlyle Group and the Vinci Group shall be entitled to remove any of the Directors so appointed at any time by notice in writing addressed to the Company. If (a) the Trigger Date does not occur on or before June 15, 2021 or (b) prior to the Trigger Date, the Company grants the right to appoint a Director (other than an Independent Director) to any Person other than The Carlyle Group or the Vinci Group, then the Neuberger Berman Group shall, for so long as it holds not less than 435,593 Common Shares, be entitled to appoint one person to act as a Director by notice in writing addressed to the Company from time to time and the other holders of Shares shall not vote their Shares so as to remove such Director from office. The Neuberger Berman Group shall be entitled to remove any Director so appointed at any time by notice in writing addressed to the Company.

 

21.2Each Director shall be appointed for a two-year term, unless they resign, are removed or their office is vacated earlier, provided, however, that such term shall be extended beyond two years in the event that no successor has been appointed (in which case such term shall be extended to the date on which such successor has been appointed). Directors are eligible for re-election.

 

21.3Any vacancies on the Board arising other than upon the removal of a Director by resolution passed at a general meeting can be filled by the remaining Director(s) (notwithstanding that the remaining Director(s) may constitute fewer than the number of Directors required by Article 20.1 or fewer than is required for a quorum pursuant to Article 28.1). Any such appointment shall be as an interim Director to fill such vacancy until the next annual general meeting of Shareholders (and such appointment shall terminate at the commencement of the annual general meeting).

 

21.4Additions to the existing Board (subject to the maximum provided for in Article 20.1 and to Article 21.1 above) may be made by Ordinary Resolution.

 

21.5Prior to the Trigger Date, the Neuberger Berman Group shall be entitled to appoint one person to act as an observer to the Board and any committee of the Board established from time to time. From and after the Trigger Date, for so long as the Neuberger Berman Group holds not less than 5 per cent of the voting Shares in issue, the Neuberger Berman Group shall be entitled to appoint an observer to the Board and any committee of the Board established from time to time. In each case, the observer shall be entitled to attend and speak at all such meetings and receive copies of all board papers as if they were a Director but shall not be entitled to vote on any resolutions proposed at a board meeting.

 

21.6There is no age limit for Directors of the Company.

 

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21.7No shareholding qualification shall be required for a Director. A Director who is not a Shareholder shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company.

 

21.8While any shares of the Company are admitted to trading on a Designated Stock Exchange, the Board must at all times comply with the residency and citizenship requirements of securities laws of the United States applicable to foreign private issuers and shall at no time have a majority of Directors who are U.S. Persons. Notwithstanding any other provision in these Articles, no appointment or election of a U.S. Person as a Director shall be permitted if such appointment or election would have the effect of creating a majority of Directors who are U.S. Persons, and any such appointment or election shall be disregarded for all purposes.

 

21.9Subject to Article 21.1, Directors may be removed (with or without cause) by Ordinary Resolution of Shareholders. The notice of general meeting must contain a statement of the intention to remove the Director and must be served on the Director not less than ten (10) calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.

 

21.10The office of a Director shall be vacated automatically if:

 

(a)he or she becomes prohibited by law from being a Director in any jurisdiction;

 

(b)he or she becomes bankrupt or makes any arrangement or composition with his creditors generally;

 

(c)he or she dies or is, in the opinion of all his co-Directors, incapable by reason of mental disorder of discharging his duties as Director;

 

(d)he or she wilfully performs (or fails to perform) any actions that, in the opinion of all his co-Directors, are considered to be a breach of the performance of his or her duties and/or obligations, including: (i) the uninterrupted or repeated omission or refusal to perform the duties and/or obligations established in these Articles or by applicable law; and/or (ii) he or she is unable to comply with such duties and/or obligations as a result of an alcohol or drug addiction;

 

(e)he or she wilfully performs (or fails to perform) any actions that, in the opinion of all his co-Directors, cause material damages to or adversely affects the financial situation or commercial reputation of the Company;

 

(f)he or she resigns his or her office by notice to the Company; or

 

(g)he or she has for more than six (6) months been absent without permission of the Directors from meetings of Directors held during that period and the remaining Directors resolve that his or her office be vacated.

 

22Alternate Directors

 

22.1Any Director (but not an alternate Director) may by writing appoint any other Director, or any other person willing to act, to be an alternate Director and by writing may remove from office an alternate Director so appointed by him.

 

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22.2An alternate Director shall be entitled to receive notice of all meetings of Directors and of all meetings of committees of Directors of which his appointor is a member, to attend and vote at every such meeting at which the Director appointing him is not personally present, to sign any written resolution of the Directors (in place of his appointor) and generally to perform all the functions of his appointor as a Director in his absence.

 

22.3An alternate Director shall cease to be an alternate Director if his appointor ceases to be a Director.

 

22.4Any appointment or removal of an alternate Director shall be by written notice to the Company at its registered office, signed by the Director making or revoking the appointment, or in any other manner approved by the Directors.

 

22.5Subject to the provisions of these Articles, an alternate Director shall be deemed for all purposes to be a Director and shall alone be responsible for his own acts and defaults and shall not be deemed to be the agent of the Director appointing him.

 

23Powers of Directors

 

23.1Subject to the provisions of the Law, to the Memorandum and the Articles, to any directions given by Ordinary Resolution and to the listing rules of any Designated Stock Exchange, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. No alteration of the Memorandum or Articles and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this Article shall not be limited by any special power given to the Directors by the Articles and a meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors.

 

23.2The Board may exercise all the powers of the Company to raise capital or borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Law, to issue debentures, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

 

24Delegation of Directors' Powers

 

24.1Subject to these Articles, the Directors may from time to time appoint any Person, whether or not a director of the Company, to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the offices of chief executive officer, chief operating officer and chief financial officer, one or more vice presidents, managers or controllers, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another) and with such powers and duties as the Directors may think fit.

 

24.2Without limiting the generality of Article 24.1, the Directors may appoint one or more of their body to the office of managing Director or to any other executive office under the Company, and the Company may enter into an agreement or arrangement with any Director for his/her employment, subject to applicable law and any listing rules of the SEC or any Designated Stock Exchange, or for the provision by him of any services outside the scope of the ordinary duties of a Director. Any such appointment, agreement or arrangement may be made upon such terms as the Directors determine and they may remunerate any such Director for his services as they think fit. Any appointment of a Director to an executive office shall terminate automatically if he ceases to be a Director but without prejudice to any claim to damages for breach of the contract of service between the Director and the Company.

 

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24.3The Directors may, by power of attorney or otherwise, appoint any person to be the agent of the Company for such purposes and on such conditions as they determine, including authority for the agent to delegate all or any of his powers.

 

24.4Subject to applicable law and the listing rules of any Designated Stock Exchange, the Directors may delegate any of their powers to any committee consisting of one or more Directors. They may also delegate to any executive officer or committee of executive officers such of their powers as they consider desirable to be exercised by him or them. Any such delegation may be made subject to any conditions the Directors may impose, and either collaterally with or to the exclusion of its own powers and may be revoked or altered. Subject to any such conditions, the proceedings of a committee with two or more members shall be governed by the provisions of the Articles regulating the proceedings of Directors so far as they are capable of applying. Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Directors and that power, authority or discretion has been delegated by the Directors to a committee, the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee.

 

24.5Without limiting the generality of Article 24.4, the Board shall establish a permanent Audit Committee. Where any committees are established, the Board may adopt formal written charters for such committees and, if so, shall review and assess the adequacy of such formal written charters on an annual basis. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles and shall have such powers as the Board may delegate pursuant to Article 24.4 and as required by the rules of the Designated Stock Exchange or applicable law. Each of these committees, if established, shall consist of such number of directors as the Board shall from time to time determine (or such minimum number as may be required from time to time by any Designated Stock Exchange). For so long as any class of Shares is listed on a Designated Stock Exchange, the Audit Committee shall be made up of such number of Independent Directors as is required from time to time by the rules of the Designated Stock Exchange or otherwise required by applicable law.

 

24.6At least one (1) member of the Audit Committee will be an audit committee financial expert as determined by the rules adopted by the Designated Stock Exchange. Such financial expert shall have a special past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication

 

25Remuneration and Expenses of Directors

 

25.1The Directors shall be entitled to such remuneration as the Board may determine and, unless otherwise determined, the remuneration shall be deemed to accrue from day to day.

 

25.2Members of the Audit Committee may be paid annual compensation in the form of a fixed salary in such amount as the Board may determine.

 

25.3A Director who at the request of the Directors goes or resides outside of the Islands, makes a special journey or performs a special service on behalf of the Company may be paid such reasonable additional remuneration (whether by way of salary, percentage of profits or otherwise) and expenses as the Directors may decide.

 

25.4The Directors may be paid all traveling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of Directors or committees of Directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties.

 

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26Directors' Gratuities and Pensions

 

The Directors may cause the Company to provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any existing Director or any Director who has held but no longer holds any executive office or employment with the Company or with any body corporate which is or has been a subsidiary of the Company or a predecessor in business of the Company or of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit.

 

27Directors' Interests

 

27.1Subject to the Law and listing rules of any Designated Stock Exchange, if a Director has disclosed to the other Directors the nature and extent of any direct or indirect interest which the Director has in any transaction or arrangement with the Company, a Director notwithstanding his office:

 

(a)may be a party to or otherwise interested in any transaction or arrangement with the Company or in which the Company is otherwise interested;

 

(b)may be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is otherwise interested; and

 

(c)shall not by reason of his office be accountable to the Company for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit.

 

27.2For the purposes of Article 27.1:

 

(a)a general notice given to the Directors to the effect that (1) a Director is a member or officer of a specified company or firm and is to be regarded as having an interest in any transaction or arrangement which may after the date of the notice be made with that company or firm; or (2) a Director is to be regarded as interested in any transaction or arrangement which may after the date of the notice be made with a specified person who is connected with him or her shall be deemed to be a sufficient disclosure that the Director has an interest of the nature and extent so specified; and

 

(b)an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his.

 

27.3A Director must disclose any direct or indirect interest in any transaction or arrangement with the Company, and following a declaration being made pursuant to the Articles, subject to any separate requirement for Audit Committee approval under applicable law or the listing rules of any Designated Stock Exchange, and unless disqualified by the chairman of the relevant meeting, a Director may vote in respect of any such transaction or arrangement in which such Director is interested and may be counted in the quorum at such meeting.

 

27.4Notwithstanding the foregoing, no “Independent Director” (as defined herein) and with respect of whom the Board has determined constitutes an “Independent Director” for purposes of compliance with applicable law or the Company’s listing requirements, shall without the consent of the Audit Committee take any of the foregoing actions or any other action that would reasonably be likely to affect such Director’s status as an “Independent Director” of the Company.

 

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28Proceedings of Directors

 

28.1The quorum for the transaction of the business of the Directors shall be a simple majority of the Directors then in office (subject to there being a minimum of two (2) Directors present), provided that, for so long as The Carlyle Group or the Vinci Group, as applicable, has the right to designate Directors pursuant to Article 21.1, such a majority must include at least one Carlyle Director and one Vinci Director. If such a quorum is not present within half an hour from the time appointed for the meeting, or if during a meeting such quorum ceases to be present, the meeting shall stand adjourned to the same day in the next week at the same time and place or at such time and place as determined by the Directors present at such meeting. If a quorum is not present at any such adjourned meeting within half an hour from the time appointed, then the meeting shall proceed. A person who holds office as an alternate Director shall, if his appointor is not present, be counted in the quorum. A Director who also acts as an alternate Director shall, if his appointor is not present, count twice towards the quorum, but one such Director shall not constitute a quorum on his own.

 

28.2Subject to the provisions of the Articles, the Directors may regulate their proceedings as they determine is appropriate. Questions arising at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote. A Director who is also an alternate Director shall be entitled in the absence of his appointor to a separate vote on behalf of his appointor in addition to his own vote.

 

28.3A person may participate in a meeting of the Directors or any committee of Directors by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a person in a meeting in this manner is treated as presence in person at that meeting and is counted in a quorum and entitled to vote.

 

28.4A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Directors (an alternate Director being entitled to sign such a resolution on behalf of his appointor and if such alternate Director is also a Director, being entitled to sign such resolution both on behalf of his appointor and in his capacity as a Director) shall be as valid and effective as if it had been passed at a meeting of the Directors, or committee of Directors as the case may be, duly convened and held. Unless otherwise provided by its terms, such a resolution shall be effective from the date and time of the last signature.

 

28.5A Director or alternate Director may, and another officer of the Company on the direction of a Director or alternate Director shall, call a meeting of the Directors by at least five (5) clear days’ notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held. To any such notice of a meeting of the Directors all the provisions of the Articles relating to the giving of notices by the Company to the Shareholders shall apply mutatis mutandis.

 

28.6Notwithstanding Article 28.5, if all Directors so agree to the meeting, a Director or alternate Director may, or other officer of the Company on the direction of a Director or alternate Director may, call a meeting of the Directors on shorter notice than is provided for in Article 28.5 by notice in writing to every Director and alternate Director, which notice shall set forth the general nature of the business to be considered.

 

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28.7The continuing Directors (or a sole continuing Director, as the case may be) may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to be equal to such fixed number, or of summoning a general meeting of the Company, but for no other purpose.

 

28.8All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be.

 

28.9A Director who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Company immediately after the conclusion of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.

 

29Secretary and Other Officers

 

The Directors may by resolution appoint a Secretary and may by resolution also appoint such other officers as may from time to time be required upon such terms as to the duration of office, remuneration and otherwise as they may think fit PROVIDED THAT, the Directors may only appoint persons as directors of the Company in accordance with Article 21.3. Such Secretary or other officers need not be Directors and in the case of the other officers may be ascribed such titles as the Directors may decide. The Directors may by resolution remove from that position any Secretary or other officer appointed pursuant to this Article.

 

30Minutes

 

The Directors shall cause minutes to be made in books kept for the purposes of recording:

 

(a)all appointments of officers made by the Directors; and

 

(b)all resolutions and proceedings of meetings of the Company, of the holders of any class of shares in the Company and of the Directors and of committees of Directors, including the names of the Directors present at each such meeting.

 

31Seal

 

31.1The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of Directors authorised by the Directors. The Directors may determine who shall sign any instrument to which the Seal is affixed, and unless otherwise so determined every such instrument shall be signed by a Director or by such other person as the Directors may authorise.

 

31.2The Company may have for use in any place or places outside the Islands a duplicate Seal or Seals, each of which shall be a reproduction of the Seal of the Company and, if the Directors so determine, shall have added on its face the name of every place where it is to be used.

 

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31.3The Directors may by resolution determine (i) that any signature required by this Article need not be manual but may be affixed by some other method or system of reproduction or mechanical or electronic signature and/or (ii) that any document may bear a printed reproduction of the Seal in lieu of affixing the Seal thereto.

 

31.4No document or deed otherwise duly executed and delivered by or on behalf of the Company shall be regarded as invalid merely because at the date of the delivery of the deed or document, the Director, Secretary or other officer or person who shall have executed the same or affixed the Seal thereto, as the case may be, for and on behalf of the Company shall have ceased to hold such office and authority on behalf of the Company.

 

32Dividends

 

32.1Subject to the provisions of the Law, the Company may by Ordinary Resolution declare dividends (including interim dividends) in accordance with the respective rights of the Shareholders, but no dividend shall exceed the amount recommended by the Directors.

 

32.2Subject to the provisions of the Law, the Directors may declare dividends in accordance with the respective rights of the Shareholders and authorise payment of the same out of the funds of the Company lawfully available therefor. If at any time the share capital is divided into different classes of shares, the Directors may pay dividends on shares which confer deferred or non-preferred rights with regard to dividends as well as on shares which confer preferential rights with regard to dividends, but no dividend shall be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. The Directors may also pay at intervals settled by them any dividend payable at a fixed rate if it appears that there are sufficient funds of the Company lawfully available for distribution to justify the payment. Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of a dividend on any shares having deferred or non-preferred rights.

 

32.3The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares in the capital of the Company) as the Directors may from time to time think fit.

 

32.4Except as otherwise provided by the rights attached to shares and subject to Article 15, all dividends shall be paid in proportion to the number of shares a Shareholder holds as of the date the dividend is declared; save that (a) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly; and (b) where the Company has shares in issue which are not fully paid up (as to par value) the Company may pay dividends in proportion to the amount paid up on each share.

 

32.5The Directors may deduct from a dividend or other amounts payable to a person in respect of a share any amounts due from him to the Company on account of a call or otherwise in relation to a share.

 

32.6Any Ordinary Resolution or Directors’ resolution declaring a dividend may direct that it shall be satisfied wholly or partly by the distribution of assets and, where any difficulty arises in regard to such distribution, the Directors may settle the same and in particular may issue fractional certificates and fix the value for distribution of any assets and may determine that cash shall be paid to any Shareholder upon the footing of the value so fixed in order to adjust the rights of Shareholders and may vest any assets in trustees.

 

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32.7Any dividend or other moneys payable on or in respect of a share may be paid by cheque sent by post to the registered address of the person entitled or, if two or more persons are the holders of the share or are jointly entitled to it by reason of the death or bankruptcy of the holder, to the registered address of that one of those persons who is first named in the Register of Shareholders or to such person and to such address as the person or persons entitled may in writing direct. Subject to any applicable law or regulations, every cheque shall be made payable to the order of the person or persons entitled or to such other person as the person or persons entitled may in writing direct and payment of the cheque shall be a good discharge to the Company. Any joint holder or other person jointly entitled to a share as aforesaid may give receipts for any dividend or other moneys payable in respect of the share.

 

32.8No dividend or other moneys payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to the share.

 

32.9Any dividend which has remained unclaimed for six years from the date when it became due for payment shall, if the Directors so resolve, be forfeited and cease to remain owing by the Company.

 

33Financial Year, Accounting Records and Audit

 

33.1Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31 December in each year and, following the year of incorporation, shall begin on 1 January each year.

 

33.2The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. The books of account shall be kept at the registered office or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors.

 

33.3No Shareholder shall be entitled to require discovery of or any information with respect to any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the Shareholders of the Company to communicate to the public.

 

33.4The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books and corporate records of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by applicable law, the listing rules of any Designated Stock Exchange or authorised by the Directors.

 

33.5Subject to Articles 33.4, and 33.6 a printed copy of the Directors’ report, if any, accompanied by the consolidated statements of financial position, profit or loss, comprehensive income (loss), cash flows and changes in shareholders’ equity, including every document required by the Law to be annexed thereto, made up to the end of the applicable financial year, shall be sent to the Shareholders before the date of the general meeting and laid before the Company at the annual general meeting held in accordance with Article 16.2, provided that this Article 33.5 shall not require a copy of those documents to be sent to any person whose address the Company is not aware of or to more than one of the joint holders of any shares.

 

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33.6The requirement to send to a person referred to in Article 33.5 the documents referred to in that Article shall be deemed satisfied where, in accordance with all applicable laws, rules and regulations, including, without limitation, the rules of any Designated Stock Exchange, the Company publishes copies of the documents referred to in Article 33.5 on the Company’s Website, transmits it to SEC’s website or in any other permitted manner (including by sending any other form of electronic communication), and that person has agreed or is deemed by the Company to have agreed to treat the publication or receipt of such documents in such manner as discharging the Company’s obligation to send to him a copy of such documents.

 

33.7Subject to applicable law and to the rules of any Designated Stock Exchange, the accounts relating to the Company’s affairs shall be audited in such manner as may be determined from time to time by the Directors.

 

33.8The Directors, having considered the recommendations of the Audit Committee, shall appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Board, and shall fix his or their remuneration.

 

34Capitalisation of Profits

 

34.1The Directors may:

 

(a)subject as provided in this Article, resolve to capitalize any undivided profits of the Company not required for paying any preferential dividend (whether or not they are available for distribution) or any sum standing to the credit of the Company’s share premium account or capital redemption reserve;

 

(b)appropriate the sum resolved to be capitalised to the Shareholders who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply such sum on their behalf either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by them respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to such sum, and allot the shares or debentures credited as fully paid to those Shareholders, or as they may direct, in those proportions, or partly in one way and partly in the other;

 

(c)resolve that any shares so allotted to any Shareholder in respect of a holding by him of any partly-paid shares rank for dividend, so long as such shares remain partly paid, only to the extent that such partly paid shares rank for dividend;

 

(d)make such provision by the issue of fractional certificates or by payment in cash or otherwise as they determine in the case of shares or debentures becoming distributable under this Article in fractions; and

 

(e)authorise any person to enter on behalf of all the Shareholders concerned into an agreement with the Company providing for the allotment to them respectively, credited as fully paid, of any shares or debentures to which they may be entitled upon such capitalization, any agreement made under such authority being binding on all such Shareholders.

 

35Share Premium Account

 

35.1The Directors shall in accordance with Section 34 of the Law establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed as described in Article 4.6.

 

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35.2There shall be debited to any share premium account:

 

(a)on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by Section 37 of the Law, out of capital; and

 

(b)any other amounts paid out of any share premium account as permitted by Section 34 of the Law.

 

36Notices

 

36.1Except as otherwise provided in these Articles and subject to the rules of any Designated Stock Exchange, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally or by posting it airmail or by air courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register of Shareholders, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by advertisement in appropriate newspapers in accordance with the requirements of any Designated Stock Exchange, or by facsimile or by placing it on the Company’s Website. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Shareholders in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.

 

36.2Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail.

 

36.3Any notice or other document, if served by:

 

(a)post, shall be deemed to have been served five days after the time when the letter containing the same is posted;

 

(b)facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient;

 

(c)recognized courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service;

 

(d)electronic mail, shall be deemed to have been served immediately upon the time of the transmission by electronic mail; or

 

(e)placing it on the Company’s Website, shall be deemed to have been served one (1) hour after the notice or document is placed on the Company’s Website.

 

In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.

 

36.4A Shareholder present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the Company shall be deemed to have received notice of the meeting, and, where requisite, of the purpose for which it was called.

 

  33

 

 

36.5Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Shareholders as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share.

 

36.6Notice of every general meeting of the Company shall be given to:

 

(a)all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address, facsimile number or email address for the giving of notices to them; and

 

(b)every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

 

No other Person shall be entitled to receive notices of general meetings

 

37Winding Up

 

37.1The Board shall have the power in the name and on behalf of the Company to present a petition to the court for the Company to be wound up.

 

37.2If the Company is wound up, the liquidator may, with the sanction of a Special Resolution and any other sanction required by the Law, divide among the Shareholders in specie the whole or any part of the assets of the Company and may, for that purpose, value any assets and determine how the division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of the assets in trustees upon such trusts for the benefit of the Shareholders as he with the like sanction determines, but no Shareholder shall be compelled to accept any assets upon which there is a liability.

 

37.3If the Company shall be wound up and the assets available for distribution amongst the Shareholders as such shall be insufficient to repay the whole of the paid up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Shareholders in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up, on the shares held by them respectively. If in a winding up the assets available for distribution amongst the Shareholders shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst the Shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions.

 

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38Indemnity

 

38.1Every Indemnified Person for the time being and from time to time of the Company and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts (including reasonable attorneys’ fees and expenses and amounts paid in settlement and costs of investigation (collectively “Losses”) incurred or sustained by him otherwise than by reason of his own dishonesty, willful default or fraud in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any Losses incurred by him in defending or investigating (whether successfully or otherwise) any civil, criminal, investigative and administrative proceedings concerning or in any way related to the Company or its affairs in any court whether in the Islands or elsewhere. Such Losses incurred in defending or investigating any such proceeding shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Person to repay such amounts if it is ultimately determined by a non-appealable order of a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification hereunder with respect thereto.

 

38.2No such Indemnified Person of the Company and the personal representatives of the same shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or in any other act to which he was not a direct party for conformity or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or any other party with whom any of the Company’s property may be deposited or (vi) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities or discretions of his office or in relation thereto or (vii) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Person’s part, unless he has acted dishonestly, with willful default or through fraud.

 

38.3The Company hereby acknowledges that certain Indemnified Persons may have certain rights to indemnification, advancement of expenses and/or insurance from or against (other than directors’ and officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any such insurance obtained or maintained pursuant to Article 38.4 hereof) Other Indemnitors. The Company hereby agrees that: (i) it is the indemnitor of first resort (i.e., its obligations to an Indemnified Person are primary and any obligation of any Other Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Indemnified Person are secondary); (ii) it shall be required to advance the full amount of expenses incurred by an Indemnified Person and shall be liable for the full amount of all Losses to the extent legally permitted and as required by the terms of these Articles (or any other agreement between the Company and an Indemnified Person) without regard to any rights an Indemnified Person may have against any Other Indemnitors; and (iii) it irrevocably waives, relinquishes and releases any Other Indemnitors from any and all claims against the Other Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by any Other Indemnitors on behalf of an Indemnified Person with respect to any claim for which such Indemnified Person has sought indemnification from the Company shall affect the foregoing, and without prejudice to Article 39 below, Other Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Indemnified Person against the Company. For the avoidance of doubt, no Person or entity providing Directors’ or officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any Person providing such insurance obtained or maintained pursuant to Article 38.4 hereof, shall be an Other Indemnitor.

 

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38.4The Directors may exercise all the powers of the Company to purchase and maintain insurance for the benefit of a Person who is or was (whether or not the Company would have the power to indemnify such Person against such liability under the provisions of this Article 38 or under applicable law): (a) a Director, alternate Director, Secretary or auditor of the Company or of a company which is or was a subsidiary of the Company or in which the Company has or had an interest (whether direct or indirect); or (b) the trustee of a retirement benefits scheme or other trust in which a person referred to in Article 38.1 is or has been interested, indemnifying him against any liability which may lawfully be insured against by the Company.

  

39Claims Against the Company

 

Notwithstanding Article 38.3, unless otherwise determined by a majority of the Board, in the event that (i) any Shareholder (the “Claiming Party”) initiates or asserts any claim or counterclaim (“Claim”) or joins, offers substantial assistance to or has a direct financial interest in any Claim against the Company and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits in which the Claiming Party prevails, then each Claiming Party shall, to the fullest extent permissible by law, be obligated jointly and severally to reimburse the Company for all fees, costs and expenses (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) that the Company may incur in connection with such Claim.

 

40Untraceable Shareholders

 

40.1Without prejudice to the rights of the Company under Article 40.2, the Company may cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two (2) consecutive occasions. However, the Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered.

 

40.2The Company shall have the power to sell, in such manner as the Board thinks fit, any shares of a Shareholder who is untraceable, but no such sale shall be made unless:

 

(a)all cheques or warrants in respect of dividends of the shares in question, being not less than three (3) in total number, for any sum payable in cash to the holder of such shares in respect of them sent during the relevant period in the manner authorised by the Articles of the Company have remained uncashed;

 

(b)so far as it is aware at the end of the relevant period, the Company has not at any time during the relevant period received any indication of the existence of the Shareholder who is the holder of such shares or of a person entitled to such shares by death, bankruptcy or operation of law; and

 

(c)the Company, if so required by the rules governing the listing of shares on the Designated Stock Exchange, has given notice to, and caused advertisement in newspapers to be made in accordance with the requirements of, the Designated Stock Exchange of its intention to sell such shares in the manner required by the Designated Stock Exchange, and a period of three (3) months or such shorter period as may be allowed by the Designated Stock Exchange has elapsed since the date of such advertisement.

 

For the purposes of the foregoing, the “relevant period” means the period commencing twelve (12) years before the date of publication of the advertisement referred to in this Article 40.2 and ending at the expiry of the period referred to in that paragraph.

 

  36

 

 

40.3To give effect to any such sale the Board may authorise some person to transfer the said shares and an instrument of transfer signed or otherwise executed by or on behalf of such persons shall be as effective as if it had been executed by the registered holder or the person entitled by transmission to such shares, and the purchaser shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. The net proceeds of the sale will belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former Shareholder for an amount equal to such net proceeds. No trust shall be created in respect of such debt and no interest shall be payable in respect of it and the Company shall not be required to account for any money earned from the net proceeds which may be employed in the business of the Company or as it thinks fit. Any sale under this Article shall be valid and effective notwithstanding that the Shareholder holding the shares sold is dead, bankruptcy or otherwise under any legal disability or incapacity.

 

41Amendment of Memorandum of Articles

 

41.1Subject to the Law, the Company may by Special Resolution change its name or change the provisions of the Memorandum with respect to its objects, powers or any other matter specified therein.

 

41.2Subject to the Law and as provided in these Articles, the Company may at any time and from time to time by Special Resolution, alter or amend these Articles in whole or in part.

 

42Transfer by Way of Continuation

 

The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company.

 

43Disclosure of Information

 

The Company may provide Shareholders that are incorporated under Brazilian laws and subject to Brazilian Exchange Commission regulations '"Brazilian Shareholders" or otherwise copies of any and all: (i) agreements entered into by the Company with its related parties; (ii) shareholders’ agreements entered into by the Company; (iii) stock option or other securities-based remuneration programs of the Company; and (iv) any other information required by Brazilian law or the Brazilian Exchange Commission, provided that, in the case of item (iv), it is duly demonstrated by the Brazilian Shareholder in its written request.

 

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44Business Opportunities

 

To the fullest extent permitted by applicable law and except as may be otherwise expressly agreed in writing by the Company, on the one hand, and The Carlyle Group, the Vinci Group or the Neuberger Berman Group, on the other hand, the Company, on behalf of itself and its subsidiaries, renounces and waives any interest or expectancy of the Company and its subsidiaries in, or in being offered an opportunity to participate in, directly or indirectly, any potential transactions, matters or business opportunities (including, without limitation, any business activities or lines of business that are the same as or similar to those pursued by, or competitive with, the Company or any of its subsidiaries or any dealings with customers or clients of the Company or any of its subsidiaries) that are from time to time presented to The Carlyle Group, the Vinci Group or the Neuberger Berman Group or any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries (other than the Company and its subsidiaries), even if the transaction, matter or opportunity is one that the Company or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so. None of The Carlyle Group, the Vinci Group nor the Neuberger Berman Group, nor any of their respective officers, directors, employees, agents, stockholders, members, partners, affiliates or subsidiaries shall be liable to the Company or any of its subsidiaries for breach of any fiduciary or other duty, as a director or officer or otherwise, by reason of the fact that such person pursues, acquires or participates in such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Company or its subsidiaries, unless, in the case of any such person who is a Director or officer of the Company, such business opportunity is expressly offered to such Director or officer in writing solely in his or her capacity as a Director or officer of the Company.

 

Any person purchasing or otherwise acquiring any interest in any shares of capital stock of the Company shall be deemed to have notice of and have consented to the provisions of this Article 44. Neither the alteration, amendment or repeal of this Article 44, nor the adoption of any provision of this Memorandum inconsistent with this Article 44, nor, to the fullest extent permitted by applicable law, any modification of law, shall eliminate or reduce the effect of this Article 44 in respect of any business opportunity first identified or any other matter occurring, or any cause of action, suit or claim that, but for this Article 44, would accrue or arise, prior to such alteration, amendment, repeal, adoption or modification. If any provision or provisions of this Article 44 shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (a) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article 44 (including, without limitation, each portion of any paragraph of this Article 44 containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article 44 (including, without limitation, each such portion of any paragraph of this Article 44 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Company to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Company to the fullest extent permitted by law. This Article 44 shall not limit any protections or defenses available to, or indemnification or advancement rights of, any director or officer of the Company under this Memorandum, applicable law, any agreement or otherwise.

 

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Exhibit 5.1

 

 

Our ref: FWO/769489-000001/63858476v3

 

To: Vitru Limited
  PO Box 309, Ugland House
  Grand Cayman KY1-1104
  Cayman Islands

 

8 September 2020

 

Dear Sirs

 

Vitru Limited

 

We have acted as counsel as to Cayman Islands law to Vitru Limited (the "Company") in connection with the Company's registration statement on Form F-1, including all amendments or supplements thereto (including, without limitation, the registration statement filed in accordance with Rule 462(b) of the United States Securities Act of 1933), filed with the United States Securities and Exchange Commission (the "SEC") on the date hereof under the United States Securities Act of 1933, as amended (the "Securities Act") (including its exhibits, the "Registration Statement") related to common shares of US$0.00005 par value each in the capital of the Company (the “Shares”) to be issued and sold by the Company, as well as the common shares of US$0.0005 par value each in the capital of the Company (the "Selling Shareholder Shares") to be sold by the selling shareholders (the "Selling Shareholders") pursuant to an Underwriting Agreement to be entered into among the Company, Goldman Sachs & Co. LLC, BofA Securities, Inc., Itau BBA USA Securities, Inc., Morgan Stanley & Co. LLC, as representatives of the several underwriters named in Schedule 1 thereto (the "Underwriting Agreement"). This opinion letter is given in accordance with the terms of the Legal Matters section of the Registration Statement.

 

1Documents Reviewed

 

We have reviewed originals, copies, drafts or conformed copies of the following documents:

 

1.1The certificate of incorporation dated 5 March 2020 and the amended and restated memorandum and articles of association of the Company adopted by special resolution passed on 2 September 2020 (the "Memorandum and Articles")

 

1.2The written resolutions of the board of directors of the Company dated 7 September 2020 (the "Resolutions") and the corporate records of the Company maintained at its registered office in the Cayman Islands.

 

 

 

 

1.3A certificate of good standing with respect to the Company issued by the Registrar of Companies dated 7 September 2020 (the "Certificate of Good Standing").

 

1.4A certificate from a director of the Company a copy of which is attached to this opinion letter (the "Director's Certificate").

 

1.5A draft of the Underwriting Agreement.

 

1.6The Registration Statement.

 

1.7A copy of the register of members of the Company dated 7 September 2020 (the "Register of Members").

 

2Assumptions

 

The following opinions are given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion letter. These opinions only relate to the laws of the Cayman Islands which are in force on the date of this opinion letter. In giving the following opinions, we have relied (without further verification) upon the completeness and accuracy, as at the date of this opinion letter, of the Director's Certificate and the Certificate of Good Standing. We have also relied upon the following assumptions, which we have not independently verified:

 

2.1Copies of documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals, and translations of documents provided to us are complete and accurate.

 

2.2All signatures, initials and seals are genuine.

 

2.3There is no contractual or other prohibition or restriction (other than as arising under Cayman Islands law) binding on the Company prohibiting or restricting it from entering into and performing its obligations under the Registration Statement or the Underwriting Agreement.

 

2.4The completeness and accuracy of the Register of Members.

 

2.5There is nothing under any law (other than the laws of the Cayman Islands) which would or might affect the opinions set out below. Specifically, we have made no independent investigation of the laws of the State of New York or the laws of Brazil.

 

2.6The Company will receive money or money's worth in consideration for the issue of the Shares, and none of the Shares were or will be issued for less than par value.

 

2.7The Shares that will be issued and sold pursuant to the Underwriting Agreement will be duly registered, and will continue to be registered, in the Company’s register of members (shareholders).

 

2.8No invitation has been or will be made by or on behalf of the Company to the public in the Cayman Islands to subscribe for any of the Shares.

 

Save as aforesaid we have not been instructed to undertake and have not undertaken any further enquiry or due diligence in relation to the transaction the subject of this opinion letter.

 

2

 

 

3Opinions

 

Based upon, and subject to, the foregoing assumptions and the qualifications set out below, and having regard to such legal considerations as we deem relevant, we are of the opinion that:

 

3.1The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing with the Registrar of Companies under the laws of the Cayman Islands.

 

3.2Based solely of our inspection of the Register of Members, the Selling Shareholders have valid title to their respective Selling Shareholder Shares and such Selling Shareholder Shares have been duly authorised, legally issued and are fully paid and non-assessable and there are no entries or notations indicating any third party interests, including any security interest as at the date hereof.

 

3.3The Shares to be issued by the Company as contemplated by the Registration Statement and the Underwriting Agreement have been authorised and when such Shares are issued by the Company in accordance with the Memorandum and Articles and upon payment in full being made therefor as contemplated in the Registration Statement and the Underwriting Agreement and such Shares being entered as fully-paid on the Register of Members of the Company, such Shares will be legally issued, fully-paid and non-assessable. As a matter of Cayman Islands law, a share is only issued when it has been entered in the register of members (shareholders).

 

4Qualifications

 

The opinions expressed above are subject to the following qualifications:

 

4.1To maintain the Company in good standing with the Registrar of Companies under the laws of the Cayman Islands, annual filing fees must be paid and returns made to the Registrar of Companies within the time frame prescribed by law.

 

4.2Under Cayman Islands law, the register of members (shareholders) is prima facie evidence of title to shares and this register would not record a third party interest in such shares. However, there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified where it considers that the register of members does not reflect the correct legal position. As far as we are aware, such applications are rarely made in the Cayman Islands and there are no circumstances or matters of fact known to us on the date of this opinion letter which would properly form the basis for an application for an order for rectification of the register of members of the Company, but if such an application were made in respect of the Shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.

 

4.3In this opinion letter, the phrase "non-assessable" means, with respect to the issuance of shares, that a shareholder shall not, in respect of the relevant shares and in the absence of a contractual arrangement, or an obligation pursuant to the memorandum and articles of association, to the contrary, have any obligation to make further contributions to the Company's assets (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

 

4.4We express no opinion as to the meaning, validity or effect of any references to foreign (i.e. non-Cayman Islands) statutes, rules, regulations, codes, judicial authority or any other promulgations and any references to them in the Registration Statement.

 

3

 

 

We express no view as to the commercial terms of the Registration Statement or the Underwriting Agreement or whether such terms represent the intentions of the parties and make no comment with regard to warranties or representations that may be made by the Company.

 

We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to our firm under the heading "Legal Matters" in the prospectus included in the Registration Statement. In providing our consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the SEC thereunder.

 

The opinions in this opinion letter are strictly limited to the matters contained in the opinions section above and do not extend to any other matters. We have not been asked to review and we therefore have not reviewed any of the ancillary documents relating to the Shares and express no opinion or observation upon the terms of any such document.

 

Yours faithfully

 

/s/ Maples and Calder

 

Maples and Calder

 

4

 

 

Vitru Limited

PO Box 309, Ugland House

Grand Cayman KY1-1104

Cayman Islands

 

8 September 2020

 

To: Maples and Calder
  PO Box 309, Ugland House
  Grand Cayman
  KY1-1104
  Cayman Islands

 

Dear Sirs

 

Vitru Limited (the "Company")

 

I, the undersigned, being duly authorised by the Resolutions, am aware that you are being asked to provide an opinion letter (the "Opinion") in relation to certain aspects of Cayman Islands law. Unless otherwise defined herein, capitalised terms used in this certificate have the respective meanings given to them in the Opinion. I hereby certify that:

 

1The Memorandum and Articles remain in full force and effect and are unamended.

 

2The Company has not entered into any mortgages or charges over its property or assets other than those entered in the register of mortgages and charges of the Company.

 

3The Resolutions were duly passed in the manner prescribed in the Company’s memorandum and articles of association in effect at the time (including, without limitation, with respect to the disclosure of interests (if any) by directors of the Company) and have not been amended, varied or revoked in any respect.

 

4The shareholders of the Company (the "Shareholders") have not restricted the powers of the directors of the Company in any way.

 

5There is no contractual or other prohibition or restriction (other than as arising under Cayman Islands law) binding on the Company prohibiting or restricting it from entering into and performing its obligations under the Registration Statement.

 

6The directors of the Company at the date of Resolutions and at the date of this certificate were and are as follows: Andre Street de Aguiar, Ali Mazanderani, Thomas A. Patterson, Roberto Moses Thompson Motta, Silvio José Morais, and Luciana Ibiapina Lira Aguia.

 

7The authorised share capital of the Company is US$50,000 divided into 1,000,000,000 shares of a nominal or par value of US$0.00005 each, of such class or classes (howsoever designated) and having the rights as the Board may determine from time to time in accordance with Article 4 of the Articles of Association of the Company.

 

8The issued share capital of the Company prior to the issue of the Shares is 17,058,053 Common Shares of a par value of US$0.00005 each, which have been issued as fully paid and non assessable.

 

5

 

 

9The minute book and corporate records of the Company as maintained at its registered office in the Cayman Islands and made available to you are complete and accurate in all material respects, and all minutes and resolutions filed therein represent a complete and accurate record of all meetings of the Shareholders and directors (or any committee thereof) of the Company (duly convened in accordance with the Memorandum and Articles) and all resolutions passed at the meetings or passed by written resolution or consent, as the case may be.

 

10Prior to, at the time of, and immediately following the approval of the transactions the subject of the Registration Statement the Company was, or will be, able to pay its debts as they fell, or fall, due and has entered, or will enter, into the transactions the subject of the Registration Statement for proper value and not with an intention to defraud or wilfully defeat an obligation owed to any creditor or with a view to giving a creditor a preference.

 

11Each director of the Company considers the transactions contemplated by the Registration Statement to be of commercial benefit to the Company and has acted in good faith in the best interests of the Company, and for a proper purpose of the Company, in relation to the transactions which are the subject of the Opinion.

 

12The Company has received or will receive money or money's worth in consideration for the issue of the Shares and none of the Shares will be issued for less than par value.

 

13To the best of my knowledge and belief, having made due inquiry, the Company is not the subject of legal, arbitral, administrative or other proceedings in any jurisdiction. Nor have the directors or Shareholders taken any steps to have the Company struck off or placed in liquidation, nor have any steps been taken to wind up the Company. Nor has any receiver been appointed over any of the Company's property or assets.

 

6

 

 

I confirm that you may continue to rely on this certificate as being true and correct on the day that you issue the Opinion unless I shall have previously notified you in writing personally to the contrary.

 

Signature:            /s/ Edson Gustavo Georgette Peli  
Name: Edson Gustavo Georgette Peli  
Title: Director  

 

7

 

Exhibit 10.2

 

This Indemnity Agreement is made on the [•] day of [•] 2020.

 

Between:

 

(1)Vitru Limited, an exempted company incorporated in the Cayman Islands (the "Company"); and

 

(2)[●], a director and/or officer of the Company (the "Indemnitee").

 

Whereas:

 

(A)The Indemnitee serves as a director and/or officer of the Company.

 

(B)The Indemnitee will perform valuable services to the Company.

 

(C)The substantial increase in corporate litigation subjects directors and officers to expensive litigation risks at the same time that the availability of directors’ and officers’ liability insurance has been severely limited.

 

(D)It is a condition to the appointment of the Indemnitee as a director and/or officer of the Company that the Company indemnify the Indemnitee so as to provide him with the maximum possible protection permitted by law.

 

(E)The Company wishes to indemnify the Indemnitee on the terms of this Agreement.

 

Now it is agreed as follows:

 

1Definitions

 

In this Agreement the following capitalised words and expressions shall have the following meanings:

 

1.1In this Agreement:

 

(a)the term "Proceeding" shall include any threatened, pending or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature and whether formal or informal, including any appeal therefrom, and the term "decided in a Proceeding" shall mean a decision by a court, arbitrator(s), hearing officer or other judicial agent having the requisite legal authority to make such a decision, which decision has become final and from which no appeal or other review proceeding is permissible;

 

(b)the term "Expenses" shall include, but is not limited to, all losses, liabilities, damages, judgments, fines, penalties, awards, amounts paid in settlement (including all interest, taxes, assessments and other charges in connection therewith) by or on behalf of the Indemnitee, expenses of investigations, judicial or administrative proceedings or appeals, reasonable attorney’s fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and disbursements and any expenses of establishing a right to indemnification under this Agreement; and

 

(c)the terms "Director" and "Director of the Company" shall include the Indemnitee’s service at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise as well as a director or officer of the Company.

 

 

 

 

2Indemnity of Director

 

Subject only to the limitations set forth in Clause 3, the Company hereby agrees to indemnify and hold harmless the Indemnitee in respect of and to pay on behalf of the Indemnitee all Expenses actually and reasonably incurred by the Indemnitee because of any claim or claims made against him in a Proceeding by reason of the fact that he is or was a Director of the Company, in each case whether or not serving in such capacity as a Director of the Company at the time any liability or Expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement.

 

If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of any Expenses but not for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for such portion.

 

Without limiting the foregoing, in the event any Proceeding is initiated by the Indemnitee, the Company or any other person to enforce or interpret this Agreement or any rights of the Indemnitee to indemnification or advancement of Expenses, or any other related obligations of the Indemnitee, under the Company’s articles of association or instruments or any other agreement to which the Indemnitee or the Company is party, Cayman Islands or any other applicable law or any liability insurance policy, to the fullest extent allowable under applicable law, the Company shall indemnify the Indemnitee against Expenses incurred by the Indemnitee or on the Indemnitee’s behalf in connection with such proceeding in proportion to the success achieved by the Indemnitee in such Proceeding, as determined by the court presiding over such Proceeding.

 

3Limitations on Indemnity

 

The Company shall not be obligated under this Agreement to make any payment of Expenses to the Indemnitee if:

 

(a)such payment is prohibited by applicable law;

 

(b)such payment is actually made to the Indemnitee under an insurance policy, except in respect of any excess beyond the amount of payment under such insurance;

 

(c)the Indemnitee is indemnified by the Company otherwise than pursuant to this Agreement;

 

(d)such payment would result in the Indemnitee gaining any personal profit or advantage to which he or she was not legally entitled; and

 

(e)it is decided in a Proceeding that such payment is brought about or contributed to by the dishonesty, wilful default or actual fraud of the Indemnitee seeking payment hereunder; however, notwithstanding the foregoing, the Indemnitee shall be indemnified under this Agreement as to any claims upon which suit may be brought against him by reason of any alleged dishonesty on his part, unless it shall be decided in a Proceeding that he committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, and which acts were material to the cause of action so adjudicated.

 

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4Advance Payment of Costs

 

4.1Expenses incurred by the Indemnitee in defending a claim against him in a Proceeding shall be paid by the Company as incurred and in advance of the final disposition of such Proceeding and without regard to whether the Indemnitee will ultimately be entitled to be indemnified for such Expenses and without regard to whether any determination as to whether indemnification of the Indemnitee is proper in the circumstances has been made.

 

4.2The Company agrees that for purposes of any advancement of Expenses for which the Indemnitee has made a demand to the Company, all Expenses included in such demand that are certified by affidavit of the Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

 

4.3The Indemnitee hereby agrees and undertakes to repay such amounts advanced by the Company if it shall be decided in a Proceeding that he is not entitled to be indemnified by the Company pursuant to this Agreement or otherwise. Such repayment obligation shall be unsecured and shall not bear interest.

 

4.4If a claim under this Agreement is not paid by the Company, or on its behalf, within thirty (30) days after a written claim has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and if successful in whole or in part, the Indemnitee shall also be entitled to be paid the Expenses of prosecuting such claim.

 

5Enforcement

 

The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce the Indemnitee to serve as a Director of the Company, and the Company acknowledges that the Indemnitee is relying upon this Agreement in serving as a Director of the Company, provided that nothing contained herein shall be construed as giving the Indemnitee any right to be retained as a director or in the employ of the Company. For the avoidance of doubt, the indemnification and advancement of Expenses provided under this Agreement shall continue as to the Indemnitee even though such Indemnitee may have ceased to be a director or officer of the Company.

 

6Subrogation

 

In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

 

7Procedure for Indemnification; Notification and Defense of Claim.

 

7.1Promptly after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing of the commencement thereof. The failure to promptly notify the Company of the commencement of the action, suit or proceeding, or of Indemnitee’s request for indemnification, will not relieve the Company from any liability that it may have to Indemnitee hereunder, except to the extent the Company is actually and materially prejudiced in its defense of such action, suit or proceeding as a result of such failure. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to enable the Company to determine whether and to what extent Indemnitee is entitled to indemnification.

 

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7.2With respect to any action, suit or proceeding of which the Company is so notified as provided in this Agreement, the Company shall, subject to the last two sentences of this paragraph, be entitled to assume the defense of such action, suit or proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any subsequently-incurred fees of separate counsel engaged by Indemnitee with respect to the same action, suit or proceeding unless the employment of separate counsel by Indemnitee has been previously authorized in writing by the Company. Notwithstanding the foregoing, if Indemnitee, based on the advice of his or her counsel, shall have reasonably concluded (with written notice being given to the Company setting forth the basis for such conclusion) that, in the conduct of any such defense, there is or is reasonably likely to be a conflict of interest or position between the Company and Indemnitee with respect to a significant issue, then the Company will not be entitled, without the written consent of Indemnitee, to assume such defense. In addition, the Company will not be entitled, without the written consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.

 

7.3To the fullest extent permitted by applicable law, the Company’s assumption of the defense of an action, suit or proceeding in accordance with paragraph 7.2 above will constitute an irrevocable acknowledgement by the Company that any loss and liability suffered by Indemnitee and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement by or for the account of Indemnitee incurred in connection therewith are indemnifiable by the Company under Section 2 of this Agreement unless such Indemnitee is ineligible for indemnification pursuant to Section 3.

 

7.4The determination whether to grant Indemnitee’s indemnification request shall be made promptly and in any event within 60 days following the Company’s receipt of a request for indemnification in accordance with Section 7.1. If the Company determines that Indemnitee is entitled to such indemnification or, as contemplated by paragraph 7.3 above, the Company has acknowledged such entitlement, the Company will make payment to Indemnitee of the indemnifiable amount within such 60-day period. If the Company is not deemed to have so acknowledged such entitlement or the Company’s determination of whether to grant Indemnitee’s indemnification request shall not have been made within such 60-day period, the requisite determination of entitlement to indemnification shall, subject to Section 3, and to the fullest extent permitted by law, nonetheless be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

7.5In the event that (i) the Company determines in accordance with this Section 7 that Indemnitee is not entitled to indemnification, in whole or in part, under this Agreement, (ii) the Company fails to respond or make a determination of entitlement to indemnification required by law within 60 days following receipt of a request for indemnification as described above, (iii) payment of indemnification is not made within such 60-day period, (iv) advancement of expenses is not timely made in accordance with Section 4, or (v) the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication in any court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. Indemnitee’s expenses (including attorneys’ fees) incurred in connection with successfully establishing Indemnitee’s right to indemnification or advancement of expenses, in whole or in part, in any such proceeding or otherwise shall also be indemnified by the Company to the fullest extent permitted by applicable law.

 

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8Contribution

 

8.1The Company hereby agrees to fully indemnify and hold the Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than the Indemnitee, who may be jointly liable with the Indemnitee.

 

8.2To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to the Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying the Indemnitee, shall contribute to the amount of Expenses incurred by the Indemnitee in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and the Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and the Indemnitee in connection with such event(s) and/or transaction(s).

 

9Notice

 

9.1Notice to the Company shall be given at its principal office and shall be directed to the Company’s chief executive officer (or such other address as the Company shall designate in writing to the Indemnitee from time to time).

 

9.2Notice shall be deemed received if (i) delivered by hand, on the date so delivered, or (ii) sent by overnight courier, on the next business day after being so sent, or (iii) sent by facsimile, on the date so sent, or (iv) if sent by e-mail, upon receipt of a confirmation of receipt e-mail.

 

10Directors and Officers Liability Insurance

 

10.1So long as the Company maintains liability insurance for any directors, officers, employees or agents of any such person, the Company shall ensure that the Indemnitee is covered by such insurance in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s then current directors and officers. If at any date (i) such insurance ceases to cover acts and omissions occurring during all or any part of the period of the Indemnitee serving as a Director of the Company or (ii) the Company no longer maintains any such insurance, the Company shall ensure that Indemnitee is covered, with respect to acts and omissions prior to such date, for at least six years (or such shorter period as is available on commercially reasonable terms) from such date, by other directors and officers liability insurance, in amounts and on terms (including the portion of the period of the Indemnitee serving as a Director of the Company) no less favorable to Indemnitee than the amounts and terms of the liability insurance maintained by the Company on the date hereof.

 

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10.2Upon receipt of notice of a Proceeding pursuant to Section 8.1, the Company shall give or cause to be given prompt notice of such Proceeding to all insurers providing liability insurance in accordance with the procedures set forth in all applicable or potentially applicable policies. The Company shall thereafter take all necessary action to cause such insurers to pay all amounts payable in accordance with the terms of such policies, unless the Company shall have paid in full all indemnification, advancement and other obligations payable to the Indemnitee under this Agreement.

 

11Saving Clause

 

If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, the Company shall nevertheless indemnify the Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law.

 

12Indemnification Hereunder Not Exclusive

 

Nothing herein shall be deemed to diminish or otherwise restrict the Indemnitee’s right to indemnification under any provision of the constitutional documents of the Company, under Cayman Islands law, any other agreement, any vote of shareholders or directors or any liability insurance policy; provided that the obligation of the Company hereunder shall be primary and the obligations of such other indemnitors secondary.

 

13Coverage and Continuation of Indemnification

 

13.1The indemnification under this Agreement is intended to and shall extend to the Indemnitee’s service as a Director prior to and after the date of the Agreement.

 

13.2The indemnification under this Agreement shall continue as to the Indemnitee even though he may have ceased to be a Director and shall inure to the benefit of the heirs and personal representatives of the Indemnitee.

 

14Successors and Assigns

 

This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of the Indemnitee and Indemnitee’s heirs, legal representatives and assigns.

 

15Counterparts

 

This Agreement may be executed in any number of counterparts, each of which shall constitute the original.

 

16Applicable Law

 

The terms and conditions of this Agreement and the rights of the parties hereunder shall be governed by and construed in all respects in accordance with the laws of the Cayman Islands. The parties to this Agreement hereby irrevocably agree that the courts of the Cayman Islands shall have exclusive jurisdiction in respect of any dispute, suit, action, arbitration or proceedings which may arise out of or in connection with this Agreement and waive any objection to such proceedings in the courts of the Cayman Islands on the grounds of venue or on the basis that they have been brought in an inconvenient forum.

 

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17Entire Agreement

 

This agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

 

 

[Remainder of page left intentionally blank]

 

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In witness whereof the parties hereto have entered into this Agreement on the day and year first above written.

 

 

SIGNED for and on behalf of )
Vitru Limited )
by: )
  )
 
    Authorised Signatory
     
SIGNED by: )
  )
  )
  )
 
    [●]

 

8

 

 

 

 

 

Exhibit 10.3

 

 

 

 

 

REGISTRATION RIGHTS AGREEMENT

 

VITRU LIMITED

 

dated as of September [●], 2020

 

 

 

 

 

 

 

1. Definitions and Interpretations 1
  (a)     Definitions 1
  (b)     Interpretations 6
2. Incidental Registrations 6
  (a)     Right to Include Registrable Securities 6
  (b)     Priority in Incidental Registrations 7
3. Registration on Request 7
  (a)     Request by the Demand Party 7
  (b)     Priority on Demand Registration 8
  (c)     Cancellation of a Demand Registration 9
  (d)     Limitations on Demand Registrations 9
  (e)     Postponements in Requested Registrations 10
  (f)     Short-Form Registrations 10
  (g)     Shelf Take-Downs 12
  (h)     Registration Statement Form 13
  (i)     Selection of Underwriters 13
4. Registration Procedures 13
5. Hedging Transactions 20
6. Indemnification 21
  (a)     Indemnification by the Issuer 21
  (b)     Indemnification by Holder of Registrable Securities 22
  (c)     Conduct of Indemnification Proceedings 22
  (d)     Contribution 23
  (e)     Deemed Underwriter 24
  (f)     Other Indemnification 24

 

 

 

  (g)     Non-Exclusivity 24
  (h)     Primacy of Indemnification 24
7. Registration Expenses 25
8. Rule 144 25
9. Certain Additional Agreements 25
10. Miscellaneous 26
  (a)     Termination 26
  (b)     Holdback Agreement 26
  (c)     Opt-Out Notice 27
  (d)     Amendments and Waivers 27
  (e)     Successors, Assigns and Transferees 27
  (f)      Notices 28
  (g)      Further Assurances 30
  (h)      Preservation of Rights 30
  (i)       Entire Agreement; No Third Party Beneficiaries 30
  (j)       Governing Law; Jurisdiction and Forum; Waiver of Jury Trial 30
  (k)      Severability 31
  (l)       Enforcement 31
  (m)     Titles and Subtitles 31
  (n)     No Recourse 31
  (o)     Counterparts; Facsimile Signatures 32

 

Exhibit A — Joinder Agreement

 

 

 

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as of [●], 2020 by and among Vitru Limited, a Cayman Islands exempted company (the “Issuer”), Mundi Holdings I and Mundi Holdings II (collectively, “Carlyle”), Vinci Capital Partners II J Beta Fundo de Investimento Em Participações Multiestratégia, Agresti Investments LLC, Botticelli Investments LLC, Caravaggio Investments LLC and Raffaello Investments LLC (collectively, “Vinci” and, together with Carlyle, the “Principal Investors” and each, a “Principal Investor”) and NB Verrocchio LP (“Neuberger” and, together with Carlyle and Vinci, each, an “Investor” and collectively, the “Investors”), and any Person who becomes a party hereto pursuant to Section 10(e). Capitalized terms used herein shall have the meaning assigned to such terms in the text of this Agreement or in Section 1.

 

WHEREAS, the Parties desire to provide the Holders with rights to registration under the Securities Act of Registrable Securities, on the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual promises hereinafter set forth, the Parties agree as follows:

 

AGREEMENT

 

1.            Definitions and Interpretations

 

(a)         Definitions. As used in this Agreement, the following capitalized terms shall have the following respective meanings:

 

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such person as of the date on which, or at any time during the period for which, the determination of affiliation is being made (including any investment fund the primary investment advisor to which is such Person or an Affiliate thereof); provided, that for purposes of this Agreement, no Holder shall be deemed an Affiliate of the Issuer or any of its Subsidiaries.

 

“Agreement” has the meaning given to such term in the Preamble, as the same may be amended, supplemented or restated from time to time.

 

“Automatic Shelf Registration Statement” has the meaning given to such term in Section 3(f)(iii).

 

“Board” means the Board of Directors of the Issuer.

 

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York City.

 

“Common Shares” means any and all common shares, par value US$0.00005 per share, of the Issuer.

 

 

 

“control” (including the terms “controlling”, “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise.

 

“Covered Person” has the meaning given to such term in Section 6(a).

 

“Demand Follow-Up Notice” has the meaning given to such term in Section 3(a).

 

“Demand Notice” has the meaning given to such term in Section 3(a).

 

“Demand Registration” has the meaning given to such term in Section 3(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor statute thereto and the rules and regulations of the SEC promulgated thereunder.

 

“FINRA” means the Financial Industry Regulatory Authority.

 

“Free Writing Prospectus” has the meaning given to such term in Section 4(a).

 

“Holdback Period” means, except as otherwise set forth in Section 10(b), in connection with a registered offering covered by this Agreement, ninety (90) days after and during the seven (7) days before, the effective date of the related Registration Statement or, in the case of a takedown from a Shelf Registration Statement that is a Shelf Underwritten Offering, ninety (90) days after the date of the Prospectus supplement filed with the SEC in connection with such takedown and during such prior period (not to exceed seven (7) days) as the Issuer has given reasonable written notice to the holder of Registrable Securities; provided, however, that references in this definition to “ninety (90) days” shall be replaced with (i) “forty-five (45) days” for the second offering covered by this Agreement and (ii) “thirty (30) days” for the third and subsequent offerings covered by this Agreement; provided further, that notwithstanding this definition, a shorter period of time may be negotiated in the lock-up agreement for the Underwritten Offering if all Holders are subject to the same reduced lock-up period.

 

“Holder” means (i) any of the Investors, (ii) any other Person entitled to incidental or piggyback registration rights hereunder upon entering into a Joinder Agreement substantially in the form of Exhibit A hereto or (iii) any direct or indirect transferee of a Holder who has acquired Registrable Securities from a Holder and who has entered into a Joinder Agreement substantially in the form of Exhibit A hereto.

 

“Indemnified Party” has the meaning given to such term in Section 6(c).

 

“Indemnifying Party” has the meaning given to such term in Section 6(c).

 

“Indemnitors” has the meaning given to such term in Section 6(h).

 

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“Inspector” has the meaning given to such term in Section 4(p).

 

“Investor” and “Investors” have the meaning given to such terms in the Preamble.

 

“Issuer” has the meaning given to such term in the Preamble.

 

“Losses” has the meaning given to such term in Section 6(a).

 

“Opt-Out Notice” has the meaning given to such term in Section 10(c).

 

“Parties” means the parties to this Agreement.

 

“Permitted Transferee” means, with respect to any Holder, (x) an Affiliate (other than any “portfolio company” described below) of such Holder, and (y) in the case of a Holder that is a partnership, limited liability company or any foreign equivalent thereof, any partner, member or foreign equivalent thereof of such Holder (provided that such Transfer is made in a pro rata distribution in accordance with the applicable partnership agreement, limited liability company agreement or foreign equivalent thereof, as the case may be); provided, however, that any such transferee shall agree in a writing in the form attached as Exhibit A hereto to be bound by and to comply with all applicable provisions of this Agreement; provided, further, however, that in no event shall (A) the Issuer or any of its Subsidiaries or (B) any “portfolio company” (as such term is customarily used among institutional investors) of any Holder or any entity controlled by a portfolio company of any Holder constitute a “Permitted Transferee”.

 

“Person” means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization, government or any department or agency thereof or any other entity.

 

“Principal Investor” and “Principal Investors” have the meaning given to such terms in the Preamble.

 

“Prospectus” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, relating to Registrable Securities, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

 

“Records” has the meaning given to such term in Section 4(p).

 

“Registrable Securities” means any Common Shares held by a Holder and any Common Shares issued or issuable, directly or indirectly, with respect to the Common Shares held by a Holder by way of exchange thereof or stock dividends, stock splits or in connection with a combination of shares, reclassification, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) they are disposed of pursuant to an effective Registration Statement under the Securities Act, (ii) they are sold to the public pursuant to Rule 144 (or other exemption from registration under the Securities Act), (iii) they shall have ceased to be outstanding, or (iv) they have been sold in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of the securities.

 

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“Registration Statement” means any registration statement of the Issuer filed with the SEC under the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including any Prospectus, Free Writing Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

“Rule 144” means Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 158” means Rule 158 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 163B” means Rule 163B under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 405” means Rule 405 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 415” means Rule 415 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 424” means Rule 424 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 430A” means Rule 430A under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 430B” means Rule 430B under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

“Rule 433” means Rule 433 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

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“SEC” means the U.S. Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act.

 

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute thereto and the rules and regulations of the SEC promulgated thereunder.

 

“Shelf Registration Statement” has the meaning given to such term in Section 3(f)(i).

 

“Shelf Underwritten Offering” has the meaning given to such term in Section 3(g).

 

“Short-Form Registration” has the meaning given to such term in Section 3(f)(i).

 

“Subsidiary” means (i) any corporation of which a majority of the securities entitled to vote generally in the election of directors thereof, at the time as of which any determination is being made, are owned by another entity, either directly or indirectly and (ii) any joint venture, general or limited partnership, limited liability company or other legal entity in which an entity is the record or beneficial owner, directly or indirectly, of a majority of the voting interests or the general partner.

 

“Suspension Event” has the meaning given to such term in Section 3(e).

 

“Take-Down Notice” has the meaning given to such term in Section 3(g).

 

“Testing-the-Waters Communication” has the meaning given to such term in Section 6(a).

 

“Transfer” means, directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Common Shares beneficially owned by a Person or any interest in any Common Shares beneficially owned by a Person. In the event that any Holder that is a corporation, partnership, limited liability company or other legal entity (other than an individual, trust or estate) ceases to be, directly or indirectly, controlled by the Person controlling such Holder as of the date hereof or a Permitted Transferee thereof, such event shall be deemed to constitute a “Transfer” subject to the restrictions on Transfer contained or referenced herein; provided, however that, with respect to any Investor or any Affiliate thereof that is an investment fund, a change of control of the direct or indirect general partner or investment advisor of such investment fund shall not constitute a Transfer.

 

“Underwritten Offering” means an offering registered under the Securities Act in which Common Shares are sold to one or more underwriters for reoffering to the public.

 

“WKSI” has the meaning given to such term in Section 3(f)(iii).

 

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(b)        Interpretations. For purposes of this Agreement, unless otherwise noted:

 

(i)        All references to laws, rules, regulations and forms in this Agreement shall be deemed to be references to such laws, rules, regulations and forms, as amended from time to time or, to the extent replaced, the comparable successor laws, rules, regulations and forms thereto in effect at the time.

 

(ii)        All references to agencies, self-regulatory organizations or governmental entities in this Agreement shall be deemed to be references to the comparable successor thereto.

 

(iii)      All references to agreements and other contractual instruments shall be deemed to be references to such agreements or other instruments as they may be amended, waived, supplemented or modified from time to time.

 

(iv)      All references to any amount of securities (including Registrable Securities) shall be deemed to be a reference to such amount measured on an as-converted or as-exercised basis.

 

2.            Incidental Registrations.

 

(a)        Right to Include Registrable Securities. If the Issuer determines to register its Common Shares under the Securities Act (other than pursuant to a Registration Statement filed by the Issuer on Form F-4 or S-8, or any successor or other forms promulgated for similar purposes or filed solely in connection with an exchange offer or any employee benefit or dividend reinvestment plan), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will, at each such time, give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders’ rights under this Section 2. Upon the written request of any such Holder made within fifteen (15) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method or methods of disposition thereof), the Issuer will use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Issuer has been so requested to register by the Holders thereof; provided that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Issuer shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Issuer may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the expenses in connection therewith) without prejudice to the rights of the Holders to request that such registration be effected as a registration under Section 3, and (ii) if such registration involves an Underwritten Offering, all Holders of Registrable Securities requesting to be included in the Issuer’s registration must sell their Registrable Securities to the underwriters selected by the Issuer on the same terms and conditions as apply to the Issuer and the other Holders selling Registrable Securities in such Underwritten Offering, with such differences, including any with respect to indemnification, as may be customary or appropriate in combined primary and secondary offerings, provided, further that (x) no Holder shall be required to make any representations or warranties other than those related to title and ownership of, and power and authority to transfer, shares and as to the accuracy and completeness of statements made in a Registration Statement, Prospectus or other document in reliance upon, and in conformity with, written information prepared and furnished to the Issuer or the managing underwriter(s) by such Person pertaining exclusively to such Holder and (y) no Holder shall be required to agree to any indemnification obligations on the part of such Holder that are greater than its obligations pursuant to Section 6 hereof. The Issuer shall not be required to maintain the effectiveness of the Registration Statement for a registration requested pursuant to this Section 2(a) beyond the earlier to occur of (i) 180 days after the effective date thereof and (ii) consummation of the distribution by the Holders of the Registrable Securities included in such Registration Statement. Any Holder of Registrable Securities who has elected to sell Registrable Securities in an offering pursuant to this Section 2 shall be permitted to withdraw from such registration by written notice to the Issuer at least two (2) business days prior to the anticipated pricing date.

 

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(b)       Priority in Incidental Registrations. The Issuer shall use reasonable efforts to cause the managing underwriter(s) of a proposed Underwritten Offering to permit Holders of Registrable Securities who have requested to include Registrable Securities in such offering to include in such offering all Registrable Securities so requested to be included on the same terms and conditions as any other shares of capital stock, if any, of the Issuer included in the offering. Notwithstanding the foregoing, if the managing underwriter(s) of such Underwritten Offering have informed the Issuer in writing that in its good faith opinion the total number or dollar amount of securities that such Holders and the Issuer intend to include in such offering is such as to likely have a material adverse effect on the timing, price or distribution of such offering, then there shall be included in such Underwritten Offering the number or dollar amount of Registrable Securities that in the good faith opinion of such managing underwriter(s) can be sold without adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows: first, all securities of the Issuer requested to be included by the Issuer in such registration; second, all securities of the Issuer requested to be included by each Investor and its Affiliates, pro rata among such Holders on the basis of the percentage of Registrable Securities requested to be included in such registration by such Holders; and third, all securities of the Issuer requested to be included by the Holders of Registrable Securities (other than any Investor and its Affiliates) requesting such registration, pro rata among such Holders on the basis of the percentage of the Registrable Securities requested to be included in such registration by such Holders.

 

3.            Registration on Request.

 

(a)        Request by the Demand Party. Subject to Section 3(d), each of the Principal Investors and its Affiliates that is a Holder of Registrable Securities shall have the right to require the Issuer to register, pursuant to the terms of this Agreement, under and in accordance with the provisions of the Securities Act, the number of Registrable Securities of such Holder and its Affiliates requested to be so registered pursuant to this Agreement, in each case by delivering written notice to the Issuer (any such written notice, a “Demand Notice” and any such registration, a “Demand Registration”). Subject to Section 3(d), following receipt of a Demand Notice for a Demand Registration in accordance with this Section 3(a), the Issuer shall use its reasonable best efforts to file a Registration Statement as promptly as practicable, but no later than within forty-five (45) days, and to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof.

 

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No Demand Registration shall be deemed to have occurred for purposes of the first sentence of the preceding paragraph if (i) the Registration Statement relating thereto (x) does not become effective, (y) is not maintained effective for the period required pursuant to this Section 3, or (z) the offering of the Registrable Securities pursuant to such Registration Statement is subject to a stop order, injunction, or similar order or requirement of the SEC during such period, (ii) more than 90% of the Registrable Securities requested by the demanding Holder to be included in such registration are not so included pursuant to Section 3(b) or (iii) the conditions to closing specified in any underwriting agreement, purchase agreement or similar agreement entered into in connection with the registration relating to such request are not satisfied (other than as a result of a material default or breach thereunder by such demanding Holder or its Affiliates) or otherwise waived by such demanding Holder.

 

Within five (5) Business Days after receipt by the Issuer of a Demand Notice in accordance with this Section 3(a), the Issuer shall give written notice (the “Demand Follow-Up Notice”) of such Demand Notice to all other Holders of Registrable Securities and shall, subject to the provisions of Section 3(b) hereof, include in such registration all Registrable Securities with respect to which the Issuer received written requests for inclusion therein within five (5) Business Days after such Demand Follow-Up Notice is given by the Issuer to such Holders.

 

All requests made pursuant to this Section 3 will specify the number of Registrable Securities to be registered and the intended method or methods of disposition thereof.

 

The Issuer shall be required to maintain the effectiveness of the Registration Statement with respect to any Demand Registration for a period of at least 180 days after the effective date thereof or such shorter period during which all Registrable Securities included in such Registration Statement have actually been sold; provided, however, that such period shall be extended for a period of time equal to the period the Holder of Registrable Securities refrains from selling any securities included in such Registration Statement at the request of the Issuer or an underwriter of the Issuer pursuant to the provisions of this Agreement.

 

(b)         Priority on Demand Registration. If any of the Registrable Securities registered pursuant to a Demand Registration are to be sold in an Underwritten Offering, and the managing underwriter(s), after consultation with external legal counsel and the Issuer, advise the Holders of such securities that in its good faith opinion the total number or dollar amount of Registrable Securities proposed to be sold in such offering (including, without limitation, securities proposed to be included by other Holders of securities entitled to include securities in such Registration Statement pursuant to incidental or piggyback registration rights) is such as to adversely affect the success of such offering, then there shall be included in such Underwritten Offering the number or dollar amount of Registrable Securities that in the good faith opinion of such managing underwriter(s) can be sold without adversely affecting such offering, and such number of Registrable Securities shall be allocated as follows:

 

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(i)         first, to each Investor and its Affiliates requesting such registration (whether pursuant to a Demand Notice or pursuant to incidental or piggyback registration rights) pro rata among such Holders on the basis of the percentage of Registrable Securities requested to be included in such registration by such Holders, until with respect to each such Holder, all Registrable Securities requested for registration by such Holders have been included in such registration;

 

(ii)        second, among the Holders of Registrable Securities (other than any Investor and its Affiliates) requesting such registration pursuant to incidental or piggyback registration rights, pro rata on the basis of the percentage of Registrable Securities requested to be included in such Registration Statement by such Holders, until, with respect to each such Holder, all Registrable Securities requested for registration by such Holders have been included in such registration; and

 

(iii)       third, the securities for which inclusion in such Demand Registration was requested by the Issuer.

 

(c)        Cancellation of a Demand Registration. Each Holder that submitted a Demand Notice pursuant to a particular offering and the Holders of a majority of the Registrable Securities that are to be registered in a particular offering pursuant to this Section 3 shall have the right, prior to the effectiveness of the Registration Statement, to notify the Issuer that it or they, as the case may be, have determined that the Registration Statement be abandoned or withdrawn, in which event the Issuer shall abandon or withdraw such Registration Statement. Any Holder of Registrable Securities who has elected to sell Registrable Securities in an Underwritten Offering pursuant to this Section 3 (including the Holder who delivered the Demand Notice of such registration) shall be permitted to withdraw from such registration by written notice to the Issuer at least two (2) Business Days prior to the effective date of the Registration Statement filed in connection with such registration, or, in the case of an Underwritten Offering, at least two (2) Business Days prior to the anticipated pricing date.

 

(d)        Limitations on Demand Registrations. The Principal Investors and their Affiliates shall, collectively, be entitled to initiate no more than three (3) Demand Registrations (other than Short-Form Registrations and shelf take-downs to effect a Shelf Underwritten Offering), provided that neither Carlyle or its Affiliates that are Holders of Registrable Securities, on the one hand, nor Vinci or its Affiliates that are Holders of Registrable Securities, on the other hand, may request more than two (2) of such three (3) Demand Registrations, unless otherwise agreed to by Carlyle and Vinci. With respect to each Demand Registration, the Registrable Securities requested to be registered pursuant to Section 3(a) (including, for the avoidance of doubt, the Registrable Securities requested to be registered in addition to the Registrable Securities of the demanding Holder) must represent the lesser of (i) an aggregate offering price of Registrable Securities that is reasonably expected to equal at least US$25,000,000 or (ii) all of the remaining Registrable Securities owned by the demanding Principal Investor and its Affiliates that are Holders of Registrable Securities.

 

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(e)        Postponements in Requested Registrations. If the filing, initial effectiveness or continued use of a Registration Statement, including a Shelf Registration Statement, with respect to a Demand Registration would require the Issuer to make a public disclosure of material non-public information, which disclosure in the good faith judgment of the Issuer (after consultation with external legal counsel) (i) would be required to be made in any Registration Statement so that such Registration Statement would not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, (ii) would not be required to be made at such time but for the filing, effectiveness or continued use of such Registration Statement and (iii) would reasonably be expected to have a material adverse effect on the Issuer or its business or on the Issuer’s ability to effect a bona fide material proposed acquisition, disposition, financing, reorganization, recapitalization or similar transaction (collectively, “Suspension Events”), and the Issuer furnishes to the Holders a certificate signed by the Chief Executive Officer or any other senior executive officer of the Issuer stating such, then the Issuer may, upon giving prompt written notice of such action to the Holders participating in such registration, delay the filing or initial effectiveness (but not the preparation) of, or suspend use of, such Registration Statement; provided that (i) the Issuer shall be permitted to do so on only two (2) occasions in any 6-month period for a period not to exceed the earlier of (A) the termination of any such Suspension Event and (B) forty-five (45) days following notice of any such Suspension Event and (ii) the Issuer may not postpone or suspend for periods exceeding, in the aggregate, sixty (60) days during any 12-month period. In the event that the Issuer exercises its rights under the preceding sentence, such Holders agree to suspend, promptly upon receipt of the notice referred to above, the use of any Prospectus relating to such registration in connection with any sale or offer to sell Registrable Securities. Issuer covenants and agrees that it shall not deliver a suspension notice with respect to a suspension period unless all of Issuer’s employees, officers and directors who are subject to Issuer’s insider trading policy, and who are prohibited by the terms thereof from effecting any public sales of securities of Issuer beneficially owned by them, are so prohibited for the duration of such suspension period. If the Issuer so postpones the filing of a Prospectus or the effectiveness of a Registration Statement, the demanding Holder shall be entitled to withdraw such request and, if such request is withdrawn, such registration request shall not count for the purposes of the limitations set forth in Section 3(d). The Issuer shall promptly give the Holders requesting registration thereof pursuant to this Section 3 written notice of any postponement made in accordance with the preceding sentence.

 

(f)         Short-Form Registrations.

 

(i)         The Issuer shall use its reasonable best efforts to qualify for registration on Form F-3 or any comparable or successor form or forms or any similar short-form registration (a “Short-Form Registration”), and, if requested by any Investor or its Affiliates that are Holders of Registrable Securities and available to the Issuer, such Short-Form Registration shall be a “shelf” registration statement providing for the registration of, and the sale on a continuous or delayed basis of, the Registrable Securities, pursuant to Rule 415 or otherwise (a “Shelf Registration Statement”). Each Principal Investor and its Affiliates that are Holders of Registrable Securities shall be entitled to request an unlimited number of Short-Form Registrations, if available to the Issuer, with respect to the Registrable Securities held by such requesting Holder and its Affiliates in addition to the other registration rights provided in Section 2 and this Section 3; provided, however, that the Principal Investors and their Affiliates that are Holders of Registrable Securities may not require the Issuer to effect more than three (3) Short-Form Registrations collectively in any 12-month period, if at least one (1) such Short-Form Registration in such 12-month period was initiated by Carlyle or its Affiliates that are Holders of Registrable Securities and at least one (1) such Short-Form Registration in such 12-month period was initiated by Vinci or its Affiliates that are Holders of Registrable Securities. In addition, Neuberger shall be entitled to request one (1) Short-Form Registration by means of a Shelf Registration Statement, if available to the Issuer, with respect to the Registrable Securities held by Neuberger and its Affiliates. If any Demand Registration is proposed by the demanding Holder to be a Short-Form Registration and an Underwritten Offering, and if the managing underwriter(s) shall advise the Issuer and the Holders that, in its good faith opinion, it is of material importance to the success of such proposed offering to file a registration statement on Form F-1 (or any successor or similar registration statement) or to include in such registration statement information not required to be included in a Short-Form Registration, then the Issuer shall file a registration statement on Form F-1 or supplement the Short-Form Registration as reasonably requested by such managing underwriter(s). No such registration nor any other Short-Form Registration shall count as a Demand Registration for purposes of calculating how many Demand Registrations the Principal Investors and their Affiliates have initiated pursuant to the provisions of Section 3.

 

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(ii)        Upon filing any Short-Form Registration, the Issuer shall use its reasonable best efforts to keep such Short-Form Registration effective with the SEC at all times and to re-file such Short-Form Registration upon its expiration, and to cooperate in any shelf take-down, whether or not underwritten, by amending or supplementing any Prospectus related to such Short-Form Registration as may be reasonably requested by any Investor or any of its Affiliates that is a Holder of Registrable Securities or as otherwise required, until such time as all Registrable Securities that could be sold in such Short-Form Registration have been sold or are no longer outstanding. To the extent that the Issuer becomes ineligible to use Form F-3, the Issuer shall file a “shelf” registration statement on Form F-1 not later than forty-five (45) days after the date of such ineligibility and use its reasonable best efforts to have such registration statement declared effective as promptly as practicable.

 

(iii)       To the extent the Issuer is a well-known seasoned issuer (as defined in Rule 405) (a “WKSI”) at the time any Demand Notice for a Short-Form Registration is submitted to the Issuer and such Demand Notice requests that the Issuer file a Shelf Registration Statement, the Issuer shall file an automatic shelf registration statement (as defined in Rule 405) on Form F-3 (an “Automatic Shelf Registration Statement”) in accordance with the requirements of the Securities Act and the rules and regulations of the SEC thereunder, which covers the number or class of Registrable Securities which are requested to be registered. If registering a number of Registrable Securities, the Issuer shall pay the registration fee for all Registrable Securities to be registered pursuant to an Automatic Shelf Registration Statement at the time of filing of the Automatic Shelf Registration Statement and shall not elect to pay any portion of the registration fee on a deferred basis. The Issuer shall use its reasonable best efforts to remain a WKSI (and not to become an ineligible issuer (as defined in Rule 405)) during the period during which any Automatic Shelf Registration Statement is effective. If at any time following the filing of an Automatic Shelf Registration Statement when the Issuer is required to re-evaluate its WKSI status the Issuer determines that it is not a WKSI, the Issuer shall use its reasonable best efforts to post-effectively amend the Automatic Shelf Registration Statement to a Shelf Registration Statement on Form F-3 or file a new Shelf Registration Statement on Form F-3 or, if such form is not available, Form F-1, have such Shelf Registration Statement declared effective by the SEC and keep such Registration Statement effective during the period during which such Short-Form Registration is required to be kept effective in accordance with Section 3(f)(ii). To the extent that the Issuer is eligible to file an Automatic Shelf Registration Statement and a Principal Investor or any of its Affiliates that is a Holder of Registrable Securities notifies the Issuer that it wishes to engage in a block sale off of such an Automatic Shelf Registration Statement and the Issuer does not have an Automatic Shelf Registration Statement related to the Registrable Securities, the Issuer shall use its commercially reasonable efforts to file an Automatic Shelf Registration Statement within five (5) days of such notification by such Holder or such other period of time as agreed between such Holder and the Issuer to the extent that the five-day filing is impracticable.

 

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(g)        Shelf Take-Downs. At any time that a Shelf Registration Statement covering Registrable Securities is effective, if any Principal Investor or its Affiliates delivers a notice to the Issuer (a “Take-Down Notice”) stating that it intends to effect an Underwritten Offering of all or part of its Registrable Securities included by it on the shelf registration statement (a “Shelf Underwritten Offering”), then the Issuer shall amend or supplement the Shelf Registration Statement as may be necessary in order to enable such Registrable Securities to be distributed pursuant to the Shelf Underwritten Offering (taking into account the inclusion of Registrable Securities by any other Holders pursuant to Section 3(g)(i)). Any Principal Investor and its Affiliates that are Holders of Registrable Securities shall be entitled to request an unlimited number of shelf take-downs to effect a Shelf Underwritten Offering, if available to the Issuer, with respect to the Registrable Securities held by such requesting Holder and its Affiliates in addition to the other registration rights provided in Section 2 and this Section 3. In connection with any Shelf Underwritten Offering:

 

(i)         the Issuer shall also deliver the Take-Down Notice to all other Holders with securities included on such shelf registration statement (which Take-Down Notice shall be held in confidence by such Holders until the offering is publicly disclosed) and permit each such Holder to include its Registrable Securities included on the shelf registration statement in the Shelf Underwritten Offering if such Holder notifies the proposing Holder and the Issuer within (x) three (3) Business Days after distribution or dissemination (including via e-mail, if available) of the Take-Down Notice to such Holder or (y) in the event that such Take-Down Notice is for a block sale (including a block sale off of a Shelf Registration Statement or an effective Automatic Shelf Registration Statement, or in connection with the registration of a Holder’s Registrable Securities under an Automatic Shelf Registration Statement for purposes of effectuating a block sale), two (2) Business Days after distribution or dissemination (including via e-mail, if available) of the Take-Down Notice to such Holder;

 

(ii)        in the event that the underwriter advises such requesting Holder and the Issuer in its good faith opinion that the total number or dollar amount of Registrable Securities proposed to be sold in such offering is such as to adversely affect the success of such offering (including, without limitation, adversely affect the per share offering price), then the underwriter may limit the number of shares which would otherwise be included in such take-down offering in the same manner as described in Section 3(b) with respect to a limitation of shares to be included in a registration; and

 

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(iii)       If at any time or from time to time, a Principal Investor desires to sell Registrable Securities in an Underwritten Offering pursuant to a Shelf Underwritten Offering, the underwriters, including the managing underwriter, shall be selected by such Principal Investor.

 

(h)        Registration Statement Form. If any registration requested pursuant to this Section 3 which is proposed by the Issuer to be effected by the filing of a Registration Statement on Form F-3 (or any successor or similar short-form registration statement) shall be in connection with an underwritten public offering, and if the managing underwriter(s) shall advise the Issuer that, in its good faith opinion, the use of another form of Registration Statement is of material importance to the success of such proposed offering or is otherwise required by applicable law, then such registration shall be effected on such other form.

 

(i)         Selection of Underwriters. If any Principal Investor or its Affiliates intends that the Registrable Securities requested to be covered by a Demand Registration requested by such Holder shall be distributed by means of an Underwritten Offering, such demanding Holder shall so advise the Issuer as a part of the Demand Notice, and the Issuer shall include such information in the Notice sent by the Issuer to the other Holders with respect to such Demand Registration. In such event, the lead underwriter to administer the offering shall be chosen by the demanding Holder following consultation with the Issuer. If the offering is underwritten, the right of any Holder to registration pursuant to this Section 3 will be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise agreed by the demanding Holder) and each such Holder will (together with the Issuer and the other Holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting (including, without limitation, pursuant to the terms of any over-allotment or “green shoe” option requested by the managing underwriter(s)), provided that (A) no Holder shall be required to sell more than the number of Registrable Securities that such Holder has requested the Issuer to include in any registration and (B) if any Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Issuer, the managing underwriter(s) and, in connection with an underwritten registration pursuant to this Section 3, the demanding Holder, provided further that no such Person (other than the Issuer) shall be required to make any representations or warranties other than those related to title and ownership of, and power and authority to transfer, shares and as to the accuracy and completeness of statements made in a Registration Statement, Prospectus or other document in reliance upon, and in conformity with, written information prepared and furnished to the Issuer or the managing underwriter(s) by such Person pertaining exclusively to such Holder. Notwithstanding the foregoing, no Holder shall be required to agree to any indemnification obligations on the part of such Holder that are greater than its obligations pursuant to Section 6.

 

4.            Registration Procedures. If and whenever the Issuer is required to use its reasonable best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2 and Section 3, the Issuer shall effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Issuer shall cooperate in the sale of such Registrable Securities and shall, as expeditiously as reasonably possible:

 

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(a)        prepare and file, in each case as promptly as practicable, with the SEC a Registration Statement or Registration Statements on such form as shall be available for the sale of the Registrable Securities by the Holders thereof or by the Issuer in accordance with the intended method or methods of distribution thereof, make all required filings with FINRA, and, if such Registration Statement is not automatically effective upon filing, use its reasonable best efforts to cause such Registration Statement to be declared effective as soon as practicable and to remain effective as provided herein; provided, however, that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (including free writing prospectuses under Rule 433 (each a “Free Writing Prospectus”)) and, to the extent reasonably practicable, documents that would be incorporated by reference or deemed to be incorporated by reference in a Registration Statement filed pursuant to a Demand Notice (other than a Shelf Registration Statement), the Issuer shall furnish or otherwise make available to the Holders of the Registrable Securities covered by such Registration Statement, their counsel and the managing underwriter(s), if any, copies of all such documents proposed to be filed (including exhibits thereto), which documents will be subject to the reasonable review and comment of such counsel, and such other documents reasonably requested by such counsel, including any comment letter from the SEC, and, if requested by such counsel, provide such counsel reasonable opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein and such other opportunities to conduct a reasonable investigation within the meaning of the Securities Act, including reasonable access to the Issuer’s books and records, officers, accountants and other advisors. The Issuer will include comments to any Registration Statement and any amendments or supplements thereto from Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, or their counsel, or the managing underwriters, if any, as reasonably requested on a timely basis. The Issuer shall not file any such Registration Statement or Prospectus, or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed incorporated by reference therein and including Free Writing Prospectuses) with respect to a Demand Registration to which the demanding Holder or the Holders of a majority of the Registrable Securities covered by such Registration Statement (or their counsel) or the managing underwriter(s), if any, shall reasonably object, in writing, on a timely basis, unless, in the opinion of the Issuer, such filing is necessary to comply with applicable law;

 

(b)      except in the case of a Shelf Registration Statement, prepare and file with the SEC such amendments, including post-effective amendments, and supplements to such Registration Statement and the Prospectus used in connection therewith and such Free Writing Prospectuses and Exchange Act reports as may be necessary to keep such Registration Statement continuously effective during the period provided herein and comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement; and cause the related Prospectus to be supplemented by any Prospectus supplement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such Registration Statement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act in each case, until such time as all of such securities have been disposed of in accordance with the intended method or methods of disposition by the seller or sellers thereof set forth in such Registration Statement;

 

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(c)        in the case of a Shelf Registration Statement, prepare and file with the SEC such amendments, including post-effective amendments, and supplements to such Shelf Registration Statement and the Prospectus used in connection therewith and such Free Writing Prospectuses and Exchange Act reports as may be necessary to keep such Shelf Registration Statement effective and to comply in all material respects with the provision of the Securities Act with respect to the disposition of the Registrable Securities subject thereto for the maximum period permitted by the rules of the SEC, and shall replace any Shelf Registration Statement at or before expiration.

 

(d)       notify each selling Holder of Registrable Securities, its counsel and the managing underwriter(s), if any, promptly after the Issuer receives notice thereof (i) when a Prospectus or any Prospectus supplement or post-effective amendment or any Free Writing Prospectus has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) if at any time the Issuer has reason to believe that the representations and warranties of the Issuer contained in any agreement (including any underwriting agreement) contemplated by Section 4(o) below cease to be true and correct, (v) of the receipt by the Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of such Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus, Free Writing Prospectus, amendment or supplement thereto, or any document incorporated or deemed to be incorporated therein by reference, as then in effect, untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (which notice shall notify the selling Holders only of the occurrence of such an event and shall provide no additional information regarding such event to the extent such information would constitute material non-public information);

 

(e)        use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction at the earliest date reasonably practical;

 

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(f)         if requested by the managing underwriter(s), if any, a Holder making a Demand Notice with respect to such offering or the Holders of a majority of the then issued and outstanding Registrable Securities being sold in connection with an Underwritten Offering, promptly include in a Prospectus supplement or post-effective amendment such information as the managing underwriter(s), if any, or such Holder or Holders, as the case may be, may reasonably request in order to facilitate the disposition of the Registrable Securities in accordance with the intended method or methods of distribution of such securities set forth in the Registration Statement and make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Issuer has received such request; provided, however, that the Issuer shall not be required to take any actions under this Section 4(f) that are not, in the opinion of counsel for the Issuer, in compliance with applicable law;

 

(g)        deliver to each selling Holder of Registrable Securities, its counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of Prospectus) and each amendment or supplement thereto (including any Free Writing Prospectus) as such Persons may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities in accordance with the intended method or methods of disposition thereof; and the Issuer, subject to the last paragraph of this Section 4, hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any such amendment or supplement thereto;

 

(h)        prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any seller or underwriter reasonably requests in writing and to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to take any other action that may be necessary or advisable to enable such Holders of Registrable Securities to consummate the disposition of such Registrable Securities in such jurisdiction in accordance with the intended method or methods of disposition thereof; provided, however, that the Issuer will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(h), (ii) subject itself to taxation in any jurisdiction wherein it is not so subject or (iii) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject (other than service of process in connection with such registration or qualification or any sale of Registrable Securities in connection therewith);

 

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(i)         cooperate with the selling Holders of Registrable Securities and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates (not bearing any legends unless required under applicable law) representing Registrable Securities to be sold, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter(s), if any, or Holders may request at least two (2) Business Days prior to any sale of Registrable Securities in a firm commitment public offering, but in any other such sale, within ten (10) Business Days prior to having to issue the securities;

 

(j)         use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States as may be necessary in light of the business or operations of the Issuer to enable the seller or sellers thereof or the managing underwriter(s), if any, to consummate the disposition of such Registrable Securities, in accordance with the intended method or methods thereof, except as may be required solely as a consequence of the nature of such selling Holder’s business, in which case the Issuer will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals, as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities in accordance with the intended method or methods thereof;

 

(k)        upon the occurrence of any event contemplated by Section 4(d)(vi) above, promptly prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(l)         prior to the effective date of the Registration Statement relating to the Registrable Securities, provide a CUSIP number for the Registrable Securities;

 

(m)       provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities from and after the effective date of such Registration Statement. In connection therewith, if required by the Issuer’s transfer agent, the Issuer will promptly after the effective date of the Registration Statement, cause an opinion of counsel as to the effectiveness of the Registration Statement to be delivered to and maintained with such transfer agent, together with any other authorizations, certificates and directions required by the transfer agent which authorize and direct the transfer agent to issue such Registrable Securities without any such legend upon sale by the Holder or the underwriter or managing underwriter of an Underwritten Offering of Registrable Securities, if any, of such Registrable Securities under the Registration Statement;

 

(n)        use its reasonable best efforts to cause all shares of Registrable Securities covered by such Registration Statement to be listed on a national securities exchange if shares of the particular class of Registrable Securities are at that time listed on such exchange, prior to the effectiveness of such Registration Statement;

 

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(o)       enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other customary actions reasonably requested by a Holder submitting a Demand Notice with respect to such offering or the Holders of a majority of the Registrable Securities being sold in connection therewith (including those reasonably requested by the managing underwriter(s), if any) to expedite or facilitate the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Issuer and its Subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in Underwritten Offerings, and, if true, confirm the same if and when reasonably requested, (ii) use its reasonable best efforts to furnish to the selling Holders of such Registrable Securities opinions of outside counsel (and/or internal counsel if acceptable to the managing underwriter(s)) to the Issuer and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s), if any, and counsels to the selling Holders of the Registrable Securities), addressed to each selling Holder of Registrable Securities and each of the underwriters, if any, covering the matters customarily covered in opinions requested in Underwritten Offerings and such other matters as may be reasonably requested by such counsel and underwriters, (iii) use its reasonable best efforts to obtain “cold comfort” letters and updates thereof from an independent registered public accounting firm with respect to the Issuer (and, if necessary, any other independent certified public accountants of any Subsidiary of the Issuer or of any business acquired by the Issuer for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each selling Holder of Registrable Securities (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession) and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with Underwritten Offerings, (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures that are customary for underwriting agreements in connection with Underwritten Offerings except as otherwise agreed by the parties thereto and (v) deliver such documents and certificates as may be reasonably requested by a Holder making a Demand Notice with respect to such offering, the Holders of a majority of the Registrable Securities being sold pursuant to such Registration Statement, its or their counsel, as the case may be, or the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to Section 4(o)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuer. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder;

 

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(p)           upon reasonable notice, make available for inspection by a representative of the selling Holders of Registrable Securities, the underwriters participating in any such disposition of Registrable Securities, if any, and any attorneys or accountants retained by such selling Holders or underwriter (collectively, the “Inspectors”) at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Issuer and its Subsidiaries (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the officers, directors and employees of the Issuer and its Subsidiaries to supply all information in each case reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement; provided, however, that any information and Records that are not generally publicly available at the time of delivery of such information shall be kept confidential by the Inspectors unless (i) disclosure of such information or Records is required by court or administrative order, (ii) disclosure of such information or Records, in the opinion of counsel to such Inspector, is required by law or applicable legal process, (iii) such information or Records become generally available to the public other than as a result of a disclosure or failure to safeguard by such Inspector, (iv) such information or Records becomes available to such Inspector on a non-confidential basis from a source other than the Issuer or (v) such information or Records is independently developed by such Inspector. In the case of a proposed disclosure pursuant to (i) or (ii) above, such Inspector shall be required to give the Issuer written notice of the proposed disclosure prior to such disclosure and, if requested by the Issuer, assist the Issuer in seeking to prevent or limit the proposed disclosure;

 

(q)           cause its officers to use their reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement (including, without limitation, participation in such number of “road shows” as the underwriter(s) reasonably request);

 

(r)            cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the FINRA;

 

(s)           otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Issuer’s first full calendar quarter after the effective date of the Registration Statement, which earnings statement will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and

 

(t)            take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, that, to the extent that any prohibition is applicable to the Issuer, the Issuer will take all reasonable action to make such prohibition inapplicable.

 

The Issuer may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Issuer in writing such information required in connection with such registration regarding such seller and the distribution of such Registrable Securities as the Issuer may, from time to time, reasonably request and the Issuer may exclude from such registration the Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.

 

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The Issuer agrees not to file or make any amendment to any Registration Statement with respect to any Registrable Securities, or any amendment of or supplement to the Prospectus or any Free Writing Prospectus used in connection therewith, that refers to any Holder covered thereby by name, or otherwise identifies such Holder as the holder of any securities of the Issuer, without the consent of such Holder, such consent not to be unreasonably withheld or delayed, unless and to the extent such disclosure is required by law, rule or regulation, in which case the Issuer shall provide prompt written notice to such Holders prior to the filing of such amendment to any Registration Statement or amendment of or supplement to the Prospectus or any Free Writing Prospectus.

 

If the Issuer files any Shelf Registration Statement for the benefit of the holders of any of its securities other than the Holders, the Issuer agrees that it shall use its reasonable best efforts to include in such registration statement such disclosures as may be required by Rule 430B under the Securities Act (referring to the unnamed selling security holders in a generic manner by identifying the initial offering of the securities to the Holders) in order to ensure that the Holders may be added to such Shelf Registration Statement at a later time through the filing of a Prospectus supplement rather than a post-effective amendment.

 

Each Holder of Registrable Securities agrees if such Holder has Registrable Securities covered by such Registration Statement that, upon receipt of any notice from the Issuer of the happening of any event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(iv), 4(d)(v) and 4(d)(vi) hereof, such Holder will promptly discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(k) hereof, or until it is advised in writing by the Issuer that the use of the applicable Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus; provided, however, that the time periods under Section 3 with respect to the length of time that the effectiveness of a Registration Statement must be maintained shall automatically be extended by the amount of time the Holder is required to discontinue disposition of such securities.

 

5.             Hedging Transactions. The Parties agree that the provisions of this Agreement relating to the registration, offer and sale of Registrable Securities apply also to (i) any transaction which Transfers some or all of the economic risk of ownership of Registrable Securities, including any forward contract, equity swap, put or call, put or call equivalent position, collar, margin loan, sale of exchangeable security or similar transaction (including the registration, offer and sale under the Securities Act of Registrable Securities pledged to the counterparty to such transaction or of securities of the same class as the underlying Registrable Securities by the counterparty to such transaction in connection therewith), and that the counterparty to such transaction shall be selected in the sole discretion of the Holders and (ii) any derivative transactions in which a broker-dealer, other financial institution or unaffiliated Person may sell Registrable Securities covered by any Prospectus and the applicable prospectus supplement including short sale transactions using Registrable Securities pledged by a Holder or borrowed from the Holder or others and Registrable Securities loaned, pledged or hypothecated to any such party. The Prospectus shall permit, in connection with derivative transactions, a broker-dealer, other financial institution or third party to sell shares of the Registrable Securities covered by such Prospectus and the applicable prospectus supplement, including in short sale transactions.

 

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6.             Indemnification.

 

(a)           Indemnification by the Issuer. The Issuer shall, without limitation as to time, indemnify and hold harmless, to the fullest extent permitted by law, each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement or Prospectus, the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees of each of them, each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) each such Holder and the officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees of each such controlling person, each underwriter, if any, and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriter (each such person being referred to herein as a “Covered Person”), from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys’ fees and any legal or other fees or expenses incurred by such party in connection with any investigation or proceeding), expenses, judgments, fines, penalties, charges and amounts paid in settlement (collectively, “Losses”), as incurred, arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Prospectus, offering circular, or other document (including any related Registration Statement, notification, or the like, any Free Writing Prospectus, any “roadshow” as defined in Rule 433(h) or any oral or written communication with potential investors in reliance on Section 5(d) of the Securities Act or Rule 163B (a “Testing-the-Waters Communication”) or any amendment or supplement to any of the foregoing or any document incorporated by reference therein) incident to any such registration, qualification, or compliance, or based on any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Issuer of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation thereunder applicable to the Issuer and relating to any action or inaction in connection with the related offering of Registrable Securities, and will reimburse each such Covered Person for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such Loss, provided that the Issuer will not be liable in any such case to the extent that any such Loss arises out of or is based on any untrue statement or omission by such Covered Person relating to such Covered Person or its Affiliates (other than the Issuer or any of its Subsidiaries), but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement, Prospectus, offering circular, Free Writing Prospectus, roadshow, Testing-the-Waters Communication or any amendment or supplement to any of the foregoing, or any document incorporated by reference therein, or other document in reliance upon and in conformity with written information furnished to the Issuer by such Covered Person with respect to such Covered Person for use therein. It is agreed that the indemnity agreement contained in this Section 6(a) shall not apply to amounts paid in settlement of any such Loss or action if such settlement is effected without the consent of the Issuer (which consent shall not be unreasonably withheld).

 

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(b)           Indemnification by Holder of Registrable Securities. As a condition to including any Registrable Securities in any Registration Statement filed in accordance with Section 4 hereof, the Issuer shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registrable Securities to indemnify, to the fullest extent permitted by law, severally and not jointly with any other Holders of Registrable Securities, the Issuer, its directors and officers and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) the Issuer and all other prospective sellers, from and against all Losses arising out of or based on any untrue or alleged untrue statement of a material fact contained in any such Registration Statement, Prospectus, Free Writing Prospectus, offering circular, or other document, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Issuer, such directors, controlling persons and prospective sellers for any legal or any other expenses reasonably incurred in connection with investigating or defending any such Loss, in each case to the extent, but only to the extent, that such untrue statement or omission is made in such Registration Statement, Prospectus, Free Writing Prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Issuer by such Holder with respect to such Holder for inclusion in such Registration Statement, Prospectus, offering circular or other document; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such Losses (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided, further, that the liability of such Holder of Registrable Securities shall be limited to the net proceeds after underwriting commissions and discounts (but before any taxes and expenses which may be payable by such Holder) received by such selling Holder from the sale of Registrable Securities covered by such Registration Statement.

 

(c)           Conduct of Indemnification Proceedings. If any Person shall be entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall give prompt notice to the party from which such indemnity is sought (the “Indemnifying Party”) of any claim or of the commencement of any proceeding with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any obligation or liability except to the extent that the Indemnifying Party has been materially prejudiced by such delay or failure. The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such claim or proceeding, to, unless in the Indemnified Party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, assume, at the Indemnifying Party’s expense, the defense of any such claim or proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided, however, that an Indemnified Party shall have the right to employ separate counsel in any such claim or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless: (i) the Indemnifying Party agrees to pay such fees and expenses; or (ii) the Indemnifying Party fails promptly to assume, or in the event of a conflict of interest cannot assume, the defense of such claim or proceeding or fails to employ counsel reasonably satisfactory to such Indemnified Party; in which case the Indemnified Party shall have the right to employ counsel and to assume the defense of such claim or proceeding at the Indemnifying Party’s expense; provided, further, however, that the Indemnifying Party shall not, in connection with any one (1) such claim or proceeding or separate but substantially similar or related claims or proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one (1) firm of attorneys (together with appropriate local counsel) at any time for all of the Indemnified Parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld or delayed). The Indemnifying Party shall not consent to entry of any judgment or enter into any settlement that (x) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such claim or litigation for which such Indemnified Party would be entitled to indemnification hereunder or (y) involves the imposition of equitable remedies or the imposition of any obligations on the Indemnified Party or adversely affects such Indemnified Party other than as a result of financial obligations for which such Indemnified Party would be entitled to indemnification hereunder.

 

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(d)           Contribution. If the indemnification provided for in this Section 6 is unavailable to an Indemnified Party in respect of any Losses (other than in accordance with its terms), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made (or omitted) by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission.

 

The Parties agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6(d), an Indemnifying Party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount that such Indemnifying Party has otherwise been, or would otherwise be, required to pay pursuant to Section 6(b) by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are more favorable to the Holders than the foregoing provisions, the provisions in the underwriting agreement shall control.

 

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(e)           Deemed Underwriter. To the extent that any of the Holders is, or would be expected to be, deemed to be an underwriter of Registrable Securities pursuant to any SEC comments or policies or any court of law or otherwise, the Issuer agrees that (i) the indemnification and contribution provisions contained in this Section 6 shall be applicable to the benefit of such Holder in its role as deemed underwriter in addition to its capacity as a Holder (so long as the amount for which any other Holder is or becomes responsible does not exceed the amount for which such Holder would be responsible if the Holder were not deemed to be an underwriter of Registrable Securities) and (ii) such Holder and its representatives shall be entitled to conduct the due diligence which would normally be conducted in connection with an offering of securities registered under the Securities Act, including receipt of customary opinions and comfort letters.

 

(f)            Other Indemnification. Indemnification similar to that specified in the preceding provisions of this Section 6 (with appropriate modifications) shall be given by the Issuer and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act.

 

(g)           Non-Exclusivity. The obligations of the Parties under this Section 6 shall be in addition to any liability which any party may otherwise have to any other party.

 

(h)           Primacy of Indemnification. The Issuer hereby acknowledges that certain of the Investors have certain rights to indemnification, advancement of expenses and/or insurance provided by certain of their affiliates (collectively, the “Indemnitors”).  The Issuer hereby agrees that (i) it is the indemnitor of first resort (i.e., its obligations to the Investors are primary and any obligation of the Indemnitors to advance expenses or to provide indemnification for the same Losses incurred by any of the Investors are secondary to any such obligation of the Issuer), (ii) that it shall be liable for the full amount of all Losses to the extent legally permitted and as required by the terms of this Agreement and the articles and other organizational documents of the Issuer (or any other agreement between the Issuer and the relevant Investor), without regard to any rights any Investor may have against the Indemnitors, and (iii) it irrevocably waives, relinquishes and releases the Indemnitors from any and all claims (x) against the Indemnitors for contribution, indemnification, subrogation or any other recovery of any kind in respect thereof and (y) that any Investor must seek indemnification from any Indemnitor before the Issuer must perform its indemnification obligations under this Agreement.  No advancement or payment by the Indemnitors on behalf of any Investor with respect to any claim for which such Investor has sought indemnification from the Issuer hereunder shall affect the foregoing.  The Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery which any Investor would have had against the Issuer if the Indemnitors had not advanced or paid any amount to or on behalf of such Investor.  The Issuer and the Investors agree that the Indemnitors are express third party beneficiaries of this Section 6.

 

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7.             Registration Expenses. All reasonable fees and expenses incurred in the performance of or compliance with this Agreement by the Issuer including, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses with respect to (A) filings required to be made with the SEC, all applicable securities exchanges and/or FINRA and (B) compliance with securities or blue sky laws, including, without limitation, any reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities pursuant to Section 4(h)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter(s), if any, or by a Holder making a Demand Notice with respect to such offering or the Holders of a majority of the Registrable Securities included in any Registration Statement), (iii) messenger, telephone and delivery expenses of the Issuer, (iv) fees and disbursements of counsel for the Issuer, (v) expenses of the Issuer incurred in connection with any road show, (vi) fees and disbursements of all independent registered public accounting firms referred to in Section 4(o) hereof (including, without limitation, the expenses of any “cold comfort” letters required by this Agreement) and any other persons, including special experts retained by the Issuer and (vii) fees and disbursements of separate counsel (including any required local counsel) for each Investor and its Affiliates if any of them is participating in the offering (which counsel shall be selected by such Investor) shall be borne by the Issuer whether or not any Registration Statement is filed or becomes effective. In addition, the Issuer shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Issuer are then listed and rating agency fees and the fees and expenses of any Person, including special experts, retained by the Issuer.

 

The Issuer shall not be required to pay (i) fees and disbursements of any counsel retained by any Holder of Registrable Securities or by any underwriter (except as set forth above in this Section 7), (ii) any underwriter’s fees (including discounts, commissions or fees of underwriters, selling brokers, dealer managers or similar securities industry professionals) relating to the distribution of the Registrable Securities (other than with respect to Registrable Securities sold by the Issuer), or (iii) any other expenses of the Holders of Registrable Securities not specifically required to be paid by the Issuer pursuant to the first paragraph of this Section 7.

 

8.             Rule 144. The Issuer covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Issuer is not required to file such reports, it will, upon the request of any Holder, make publicly available such information so long as necessary to permit sales of Registrable Securities pursuant to Rule 144), and it will take such further action as any Holder of Registrable Securities (or, if the Issuer is not required to file reports as provided above, any Holder) may reasonably request, all to the extent required from time to time to enable such Holder to sell shares of Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. Upon the request of any Holder of Registrable Securities, the Issuer will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.

 

9.             Certain Additional Agreements. If any Registration Statement or comparable statement under state blue sky laws refers to any Holder by name or otherwise as the Holder of any securities of the Issuer, then such Holder shall have the right to require (a) the insertion therein of language, in form and substance satisfactory to such Holder and the Issuer, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Issuer’s securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Issuer, or (b) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Issuer required by the Securities Act or any similar federal statute or any state blue sky or securities law then in force, the deletion of the reference to such Holder.

 

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10.           Miscellaneous.

 

(a)           Termination. The provisions of this Agreement shall terminate upon the earliest to occur of (i) its termination by the written agreement of all Parties or their respective successors in interest, (ii) with respect to a Holder, the date on which all Common Shares held by such Holder have ceased to be Registrable Securities (except to the extent certain provisions are terminated earlier by delivery of an Opt-Out Notice in accordance with Section 10(c)), (iii) with respect to the Issuer, the date on which all Common Shares have ceased to be Registrable Securities and (iv) the dissolution, liquidation or winding up of the Issuer. Nothing herein shall relieve any party from any liability for the breach of any of the agreements set forth in this Agreement. The provisions of Sections 6 and 7 shall survive any termination of this Agreement.

 

(b)           Holdback Agreement. In consideration for the Issuer agreeing to its obligations under this Agreement, each Holder agrees in connection with any registration of the Issuer’s securities (whether or not such Holder is participating in such registration) upon the request of the underwriter(s) managing any Underwritten Offering of the Issuer’s securities, not to effect (other than pursuant to such registration) any public sale or distribution of Registrable Securities, including, but not limited to, any sale pursuant to Rule 144, or make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, or enter into any swap or other arrangement that transfers to another Person any of the economic consequences of ownership of, any Registrable Securities, any other equity securities of the Issuer or any securities convertible into or exchangeable or exercisable for any equity securities of the Issuer without the prior written consent of such underwriters during the Holdback Period. If, during the applicable Holdback Period, any Holder is released from a lock-up obligation by such underwriters, then all other Holders shall be released from their lock-up obligations on a pro rata basis.

 

If any registration pursuant to Section 3 of this Agreement shall be in connection with any underwritten public offering, the Issuer will not effect any public sale or distribution of any common equity (or securities convertible into or exchangeable or exercisable for common equity) (other than a registration statement (i) on Form F-4, Form S-8 or any successor forms promulgated for similar purposes, (ii) filed in connection with an exchange offer or any employee benefit or dividend reinvestment plan) for its own account, during the Holdback Period.

 

Notwithstanding anything to the contrary set forth in this Section 10(b), in connection with an Underwritten Offering that is a block sale, (i) no Holder shall be subject to a lock-up agreement, other than, if requested by the managing underwriter for such offering, a Holder that is (A) participating in such block sale or (B) a Holder of five percent (5%) or more of the equity securities of the Issuer then outstanding, and (ii) such Holdback Period shall not exceed sixty (60) days in connection with any block sale. Notwithstanding anything to the contrary set forth in this Section 10(b), no Holder shall be required to be subject to a lock-up agreement in connection with an Underwritten Offering that is a block sale in which such Holder does not participate (a “Skipped Block Sale”), if during the preceding twelve (12) month period, such Holder has twice been subject to a lock-up agreement in connection with Skipped Block Sales.

 

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(c)           Opt-Out Notice. Any Holder may, at any time, deliver to the Issuer a notice terminating certain of its rights and obligations set forth herein (an “Opt-Out Notice”). Following the delivery of the Opt-Out Notice to the Issuer, all of such Holder’s rights and obligations under Sections 2, 3, 4, 5 and 10(b) of this Agreement shall terminate automatically, and without further action by the Issuer or any other Person; provided, however, that any applicable lock-up restrictions then currently in effect at the time of delivery of the Opt-Out Notice to the Issuer shall remain in effect until the expiration of the applicable Holdback Period. For the avoidance of doubt, no transferee in a transfer of shares from a Holder that has delivered a valid Opt-Out Notice shall be required to become a party to this Agreement.

 

(d)           Amendments and Waivers. This Agreement may be amended and the Issuer may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if any such amendment, action or omission to act, has received the written consent of the Issuer, and each of the Investors and its Affiliates that is a Holder of Registrable Securities, or if no such Holders remain, the Holders of a majority of the Registrable Securities; provided that this Agreement may not be amended in a manner that would, by its terms, adversely affect the rights or obligations of any of the Investors or its Affiliates that is a Holder of Registrable Securities without the consent of such Holders. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. Any Holder may waive (in writing) the benefit of any provision of this Agreement with respect to itself for any purpose. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the Holder granting such waiver in any other respect or at any other time.

 

(e)           Successors, Assigns and Transferees. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties and their respective successors and assigns who agree in writing to be bound by the provisions of this Agreement. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of Holders shall also be for the benefit of and enforceable by any subsequent Holder of any Registrable Securities, subject to the provisions contained herein. The rights of a Holder hereunder may be assigned (but only with all related obligations set forth below) in connection with a Transfer of Registrable Securities effected in accordance with the terms of this Agreement to a Permitted Transferee of that Holder. Without prejudice to any other or similar conditions imposed hereunder with respect to such Transfer, no assignment permitted under the terms of this Section 10(e) will be effective unless and until the Permitted Transferee to which the assignment is being made, if not a Holder, has delivered to the Issuer the executed Joinder Agreement in the form attached as Exhibit A hereto agreeing to be bound by, and be party to, this Agreement. A Permitted Transferee to whom rights are transferred pursuant to this Section 10(e) may not again Transfer those rights to any other Permitted Transferee, other than as provided in this Section 10(e).

 

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(f)            Notices. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission) and e-mail transmission if confirmed by telephone or return e-mail (including automated return receipt) and shall be given:

 

If to the Issuer, to:

 

Rodovia José Carlos Daux,

5500, Torre Jurerê A,
2nd floor, Saco Grande, Florianópolis,

State of Santa Catarina, 88032-005, Brazil
Attention: Pedro Jorge Guterres Quintans Graça
(pedro.graca@uniasselvi.com.br)

Fax: [●]

 

with a copy (which shall not constitute notice) to:

 

Davis Polk & Wardwell LLP
450 Lexington Avenue

New York, New York 10017
United States of America
Attention: Manuel Garciadiaz (manuel.garciadiaz@davispolk.com)
Fax: +55-11-4871-8501

 

if to Carlyle, to:

 

Robert Rosen

c/o The Carlyle Group

1001 Pennsylvania Avenue NW

Washington, DC 20004-2505

+1 (202) 729-5626

Robert.Rosen@carlyle.com

 

with a copy (which shall not constitute notice) to:

 

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Attention: Paul M. Rodel (pmrodel@debevoise.com)

Fax: (212) 909-6836

 

if to Vinci, to:

 

Bruno Zaremba, Director

T. +55 21 2159 6000

Av. Bartolomeu Mitre, 336, 5º andar – Leblon

bzaremba@vincipartners.com

 

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Marco Antonio Franklin, Principal

T. +55 21 2159 6000

Av. Bartolomeu Mitre, 336, 5º andar – Leblon

mafranklin@vincipartners.com

 

and

 

juridico@vincipartners.com

 

with a copy (which shall not constitute notice) to:

 

Mayer Brown LLP

1221 Avenue of the Americas

10020-1001

New York, NY, United States of America

Attention: John P. Berkery (jberkery@mayerbrown.com)

T: +1 (212) 506-255

 

Tauil & Chequer Advogados associado a Mayer Brown

Av. Juscelino Kubitschek, 1455 - 5º, 6º e 7º andares

Vila Nova Conceição - 04543-011

São Paulo – SP, Brazil

Attention: Carlos Motta (cmotta@mayerbrown.com)

T: +55 11 2504-4204

 

if to Neuberger, to:

 

NB Verrocchio LP

325 N. Saint Paul Street, Suite 4900

Dallas, TX 75201

Attention: NB Alternatives Legal

Email: NB.Alts.Legal@nb.com

 

with a copy (which shall not constitute notice) to:

 

Haynes and Boone LLP

2323 Victory Avenue, Suite 700

Dallas, TX 75219

Attention: Matthew Fry

Email: matt.fry@haynesboone.com

 

or such other address, facsimile number or e-mail address as such party may hereafter specify for the purpose by notice to the other Parties.

 

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If to any other Holder of Registrable Securities, to the e-mail or physical address of such other Holder as shown in the stock record book of the Issuer. Each Holder shall provide the Issuer with an updated e-mail address or physical address if such address changes by notice to the Issuer pursuant to this Section 10(f). The e-mail address or physical address shown on the stock record books of the Issuer shall be presumed to be current for purposes of giving any notice under this Agreement.

 

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:30 p.m. on a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding Business Day in the place of receipt.

 

(g)           Further Assurances. At any time or from time to time after the date hereof, the Parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the Parties hereunder.

 

(h)           Preservation of Rights. The Issuer will not enter into any agreement with any holder or prospective holder of any securities of the Issuer giving such holder or prospective holder any registration rights the terms of which are more favorable than or inconsistent with the registration rights granted to the Investors under this Agreement, or which would reduce the amount of Registrable Securities any of the Investors or its Affiliates can include in any Registration Statement.

 

(i)            Entire Agreement; No Third Party Beneficiaries. This Agreement (i) constitutes the entire agreement among the Parties with respect to the subject matter of this Agreement and supersede any prior discussions, correspondence, negotiation, proposed term sheet, agreement, understanding or agreement and there are no agreements, understandings, representations or warranties between the Parties other than those set forth or referred to in this Agreement and (ii) except as provided in Section 6 with respect to an Indemnified Party, is not intended to confer in or on behalf of any Person not a party to this Agreement (and their successors and assigns) any rights, benefits, causes of action or remedies with respect to the subject matter or any provision hereof.

 

(j)            Governing Law; Jurisdiction and Forum; Waiver of Jury Trial.

 

(i)            This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed and to be performed wholly within such State and without reference to the choice-of-law principles that would result in the application of the laws of a different jurisdiction.

 

(ii)           Each party to this Agreement irrevocably submits to the jurisdiction of the United States District Court for the Southern District of New York or any court of the State of New York located in such district any suit, action or other proceeding arising out of or relating to this Agreement, and hereby irrevocably agrees that all claims in respect of such suit, action or proceeding may be heard and determined in such court. Each party to this Agreement hereby irrevocably waives, to the fullest extent that it may effectively do so, the defense of an inconvenient forum to the maintenance of such suit, action or other proceeding. The Parties further agree, to the extent permitted by law, that final and unappealable judgment against any of them in any suit, action or other proceeding contemplated above shall be conclusive and may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of which shall be conclusive evidence of the fact and amount of such judgment.

 

30

 

 

(iii)          EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

(k)           Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

 

(l)            Enforcement. Each party hereto acknowledges that money damages would not be an adequate remedy in the event that any of the covenants or agreements in this Agreement are not performed in accordance with its terms, and it is therefore agreed that in addition to and without limiting any other remedy or right it may have, the non-breaching party will have the right to an injunction, temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach and enforcing specifically the terms and provisions hereof.

 

(m)          Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and will not affect the meaning or interpretation of this Agreement.

 

(n)           No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement, the Issuer and each Holder (other than the Investors) covenant, agree and acknowledge that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against any current or future director, officer, employee, shareholder, general or limited partner or member of any of the Investors or of any Affiliate or assignee thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future director, officer, employee, shareholder, general or limited partner or member of any of the Investors or of any Affiliate or assignee thereof, as such for any obligation of any of the Investors under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

 

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(o)           Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts (including via facsimile and electronic transmission), each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signature(s).

 

[Remainder of page left intentionally blank]

 

32

 

 

IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be duly executed on its behalf as of the date first written above.

 

  VITRU LIMITED
   
  By:  
    Name:
    Title:
   
  Mundi Holdings I
   
  By:  
    Name:
    Title:
   
  Mundi Holdings II
   
  By:  
    Name:
    Title:
   
  VINCI CAPITAL PARTNERS II J BETA FUNDO DE INVESTIMENTO EM PARTICIPAÇÕES MULTIESTRATÉGIA
   
  By:  
    Name:
    Title:
   
  AGRESTI INVESTMENTS LLC
   
  By:  
    Name:
    Title:
   
  BOTTICELLI INVESTMENTS LLC
   
  By:    
    Name:       
    Title:

 

[Signature Page to Registration Rights Agreement]

 

 

 

  CARAVAGGIO INVESTMENTS LLC
   
  By:  
    Name:
    Title:
   
  RAFFAELLO INVESTMENTS LLC
   
  By:  
    Name:
    Title:
   
  NB VERROCCHIO LP
   
  By:  
    Name:
    Title:

 

[Signature Page to Registration Rights Agreement]

 

 

 

Exhibit A

 

JOINDER AGREEMENT

 

Reference is made to the Registration Rights Agreement, dated as of September [●], 2020 (as amended from time to time, the “Registration Rights Agreement”), by and among Vitru Limited and the other parties thereto, if any. The undersigned agrees, by execution hereof, to become a party to, and to be subject to the rights and obligations under the Registration Rights Agreement.

 

[NAME]

 

By:    
  Name:  
  Title:  

 

Date:

 

Address:

 

  Acknowledged by:
   
  VITRU LIMITED
   
  By:           
    Name:
    Title:

 

A-1

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the use in this Registration Statement on Form F-1 of Vitru Limited of our report dated March 28, 2020 relating to the financial statements of Treviso Empreendimentos, Participações e Comércio S.A., which appears in this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

/s/ PricewaterhouseCoopers Auditores Independentes
Florianópolis, Brazil
September 8, 2020