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As filed with the Securities and Exchange Commission on September 17, 2020.
Registration No. 333-248272
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Vitru Limited
(Exact Name of Registrant as Specified in its Charter)
The Cayman Islands
(State or other jurisdiction of
incorporation or organization)
8200
(Primary Standard Industrial
Classification Code Number)
N/A
(I.R.S. Employer
Identification Number)
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)
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)
Copies to:
Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
John P. Guzman
Jessica Y. Chen
White & Case LLP
1221 Avenue of the Americas
New York, New York 10020
(212) 819-8200
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.
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Amount to be
Registered(1)
Proposed Maximum
Aggregate Offering
Price Per Share(2)
Proposed Maximum
Aggregate
Offering Price(1)(2)
Amount of
Registration Fee(3)
Common shares, par value US$0.00005 per share
6,900,000 US$ 18.00 US$ 124,200,000 US$ 16,122
(1)
Includes common shares to be sold by us and includes common shares to be sold upon the exercise of the underwriters’ option to purchase additional shares. See “Underwriting.”
(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.
(3)
Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price. A registration fee of US$16,122 was previously paid in connection with the Registration Statement.
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 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 17, 2020
PRELIMINARY PROSPECTUS
6,000,000 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. 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$16.00 and US$18.00. We have applied to list our common shares on the Nasdaq Global Select Market, or Nasdaq, under the symbol “VTRU.”
Following this offering, our existing shareholders, funds and accounts advised by The Carlyle Group, or Carlyle, funds and accounts advised by Vinci Partners, or Vinci Partners, and funds and accounts advised by Neuberger Berman, or the NB Funds, or, collectively, the Existing Shareholders, will beneficially own 73.1% of our outstanding share capital, assuming no exercise of the underwriters’ option to purchase additional shares referred to below.
We are an “emerging growth company” under the U.S. federal securities laws as that term is used in the Jumpstart Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements. Investing in our common shares involves risks. See “Risk Factors” beginning on page 24 of this prospectus.
Per common
share
Total
Initial public offering price
US$      US$     
Underwriting discounts and commissions
US$ US$
Proceeds, before expenses, to us(1)
US$ US$
(1)
See “Underwriting” for a description of all compensation payable to the underwriters.
We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 900,000 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
The date of this prospectus is           , 2020.

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F-1
We 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 take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters have not authorized any other person to provide you with different or additional information. Neither we 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 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.
 
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For investors outside the United States: Neither we 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.
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:

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.

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.

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.

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.
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:

increasing demand for undergraduate courses, with accelerated growth of digital education;

increasing number of courses offered through digital education (deregulation);

higher relevance of hybrid experience for students, combining the best of digital education with the hand-holding support provided by local tutors;

increasing demand for education technologies to improve students’ experience;

gradual blurring of intersections of online education and viral content;

extension of postsecondary education journey through graduate and continuing education courses; and

budget allocation priorities.
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.

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.

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.

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.

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.
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:

Hybrid digital education: our core product, which consists of one weekly in-person meeting with dedicated local tutors;

Hybrid digital education double: specific to engineering and some health-related courses, which consists of two weekly in-person meetings;

Flex: the first year of the course is given in the hybrid digital education format and the subsequent years are fully online; and

100% Flex: The entire course is given in a fully online format.
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:

Infrastructure:   The quality of infrastructure of our hubs, such as classrooms, common spaces, practice laboratories, computer laboratories, library and virtual learning environment.

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.

Institution:   The perception of the quality of the academic service, institution management and the institution’s values.
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:

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;

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

Relationship:   our strategies are based on sharing relevant information for the use of our services, engaging students with the course and retaining students.
Our Products and Services
We offer the following educational products and services to students enrolled in our ecosystem:
Digital Education Undergraduate Courses

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;

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;

As of June 30, 2020, our digital education undergraduate student base was 236,838 enrolled students;

Over 167,000 people have graduated from our courses in this modality over the last 11 years.
Digital 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;

There are over 200 digital education graduate courses and more than 60 online short continuing education courses; and

As of June 30, 2020, there were over 42,000 students enrolled in our digital continuing education courses.
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, 16,848,874 of these shares will be common shares beneficially owned by our Existing Shareholders, and 6,000,000 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 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:
[MISSING IMAGE: tm2028928d7-fc_textbw.jpg]
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

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.

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 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 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.

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.

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 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.

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.

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.

If we lose key personnel our business, financial condition and results of operations may be 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.

Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.
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.

Economic uncertainty and political instability in Brazil may harm us and the price of our common shares.

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.

Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our common shares.

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.
Risks Relating to the Offering and our Common Shares

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 73.1% of our outstanding common shares and 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.

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.
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:

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;

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;

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute arrangements.
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.
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.
 
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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:

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.

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.

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 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
 
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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.
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).
Option to purchase additional common shares
We have granted the underwriters the right to purchase up to an additional 900,000 common shares from us 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$16.00 and US$18.00 per common share.
Use of proceeds
We estimate that the net proceeds to us from the offering will be approximately US$91.7 million (or US$106.1 million if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of US$17.00 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.”
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.”
 
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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 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
 
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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 900,000 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:

any revocation of accreditation of private educational institutions;

the imposition of controls on monthly tuition payments or restrictions on profitability of private educational institutions;

faculty credentials;

academic requirements for courses and curricula, including bans on offering certain subjects in a distance learning format;

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;

changes to the evaluation criteria of private educational institutions; and

infrastructure requirements applicable campuses and/or hubs, such as libraries, laboratories and administrative support.
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:

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.”

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.
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:

attract and retain students, thus increasing the number of students of our educational programs;

continue to introduce our educational programs to new markets;

provide high quality support to students and hub partners using our products and services;

expand our business and increase our market share;

compete with the products, services, offers, prices and incentives offered by our competitors;

develop new educational programs, products, services, offerings and technologies;

identify and acquire or invest in businesses, products, offerings or technologies that we believe may be able to complement or expand our operations; and

increase the positive perception of our brands, especially the “Uniasselvi” brand.
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:

the acquisition may not contribute to our commercial strategy or the image of our institution;

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;

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;

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;

our investments in acquisitions may not generate the expected returns, and we may mismanage administrative and financial resources as part of the integration process;

our divestments may not generate the expected outcomes;

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;

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;

certain transactions may impact our financial reporting obligations and the preparation of our consolidated financial statements, resulting in delays to such preparation;

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;

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

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:

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;

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;

our intellectual property and proprietary rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;

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

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.
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:

the applicable properties may not have the capacity or configuration to accommodate proposed renovations;

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;

it may be difficult and expensive to comply with local building and fire codes; and

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.
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:

limit our capacity to obtain new credit facilities;

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;

limit our flexibility to plan and react to changes in our businesses and in the sector in which we operate;

put us at a disadvantage with our competitors, who may have lower levels of indebtedness; and

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.
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:

growth or downturn of the Brazilian economy;

interest rates and monetary policies;

exchange rates and currency fluctuations;

inflation;

liquidity of the domestic capital and lending markets;

import and export controls;

exchange controls and restrictions on remittances abroad and payments of dividends;

modifications to laws and regulations according to political, social and economic interests;

fiscal policy and changes in tax laws;

economic, political and social instability, including general strikes and mass demonstrations;

the regulatory framework governing the educational industry;

labor and social security regulations;

energy and water shortages and rationing;

commodity prices;

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

other political, diplomatic, social and economic developments in or affecting Brazil.
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 16, 2020, the real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.2532 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:

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.

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.

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.

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.
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 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:

technological innovations by us or competitors;

the failure of financial analysts to cover our common shares after this offering or changes in financial estimates by analysts;

actual or anticipated variations in our operating results;

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;

announcements by us or our competitors of significant contracts or acquisitions;

future sales of our shares; and

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 73.1% of our outstanding common shares and 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 will own 73.1% of our issued share capital (or 70.3% 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, 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. 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 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 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
 
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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 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
 
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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 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
 
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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$17.00 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$14.70 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 subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act,
 
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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:

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;

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;

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

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.
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, 16,848,874 of these shares will be common shares beneficially owned by our Existing Shareholders, and 6,000,000 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 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: tm2028928d7-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:

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;

financial results, which consists of interest expenses less interest income;

depreciation and amortization;

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;

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;

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;

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:

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

restructuring expenses, which refers to expenses related to employee dismissal costs in connection with organizational and academic restructurings.
We calculate Adjusted Net Income as net income (loss) for the period plus:

share-based compensation plan, as defined above;

M&A, pre-offering expenses and restructuring expenses, as defined above;

impairment of non-current assets, as defined above;

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;

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

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.
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 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:

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;

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;

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;

the downgrading of Brazil’s investment ratings;

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;

fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future;

our ability to implement our business strategy;

our ability to adapt to technological changes in the educational sector;

the availability of government authorizations on terms and conditions and within periods acceptable to us;

our ability to continue attracting and retaining new students;

our ability to maintain the academic quality of our programs;

our ability to maintain the relationships with our hub partners;

our ability to collect tuition fees;

our ability to grow our business;

the availability of qualified personnel and the ability to retain such personnel;

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;

our capitalization and level of indebtedness;

the interests of our Exisiting Shareholders;

changes in government regulations applicable to the education industry in Brazil;

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;

our ability to compete and conduct our business in the future;

the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors;

changes in consumer demands and preferences and technological advances, and our ability to innovate to respond to such changes;

changes in labor, distribution and other operating costs;

our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us;

other factors that may affect our financial condition, liquidity and results of operations; and

other risk factors discussed under “Risk Factors.”
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$91.7 million (or US$106.1 million if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of US$17.00 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$17.00 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$16.0 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.
 
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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:

historical financial information of Vitru Brasil, on an actual basis;

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

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$91.7 million (R$502.1 million) in estimated net proceeds, considering an offering price of US$17.00 (R$93.09) per common share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom (and assuming no exercise of the underwriters’ option to purchase additional shares and placement of all offered common shares).
Investors should read this table in conjunction with Vitru Brasil’s consolidated financial statements and the related notes included elsewhere in this prospectus, with the sections of this prospectus entitled “Summary Financial and Other Information,” “Selected Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with other financial information contained in this prospectus.
As of June 30, 2020
Vitru Brasil, actual
Vitru, as adjusted
for the
contribution(2)
Vitru, as further
adjusted for
the contribution
and the
offering(3)
(in millions)
(in US$)(1)
(in R$)
(in US$)(1)
(in R$)
(in US$)(1)
(in R$)
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