Vitru Limited

Good evening, ladies and gentlemen, and welcome to Vitru's third quarter 2022 earnings conference call. All participants are in a listen-only mode now. Later on, we will conduct the question and answer session and instructions will follow at that time. As a reminder, this call is being recorded and will be available on Vitru's IR website. Now, I would like to introduce the host for today's conference call, Mr. Carlos Fritas, Vitru's CFO. You may begin.

Thank you, Pereira. Good evening, everyone, and thanks for joining us again. It's a real pleasure to be here with you all for the release of our third quarter of 2022 numbers. Here with me I have Pedro Graça and William Atos, our two co-CEOs, Maria Carolina Gonçalves, the head of Investor Relations, and Raquel Suzaki and Helio Crespo Jr. from our Investor Relations team. A slide presentation, as you know, will be part of today's webcast, which is also available in our IR website at investors.vitru.com.br. So I trust you all have this presentation in front of you. And before I begin, I'd like to make note that as detailed in page 2 of the presentation, Safe Harbor is in effect for default. So now I'd like to invite you all to go to page 4 of this presentation. Here we show some important highlights of the last month. The first one is, as you remember, we announced an investment agreement with Crescera Capital for an amount of R$300 billion, fully primary capital increase, which, by the way, was closed today. Today was the closing of the primary capital increase of Crescera into vitro. for a total consideration of roughly $58 million, so around R$300 million, which was closed today. So as of today, Crescera is already a shareholder of Vitrum, so another reference shareholder in our capital table. We also announced a few weeks ago that we were going to launch a rights offering that we indeed launched a few weeks ago in October 24, allowing our current shareholders to subscribe for new virtual common shares at the same price, at the same USD price paid by Crescera, so $16.02. So this process is still ongoing. The deadline for shareholders to accept this and subscribe for the new shares is next week, 17th. And closing of the transaction will be in the following week on the 23rd. And I do expect an additional capital increase between 100 and 150 million reais. So now, in November, we're going to receive around 400, 450 million reais of new capital that is going to be used fully or basically fully for the repayment of debt aligned to our plan when we finance the business combination with UNICEF. On the right part of the slide, we also had another very solid intake cycle for 2022.2, the second semester of this year. We grew around 30.8, 31% combined between UNICEF and UNICEF. It was around 23% for UNICEF and around 50% for and I'm going to give you more details on that a bit later. And also, we had this quarter, in September, the acquisition of ReadyNN, which is a leading educational platform focused on secondary education students, so our niche clients, especially those who want to prepare for the NN exam. So it's a nice distribution channel for us as well to generate leads and to be closer to our future clients. On page 5, I have here the main financial indicators for this quarter. Both the organic numbers, I mean, without the consolidation of UNICEF-DMAR, to facilitate your comparisons, and also on a consolidated basis, meaning with the contribution of the UNICEF-DMAR results since the closing of the business combination on May 20th. I mean, with four months and a half of . So throughout this presentation and in the release material as a whole, we are going to provide information on an organic basis and on a consolidated basis to be as transparent as possible so that you can make your appropriate analysis. So here on page five, we highlighted the increase first in net revenue in our core business, which is digital education undergraduate segment. which was up 124% this quarter compared to the third quarter of last year, while the consolidated net revenue was up 170%. It's even higher than the net revenue growth in digital education undergrads segment because of, as you know, the strong business specialty of medicine within UNICEF-Domar. We also grew our adjusted EBITDA by 271% this quarter. So we reached a very strong growth, not only on organic basis, in which we grew by 28%, but we grew 207% and our adjusted EBITDA margin is now at 35.8% in the third quarter of this year. Just as a reminder, on a pro forma basis, when you look at last year numbers, we had around 34.5% of ABD margin. It was around 29% for Vitro X unit of the month and 39% for unit of the month. So the pro forma average was 34.5 for a full year of last year. Now, this quarter, we had 35.8. So we are already seeing the first effect of our synergies in function of our integration. As we announced a few months ago, we have some levers for synergies arising from integration. The first one, the most important one, is personal cost. And part of our increase in margins now, part of it is already coming from these synergies. Adjust cash flow for operations. increased even more, 290% in this third quarter, with a cash flow conversion of 110%. And the adjusted net income was up 386% this quarter. So it is a clear, I would say, already accretive transaction, the basic combination with Unicef's model. On page six, I'm going to go quite quickly here on the slide, but I always like to highlight what we are delivering and what we had before the IPO. So as you know, we had four growth avenues, four teams for growth. The ramp up of kernel hubs, the opening of new hubs, the increase in cost offering, and inorganic growth. And we are delivering the four growth avenues. So now we have around 745,000 students, including the ones from Unicef do Mar. On an organic basis, we grew by around 100,000 students between the second quarter of 2020 and the third quarter of 2022 within Unicef do Mar. We went from 600 hubs to now more than 2,100 hubs, being more or less 1,000 in Unicef do Mar and 1,100 in Unicef do Mar. And we have now a strong presence in the Southeast with more than 700 hubs in the Southeast. We started to offer nursing last year, as you know. We are going to start offering psychology in the short term once it is finally approved. And with Untenomad, we are now the number one player in digital education in Brazil. with the two brands, Unicell and Unistomar. On page 7, just to give you some more details about some of these growth avenues, here we show the growth and the maturation curve of our hubs. This is, in itself, the most important driver for growth in revenues. It is the maturation of the hub we have already in place. So here we showed the same old curve and comparison within each brand with differentiation from one year to the other in each of the years for hubs that we have. So here we have a 41% maturation index, meaning that we could grow our student base in 1.5 times to reach 100%. with the same help we have today. So it is important growth with limited education risk. On page eight, the breakdown, the distribution of our digital education undergraduate students throughout the country. So important growth in all regions, especially, as I said, in the Southeast. The Southeast now has 182,000 students. That is already the second most important region in the country with a 340% growth year-on-year. And on the right part of the slide, the breakdown of the geographic presence of hubs with, again, the southeast now being the most important one with 700 hubs, meaning 200% increase from what we had within one year ago. On page nine, the growth in the cost-to-cost offering It's also important to show here that recently we increased the number of allowed seats in nursing. So this is what, here on the slide, we show that now within Universidade do Mar, and in Acelvia, we are able to offer even more seats and increased intake than what we had as a possibility in the past. This is an important growth avenue for us. And in the future, hopefully soon, we'll be able to offer law, psychology, and in the short term, even dental care. On page 10, this is a number of indicators and KPIs that we monitor as a way to show and to measure the satisfaction of our clients. in terms of technology focus, in terms of satisfaction with our support for them. So we, within Unicef do Mar and Unicef Selvi, we have the two top brands for digital education in Brazil. When you see, for example, the grades for our app on the left part of the slide, or the Reclame Aqui grades, on the right part of the lives. So this is to show the why, why we are growing faster than competition, why we are having a better performance. The underlying reasons for that is our focus on our clients, our focus on technology, our attention to details within the operations of V2 as a whole. And on page 11, just to finish this part. Again, the huge geographic complementarity of our hubs throughout Brazil. As you know, there's a nice fit between Nestaven and Sedomar. And we have today an important synergy lever, which is the penetration, the faster penetration of hubs in cities in which only one brand is present. So in these cities, we have already a partner that knows the local reality, that understands the local market. So we have today around 750 small and medium cities, which has only one of our two brands. So the financials on face wealth. Here we show that we have reached an increase of 130%. in our student base in digital education undergrad students year on year. Organically, it was around 20% within UniaSELVI. So now we have 672,000 students in digital education undergrad segments. And as I said, a strong growth in intake this year, 23% for UniaSELVI, 51% for Unicef-Dumas. As a reminder, UNICEF-AMAR grew 55% in the first half of this year. Why was that? For a number of reasons. One of that is that UNICEF-AMAR used to grow in steps, in installments, in expansion of hubs. Differently from UNIASELVI, which usually has been opening a number of hubs, given a number of hubs, 150 more or less on average per year. UNICEF opened a lot of hubs in 2018 and now again in 2021, beginning of 2022, opened again another huge round of new hubs. So they had a huge increase in intake in the first half of this year and now we have again this performance with 50% increase in intake this year. On the right part, bottom right of the slide, we have the average ticket for this segment, for our core business, which is digital education and the graduation. For Unia Selvi, we are increasing by 7%, so the same trend that we have seen in the last year, in the last semester. We have a unique hybrid model. Here, the The differentiation aspect is the academic model. So we have been able to more or less increase tickets aligned to inflation, sometimes slightly higher, sometimes slightly lower, but more or less over time in line with inflation. For Uni Sedomar, there was a decrease of 7% year on year, and that was basically because of the huge intake this year. As you remember, in the first Half of this year, the decrease for only 7% was 2%. Now it is 7% because of this second semester of a huge increase, the first and now the second semester of this year. So this is basically a matter of mix. As you know, the average ticket of a new student is lower than the average ticket of a senior. So a person in the fourth year of graduation, for example, has a higher ticket than the one that has just joined the company. And why is that? Because we, through all the course, we increase tickets above inflation. So now, as of now, a person in the eighth semester of , has a higher ticket than the one who has just joined our courses. So this is a matter of mix, and going forward, We have a number of best practices that we are already starting to implement in both brands. For Unia Selvi, it is the pricing management as a whole, which is going to be important for Unicef-Domar going forward. So over the medium term, we expect to have a nice performance here as well in Unicef-Domar.

On page 13, net revenue, gross profit, and just EBITDA.