6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2020

Commission File Number: 001-39519

Vitru Limited

(Exact name of registrant as specified in its charter)

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 of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F x Form 40-F ¨ 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ¨  No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ¨  No x

TABLE OF CONTENTS

Exhibit No.	Description
99.1	Earnings Release dated November 23, 2020 – Vitru Limited 3Q20 Financial Results
99.2	Vitru Limited – Unaudited Interim Condensed Consolidated Financial Statements for the nine-month ended September 30, 2020

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Vitru Limited.
By:	/s/ Carlos Henrique Boquimpani de Freitas
Name:	Carlos Henrique Boquimpani de Freitas
Title:	Chief Financial Officer

Date: November 23, 2020

EX-99.1

Exhibit 99.1

 

Florianopolis, Brazil, November 23, 2020 – Vitru Limited, or Vitru (Nasdaq: VTRU), leading pure digital education group in the postsecondary digital education market in Brazil, today reported financial and operating results for the three and nine-month periods ended September 30, 2020 (third quarter 2020 or 3Q20 and nine months of 2020 or 9M20). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS). Vitru controls UNIASSELVI with over 297 thousand students in digital education undergraduate and graduate courses, more than 3.5 thousand tutors and 662 hubs distributed throughout Brazil.

VITRU delivers strong organic growth in 3Q20 and increases its Net Revenue in Digital Education Undergraduate by 32%

To our shareholders

Pedro Graça, Vitru’s CEO, commented: “We are pleased that as our first quarter as a public company we delivered third quarter results that were in line with our expectations of continued and sustainable growth. It is a challenging year for the education sector given SARS COVID-19 implications and I am very proud of the positive attitude and outstanding response of Vitru’s team to keep providing a quality education experience for our students.

Our strategy - of focusing on a disruptive hybrid student-centric model, which emphasizes flexibility, affordability and a strong relationship with all stakeholders engaged in our platform - is proving to be efficient and delivering consistent growth across key operating and financial metrics. Intake in our core business (Digital Education - or DE - Undergraduate) reached 109.4 thousand new students in 2020.2, an increase of 40% when compared with the intake cycle of 2019.2. With a strict discipline and focus on capital allocation and promotional activity, which translated into a healthy average ticket increase of 2% over the same period, the Net Revenue of the Digital Education Undergraduate segment in 3Q20 increased 32% over 3Q19. It has boosted our Consolidated Net Revenue in 3Q20 by 15% over 3Q19, as our hubs ramp-up and mature.

We also have to celebrate the most recent post-secondary education census, released by the Brazilian Ministry of Education (MEC), in October 2020. It has confirmed that, in 2019, Vitru was the #1 pure distance learning education group in the private postsecondary distance learning education market in Brazil for the second consecutive year, with a market share of 12.3% (up from 10.8% in 2018). Between 2018 and 2019, the Brazilian distance learning market in terms of enrolled students advanced by 21.7%, while Vitru grew 38.2% confirming its solid development in recent years: the compound annual growth rate (CAGR) of the postsecondary distance learning education private market between 2016 and 2019 was 18.7%, while Vitru’s CAGR was 41.9% in the same period, i.e. more than twice the market’s growth rate.

The recently published MEC data also showed that our market share increased in all Brazilian regions between 2018 and 2019. The continued expansion within the DE segment is fully aligned with our core strategy, as we seek to increase market share in an asset-light segment which will drive profitability through scale.

As a reminder, MEC had granted us a CI¹ score of five, out of five possible points. Moreover, in October 2020 MEC announced that our average IDD had increased from 3.08 to 3.33, while the average of digital education private institutions shrank from 2.78 to 2.63 in the same period, which means that Vitru’s average IDD is now 26.8% above the market average. The IDD is intended to provide a reference of the real added value of the postsecondary studies to the development of each student, as it compares the results of a standard evaluation taken at the end of high school with the performance of the same student as of the end of the college graduation.

¹ CI or Institutional Concept is a quality indicator for postsecondary education institutions measured and published by the MEC through evaluations that comprise educational organization aspects, such as institutional planning and development, academic and management subjects. The CI score has an a scale of 1 to 5.

Finally, we are very proud for the recently-released results about to the annual survey conducted by Great Place to Work (GPTW) on the satisfaction level of our employees. In 2020, we reached an overall rate of 86 in a scale of 0 to 100, which is the highest level we have ever achieved. This significant achievement confirms our people-oriented culture, which is paramount in the segments we operate.

As we look to the remainder of 2020, we will remain focused on improving operational and financial metrics, as well as on the selective pursuit of M&A opportunities, aligned with the stated use of proceeds of our primary offering in the IPO. At the same time, we will keep delivering our mission and positively impacting the lifes of hundreds of thousands of Brazilian. We are confident that our strategic focus and purposeful actions will enable us to strengthen our business model and continue to deliver strong growth and profitability with a disciplined capital allocation mindset.”

CONFERENCE CALL AND WEBCAST INFORMATION

Vitru will discuss its third quarter 2020 results via conference call.

When: Monday, November 23^th, 2020 at 9:00 a.m. ET (11:00 a.m. BR).

Dial-in: +(833) 614-1391 (U.S. Toll-Free); +1 (914) 987-7112 (International).

Conference ID: 8975958.

Webcast: https://investors.vitru.com.br/

Replay: available at our website.

Carlos Freitas Chief Financial and Investor Relations Officer   Maria Carolina de Freitas Gonçalves Financial and Investor Relations Manager Investor Relations Contact ir@vitrueducation.com

3Q20 and 9M20 highlights

§ #1 Pure Digital Education Group in Brazil in its market for the second consecutive year¹;

§ Confirmation of superior added value for our students: average IDD reached 3.3, 26.8% above the market’s average² and the highest among listed players in Brazil;

§ 289 thousand digital education students, or 97.1% of Company’s total enrolled students;

§ Intake in Digital Education Undergraduate reached 109.4 thousand new students in the 2020.2 intake cycle, an increase of 40% vs the 2019.2 intake cycle;

§ Number of hubs increased 37.9% compared to 3Q19;

§ Net revenue in our core DE Undergraduate business growing 31.8% in 3Q20 vs 3Q19, with Consolidated Net Revenues up 15.3%;

§	Adjusted EBITDA up 9.6% in 9M20 vs 9M19, given the comparatively low PDA impact in 3Q19, i.e. before the application in 4Q19 of the current PDA policies*;
§	Cash Flow from Operations reached R$52.4 million, up 57.4% vs 3Q19.

*Please refer to section “Net impairment losses on financial assets” for more explanations

Table 1: Key financial highlights

R$ million (except otherwise stated)	3Q19		3Q20		% Chg		9M19		9M20		% Chg
Net Revenue	109.4		126.1		15.3	%	343.9		382.7		11.3	%
DE Undegraduate Net Revenue	80.1		105.6		31.8	%	250.9		309.3		23.3	%
Adjusted EBITDA3	32.0		32.3		0.9	%	98.0		107.4		9.6	%
Adjusted EBITDA Margin	29.3	%	25.6	%	-3.7 pp		28.5	%	28.1	%	-0.4 pp
Adjusted Net Income4	18.8		9.8		-48.1	%	53.9		79.2		46.9	%
Cash flow from operations	33.3		52.4		57.4	%	83.4		119.6		43.4	%
Adjusted cash flow conversion from operations5	102.3	%	161.5	%	59.2	pp	78.8	%	103.8	%	25.0	pp

(1)	Considering only participants in the Brazilian education market with at least 95% of students engaged in distance learning, as newly-released in October 2020 by Brazilian Ministry of Education (Ministério da Educação), or the MEC.
(2)	Based on newly-released info in October 2020 by Brazilian Ministry of Education (Ministério da Educação), or the MEC.
(3)	For a reconciliation of Adjusted EBITDA see “—Reconciliations of Non-GAAP Financial Measures—Reconciliation between Adjusted EBITDA” at the end of this document. Please refer as well to section “Net impairment losses on financial assets” for more explanations on the Adjusted EBITDA variations between 2019 and 2020.
(4)	For a reconciliation of Adjusted Net Income, see “—Reconciliations of Non-GAAP Financial Measures—Reconciliation of Adjusted Net Income” at the end of this document.
(5)	For a reconciliation of Adjusted Cash Flow Conversion from Operations, see “—Reconciliations of Non-GAAP Financial Measures—Reconciliation of Adjusted Cash Flow Conversion from Operations” at the end of this document.

GUIDANCE FULL YEAR 2020

As this is the first release after our IPO, we exceptionally provide hereunder guidance on Net Revenue and Adjusted EBITDA margin for the full year of 2020:

·      Net Revenue for 2020 is expected to be between R$510 million and R$520 million (vs R$ 461 million in 2019)

·      Adjusted EBITDA margin for 2020 is expected to be between 26.8% and 27.2% (vs 25.5% in 2019), i.e. a potential growth of up to 1.7pp in margin and 20.3% in Adjusted EBITDA vs 2019

Businesses Seasonality

Vitru’s digital education undergraduate courses are structured around separate monthly modules. This enables students to enroll in digital education courses at any time during a semester. Despite this flexibility, Vitru generally experiences a higher number of enrollments in the first semester of each year than in the second semester of each year, due to the high school calendar in Brazil, where students conclude it in December. New enrollments in Digital Education Undergraduate courses are concentrated in the 1st and 3rd quarters (beginning of academic semesters in Brazil).

The seasonality in enrollments has a direct impact on revenues. In addition, Vitru generally records higher revenue in the second and fourth quarters of each year as the impact of the aforementioned dynamics of the intaking cycle.

Below is the breakdown of the Net Revenue of the Digital Education Undergraduate segment over the past four quarters of the financial years ended on December 31, 2019 and also the first three quarters of 2020:

A significant portion of expenses are also seasonal. Due to the nature of the intaking cycle, a relevant amount of selling and marketing expenses are incurred in connection with the first semester intake, particularly in December, January and February.

However, it is important to mention that 2020 has not reflected the usual seasonality, due to effects of the COVID-19 outbreak, particularly in the 2Q20.

OPERATING RESULTS

Students base and hubs

The number of enrolled students is a relevant operational metric for Vitru. As of September 30, 2020 Vitru had 297.5 thousand students enrolled in the courses provided, an increase of 20.6% over the same period of the prior year.

Another relevant metric is the percentage of digital education students to total enrolled students, which best demonstrates the focus on digital education (comprising both undergraduate courses and continuing education courses) and its relevance to the services offered. As of September 30, 2020 students enrolled in digital education represented 97.1% of the total number of enrolled students, up 1.0 percentage point (pp) from the same period of the prior year.

It is important to highlight that the number of hubs is one of the drivers that enable the Company to increase its enrolled students base. A relevant portion of Vitru’s growth is driven by the expansion and subsequent maturation of the hubs.

Vitru has substantially expanded its operations and geographic presence throughout Brazil with the opening of new hubs in the last years. In fact, 87.3% of the current 662 hubs are still ramping up, representing a substantial growth avenue: the current maturation ratio of such hubs is only 31%. We estimate that our typical hub reaches its full capacity in terms of the number of students (and hence is deemed to be mature) after seven or eight years of operations.

Table 2: Student base and hubs

‘000 and %	3Q19		2Q20		3Q20		Δ3Q20 x 3Q19		Δ3Q20 x 2Q20
Total enrolled students	246.8		287.8		297.5		20.6	%	3.4	%
% Digital education to total enrolled students	96.1	%	96.9	%	97.1	%	1.0	pp	0.2	pp
Number of digital education students	237.0		278.9		289.0		21.9	%	3.6	%
Undergraduate students	194.6		236.8		243.0		24.9	%	2.6	%
Graduate students	42.4		42.0		46.0		8.5	%	9.4	%
Number of hubs	480		608		662		37.9	%	8.9	%
% of Expansion hubs (i.e. excluding Base hubs)	82.5	%	86.2	%	87.3	%	4.8	pp	1.1	pp
Theoretical maturation index (i)	28.6	%	29.5	%	31.0	%	2.4	pp	1.5	pp

⁽ⁱ⁾ We calculate the theoretical maturation index as the actual number of students per hub of the Expansion hubs divided by theoretical number of students we expect to achieve as of the maturity of the same hubs. The index comprises all Expansion hubs as of end of each period, and hence it can actually decrease as we open new Expansion hubs.

Tuition and Ticket

Table 3: Tuitions and ticket

	3Q19	3Q20	% Chg		9M19	9M20	% Chg
Digital Education Undergratuate Tuitions (R$ MM)*	129.0	163.4	26.7	%	391.8	492.8	25.8	%
Average Ticket DE undergraduate (R$/month)	257.9	263.1	2.0	%	-	-	-

*net of cancellations

The compelling strength and sustainability of Vitru’s growth and the maturation of its hubs can be demonstrated by the total amount charged as courses tuition from digital education undergraduate students (which is the sum of gross revenue and the hub partners’ portion of the tuition less other academic revenue and cancellations).

DE Undergraduate tuitions for 3Q20 amounted to R$163.4 million, 26.7% higher than the R$129.0 million in 3Q19, reflecting the increase in the number of hubs, the maturation of new hubs and a healthy average ticket performance. For 9M20, DE Undergraduate tuitions totaled R$ 492.8 million, 25.8% higher than the R$ 391.8 million in the same period of the previous year, reflecting mostly the organic increase in the number of students enrolled in digital education undergraduate courses.

The average monthly ticket of Digital Education Undergraduate courses increased 2.0%, from R$257.9 in 3Q19 to R$ 263.1 in 3Q20. The expansion of average ticket in DE Undergraduate, despite the substantial increase in the new students intake (which take place throughout the intaking quarter and hence dilute the average ticket over this period), confirms the strength of the UNIASSELVI brand, its market positioning and its differentiated hybrid model.

FINANCIAL RESULTS

Net Revenue

Consolidated Net Revenue for 3Q20 was R$126.1 million, up 15% from 3Q19. For 9M20, Consolidated Net Revenue was R$382.7 million, an increase of 11% over the same period of the prior year. This organic growth was boosted by the increase of the number of enrolled students and the healthy trend in average monthly ticket in the Digital Education undergraduate segment, which led to growth rates of 32% in the 3Q20 (vs 3Q19) and 23% in the 9M20 (vs 9M19).

Net Revenue Breakdown (%)

 

Net Revenue from digital education undergraduate courses for the 3Q20 was R$105.6 million, up 31.8% from R$80.1 million for the 3Q19, solely on an organic basis. For 9M20, Net Revenue from digital education undergraduate courses was R$309.3 million, up 23.3% from R$250.9 million in the same period of previous year. This result was primarily driven by the 24.9% increase in the student base, coupled with the expansion and maturation in operational hubs and the aforementioned expansion of the average ticket.

Net Revenue from continuing education courses for 3Q20 was R$8.7 million, down 18.7% from R$10.7 million for the 3Q19. Net Revenue for 9M20 was R$30.0 million, down 11.0% from R$33.7 million for 9M19. In 2019 the Company was able to secure certain timely revenues, including some public-bidding contracts for the development of lifelong specialization courses. These processes were strongly reduced by local goverments as a consequence of the COVID-19 pandemic, therefore impacting these revenues in 2020. Furthermore, the intake process of graduate courses was negatively impacted throughout the year by the restrictions related to the pandemic, since the hubs (that play a relevant role as sales channel) were closed for most of the period. Nevertheless, it is important to highlight that the recent intake run-rate numbers provide more promising perspectives for this segment.

Net Revenue from on-campus undergraduate courses for 3Q20 amounted to R$11.8 million, a decrease of 36.6% from R$18.6 million for the 3Q19. Net Revenue for 9M20 was R$43.4 million, down 26.8% from R$59.3 million for 9M19. The decrease was primarily attributable to the ongoing shift to digital education as a whole, as a result of the increased number and attractiveness of digital education undergraduate courses, a trend that was accelerated by the COVID-19 pandemic. The drop in the on-campus performance is in line with our expectation that the contribution and relevance of this segment to our consolidated figures will keep decreasing over time.

Table 4: Net Revenue Breakdown

R$ million	3Q19		3Q20		% Chg			9M19		9M20		% Chg
Digital education undergraduate		80.1		105.6		31.8	%		250.9		309.3		23.3	%
Continuing education		10.7		8.7		-18.7	%		33.7		30.0		-11.0	%
On-campus undergraduate		18.6		11.8		-36.6	%		59.3		43.4		-26.8	%
Net Revenue		109.4		126.1		15.3	%		343.9		382.7		11.3	%

Cost of Services

Cost of services for 3Q20 amounted to R$58.8 million, 4.4% higher than the R$56.3 million for 3Q19. Cost of services includes certain one-time restructuring costs as well as depreciation and amortization expenses, totaling R$11.4 million in 3Q20 and R$8.4 million in 3Q19.

Cost of services as reported in the Adjusted EBITDA calculation amounted to R$47.4 million in 3Q20 and R$47.9 million in 3Q19, representing a year-over-year decrease of 1.0%. This decrease was primarily attributable to optimizations in personnel costs.

Table 5: Cost of Services

R$ million	3Q19		3Q20		% Chg		9M19		9M20		% Chg
Cost of Services	56.3		58.8		4.4	%	161.5		164.8		2.0	%
(-) Depreciation and amortization	(6.2	)	(11.0	)			(18.1	)	(26.6	)
(-) Restructuring expenses	(2.2	)	(0.4	)			(4.3	)	(3.3	)
Cost of Services for Adj. EBITDA calculation	47.9		47.4		1.0	%	139.1		134.9		-3.0	%
as % of Net Revenue	43.8	%	37.6	%	6.2	pp	40.4	%	35.2	%	5.2	pp

Gross Profit and Gross Margin

Gross Profit for 3Q20 amounted to R$67.3 million, 26.7% higher than the R$53.1 million for the 3Q19. Gross Margin increased from 48.5% 3Q19 to 53.4% in 3Q20. Gross Profit for 9M20 was R$217.9 million, up 19.5% from R$53.1 million for 9M19. This increase was primarily attributable to the aforementioned optimization in personnel costs.

 

Operating Expenses

SG&A Expenses

Selling expenses for 3Q20 amounted to R$17.5 million, a decrease of R$2.0 million, or 10.3%, compared to 3Q19. This decrease was primarily attributable to depreciation and amortization expenses during 3Q19. Selling expenses were 0.3% higher in 9M20 (R$67.5 million) vs 9M19 (R$67.3 million), despite higher depreciation and amortization expenses during 9M19.

Selling expenses as reported in the Adjusted EBITDA calculation (i.e. excluding the aforementioned depreciation and amortization expenses) were R$17.5 million in 3Q20 and R$13.3 million in 3Q19 representing a YoY increase of 31.6%. In 9M20 they amounted to R$64.2 million and R$48.6 million in 9M19, equivalent to a YoY increase of 32.1%. Both increases are attributable to higher expenses with online advertising in 2020, as a response the challenges related to the COVID-19 pandemic, when the hubs (an important channel in the Company’s sales process) were mostly closed.

Table 6: Selling expenses

R$ million	3Q19			3Q20			% Chg			9M19			9M20			% Chg
Selling expenses		19.5			17.5			-10.3	%		67.3			67.5			0.3	%
(-) Depreciation and amortization expenses		(6.2	)		-						(18.7	)		(3.3	)
Selling expenses for Adj. EBITDA calculation		13.3			17.5			31.6	%		48.6			64.2			32.1	%
as % of Net Revenue		12.2	%		13.9	%		1.7	pp		14.2	%		16.8	%		2.6	pp

General and Administrative (G&A) expenses for 3Q20 amounted to R$17.5 million, an increase of R$1.2 million, or 7.4%, compared to 3Q19. This increase was primarily attributable to certain M&A and pre-offering expenses incurred in 3Q20. Regarding 9M20, G&A expenses were substantially (45.9%) lower than in 9M19, mostly due to impairment charges of non-current assets (namely our on-campus segment) recorded in 2Q19 for an amount of R$31.4 million.

G&A expenses as reported in the Adjusted EBITDA calculation amounted to R$12.5 million in 3Q20 and R$12.4 million in 3Q19, virtually flat YoY. Regarding 9M20, Adjusted G&A expenses were R$32.1 million, a reduction of 2.3% compared to R$32.9 million in 9M19. These figures illustrate the constant focus of the Company in maintaining a lean administrative structure, which supports a digital and agile strategic orientation.

Table 7: G&A expenses
R$ million	3Q19			3Q20			% Chg			9M19			9M20			% Chg
General and Administrative (G&A) expenses		16.3			17.5			7.4	%		77.5			41.9			-45.9	%
(-) Depreciation and amortization expenses		(3.2	)		(2.1	)					(9.4	)		(7.5	)
(-) Share-based compensation plan		(0.7	)		(1.1	)					(3.8	)		(0.5	)
(-) Impairment of non-current assets		-			-						(31.4	)		-
(-) M&A and pre-offering expenses		-			(1.8	)					-			(1.8	)
G&A expenses for Adj. EBITDA calculation		12.4			12.5			0.4	%		32.9			32.1			-2.3	%
as % of Net Revenue		11.3	%		9.9	%		1.4	pp		9.6	%		8.4	%		1.2	pp

Net impairment losses on financial assets

Net impairment losses on financial assets represent the provisions for doubtful accounts, or PDA. In 4Q19, we implemented a stricter policy for the calculation of the PDA, which has been in place since then. As a consequence of that, a substantially higher PDA charge was reflected in 4Q19 (R$26.4 million, equivalent to 23% of Net Revenue, as provided in the chart hereunder), which retroactively compensated the abnormally low PDA charge in 3Q19 (R$6.5 million).

In 3Q20, the PDA impact amounted to R$21.3 million vs R$ 6.5 million in 3Q19. Regarding the nine-month periods, the PDA impact was R$56.2 million in 9M20 vs R$31.8 million in 9M19. These increases are mainly explained by the low comparison basis in both 3Q19 and 9M19 due to the aforementioned change in the PDA policy, as well as the effects of the COVID-19 pandemic. On the other hand, it set a very high comparison basis for 4Q19, and therefore we should expect a substantial increase of 50% to 74% in our Adjusted EBITDA in 4Q20 vs 4Q19, as provided in our guidance. The analysis of 2H19 and 2H20 figures should provide a normalized comparison year-over-year.

Adjusted EBITDA

Adjusted EBITDA for 3Q20 totaled R$32.3 million, up 0.9% from R$32.0 million 3Q19. Adjusted EBITDA Margin for 3Q20 was 25.6%, a 3.7 pp decrease compared to 29.3% for 3Q19. Regarding 9M20, Adjusted EBITDA amounted to R$107.4 million vs R$98.0 million in 9M19, which represented an increase of R$9.4 million or 9.6%, led by the growth of the Digital Education Undergraduate segment. Adjusted EBITDA margins for 9M20 and 9M19 reached 28.1% and 28.5%, respectively. These reductions in the Adj. EBITDA margins were primarily attributable to the increase in net impairment losses on financial assets (PDA), due to the aforementioned low comparison basis in 3Q19 and 9M19. If we normalized the 3Q19 figures by using (for example) the average 2019 PDA rate (12.6% of Net Revenue), Adjusted EBITDA would have grown by 31% and 18% YOY in 3Q20 and 9M20, respectively.

Notes: (i) all figures in this slide include the adjustments applied in our definition of Adjusted EBITDA; (ii) PDA is defined as “Net impairment losses on financial and contract assets” in our Financials

Adjusted Net Income

Adjusted Net Income in 3Q20 was R$9.8 million, down 48% from the same period of the prior year. This decrease was primarily attributable to the aforementioned high increase in net impairment losses on financial assets (equivalent to PDA) and a one-time income tax effect of R$11.7 million related to the restructuring of the Company’s first Stock Option Plan.

For 9M20 Adjusted Net Income was R$79.2 million, a 47% increase over the same period in the prior year, due mainly to the substantial expansion of our Digital Education Undergraduate segment.

Cash Flow and Cash Conversion from Operations

Table 8: Cash Flow & Cash Conversion
R$ million	3Q19			3Q20			% Chg			9M19			9M20			% Chg
Cash Flow from Operations		33.3			52,4			57.4	%		83.4			119.6			43.4	%
(+) Income Tax Paid		(2.8	)		(3.8	)		35.7	%		(9.6	)		(13.5	)		40.6	%
Adjusted Cash Flow from Operations		30.5			48.6			59.3	%		73.8			106.1			43.8	%
Adjusted EBITDA		32.0			32.3			0.9	%		98.1			107.4			9.6	%
(-) Non-recurring Expenses		(2.2	)		(2.2	)		0.0	%		(4.3	)		(5.1	)		18.6	%
Adjusted EBITDA including Non-recurring Expenses		29.8			30.1			1.0	%		93.7			102.3			9.1	%
Adjusted Cash Flow Conversion from Operations1		102.3	%		161.5	%		59.2	pp		78.8	%		103.8	%		25.0	pp

(1) The Company calculates 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 non-recurring expenses into consideration). Adjusted Cash Flow Conversion from Operations is a non-GAAP measure. The calculation of Adjusted Cash Flow Conversion from Operations may be different from the calculation used by other companies, including competitors in the industry, and therefore, the Company’s measures may not be comparable to those of other companies. For further information see “Non-GAAP Financial Measures”.

Cash Flow from Operations for 3Q20 amounted to R$52.4 million, 57.4% higher than the R$33.3 million in 3Q19. For 9M20 Cash Flow from Operations was R$119.6 million, a 43.4% increase over the same period in the prior year. This increase was due mainly to the substantial expansion of our Digital Education Undergraduate segment.

Adjusted Cash Flow Conversion from Operations for 3Q20 was 161.5% compared to 102.3% for 3Q19. For 9M20 Adjusted Cash Flow Conversion from Operations was 103.8% and 78.8% for 9M19. This increase of 59.2pp and 25.0pp respectively was primarily attributable to the increase in Cash Flow from Operations and the higher level of PDA (a non-cash expense which impacts the Adj. EBITDA) in 3Q20 vs 3Q19, including due to the abnormally low impact of PDA in 3Q19 as previously explained.

CAPEX

Table 9: CAPEX
R$ million	3Q19			3Q20			% Chg			9M19			9M20			% Chg
Investing activities		10.8			10.4			-3.7	%		33.0			46.4			40.6	%
Property and equipment		6.9			2.6						23.2			22.1
Intangible assets		3.9			7.8						9.8			24.3
Investing activities as % of Net Revenue		9.9	%		8.2	%		-1.6	pp		9.6	%		12.1	%		2.5	pp

Capital Expenditures for 3Q20 amounted to R$10.4 million, 3.7% lower than the R$10.8 million in 3Q19. For 9M20, CAPEX was R$46.4 million, a 40.6% increase over the same period in the prior year. This increase was mainly due to the growth in investments in intangible assets, such as software development and academic content, which is a fundamental pillar of our tech-enable business model.

ABOUT VITRU (NASDAQ: VTRU)

VITRU is the leading pure digital education postsecondary group in Brazil based on the number of enrolled undergraduate students as of December 31, 2019 released by the Brazilian Ministry of Education (Ministério da Educação), or the MEC in October, 2020, the latest data available.

Vitru is listed at Nasdaq (as VTRU) since September 18th 2020 and its mission is to democratize access to education in Brazil through a digital ecosystem and empower every student to create their own successful story.

Through its subsidiaries, Vitru provides a complete pedagogical ecosystem focused on a hybrid distance learning experience for undergraduate and continuing education students. All the academic content is delivered in multiple formats (videos, eBooks, podcasts and html text, among others) through its proprietary Virtual Learning Environment, or VLE. The pedagogical model also incorporates in-person weekly meetings hosted by dedicated tutors who are mostly local working professionals in the subject area they teach. The Company believes that this unique tutor-centric learning experience sets it apart, creating a stronger sense of community and belonging and contributing to higher engagement and retention rates of its student base.

The Company’s results are based on three operating segments:

§ Digital education undergraduate courses. What differentiates Vitru’s digital education model is its hybrid methodology, which consists of weekly in-person meetings with on-site tutors, alongside the benefit of the virtual learning environment, where students are able to study where and when they prefer. The Company’s portfolio of courses is composed mainly of pedagogy, business administration, accounting, physical education, vocational, engineering and health-related courses. This is Vitru’s largest business unit, accounting for approximately 84% of net revenue of 3Q20.

§ Continuing education courses. Vitru offers continuing education and graduate courses predominantly in pedagogy, finance and business, but also in other subjects such as law, engineering, IT and health-related courses. Courses are offered in three different versions, consisting of (i) hybrid model, (ii) 100% online and (iii) on-campus;

§ On-campus undergraduate courses. Vitru has 14 campuses that offer traditional on-campus undergraduate courses, including engineering, law and health-related courses.

FORWARD – LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact, could be deemed forward looking, including risks and uncertainties related to statements about 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; our competition; 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; the availability of qualified personnel and the ability to retain such personnel; 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; 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; general market, political, economic, and business conditions; and our financial targets. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential impacts of the COVID-19 pandemic on our business operations, financial results and financial position and on the Brazilian economy.

The forward-looking statements can be identified, in certain cases, through the use of words such as “believe,” “may,” “might,” “can,” “could,” “is designed to,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast”, “plan”, “predict”, “potential”, “aspiration,” “should,” “purpose,” “belief,” and similar, or variations of, or the negative of such words and expressions. Forward-looking statements speak only as of the date they are made, and the Company does 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. The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. Readers should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect the Company’s financial results is included in filings made with the United States Securities and Exchange Commission (“SEC”) from time to time, including the section titled “Risk Factors” in the most recent Rule 424(b)(1) prospectus of the Company. These documents are available on the SEC Filings section of the investor relations section of our website at: investors.vitru.com.br.

NON-GAAP FINANCIAL MEASURES

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board—IASB, VITRU uses Adjusted EBITDA, Adjusted Net Income and Adjusted Cash Flow Conversion from Operations information for the convenience of the investment community, 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.

VITRU calculates Adjusted EBITDA as the net income (loss) for the period plus:

§ deferred and current income tax, which is calculated based on 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 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 the consolidated financial statements;
§	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 Company believes are appropriate to provide additional information to investors about certain material non-recurring items. Such M&A, pre-offering expenses and restructuring expenses comprise: mergers and acquisitions, or 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 severance costs in connection with organizational and academic restructurings.

VITRU calculates 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 notes to the unaudited interim condensed consolidated financial statements in the Company’s filings with the U.s. Securities and Exchange Commission;

§ ​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 notes to the unaudited interim condensed consolidated financial statements in the Company’s filings with the U.s. Securities and Exchange Commission; 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.

VITRU calculates Adjusted Cash Flow Conversion from Operations as adjusted cash flow from operations (which is calculated 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 Vitru to measure the financial performance of its core operations and Vitru believes that these measures facilitate period-to-period comparisons on a consistent basis. As a result, its management believes that these Non-GAAP financial measures provide useful information to investment community. The non-GAAP financial measures described above are not a substitute for the IFRS measures of earnings. Additionally, the 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 competitors in the education services industry, and therefore, Vitru’s 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 the tables in the end of this document.

FINANCIAL TABLES

Unaudited Interim condensed consolidated statements of income for the three-months and nine-months periods ended September 30, 2020 and 2019 (in millions of Brazilian Reais, except earnings per share)

	3Q19		3Q20		9M19		9M20
NET REVENUE	109.4		126.1		343.9		382.7
Cost of services rendered	(56.3	)	(58.8	)	(161.5	)	(164.8	)
GROSS PROFIT	53.1		67.3		182.4		217.9
General and administrative expenses	(16.3	)	(17.5	)	(77.5	)	(41.9	)
Selling expenses	(19.5	)	(17.5	)	(67.3	)	(67.5	)
Net impairment losses on financial assets	(6.5	)	(21.3	)	(31.8	)	(56.2	)
Other income (expenses), net	(0.7	)	0.8		(1.1	)	2.5
Operating expenses	(43.0	)	(55.5	)	(177.7	)	(163.1	)
OPERATING PROFIT (LOSS)	10.1		11.8		4.7		54.8
Financial income	5.8		19.0		15.2		28.5
Financial expenses	(12.6	)	(15.6	)	(42.5	)	(36.4	)
Financial results	(6.8	)	3.4		(27.3	)	(7.9	)
PROFIT (LOSS) BEFORE TAXES	3.3		15.2		(22.6	)	46.9
Current income taxes	(2.2	)	(2.9	)	(10.8	)	(22.5	)
Deferred income taxes	2.9		(10.5	)	12.3		29.8
Income taxes	0.7		(13.4	)	1.5		7.3
NET INCOME (LOSS)	4.0		1.8		(21.1	)	54.2
Other comprehensive income	-		-		-		-
TOTAL COMPREHENSIVE PROFIT (LOSS)	4.0		1.8		(21.1	)	54.2
Basic earnings (loss) per share (R$)	0.18		0.08		-0.91		2.35
Diluted earnings (loss) per share (R$)	0.17		0.08		-0.91		2.30

Unaudited Interim condensed consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (in millions of Brazilian Reais)

	September 30, 2020		December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents		176.9		2.5
Short-term investments		565.8		72.3
Trade receivables		112.8		88.1
Income taxes recoverable		-		4.8
Prepaid expenses		9.5		8.9
Other current assets		3.1		1.8
		868.2		178.4
Assets classified as held for sale		-		36.4
TOTAL CURRENT ASSETS		868.2		214.8
NON-CURRENT ASSETS
Trade receivables		6.7		3.8
Indemnification assets		12.2		14.8
Deferred tax assets		46.7		37.1
Other non-current assets		2.8		1.4
Right-of-use assets		121.8		88.5
Property and equipment		96.3		70.0
Intangible assets		662.1		658.2
TOTAL NON-CURRENT ASSETS		948.6		873.8
TOTAL ASSETS		1,816.8		1,088.7

	September 30, 2020		December 31, 2019
LIABILITIES
CURRENT LIABILITIES
Trade payables		27.4		30.0
Loans and financing		1.8		-
Lease liabilities		23.0		17.3
Labor and social obligations		43.9		16.8
Income taxes payable		6.3		-
Taxes payables		2.8		1.7
Prepayments from customers		9.3		3.2
Accounts payable from acquisition of subsidiaries		134.6		128.9
Other current liabilities		1.4		0.3
		250.5		198.1
Liabilities directly associated with assets classified as held for sale		-		23.3
TOTAL CURRENT LIABILITIES		250.5		221.4
NON-CURRENT
Loans and financing		150.0		-
Lease liabilities		119.3		85.9
Share-based compensation		35.5		34.9
Accounts payable from acquisition of subsidiaries		261.3		250.7
Provisions for contingencies		17.9		18.4
Deferred tax liabilities		1.9		25.0
Other non-current liabilities		0.9		1.1
TOTAL NON-CURRENT LIABILITIES		586.8		416.0
TOTAL LIABILITIES		837.3		637.3
EQUITY
Share capital		0.0		548.4
Capital reserves		970.6		(1.2	)
Revenue reserves		-		0.4
Retained earnings (Accumulated losses)		8.9		(96.2	)
TOTAL EQUITY		979.5		451.3
TOTAL LIABILITIES AND EQUITY		1,816.8		1,088.7

Unaudited Interim condensed consolidated statements of cash flows for the nine-months periods ended September 30, 2020 and 2019 (in millions of Brazilian Reais)

	9M20		9M19
Cash flows from operating activities
Income before taxes	46.9		(22.6	)
Adjustments to reconcile income before taxes to cash provided on operating activities
Depreciation and amortization	37.4		46.1
Impairment of non-current assets	-		31.4
Net impairment losses on financial assets	56.2		31.8
Provision for revenue cancellation	(1.4	)	(0.4	)
Provision for contingencies	2.4		3.1
Accrued interests	17.1		27.7
Share-based compensation	0.6		3.8
Modification of lease contracts	(1.0	)	-
Lease discounts	(1.6	)	-
Loss on sale or disposal of non-current assets	-		-
Changes in operating assets and liabilities:
Trade receivables	(63.1	)	(59.3	)
Prepayments	(0.4	)	(0.8	)
Other assets	(2.4	)	(4.5	)
Trade payables	(3.6	)	4.5
Labor and social obligations	24.4		21.1
Other taxes payable	1.2		0.7
Prepayments from customers	6.0		0.6
Other payables	0.9		0.2
Cash from operations	119.6		83.4
Income tax paid	(13.5	)	(9.6	)
Interest paid	(13.7	)	(9.1	)
Contingencies paid	(0.5	)	(1.3	)
Net cash provided by operating activities	92.0		63.4
Cash flows from investing activities
Purchase of property and equipment	(22.1	)	(23.2	)
Purchase and capitalization of intangible assets	(24.3	)	(9.8	)
Payments for the acquisition of interests in subsidiaries	-		-
Proceeds from (acquisition of) short-term investments, net	(490.9	)	(24.6	)
Net cash used in investing activities	(537.3	)	(57.6	)
Cash flows from financing activities
Payments of lease liabilities	(4.3	)	(4.4	)
Proceeds from loans and financing	150.0		-
Proceeds from initial public offering	521.6		-
Share issuance costs	(47.6	)	-
Capital contributions	-		1.9
Share repurchase	-		(2.2	)
Net cash (used in) provided by financing activities	619.7		(4.8	)
Net increase in cash and cash equivalents	174.4		1.0
Cash and cash equivalents at the beginning of the year	2.5		2.4
Cash and cash equivalents at the end of the year	176.9		3.4

Reconciliation of Adjusted EBITDA

R$ millions	3Q19		3Q20		9M19			9M20
Net Income for the period		4.0		1.8		(21.1	)		54.2
(+) Deferred and current income tax		-0.7		13.4		-1.5			-7.3
(+) Financial result		6.8		-3.4		27.3			7.9
(+) Depreciation and amortization		15.6		13.1		46.1			37.4
(+) Interest on tuition fees paid in arrears		2.7		4.9		6.6			12.1
(+) Impairment of non-current assets		0.0		0.0		31.4			0.0
(+) Share-based compensation plan		0.7		1.1		3.8			0.5
(+) Other income (expenses), net		0.7		-0.8		1.1			-2.5
(+)M&A, pre-offering expenses and restructuring expenses		2.2		2.2		4.3			5.1
Adjusted EBITDA		32.0		32.3		98.0			107.4

Reconciliation of Adjusted Net Income

R$ millions	3Q19		3Q20		9M19			9M20
Net Income for the period		4.0		1.8		(21.1	)		54.2
(+) M&A, pre-offering expenses and restructuring expenses		2.2		2.2		4.3			5.1
(+) Impairment of non-current assets		0.0		0.0		31.4			0.0
(+) Share-based compensation plan		0.7		1.1		3.8			0.5
(+) Amortization of intangible assets from business combinations		9.3		2.8		27.9			11.7
(+) Interest accrued on accounts payable from the acquisition of subsidiaries		5.9		4.5		17.4			13.4
(-) Corresponding tax effects on adjustments		-3.3		-2.7		-9.8			-5.7
Adjusted Net Income		18.8		9.8		53.9			79.2

Cash Conversion from Operations

R$ millions	3Q19			3Q20			9M19			9M20
Cash from Operations		33.3			52.4			83.4			119.6
(+) Income tax paid		-2.8			-3.8			-9.6			-13.5
Adjusted Cash from Operations		30.5			48.6			73.8			106.1
Adjusted EBITDA		32.0			32.3			98.0			107.4
(-) M&A, pre-offering expenses and restructuring expenses		-2.2			-2.2			-4.3			-5.1
Adjusted EBITDA including M&A, pre-offering expenses and restructuring expenses		29.8			30.1			93.7			102.3
Adjusted Cash Flow Conversion from Operations		102.3	%		161.5	%		78.8	%		103.8	%

EX-99.2

Exhibit 99.2

Vitru Limited
Unaudited interim condensed consolidated financial statements

September 30, 2020

Vitru Limited

Unaudited interim condensed consolidated statements of financial position at

(In thousands of Brazilian Reais)

			September 30,		December 31,
	Note		2020		2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents		5		176,877		2,457
Short-term investments		5		565,848		72,321
Trade receivables		6		112,847		88,130
Income taxes recoverable		7		-		4,711
Prepaid expenses				9,472		8,938
Other current assets				3,113		1,858
				868,157		178,415
Assets classified as held for sale		8		-		36,433
TOTAL CURRENT ASSETS				868,157		214,848
NON-CURRENT ASSETS
Trade receivables		6		6,721		3,786
Indemnification assets				12,231		14,801
Deferred tax assets		7		46,652		37,146
Other non-current assets				2,791		1,359
Right-of-use assets		9		121,829		88,534
Property and equipment		10		96,285		70,033
Intangible assets		10		662,132		658,170
TOTAL NON-CURRENT ASSETS				948,641		873,829
TOTAL ASSETS				1,816,798		1,088,677

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

1

Vitru Limited

Unaudited interim condensed consolidated statements of financial position at

(In thousands of Brazilian Reais)

			September 30,		December 31,
	Note		2020		2019
LIABILITIES
CURRENT LIABILITIES
Trade payables				27,371		29,978
Loans and financing		11		1,812		-
Lease liabilities		9		22,966		17,265
Labor and social obligations		12		43,912		16,784
Income taxes payable		7		6,308		-
Taxes payable				2,819		1,657
Prepayments from customers				9,335		3,186
Accounts payable from acquisition of subsidiaries		13		134,564		128,888
Other current liabilities				1,431		349
				250,518		198,107
Liabilities directly associated with assets classified as held for sale		8		-		23,284
TOTAL CURRENT LIABILITIES				250,518		221,391
NON-CURRENT LIABILITIES
Loans and financing		11		150,000		-
Lease liabilities		9		119,311		85,923
Share-based compensation		4		35,528		34,950
Accounts payable from acquisition of subsidiaries		13		261,323		250,652
Provisions for contingencies				17,926		18,403
Deferred tax liabilities		7		1,867		24,958
Other non-current liabilities				851		1,067
TOTAL NON-CURRENT LIABILITIES				586,806		415,953
TOTAL LIABILITIES				837,324		637,344
EQUITY		14
Share capital				6		548,380
Capital reserves				970,592		(1,248	)
Revenue reserves				-		429
Accumulated profit (losses)				8,876		(96,228	)
TOTAL EQUITY				979,474		451,333
TOTAL LIABILITIES AND EQUITY				1,816,798		1,088,677

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

2

Vitru Limited 

Unaudited interim condensed consolidated statements of profit or loss and other comprehensive income for the three and nine months periods ended September 30 

(In thousands of Brazilian Reais, except earnings per share)

		Three-month period ended September 30						Nine-month period ended September 30
	Note	2020			2019			2020			2019
NET REVENUE	18		126,142			109,409			382,792			343,869
Cost of services rendered	19		(58,861	)		(56,248	)		(164,897	)		(161,400	)
GROSS PROFIT			67,281			53,161			217,895			182,469
General and administrative expenses	19		(17,493	)		(16,328	)		(41,848	)		(77,579	)
Selling expenses	19		(17,525	)		(19,478	)		(67,572	)		(67,236	)
Net impairment losses on financial assets	6		(21,294	)		(6,531	)		(56,190	)		(31,804	)
Other income (expenses), net	20		863			(709	)		2,536			(1,153	)
Operating expenses			(55,449	)		(43,046	)		(163,074	)		(177,772	)
OPERATING PROFIT			11,832			10,115			54,821			4,697
Financial income	21		18,997			5,834			28,532			15,262
Financial expenses	21		(15,635	)		(12,639	)		(36,414	)		(42,548	)
Financial results			3,362			(6,805	)		(7,882	)		(27,286	)
PROFIT (LOSS) BEFORE TAXES			15,194			3,310			46,939			(22,589	)
Current income taxes	7		(2,894	)		(2,192	)		(22,512	)		(10,784	)
Deferred income taxes	7		(10,520	)		2,923			29,738			12,320
Income taxes			(13,414	)		731			7,226			1,536
NET INCOME (LOSS) FOR THE PERIOD			1,780			4,041			54,165			(21,053	)
Other comprehensive income			-			-			-			-
TOTAL COMPREHENSIVE INCOME (LOSS)			1,780			4,041			54,165			(21,053	)
Basic earnings (loss) per share (R$)	15		0.08			0.18			2.35			(0.91	)
Diluted earnings (loss) per share (R$)	15		0.08			0.17			2.30			(0.91	)

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

3

Vitru Limited 

Unaudited interim condensed consolidated statements of changes in equity for the nine months periods ended September 30, 2020 and 2019 

(In thousands of Brazilian Reais)

				Capital reserves
	Share			Capital			Treasury			Share-based			Revenue			Accumulated
	capital			Reserve			Shares			compensation			reserves			losses			Total
DECEMBER 31, 2018		546,509			-			-			2,523			429			(30,068	)		519,393
Net loss for the period		-			-			-			-			-			(21,053	)		(21,053	)
Employee share program
Value of employee services		-			-			-			4,022			-			-			4,022
Issue of shares to employees		1,871			-			-			(1,844	)		-			-			27
Share repurchase		-			-			(2,238	)		2,238			-			-			-
SEPTEMBER 30, 2019		548,380			-			(2,238	)		6,939			429			(51,121	)		502,389
DECEMBER 31, 2019		548,380			-			(2,238	)		990			429			(96,228	)		451,333
Net income for the period		-			-			-			-			-			54,165			54,165
Corporate reorganization (Note 1.1)		(548,376	)		496,618			2,238			(990	)		(429	)		50,939			-
Issuance of common shares in initial public offering (Note 1.1)		2			521,556			-			-			-			-			521,558
Share issuance costs (Note 1.1)		-			(47,582	)		-			-			-			-			(47,582	)
SEPTEMBER 30, 2020		6			970,592			-			-			-			8,876			979,474

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

4

Vitru Limited 

Unaudited interim condensed consolidated statements of cash flows for the nine months period ended September 30 

(In thousands of Brazilian Reais)

	Note	2020			2019
Cash flows from operating activities
Income (loss) before taxes			46,939			(22,589	)
Adjustments to reconcile income before taxes to cash provided by operating activities
Depreciation and amortization	9 / 10		37,403			46,054
Impairment of non-current assets			-			31,431
Net impairment losses on financial assets	6		56,190			31,804
Provision for revenue cancellation	6		(1,387	)		(443	)
Provision for contingencies			2,372			3,087
Accrued interest			17,072			29,131
Share-based compensation	4		578			3,797
Modification of lease contracts	9		(990	)		-
Lease discounts	1.2		(1,609	)		-
Changes in operating assets and liabilities:
Trade receivables			(63,138	)		(60,686	)
Prepayments			(362	)		(782	)
Other assets			(2,370	)		(4,506	)
Trade payables			(3,586	)		4,468
Labor and social obligations			24,433			21,133
Other taxes payable			1,162			689
Prepayments from customers			6,037			622
Other payables			866			181
Cash from operations			119,610			83,391
Income tax paid			(13,487	)		(9,582	)
Interest paid	9 / 11		(13,733	)		(9,131	)
Contingencies paid			(386	)		(1,253	)
Net cash provided by operating activities			92,004			63,425
Cash flows from investing activities
Purchase of property and equipment	10		(22,067	)		(23,229	)
Purchase and capitalization of intangible assets	10		(24,311	)		(9,812	)
Acquisition of short-term investments, net			(490,928	)		(24,563	)
Net cash used in investing activities			(537,306	)		(57,604	)
Cash flows from financing activities
Payments of lease liabilities	9		(4,254	)		(4,432	)
Proceeds from loans and financing	11		150,000			-
Proceeds from initial public offering	1.1		521,558			-
Share issuance costs	1.1		(47,582	)		-
Capital contributions	14		-			1,871
Share repurchase	14		-			(2,238	)
Net cash provided by (used in) financing activities			619,722			(4,799	)
Net increase in cash and cash equivalents			174,420			1,022
Cash and cash equivalents at the beginning of the period			2,457			2,375
Cash and cash equivalents at the end of the period			176,877			3,397
			174,420			1,022

See Note 22 for the main transactions in investing and financing activities not affecting cash.

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

5

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

1. Corporate information

Vitru Limited (“Vitru”) and its subsidiaries (collectively, the “Company”) is a holding company incorporated under the laws of the Cayman Islands on March 05, 2020. Vitru became the parent company of Vitru Brasil Empreendimentos, Participações e Comércio S.A. (hereafter referred to as “Vitru Brazil”) formerly denominated Treviso Empreendimentos, Participações e Comércio S.A., through the completion of the corporate reorganization described below.

Until the contribution of Vitru Brazil shares to Vitru Limited, in September 2019, Vitru Limited had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, Vitru Limited’s consolidated financial information substantially reflects the operations of Vitru Brazil after the corporate reorganization.

The Company is principally engaged in providing educational services in Brazil, mainly undergraduate and continuing education courses, presentially through its eight campuses in two states, or via distance learning, through 784 (December 31, 2019 – 526) learning centers (“hubs”) across the country.

These unaudited interim condensed consolidated financial statements for the nine months period ended September 30, 2020 were authorized for issue by the Board of Directors on November 19, 2020.

1.1. Corporate reorganization and initial public offering

On March 05, 2020, Vitru was incorporated in the Cayman Islands, for the purposes of its initial public offering (“IPO”).

On September 02, 2020, each of Vitru Brazil ́s shareholders had agreed to contribute their respective shares of Vitru Brazil to Vitru Limited, exchanging thirty-one common shares into one common share of Vitru Limited.

On September 17, 2020, Vitru Limited priced its initial public offering (“IPO”) of 6,000,000 Class A common shares, which began trading on the Nasdaq Global Select Market (“NASDAQ”) on September 18, 2020 under the ticker symbol “VTRU”. The initial offering price was US$ 16.00 per Class A common share.

On September 22, 2020, the share capital of Vitru Limited was increased by 6,000,000 Class A shares through the proceeds received as a result of the IPO of US$ 96,000 thousand (or R$ 521,558). The net proceeds from the IPO were US$ 90,672 thousand (or R$ 492,612), after deducting US$ 5,328 thousand (or R$ 28,946) in underwriting discounts and commissions and other offering expenses totaled US$ 3,430 thousand (or R$ 18,636). The share issuance costs totaled R$ 47,582.

1.2. Significant events during the period

a) Operating events

Seasonality:

The distance learning undergraduate courses are structured around separate monthly modules. This enables students to enroll in distance learning courses at any time during a semester. Despite this flexibility, generally a higher number of enrollments in distance learning courses occurs in the first and third quarters of each year. These periods coincide with the beginning of academic semesters in Brazil. Furthermore, there is a higher number of enrollments at the beginning of the first semester of each year than at the beginning of the second semester of each year. In order to attract and encourage potential new students to enroll in undergraduate courses later in the semester, the Group often offers discounts, generally equivalent to the number of months that have gone by in the semester. As a result, given revenue from semiannual contracts is recorded over the time in a semester, revenue is generally higher in the second and fourth quarters of each year, as additional students enroll in later on in the semester. Revenue is also higher later on in the semester due to lower dropout rates during that same period.

Recognition of tax losses and temporary differences (Note 7):

Given the continuous growth in Continuing Education activities for the last two years and recent changes to the structure of its operations, the Group reviewed previously unrecognized tax losses and temporary differences, determining that it is now probable that taxable profits will be available against which the tax losses can be utilized and temporary differences will be realized. Accordingly, a deferred tax asset of R$ 10,632 and a deferred tax liability of R$ 12,549 were recognized in 2020.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

Leases (Note 9):

With the opening of new hubs following the Group’s expansion strategy, new lease contracts were signed for the Group’s own hubs during the nine months period ended September 30, 2020. During this period, the Group has also concluded renegotiation of terms of a few lease contracts for the extension of lease period at reduced prices. Such new and amended lease contracts resulted in an increment of R$ 41,799 to both right-of-use assets and lease liabilities.

Loans and Financing (Note 11):

Seeking to guarantee the same rates and conditions that would be available in a scenario without the Coronavirus pandemic, on April 16, 2020, the Company entered into a loan agreement of R$ 150,000, with no financial covenants, anticipating a loan to settle the accounts payable from acquisition of subsidiaries due in December 2020.

b) Coronavirus pandemic

The Group is closely monitoring the situation of the 2019 novel coronavirus, or Covid-19, and taking the necessary measures for the safety and well-being of its employees, students, associates and partners. The global impact from the pandemic has been rapidly evolving, and, as such, it poses material uncertainty and risk with respect to the Group´s future performance and financial results. In particular and in the interest of public health and safety, state and local governments in Brazil have imposed mandatory measures, which has resulted in the closure of on-campus learning facilities and hubs.

In response to the virus pandemic, the Group has efficiently implemented several measures aimed at safeguarding the health of its employees, students and hub partners and the stability of operations, including: (1) creating a crisis management committee and a financial committee to discuss the action plan for the Group to address the challenges posed by the Covid-19 pandemic; (2) temporarily replacing in-person weekly meetings at the hubs by online meetings between students and tutors across all units, as a result of which since March 30, 2020 all students have had real-time meetings with their tutors; (3) training teachers and tutors to support students pursuant to this new format; (4) remote support to deliver high-quality content to students and maintain high levels of engagement and a superior learning experience; (5) making no changes to the course schedule or syllabus; (6) putting in place remote emotional and psychological support to students and employees, provided by the Group´s psychology department; and (7) making home office available for all the employees.

As of September 30, 2020, there has been no material impact on the Group’s operations, as most of the Group’s services are already delivered remotely (Distance learning undergraduate courses and most of continuing education courses) or capable of being delivered remotely (some of Continuing education courses and On-campus undergraduate courses). In addition, based on preliminary information available until the approval of these unaudited interim condensed consolidated financial statements:

· There was no relevant impact on revenue for the nine months period ended September 30, 2020, which was slightly below that expected for the period but presented growth of 11% when compared to the same period in prior year. Student defaults have remained within the expected levels and the engagement of students, compared to the same period in 2019, deteriorated very slightly.

· Expected credit losses were revised considering estimated increases in financial defaults, which resulted in an increase of R$ 3,303 in allowance for estimated credit losses as of September 30, 2020.

· The Group assessed the existence of potential impairment indicators and the possible impacts on the key assumptions and projections caused by the pandemic on the recoverability of long-lived assets (impairment tests) and concluded that no additional provision for impairment of long-lived assets needed to be recorded in the interim financial statements.

· The Group has obtained rent concessions on lease contracts due to the temporary suspension of classes in the on-campus learning facilities and hubs caused by the mandatory school closures during the pandemic. A gain of R$ 1,609 was recognized as Other income (expenses), net, in the statement of profit or loss. Except for these concessions and the modification mentioned in Note 1.2.a above, there were no changes to contractual obligations regarding leased buildings and there were no changes in the expected useful life and residual amount of properties and equipment as a result of Covid-19.

· No changes in the provision for contingencies against the Group were identified as a result of Covid-19.

· As an incentive for the students to keep the payment of tuition fees up to the due date, the Group has granted an additional discount of 5% to all the students that paid their tuitions fees up to the due date in April and May 2020. The amounts of additional discounts granted was R$ 4,005.

· The Group currently has sufficient working capital and other undrawn financing facilities to service its operating activities and ongoing investments.

· The Group has also taken benefit of measures made available by the federal government as follows:

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

i. Postponement of tax and social charges obligations due date: Certain federal taxes and social charges obligations in the total amount of R$ 10,805 that became due in the second quarter of 2020 have not been paid at their respective original maturity and will be paid until the end of the year, according to the schedule published by the government.

ii. Emergency employment and income preservation benefit program: The Brazilian federal government offered the option of either reducing workload and salary payment for up to three months or suspending employment contracts for up to two months in exchange for the guarantee of maintaining employees after the suspension for the same period as the contract is effectively suspended. The Group has suspended 195 employment contracts from May to September 2020 and had a corresponding expense reduction of R$ 639. No workload reduction was necessary until September and it is not expected for next months while the measures are in effect.

Due to uncertainties regarding the dynamics of Covid-19 spread, its effects on the economic activities, on customers and suppliers and the measures to be adopted in Brazil, it is impossible to predict the impact the pandemic will have on the global economy, as well as on the Group’s business. The extent of the impact from Covid-19 on the Group’s operational and financial performance will depend on certain developments, including the duration and spread of pandemic and its impact on students, hub partners and employees, all of which are uncertain and cannot be presently predicted.

2. Basis of preparation of the unaudited interim condensed consolidated financial statements

The unaudited interim condensed consolidated financial statements of the Group as of September 30, 2020 and for the nine months period ended September 30, 2020 have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”). These financial statements do not meet all disclosure requirements for the presentation of full annual financial statements and thus should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2019, prepared in accordance with International Financial Reporting Standards (“IFRS”).

The accounting policies adopted are consistent with those of the previous fiscal year and corresponding interim reporting period. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

There have been no changes since December 31, 2019 in the accounting practices adopted for consolidation and in the direct and indirect interests of the Company in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements.

2.1. Significant accounting estimates and assumptions

The preparation of unaudited interim condensed consolidated financial statements of the Group requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the reporting date. Actual results may differ from these estimates.

In preparing these unaudited interim condensed consolidated financial statements, the significant judgments and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set forth in the consolidated financial statements for the year ended December 31, 2019.

2.2. Financial instruments risk management objectives and policies

The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statements as of December 31, 2019. There have been no changes in the risk management department or in any risk management policies since the year-end.

3. Segment reporting

Segment information is presented consistently with the internal reports provided to the Senior management team, consisting of the chief executive officer, the chief financial officer and other executives, and which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Group's operating segments, and making the Group’s strategic decisions.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

In reviewing the operational performance of the Group and allocating resources, the CODM reviews selected items of the statement of profit or loss and of comprehensive income, based on relevant financial data for each of the Group’s operating segments, represented by the Group’s main lines of service from which it generates revenue, as follows:

• Distance learning undergraduate courses 

• Continuing education courses 

• On-campus undergraduate courses

Segment performance is primarily evaluated based on net revenue and on adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA). The Adjusted EBITDA is calculated as operating profit plus depreciation and amortization plus interest received on late payments of monthly tuition fees and adjusted by the elimination of effects from share-based compensation plus/minus exceptional expenses. General and administrative expenses (except for intangible assets’ amortization and impairment expenses), finance results (other than interest on tuition fees paid in arrears) and income taxes are managed on a Group’s consolidated basis and are not allocated to operating segments.

There were no inter-segment revenues in the nine months period ended September 30, 2020 and 2019. There were no adjustments or eliminations in the profit or loss between segments.

The CODM does not make strategic decisions or evaluate performance based on geographic regions. Currently, the Group operates solely in Brazil and all the assets, liabilities and results are allocated in Brazil.

a) Measures of performance

Three months period ended September 30,	Distance learning undergraduate courses			Continuing education courses			On-campus undergraduate courses			Total allocated
2020
Net revenue		105,604			8,715			11,823			126,142
Adjusted EBITDA		37,225			5,702			4,889			47,816
% Adjusted EBITDA margin		35.25	%		65.43	%		41.35	%		37.91	%
2019
Net revenue		80,059			10,732			18,618			109,409
Adjusted EBITDA		33,183			6,801			5,694			45,678
% Adjusted EBITDA margin		41.45	%		63.37	%		30.58	%		41.75	%

Nine months period ended September 30,	Distance learning undergraduate courses			Continuing education courses			On-campus undergraduate courses			Total allocated
2020
Net revenue		309,331			29,995			43,466			382,792
Adjusted EBITDA		107,894			21,835			14,840			144,569
% Adjusted EBITDA margin		34.88	%		72.80	%		34.14	%		37.77	%
2019
Net revenue		250,884			33,688			59,297			343,869
Adjusted EBITDA		92,779			23,762			18,651			135,192
% Adjusted EBITDA margin		36.98	%		70.54	%		31.45	%		39.31	%

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

The total of the reportable segments’ net revenues represents the Group’s net revenue. A reconciliation of the Group’s loss before taxes to the allocated Adjusted EBITDA is shown below:

	Three months period ended September 30,					Nine months period ended September 30,
	2020			2019		2020			2019
Income (loss) before taxes		15,194			3,310		46,939			(22,589	)
(+) Financial result		(3,362	)		6,805		7,882			27,286
(+) Depreciation and amortization		13,134			15,606		37,403			46,054
(+) Interest on tuition fees paid in arrears		4,983			2,658		12,221			6,578
(+) Impairment of non-current assets		-			-		-			31,431
(+) Share-based compensation plan		1,140			686		574			3,798
(+) Other income (expenses), net		(863	)		709		(2,536	)		1,153
(+) Restructuring expenses		2,227			2,128		5,121			4,269
(+) Other operating expenses unallocated		15,363			13,776		36,965			37,212
Adjusted EBITDA allocated to segments		47,816			45,678		144,569			135,192

b) Other profit and loss disclosure

Three months period ended September 30,	Distance learning undergraduate courses		Continuing education courses		On-campus undergraduate courses		Unallocated		Total
2020
Net impairment losses on financial assets		18,086		716		2,493		-		21,295
Depreciation and amortization		9,388		563		2,340		843		13,134
Interest on tuition fees paid in arrears		3,719		178		1,086		-		4,983
2019
Net impairment losses on financial assets		3,509		1,228		1,794		-		6,531
Depreciation and amortization		9,672		927		3,527		1,425		15,551
Impairment of non-current assets		-		-		-		-		-
Interest on tuition fees paid in arrears		2,279		4		374		-		2,657

Nine months period ended September 30,	Distance learning undergraduate courses		Continuing education courses		On-campus undergraduate courses		Unallocated		Total
2020
Net impairment losses on financial assets		47,547		2,331		6,312		-		56,190
Depreciation and amortization		25,332		1,546		6,984		3,541		37,403
Interest on tuition fees paid in arrears		9,129		414		2,678		-		12,221
2019
Net impairment losses on financial assets		24,044		2,563		5,197		-		31,804
Depreciation and amortization		28,109		2,739		11,017		4,189		46,054
Impairment of non-current assets		-		-		31,431		-		31,431
Interest on tuition fees paid in arrears		5,629		13		936		-		6,578

4. Fair Value Measurement

As of September 30, 2020, the Group have only Share-based compensation liabilities measured at fair value, in the amount of R$ 34,384, which are classified in Level 3 of the fair value measurement hierarchy given that significant unobservable inputs are used.

There were no transfers between Levels during the nine months period ended in September 30, 2020.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

The following table presents the changes in level 3 items for the nine months period ended in September 30, 2020, for recurring fair value measurements:

	Share-based compensation
Opening balance at December 31, 2019		34,950
Expenses recognized – general and administrative		578
Balance at September 30, 2020		35,528

The Group has assessed that the fair values of financial instruments at amortized cost such as cash and cash equivalents, short-term investments, current trade receivables, trade payables and prepayments from customers approximate their carrying amounts largely due to the short-term maturities of these instruments. Non-current trade receivables, lease liabilities, accounts payable from acquisition of subsidiaries and loans and financing have their carrying amounts adjusted by their respective effective interest rate in order to be presented as close as possible to their fair value.

The following table summarizes the quantitative information about the significant inputs used in level 3 fair value measurements:

Unobservable inputs	Weighted average inputs		Relationship of unobservable inputs with fair value
Net operating revenue growth rate (i)	19.3	%	Increased growth rate (+200 basis points (bps)) and lower discount rate (-100 bps) would increase FV by R$ 553; lower growth rate (-200 bps) and higher discount rate (+100 bps) would decrease FV by R$ 548.
Pre-tax discount rate (ii)	13.7	%	Increasing/decreasing the growth rate and the discount rate by +/- 50bps and 100 bps, respectively, would change the FV by +R$ 153 / -R$ 305.

(i) The growth rate of net operating revenue is based on the historical growth of the student base and management’s expectations of market development.

(ii) Pre-tax discount rate reflects specific risks relating to the segment and country in which the Group operates.

5. Cash and cash equivalents and short-term investments

	September 30, 2020		December 31, 2019
Cash and cash equivalents (i)		176,877		2,457
Investment funds (ii)		565,848		72,321
		742,725		74,778

(i) Cash and cash equivalents are comprised of short-term deposits maturing within three months or less, which are subject to an insignificant risk of change in value and readily convertible into a known cash amount.

(ii) Short-term investments correspond to financial investments in Investment Funds, with highly rated financial institutions. As of September 30, 2020, the average interest rate on these Investment Funds is 1.86%, corresponding to 81.66% of CDI (December 31, 2019 – 5.81% – 99.10% of CDI). Despite the fact these investments have high liquidity and have insignificant risk of change in value, they do not qualify as cash equivalents given the nature of investment portfolio and their maturity.

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019. 

(In thousands of Brazilian Reais, except as otherwise indicated) 

6. Trade receivables

	September 30, 2020			December 31, 2019
Tuition fees		202,328			161,049
FIES and UNIEDU Guaranteed Credits		11,324			7,196
PEP - Special Installment Payment (i)		11,735			8,542
Provision for revenue cancellation		(3,825	)		(5,212	)
Allowance for expected credit losses on trade receivables		(101,994	)		(79,659	)
Total trade receivables		119,568			91,916
Current		112,847			88,130
Non-current		6,721			3,786

(i) In 2015, a special private installment payment program (PEP) was introduced to facilitate the entry of students who could not qualify for FIES, due to changes occurred to the program at the time. These receivables bear interests of 1.34% and, given the long term nature of the installments, they have been discounted at an interbank rate of 3.54%.

The aging list of trade receivables is as follows:

	September 30, 2020			December 31, 2019
Receivables falling due		67,537			72,647
Receivables past due
From 1 to 30 days		22,820			22,322
From 31 to 60 days		12,818			15,135
From 61 to 90 days		10,478			13,473
From 91 to 180 days		53,755			27,968
From 181 to 365 days		57,979			25,242
Provision for revenue cancellation		(3,825	)		(5,212	)
Allowance for estimated credit losses		(101,994	)		(79,659	)
		119,568			91,916

Cancellations consist of deductions from revenue to adjust it to the extension it is probable that it will not be reversed, generally related to students that have not attended classes and do not recognize the service provided or are dissatisfied with the services being provided. A provision for cancellation is estimated using the expected value method, which considers accumulated experience and is updated at the end of each period for changes in expectations.

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements
September 30, 2020 and 2019. 

(In thousands of Brazilian Reais, except as otherwise indicated)

Changes in the Group’s revenue cancellation provision are as follows:

	September 30, 2020			September 30, 2019
At the beginning of the period		(5,212	)		(5,655	)
Additions		(4,282	)		(10,676	)
Write-off		5,669			11,119
At the end of the period		(3,825	)		(5,212	)

The Group records the allowance for expected credit losses on trade receivables on a monthly basis by analyzing the amounts invoiced in the month, the monthly volume of receivables and the respective outstanding amounts by late payment range, calculating the recovery performance. Under this methodology, the monthly billed amount and each late payment range is assigned a percentage of probability of loss that is accrued for on a recurring basis.

When the delay exceeds 365 days, the receivable is written off. Even for written-off receivables, collection efforts continue, and their receipt is recognized directly in the statement of profit or loss, when incurred, as recovery of losses.

Changes in the Group’s allowance for expected credit losses are as follows:

	September 30, 2020			September 30, 2019
At the beginning of the period		(79,659	)		(66,199	)
Write-off of uncollectible receivables		39,195			23,731
Reversal		27,013			19,657
Reclassified from held for sale		(5,331	)		-
Allowance for expected credit losses		(83,212	)		(51,461	)
At the end of the period		(101,994	)		(74,272	)

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements 

September 30, 2020 and 2019. 

(In thousands of Brazilian Reais, except as otherwise indicated)

7. Current and deferred income tax

a) Reconciliation of income tax in the statement of profit or loss

Income tax differs from the theoretical amount that would have been obtained by using the nominal income tax rates applicable to the income of the Group entities, as follows:

	Nine months period ended September 30,
	2020			2019
Earnings before taxes		46,939			(22,589	)
Statutory combined income tax rate - %		34	%		34	%
Income tax at statutory rates		(15,959	)		7,680
Income exempt from taxation - ProUni benefit (i)		13,142			14,213
Unrecognized deferred tax asset on tax losses (ii)		-			(20,054	)
Previously unrecognized tax losses used to reduce deferred tax (ii)		6,723			-
Previously unrecognized temporary differences (ii)		11,320			-
Difference on tax rates from offshore companies		(7,851	)		-
Non-deductible expenses		(325	)		(228	)
Other		176			(75	)
Total income tax and social contribution		7,226			1,536
Effective tax rate - %		-15	%		7	%
Current income tax expense		(22,512	)		(10,784	)
Deferred income tax income		29,738			12,320

(i) The University for All Program - ProUni, establishes, through Law 11,096, dated January 13, 2005, exemption from certain federal taxes for higher education institutions that provide full and partial scholarships to low-income students enrolled in traditional undergraduate and technological undergraduate programs. The Group's higher education companies are included in this program.

(ii) As mentioned in Note 1.2.a, the Group has unused tax loss carryforwards and temporary differences previously unrecognized, that are now expected to be used and realized until 2021. During the nine months period ended September 30, 2020, the Group has already used R$ 4,620 of tax loss carryforwards.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

b) Current income tax

As of September 30, 2020, the Group has income tax payable of R$ 6,308 as a result of current period taxation. As of December 31, 2019, given higher monthly tax prepayments, the Group presented income tax recoverable of R$ 4,711, which has already been offset against current income tax at the beginning of 2020.

c) Deferred income tax

	Statement of financial position						Profit or loss
	September 30, 2020			December 31, 2019			September 30, 2020			September 30, 2019
Tax loss carryforward		6,009			-			6,009			-
Intangible assets on business combinations		(20,966	)		(24,958	)		3,992			3,167
Allowance for expected credit losses		47,688			27,362			20,326			10,813
Share-based compensation		-			-			-			-
Lease contracts		7,030			8,902			(1,872	)		(972	)
Provision for revenue cancellation		1,300			1,772			(472	)		856
Provision for contingencies		1,937			1,225			712			(462	)
Other provisions		1,787			744			1,043			(1,082	)
Total		44,785			15,047			29,738			12,320
Deferred tax assets		46,652			37,146
Deferred tax liabilities		(1,867	)		(24,958	)

The above deferred taxes were recorded at the nominal rate of 34%. Under Brazilian tax law, temporary differences and tax losses can be carried forward indefinitely, however tax loss carryforwards can only be used to offset up to 30% of taxable profit for the year.

8. Assets and liabilities held for sale

In December 2019, the Group decided to sell its subsidiaries FAC/FAMAT and FAIR, and the UNIASSELVI's undergraduate operation in the campuses Assevim and Famesul. The transaction consists of (i) the sale of the operations from the following campuses located in Brazil in the cities of Brusque and Rio do Sul, as well as all related assets and liabilities, including the "ASSEVIM" and "FAMESUL" trademarks and (ii) the sale of 100% of the shares issued by the entities "FAC/FAMAT" and "FAIR", their campuses and trademarks.

The Group decided to sell these specific assets, that are a portion of the on-campus undergraduate courses segment, in order to raise funds to invest in the distance learning undergraduate courses segment expansion.

In September 2020, the Group understood that the Coronavirus pandemic has changed the market and that to locate a buyer and complete the selling plan that has been initiated on December 2019 is not highly probable within the next three months and so decided to return the assets reclassified to assets held for sale and liabilities as directly associated with assets held for sale back to their original classification as presented below.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

	December 31, 2019
Assets classified as held for sale
Trade receivables		7,935
Income taxes recoverable		207
Prepaid expenses		172
Other taxes recoverable		195
Other assets		122
Right-of-use assets		16,090
Property and equipment		11,704
Intangible assets		8
Total of assets disposal group held for sale		36,433
Liabilities directly associated with assets classified as held for sale
Trade payables		979
Lease liabilities		19,210
Taxes payable		181
Labor and social obligations		2,695
Prepayments from customers		112
Provisions for contingencies		107
Total liabilities of disposal group held for sale		23,284

9. Leases

Set out below, are the carrying amounts of the Group’s right-of-use assets related to buildings used as offices and hubs and lease liabilities and the movements during the period:

	Right-of-use assets			Lease liabilities
As of December 31, 2019		88,534			103,188
New contracts		41,799			41,799
Re-measurement by index (i)		3,109			3,109
Lease modification (ii)		(18,176	)		(19,166	)
Depreciation expense		(9,527	)		-
Reclassification from assets held for sale		16,090			19,210
Accrued interest		-			11,301
Payment of principal		-			(5,863	)
Payment of interest		-			(11,301	)
As of September 30, 2020		121,829			142,277
Current		-			22,966
Non-current		121,829			119,311

(i) Lease liabilities and right-of-use assets were incremented with respect to variable lease payments that depend on an index or a rate, as a result of annual rental prices contractually adjusted by market inflation index General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M.

(ii) During the nine months period ended September 30, 2020, the Group partially reduced the scope of a lease contract with a corresponding liability in the amount of R$ 1,967, and early terminated other seven lease contracts with a corresponding liability in the amount of R$ 17,199. As a result, a gain of R$ 990 was recognized as Other income (expenses), net, in the statement of profit or loss.

Vitru Limited

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

(iii) The Group has received Covid-19 related rent concessions and has applied the practical expedient introduced by the amendments made to IFRS 16 in May 2020, applied to all qualifying rent concessions. As a result, gains of R$ 1,609 arising from rent concessions were recognized as Other income (expenses), net, in the statement of profit or loss.

The Group has recognized rent expense from short-term leases and low-value assets of R$ 1,561 for the nine months period ended September 30, 2020, mainly represented by leased equipment.

10. Property and equipment and intangible assets

Changes between December 31, 2019 and September 30, 2020.

	Carrying amount at December 31,2019		Purchase and capitalization		Depreciation and amortization			Reclassification from assets held for sale		Carrying amount at September 30,2020
Leasehold improvements		34,389		14,421		(1,601	)		7,293		54,502
Furniture, equipment and facilities		20,173		5,600		(2,530	)		3,254		26,497
Other property and equipment		15,471		2,046		(3,388	)		1,157		15,286
Property and equipment		70,033		22,067		(7,519	)		11,704		96,285
Software		20,044		14,368		(7,075	)		8		27,345
Internal project development		19,667		9,943		(5,067	)		-		24,543
Other intangible assets		618,459		-		(8,215	)		-		610,244
Intangible assets		658,170		24,311		(20,357	)		8		662,132

The Group performs its annual impairment test in December and when circumstances indicate that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2019.

As of September 30, 2020, there were no indicators of a potential impairment of goodwill. Additionally, there are no significant changes to the assumptions in the annual consolidated financial statements for the year ended December 31, 2019. Also, there has been no evidence that the carrying amounts of property and equipment and finite-life intangible assets exceed their recoverable amounts as of September 30, 2020.

11. Loans and financing

a) Breakdown

Type	Interest rate	Maturity		June 30, 2020		December 31, 2019
Standby Letter of Credit	CDI + 3.6% p.a.		2021		151,812		-
Current					1,812		-
Non-current					150,000		-

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

b) Variation

	Loans and financing
As of December 31, 2019		-
Proceeds from loans and financing (i)		150,000
Accrued interest		4,244
Payment of interest		(2,432	)
As of September 30, 2020		151,812

(i) On April 16, 2020, the Company entered into a loan agreement of R$ 150,000, with no financial covenants or guarantees. The loan bears interest at the Brazilian interbank deposit (Certificado de Depósito Interbancário), or CDI rate +3.6% per annum. Interest is repayable in five quarterly installments starting on July 16, 2020 and principal in one installment on October 18, 2021.

12. Labor and social obligations

	September 30, 2020		December 31, 2019
Salaries payable		8,888		4,235
Social charges payable (i)		11,505		5,906
Accrued vacation		20,662		1,972
Accrual for bonus		2,857		4,668
Other		-		3
Total		43,912		16,784

(i) Comprised of contributions to Social Security (“INSS”) and to Government Severance Indemnity Fund for Employees (“FGTS”) as well as withholding income tax (“IRRF”) on salaries. As described in Note 1.2.a, social charges that became due during the second quarter of 2020 were postponed for the end of the year as per government measures of tax relief during the Covid-19 pandemic.

13. Accounts payable from acquisition of subsidiaries

On February 28, 2016, the Company completed the acquisition of 100% of Uniasselvi, FAC and FAIR. The payable amount regarding this acquisition is R$ 395,887 at September 30, 2020 (December 31, 2019 - R$ 379,540). Interest in the amount of R$ 16,347 were accrued during the nine months period ended September 30,2020.

14. Equity

a) Share capital

As of September 30, 2020, the Company’s share capital is represented by 23,058,053 common shares with par value of US$ 0.00005 each.

In September 2020, the Company did a reverse stock split reducing its capital from 522,315 thousand shares to 17,058 thousand shares. Additionally, the Company issued 6,000 thousand common shares through the public offering. Both transactions are described in Note 1.1.

b) Capital reserve

Capital reserve includes additional paid in capital amounts related to the difference between the subscription price that shareholders paid for the common shares and their nominal value.

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

15. Earnings per share

15.1. Basic

Basic earnings per share is calculated by dividing the net income attributable to the holders of Company’s common shares by the weighted average number of common shares held by stockholders during the period.

The following table contains the earnings (loss) per share of the Group for the three and nine months period ended in September 30, 2020 and 2019 (in thousands except per share amounts):

	Three months period ended in September 30,				Nine months period ended in September 30,
Basic earnings per share	2020		2019		2020		2019
Net income (loss) attributable to the shareholders of the Company		1,780		4,041		54,165		(21,053	)
Weighted average number of outstanding common shares (thousands)		23,058		23,058		23,058		23,058
Basic earnings (loss) per common share (R$)		0.08		0.18		2.35		(0.91	)

15.2. Diluted

As of September 30, 2020, the Group had outstanding and unexercised options to purchase 506 thousand common shares, which are included in the diluted earnings per share calculation.

	Three months period ended in September 30,				Nine months period ended in September 30,
Diluted earnings per share	2020		2019		2020		2019
Net income (loss) attributable to the shareholders of the Company		1,780		4,041		54,165		(21,053	)
Weighted average number of outstanding common shares (thousands)		23,564		23,564		23,564		23,058
Diluted earnings (loss) per common share (R$)		0.08		0.17		2.30		(0.91	)

The number of common shares outstanding was retrospectively adjusted due to the issuance of new shares as a result of the IPO and the corporate reorganization, described in Note 1.1.

16. Share-based compensation

Members of the Company’s management participate in Vitru Brazil share-based compensation plan (VB plan). As a result of Vitru’s IPO, the VB plan migrated to the Company. The Company recognized the new instruments granted as replacement instruments for the cancelled instruments.

The amount of options granted by the Company was reduced from 22,218 thousand in the VB plan to 715 thousand as a result of the reverse split of the corporate reorganization described in Note 1. The valuation of the instruments and the provision for the cash settlement have not changed.

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019.

(In thousands of Brazilian Reais, except as otherwise indicated)

17. Related parties

The Company holds quotas of investments funds managed by Vinci Partners, an insurance policy issued by Austral Seguradora S/A and uses the services of the lawyer firm Kloch Advocacia. All the companies are indirect related parties.

	Statement of financial		Profit or loss
	position		Three months period ended				Nine months period ended
	September 30,	December 31,	September 30,				September 30,
	2020	2019	2020		2019		2020		2019
FI Vinci Renda Fixa Credito Privado
Short-term investments	39,102	37,607
Financial income			82		568		717		1,672
Austral Seguradora S/A
Prepaid expenses	532	8
General and administrative expenses			(75	)	(1	)	(226	)	(2	)
Kloch Advocacia
General and administrative expenses			(54	)	(54	)	(162	)	(160	)

18. Revenue

	Three months period ended September 30,						Nine months period ended September 30,
	2020			2019			2020			2019
Gross revenue		162,449			143,732			491,005			440,747
(-) Cancellation		(701	)		(5,323	)		(4,282	)		(10,676	)
(-) Discounts		(7,620	)		(5,073	)		(18,804	)		(14,233	)
(-) ProUni scholarships (i)		(23,982	)		(20,208	)		(72,497	)		(60,755	)
(-) Taxes and contributions on revenue		(4,004	)		(3,719	)		(12,630	)		(11,214	)
Net revenue		126,142			109,409			382,792			343,869
Timing of revenue recognition
Transferred over time		125,364			109,207			381,765			342,258
Transferred at a point in time (ii)		778			202			1,030			1,611
Net revenue		126,142			109,409			382,792			343,869

(i) Scholarships granted by the federal government to students under the ProUni program are based on a fixed percentage approved by the government upon each student’s request and deducted from tuition gross revenue during the entire duration of such students' undergraduate studies (regardless of the tuition fee set out in the service contract) and as long as the students continue to comply with the scholarship requirements imposed by the government for each semester during the undergraduate course. The Group recognizes the economic benefits from the ProUni scholarships as tax deductions, as applicable, following the policies described in Note 6.

(ii) Revenue recognized at a point in time relates to revenue from student fees and certain education-related activities.

All the Group`s revenues from contracts with customers arise in Brazil.

In the three and nine months periods ended September 30, 2020, the amounts billed to students for the portion to be transferred to the hub partner, in respect to the joint operation, are R$ 39,368 and R$ 112,793 respectively (2019 - R$ 28,106 and R$ 83,702). As of September 30, 2020, the balance payable to the hub partner is R$ 9,910 (December 31, 2019 - R$ 6,697).

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements 

September 30, 2020 and 2019. 

(In thousands of Brazilian Reais, except as otherwise indicated)

19. Costs and expenses by nature

	Three months period ended September 30,					Nine months period ended September 30,
	2020			2019		2020		2019
Payroll (i)		53,012			52,036		144,398		146,379
Sales and marketing		13,307			9,920		52,441		38,650
Depreciation and amortization (ii)		13,346			15,552		37,404		46,055
Material		2,692			4,585		9,207		14,639
Consulting and advisory services		4,012			3,127		9,736		8,540
Maintenance		1,923			1,696		6,098		4,654
Utilities, cleaning and security		1,531			1,650		4,381		5,196
Contingencies		1,809			887		3,879		3,097
Leases		(241	)		678		1,561		2,684
Taxes		341			499		1,354		1,262
Impairment losses		-			-		-		31,431
Other expenses		2,148			1,424		3,859		3,628
Total		93,880			92,054		274,318		306,215
Costs of services		50,319			56,248		156,355		161,400
General and administrative expenses		26,036			16,328		50,391		77,579
Selling expenses		17,525			19,478		67,572		67,236
Total		93,880			92,054		274,318		306,215

(i) Payroll expenses include for the three and nine months periods ended September 30, 2020 R$ 51,868 and R$ 143,824 respectively (2019 – R$ 51,351 and R$ 142,581) related to salaries, bonuses, short-term benefits, related social charges and other employee related expenses, and R$ 1,144 and R$ 574 (2019 – R$ 685 and R$ 3,798) related to share-based compensation.

(ii) From the total depreciation and amortization, R$ 22,885 (2019 – R$ 17,963) relates to Cost of services, R$ 11,265 (2019 – R$ 9,442) relates to General and administrative expenses and R$ 3,254 (2019 - R$ 18,650) relates to Selling expenses.

20. Other income (expenses), net

	Three months period ended September 30,						Nine months period ended September 30,
	2020			2019			2020			2019
Deductible donations		(75	)		(75	)		(225	)		(225	)
Contractual indemnities		(20	)		(275	)		(20	)		(648	)
Modification of lease contracts		981			-			2,506			-
Other revenues		430			184			750			371
Other expenses		(453	)		(543	)		(475	)		(651	)
Total		863			(709	)		2,536			(1,153	)

Vitru Limited 

Notes to the unaudited interim condensed consolidated financial statements

September 30, 2020 and 2019. 

(In thousands of Brazilian Reais, except as otherwise indicated)

21. Financial results

	Three months period ended September 30,						Nine months period ended September 30,
	2020			2019			2020			2019
Financial income
Interest on tuition fees paid in arrears		4,983			2,657			12,221			6,578
Financial investment yield		763			3,051			2,599			8,500
Foreign exchange gain		12,978			-			12,978			-
Other		273			126			734			184
Total		18,997			5,834			28,532			15,262
Financial expenses
Interest on accounts payable from acquisition of subsidiaries		(8,122	)		(8,211	)		(16,347	)		(31,089	)
Interest on lease		(3,735	)		(3,066	)		(11,301	)		(9,132	)
Interest on loans and financing		(2,237	)		-			(4,244	)		-
Foreign exchange loss		(373	)		-			(373	)		-
Other		(1,168	)		(1,362	)		(4,149	)		(2,327	)
Total		(15,635	)		(12,639	)		(36,414	)		(42,548	)
Financial results		3,362			(6,805	)		(7,882	)		(27,286	)

22. Other disclosures on cash flows

Non-cash transactions

In the nine months period ended September 30, 2020:

· The amount of R$ 41,779 (2019 - R$ 26,309), regarding additions on right-of-use assets, was also added in the lease liabilities line item.

· The amount of R$ 2,570 (2019 – R$ 1,039), regarding provision for contingencies of responsibility of the sellers of subsidiaries acquired in prior years, was reversed to the indemnification assets line item in non-current assets.

***