2Q17 Earnings Release

Transcription

1 2Q17 Earnings Release Ser Educacional posts net revenue of R$326.2 million in 2Q17 Net revenue expands 12.7% in 2Q17 over 2Q16 2Q17 Conference Call August 4, 2017 Portuguese 10:00 a.m. (Brasília time) 9:00 a.m. (New York time) Phone: +55 (11) Code: Ser Educacional Replay: +55 (11) English 11:30 a.m. (Brasília time) 10:30 a.m. (New York time) Phone: +1 (646) or +55 (11) Code: Ser Educacional Replay: +55 (11) Code: Ser Educacional Contacts: Jânyo Diniz CEO João Aguiar - CFO Rodrigo Alves - IRO Geraldo Soares - IR Manager Phone: ri@sereducacional.com Website: Media Relations Sílvia Fragoso (+55 81) silvia.fragoso@sereducacional.com Recife, August 4, 2017 Ser Educacional S.A. (BM&FBOVESPA SEER3, Bloomberg SEER3:BZ and Reuters SEER3.SA) announces its results for the second quarter of 2017 (2Q17). The information is presented in accordance with international financial reporting standards (IFRS) and consolidated in Brazilian reais (R$). Comparisons refer to the second quarter of 2016, unless otherwise indicated. As of, the Company began to incur pre-operating costs and expenses for the expansion of new on-campus education units and distance learning centers. In order to better demonstrate these effects, the Company began to report its results omitting these effects (normalization). Highlights Ser Educacional ended 2Q17 with 149,900 undergraduate students (oncampus and distance learning), 6.0% more than the 141,400 students in the second quarter of The total student base expanded by 3.9%, from 152,400 students in 2Q16 to 158,400 in 2Q17. Chiefly due to the higher undergraduate on-campus and distance learning student intake. Net revenue totaled R$326.2 million in 2Q17, 12.7% up on 2Q16, due to the 3.9% growth of the student base, the pass-through of inflation to prices, and the higher average ticket of the new courses approved during the period, especially in the health, engineering and law segments, as well as the more favorable enrollment mix in units located in areas with greater brand recognition. In 2Q17, normalized EBITDA, excluding non-recurring effects and preoperating expenses, totaled R$108.5 million,19.2% up on 2Q16. The normalized EBITDA margin came to 33.2%, versus 31.4% in the same period last year. Normalized net income amounted to R$72.9 million in 2Q17, 13.7% up on the R$64.1 million posted in 2Q16. Operating cash generation totaled R$123.5 million in 2Q17, 17.4% higher than the R$105.2 million in 2Q16 and above the 12.7% growth in adjusted EBITDA, reflecting the soundness of the Company's processes and the normalization of FIES payment flows by the federal government, which made an additional payment of R$66 million on August 4, 2017 related to the second installment of its agreement with the Company regarding outstanding 2015 FIES amounts, which will affect 3Q17 cash flow. Financial Highlights 2Q17 2Q16 (R$ '000) Net Revenue 326, , % 308, % 635, , % Gross Profit 178, , % 184, % 362, , % Gross Margin 54.6% 52.4% 2.2 p.p. 59.9% -5.3 p.p. 57.1% 55.8% 1.3 p.p. Adjusted EBITDA 102,571 91, % 112, % 214, , % Adjusted EBITDA Margin 31.4% 31.4% 0.0 p.p. 36.3% -4.9 p.p. 33.8% 35.5% -1.7 p.p. Normalized EBITDA 108,461 91, % 118, % 226, , % Normalized EBITDA Margin 33.2% 31.4% 1.8 p.p. 38.2% -5.0 p.p. 35.7% 35.5% 16.6% Net Income 64,895 63, % 80, % 145, , % Net Margin 19.9% 22.0% -2.1 p.p. 26.0% -6.1 p.p. 22.9% 26.0% -3.2 p.p. Normalized Net Income 72,866 64, % 88, % 161, , % Normalized Net Margin 22.3% 22.1% 0.2 p.p. 28.7% -6.4 p.p. 25.4% 26.6% -1.2 p.p.

2 Fifty-eight new courses were approved in 2Q17, for a total of 1,264 undergraduate courses on June 30, The state of São Paulo was the highlight, totaling 40 new undergraduate courses on June 30, 2017, compared to the total number of courses authorized on June 30, 2016, including: Dentistry, Physical Education, Nursing, Pharmacy, Biomedicine, Civil Engineering, Electrical Engineering, Mechanical Engineering, Production Engineering and Information Systems. The Company had 17 new units accredited by the Ministry of Education (MEC) in the first half of 2017: Boa Vista (RR), Porto Velho (RO), Rio Branco (AC), Fortaleza (CE), Marabá (PA), Garanhuns (PE), Maracanaú (CE), Ananindeua (PA), Anápolis (GO), Juazeiro do Norte (CE), Sobral (CE), Mossoró (RN), Natal (RN), Brasília (DF), Arapiraca (AL), Campo Grande (MS) and Macapá (AP). In addition, six new units were approved by the National Education Council (CNE): Palmas (TO), Belém (PA), Goiânia (GO), Vitória (ES), Cuiabá (MT) and Porto Alegre (RS). These units processes are being examined by the Ministry of Education (MEC), with the publication of the ordinance expected to occur still in As a result, the Company successfully completed 25 of the 45 accreditations envisaged in its long-term plan. On June 21, 2017, the MEC published Regulatory Ordinance 11 on Diário Oficial da União, allowing Grupo Ser Educacional to expand its distance learning operations. The Ordinance, which regulated Presidential Decree 9,057 of May 25, 2017, establishes that Post-Secondary Institutions (IES) with distance learning accreditation and their higher Institutional Grade (CI) between distance learning and on-campus equal to 4 or 5 may open up to 150 and 250 new distance learning centers per year, respectively. Pursuant to the new regulations and the Accreditation of the Distance Learning course of UNINASSAU Maceió obtained on August 2, the Company is currently entitled to open 550 centers per year and will expand its capacity to 800 after it gets approval for the distance learning program of UNAMA. Recife's Joaquim Nabuco was accredited as a College, granting it autonomy for expanding the courses and units of the brand in the city, currently renamed as UNINABUCO. This will strengthen the presence of the institution in Recife's city center. UNINABUCO should also explore a new operational model on an experimental basis in the city. This model consists of the opening of smaller units, spread through certain neighborhoods with high population density, with a portfolio of courses targeting demand of each region, offering on-campus and distance learning programs through partnerships with the other brands of the Group. In the second quarter, the Company announced a primary distribution public offering of 17,429,152 Company common shares, pursuant to CVM Instruction 476. The offering was subsequently cancelled as the Board of Directors understood that although there was enough demand by professional investors and shareholders, the price per share after the bookbuilding procedure would not reflect the Company's future profitability prospects and, therefore, moving on with the Restricted Offering would not be aligned with the best interests of the Company and its shareholders. On July 14, 2017, the Company published a Call Notice to an Extraordinary Shareholders Meeting to be held on August 15, 2017 at 2:00 p.m., at the Company's headquarters at Av. da Saudade, nº 254, Bairro Santo Amaro, CEP: , in the city of Recife, state of Pernambuco to resolve on the following agenda: (i) approval of the Company s capital increase, without issuing new shares, through the capitalization of profit reserves; (ii) change of the newspaper used by the Company to disclose its results, from Diário de Pernambuco to Jornal do Commercio; (iii) amendment to the Company s Bylaws, pursuant to the Management Proposal, in order to: (a) amend the wording of the caput of article 5 to reflect the capital increase approved in item (i) above; (b) measure used to define the Company s authorized capital, as well as increase the authorized capital; (c) amend item (d) of article 17 to change the name of the Chief Academic Officer position to Chief Education Officer; (d) exclude item (e) of article 17 to eliminate the Vice Chief Executive Officer position; (e) renumber item (f) of article 17 to reflect the exclusion approved in item (d) above; and (f) change all the references to the BM&FBOVESPA S.A. Securities, Commodities and Futures Exchange to B3 S.A. Brasil, Bolsa, Balcão; (iv) consolidate the Bylaws; and (v) re-ratify the compensation paid to the Company s Board of Directors in

3 Message from Management The first half of 2017 consolidated relevant steps in Ser Educacional s long-term growth strategy. The Company s business plan was created in 2013 during the IPO process in order to guide Ser Educacional's transition from a strong player, originally, in the Northeast and North regions of Brazil into a post-secondary institution with a national presence. In order to make this possible, the Company filed requests with the Ministry of Education (MEC) to open new on-campus units and initiated distance learning activities, expanded courses in existing units and mapped opportunities for acquisitions. Since then, 25 new units were accredited, 17 of which in this first half of 2017, besides the current 6 additional units in the final stage of accreditation, approved by the National Education Council (CNE) in June and July 2017 and, therefore, awaiting the publication of the Accreditation Ordinance of the MEC. We expect to close 2017 with 31 new units accredited, of the total of 45 new units envisaged in the expansion plan. There were also hundreds of new courses approved in units already in operation, which, in addition to contributing to our organic growth, created a favorable expansion of the course mix, from 50% of the courses with classes effectively formed in the engineering and health segments in first half of 2014, to 59% in first half of 2017, significantly improving our market positioning and average ticket. Regarding the consolidation of our expansion project, as of 2Q16, the MEC approved the quality criteria in the new regulatory framework for the distance learning segment, allowing educational institutions with positive quality grades to increase the number of higher education centers and compete in the distance learning market. To this end, as of July, the Company began expanding its activities in this segment, with the launch of at least 100 new distance learning centers, which will begin their intake process already in the second half of With the materialization of the most relevant organic growth opportunities, Management is once again focusing on opening new centers and units and, as mentioned in our earnings release, starting to invest more heavily in our units, marketing activities and human resources, in order to offer students our already recognized value proposition in these new markets, which consists of providing quality education, through strong and recognized brands, unique and well located infrastructure with courses at competitive prices. We could only take this step because we developed various activities in 2015 and 2016 to ensure significant productivity gains, with the successful execution of a series of projects which streamlined the Company s main activities, including improvements in the student intake process with the enrollment BI, reduction of dropout rates with the Ser Retention System, more efficient negotiation and collection with the new negotiation scale and pedagogical and classroom efficiency improvements with the reformulation of the curriculum matrix. The Company s Management closed the first half confident that our business plan is being executed as planned. We are aware that Brazil s economic recovery has not yet materialized and that there are still many challenges ahead, but we believe that Ser Educacional is prepared to continue focusing on expanding its student base, ensuring a strict control of academic quality and adequate financial profitability for its shareholders. Ser Educacional s Management takes this opportunity to thank our students, teachers, employees and shareholders for their trust and dedication in the execution of a project which is, in its essence, characterized by the Company's own slogan: people creating the future. 3

4 OPERATING PERFORMANCE Intake - First half of 2017 At the end of 1H17, the Company had enrolled 51,400 new undergraduate students, versus 42,900 new students in the same period in The distance learning segment was the 1H17 highlight, with growth of 22.7%, having enrolled 4,600 students, versus 3,800 in 1H16. 1H17 Student Enrollment Reported Reported In thousands 1H17 1H16 % Chg Undergraduate Enrollments 51,367 42, % On-campus* 46,719 39, % Distance Learning 4,648 3, % Graduate Enrollments 4,511 3, % On-campus 3,897 3, % Distance Learning % Enrollment in the on-campus undergraduate segment increased by 19.5%, from 39,100 students in 1H16 to 46,700 students in 1H17, essentially fueled by the accreditation of new courses and new units. Of the total number of students enrolled at the end of 1H17, 11,600 came with student loans, 1,100 of whom financed through PraValer, 1,500 through Educred and 9,000 through FIES. In 1H16, this line totaled 9,200 contracts, 8,300 of which through FIES, 600 through PraValer and 300 through Educred. The percentage of students enrolled through student loans moved up from 23.5% in 1H16 to 24.9% in 1H17, 19.3% of which through FIES alone, versus 21.1% in the previous year. Through June 30, 2017, the total number of new finalized FIES contracts reached 10,400 (9,100 freshmen and 1,300 upperclassmen), filling around 86% of the 12,100 places allocated to the Company by the federal government in 1H17, versus 57% of the 19,100 places available in 1H16. The graduate segment posted growth of 15.9% in 1H17 over 1H16, with the on-campus graduate intake recording a 6.9% year-on-year upturn. Despite the higher intake in 1H17 over 1H16. Dropout Rate First-half dropout came to 14.6%, versus 11.8% in 2Q16. The higher dropout rate mainly reflects Brazil's current economic scenario, specifically the high unemployment in the regions where the Company operates. Student Growth Trends Number of Students Undergraduate Graduate Vocational Total On Campus Distance Learning On Campus Distance Learning On Campus Distance Learning Dec16 Base 131,092 6,102 9, ,862 Enrollments* 46,719 4,648 3, ,080 Leavers (11,025) - (4,553) - (362) - (15,940) Dropouts (24,318) (3,361) (1,740) (89) (39) (37) (29,584) Jun17 Base 142,468 7,389 7,105 1, ,418 % Jun17 Base / Dec16 Base 8.7% 21.1% -25.2% 65.2% -77.3% 0.0% 7.1% % Jun17 Base / Jun16 Base 4.4% 47.6% -27.9% 236.7% -89.4% 0.0% 3.9% Total 4

5 The on-campus undergraduate student base totaled 142,500 students, 4.4% more than the 136,400 reported in 2Q16. The on-campus graduate base contracted by 27.9%, due to the change in the criterion to add students to the final base, which in 1H17 began to consider only students who are in full classes, even presenting growth in the segment's intake, when we compare 1H17 with 1H16. The overall student base grew by 3.9% compared to June 30, Dec15 Base Enrollments Leavers Dropouts Dec16 Base Enrollments Leavers Dropouts Jun17 Base Average Net Ticket Average Ticket (R$) 2Q17 2Q16 Undergraduate Students (On Campus) % % In the second quarter, the average ticket was R$731.82, 7.8% up year-on-year, mainly due to the pass-through of inflation and the more favorable course mix, thanks to the gradually increasing share of engineering and health courses in the mix. Another factor contributing to the higher ticket was the greater number of enrollments in cities where the Company maintains more recognized brands. Student Financing STUDENT LOANS Dec/12 Dec/13 Dec/14 Dec/15 1Q16 Dec/16 2Q17 Students 48,670 70, , , , , , ,468 FIES Students 15,916 31,432 48,048 56,089 57,842 58,840 52,236 58,673 % of FIES Students 32.7% 44.7% 47.5% 45.2% 42.7% 44.9% 37.3% 41.2% EDUCRED Students ,922 1,385 2,548 % of EDUCRED Students 0.6% 0.7% 1.5% 1.0% 1.8% PRAVALER Students 954 1,114 1,794 1,447 1,890 % of PRAVALER Students 0.8% 0.8% 1.4% 1.0% 1.3% PRAVALER Students 57,797 59,877 62,556 55,068 63,111 % of PRAVALER Students 46.6% 44.2% 47.7% 39.3% 44.3% On June 30, 2017, students adhering to the FIES program accounted for 41.2% of the undergraduate base, a 3.8 p.p. reduction over the 45.0% at the close of 2Q16. This decline reflects the reduced availability of vacancies in FIES program by the federal government as of In April 2015, the Company redesigned their student financing plans, offering new student financing plans products through PraValer, one of Brazil s largest private programs and the re-launch of Educred, the Company s own loan program which finances a portion of students tuition with interest. At the close of 2Q17, 2,500 students had Educred loans, equivalent to 1.8% of the on-campus undergraduate student base, while 1,900 students had PraValer financing, accounting for 1.3% of the base, in line with the Company's strategic goal to maintain a hybrid model. 5

6 Organic Growth In 2Q17, 58 new courses were authorized, giving a total of 1,264, while the number of places in certain courses also expanded. As a result, in June 2017 the Company had more than 413,000 places per year, 119,400 of which in the distance learning segment. Ser Educacional moved on with its organic growth strategy based on the accreditation of new units, distance learning poles and the authorization of new courses. The highlight was the state of São Paulo, with a total of over 40 new courses on June 30, 2017, compared to the total number of courses authorized on June 30, 2016, including: Dentistry, Physical Education, Nursing, Pharmacy, Biomedicine, Civil Engineering, Electrical Engineering, Mechanical Engineering, Production Engineering and Information Systems. Through its six units operating in São Paulo, Grupo Ser Educacional already has a portfolio of 161 undergraduate courses, offered through the UNG/UNIVERITAS brands. Number of Authorized Courses 1,159 1, Q17 FINANCIAL PERFORMANCE Gross Revenue Gross Revenue (R$ '000) 2Q17 2Q16 Gross Operating Revenue 434, , % 405, % 839, , % Undergraduate Monthly Tuition 417, , % 388, % 806, , % Graduate Monthly Tuition 6,594 5, % 4, % 11,244 11, % Vocational Courses Revenues % % 633 4, % Distance Learning Revenues 7,529 3, % 6, % 14,105 6, % Others 3,402 3, % 4, % 7,920 6, % Deductions from Gross Revenue (108,659) (79,381) 36.9% (96,185) 13.0% (204,844) (146,319) 40.0% Discounts and Scholarships (46,353) (28,719) 61.4% (43,820) 5.8% (90,173) (49,995) 80.4% PROUNI (37,399) (31,882) 17.3% (31,249) 19.7% (68,648) (58,422) 17.5% FGEDUC And FIES charges (12,820) (8,217) 56.0% (9,986) 28.4% (22,806) (15,008) 52.0% Taxes (12,087) (10,563) 14.4% (11,130) 8.6% (23,217) (22,894) 1.4% % Discounts and Scholarships/ Net Oper. Rev. 10.7% 7.8% 2.9 p.p. 10.8% -0.2 p.p. 10.7% 6.9% 3.8 p.p. Net Operating Revenue 326, , % 308, % 635, , % Second-quarter gross revenue totaled R$434.9 million, 17.9% up on 2Q16, mainly fueled by the Company s organic growth, with the addition of new courses and units, and due to a business policy oriented to attracting out-of-pocket regular students, which led to an increase in the overall undergraduate student base and the higher average ticket, thanks to the pass-through of inflation, an improved course mix and units with greater brand recognition. For the same reasons, gross revenue in the undergraduate segment rose 17.3% year-on-year, reaching R$417.2 million in 2Q17 and accounting for 95.9% of the total. The graduate segment recorded revenue of R$6.6 million in 2Q17, or 1.5% of the total, 20.8% up on 2Q16, Due to the repositioning of the business line and its products, including the change of criteria for inclusion of students in the base. 6

7 Revenue from Vocational Training/Pronatec totaled R$0.2 million in 2Q17, 81.6% down on 2Q16, reflecting the graduation of Pronatec students in the period, who in turn were not replaced due to the end of the program by the federal government for private institutions. Distance learning, a segment in which the Company began operating in 2014, already accounted for 1.7% of total revenue, or R$7.5 million, up by 88.9% over 2Q16, reflecting the 62.0% year-on-year upturn in the segment s undergraduate and graduate student base. The distance learning student base has been growing considerably and consistently since 2015, mainly due to the increase in business activities for this segment fueled by the reorganization in the distance learning team, which is now fully dedicated to this activity, contributing to the greater maturation of the 18 accredited centers. Deductions from gross revenue climbed 36.9% in the quarter, fueled by the increase in sales discounts and scholarships, due to (i) a higher volume of discounts granted, as part of the intake strategy adopted for the semester, given that the second quarter had a higher number of late enrollments and re-enrollments, particularly in April, (ii) the increase in the PROUNI student base, and pass-through of inflation to the average ticket in this segment, and (iii) the increase in FIES charges, given the introduction of the additional 2% deduction on the student base as of July 2016, which accounted for R$2.8 million in 2Q17. Net revenue rose 12.7%, from R$289.6 million in 2Q16 to R$326.2 million in 2Q17. Cost of Services Rendered Breakdown of Cost of Services Rendered¹ 2Q17 2Q16 - Accounting (R$ '000) Cash Cost of Services Rendered (138,066) (128,680) 7.3% (115,580) 19.5% (253,646) (235,603) 7.7% Payroll and Charges (101,497) (96,929) 4.7% (86,737) 17.0% (188,234) (179,453) 4.9% Rent (19,850) (16,842) 17.9% (17,875) 11.0% (37,725) (32,041) 17.7% Concessionaires ( Electricity, Water and Telephone) (8,893) (8,988) -1.1% (7,084) 25.5% (15,977) (14,977) 6.7% Third-Party Services and Others (7,826) (5,921) 32.2% (3,884) 101.5% (11,710) (9,132) 28.2% The cash cost of services rendered (excluding depreciation and amortization) totaled R$138.1 million in 2Q17, 7.3% more than in 2Q16. The main components of this line all recorded an upturn in 2Q17, basically for the following reasons: a) Payroll and charges grew 4.7% in 2Q17 over 2Q16, particularly influenced by the approximately 8% pay rise due to the collective bargaining agreement granted in 2016, which was partially offset by the increased productivity in classroom and, there was a non-recurring impact, related to the FGTS fine and charges referring to the optimization of personnel in the amount of R$3.5 million in this quarter. When we observe this line in management analysis, personnel costs are practically stable between the two quarters, denoting the operational efficiency gains. b) The rental line expanded by 17.9%, from R$16.8 million in 2Q16 to R$19.9 million in 2Q17, due to the passthrough of inflation to old agreements, of variable rentals of units that increased revenues and rent of the new units, particularly the beginning of the leasing agreement in Rio de Janeiro, which is a larger property and generated preoperating expenses of R$0.6 million in 2Q17, related to the leased and unused portion of the property. This effect was offset by the suspension of leasing agreements for 12 months in properties belonging to the Company in which the controlling shareholder retains a majority stake, as announced in the 2Q16 Earnings Release. c) The concessionaires line fell by 1.1%, despite the increase in the number of operational units and the inauguration of new buildings as a result of operational expansion, such as in Aracaju and Salvador, due to the tariff reduction, return of properties last year, as well as the electricity cost reduction initiatives announced in December 2015, and the lower telecommunications costs mainly at UNAMA. d) Third-party services increased by 32.2%, from R$5.9 million in 2Q16, to R$7.8 million in 2Q17, due to the hiring of a larger number of service providers to implement improvements to the Company s processes and activities and in the new units, especially at UNIVERITAS Rio de Janeiro. 7

8 The table below shows managerial operating costs, which are adjusted for non-recurring and pre-operational effects. Breakdown of Cost of Services Rendered¹ - 2Q17 2Q16 Managerial (R$ '000) Cash Cost of Services Rendered (131,616) (127,062) 3.6% (114,700) 14.7% (244,174) (233,985) 4.4% Payroll and Charges (95,647) (96,929) -1.3% (86,457) 10.6% (179,962) (179,453) 0.3% Rent (19,250) (15,224) 26.4% (17,275) 11.4% (36,525) (30,423) 20.1% Concessionaires ( Electricity, Water and Telephone) (8,893) (8,988) -1.1% (7,084) 25.5% (15,977) (14,977) 6.7% Third-Party Services and Others (7,826) (5,921) 32.2% (3,884) 101.5% (11,710) (9,132) 28.2% Gross Profit Gross Profit - Accounting (R$ '000) 2Q17 2Q16 6M17 6M16 Net Operating Revenue 326, , % 308, % 635, , % Cost of Services Rendered (148,219) (137,909) 7.5% (123,916) 19.6% (272,135) (253,887) 7.2% Gross Profit 178, , % 184, % 362, , % Gross Margin 54.6% 52.4% 2.2 p.p. 59.9% -5.3 p.p. 57.1% 55.8% 1.3 p.p. (-) Depreciation 10,153 9, % 8, % 18,489 18, % Cash Gross Profit 188, , % 193, % 381, , % Cash Gross Margin 57.7% 55.6% 2.1 p.p. 62.6% -4.9 p.p. 60.1% 59.0% 1.1 p.p. Cash gross profit increased 16.9%, from R$160.9 million in 2Q16, to R$188.2 million in 2Q17. The cash gross margin stood at 57.7% in 2Q17, 2.1 p.p. up on the 55.6% margin recorded in 2Q16, underlining the operating efficiency gain from the higher productivity in classrooms as a result of the new curriculum matrix implemented in 2015, synergy gains from the acquisitions of UNG and UNAMA and the organic growth of the overall student base. The table below shows gross profit adjusted for non-recurring effects and pre-operating costs and expenses related to the expansion of the distance learning segment and new units. Gross Profit - 2Q17 2Q16 Managerial (R$ '000) Net Operating Revenue 326, , % 308, % 635, , % Cost of Services Rendered (141,769) (136,291) 4.0% (123,036) 15.2% (262,663) (252,269) 4.1% Adjusted Gross Profit 184, , % 185, % 372, , % Gross Margin 56.5% 52.9% 3.6 p.p. 60.2% -3.6 p.p. 58.6% 56.1% 2.5 p.p. (-) Depreciation 10,153 9, % 8, % 18,489 18, % Adjusted Cash Gross Profit 194, , % 194, % 390, , % Cash Gross Margin 59.7% 56.1% 3.5 p.p. 62.9% -3.2 p.p. 61.6% 59.3% 2.3 p.p. Operating Expenses (Selling, General and Administrative) Operating Expenses - Accounting 2Q17 2Q16 (R$ '000) General and Administrative Expenses (93,432) (75,672) 23.5% (85,059) 9.8% (178,491) (145,613) 22.6% Payroll and Charges (31,949) (26,566) 20.3% (30,990) 3.1% (62,939) (52,734) 19.4% Third-Party Services (7,849) (7,325) 7.2% (7,119) 10.3% (14,968) (14,131) 5.9% Advertising (15,824) (13,381) 18.3% (20,742) -23.7% (36,566) (29,058) 25.8% Materials (4,877) (4,028) 21.1% (4,124) 18.3% (9,001) (7,193) 25.1% PDA (15,169) (13,058) 16.2% (7,303) 107.7% (22,472) (19,448) 15.5% Others (11,426) (5,732) 99.3% (8,589) 33.0% (20,015) (12,010) 66.7% Depreciation and Amortization (6,338) (5,582) 13.5% (6,192) 2.4% (12,530) (11,039) 13.5% Operating Income 85,084 80, % 99, % 184, , % General and Administrative Expenses (Ex-Depreciation and Amortization) (87,094) (70,090) 24.3% (78,867) 10.4% (165,961) (134,574) 23.3% 8

9 General and administrative expenses increased by 23.5%, from R$75.7 million in 2Q16, to R$93.4 million, mainly due to: a) Payroll and charges, which grew 20.3% over 2Q16, due to (i) the approximately 8% average pay rise for the administrative staff, (ii) non-recurring expenses related to severance for employees, totaling R$1.1 million incurred in the quarter, and (iii) pre-operating expenses related to employees hired for distance learning operations and new units approved in and 2Q17, totaling R$2.3 million. Excluding these factors, this line amounted to R$28.2 million. As shown in the table presenting a managerial analysis of this result (excluding non-recurring and preoperating effects), expenses remained virtually stable as a percentage of net revenue. b) Services rendered, which amounted to R$7.8 million in 2Q17, 7.2% higher than the R$7.3 million recorded in 2Q16, impacted by the R$0.3 million increase mainly in expenses with the contracting of service providers to meet demand from the new units, particularly in Rio de Janeiro. c) Advertising expenses, which grew 18.3% quarter-on-quarter, mainly influenced by the student intake strategy adopted in the second quarter, focused on attracting regular students, as well as disbursements considered by the Company as pre-operating expenses amounting to R$2.7 million, related to the development and launch of the UNIVERITAS brand, especially in the city of Rio de Janeiro, and the launch of UNINASSAU's distance learning segment, which included, among other advertising activities, the contracting of famous people such as Sérgio Groisman and Tite. Excluding this amount, advertising expenses decreased 2.0%, from 4.9% of net revenue, to 4.0%, net of the initiatives to launch the new brand. This reduction reflects the changes on the strategy to attract students, which began to direct more funding efforts through commercial team and online media and the dilution of these expenses in line with the growth of the net revenue base, with the combined effect reducing this line of expenses as a percentage of net revenue. d) The provision for doubtful accounts, which increased 16.2%, from R$13.1 million in 2Q16, to R$15.2 million in 2Q17. Nevertheless, as a percentage of net revenue, this line remained flat in 2Q17 (4.6%) over 2Q16 (4.5%). The nominal increase in the provision for doubtful accounts reflects the higher student default as a result of Brazil's current economic scenario. e) Other expenses, which climbed 99.3%, from R$5.7 million in 2Q16, to R$11.4 million in 2Q17, fueled by increased expenses with services and travel due to the higher number of courses being accredited and opening of EAD units and poles. The table below shows managerial general and administrative expenses, adjusted for non-recurring and preoperating effects. Operating Expenses - Managerial 2Q17 2Q16 (R$ '000) General and Administrative Expenses (89,338) (71,963) 24.1% (77,381) 15.5% (168,861) (140,375) 20.3% Payroll and Charges (30,826) (23,967) 28.6% (26,513) 16.3% (59,481) (49,773) 19.5% Third-Party Services (7,594) (6,927) 9.6% (6,268) 21.2% (13,862) (13,047) 6.2% Advertising (13,108) (13,381) -2.0% (18,392) -28.7% (31,500) (29,058) 8.4% Materials (4,877) (4,028) 21.1% (4,124) 18.3% (9,001) (7,193) 25.1% PDA (15,169) (13,058) 16.2% (7,303) 107.7% (22,472) (19,448) 15.5% Others (11,426) (5,020) 127.6% (8,589) 33.0% (20,015) (10,817) 85.0% Depreciation and Amortization (6,338) (5,582) 13.5% (6,192) 2.4% (12,530) (11,039) 13.5% Managerial Operating Income 95,629 80, % 107, % 203, , % General and Administrative Expenses (Ex-Depreciation and Amortization) (83,000) (66,381) 25.0% (71,189) 16.6% (156,331) (129,336) 20.9% 9

10 EBITDA and Adjusted EBITDA EBITDA (R$ '000) 2Q17 2Q16 6M17 6M16 Net Income (Loss)¹ 64,895 63, % 80, % 145, , % (+) Net financial expense² 21,613 14, % 17, % 39,302 25, % (+) Income and social contribution taxes (1,424) 1, % 1, % (135) 3, % (+) Depreciation and amortization 16,491 14, % 14, % 31,019 29, % EBITDA³ 101,575 94, % 113, % 215, , % EBITDA Margin 31.1% 32.8% -1.7 p.p. 36.8% -5.7 p.p. 33.9% 36.3% -2.4 p.p. (+) Revenue from interest and fines on tuition 5 6,091 5, % 5, % 11,657 13, % (+) Non-recurring costs and expenses 6 4, % 2, % 7,270 1, % (-) Minimum rent paid 7 (9,750) (9,750) 0.0% (9,750) 0.0% (19,500) (19,500) 0.0% Adjusted EBITDA 4 102,571 91, % 112, % 214, , % Adjusted EBITDA Margin 31.4% 31.4% 0.0 p.p. 36.3% -4.9 p.p. 33.8% 35.5% -1.7 p.p. (+) Pre-Operational Costs and Expenses 5, % 5, % 11, % Payroll 2, % 2, % 4, % Third-Party Services % % 1, % Advertising 2, % 2, % 5, % Rent % % 1, % Normalized EBITDA 8 108,461 91, % 118, % 226, , % Normalized EBITDA Margin 33.2% 31.4% 1.8 p.p. 38.2% -5.0 p.p. 35.7% 35.5% 0.2 p.p. 1. Due to our adherence to PROUNI, we are entitled to certain tax benefits that affect net income. 2. Corresponds to the difference between financial revenue and expenses. 3 EBITDA is not an official accounting measurement. 4 Adjusted EBITDA corresponds to EBITDA plus (a) financial revenue from fines and interest on tuitions, (b) non-recurring costs and expenses, (c) and minimum rent paid. 5 Revenue from interest and fines on tuitions corresponds to financial charges on renegotiated and overdue tuition fees. 6. Non-recurring costs and expenses are mainly related to costs and expenses from mergers and acquisitions, which would not affect normal cash flow. 7. Minimum rent refers to rental agreements recorded under financial leasing in accordance with CPC 6. The expenses from such leasing are not recorded under EBITDA, but are part of adjusted EBITDA. 8. Normalized EBITDA, excluding non-recurring effects and pre-operating costs and expenses. Cash generation measured by adjusted EBITDA for 2Q17 amounted to R$102.6 million, an increase of 12.7% when compared to 2Q16, when reached R$91.0 million. The adjusted EBITDA margin closed the second quarter at 31.4%, in line with 2Q16, when it also stood at 31.4%. The maintenance in the adjusted EBITDA margin in the quarter was mainly influenced by pre-operating costs and expenses totaling R$5.9 million. Excluding this effect, the margin was 1.8 p.p. higher analyzing normalized EBITDA. Financial Result Financial Result - Accounting 2Q17 2Q16 (R$ '000) (+) Financial Revenue 17,238 19, % 20, % 37,364 46, % Interest on Tuition and Agreements 6,091 5, % 5, % 11,657 13, % Returns on Financial Investments 8,757 6, % 10, % 19,458 14, % Others 2,390 7, % 3, % 6,249 18, % (-) Financial Expenses (38,851) (34,651) 12.1% (37,815) 2.7% (76,666) (72,371) 5.9% Interest Expenses (9,174) (15,713) -41.6% (11,886) -22.8% (21,060) (30,659) -31.3% Interest on Leasing (8,446) (8,593) -1.7% (8,486) -0.5% (16,932) (17,224) -1.7% Discounts Granted (12,350) (3,990) 209.5% (10,298) 19.9% (22,648) (12,109) 87.0% Monetary Variation Expenses (3,300) (4,049) -18.5% (3,665) -10.0% (6,965) (8,119) -14.2% Others (5,581) (2,306) 142.0% (3,480) 60.4% (9,061) (4,260) 112.7% Financial Result (21,613) (14,696) 47.1% (17,689) 22.2% (39,302) (25,719) 52.8% Financial revenue reduced 13.6%, from R$20.0 million in 2Q16, to R$17.2 million, influenced reduction in other financial revenue, due to (i) a reduction in financial revenue from outstanding FIES accounts receivable from R$7 million in 2Q16 to R$2.5 million in 2Q17, (ii) the recurring effect from the provision for payment of PIS/COFINS taxes on financial revenue, of approximately R$0.8 million in 2Q17, which began in 3Q16, given that the court lifted an injunction exempting the Company from collecting PIS and COFINS, as established by Decree 8,426, of April 1, 10

11 2016 and (iii) the reclassification of R$0.8 million from the reversal of interest on IFC loans allocated to fixed assets which until 3Q16 were classified as other financial revenue and as of 4Q16 began to be booked as deduction from interest expenses, whose impacts were offset by the increase in interest on monthly fees and agreements due to the combined effect of the increase in the student base and the average ticket and by the increase in the income from financial investments, which increased by 27.9% due to the increase in the balance Between the two quarters. Financial expenses climbed from R$34.7 million in 2Q16, to R$38.9 million in 2Q17, primarily due to: a) Interest expenses, which fell 41.6%, from R$15.7 million in 2Q16, to R$9.2 million in 2Q17, chiefly due to the reclassification of the reversal of interest on IFC loans allocated to fixed assets, as mentioned in the Financial Revenue section above, in addition to the reduction in the CDI interbank rate and total debt balance. b) Discounts granted, which grew 209.5%, from R$4.0 million in 2Q16, to R$12.4 million, due to the higher volume of renegotiations in the re-enrollment process and negotiated recover agreements with students in arrears for more than 180 days, which were already in PDD. c) Monetary variation expenses, corresponding to financial remuneration related to payment commitments, of the acquisition of UNG mainly, which declined by 18.5%, from R$4.0 million in 2Q16, to R$3.3 million in 2Q17, as a result of the reduction in the total amount of payment commitments, due to the amortization of these amounts in 2016 and 2Q17. As a result of the factors mentioned above, the net financial result was an expense of R$21.6 million in 2Q17, versus an expense of R$14.7 million in 2Q16, 47.1% up. The table below shows managerial financial result, adjusted for non-recurring effects from other financial revenue and interest expenses. Financial Result - Managerial 2Q17 2Q16 (R$ '000) (+) Financial Revenue 17,238 19, % 20, % 37,364 46, % Interest on Tuition and Agreements 6,091 5, % 5, % 11,657 13, % Returns on Financial Investments 8,757 6, % 10, % 19,458 14, % Others 2,390 7, % 3, % 6,249 18, % (-) Financial Expenses (38,851) (34,651) 12.1% (37,815) 2.7% (76,666) (72,371) 5.9% Interest Expenses (9,174) (15,713) -41.6% (11,886) -22.8% (21,060) (30,659) -31.3% Interest on Leasing (8,446) (8,593) -1.7% (8,486) -0.5% (16,932) (17,224) -1.7% Discounts Granted (12,350) (3,990) 209.5% (10,298) 19.9% (22,648) (12,109) 87.0% Monetary Variation Expenses (3,300) (4,049) -18.5% (3,665) -10.0% (6,965) (8,119) -14.2% Others (5,581) (2,306) 142.0% (3,480) 60.4% (9,061) (4,260) 112.7% Financial Result (21,613) (14,696) 47.1% (17,689) 22.2% (39,302) (25,719) 52.8% Net Income Net Income - Accounting (R$ 000) 2Q17 2Q16 6M17 6M16 Operating Income 85,084 80, % 99, % 184, , % (+) Financial Result (21,613) (14,696) 47.1% (17,689) 22.2% (39,302) (25,719) 52.8% (+) Income and Soc. Contrib. Taxes 1,338 (1,887) % (1,376) % (38) (3,957) -99.0% (+) Deferred Income and Soc. Contrib. Taxes % % % Net Income (Loss) 64,895 63, % 80, % 145, , % Net Margin 19.9% 22.0% -2.1 p.p. 26.0% -6.1 p.p. 22.9% 26.0% -3.2 p.p. Operating income totaled R$85.1 million in 2Q17, 6.1% up on the R$80.2 million recorded in 2Q16. Income and social contribution taxes in the quarter was positive in R$1.3 million, compared to an expense of R$1.9 million in 2Q16, due to non-recurring effect of recovery of taxes from prior years in the amount of R$2.8 million in the quarter. 11

12 Net income rose from R$63.8 million in the three-month period ended June 30, 2016, to R$64.9 million in the same period in 2017, equivalent to a 1.8% increase. Net income came to 19.9% of net revenue, 2.1 p.p. lower than the 22.0% posted in 2Q16. Normalized net income, excluding non-recurring effects and pre-operating expenses in 2Q17, came to R$72.9 million, accompanied by a net margin of 22.3%. The table below shows managerial net income, adjusted for non-recurring effects. It is worth noting that the Company continues to calculate its dividend payments in accordance with the results presented in IFRS. Net Income - Managerial (R$ 000) 2Q17 2Q16 Operating Income 95,629 80, % 107, % 203, , % (+) Financial Result (21,613) (14,696) 47.1% (17,689) 22.2% (39,302) (25,719) 52.8% (+) Income and Soc. Contrib. Taxes (1,235) (1,896) -34.8% (1,511) -18.3% (2,830) (2,772) 2.1% (+) Deferred Income and Soc. Contrib. Taxes % % % Normalized Net Income (Loss) 72,866 64, % 88, % 161, , % Normalized Net Margin 22.3% 22.1% 0.2 p.p. 28.7% -6.4 p.p. 25.4% 26.6% -1.2 p.p. Accounts Receivable and Average Collection Period Accounts Receivable and Average Receivable Days (R$ '000) 1Q16 2Q16 3Q16 4Q16 2Q17 Gross Accounts Receivable 555, , , , , ,405 Monthly tuition fees 73,334 76,245 60,406 84,309 87,714 97,934 FIES 397, , , , , ,277 PRONATEC 7,791 6,343 6,021 5,474 5,224 - Negotiated agreements receivable 58,411 54,861 64,647 60,889 80,184 73,553 Education credits receivable 10,229 9,616 9,333 10,799 11,113 13,596 Others 7,925 19,420 10,664 6,880 5,537 8,045 PDA balance (41,330) (37,029) (40,854) (44,613) (46,048) (51,612) Net Accounts Receivable 513, , , , , ,793 Net Revenue (Last 12 Months - FIES+Ex-FIES+Pronatec) 1,048,075 1,064,511 1,096,490 1,125,380 1,149,075 1,185,715 Net Receivable Days (FIES+Ex-FIES+Pronatec) Net Revenue FIES (Last 12 Months) 505, , , , , ,656 Net Receivable Days (FIES) Net Receivable Days (Monthly tuition fees + Negotiated agreements receivable) Net Receivable Days (Monthly tuition fees + Negotiated agreements receivable + Education credits receivable) Net accounts receivable fell by 9.1% over 2Q16, particularly influenced by the reduction in FIES, and Increase in the PDA, partially offset by the increase in accounts receivable from students, negotiated agreements receivable and education credits receivable. The turnover of accounts receivable from non-fies students remains under control and within the Company s policy of provisioning 100% of receivables overdue by more than 180 days, plus FIES provisions. Aging of Monthly tuition fees 2Q17 4Q16 (R$ '000) Overdue by up to 30 day 19, % 18, % Overdue from 31 to 60 days 15, % 14, % Overdue from 61 to 90 days 14, % 13, % Overdue from 91 to 180 days 24, % 18, % Overdue more than 180 days 23, % 19, % TOTAL 97, % 84, % % of Gross Accounts Receivable 19.3% 18.7% 12

13 Aging of Negotiated Agreements (R$ '000) 2Q17 4Q16 Not yet due 17, % 14, % Overdue by up to 30 day 11, % 8, % Overdue from 31 to 60 days 8, % 7, % Overdue from 61 to 90 days 7, % 6, % Overdue from 91 to 179 days 13, % 12, % Overdue more than 180 days 13, % 12, % TOTAL 73, % 60, % % of Gross Accounts Receivable 14.5% 13.5% Accounts receivable from students refers to renegotiations with students in debt to the Company. The table above shows that 24.0% of the agreements were falling due. The table below shows the evolution of our provision for doubtful accounts from December 31, 2016 to June 30, 2017: Constitution of Provision for Gross Increase in Doubtful Accounts in the Provision for Income Statement (R$ '000) 12/31/2016 Doubtful Accounts Write-off 06/30/2017 Total 44,613 22,472 (15,473) 51,612 Investments (CAPEX) CAPEX (R$ ('000)) 6M17 % of Total 6M16 % of Total CAPEX Total 63, % 34, % Property acquisition / Construction / Maintenance of campuses 29, % 19, % Equipment / Library / IT 25, % 7, % MEC Licenses 1, % 1, % Software Licenses 4, % 3, % Intangibles and Others 1, % 1, % Acquisitions Debt Payment 38,549 15,885 Total CAPEX + Acquisitions Payables 101,679 49,986 In the first six months of 2017, the Company invested R$29.9 million in the renovation of campuses, mainly in the cities of Caruaru, Fortaleza and Rio de Janeiro. Acquisitions of equipment, library and IT consumed R$25.3 million, mostly allocated to the purchase of books and journals for the libraries of the operational units and IT equipment. The total of R$38.5 million in debt payments related to previous acquisitions (payment commitments) recorded under cash flow with investment activities was mostly allocated to the payment of the UNG acquisition. Indebtedness Indebtedness (R$ '000) 06/30/ /31/2016 Jun17 x Dec16 Cash, Cash equivalents and Securities 341, , % Gross debt (437,077) (517,723) -15.6% Loans and financing (299,926) (348,788) -14.0% Short term (92,413) (99,259) -6.9% Long term (207,513) (249,529) -16.8% Aquisitions Payables* (137,151) (168,935) -18.8% Net debt (95,762) (118,140) -18.9% Net debt / Adjusted EBITDA (LTM) * Acquisitions payables refer to acquisition scheduled payments 13

14 Cash and cash equivalents totaled R$341.3 million, 14.6% down on 4Q16. This reduction was basically influenced by the 15.6% lower gross debt (from R$517.7 million in 2Q16 to R$437.1 million in 2Q17), higher dividends paid (from R$23.1 million in 2Q16 to R$34.2 million in 2Q17), fueled by the increased profitability of the business and the acceleration of investments in order to meet demand of the expansion plan (from R$34.1 million to R$63.1 million). These effects were partially offset by the 17.4% increase in operating cash generation, from R$105.2 million to R$123.5 million. The Company's debt basically reflects commitments related to the acquisitions and the issue of two long-term debts with the following characteristics: (i) financing from the IFC over seven years, totaling R$120.0 million at the CDI+2.05% p.a., payable semi-annually as of April 15, 2017 and maturing on April 15, 2022, (ii) the issue of nonconvertible simple debentures with a term of 5 years totaling R$150.0 million at the CDI+2.5% p.a., with monthly payments as of February 2017 until final maturity in July Grupo Ser Educacional closed June 2017 with gross debt of R$437.1 million, 15.6% down on the R$517.7 million on December 31, 2016, due to the payment of the 2nd installment of the UNG acquisition and the beginning of the payment of the loan with IFC and the debentures. In 2Q17, the Company s net debt amounted to R$95.8 million, representing a leverage ratio (net debt / LTM EBITDA) of 0.26x, versus 0.33x in 4Q16. Debt Amortization Schedule (R$ '000) Loans and Financing A.V. (%) Aquisitions Payables A.V. (%) Debentures A.V. (%) Total A.V. (%) Short Term 49, % 78, % 42, % 170, % Total Long Term 119, % 59, % 87, % 266, % 1-2 years 43, % 28, % 42, % 114, % 2-3 years 23, % 30, % 42, % 95, % 3-4 years 23, % - 0.0% 3, % 27, % 4-5 years 23, % - 0.0% - 0.0% 23, % After five years 5, % - 0.0% - 0.0% 5, % Total Loans, Financing and Acquisitions payables 169, % 137, % 130, % 437, % In regard to the debt payment schedule, 39.0% corresponds to short-term debt, showing that the Company has adequate debt amortization terms, as well as a comfortable level of financial leverage. Cash Flow In 2Q17, the Company's cash flow increased by R$17.6 million, resulting in period cash generation of R$123.5 million from operating activities. This operating cash generation was partially offset due to the allocation of R$31.0 million to investment activities (as described in the CAPEX section), R$23.3 million to financing activities, R$34.2 million to the payment of dividends related to fiscal year 2016 and R$30.4 million to the payment of interest from financing, payment commitments and income and social contribution taxes. Cash Flow (R$ '000) 2Q17 2Q16 Cash flow from operating activities Net cash from operating activities 123, , % 170, , % (-) Cash flow allocated to investing activities (30,998) (18,269) 69.7% (101,679) (49,986) 103.4% (+) Securities 13,070 (14,380) % 64,951 30, % (+) Cash flow allocated to financing activities (57,560) (36,668) 57.0% (63,890) (41,176) 55.2% Financing Actvities (23,326) (13,551) 72.1% (29,656) (18,059) 64.2% Dividends (34,234) (23,117) 48.1% (34,234) (23,117) 48.1% (+) Interest on loans (29,093) (23,696) 22.8% (60,659) (46,215) 31.3% (+) Income and social contribution taxes paid (1,337) (3,368) -60.3% (2,977) (4,594) -35.2% Increase in cash and cash equivalents 17,595 8, % 6,683 (4,234) % Net increase in cash and cash equivalents Beginning of period 51,124 56, % 62,036 69, % End of period 68,719 65, % 68,719 65, % Increase in cash and cash equivalents 17,595 8, % 6,683 (4,234) % Cash and Securities changes 4,525 23, % (58,268) (34,332) 69.7% 14

15 ABOUT GRUPO SER EDUCACIONAL Founded in 2003 and headquartered in Recife, Grupo Ser Educacional (B3 SEER3, Bloomberg SEER3:BZ and Reuters SEER3.SA) is one of the largest private education groups in Brazil and the leader in the Northeast and North regions in terms of number of students enrolled. It offers undergraduate, graduate, vocational and distance learning courses in 20 states, with a consolidated base of more than 158,000 students. The Company operates under the following brands: Faculdades UNINASSAU, UNINASSAU Centro Universitário Maurício de Nassau, UNINABUCO - Centro Universitário Joaquim Nabuco, Faculdades UNINABUCO, Escolas Técnicas Joaquim Nabuco e Maurício de Nassau, UNG/UNIVERITAS, UNAMA - Universidade da Amazônia and Faculdade da Amazônia and UNIVERITAS Centro Universitário Universus Veritas and Faculdades UNIVERITAS through which it offers more than 1,260 courses. This notice may contain forward-looking statements related to business prospects, estimates of operating and financial results and the growth prospects of Grupo Ser Educacional. These are merely projections and, as such, are solely based on the expectations of the Management of Grupo Ser Educacional. Such forward-looking statements are substantially dependent on external factors, in addition to the risks presented in the disclosure documents filed by Grupo Ser Educacional and are therefore subject to change without prior notice. 15