S.A. (B3: KROT3; OTCQX: KROTY)

Transcription

1 Belo Horizonte, May 11, 2018, Kroton Educacional S.A. (B3: KROT3; OTCQX: KROTY) Kroton or Company, announces today its results for the first quarter of 2018 (). The Company s financial information is presented on a consolidated basis and in Brazilian real, in accordance with Brazilian Corporate Law and Generally Accepted Accounting Principles in Brazil (BRGAAP), and already conforms to International Financial Reporting Standards (IFRS), except where stated otherwise. HIGHLIGHTS MANAGEMENT ANALYSIS Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 1,757,827 1,740, % 1,754, % Net Revenue 1,363,325 1,365, % 1,349, % Gross Income 1,050,550 1,061, % 956, % Gross Margin 77.1% 77.7% -0.7 p.p. 70.9% 6.2 p.p. Operating Result 785, , % 704, % Operat ing Margin 57.6% 59.6% -2.0 p.p. 52.2% 5.4 p.p. Adjusted EBITDA 614, , % 534, % Adjust ed EBITDA Margin 45.1% 46.8% -1.8 p.p. 39.6% 5.5 p.p. Adjusted Net Income 538, , % 488, % Adjust ed Net Margin 39.5% 42.3% -2.7 p.p. 36.2% 3.3 p.p. Adjusted Net Income /share % % Operating Cash Generation (OCG) after Capex ¹ (125,271) 51,155 n.a. 392,208 n.a. OCG aft er Capex 1 / EBITDA (unadjust ed)² - 8.6% n.a. 82.9% n.a. ¹ Excludes investments in M&A and Special Projects. ² EBITDA excluding the capital gain from the divestment of NOVATEC in 4Q17. Special note: figures for 1Q17 include the operations of FAIR, FAC/FAMAT and NOVATEC while the figures for 4Q17 include only the results of NOVATEC. HIGHLIGHTS MANAGEMENT ANALYSIS (Ex-Sale of Assets and Greenfields) Consolidated - Values in R$ ('000) 1Q17 Chg.% Net Revenue 1,357,949 1,357, % Adjusted EBITDA 629, , % Adjust ed EBITDA Margin 46.4% 46.7% -0.4 p.p. Adjusted Net Income 554, , % Adjust ed Net Margin 40.8% 42.1% -1.3 p.p. ¹ Excludes figures from FAIR, FAC/FAMAT and NOVATEC for 2017, as well as results relating to new On-Campus units (Greenfields). HIGHLIGHTS On April 10, Kroton announced the creation of Saber, its holding company dedicated exclusively to Primary & Secondary Education. On the same date, the Company concluded the acquisition of Centro Educacional Leonardo da Vinci ( CELV ), an institution with around 1,300 students and unique facilities located in Vitória, Espírito Santo. On April 23, Kroton, through its subsidiary Saber, signed an agreement to acquire the operations of Somos. The transaction was executed under typical precedent conditions, including approval by Brazil's antitrust authority CADE. If approved, the acquisition will perfectly complement Kroton s operations in the Primary & Secondary Education segment with high-quality products, services and digital platforms with national coverage. In addition to representing an important strategic step, the acquisition of a leading player in this segment should further diversify the Company s markets and revenue sources and offer synergies and operating efficiency gains. Carlos Lazar IRO Pedro Gomes IR Manager Ana Troster IR Coordinator INVESTOR RELATIONS / 7311 / 7314 dri@kroton.com.br 1

2 The pace of new unit openings remained robust and should accelerate over the coming months. Excluding the 10 units opened in the past few semesters and the 3 acquisitions of On-campus units in late 2017 and early 2018, Kroton plans to open another 20 new campuses by the second semester of this year, as well as 100 new DL centers, which should start operating in the coming months. As a result, the expectation is to end 2018 with 35 new units in the On-campus segment and 400 new DL centers opened in the past year. Despite the natural maturation curve and the short-term impact that these new units will have on the Company as a whole, this will serve as an important future growth lever, expanding the addressable market and enabling increasingly broader offerings in all regions in Brazil. The first student-recruiting process of 2018 was concluded successfully and should enable the Company to deliver solid performance over the year. In all, Kroton added 322,800 new Undergraduate On-Campus and Distance Learning students, which represents growth of 3.4% compared to the same period last year, despite the more challenging competitive landscape and still-high unemployment rates. Kroton also was able to deliver strong results in controlling dropout indicators, which directly reflects the expansion and consolidation of initiatives associated with the Retention Program, which now includes, among other actions, retention teams at all units and predictive dropout models. Accordingly, Kroton s Postsecondary student base once again neared the one-million-student mark, growing 14% on the prior quarter, reflecting the Company s strong brand recognition, efficient sales team, balanced offering of student installment products and an employability channel that has proven to be an important competitive advantage. In relation to a year earlier, the student base contracted 1.3%, reflecting the greater number of graduations in the period. In terms of financial performance in, net revenue was virtually stable compared to the same quarter last year. The solid performance of the latest new enrollment and re-enrollment processes, coupled with the better mix of academic programs and the higher average ticket, were offset by the asset divestments in late 2017 and the higher number of graduates, which adversely affected the student base. Adjusted EBITDA (managerial analysis) was R$614.7 million in the quarter, down 3.9% from 1Q17, with margin contraction of 1.8 p.p., pressured by change in the student profile, with a higher level of provisioning to support the student installment products, and by higher costs and expenses associated with the new units. The latter factor, however, is of a short-term nature and should become less significant as the greenfield projects mature. Adjusted net income (managerial analysis) came to R$539.0 million in, down 6.6% from R$577.1 million in the same quarter of 2017, with adjusted net margin contracting by 270 bps. Operating cash generation after capex was negative R$125.3 million in, with this reversal explained by the postponement of the start of the re-enrollment process of FIES contracts compared to 1Q17, in addition to the larger base of students with installment plans. On the other hand, the expectation is for this indicator to improve as of the next quarter, with the normalization of FIES re-enrollments. In April, the Company intensified its share repurchases as a way to optimize returns for shareholders, with 13,767,400 common shares repurchased since the start of the program at an average price of R$13.83 per share, which represents 28.2% of the limit established in the program. MESSAGE FROM MANAGEMENT As we wrote in one of our Messages from Management a few years back, we believe that people figure at the center of the educational process and that, at the end of the day, the most important agent in this process is the student. Well, although not a new principle, the focus on our students has gained greater relevance as of the review of our strategic planning process concluded in the first quarter of this year. More than that, Student Success has consolidated itself as the structural pillar of all actions and decisions taken at the various levels of the organization as we strive to offer an exceptional experience in our different learning platforms. To us, Student Success is a combination of i) academic quality, ii) employability 2

3 and iii) the student experience in all its dimensions (physical and digital experience, in the academic and administrative areas). That is what we seek relentlessly at Kroton, since our students success is an essential condition for our sustainable growth. With that in mind, in April, we held our annual meeting with around 450 leaders of the Company to disseminate our strategic guidelines and intensify all of the efforts to improve Kroton s position from the perspective of our students and other stakeholders. It was three intense days, filled with content and always highlighting that efficiency and a mindset guided by Student Success go hand in hand, and will be embraced by all the digital transformation initiatives that we are currently developing. And, speaking of digital transformation, we have made extensive progress to date. We have approximately 150 professionals with IT and Business profiles already working and organized into 3 trains of agile deliveries. Another 150 professionals are being trained and reorganized into 3 new trains, to be launched in June. By the end of the year, 100% of Kroton s system development teams will be working under a Scalable Agile Framework (SAFe) model to ensure complete alignment between the business and technology areas, which is an essential step on our digital transformation journey. Meanwhile, we continue to advance in our strategy to promote structured organic growth. For the first student-recruiting process of 2018, we were able to implement 13 new units, of which ten are greenfield projects (all of which enjoyed successful student-recruiting and class-formation processes) and three are acquisitions of smaller institutions. Another 20 new units are already in the process of recruiting students for the second semester of 2018 and another 38 greenfield projects are currently being prepared to launch their recruiting processes for next year. So, we started with 115 units and will reach 186 on-campus units by the end of 2019, representing expansion of 62% in three years. In Distance Learning, the situation is no different, since we launched 300 new centers since August 2017 and will open another 100 for the recruitment process this second semester, reaching a total of 1,310 centers, or 44% more than in July 2017 (before the new regulatory framework). But our strategy is not just about opening a campus or center. We know there is a huge difference between obtaining authorization to open a unit and successfully implementing it. Today, the competitive advantage no longer lies in obtaining accreditation, but in the quality of the implementation process, which involves selecting the city, determining the best location in the city, selecting a partner, training local teams and monitoring, managing and supporting the administration of these units. This is the major competitive advantage for implementing new units, whether in the on-campus or distance learning segment, and the positive results achieved by Kroton s campuses and centers to date show that we are fully prepared to successfully deliver this organic growth. Having at Kroton people who truly understand education certainly continues to help us make the right strategic decisions. That was the case of the acquisition of Unopar and the merger with Anhanguera, which were ideal partners for building the Company we are today. Likewise, we are convinced that the acquisition of a controlling interest in Somos Educação (Somos) by our holding company Saber, which was created exclusively to manage our Primary & Secondary Education assets, also has the potential to become a new milestone in our history. More than that, the operation represents a return to our origins, given that Kroton operated exclusively in the Primary & Secondary Education segment since its creation in 1966 up until 2001, when it first began offering programs in Postsecondary Education. But our determination to strengthen our presence in this segment at this time was a very conscious decision. Some two years ago, we decided to conduct a more in-depth study of this market and, after a comprehensive analysis, we began forming the management team and made the strategic decision to grow in the segment. Somos is, without a doubt, the best partner for this new milestone in our history. The transaction is subject to typical precedent conditions and must be submitted for analysis by Brazil's antitrust authority (CADE). If approved, the acquisition will enable the creation of an educational platform with relevant operations in various segments. Moreover, given the high degree of complementarity, we will be able to diversify our markets and revenue sources, opening up a new growth avenue. In a country that so desperately needs Education to sustain its development and reduce inequality, we will continue to work tirelessly to do our part. To achieve that, we have over 26,000 employees who are fully engaged in transforming the lives of our students. 3

4 OPERATING PERFORMANCE POSTSECONDARY EDUCATION Evolution in Number of Students The evolution in the number of Postsecondary students between 4Q17 and by product (Undergraduate and Graduate) and teaching format (On-Campus and Distance Learning) is presented below. On-Campus Distance Learning Students Undergraduate Graduate Total Undergraduate Graduate Total 1Q17 Base 433,612 9, , ,581 27, ,823 Asset sales* 5, , Comparable 1Q17 428,350 9, , ,581 27, ,823 4Q17 Base 375,413 7, , ,851 27, ,101 New Enrollments 115,500 3, , ,276 7, ,089 Graduates (48,153) (1,023) (49,176) (69,929) (4,892) (74,821) Dropouts (36,720) (160) (36,880) (51,324) (502) (51,826) Base 406,040 9, , ,874 29, ,543 % Base / 1Q17 Base -5.2% 6.4% -5.0% 1.2% 8.9% 1.5% % Base / 4Q17 Base 8.2% 25.9% 8.5% 18.5% 8.9% 17.9% Total Students 1Q17 Base 979,193 36,310 1,015,503 Asset sales* 5, ,309 Comparable 1Q17 973,931 36,263 1,010,194 4Q17 Base 841,264 34, ,140 New Enrollments 322,776 10, ,746 Graduates (118,082) (5,915) (123,997) Dropouts (88,044) (662) (88,706) Base 957,914 39, ,183 % Base / 1Q17 Base -1.6% 8.3% -1.3% % Base / 4Q17 Base 13.9% 12.6% 13.8% * Divestment of FAIR, FAC/FAMAT and NOVATEC at the end of 2017 Total Undergraduate Total Graduate The new enrollment and reenrollment processes at the start of the year were concluded with very positive results in both the On-Campus and Distance Learning businesses. The Company managed to register growth in both formats, despite the more challenging competitive scenario and persistently high unemployment rates. Moreover, it is worth noting that this performance was delivered despite the significant decrease in the offering of FIES student financing, which underscores the Company s resilience to deliver consistent and sustainable results. The result was supported by a combination of brand recognition, an efficient sales team, a balanced offering of installment products and an employability channel that has proven to be an important competitive advantage. 4

5 Overall, 322,800 new Undergraduate students were added, or 3.4% more than in the same period of This result reflects: (i) the new programs being launched in both the On-Campus segment (especially in medical and engineering fields) and Premium DL, which have helped to expand the product offering and addressable market; (ii) the offering of installment plans, including the Private Special Installment Plan (PEP) and Late-Enrollment Installment Program (PMT), which can be considered efficient student-recruiting tools; (iii) the good performance of new students paying out of pocket, which currently account for the majority of freshmen; and (iv) the new campuses and centers opened in recent months, which, despite their low significance in the first student-recruiting processes, will be important drivers of future growth. The re-enrollment process (enrollments of students in the second to last academic semesters) also achieved very solid results considering the market conditions faced in the period, registering a decline of 4% from the same period last year, a level much lower than the increase in graduations which occurred before the start of this semester (+12% compared to 1Q17). Considering only Graduate programs, the student base expanded 8.3% on the year-ago period, supported by the enrollment of almost 11,000 new students coming mainly from Distance Learning programs, which more than offset the significant number of graduations, of approximately 6,000 students in total. Bear in mind that the LFG brand also offers Graduate programs, whose students are included in the above table. Considering these results, the Company ended the quarter with nearly one million Postsecondary students (Undergraduate and Graduate) in the On-Campus and Distance Learning segments combined, representing a slight reduction of 1.3% from the same period last year and demonstrating the resilience of Kroton s operations in a still-adverse scenario, with increased competition, economic uncertainty and a higher number of graduations. Compared to 4Q17, the student base expanded 13.8%, supported by the solid student-recruiting process at the start of the year. Broken down by teaching format, the On- Campus student base accounted for 42% of the total student base in the quarter, while the Distance Learning student base accounted for 58%. Note that the admissions and reenrollment processes for the second semester of 2018 already have begun and that Kroton remains focused on maintaining its high academic standards, while strengthening its organic growth strategies, with the opening of new On-Campus units and new Distance Learning centers, besides strengthening its brands and sales actions to deliver growing results in student recruiting and retention. Evolution of Undergraduate Dropouts Dropout rates improved significantly in both segments. In On-Campus Education, the dropout rate stood at 11.2%, lower even than in 1Q15. In the Distance Learning segment, the dropout rate was 13.0%, down by nearly 200 bps compared to last year. These improvements directly reflect the expansion and consolidation of initiatives under the Retention Program, which include, for instance, retention teams available at all units and predictive dropout models that seek to better understand the 5

6 profile of Kroton s students, aiming to identify and determine the dropout likelihood and treat the causes beforehand. Note that this decrease in dropout rates occurred despite the change in the profile of the student base in both segments, which makes the result in the period even more significant and reinforces the importance and success of the initiatives implemented to improve this indicator. FIES Number of FIES Students At the end of, Kroton had 116,628 students enrolled with FIES financing, substantially fewer than in the same period of 2017, which confirms the lower share of FIES in recent student-recruiting cycles, as well as highlighting the higher number of graduations of seniors with FIES financing. To illustrate this behavior, in the latest student-recruiting cycle, FIES accounted for less than 3% of new enrollments in On-Campus Undergraduate programs and for only 1% of total Undergraduate new enrollments. Moreover, the number of graduations of FIES students before the start of this semester was one of the highest of recent years, which indicates that the program should account for a declining share of students over the coming years. As a result, the penetration of students with FIES financing decreased 10.8 p.p. from the previous year, accounting for 28.7% of the On-Campus Undergraduate student base, or 12.2% of the total Undergraduate student base. Private Special Installment Plan (PEP) and Late Enrollment Installment Plan (PMT) At the end of, Kroton had 61,605 students enrolled in PEP programs, of which 47,500 enrolled in PEP30 and 14,100 in PEP50. In the most recent student-recruiting process, 24,754 new students were enrolled using PEP plans (PEP30 and PEP50), representing approximately 21% of On-Campus new enrollments. This level was above that of the second semester of last year and is in line with the commercial strategy adopted for the segment. Remember that Kroton adopts a conservative approach for revenue recognition and provisioning for PEP students, which includes Adjustment to Present Value (APV) of revenues and provisioning for bad debt equivalent to 50% of the amount paid in installments by PEP students, as has been done since the launch of the program. As already presented throughout 2017, the following analysis shows the evolution in the PEP30 student base, including the number of students who migrated from PEP30 (who paid 30% of tuitions during the contract s first year) to PEP40 and PEP50 (who began paying 40% and 50% of tuitions during the contract s second and third years, respectively), in accordance with the plans rules. Likewise, students who re-enrolled and remained with PEP30 are those admitted in 3Q17 and who will migrate to PEP40 in 3Q18. Furthermore, note that the dropout curve is naturally higher during the first semesters of academic 6

7 programs and that the actual dropout rate of PEP students is comparable to the dropout rates of students without installments plans from the same classes, which corroborates the product s sustainability. This behavior is also observed among PEP 50 students. PMT plans (or temporary PEP) are an alternative for the payment in installments of monthly tuitions related exclusively to periods during which new students were not yet enrolled because they were admitted after the start of classes, but still with sufficient time to complete the minimum classroom hours in the semester. Instead of exempting students from these monthly tuitions, Kroton started to offer this option to new On-campus students as of the second semester of 2016, and to new DL students as of the first semester of Therefore, the Company continues to attract freshmen, enabling their late enrollment without foregoing revenues by granting scholarships or discounts. Note that payment of these installments occurs over the months following graduation and that Kroton adopts the same accounting practice for PEP and PMT, whereby revenues are adjusted to present value and provisions for bad debt are accrued for 50% of this amount. In addition, as with the policy adopted for PEP, the outstanding balance of these tuitions becomes due automatically if the student drops out before graduation. Preparatory Courses (LFG), Unregulated Programs and Language Courses Through the brand LFG, the Company offers preparatory courses for the examination of the Brazilian Bar Association (OAB) and for examinations for civil servant positions. Always positioned as a reference in preparatory courses, LFG registered an average of 29,518 students during (these students are not considered in the Postsecondary student base reported above), which represents growth of 13.3% on the prior year. This is the best result presented by LFG in recent years, which demonstrates the efforts made recently to improve the operation as a whole. Kroton also offers short-duration open enrollment programs that allow students to increase their knowledge in various fields, such as Management, Education, Mathematics and Languages. In, there were 12,365 students enrolled in these programs (who also are not considered in the total number of Postsecondary students reported above), down 13.7% from the previous year. PRIMARY & SECONDARY As part of the Company s expansion strategy already disclosed to the market, Kroton created Saber, a holding company dedicated exclusively to the Primary & Secondary Education market. Saber will consolidate all of Kroton s current operations in the Primary & Secondary Education business, which include learning systems, operating own schools and managing schools for renowned corporations, as well as any future deals that the Company carries out in this segment, including asset acquisitions and their subsequent expansion through new units using the brand of the acquired asset. Note no alterations 7

8 will be made to the educational projects of institutions under Saber, since they concentrate a large part of the value attributed to the brand. Through the Pitágoras Network, which offers Learning Systems, including textbook collections, teacher training, education; assessments and other services to private schools in the Pre-School, Primary & Secondary Education, Saber serves a total of 687 Associated Schools and approximately 227,000 students in the private sector, which represent increases of 2.2% and 3.1% compared to last year, respectively. In April, Saber concluded its first acquisition, of Centro Educacional Leonardo Da Vinci ( CELV ). Founded in the 1990s and located in Vitória, Espírito Santo, CELV has unique facilities and serves 1,311 students (December 2017 base), 71% of whom are enrolled in full-time programs. With a strong focus on quality, CELV placed first in the state s ENEM examination for six times in recent years, and offers a bilingual program from pre school to secondary school, including the option of a high school diploma that facilitates acceptance by U.S. universities. More recently, on April 22, Saber announced the signing of an agreement to acquire a controlling interest in Somos Educação S.A., which has complementary operations, offering a wide array of high-quality products and services in Primary & Secondary Education, including high schools, learning systems, textbooks, publishing houses and language courses. With the acquisition, Saber will serve 37,000 students in own schools, 25,000 students in language courses, 1.2 million students in private schools served by learning systems, and reach 33 million students in public schools through the National Textbook Program (PNLD). Saber will also become an important community of teachers who use its products and services in Brazil, with approximately 85,000 professionals working in private schools and 1.7 million teachers in public schools. Saber will be responsible for renowned teaching institutions, such as Pitágoras, PH, Anglo, Red Balloon, and publishing houses, such as Ática, Scipione and Saraiva, among others, with a nationwide presence in all Brazilian states. The consummation of the transaction is subject to evaluation and prior approval by Brazil's antitrust authority (CADE). Until all due validations are obtained and the operation is approved by the regulatory agency, the companies will continue to operate independently. 8

9 FINANCIAL PERFORMANCE RESULTS CORPORATE On-Campus Education Distance Learning Primary and Secondary Education Kroton Consolidated Values in R$ ('000) % Net Rev. % Net Rev. % Net Rev. % Net Rev. Gross Revenue 1,363, % 346, % 48, % 1,757, % Gross Revenue Deductions (298,511) -28.0% (83,997) -32.0% (11,994) -33.3% (394,502) -28.9% Tax (40,453) -3.8% (7,032) -2.7% (1,285) -3.6% (48,770) -3.6% ProUni (185,066) -17.4% (58,579) -22.3% - 0.0% (243,645) -17.9% Returns - 0.0% - 0.0% (10,709) -29.7% (10,709) -0.8% Total Discounts (72,992) -6.9% (18,386) -7.0% - 0.0% (91,377) -6.7% Net Revenue 1,064, % 262, % 36, % 1,363, % Costs (COGS) (277,669) -26.1% (22,209) -8.5% (12,897) -35.8% (312,775) -22.9% Cost of Goods - 0.0% - 0.0% (5,094) -14.1% (5,094) -0.4% Cost of Services (277,669) -26.1% (22,209) -8.5% (7,803) -21.7% (307,681) -22.6% Faculty, Other Personnel and Third-Party Services (184,688) -17.3% (17,370) -6.6% (6,595) -18.3% (208,653) -15.3% Rent (81,840) -7.7% (3,675) -1.4% (202) -0.6% (85,717) -6.3% Materials (2,595) -0.2% (3,227) -1.2% - 0.0% (5,822) -0.4% Maintenance (3,113) -0.3% (184) -0.1% (61) -0.2% (3,358) -0.2% Other (5,433) -0.5% 2, % (945) -2.6% (4,130) -0.3% Gross Income 787, % 240, % 23, % 1,050, % Operating Expenses (116,591) -10.9% (25,177) -9.6% (3,568) -9.9% (145,336) -10.7% Personnel, General and Administrative Expenses (116,591) -10.9% (25,177) -9.6% (3,568) -9.9% (145,336) -10.7% Personnel Expenses (60,658) -5.7% (15,400) -5.9% (3,106) -8.6% (79,164) -5.8% General and Administrative Expenses (55,933) -5.3% (9,777) -3.7% (463) -1.3% (66,172) -4.9% Provision for Doubtful Accounts - PDA (134,980) -12.7% (25,562) -9.7% (289) -0.8% (160,831) -11.8% (+) Interest and Penalties on Tuition 26, % 14, % % 41, % Operating Result 562, % 203, % 19, % 785, % Sales and Marketing Expenses (113,924) -8.4% C Corporate Expenses (57,154) -4.2% o Adjusted EBITDA 614, % (-) Nonrecurring Items (45,471) -3.3% EBITDA 569, % Depreciation and Amortization (102,223) -7.5% Financial Result 17, % Income and Social Contribution Tax (9,415) -0.7% Income Tax / Social Cont. - Disposal of NOVATEC - 0.0% Net Profit 475, % (+) Nonrecurring Items 45, % (+) Intangible Amortization (Acquisitions) 18, % (+) Income Tax / Social Cont. - Disposal of NOVATEC - 0.0% Adjusted Net Profit 538, % 9

10 FINANCIAL PERFORMANCE ON-CAMPUS EDUCATION 1 On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 1,363,498 1,358, % 1,341, % Gross Revenue Deductions (298,511) (292,133) 2.2% (317,346) -5.9% Tax (40,453) (39,553) 2.3% (35,000) 15.6% ProUni (185,066) (165,846) 11.6% (175,359) 5.5% Returns - - n.a. - n.a. Total Discounts (72,992) (86,734) -15.8% (106,987) -31.8% FGEDUC (24,048) (30,371) -20.8% (37,114) -35.2% FIES - Administratuve Fee (8,952) (12,769) -29.9% (12,271) -27.0% Other (39,992) (43,594) -8.3% (57,603) -30.6% Net Revenue 1,064,987 1,066, % 1,024, % Net Revenue - Undergraduate 1,031,629 1,052, % 1,015, % Net Revenue - Out-of-pocket 446, , % 385, % Net Revenue - FIES (financed part net of APV) 389, , % 530, % Net Revenue - PEP (installment part net of APV) 125, , % 103, % Net Revenue - PMT (installment part net of APV) 69,987 59, % (5,020) n.a. Net Revenue - Graduate, Unregulated Programs, Pronatec 33,358 14, % 8, % Total of Costs (277,669) (260,601) 6.5% (339,230) -18.1% Cost of Goods - - n.a. - n.a. Cost of Services (277,669) (260,601) 6.5% (339,230) -18.1% Faculty, Other Personnel and Third-Party Services (184,688) (177,476) 4.1% (247,172) -25.3% Rent (81,840) (80,015) 2.3% (83,521) -2.0% Materials (2,595) (1,948) 33.2% (2,805) -7.5% Maintenance (3,113) (230) n.a. (4,836) -35.6% Other (5,433) (932) 482.9% (896) 506.3% Gross Income 787, , % 684, % Gross Margin 73.9% 75.6% -1.7 p.p. 66.9% 7.0 p.p. Total Operating Expenses (116,591) (104,812) 11.2% (139,856) -16.6% Personnel Expenses (60,658) (58,299) 4.0% (69,917) -13.2% General and Administrative Expenses (55,933) (46,514) 20.2% (69,938) -20.0% Provision for Doubtful Account - PDA (134,980) (131,473) 2.7% (83,401) 61.8% (+) Interest and Penalties on Tuition 26,898 35, % 22, % Operating Result 562, , % 483, % Operat ing Margin 52.8% 56.7% -3.9 p.p. 47.2% 5.6 p.p. 1 The corporate financial data for 2017 include eight months (January to August) of the operations of the units FAIR, FAC/ FAMAT and 12 months of operations of NOVATEC in the On-campus segment, since the sales were concluded on August 31, 2017 and on December 29, 2917, respectively. Meanwhile, the financial data ex-fair, FAC/FAMAT and NOVATEC exclude the figures from these operations from the On-Campus segment for all periods. 10

11 Revenue and Deductions On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 1,363,498 1,358, % 1,341, % Gross Revenue Deductions (298,511) (292,133) 2.2% (317,346) -5.9% Tax (40,453) (39,553) 2.3% (35,000) 15.6% ProUni (185,066) (165,846) 11.6% (175,359) 5.5% Returns - - n.a. - n.a. Total Discounts (72,992) (86,734) -15.8% (106,987) -31.8% FGEDUC (24,048) (30,371) -20.8% (37,114) -35.2% FIES - Administratuve Fee (8,952) (12,769) -29.9% (12,271) -27.0% Other (39,992) (43,594) -8.3% (57,603) -30.6% Net Revenue 1,064,987 1,066, % 1,024, % Net Revenue - Undergraduate 1,031,629 1,052, % 1,015, % Net Revenue - Out-of-pocket 446, , % 385, % Net Revenue - FIES (financed part net of APV) 389, , % 530, % Net Revenue - PEP (installment part net of APV) 125, , % 103, % Net Revenue - PMT (installment part net of APV) 69,987 59, % (5,020) n.a. Net Revenue - Graduate, Unregulated Programs, Pronatec 33,358 14, % 8, % Deductions In, deductions as a ratio of gross revenue increased 0.4 p.p. compared to the year-ago period, explained by the larger base of ProUni students in the last two admissions processes. This situation offset the decrease in charges related to FIES, given the reduction in the FIES student base, and the lower volume of discounts granted at the start of this year. Compared to the prior quarter, deductions as a ratio of gross revenue decreased 1.8 p.p., reflecting the smaller FIES student base and the seasonality of the Tuition Adjustment Process (PAM), which affects primarily even-numbered quarters, due to adjustments in the number of classroom hours. Net Revenue Net revenue was practically stable compared to the same period in 2017, due to the lower revenue from the On-Campus Undergraduate segment, which was offset by the strong performance of the Graduate segment. The lower revenue from the Undergraduate segment in the quarter is explained by the lower number of students given the increase in graduations of students recruited during the strong admissions processes of 2013 and 2014, and by the change in the student profile. In this sense, it is worth noting that an important part of the graduations were of FIES students, which, combined with the lower volume of PEP plans in the latest admissions cycles, adversely affected the comparison of Undergraduate revenue. The divestment of the units FAIR, FAC/FAMAT and Novatec in late 2017 also contributed to this performance. On the other hand, it is important to mention the revenue recorded by the Late-Enrollment Installment Program (PMT), which has helped the Company to reduce the total volume of discounts granted. Note also that the decline in revenue was significantly lower than the contraction in the student base, which is explained by the continued shift in the program mix towards morepremium programs by the Company, with positive impacts on the segment s average ticket. Regarding the result of Graduate programs, vocational and unregulated programs, two factors stand out: (i) the better performance obtained after increasing the area s autonomy to ensure full control and management of its processes; and (ii) the receipt of revenues from Pronatec related to late confirmations of students at Kroton s institutions. Average Net Ticket On-Campus Postsecondary Education- Values in R$ 1Q17 Chg.% 4Q17 Chg.% Total % % Calculation of the average net ticket considers Net Revenue after FGEDUC, FIES Administrative Fee, Prouni Scholarship and Taxes on all On-campus products (Undergraduate, Graduate, Research Degree and Extension), excluding revenue from Pronatec and the effects of APV. 11

12 For a better understanding, the calculation of Kroton s average ticket considers the number of students effectively billed in the period (including ProUni students), since, due to retroactive contract amendments, a student could be billed more than once in a certain month. The net average ticket of On-Campus programs in was R$898.80, an increase of 2.4% from the year-ago period, reflecting the annual adjustment of monthly tuitions and the increased share of programs with higher tickets in the base. In this sense, it is worth reinforcing that, in the student-recruiting process at the start of the year, new students enrolling in programs in the fields of engineering and medicine once again accounted for over 50% of total new enrollments. However, this increase in the average ticket lagged inflation in the period, reflecting a different composition of the mix of new students, with a smaller share of PEP and PMT students (whose tickets do not include discounts), and the temporal effect of ProUni, which has a faster enrollment and re-enrollment cycle compared to other students. Excluding this impact, the effect on the average ticket would have been higher, which should become clearer in the results for the second quarter. Breakdown of Average Net Ticket of On-Campus Undergraduate Student by Product Perspective Since last year, Kroton began reporting the analysis of average tickets from the student by product perspective for the On-Campus Undergraduate business. This perspective considers the different revenue sources of each product separately, i.e., the ex-fies and ex-pep average ticket is formed by the amounts of students paying 100% of tuition out of pocket and those contracting the PMT plan. Meanwhile, the PEP and FIES average tickets are divided into Out-of-pocket, Installment/Financing and PMT. The analysis of the combination of the Ex-FIES and PMT average tickets is called On- Campus Undergraduate Out-Of-Pocket (ex-fies and ex-prouni). This analysis enables a better understanding of the dynamics of the average ticket across the various types of students and of products offered by the Company. ON-CAMPUS UNDERGRADUATE 1Q17 Chg.% Student Product Net Revenue APV NR Ex-APV ¹ Invoices² Net Ticket Net Revenue APV NR Ex-APV ¹ Invoices² Net Ticket Δ Net Ticket Δ NR Ex-FIES Ex-PEP 385,903 (9,626) 376, ,503 11, , % 37.7% Ex-FIES and Ex-PEP Out-of-Pocket 332, , , , PMT 52,952 (9,626) 43, ,244 11,785 55, PEP 197,288 9, , , ,091 5, , , % -6.2% PEP Out-of-Pocket 54,953-54, ,622-61, Installment 125,718 (4,751) 120, ,500 (759) 138, PMT 16,617 14,673 31, ,969 6,479 20, Out-of-Pocket On-Campus Undergrad. Ex-FIES Ex-Prouni FIES* 583, , ,594 17, , % 18.1% FIES 443,306 (2,637) 440, , ,720 (1,482) 574, , % -23.3% Out-of-Pocket 53,114-53, ,650-30, Installment 389,775 (1,941) 387, ,404 (2,938) 533, PEP+PMT 417 (696) (279) - - 8,666 1,456 10, TOTAL On-Campus Undergradraduate³ ExProuni TOTAL On-Campus Undergradraduate³ 1,026,496 (2,341) 1,024, , ,052,315 16,022 1,068,337 1, % -4.1% 1,026,496 (2,341) 1,024,155 1, ,052,315 16,022 1,068,337 1, % -4.1% ¹ Revenue ex-icf used to calculate net average ticket; ² Amounts / 000; ³ On-campus ex Graduate/Unregulated /Extension/Language/Pronatec programs. As noted in previous periods, an analysis of the above table shows that offering of student financing/installment plans is important to enable students to pursue careers with more expensive monthly tuitions, which is a policy adopted by the Brazilian government itself in the offering FIES financing. Since there is no difference in the amounts of the base tuition among students in the same class, the differences in the average ticket observed among installment/financing products reinforces this point, given the higher share of students enrolled in more expensive programs. Accordingly, PEP is the segment s channel with the highest average ticket, of R$1,271.0 per student, in. Next comes FIES, with an average ticket of R$1,235.8, followed by students paying out of pocket, with an average ticket of R$

13 Costs On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total of Costs (277,669) (260,601) 6.5% (339,230) -18.1% Cost of Goods (CG) - - n.a. - n.a. Cost of Services (CS) (277,669) (260,601) 6.5% (339,230) -18.1% Faculty, Other Personnel and Third-Party Services (184,688) (177,476) 4.1% (247,172) -25.3% Rent (81,840) (80,015) 2.3% (83,521) -2.0% Materials (2,595) (1,948) 33.2% (2,805) -7.5% Maintenance (3,113) (230) n.a. (4,836) -35.6% Other (5,433) (932) 482.9% (896) 506.3% % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total of Costs -26.1% -24.4% -1.6 p.p % 7.1 p.p. Cost of Goods (CG) 0.0% 0.0% n.a. 0.0% n.a. Cost of Services (CS) -26.1% -24.4% -1.6 p.p % 7.1 p.p. Faculty, Other Personnel and Third-Party Services -17.3% -16.6% -0.7 p.p % 6.8 p.p. Rent -7.7% -7.5% -0.2 p.p. -8.2% 0.5 p.p. Materials -0.2% -0.2% -0.1 p.p. -0.3% 0.0 p.p. Maintenance -0.3% 0.0% -0.3 p.p. -0.5% 0.2 p.p. Other -0.5% -0.1% -0.4 p.p. -0.1% -0.4 p.p. In, cost of services as a ratio of net revenue increased by 1.6 p.p. compared to the same period of This result shows the costs related to the expansion projects of the Company, which significantly increased the number of new units in recent months. This ends up creating additional costs related to both faculty and rent, which are the segment s main expenses. Although all efficiency levers are functioning fully, it is only natural to assume that pressures from growth projects will adversely affect results in the short term. However, initiatives related to implementing the operational research (OR) software, combined with increased efficiency of faculty allocation and utilization of facilities, in addition to negotiations related to strategic sourcing, remain the key factors for maintaining an optimized cost structure for the segment. Compared to the prior quarter, total costs as a ratio of net revenue decreased 7.1 p.p., a result that exceeds the seasonality of the business and attests to the robustness of the cost controls. Gross Income On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 787, , % 684, % Gross Margin 73.9% 75.6% -1.7 p.p. 66.9% 7.0 p.p. Gross income from On-Campus Education was R$787.3 million in, decreasing 2.3% from the same period last year. The combination of stable revenue and a larger cost structure to support growth projects led to gross margin contraction of 1.7 p.p. in the period. Compared to the prior quarter, gross margin expanded 7.0 p.p., supported by revenue growth in the period due to the solid student-recruiting results at the start of the year and by the seasonally lower operating costs. 13

14 Operating Expenses On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses (116,591) (104,812) 11.2% (139,856) -16.6% Personnel Expenses (60,658) (58,299) 4.0% (69,917) -13.2% General and Administrative Expenses (55,933) (46,514) 20.2% (69,938) -20.0% % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses -10.9% -9.8% -1.1 p.p % 2.7 p.p. Personnel Expenses -5.7% -5.5% -0.2 p.p. -6.8% 1.1 p.p. General and Administrative Expenses -5.3% -4.4% -0.9 p.p. -6.8% 1.6 p.p. Personnel, General and Administrative Expenses As a ratio of net revenue, total personnel, general and administrative expenses increased 1.1 p.p. from the year-ago quarter, which was due to the larger workforce, lower reversal of contingencies and higher administrative expenses related to the new units, particularly with utilities. Compared to the previous quarter, the decrease of 2.7 p.p. in this indicator is explained by the segment s natural seasonality. Provision for Doubtful Accounts (PDA) On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Provision for Doubtful Account - PDA (134,980) (131,473) 2.7% (83,401) 61.8% PDA / Postsecondary Net Revenues¹ -13.0% -12.4% -0.6 p.p. -8.1% -4.8 p.p. PDA Out -of-pocket (33,620) (23,928) 40.5% (29,219) 15.1% PDA Out-of-pocket / Postsecondary Net Revenues Out-of-pocket¹ -7.4% -7.5% 0.1 p.p -7.4% 0.0 p.p PDA FIES - Financed Part (3,508) (4,762) -26.3% (4,778) -26.6% PDA FIES / Postsecondary Net Revenues FIES¹ -0.9% -0.9% -0.0 p.p. -0.9% -0.0 p.p. PDA PEP - Inst allment Part (62,859) (73,036) -13.9% (51,914) 21.1% PDA PEP / Postsecondary Net Revenues PEP¹ -50.0% -50.0% 0.0 p.p -50.0% 0.0 p.p PDA PMT - Inst allment Part (34,993) (29,747) 17.6% 2, % PDA PMT / Postsecondary Net Revenues PMT¹ -50.0% -50.0% 0.0 p.p -50.0% 0.0 p.p ¹ Net Revenue for the On-Campus excludes revenues from Pronatec Total PDA as a ratio of net revenue in the On-Campus segment increased 0.6 p.p. from the same period last year, to 13.0%. This performance is explained by the higher share of PMT students in the base and by the increases carried out to PDA ex- FIES and ex-pep to better reflect the different mix of student, with these factors partially neutralized by the reduced offering of PEP in recent student-recruiting cycles. Compared to the prior quarter, the 4.8 p.p. increase is explained by seasonality and the student-recruiting process at the start of the year, in addition to the shift in the student mix with the graduation of FIES students, for whom provisioning is lower. However, it is worth noting that PDA for Out-Of-Pocket Students remained stable, at a level below PDA for those students at the start of last year, which points to a positive outlook for the coming quarters. 14

15 Accounts Receivables by Payment Form On-Campus Higher Education Values in R$ ( 000) net of APV and PDA 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable 1,946,314 1,669, % 1,537, % Out-of-Pocket 400, , % 383, % Tuition + FIES + PEP 398, , % 382, % Agreements to Receive 1,758 2, % % Installments 749, , % 621, % PEP 591, , % 500, % PMT 157,667 73, % 120, % FIES 797, , % 532, % PN23 376, , % 370, % Short Term 376, , % 370, % Long Term - 359,178 n.a. 0 n.a. Other FIES - Short Term 420, , % 161, % Total Accounts Receivable net of PDA increased 26.6% in the comparison of with 4Q17, due to a combination of factors, such as: (i) the higher exposure to the Company s installment plans, such as PEP and PMT, which are repaid only after graduation; (ii) the receipt of one less FIES installment, since the installment from November, which is usually received in January, was brought forward to December; (iii) the higher revenue from out-of-pocket students due to the change in the student mix with the graduation of FIES students; (iv) the still-high volume of overdue tuitions due to the unstable economic scenario; and (v) the increased renegotiation of overdue balances of part of the portfolio which had already been written-off, which, on the other hand, helps to reduce total effective losses. Lastly, note that the only FIES installment outstanding under PN23 is recorded in the short-term line, corresponding to 50% of the amount not received in 2015 (adjusted to present value), which will be repurchased in August Average Accounts Receivable Term For calculating the average term of accounts receivable in the On-Campus Postsecondary business, Kroton presents four distinct analyses: 1. Accounts Receivable Total On-Campus - Average Accounts Receivable Term (days) 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable Total Net Revenue On-Campus Days Days Calculation base: net balance of short-term and long-term Accounts Receivable in the On-Campus Postsecondary business related to monthly tuitions, agreements and other academic services, divided by net operating revenue in the On-Campus Postsecondary business in the last 12 months, multiplied by 360 days. In, the average term increased by 17 days compared to the same period last year, mainly due to the factors mentioned above, such as the higher balance of PEP and PMT accounts receivable, the return to Accounts Receivable of monthly tuitions which had already been written off and the higher volume of overdue tuitions. Compared to 4Q17, the increase of 35 days in the average term reflects not only the higher share of PEP and PMT in the student base, but also the receipt of one additional FIES installment in the prior quarter. In general, Kroton has been reviewing its contract renegotiation policy with students, and created an exclusive department to improve the flow and management of Accounts Receivables, in order to optimize and expedite results over the coming quarters. 15

16 2. Accounts Receivable Out-of-pocket On-Campus - Average Accounts Receivable Term (days) 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable (Out-of-Pocket ex-pronatec) Net Revenue (Out-of-Pocket ex-pronatec) Days Days Calculation base: net balance of short-term and long-term Accounts Receivable (Out-of-pocket ex-pronatec) in the On-Campus business related exclusively to monthly tuitions, agreements and other academic services, divided 7by net revenue (Out-of-pocket ex-pronatec) in the On-Campus business in the last 12 months, multiplied by 360 days. In, the average out-of-pocket term (ex-financing/installment plans) was practically stable compared to the same period of 2017, which demonstrates that the efforts implemented to improve collections are starting to bear fruit and suggests improvement in this line in the coming quarters. Compared to the prior quarter, the decrease of 4 days is explained by the segment s natural seasonality and the improvement in dropout rates in the period. 3. Accounts Receivable FIES On-Campus - Average Accounts Receivable Term (days) 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable (FIES) Net Revenue (FIES) Calculation base: net balance of short-term and long-term Accounts Receivable related solely to FIES, divided by net revenue from monthly FIES tuitions in the last 12 months, multiplied by 360 days Days Days In, the average term of FIES Accounts Receivables was 145 days, down 5 days compared to the same period of 2017, which demonstrates the normalization of the payment flow and the payment of the second installment of 25% of the installments not paid in 2015, due to PN23. Compared to the prior quarter, the increase of 55 days reflects the anticipation to December of the credit usually received in January, which decreased the amount that should have been received in. The expectation is that, as of August 2018, when the government repays the remaining 50% under PN23, the average term of FIES Accounts Receivables will return to pre-2015 levels. 4. Accounts Receivable - Installment Payment Products On-Campus - Average Accounts Receivable Term (days) 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable (PEP/PMT) Net Revenue (PEP/PMT) Calculation base: net balance of short-term and long-term Accounts Receivable related exclusively to PEP and PMT, divided by net revenue from monthly PEP and PMT tuitions in the last 12 months, multiplied by 360 days Days Days In, the average term of installment plans increased by 111 days and 72 days compared to 1Q17 and 4Q17, respectively, reflecting the maturation of PEP and PMT students in the Company s student base, in addition to the student-recruiting process at the start of the year. Operating Result On-Campus Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 787, , % 684, % (-) Total Operating Expenses (116,591) (104,812) 11.2% (139,856) -16.6% (-) Provision for Doubtful Account - PDA (134,980) (131,473) 2.7% (83,401) 61.8% (+) Interest and Penalties on Tuition 26,898 35, % 22, % Operating Result 562, , % 483, % Operat ing Margin 52.8% 56.7% -3.9 p.p. 47.2% 5.6 p.p. The operating result (before marketing expenses) in amounted to R$562.6 million, with operating margin of 52.8%, down 3.9 p.p. from the prior-year period. The lower margin reflects not only the larger cost structure to support the 16

17 Company s growth projects, but also all the associated pressures, which mainly refer to the shift in the profile of the On- Campus student base and to the higher provisioning to support the Company s installment plans in a conservative manner. However, note that the maintenance of operating margins above 50%, despite the short-term challenges and accelerated growth rate, demonstrates the consistency of the Company s various levers to continuously deliver a high level of efficiency. Compared to the prior quarter, operating margin expanded 5.6 p.p., reflecting the seasonality of the operation and the strong results achieved in the new enrollment and re-enrollment processes at the start of the year. OPERATING RESULT EX- FAIR, FAC/FAMAT and NOVATEC On-Campus - Values in R$ ('000) 1Q17 Chg.% Net Revenue 1,064,987 1,058, % Gross Income 787, , % Gross Margin 73.9% 75.5% -1.6 p.p. Operating Result 562, , % Operat ing Margin 52.8% 56.6% -3.8 p.p. Excluding the recent divestments of FAIR, FAC/FAMAT and NOVATEC from the results for 1Q17 leads to a slight difference in indicators for the On-campus segment, with revenue growing 0.6%, reversing the decline registered in the corporate result. Meanwhile, gross income in decreased by 1.5%, with margin contraction of 1.6 p.p. from the same period last year. Operating margin, however, declined by 3.8 p.p. due to the higher provisioning and the larger cost structure to support the growth projects. 17

18 CORPORATE FINANCIAL PERFORMANCE DISTANCE LEARNING Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 346, , % 336, % Gross Revenue Deductions (83,997) (79,940) 5.1% (84,125) -0.2% Tax (7,032) (7,652) -8.1% (6,620) 6.2% ProUni (58,579) (49,354) 18.7% (58,780) -0.3% Returns - - n.a. - n.a. Total Discounts (18,386) (22,934) -19.8% (18,724) -1.8% Net Revenue 262, , % 252, % Net Revenue - Undergraduate 247, , % 237, % Net Revenue - Out-of-pocket 244, , % 236, % Net Revenue - PMT (installment part net of APV) 3,476 12, % % Net Revenue - Graduate, LFG and Unregulated Programs 14,388 15, % 14, % Total of Costs (22,209) (27,975) -20.6% (32,264) -31.2% Cost of Goods - - n.a. - n.a. Cost of Services (22,209) (27,975) -20.6% (32,264) -31.2% Faculty, Other Personnel and Third-Party Services (17,370) (20,989) -17.2% (24,743) -29.8% Rent (3,675) (4,072) -9.7% (3,981) -7.7% Materials (3,227) (2,727) 18.4% (1,863) 73.2% Maintenance (184) (14) 1,264.2% (370) -50.2% Other 2,247 (173) n.a. (1,306) n.a. Gross Income 240, , % 220, % Gross Margin 91.5% 89.3% 2.2 p.p. 87.2% 4.3 p.p. Total Operating Expenses (25,177) (22,954) 9.7% (31,353) -19.7% Personnel Expenses (15,400) (16,083) -4.2% (19,212) -19.8% General and Administrative Expenses (9,777) (6,871) 42.3% (12,141) -19.5% Provision for Doubtful Account - PDA (25,562) (26,737) -4.4% (22,922) -11.5% (+) Interest and Penalties on Tuition 14,144 8, % 9, % Operating Result 203, , % 175, % Operat ing Margin 77.6% 73.4% 4.2 p.p. 69.5% 8.1 p.p. 18

19 Revenue and Deductions Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 346, , % 336, % Gross Revenue Deductions (83,997) (79,940) 5.1% (84,125) -0.2% Tax (7,032) (7,652) -8.1% (6,620) 6.2% ProUni (58,579) (49,354) 18.7% (58,780) -0.3% Returns - - n.a. - n.a. Total Discounts (18,386) (22,934) -19.8% (18,724) -1.8% Net Revenue 262, , % 252, % Net Revenue - Undergraduate 247, , % 237, % Net Revenue - Out-of-pocket 244, , % 236, % Net Revenue - PMT (installment part net of APV) 3,476 12, % % Net Revenue - Graduate, LFG and Unregulated Programs 14,388 15, % 14, % Deductions In the Distance Learning business, the main deduction items are the discounts granted and ProUni, which, combined, corresponded to 22.2% of total gross revenue in, up 1.0 p.p. from the same quarter of 2017, reflecting the larger ProUni student base, especially after the 2017 mid-year student-recruiting process, which offset the decline in total discounts, despite the more competitive landscape in the segment. Compared to the previous quarter, the decrease of 0.8 p.p. reflects the higher gross revenue in the period. Net Revenue Net revenue amounted to R$262.3 million in, an increase of 0.5% from the same quarter of 2017, reflecting the solid new enrollment and re-enrollment processes at the start of the year, the higher number of new DL centers and the positive effect from the expanded offering of Premium DL programs, which accounted for 10% of all new students in the process at the start of this year. These factors offset the sharp increase in competition in the segment and the higher number of students enrolled in 100%-online programs, which have lower tuitions than programs in the once a week format. Compared to the prior quarter, net revenue from the Distance Learning segment grew 4.0%, due to seasonality, with the results of new enrollments and re-enrollments having a positive impact on the quarter. Average Net Ticket Distance Learning - Values in R$ 1Q17 Chg.% 4Q17 Chg.% Total (Student) % % Calculation of the average net ticket considers Net Revenue before Transfers to owners of the centers and after ProUni scholarships and Taxes for all DL products (Undergraduate, Graduate, Unregulated Programs and LFG) and excludes the effects of APV. For comparison purposes, Kroton reports only the effective ticket paid by the student, without discounting the transfers to the partners of the centers. To enable a better understanding, when calculating the average ticket, Kroton uses the number of invoices effectively recognized as revenue in the period, including ProUni sales. On this basis, considering all (100%) of the revenue and the combination of the DL Undergraduate, DL Graduate and LFG businesses, the average ticket was R$266.91, or 1.4% higher than in 1Q17, reflecting the annual tuition increase and the increase in the Premium DL student base, which has a strategic relevance in terms of representing an important competitive advantage and having monthly tuitions significantly higher than in the once a week model. These factors offset the higher number of students enrolled in 100%-online programs (which have lower average tickets), the increased competition in the segment and temporal effect of ProUni, which has a faster enrollment and re-enrollment cycle compared to other students. Furthermore, the temporary 19

20 increase in discounts had a negative effect on average ticket for the period. The expectation is for recovery in the average monthly tuition in the second quarter, bringing the result of the semester closer to the variation in inflation. Breakdown of Average Net Ticket of DL Undergraduate Student by Product Perspective Since the start of 2017, analyses of average ticket in the DL segment include additional information based on student by product perspective for the Undergraduate business. This perspective considers the different revenue sources of each product separately, i.e., the DL average ticket is formed by the amounts of students paying 100% of tuition out of pocket and those contracting the PMT plan. The combination of the Out-of-pocket and PMT average ticket is called the DL Undergraduate Out-Of-Pocket (ex-prouni). This analysis enables a better understanding of the dynamics of the average ticket across the various types of students and of payment products offered by the Company. DISTANCE LEARNING UNDERGRADUATE 1Q17 Student Product Net Revenue 1 APV NR Ex-APV 2 Invoices 3 Net Ticket EAD Net Revenue 1 APV NR Ex-APV 2 Invoices 3 Net Ticket Out-of-Pocket 376, ,446 1, , ,889 1, % 0.0% PMT 3,893 (934) 2, ,649 4,249 19, TOTAL DL UNDERGRAD. OUT-OF-POCKET⁴ Ex-ProUni TOTAL DISTANCE LEARNING UNDERGRAD⁴ ¹ Revenue ex-transfers; ² Revenue used to calculate average ticket; ³ Amounts / 000; 4 Undergraduate Only (ex-graduate, unregulated programs, etc.) Δ Net Ticket Chg.% 380,340 (934) 379,406 1, ,538 4, ,787 1, % -2.9% 380,340 (934) 379,406 1, ,538 4, ,787 1, % -2.9% Δ NR The above analysis illustrates the impact of PMT on the performance of average ticket in the period. However, since the offering of this product is still not that significant and was very residual this quarter, only a small difference is perceived in the out-of-pocket average ticket in relation to the consolidated figure shown in the previous table. Costs Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total of Costs (22,209) (27,975) -20.6% (32,264) -31.2% Cost of Goods - - n.a. - n.a. Cost of Services (22,209) (27,975) -20.6% (32,264) -31.2% Faculty, Other Personnel and Third-Party Services (17,370) (20,989) -17.2% (24,743) -29.8% Rent (3,675) (4,072) -9.7% (3,981) -7.7% Materials (3,227) (2,727) 18.4% (1,863) 73.2% Maintenance (184) (14) % (370) -50.2% Other 2,247 (173) n.a. (1,306) n.a. % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total of Costs -8.5% -10.7% 2.2 p.p % 4.3 p.p. Cost of Goods (CG) 0.0% 0.0% 0.0 p.p. 0.0% 0.0 p.p. Cost of Services (CS) -8.5% -10.7% 2.2 p.p % 4.3 p.p. Faculty, Other Personnel and Third-Party Services -6.6% -8.0% 1.4 p.p. -9.8% 3.2 p.p. Rent -1.4% -1.6% 0.2 p.p. -1.6% 0.2 p.p. Materials -1.2% -1.0% -0.2 p.p. -0.7% -0.5 p.p. Maintenance -0.1% 0.0% -0.1 p.p. -0.1% 0.1 p.p. Other 0.9% -0.1% 0.9 p.p. -0.5% 1.4 p.p. In, cost of services (CS) came to R$22.2 million and as a ratio of net revenue decreased 2.2 p.p. from the same period in The decrease is mainly due to the optimization of online tutoring last year, which seeks to improve the quality of the services and responses given to students and to boost the operation s productivity. Furthermore, the expansion in the base of 100%-online students also had a positive impact on faculty costs, since their cost structure is lower compared to the once a week model. Furthermore, efficiency gains were captured by projects related to strategic sourcing and by the economies of scale observed in recent years. Compared to the previous quarter, costs as ratio of net revenue fell even more sharply, by 4.3 p.p., which is mainly explained by the decline in third-party services and by the positive impact from the line others due to the receipt of compensation for damages. 20

21 Gross Income Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 240, , % 220, % Gross Margin 91.5% 89.3% 2.2 p.p. 87.2% 4.3 p.p. In, gross income was R$240.1 million, with gross margin surpassing the mark of 90%, increasing 2.2. p.p. on the same period last year. This improvement in profitability despite all the pressures from the higher competition in the segment reflects the efficiency gains captured in recent quarters, in addition to greater economies of scale and the lower payroll costs in the period, demonstrating the differentiated level of management achieved by Kroton in the segment. Compared to the previous quarter, gross margin expansion also reflects the results from the student-recruiting process at the start of the year. Operating Expenses Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses (25,177) (22,954) 9.7% (31,353) -19.7% Personnel Expenses (15,400) (16,083) -4.2% (19,212) -19.8% General and Administrative Expenses (9,777) (6,871) 42.3% (12,141) -19.5% % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses -9.6% -8.8% -0.8 p.p % 2.8 p.p. Personnel Expenses -5.9% -6.2% 0.3 p.p. -7.6% 1.7 p.p. General and Administrative Expenses -3.7% -2.6% -1.1 p.p. -4.8% 1.1 p.p. Personnel, General and Administrative Expenses In the quarter, personnel expenses as a ratio of the segment's net revenue decreased 0.3 p.p. from 1Q17, due to the initiatives to streamline personnel expenses to increase operating efficiency. This result was achieved despite the larger workforce required to support the higher number of centers, which was offset by recurring economies of scale. Compared to the prior quarter, the line personnel improved even further, by 1.7 p.p., mainly due to the seasonality of the operation. General and administrative expenses as a ratio of net revenue increased 1.1 p.p. from the prior-year period, since 1Q17 benefitted from a higher volume of reversal of contingencies. Compared to 4Q17, however, there was a decline of 1.1 p.p. in general and administrative expenses, due to seasonality and higher savings in the line of utilities, cleaning and safety. Provision for Doubtful Accounts (PDA) Distance Learning (DL) - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Provision for Doubtful Account - PDA (25,562) (26,737) -4.4% (22,922) 11.5% PDA / Distance Learning Net Revenues -9.7% -10.2% 0.5 p.p. -9.1% -0.6 p.p. PDA Out-of-pocket (23,824) (20,621) 15.5% (22,625) 5.3% PDA Out-of-pocket/ Out-of-pocket DL Net Revenues -9.2% -8.3% -0.9 p.p. -9.0% -0.2 p.p. PCLD PMT - Installment Part (1,738) (6,116) -71.6% (298) 483.8% PDA PMT/ PMT DL Net Revenues -50.0% -50.0% 0.0 p.p % 0.0 p.p. Provisioning in the DL business stood at 9.7% in, increasing 0.5 p.p. from the same period last year, reflecting the larger base of 100%-online students, which have higher dropout rates, in addition to the impact from the offering of PMT plans on provisioning as a whole, since, as done with PEP plans, the Company adopts a conservative provisioning policy, accruing 50% of the tuitions financed. Compared to the prior quarter, the 0.6 p.p. increase in provisioning is due to seasonality and the effects from the student-recruiting process at the start of the year. 21

22 Accounts Receivable Distance Learning - Values in R$ ('000) net of APV and PDA 1Q17 Chg.% 4Q17 % AH Net Accounts Receiveble 267, , % 283, % Tuit ion and Agreements to Receive - Short term 260, , % 276, % PMT 7,343 6, % 6, % Net accounts receivable in the Distance Learning business amounted to R$267.7 million in, increasing 16.5% from the same period of 2017, reflecting the growth in the receivables-generating student base and the impact from the increase in new enrollments of students in 100%-online programs, who are more likely to drop out, directly affecting the profile of the delinquent student base. Meanwhile, the 5.7% decline compared to the previous quarter was driven by the seasonality of the operation, as well as the improvement in dropouts observed in the segment. Average Accounts Receivable Term In relation to the average Accounts Receivable term for the DL Postsecondary business, Kroton presents two distinct analyses: 1. Accounts Receivable Out-of-pocket Distance Learning - Days 1Q17 Chg.(Days) 4Q17 Chg.(Days) Net Accounts Receivable (Out-of-Pocket) Net Revenue (Out-of-Pocket) Calculation base: net balance of short-term and long-term Accounts Receivable for out-of-pocket students in the DL business, divided by net revenue in the DL business in the last 12 months, multiplied by 360 days Days Days The average receivables term of out-of-pocket DL students was 9 days higher than in the year-ago period,, due to the same factors cited above, i.e., the combination of a higher number of students from the latest admissions and re-enrollment processes, especially in the 100%-online student base. The decrease of 7 days compared to the prior quarter was due to the seasonality of the operation. 2. Accounts Receivable PMT: Distance Learning - Days 1Q17 Chg.(Days) 4Q17 Chg.(Days) Net Accounts Receivable (PMT) Net Revenue (PMT) Calculation base: net balance of short-term and long-term Accounts Receivable exclusively related to DL PMT, divided by net revenue of DL PMT tuitions in the last 12 months, multiplied by 360 days Days Days The average receivables term of PMT in the DL segment was 242 days, remembering that students who opted for the product in the last admissions cycle will repay the outstanding monthly tuitions only after they graduate from their program. 22

23 Operating Result Distance Learning - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 240, , % 220, % (-) Total Operating Expenses (25,177) (22,954) 9.7% (31,353) -19.7% (-) Provision for Doubtful Account - PDA (25,562) (26,737) -4.4% (22,922) 11.5% (+) Interest and Penalties on Tuition 14,144 8, % 9, % Operating Result 203, , % 175, % Operat ing Margin 77.6% 73.4% 4.2 p.p. 69.5% 8.1 p.p. The operating result (before marketing expenses) of the DL segment in was R$203.5 million, with operating margin expanding 4.2 p.p. from the same period of This margin expansion was achieved despite the scenario of more-intense competition, highlighting the resilience of the Company and the efficiency of the operation, delivering solid studentrecruiting results with more rigorous cost control and strong expansion in the number of centers. Another important factor was the increase in the line interest and penalties on tuitions, given the adoption of systems that permit greater control of collections policies. Compared to the prior quarter, the 8.1 p.p. increase in operating margin was influenced mainly by seasonality. 23

24 CORPORATE FINANCIAL PERFORMANCE PRIMARY & SECONDARY Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 48,003 40, % 77, % Gross Revenue Deductions (11,994) (3,585) 234.6% (3,728) 221.7% Tax (1,285) (1,147) 12.0% (1,121) 14.7% ProUni - - n.a. - n.a. Returns (10,709) (2,438) n.a. (2,608) 310.7% Total Discounts - - n.a. - n.a. Net Revenue 36,009 37, % 73, % Management Contracts and Own Operations 14,654 15, % 13, % Associated Schools Network 21,355 21, % 60, % Total of Costs (12,897) (15,395) -16.2% (21,574) -40.2% Cost of Goods (5,094) (5,770) -11.7% (10,459) -51.3% Cost of Services (7,803) (9,625) -18.9% (11,115) -29.8% Faculty, Other Personnel and Third-Party Services (6,595) (7,722) -14.6% (7,179) -8.1% Rent (202) (256) -21.1% (269) -25.0% Materials - - n.a. - n.a. Maintenance (61) (15) 305.1% (83) -26.0% Other (945) (1,632) -42.1% (3,584) -73.6% Gross Income 23,112 21, % 51, % Management Contracts and Own Operations 7,941 6, % 5, % Associated Schools Network 15,171 15, % 46,533 n.a. Gross Margin 64.2% 58.8% 5.4 p.p. 70.6% -6.4 p.p. Management Contracts and Own Operations 54.2% 41.0% 13.2 p.p. 40.0% 14.2 p.p. Associated Schools Network 71.0% 71.4% -0.3 p.p. 77.2% -6.1 p.p. Total Operating Expenses (3,568) (4,670) -23.6% (5,671) -37.1% Personnel Expenses (3,106) (3,810) -18.5% (4,191) -25.9% General and Administrative Expenses (463) (860) -46.2% (1,480) -68.7% Provision for Doubtful Account - PDA (289) (299) -3.4% (587) -50.8% (+) Interest and Penalties on Tuition % % Operating Result 19,622 17, % 45, % Operat ing Margin 54.5% 46.1% 8.4 p.p. 62.4% -7.9 p.p. 24

25 Revenue and Deductions Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 48,003 40, % 77, % Gross Revenue Deductions (11,994) (3,585) 234.6% (3,728) 221.7% Tax (1,285) (1,147) 12.0% (1,121) 14.7% ProUni - - n.a. - n.a. Returns (10,709) (2,438) n.a. (2,608) 310.7% Total Discounts - - n.a. - n.a. Net Revenue 36,009 37, % 73, % Management Contracts and Own Operations 14,654 15, % 13, % Associated Schools Network 21,355 21, % 60, % Deductions In, deductions as a ratio of gross revenue increased substantially by 16.2 p.p. compared to the same period of 2017, basically due to the higher returns in the period, given the procedural issues verified soon after the strong sales activity observed last quarter. However, note that these issues were systemic and not related to the physical return of materials or to dissatisfaction with the product. Furthermore, this is a non-recurring impact, and thus should not affect future quarters. Compared to 4Q17, deductions as a ratio of gross revenue increased 20.1 p.p., which is explained by seasonality, since sales of book collections are concentrated in even-numbered quarters, with a positive impact on revenue in these periods, combined with the increase in returns mentioned above. Net Revenue Net revenue in amounted to R$36.0 million, down 3.7% from the same period of 2017, due to the anticipation of part of sales to the previous quarter, since the commercial activity was very strong in 4Q17. The result of this quarter, if coupled with the sales performance last quarter, demonstrates the segment s strong performance (growth of 8% in revenue when compared to the prior-year period) and reinforces the successful strategy adopted for the operation this year. Compared to 4Q17, the 50.9% decline in net revenue is explained by the seasonality of the business, as already discussed under deductions. Average Net Ticket In the Primary & Secondary Education business, the average annual amount charged for the sale of textbooks to the Associated Schools in 2018 was R$ per student, or 2.8% higher than in

26 Costs Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total of Costs (12,897) (15,395) -16.2% (21,574) -40.2% Cost of Goods (CG) (5,094) (5,770) -11.7% (10,459) -51.3% Cost of Services (CS) (7,803) (9,625) -18.9% (11,115) -29.8% Faculty, Other Personnel and Third-Party Services (6,595) (7,722) -14.6% (7,179) -8.1% Rent (202) (256) -21.1% (269) -25.0% Materials - - n.a. - n.a. Maintenance (61) (15) 305.1% (83) -26.0% Other (945) (1,632) -42.1% (3,584) -73.6% % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total of Costs -35.8% -41.2% 5.4 p.p % -6.4 p.p. Cost of Goods (CG) -14.1% -15.4% 1.3 p.p % 0.1 p.p. Cost of Services (CS) -21.7% -25.7% 4.1 p.p % -6.5 p.p. Faculty, Other Personnel and Third-Party Services -18.3% -20.7% 2.3 p.p. -9.8% -8.5 p.p. Rent -0.6% -0.7% 0.1 p.p. -0.4% -0.2 p.p. Materials 0.0% 0.0% 0.0 p.p. 0.0% 0.0 p.p. Maintenance -0.2% 0.0% -0.1 p.p. -0.1% -0.1 p.p. Other -2.6% -4.4% 1.7 p.p. -4.9% 2.3 p.p. In, cost of goods sold as a ratio of net revenue in the business declined 1.3 p.p. on the prior-year period, which attests to the more efficient management of the Company s distribution logistics, despite the stronger sales activity in the period. Compared to the prior quarter, the indicator was virtually stable. Cost of services as a ratio of net revenue declined 4.1 p.p. on the same period last year, reflecting the efforts over recent quarters to boost the operation s productivity, with a positive impact on the line faculty, technical personnel and outsourced services. Compared to 4Q17, the indicator increased 6.5 p.p., driven by revenue seasonality, since, in nominal terms, costs were lower than in the previous quarter. Gross Income Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 23,112 21, % 51, % Management Contracts and Own Operations 7,941 6, % 5, % Associated Schools Network 15,171 15, % 46,533 n.a. Gross Margin 64.2% 58.8% 5.4 p.p. 70.6% -6.4 p.p. Management Contracts and Own Operations 54.2% 41.0% 13.2 p.p. 40.0% 14.2 p.p. Associated Schools Network 71.0% 71.4% -0.3 p.p. 77.2% -6.1 p.p. In, gross income came to R$23.1 million, increasing 5.1% from the same period last year, with gross margin expansion of 5.4 p.p., due to the higher cost efficiency in the segment. Compared to 4Q17, gross income fell 55.3%, with margin contraction of 6.4 p.p., due to the seasonality of the operation. Operating Expenses Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses (3,568) (4,670) -23.6% (5,671) -37.1% Personnel Expenses (3,106) (3,810) -18.5% (4,191) -25.9% General and Administrative Expenses (463) (860) -46.2% (1,480) -68.7% % of Net Revenues 1Q17 Chg.% 4Q17 Chg.% Total Operating Expenses -9.9% -12.5% 2.6 p.p. -7.7% -2.2 p.p. Personnel Expenses -8.6% -10.2% 1.6 p.p. -5.7% -2.9 p.p. General and Administrative Expenses -1.3% -2.3% 1.0 p.p. -2.0% 0.7 p.p. 26

27 Personnel, General and Administrative Expenses Personnel, general and administrative expenses as a ratio of net revenue decreased by 2.6 p.p. compared to 1Q17, which is mainly explained by lower personnel expenses due to the initiatives to streamline headcount in the segment. Compared to the prior quarter, operating expenses as a ratio of net revenue increased 2.2 p.p., reflecting the seasonality of the operation with the different schedule for revenue recognition. Provision for Doubtful Accounts (PDA) Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Provision for Doubtful Account - PDA (289) (299) -3.4% (587) -50.8% PDA / Primary and Secondary Education Net Revenues -0.8% -0.8% 0.0 p.p. -0.8% 0.0 p.p. This quarter, PDA stood at 0.8% of net revenue, stable compared to both the same period last year and the prior quarter, attesting to the effective provisioning policies adopted for the Primary & Secondary Education segment. Accounts Receivable Primary and Secondary Education 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable 69,065 51, % 75, % In, the increase in Accounts Receivable compared to 1Q17 also reflects the higher sales volume of book collections in the prior quarter, given that the same maturity conditions were maintained. Compared to 4Q17, the 8.6% decline in Accounts Receivable is explained by the segment s seasonality. Average Accounts Receivable Term Primary and Secondary Education - Days 1Q17 Chg.% 4Q17 Chg.% Net Accounts Receivable Net Revenue Days Days Calculation base: net balance of short-term Accounts Receivable in Primary & Secondary Education, divided by the net revenue in Primary & Secondary Education in the last 12 months, multiplied by 360 days. As mentioned in the analysis of Accounts Receivable, the 33-day increase in the average accounts receivable term in the Primary & Secondary Education segment in compared to 1Q17 is associated with the longer payment term for the distribution of school materials. 27

28 Operating Result Primary and Secondary Education - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Income 23,112 21, % 51, % (-) Total Operating Expenses (3,568) (4,670) -23.6% (5,671) -37.1% (-) Provision for Doubtful Account - PDA (289) (299) -3.4% (587) -50.8% (+) Interest and Penalties on Tuition % % Operating Result 19,622 17, % 45, % Operat ing Margin 54.5% 46.1% 8.4 p.p. 62.4% -7.9 p.p. In, the operating result (before marketing expenses) was R$19.6 million, with margin of 54.5%, expanding 8.4 p.p. on the year-ago period, due to the rigorous control of costs and expenses and the constant pursuit of operating efficiency gains, supporting the strong profitability gain in the period. As mentioned in the comments regarding revenue, if the result of this quarter were coupled with the previous quarter, the strong performance in relation to the greater sales volume for the 2018 school year achieved by the segment becomes evident. Compared to 4Q17, performance was inverse due to the different schedule of revenue recognition. 28

29 FINANCIAL PERFORMANCE KROTON Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Gross Revenue 1,757,827 1,740, % 1,754, % Gross Revenue Deductions (394,502) (375,659) 5.0% (405,200) -2.6% Tax (48,770) (48,352) 0.9% (42,741) 14.1% ProUni (243,645) (215,200) 13.2% (234,140) 4.1% Returns (10,709) (2,438) n.a. (2,608) 310.7% Total Discounts (91,377) (109,668) -16.7% (125,711) -27.3% Net Revenue 1,363,325 1,365, % 1,349, % Total of Costs (312,775) (303,971) 2.9% (393,068) -20.4% Cost of Goods (5,094) (5,770) -11.7% (10,459) -51.3% Cost of Services (307,681) (298,201) 3.2% (382,609) -19.6% Faculty, Other Personnel and Third-Party Services (208,653) (206,187) 1.2% (279,094) -25.2% Rent (85,717) (84,343) 1.6% (87,772) -2.3% Materials (5,822) (4,675) 24.5% (4,676) 24.5% Maintenance (3,358) (258) n.a. (5,289) -36.5% Other (4,130) (2,737) 50.9% (5,778) -28.5% Gross Income 1,050,550 1,061, % 956, % Gross Margin 77.1% 77.7% -0.7 p.p. 70.9% 6.2 p.p. Total Operating Expenses (145,336) (132,435) 9.7% (176,880) -17.8% Personnel, General and Administrative Expenses (145,336) (132,435) 9.7% (176,880) -17.8% Personnel Expenses (79,164) (78,191) 1.2% (93,321) -15.2% General and Administrative Expenses (66,172) (54,244) 22.0% (83,559) -20.8% Provision for Doubtful Account - PDA (160,831) (158,508) 1.5% (106,910) 50.4% (+) Interest and Penalties on Tuition 41,408 43, % 31, % Operating Result 785, , % 704, % Operat ing Margin 57.6% 59.6% -2.0 p.p. 52.2% 5.4 p.p. Selling and Marketing Expenses (113,924) (110,737) 2.9% (80,256) 42.0% Corporate Expenses (57,154) (63,735) -10.3% (90,421) -36.8% Adjusted EBITDA 614, , % 534, % Adjust ed EBITDA Margin 45.1% 46.8% -1.8 p.p. 39.6% 5.5 p.p. (-) Non-Recurring Items (45,471) (44,519) 2.1% (58,565) -22.4% EBITDA 569, , % 475, % EBITDA Margin 41.8% 43.6% -1.8 p.p. 35.2% 6.5 p.p. Depreciation and Amortization (102,223) (102,739) -0.5% (105,630) -3.2% Financial Result 17,812 22, % 16, % Income Tax / Social Contribution (20,381) (45,050) -54.8% (9,492) 114.7% Deferred Income Tax / Social Contribution 10,965 23, % 14, % Income Tax / Social Cont. - Disposal of FAIR, FAC/FAMAT and NOVATEC - - n.a. (904) n.a. Net Income 475, , % 390, % Net Margin 34.9% 36.2% -1.3 p.p. 28.9% 5.9 p.p. (+) Non Recurring Items 45,471 44, % 58, % (+) Intagnible Amortization (Acquisitions) 18,105 38, % 38, % (+) Income Tax / Social Cont. - Disposal of FAIR, FAC/FAMAT and NOVATEC - - n.a % Adjusted Net Income 538, , % 488, % Adjust ed Net Margin 39.5% 42.3% -2.7 p.p. 36.2% 3.3 p.p. 29

30 Selling and Marketing Expenses Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Selling and Marketing Expenses (113,924) (110,737) 2.9% (80,256) 42.0% % of Net Revenue 1Q17 Chg.% 4Q17 Chg.% Selling and Marketing Expenses -8.3% -8.1% -0.2 p.p. -5.9% -2.4 p.p. Selling and marketing expenses as a ratio of net revenue were virtually stable compared to the same period of 2017, despite the more competitive scenario in the DL segment and the brand s promotion in new regions for both new on-campus units and new DL centers. Compared to the prior quarter, the 2.4 p.p. increase is due to seasonality, with a higher volume of commercial actions carried out for the student-recruiting process at the start of the year, which registered strong growth in new enrollments. Corporate Expenses Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Corporate Expenses (57,154) (63,735) -10.3% (90,421) -36.8% Personnel Expenses (48,739) (52,800) -7.7% (57,272) -14.9% General and Administrative Expenses (8,416) (10,935) -23.0% (33,149) -74.6% % of Net Revenue 1Q17 Chg.% 4Q17 Chg.% Corporate Expenses -4.2% -4.7% 0.5 p.p. -6.7% 2.5 p.p. Personnel Expenses -3.6% -3.9% 0.3 p.p. -4.2% 0.7 p.p. General and Administrative Expenses -0.6% -0.8% 0.2 p.p. -2.5% 1.8 p.p. The ratio of personnel expenses to net revenue within corporate expenses fell 0.3 p.p. from the year-ago period, due to the positive results of the initiatives to control expenses, and also because 1Q17 was negatively affected by a higher volume of new grants of stock option plans. Compared to the prior quarter, the decline was even greater, of 0.7 p.p., reflecting adjustments to the amounts estimated under the variable compensation plans in that quarter. Analyzed separately, general and administrative expenses as a ratio of net revenue also declined, by 0.2 p.p. compared to 1Q17 and by 1.8 p.p. compared to 4Q17, due to the reduction in expenses achieved by the strategic sourcing process, combined with one-off reversals of contingencies. Nonrecurring Events Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Severance (11,245) (10,633) 5.8% (11,800) -4.7% Restructuring of units (9,418) (9,877) -4.6% (6,697) 40.6% M&A and expansion (15,975) (19,509) -18.1% (24,867) -35.8% Other projects (8,833) (4,500) 96.3% (17,860) -50.5% Subtotal ex-capital gain (45,471) (44,519) 2.1% (61,225) -25.7% Capital Gain - FAIR and FAC/FAMAT and NOVATEC - - n.a. 2,660 n.a. Total Nonrecurring (45,471) (44,519) 2.1% (58,565) -22.4% As reported in the last quarters, non-recurring items are divided into two groups, as shown in the above table: (1) nonrecurring events that generated nonrecurring costs and expenses; and (2) the capital gain recorded from the sales of FAIR, FAC/FAMAT and NOVATEC, which were concluded in 3Q17 and 4Q17, respectively. Given the lack of capital gains in 30

31 the quarter, the analysis considers only the non-recurring events in the first group, of R$45.5 million, among which stand out the M&A and expansion line that includes expenses related to expansion projects, which have accelerated in recent months, in addition to the acquisition of one unit in the Postsecondary segment carried out in the period and the prospecting of several other assets which are being analyzed in the Primary & Secondary and On-Campus Postsecondary segments. The Company also carried out a series of projects related to the digital transformation and to the work plans in the different segments of activity that affected the line other projects. In addition to the aforementioned items, total nonrecurring items include: (i) severance charges, especially those related to the reduction in classroom hours generated by the initiatives to capture efficiency gains, such as the operational research software; and (ii) the restructuring of On-campus units. Financial Result Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% (+) Financial Revenues 35,612 47, % 37, % Interest on Financial Investment 23,416 38, % 24, % Others 12,196 8, % 12, % (-) Financial Expenses (17,800) (24,387) -27.0% (21,356) -16.7% Banks Expenses (3,834) (1,955) 96.1% (4,714) -18.7% Interest on Loans (3,645) (11,747) -69.0% (3,564) 2.3% Interest and Tax on Late Payment (978) (3,402) -71.3% (5,341) -81.7% Interest on Loans for Acquisitions (1,667) (3,920) -57.5% (1,744) -4.4% Restatement of Contingencies (1,205) (4,588) -73.7% (1,644) -26.7% Others (6,471) 1,225 n.a. (4,349) 48.8% Financial Result 1 17,812 22, % 16, % ¹ Excludes interest and fines on late monthly tuition payments. Since the end of 2016, Kroton has been holding a significant cash balance, which has had a direct positive impact on the line interest from financial investments. However, the lower financial income compared to 1Q17 reflects the significant decline in interest rates in recent months. This effect more than offset the impact from the reduction in interest rates also brings to the line interest on loans, leading the Company s financial result to amount to R$17.8 million in, down 21.4% from the same period of Compared to the prior quarter, the 10.3% increase in the financial result is mainly due to the reduction in interest rates and late fees in the period. Net Income Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Operating Result 785, , % 704, % (+) Selling and Marketing Expenses (113,924) (110,737) 2.9% (80,256) 42.0% (+) Corporate Expenses (57,154) (63,735) -10.3% (90,421) -36.8% (+) Depreciation and Amortization ex-intangible (84,118) (63,868) 31.7% (67,118) 25.3% (+) Financial Result 1 17,812 22, % 16, % (+) Income Tax / Social Contribution (20,381) (45,050) -54.8% (9,492) 114.7% (+) Deferred Income Tax / Social Contribution 10,965 23, % 14, % Adjusted Net Income 538, , % 488, % Adjust ed Net Margin 39.5% 42.3% -2.7 p.p. 36.2% 3.3 p.p. (+) Nonrecurring Items (45,471) (44,519) 2.1% (58,565) -22.4% (+) Intangible Amortization (Acquisitions) (18,105) (38,870) -53.4% (38,512) -53.0% (+) Income Tax / Social Cont. - Disposal of FAIR, FAC/FAMAT and NOVATEC - - n.a. (904) n.a. Net Income 475, , % 390, % Net Margin 34.9% 36.2% -1.3 p.p. 28.9% 5.9 p.p. ¹ Excludes interest and fines on late monthly tuition payments. Adjusted net income (adjusted for the amortization of intangible assets, nonrecurring events and taxes related to the recent divestments) amounted to R$539.0 million, with adjusted net margin of 39.5%, down 2.7 p.p. from the same period of The factors behind this performance include the recent asset divestments and the higher levels of depreciation of investments in the production of content and technology, which have higher depreciation rates and shorter depreciable 31

32 useful lives, as well as the lower financial result in the period. These effects were partially offset by the efforts to increase the Company s efficiency, with increasingly austere management of costs and expenses. CORPORATE: EX ASSETS DISPOSAL AND GREENFIELDS: Excluding the adjustments for nonrecurring items, amortization of intangible assets and taxes on the latest divestments, net income amounted to R$475.4 million in. Given the significant impact from these adjustments, the Company recommends the pro-forma and adjusted result as the best metric for accompanying financial performance. EBITDA Consolidated - Values in R$ ('000) 1Q17 Chg.% 4Q17 Chg.% Net Income (Loss) 475, , % 390, % (+) Depreciation and Amortization 102, , % 105, % (+) Financial Result 1 (17,812) (22,674) -21.4% (16,145) 10.3% (+) Income Tax / Social Contribution 20,381 45,050 n.a. 10, % (+) Deferred Income Tax / Social Contribution (10,965) (23,777) n.a. (14,954) -26.7% EBITDA 569, , % 475, % EBITDA Margin 41.8% 43.6% -1.8 p.p. 35.2% 6.5 p.p. (+) Nonrecurring Items 45,471 44, % 58, % Adjusted EBITDA 614, , % 534, % Adjust ed EBITDA Margin 45.1% 46.8% -1.8 p.p. 39.6% 5.5 p.p. ¹ Excludes interest and fines on late monthly tuition payments. Adjusted EBITDA was R$614.7 million in the quarter, down 3.9% from 1Q17, with adjusted EBITDA margin contraction of 1.8 p.p. The lower profitability this quarter reflects the pressures from the shift in the profile of the student base, with higher provisioning to support the installment plans, as well as the increase in costs and expenses related to the new units. The latter factor, however, is of a short-term nature, since as the units mature, they will contribute to sustaining the high levels of performance achieved by Kroton. Additionally, the maintenance of high margins despite the clearly negative headwinds impacting the consolidated result is a clear sign of the high level of management and efficiency achieved in recent years. Excluding the figures from the latest asset divestments (FAIR, FAC/FAMAT and NOVATEC) from this period, Kroton s adjusted EBITDA in would be 3.3% lower. 32

33 CORPORATE: EX ASSETS DISPOSAL AND GREENFIELDS: Excluding the adjustments for non-recurring events, the Company generated EBITDA of R$569.2 million in, down 4.3% from the same period last year, with EBITDA margin contraction of 1.8 p.p. Capital Expenditure In, Kroton invested R$101.5 million, allocated as follows: Information technology and library equipment: R$7.1 million (7%); Content and systems development and software licenses: R$39.1 million (30%); Laboratory and related equipment: R$21.2 million (21%); Expansions construction and improvements: R$34.2 million (34%). At the start of the year, investments corresponded to 7.4% of net revenue, mostly allocated to expansion projects, including works and improvements at existing units to better prepare them for the start of the academic year and for the shift in the program portfolio being implemented by the Company. Another large portion of expenditures was made in content and system development and in software licensing, which accounted for 30% of the total. Kroton has also been investing in special projects related to infrastructure expansion and implementation of new units, which came to R$13.3 million in. Therefore, total investment as a ratio of net revenue stood at 8.4% in the quarter. Despite the lower investments in the period, it is important to highlight that this behavior is seasonal and an acceleration of expenditures is expected over the course of the coming quarters to reach a ratio of CAPEX to net revenue that is closer to the consolidated levels seen at the end of 2017, in line with the strategy to accelerate expansion projects. 33