Vasta Platform Ltd [VSTA] Filings

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 20-F

(Mark One)

☐          REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023

OR

☐          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                          .

OR

☐         SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report                                  

Commission file number: 001-39415

Vasta Platform Limited
(Exact name of Registrant as specified in its charter)

Not applicable
(Translation of Registrant’s name into English)

Cayman Islands
(Jurisdiction of incorporation or organization)

Av. Paulista, 901, 5th Floor
Bela Vista
São Paulo – SP, 01310-100
Brazil
+55 11 3133-7311
(Address of principal executive offices)

Cesar Augusto Silva, Chief Financial Officer
Av. Paulista, 901, 5th Floor
Bela Vista
São Paulo – SP, 01310-100
Brazil
+55 11 3133-7311
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Copies to:
Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Phone: (212) 450-4000
Fax: (212) 450-6858

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

The number of outstanding shares as of December 31, 2023 was 16,566,142 Class A common shares and 64,436,093 Class B common shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐              No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐              No ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒              No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒              No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ☐              Accelerated Filer  ☒              Non-accelerated Filer  ☐             Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.              ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report: ☐             

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements:               ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b) : ☐             

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☐              U.S. GAAP

☒              International Financial Reporting Standards as issued by the International Accounting Standards Board

☐              Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17              ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐              No ☒

 

VASTA PLATFORM LIMITED

TABLE OF CONTENTS

​​

	Page
Presentation of Financial and Other Information	1
Forward-Looking Statements	5
PART I	7
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	7
A.  Directors and Senior Management	7
B.  Advisers	7
C.  Auditors	7
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	7
A.  Offer Statistics	7
B.  Method and Expected Timetable	7
ITEM 3. KEY INFORMATION	7
A.  [Reserved]	7
B.  Capitalization and Indebtedness	7
C.  Reasons for the Offer and Use of Proceeds	7
D.  Risk Factors	7
ITEM 4. INFORMATION ON THE COMPANY	41
A.  History and Development of the Company	41
B.  Business Overview	45
C.  Organizational Structure	76
D.  Property, Plants and Equipment	77
ITEM 4A. UNRESOLVED STAFF COMMENTS	78
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	78
A.  Operating Results	78
B.  Liquidity and Capital Resources	91
C.  Research and Development, Patents and Licenses, Etc.	95
D.  Trend Information	95
E.  Critical Accounting Estimates	96
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	97
A.  Directors and Senior Management	97
B.  Compensation	100
C.  Board Practices	103
D.  Employees	104
E.  Share Ownership	106
F.  Disclosure of a registrant’s action to recover erroneously awarded compensation.	106
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	106
A.  Major Shareholders	106
B.  Related Party Transactions	108
C.  Interests of Experts and Counsel	111
ITEM 8. FINANCIAL INFORMATION	112
A.  Consolidated Statements and Other Financial Information	112
B.  Significant Changes	113
ITEM 9. THE OFFER AND LISTING	113
A.  Offer and Listing Details	113
B.  Plan of Distribution	113
C.  Markets	114
D.  Selling Shareholders	114
E.  Dilution	114
F.  Expenses of the Issue	114

  

  

ITEM 10. ADDITIONAL INFORMATION	114
A.  Share Capital	114
B.  Memorandum and Articles of Association	114
C.  Material Contracts	123
D.  Exchange Controls	123
E.  Taxation	123
F.  Dividends and Paying Agents	126
G. Statement by Experts	126
H. Documents on Display	126
I.  Subsidiary Information	126
J.  Annual Report to Security Holders	126
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	126
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	127
A.  Debt Securities	127
B . Warrants and Rights	127
C.  Other Securities	127
D.  American Depositary Shares	127
PART II	128
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	128
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	128
A.  Material Modifications to Instruments	128
B.  Material Modifications to Rights	128
C.  Withdrawal or Substitution of Assets	128
D.  Change in Trustees or Paying Agents	128
E.  Use of Proceeds	128
ITEM 15. CONTROLS AND PROCEDURES	129
A.  Disclosure Controls and Procedures	129
B.  Management’s Annual Report on Internal Control over Financial Reporting	129
C.  Attestation Report of the Registered Public Accounting Firm	129
D.  Changes in Internal Control over Financial Reporting	130
ITEM 16. RESERVED	130
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	130
ITEM 16B. CODE OF ETHICS	130
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	130
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	131
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	131
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	132
ITEM 16G. CORPORATE GOVERNANCE	132
ITEM 16H. MINE SAFETY DISCLOSURE	138
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	138
ITEM 16J. INSIDER TRADING POLICIES	138
ITEM 16K. CYBERSECURITY	138
PART III	140
ITEM 17. FINANCIAL STATEMENTS	140
ITEM 18. FINANCIAL STATEMENTS	140
ITEM 19. EXHIBITS	140
Signatures	141
Index to Consolidated Financial Statements	F-1

   

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Not applicable.

Summary of Risk Factors

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our Class A common shares could decline.

Summary of Risks Factors Relating to Our Business and Industry

• We face significant competition and, if we fail to compete efficiently, we may lose market share and our profitability may be adversely affected. Our existing competitors and potential new competitors may offer similar or better educational solutions or substitutes in comparison to those we offer, and they may have access to more resources, be more prestigious or enjoy a better reputation in the academic community or may charge lower prices, all of which could adversely affect our business and results of operations.
• We depend significantly on IT systems, and we are subject to risks related to technological change. IT systems are essential to our operations and growth as our content is available through an integrated online Content & EdTech Platform and we depend on the uninterrupted function of our online platform to deliver our products and services. Any failure to upgrade our technology, features, content, software systems, security infrastructure, network infrastructure, or other infrastructure associated with our platform could harm our business.

Summary of Risks Relating to Brazil

• The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy, which may negatively affect our business and financial performance. Future governmental policy and regulations may adversely affect our operations and profitability. Uncertainty over whether the Brazilian federal government will implement reforms or changes in policy or regulation may affect economic performance and contribute to economic uncertainty in Brazil, which may have an adverse effect on our activities and consequently our operating results and may also adversely affect the trading price of our Class A common shares. 
• The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares. The recent economic and political instability in Brazil caused by a slowdown in GDP growth, and uncertainty as to whether the Brazilian government will be able to enact the necessary economic reforms to improve Brazil’s deteriorating fiscal accounts and economy, has led to a decline in market confidence in the Brazilian economy. We cannot predict which policies the Brazilian government will adopt, much less whether such policies or changes in current policies may have an adverse effect on us or on the Brazilian economy.
• Exchange rate instability may have adverse effects on the Brazilian economy, our business and the trading price of our Class A common shares. Due to inflationary pressures and adjustments to economic policy, the Brazilian currency has historically experienced volatility against the U.S. dollar and other foreign currencies. Such policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.
• Inflation and certain measures by the Brazilian government to curb inflation could have an adverse effect on our business and the price of our Class A common shares. In 2022, inflationary pressures escalated in Brazil, including as a result of the ongoing war between Ukraine and Russia, the war between Israel and Hamas, supply chain issues, the lasting effects of the COVID-19 pandemic (particularly in China) and increases in energy prices. The significant increase in the cost of living led the Brazilian government to introduce tax cuts on selected items, which helped ease pressures in Brazil. In 2023, elevated interest rates in Brazil have contained the rise of inflation, but uncertainty remains as to the continued inflationary pressures resulting from the indirect impacts of conflicts, such as the ongoing war in Israel, on global supply chains. Inflation policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets, which may adversely affect us.

 

Summary of Risk Factors Relating to Our Class A Common Shares

• Our parent company, Cogna, owns 100% of our outstanding Class B common shares, which represent 97.5% of the voting power of our issued share capital and 79.5% of our total equity ownership. Accordingly, Cogna controls all matters requiring shareholder approval, limiting our ability to influence corporate matters. Moreover, so long as Cogna continues to beneficially own a sufficient number of Class B common shares, even if Cogna beneficially owns significantly less than 50% of our outstanding share capital, Cogna will be able to effectively control our decisions.
• Our status as a controlled company and a foreign private issuer exempts us from certain of the corporate governance standards of the Nasdaq, limiting the protections afforded to investors. Under the Nasdaq rules, a controlled company is exempt from certain Nasdaq corporate governance requirements. In addition, a foreign private issuer may elect to comply with the practice of its home country and not to comply with certain Nasdaq corporate governance requirements. Although we have similar practices, they do not entirely conform to the Nasdaq requirements as we make use of the aforementioned exceptions, which investors will not have the same protections provided to shareholders of companies that are subject to all Nasdaq corporate governance requirements.
• Our dual class capital structure means our shares will not be included in certain indices, and this could affect the market price of our Class A shares. In 2017, FTSE Russell, S&P Dow Jones and MSCI announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of shares of common stock from being added to such indices. We cannot assure investors that other stock indices will not take a similar approach to FTSE Russell, S&P Dow Jones and MSCI in the future. Exclusion from indices could make our Class A common shares less attractive to investors and, as a result, the market price of our Class A common shares could be adversely affected.
• Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area. Accordingly, certain civil liabilities and judgments obtained against us in the United States by our shareholders may not be enforceable against us.

Certain Factors Relating to Our Business and Industry

We face significant competition, the possibility of new competitors and potential substitutes for every product or service we offer and in each geographic region in which we operate. If we fail to compete efficiently, we may lose market share and our profitability may be adversely affected.

We compete with other educational platforms and suppliers of educational content. Our existing competitors and potential new competitors may offer similar or better educational solutions or substitutes in comparison to those we offer. In addition, existing and potential competitors may have access to more resources, be more prestigious or enjoy a better reputation in the academic community or may charge lower prices. To compete effectively we may be required to reduce the prices of our educational products and solutions, increase our operating expenses or look for new market opportunities to retain and/or attract new customers. As a result, our revenue and profitability may decrease. We cannot guarantee that we will be able to compete successfully with our current or future competitors. In addition, we have observed a trend of increasing consolidation in certain segments of the primary and secondary education markets in Brazil. If this trend intensifies (as has occurred in the higher education market in Brazil) we may face increasing competition in the markets in which we operate. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share, our profits may decrease, and we may be adversely affected.

We may not be able to update, improve or offer the content and products of our Core & EdTech Platform and Digital Platform efficiently, at an acceptable price and within the necessary timeframes.

Our Core & EdTech platform is intended to offer a complete package of educational solutions to address core curriculum requirements as well as complementary curricula such as English instruction and socio-emotional content, preparing students for entry into the most prestigious universities in Brazil and abroad, and offering a complete solution for personal and academic development. Our Digital Platform also offers our partner schools a suite of back-office services. In order to differentiate ourselves from our competitors, we must constantly update our portfolio of products, services and solutions, including through the adoption of new technologies. We may not be able to adapt and update our products and services or develop new solutions quickly enough to provide our customers, their students and our students the solutions required by changing demands in the markets in which we operate. If we are unable to respond adequately to these demands due to financial restrictions, technological changes or other factors, our capacity to attract and retain customers and students may be adversely affected, damaging our reputation and our business.

IT systems are essential to our operations and growth as our content is available through an integrated online Content & EdTech Platform and we depend on the uninterrupted function of our online platform to deliver our products and services. Our IT systems and tools may become obsolete or inadequate for delivering our Content & EdTech Platform, whether due to rapidly evolving network protocols or new developments in network hardware, or we may face difficulty in staying abreast of and adapting to technological changes in the education sector.

We use complex proprietary IT systems and products, which Cogna shares with us, to support our business activities, including customer-facing systems, back-office processing and infrastructure. We also contract with datacenter service providers to host certain aspects of our platform and content. Our operations depend, in part, on the ability of our providers to protect their facilities against damage or interruption caused by natural disasters, power cuts, telecommunications breakdowns, criminal acts and similar events. Peak traffic, natural disasters, acts of terrorism, vandalism or sabotage, facility shutdowns on short notice, or other unforeseen problems relating to our service providers’ facilities, could result in prolonged interruptions in the availability of our platform, which could lead to customer dissatisfaction, damaging our reputation and our business.

Additionally, a failure to upgrade our technology, features, content, software systems, security infrastructure, network infrastructure, or other infrastructure associated with our platform could harm our business. Adverse consequences could include unanticipated disruptions, slower response times, bugs, degradation in levels of customer support, impaired quality of users’ experiences of our educational platform and delays in reporting accurate financial information.

In addition, we face risks associated with unauthorized access to our systems, including by hackers and due to failures of our electronic security measures. These unauthorized entries into our systems can result in the theft of proprietary or sensitive information or cause interruptions in the operation of our systems. During the years ended December 31, 2023 and 2022, we detected certain attempts to breach the security of our IT systems, all of which were unsuccessful. Moreover, we continuously monitor potential vulnerabilities in our IT and data systems and strive to improve security. We continue to work on increasing the adoption of our secure development program, including in 2023 through the prioritization of the most critical and relevant systems in our business, which increased threat monitoring under the environment security (perimeter) program. In an effort to improve our disaster recovery capabilities, our technology team has started the migration of our core technology to a cloud environment, where we will seek total protection for systems and databases.

Moreover, as a result of the COVID-19 pandemic, we have increased the number of employees working remotely and we continue to allow remote work even after the pandemic. This will require us to continue relying on remote-access information technology systems, which increases the risk of unavailability of our systems and infrastructure, disruption of telecommunications services, widespread system failures, and exposes us to increased vulnerability to cyberattacks could adversely affect our ability to conduct our business may be adversely impacted. As a result, we may be forced to incur considerable expenses to protect our systems from electronic security breaches and to mitigate our exposure to technological problems and interruptions. The theft of data from our customers may subject us to significant fines and penalties, adversely affecting our results of operations and damaging our reputation.

Our revenue depends on sales of educational content, products and services to our customers, and any setback in customer relations could cause us significant harm.

The success of our business depends on maintaining good customer relationships, developing new relationships and expanding our customer network, which includes private K-12 schools, their students and parents, among others. Any deterioration in customer relations, including due to early cancellation or non-renewal of agreements with our customers, could damage our reputation, adversely affect our ability to grow and significantly harm our business.

Our agreements with partner schools provide for fines and penalties in the event of early termination. However, there can be no assurance that such partner schools will pay such fines in the event of early termination and our customers may seek relief in court proceedings to contest the term of such agreements or the payment of such fines. We could also be forced to seek legal remedies in the event of early termination of our agreements in order to enforce the payment of such fines, though there can be no assurance that we would be successful in connection with any such legal proceedings, and we could incur significant costs attempting to enforce our rights. Such costs, considered in addition to the lost revenue from terminated contracts, could have an adverse effect on our results of operations.

We employ a customer support team to provide educational assistance and training for students and educators at our partner schools to help them maximize the results they obtain from using our Content & EdTech Platform. Our customer support team must carry out frequent site visits in an effort to build positive relationships and strengthen our ties with our partner schools. In addition, our Livro Fácil e-commerce has its own customer service structure, which serves mostly families but is also integrated with the schools’ relationship centers. If we do not provide our customers with efficient and effective support, maintain appropriate customer satisfaction levels or hire personnel in number sufficient to address our customers’ needs, our ability to operate and expand our business could be adversely affected.

 

Our Content & EdTech Platform and Digital Platform are technologically complex, and potential defects in our platforms or in updates to our platforms can be difficult or even impossible to fix.

Our Content & EdTech Platform and Digital Platform are technically complex products, and, when first introduced to customers or when upgraded through new versions, may contain software or hardware defects that are difficult to be detected and corrected. The existence of defects and delays in correcting them can have adverse effects, such as, cancellation of contracts, delays in the receipt of payment, poor functioning of our platforms and their content, failure to acquire new customers, or misuse of our platforms by third parties.

We test new versions and upgrades to our Content & EdTech Platform and Digital Platform, but we cannot assure that all defects related to platform updates can be identified before, or even after a new version of our platforms are made available. The correction of defects can be time-consuming, expensive and difficult. Errors and security breaches of our products could expose us to product liability claims and damage our reputation, which could have an adverse effect on our business, financial condition and results of operations.

Our growth may have a negative effect on the successful expansion of our business, on our people management, and on the increase in complexity of our software and platforms.

We are currently experiencing a period of expansion and are facing a number of expansion related issues, such as the acquisition and retention of experienced and talented personnel, cash flow management, corporate culture and internal controls, among others. These issues and the significant amount of time spent on addressing them may result in the diversion of our management’s attention from other business issues and opportunities. In addition, we believe that our corporate culture and values are critical to our success, and we have invested a significant amount of time and resources building them. If we fail to preserve our corporate culture and values, our ability to recruit, retain and develop personnel and to effectively implement our strategic plans may be harmed.

We must constantly update our software and platforms, enhance and improve our billing and transaction and other business systems, and add and train new software designers and engineers, as well as other personnel to help us with the increased use of our platforms and the new solutions and features we regularly introduce. This process is time intensive and expensive and may lead to higher costs in the future. Furthermore, we may need to enter into relationships with various strategic partners, such as online service providers and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenue, and operating margins.

We cannot assure you that our current and planned platforms, systems, products, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational and financial resources, and this strain is expected to continue. Our failure to manage growth effectively could harm our business, results of operations and financial condition.

Our business depends on the success of our brands and our ability to attract and retain customers could be adversely affected due to events or conditions that damage our reputation or the image of our brands.

We believe that market awareness of our brands has contributed significantly to the success of our business. Maintaining and enhancing our brands is crucial to our efforts to maintain and grow our customer network. We also depend significantly on the efforts of our sales force and our marketing channels, including online advertising, marketing research tools, social media and word of mouth. Failure to maintain and enhance our brand recognition could have a material adverse effect on our business, operating results and financial condition. We have devoted significant resources to our brand promotion efforts and to training our sales team in recent years, but we cannot assure you that these efforts will be successful. Our ability to attract new customers and retain our existing customers depends on our investments in our brands, on our marketing efforts and the success of our sales team, and the perceived value of our services in comparison with our competitors. If customers fail to distinguish our brands and the content we offer from our competitors, this may lead to decreased sales and revenue, lower margins or a decline in the market share of our brands. If our marketing initiatives are unsuccessful or become less effective, if we are unable to further enhance our brand recognition, if we incur excessive marketing and promotion expenses, or if our brand image is negatively impacted by any negative publicity, or if our customers misuse our brands in a way that results in a poor general perception of our brands, our business and results of operations could be materially and adversely affected.

  

Our business is subject to seasonal fluctuations, which may cause our operating results to vary from quarter‑to‑quarter and adversely impact our working capital and liquidity throughout the year, adversely affecting our business, financial condition and results of operations.

Our main deliveries of printed and digital materials to our customers occur in the last quarter of each year (typically in November and December), and in the first quarter of each subsequent year (typically in February and March), and revenue is recognized when the customers obtain control over the materials. In addition, the printed and digital materials we provide in the fourth quarter are used by our customers in the following school year and, therefore, our fourth quarter results reflect the growth in the number of our students from one school year to the next, leading to higher revenue in general in our fourth quarter compared with the preceding quarters in each year. Consequently, in aggregate, the seasonality of our revenues generally produces higher revenues in the first and fourth quarters of our fiscal year. In addition, we generally bill our customers during the first half of each school year (which starts in January), which generally results in a higher cash position in the first half of each year compared to the second half.

A significant part of our expenses is also seasonal. Due to the nature of our business cycle, we need significant working capital, typically in September or October of each year, in order to cover costs related to production and inventory accumulation, selling and marketing expenses, and delivery of our teaching materials at the end of each year in preparation for the beginning of each school year. As a result, these operating expenses are generally incurred between September and December of each year.

Accordingly, due to the timing of sales and delivery of our educational products, services and content, and the timing of university entrance exams, we expect that our revenue and operating results will continue to exhibit quarterly fluctuations. These seasonal fluctuations could result in volatility and adversely affect our liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial situation.

In addition, our cash flows are affected by our customer conversion rate, which is measured from the moment of first contact with a customer or when a customer enters our target list (that is, when our commercial team identifies contracts nearing termination or when customers raise complaints or dissatisfaction with their service level) until formalizing an agreement, which generally takes three to four months. As part of our sales efforts, we incur significant expenditures, including expenses related to revision of credit terms and collaterals with main customers, commercial efforts to maintain frequent and meaningful interactions with certain target customers, including through meetings dedicated to evaluating and testing our platform, promotional events for our target customers, distribution of product samples, guided tours of our business units, and exhibitions at industry fairs. These costs also generate quarterly fluctuations in our cash flows, which could result in annual volatility and have an adverse effect on our liquidity. As our business grows, or if our business were to stop growing or we lost customers, these fluctuations could become more pronounced.

Our working capital needs have increased and may well continue to increase as our business expands. If we do not increase our cash flow generation or gain access to additional capital, either through credit lines or other sources of capital, which may not be available on satisfactory terms or in adequate amounts, our cash and cash equivalents may decrease, which will have a negative impact on our liquidity and capital resources. In addition, if we do not have sufficient working capital, we may not be able to pursue our growth strategy, respond to competitive pressures or fund key strategic initiatives, which could harm our business, financial condition and results of operations.

We could be subject to risks related to inventory management.

We are exposed to significant inventory management risks, which could adversely affect our operating results due to global, regional and local geopolitical events and that may impact supply chains and inflation, such as: (1) rapid changes in product cycles; (2) changes in consumer tastes as a result growth in online learning; (3) changes in consumer demand and consumption patterns; (4) seasonality caused by new school closures as a response to potential virus outbreaks; and (5) launch of new products delayed as a result of school closures. We may not forecast seasonality and product and consumer trends in a manner to accurately manage our inventory needs, and demand for products could change significantly between the time we build our stock of inventory and the time we deliver our products.

In addition, when we start selling new products, we may not be able to establish favorable relationships with new suppliers, develop the right products or accurately forecast demand. The acquisition of certain types of inventories can be time-consuming and may require significant prepayments, which may not be refundable. Finally, we have a broad selection and high volume of inventory of certain products, and we may not be able to sell sufficient quantities of these products, leading to obsolescence losses. Our failure to adequately manage our inventory for any of the reasons mentioned above could adversely affect business and results of operations.

   

While our businesses are managed and financed independently from our parent company, Cogna, we are party to a cost-sharing agreement for certain administrative expenses, and an increase in the amounts we pay to Cogna might be disproportional to the benefits we receive and could affect our performance. In addition, we share certain logistics-related expenses with Cogna, and the reimbursement to us by Cogna for such shared expenses may not be sufficient to meet our actual costs.

We are party to a cost-sharing agreement with Cogna for certain administrative expenses, such as those related to corporate, legal and accounting activities, which we refer to as overhead expenses. Under this cost-sharing agreement, we are required to pay our proportional share of overhead expenses based on our revenue as a share of the Cogna group’s aggregate revenue. Cogna may incur increased overhead expenses in the course of its operations that cannot be allocated directly in a unique operation within the Cogna group and may not be directly related to our operations, whether due to increased acquisition activities, as part of corporate restructurings, or for operations generally, which would result in an increase in the overhead expenses we would be required to pay under the cost sharing agreement, and a corresponding increase in our general and administrative expenses, without corresponding benefits to our operations, which could have an adverse effect on our results of operations.

Moreover, we share certain logistics-related expenses with Cogna, and there may be cases in the future in which the reimbursement of such shared expenses that may be paid to us by Cogna may not be sufficient to cover expenses actually incurred by us in respect of logistics services benefitting Cogna, which would cause us to bear a disproportionate share of such expenses, thereby having an adverse effect on our business and results of operations.

Misuse of our brands or other actions carried out by other companies controlled by our parent company, Cogna, may damage our business and our reputation due to certain of our brands being shared with other businesses controlled by Cogna.

Several of our brands are shared between us, Cogna and other companies that are controlled by Cogna, which operate in different markets from ours (such as postsecondary education and the operation of certain other K-12 curriculum business separate from ours), and the misuse of these shared brands or actions taken by such companies could negatively affect our reputation, which could have an adverse effect on our business and results of operations. In November and December 2019, we entered into certain brand sharing agreements with Cogna, but these agreements may not assure uninterrupted and conflict-free use of our brands. If we lose the right to use these brands or become subject to restrictions in the use of our brands, our business and results of operations could be adversely affected. Some of the brands we will use in our business are owned by subsidiaries of Cogna, for which we were granted a license to use pursuant to certain agreements. Nevertheless, such agreements may not ensure uninterrupted use of these brands and do not guarantee that we will not be subject to future conflict related to the use of these brands. Any conflict that arises out of the use of our brands could adversely affect our business and results of operations.

Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business and financial condition and results of operations.

We rely and expect to continue to rely on a combination of trademark, copyright, patent and trade secret protection laws, as well as confidentiality, intellectual property license and assignment agreements with our employees, consultants and third parties with whom we have relationships to protect our intellectual property and proprietary rights. As of the date of this annual report, we did not have issued patents or patent applications pending in or outside Brazil. We are party to approximately 3,616 agreements with third-party authors with respect to educational content. We own approximately 560 trademark registrations, including the trademarks and logos of “Vasta”, “Somos Educação”, “Editora Atica”, “Editora Scipione”, “Atual Editora”, “Sistema Anglo de Ensino”, “PAR Plataforma Educacional”, “Sistema Maxi de Ensino”, “English Stars”, “Rede Cristã de Educação”, “Plurall”, “MindMakers” and “Start Anglo Bilingual School”, among others. We also have approximately 14 pending trademark applications in Brazil and four in the United States for trademarks “Vasta”, “Vasta Educação” and “Somos Educação”, and unregistered trademarks that we use to promote our brands. We also have the right to use trademark registrations for “Pitágoras” (owned by a subsidiary of Cogna) and “Saraiva” (owned by Saraiva Gestão de Marcas S.A., a company jointly owned by Cogna and third parties who are not controlled by us nor by Cogna). As of the date of this annual report, we owned approximately 128 registered domain names in Brazil. From time to time, we expect to file additional copyright, trademark and domain names applications in Brazil and abroad. Nevertheless, these applications may not be approved or otherwise provide the full protection we seek. The dismissal of any of our trademark applications may impact our business. Third parties may challenge any copyrights, trademarks and other intellectual property and proprietary rights owned or held by us. Third parties may knowingly or unknowingly infringe, misappropriate or otherwise violate our copyrights, trademarks and other proprietary rights and we may not be able to prevent infringement, misappropriation or other violation without substantial expense to us.

 

Furthermore, we cannot guarantee that:

• our intellectual property and proprietary rights will provide competitive advantages to us;
• our competitors or others will not design projects based on our intellectual property or proprietary rights;
• our ability to assert our intellectual property or proprietary rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;
• our intellectual property and proprietary rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;
• any of the patents, trademarks, copyrights, trade secrets or other intellectual property or proprietary rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned;
• we will not lose the ability to assert our intellectual property or proprietary rights or to license our intellectual property or proprietary rights to others;
• the texts and illustrations by third parties contained in the literary works that we sell have all been licensed and approved for use by us; or
• we will not be adversely affected in case Cogna is subject to any liabilities related to literary works used in their other business and that are also used by us.

If we pursue litigation to assert our intellectual property or proprietary rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property or proprietary rights, limit the value of our intellectual property or proprietary rights or otherwise negatively impact our business, financial condition and results of operations. If the protection of our intellectual property and proprietary rights is inadequate to prevent use or misappropriation by third parties, the value of our brands and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused in the marketplace and our ability to attract and retain customers may be adversely affected.

We may in the future be subject to intellectual property claims, which are costly to defend and could harm our business, financial condition and operating results.

Because of the large number of authors that participate in our publications, from time to time, third parties may allege in the future that we or our business infringe, misappropriate or otherwise violate their intellectual property or proprietary rights, including with respect to our publications. We cannot guarantee that we are party to enforceable agreements with all the counterparties that have purportedly assigned copyrights or other intellectual property rights to us, in which case we could be subject to legal proceedings and the payment of significant fines for unauthorized use of intellectual property. In addition, many companies, including various “non-practicing entities” or “patent trolls”, are devoting significant resources to developing or acquiring patents that could potentially affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched patents related to our technology. In addition, the publishing industry has been, and we expect in the future will continue to be, the target of counterfeiting and piracy. We may implement measures in an effort to protect against these potential liabilities that could require us to spend substantial resources. Any costs incurred as a result of liability or asserted liability relating to sales of unauthorized or counterfeit educational materials could harm our business, reputation and financial condition.

Third parties may initiate litigation against us without warning. Others may send us letters or other communications that make allegations without initiating litigation. We may elect not to respond to the communication if we believe it is without merit or we may attempt to resolve disputes out of court by electing to pay royalties or other fees for licenses or out-of-court settlements in unforeseeable amounts. If we are forced to defend ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, inability to use our current website or inability to market our service or merchandise our products. As a result of a dispute, we may have to develop non-infringing technology, including partially or fully revise any publication that infringes intellectual property rights, enter into licensing agreements, adjust our merchandising or marketing activities or take other actions to resolve the claims. These actions, if required, may be unavailable on terms acceptable to us or may be costly or unavailable. If we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices, as appropriate, on a timely basis, our reputation or our brands, our business and our competitive position may be adversely affected and we may be subject to an injunction or be required to pay or incur substantial damages and/or fees and/or royalties.

  

Most of our services are provided using proprietary software and our software is mainly developed by our employees, who do not specifically assign to us their copyrights over the software and we are unable to assure that we have adequate agreements with all of our employees to provide for the assignment of software rights. While applicable law establishes that employers shall have full title over rights relating to software developed by their employees, we could be subject to lawsuits by former employees claiming ownership of such software. As a result, we may be required to obtain licenses of such software, incurring costs relating to payments of royalties and/or damages and we may be forced to cease the use of such software. If we are unable to use certain of our proprietary software as a result of any of the foregoing or otherwise, this could have a material adverse effect on our business, financial condition and results of operations.

In addition, we use open-source software in connection with certain of our products and services. Companies that incorporate open-source software into their products have, from time to time, faced claims challenging the ownership of open-source software and/or compliance with open-source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open-source software or non-compliance with open-source licensing terms. Some open-source software licenses require users who distribute or use open-source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open-source code on unfavorable terms or at no cost. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations.

The quality of the teaching content we deliver to our customers depends to a significant degree on the quality of our publishers and of the content we purchase. Any issues related to obtaining this content or regarding the quality of this content may have an adverse effect on our business.

The educational content and materials we provide are a combination of content developed by our in-house production team and content purchased from certain independent authors and publishers with whom we have contractual relationships. However, we may not be able to maintain our contractual relationships with independent authors or publishers if, for instance, (1) such authors leave us to join our competitors; (2) they no longer accept our contractual conditions, particularly those in relation to copyright; or (3) they choose to publish their content independently. If we are not able to replace such authors or publishers or if we are unable to renew the agreements that we currently have with them on terms that are favorable to us, our business could be adversely affected. In addition, delays in the delivery of content from authors may have an impact on our annual content creation schedule.

A lack of publishers, qualified employees, independent authors or satisfactory purchased content, or any decrease in the quality of the content produced or purchased, whether actual or perceived, or any significant increase in the cost of hiring or retaining qualified personnel or of acquiring content from independent authors or publishers, would have a material adverse effect on our business, financial condition and results of operations.

Additionally, our content production process requires significant coordination between different teams, as well as qualified personnel with appropriate training in order to ensure that we maintain the quality of our educational content and that we are able to successfully implement additional functions and technology delivery. We may not be able to retain, recruit or train qualified employees or obtain educational content that meets our standards, which could have an adverse effect on our business and results of operations.

If our partner schools are unable to maintain educational quality, we may be adversely affected.

Our partner schools and their students are regularly assessed and classified under the terms of applicable educational laws and regulations. If the schools, programs or students from our partner schools receive lower scores from year to year on any of their assessments, including on the Index for Development in Primary and Secondary Education (Índice de Desenvolvimento da Educação Básica), or IDEB, and on the National High School Exam (Exame Nacional do Ensino Médio), or ENEM, or if there is any drop in the acceptance rates of the students from our partner schools into prestigious universities, we may be negatively affected by perceptions of a decline in the educational quality of our Content & EdTech Platform, which could adversely affect our reputation and, as a result, our operating results and financial condition.

We expanded our operations to public schools in Brazil, which may not be successful and which will expose us to additional risks.

Starting in the first half of 2023, we began offering our products and services to clients in the public sector, in addition to our existing private school client base. As part of this new revenue stream, we (i) created a new portfolio of products and services, focused on state secretariats for education; (ii) allocated managerial and financial resources for this new business initiative; and (iii) implemented certain business-generating and marketing strategies for the public sector. In the year ended December 31, 2023, the B2G sector has grown to a student-base of over 340,000 students in 5th and 9th grades of elementary schools and in high schools, concentrated in the northern region of Brazil in the State of Pará, which is our main B2G client. Moreover, the revenue from the B2G revenue stream is included in our financial statements as other products and services and represented 5.5% of our total revenue in the fiscal year ended December 31, 2023.

  

However, we have a limited operating history for our business providing services to public schools, as it has not been an area of focus of our business historically. Different rules and regulations may apply to the contracts we may enter into with federal, state or municipal public schools, which could expose us to risks that we are not ordinarily used to, including with respect to the education strategy adopted at different levels of government and any applicable special purchase regimes, payment retention rights of governmental counterparties and restrictions in the participation in public bidding processes. As a result, we may not develop or continue to grow as expected, we may not generate a sufficient level of revenues in line with our forecasts, and operating a new revenue stream may distract our management from our core revenue streams, which could have an adverse effect on our financial condition and results of operations.

For more information on our plans to expand our business into the public school sector, see “Presentation of Financial and Other Information—Corporate Events—New Revenue stream.”

A significant increase in late payment and/or default in the payment of amounts due to us by our customers and a significant increase in attrition rates of students among our customers may adversely affect our revenue and cash flow.

Our customers may face financial difficulties and, in certain cases, insolvency or bankruptcy. A decrease in our customers’ revenues (due to a decline in enrollment as a result of a decrease in disposable income of families enrolled at our partner schools) could have an adverse effect on the ability of our existing and prospective customers to pay our tuition fees and/or trigger an increase in attrition rates. A significant increase in late payment or default by our customers could have a material adverse effect on our revenue and cash flow, thereby affecting our ability to meet our obligations. As of December 31, 2023, the balance of impairment losses on trade receivables was R$92.0 million, an increase of R$22.5 million from R$69.5 million on December 31, 2022. As of December 31, 2022, our impairment losses on trade receivables balance was R$69.5 million, an increase of R$23.0 million from R$46.5 million on December 31, 2021. Our impairment losses on trade receivables balance in the Consolidated Statements of Financial Position as of December 31, 2023, 2022 and 2021 represented 6.2%, 5.5% and 4.9% of our net revenue from sales and services as of each period-end, respectively. An increase in defaults by our customers, could have an adverse effect on our business and financial condition.

In addition, any increase in the student attrition rates among our customers could have an adverse effect on our operating results. Any significant changes in our projected student attrition rate and/or in failure to re-enroll students may affect our partner schools’ enrollment figures, as well as their ability to recruit and enroll new students, could have a material adverse effect on our projected revenue and operating results.

In addition, part of our revenue has come from the sale of education solutions to municipal governments within several states of Brazil, and such public entities may delay payments or even default in payment. Any such payment delay or default would result in further delays in our receipt of payment, as we would be required to seek a special judicial order (precatórios) under Brazilian law to enforce our rights to receive payment. This special judicial order is a formalization of a payment due by the Brazilian Public Treasury issued as a consequence of a final or unappealable judicial decision. Furthermore, enforcement for the collection of debts due by the Public Treasury are not processed by the attachment of assets owned by the public entities, but by the issuance of a payment order for the inclusion of the debt in the public budget, further delaying the timing of any payment. Late payments or defaults by such public entities could have a material adverse effect on our revenue and cash flow.

If our growth rate decelerates significantly, our future prospects and financial results would be adversely affected, preventing us from achieving profitability.

We believe that our growth depends on a number of factors, including, but not limited to, our ability to:

• increase the number of users of our products and services;
• continue to introduce our products and services to new markets;
• provide high quality support to students and partner schools using our products and services;
• expand our business and increase our market share;
• compete with the products, services, offers, prices and incentives offered by our competitors;
• develop new products, services, offerings and technologies;
• identify and acquire or invest in businesses, products, offerings or technologies that we believe may be able to complement or expand our platform; and
• increase the positive perception of our brands.

  

We may not be successful in achieving the above objectives. Any slowdown in the demand from students, partner schools or customers for our products and services caused by changes in customer preferences, failure to maintain our brands, inability to expand our portfolio of products or services, changes in the Brazilian or global economy, taxes, competition or other factors may lead to a decrease in revenue or growth and our financial results and future prospects could be negatively affected. We expect that we will continue to incur significant expenses as a result of our efforts to continue growing, and if we cannot increase our revenue at a faster rate than the increase in our expenses, we will not be able to achieve profitability.

We may be subject to penalties under Law 12,846/2013 or the Brazilian Anticorruption Law, the Federal Administrative Procedural Law, the Administrative Improbity Law and the U.S. Foreign Corrupt Practices Act, the FCPA, if our employees engage in any conduct prohibited by these laws.

We have in the past engaged in, and continue to maintain, relationships with a number of public entities, both through contracts and public tenders, including under the National Book and Teaching Material Program (Programa Nacional do Livro e do Material Didático) (“PNLD”) (in which Vasta no longer participates, as this operation is now carried out through another subsidiary of Cogna), through the provision of services and the sale of products, solutions and educational content to public entities (including in connection with the sale of educational content to public entities for the purpose of obtaining licenses and permits required for our operations (such as operating permits, fire inspections and education sector regulatory licenses, among others).

Moreover, we have expanded our business to public schools in Brazil. As part of our offering of solutions to public schools in Brazil, we interact with government officials at various levels and through various means of communication, including commission-based consultants and intermediaries who facilitate our participation in public tenders for provision of educational services. As a result, we have become regular participants in government contracts, which could cause increased public scrutiny relating to compliance with bidding processes regulations, such as the bidding law (Lei de Licitações) and the Federal Administrative Procedural Law (Lei de Processo Administrativo Federal), and anticorruption laws in Brazil and other applicable jurisdictions.

We train our employees to comply with the rules set forth in the code of conduct and anticorruption manual of Cogna, which set out policies and rules for proper dealings with public officials for purposes of our compliance with the Brazilian Anticorruption Law, the Federal Administrative Procedural Law, the Administrative Improbity Law and the FCPA. However, there can be no assurance that all of our employees and agents acting on our behalf who may have contact with public officials will fully comply with our policies, or that our policies will be fully effective in preventing non-compliance with applicable law, which could lead to our failure to comply with the Brazilian Anticorruption Law, the Federal Administrative Procedural Law, the Administrative Improbity Law or the FCPA. Any conduct by our employees or agents with public officials in any manner that fails to comply with Cogna’s code of conduct, the anticorruption manual, the Brazilian Anticorruption Law, the Federal Administrative Procedural Law, the Administrative Improbity Law and the FCPA could lead to government investigations, judicial and/or administrative proceedings, fines, penalties, loss of regulatory licenses, disgorgement of profits, loss of tax benefits and damage to our reputation and image, any of which would have an adverse effect on our business, financial condition and results of operations.

Certain students enrolled at our partner schools may not generate meaningful revenue because of the reutilization of printed teaching materials.

In recent years, we have seen a growing increase in the reuse of printed teaching materials by families who use the same printed material for more than one child, even though we update these materials annually, which has an adverse effect on our revenue. We call this phenomenon “sales drop” or “reuse”. Because the reuse of materials results from family behavior combined with the list of materials adopted by our partner schools, we are unable to control or mitigate the sales drop effect. We cannot predict any future sales drop or its potential impact on our revenue and operating results.

The Saraiva brand is owned by Saraiva Gestão de Marcas S.A., a company that is jointly owned by our parent company, Cogna, and third parties that are not part of the Cogna group. Any conflict with these parties could have a negative effect on our business.

We have the right to use the Saraiva brand until December 28, 2040 for some of Vasta’s textbooks and literary works, in the context of our publishing operations. The Saraiva brand accounted for 27%, 36% and 25% of the net revenue from sales and services of our textbook revenues in 2023, 2022 and 2021, respectively. In terms of net revenue from sales and services, the Saraiva brand accounted for 7.1% in 2023, 8.2% in 2022 and 6% in 2021. Saraiva Gestão de Marcas S.A. is jointly owned by Cogna and third parties who are not controlled by us or Cogna. These parties may have interests that conflict with ours, which might lead to disputes that could adversely affect our ability to use the Saraiva brand. We cannot assure that these parties’ interests will align with ours or that our interests would prevail in any dispute regarding the use of the Saraiva brand. This potential conflict of interest could adversely affect the reputation or performance of the Saraiva brand, or our ability to use the Saraiva brand, which could have an adverse effect on our results of operations. In addition, the third party who jointly owns Saraiva Gestão de Marcas S.A., is currently subject to a bankruptcy proceeding in Brazilian courts. We cannot guarantee that there will not be any impact on the Saraiva brand in the course of this proceeding or if this party were subject to liquidation.

  

Changes in our or our customers’ current regulatory environment could have an adverse effect on us.

Currently, although we are subject to the requirements of the National Common Curriculum Base (Base Nacional Comum Curricular), or BNCC, we are not directly regulated by the Brazilian Ministry of Education (Ministério da Educação), or MEC, nor are we subject to any governmental regulations imposed by the National Education Council (Conselho Nacional de Educação), or CNE, or by the Board of Primary and Secondary Education (Conselho de Educação Básica), or CEB. We are also subject to certain regulations related to bidding processes in connection with the sale of educational content to public entities, such as the bidding law (Lei de Licitações) and the Federal Administrative Procedural Law (Lei de Processo Administrativo Federal). In addition, we are subject to bidding regulations enacted by SESI, in connection with the sale of educational content to the SESI. If we or our customers become subject to new laws and regulations, we may incur additional costs in order to comply with the new legislation and this may have an adverse impact on our business. In addition, if we are required to comply with additional laws and regulations, there is a risk that we may not do so fully or satisfactorily, and this could result in possible legal or administrative proceedings against us, which could have a material adverse effect on our reputation, our business and results of operations.

We use third-party service providers in our logistics services to ship all of our collections of printed teaching materials and a failure by our service providers to perform efficiently would have an adverse effect on our business, financial condition and results of operations.

Our delivery of printed books and other educational content to schools is a seasonal activity, with a cycle that usually begins with the creation and review of content from April to July, the purchase of printing services from August to October, and physical delivery of printed books from November to January. We have expanded our operations rapidly since we first began our activities. As our size increases, so does the size and complexity of our logistics operation.

We generally require a high volume of deliveries in November and December, which requires a significant degree of inventory, supply management and management of our relationship and coordination with printers. Our customers place key value on the timely delivery of printed materials. Consequently, failure to comply with deadlines, inadequate logistics planning, disruption at distribution centers, poor inventory management, and the failure to meet customer expectations, launch new products, or respond to rapidly changing customer preferences, could have an adverse effect on our reputation, increase returns of our materials or cause inventory losses and adversely affect our business, results of operations and financial condition.

Virtually our entire inventory of our printed teaching materials is stored in rented warehouse facilities operated by us and delivered by third-party carriers that undertake the distribution of all physical teaching materials. If our logistics service providers do not fulfill their obligations to deliver teaching materials to our customers in a timely manner, or if a significant number of deliveries are incomplete or contain assembly errors, our business, operating results and operations could be adversely affected. In addition, natural disasters, fires, power outages, work stoppages or other unexpected catastrophic events, particularly during the period between August and October, when we expect to receive most of the instructional materials for the school year and we have not yet delivered these materials to our customers, could significantly disrupt our ability to deliver our products and operate our business. If we were to lose a significant portion of our inventory, or if our warehouse facilities or distribution centers suffer any significant damage, we could fail to meet our delivery obligations and our business, financial condition and results of operations would be adversely affected.

We have a significant amount of debt and may incur additional debt in the future. Our payment obligations under our debt may limit our available resources and the terms of debt instruments may limit our flexibility in operating our business.

As of December 31, 2023, we had total outstanding bonds and financing of R$791.8 million compared to R$842.9 million as of December 31, 2022, comprising (i) private debentures issued by Somos Sistemas to Cogna (as creditor) bearing interest at an average annual rate of CDI plus 2.4%, with semi-annual coupon payments and a bullet repayment at maturity in September 2025; and (ii) debentures issued by Somos Sistemas to third parties bearing interest at an average annual rate of CDI plus 2.3%, with semi-annual coupon payments and a bullet repayment at maturity in August 2024. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness”. Most of our indebtedness is linked to the CDI. Changes in Brazilian macroeconomic conditions can adversely affect the CDI. Fluctuations in the inflation rate and rate indices can increase the cost of our indebtedness that is linked to the CDI and may have a material adverse effect on our financial position and result of operations. Subject to the limitations under the terms of our existing debt, we may incur additional debt, secure existing or future debt or refinance our debt. In particular, we may need to incur additional debt to fund our activities, and the terms of this financing may not be attractive for us.

  

We may be required to use a substantial portion of our cash flows to pay the principal and interest on our indebtedness. These payments will reduce the funds available for working capital, capital expenditures and other corporate purposes and will limit our ability to obtain additional financing for working capital or making capital expenditures for expansion plans and other investments, which may in turn limit our ability to implement our business strategy. Our significant debt may also increase our vulnerability to downturns in our business, in our industry or in the economy as a whole and may limit our flexibility in terms of planning or reacting to changes in our business and in the industry and could prevent us from taking advantage of business opportunities as they arise. We cannot guarantee that our business will generate sufficient cash flow from operations or that future financing will be available in sufficient amounts or on favorable terms to enable us to make timely and necessary payments under the terms of our indebtedness or to fund our activities.

In addition, if we were to default on any of our debt, we could be required to make immediate repayment, other debt facilities may be cross-defaulted or accelerated, and we may be unable to refinance our debt on favorable terms at all, which would have a material adverse effect on our financial position. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness” for a summary of the conditions that could result in an acceleration of our indebtedness.

Our ability to utilize certain tax credits may be limited.

As of December 31, 2023, we had accumulated tax losses carryforwards of R$594.4 million which are available as offsetting credits against future taxable profits compared to R$422.2 million as of December 31, 2022. Our ability to use these accumulated tax losses as offsetting credits depends on our future taxable income, which could have a material adverse effect on our operating results. The Company's historical tax losses is driven mainly by the tax amortization of goodwill, the amortization of intangible assets acquired through business combination originated in 2018 and by operating losses carryforward. In accordance with Brazilian tax regulation, tax losses carryforwards have a limitation for use to a 30% of taxable profit generated in the year and does not expire. According with the Company´s estimate, the realization of deferred tax asset is expected to start in 2026 and is expected to be recovered by 2032. See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Estimates”.

PAR, or “Partnership” (Parceria), is part of our business model, and is focused on long-term agreements through the use of textbooks rather than learning systems. If we are not able to implement this product successfully, our business would be materially adversely affected.

PAR, which is focused on long-term agreements using textbooks, is a product designed to bring the same level of profitability and loyalty as our learning systems. In 2023, 2022 and 2021, revenues from PAR Platform contracts accounted for 9.7%, 11.3% and 16.6%, respectively, of our total ACV Bookings (subscription business). In order for us to increase PAR’s profitability in line with that of our learning systems, we must increase the number of contracts for textbook sales with schools and families by providing a product offering that is economically attractive to schools and families, seeking to reduce or eliminate the reuse of printed teaching materials. At present, around 88% of PAR Platform contracts remain as adhesion contracts, in which sales are not made directly to partner schools and families, which means the schools and families purchase printed teaching materials through a number of channels, including distributors, bookstores and third-party e-commerce, as well as reuse materials in many cases. In case we are not able to establish a specific stock keeping unit and, therefore, not able to guarantee that our PAR-related materials are exclusively sold directly from our partner schools or from us, we may be exposed to partial revenue loss as a result of the reuse of printed materials sold in previous cycles (secondary market). Currently, our estimated revenue from PAR Platform contracts already considers the average market reuse of printed materials, which assumes students can buy the material through other channels and the historical reuse of printed materials. An increase in the sales of reused printed materials may intensify the negative impacts on our revenues. We estimate that an inability to maintain exclusive control over PAR-related materials represents foregone revenue of approximately R$0.33 for every R$1.00 in PAR-related products expected to be sold, based on the contribution we estimate from Vasta’s publishing operations. Effectively, new sales are reduced due to the reuse of books such that, for each 100 students that adopt PAR-related material, 67 students purchase a new book, and 33 students reuse old material. This effect has had, and is expected to continue to have, an adverse effect on our revenue and results of operations. We account for this effect in our estimates and forecasts for PAR-related revenues.

Our results may be negatively affected by the return rates on our textbooks.

To increase the availability of our textbooks for purchase by schools and students, our textbook sales (both through PAR Platform and as spot sales) are carried out through numerous channels, such as bookstores, schools, large retailers, distributors and e-commerce sellers. Each of these distribution channels has a unique return policy, which can result in returns ranging from 10% to 50% of the total purchased amount during a given sales cycle. Our textbook sales are concentrated during the period from November to March. From April to June, the sales channels can return any unsold inventory to us. We are unable to assure that future return rates will be consistent with historical return rates. An increase in the volume of returns in excess of our expectations could have an adverse effect on our results of operation and financial condition.

  

We may not be successful in implementing our cross-selling and up-selling strategy with our current base of partner schools.

Part of our growth strategy consists of increasing the number of services we provide to our partner schools, for example by expanding our services and educational solutions for elementary school and kindergarten to schools that only purchase our solutions for high school (up-sell). We also seek to expand the uptake by our partner schools of our supplementary courses, such as English language instruction or solutions for socio-emotional instruction (cross-sell). If we are unable to effectively sell these additional course offerings to our existing partner schools, for instance because of other competitors already entrenched with the school, we may not be able to grow our business at our projected rates, which could have an adverse effect on our business, financial condition and results of operations.

We may be unable to convert spot market book sales into long-term contracts, either through the adoption of our learning systems or PAR Platform solutions, which could have an adverse effect on our future growth.

Traditionally, certain schools with which we have done business choose to buy only selected books from us in the “spot book market”. These schools do not have long term contracts with us, and we are unable to predict how their spot purchases will impact our revenue. Part of our growth strategy is based on converting spot book market sales into long-term contracts by having the relevant school adopt one of our learning systems or PAR. If we are unable to convert spot market sales into long-term contracts, we may not meet our growth targets, which could have an adverse effect on our prospects, our revenue and cash flow.

Part of our strategy is based on entering new markets and implementing new businesses, including solutions through our Digital Platform. We may not be successful in exploiting these opportunities, which may have an adverse effect on our business.

Many of the markets where we plan to operate, such as academic and financial ERP and student acquisition solutions, are new to us and our organizational skills in these markets have not yet been tested. In addition, we may have incorrectly estimated the total size of new markets or our ability to penetrate such markets or engage in new businesses, such as increased offering of solutions through our Digital Platform. In addition, we may face competition from existing participants or new entrants in the market in which our Digital Platform operates, including in the digital school office, digital marketing and family relations services, and our competitors may have greater resources than we do or may offer more attractive products or services. If we are unsuccessful in entering new markets or in implementing new businesses, we may incur costs that we are unable to recoup and our image and reputation may be adversely affected, which could have an adverse effect on our results of operation and financial position.

We may not be able to expand our complementary education portfolio in line with our business strategy.

We currently have educational solutions for English instruction and the teaching of socio-emotional skills, which can be offered during normal school hours or after school. We plan to develop and/or acquire new services and products to expand our portfolio of these complementary education solution. We may not be able to develop products and solutions in an effective way, they may not be accepted by our customers and by the market, or we may not develop the internal capabilities to produce such products and services. Additionally, we may not be able to acquire companies operating such new services and businesses on favorable terms, or we may incur risks of integrating acquired assets. If we are unable to expand our complementary education solution due to any of the foregoing factors, our business, financial condition and results of operations could be adversely affected.

Price increases and changing business conditions for the purchase of paper, a global commodity, may have a significant impact on us due to our reliance on a high volume of printed materials.

Paper prices and postage rates are difficult to predict and control. Paper is a commodity, and its price may be influenced by fluctuations in exchange rates and commodity prices and may be subject to significant volatility. Our third-party printing service providers may adjust their rates to account for any changes in paper prices, and although historically we have been able to obtain favorable pricing as a result of volume discounts, particularly after our significant recent growth, there is no assurance that we will continue to obtain favorable prices in the future. We cannot predict with certainty the magnitude of future price changes for paper, postage and printing and publishing in general, and we may not be able to pass these increases on to our customers, which may have an adverse effect on our business and results of operations, given the importance of paper suppliers to our business. Additionally, we could be materially affected as a result of any contractual or legal issue with our paper suppliers or any delay in the delivery of our printed books and other educational content to partner schools, which could cause schools to delay payments due to us, or lead schools to terminate their contract with us, which would have an adverse effect on our business and results of operations.

  

There is no assurance that our partner schools will honor their contractual obligations, or that the number of students actually enrolled at partner schools corresponds to the number of students reported by the schools.

We generally enter into agreements with the schools that subscribe to our content and services, however, partner schools may try to avoid their obligations under their agreements with us, even with an effective contract in place, and we may be subject to additional costs and expenses in an effort to enforce our rights, which would have an adverse effect on our business and financial condition.

In addition, when partner schools enter into agreements with us, they report to us the number of students enrolled at their school who will use our products and services. However, we cannot assure you that the number of students reported by a specific partner school in a specific segment is the actual number of students enrolled, as we do not audit this number, and our expected revenue may be adversely affected by inaccurate reporting, which could have a material adverse effect on us, our reputation and results of operation.

The printing market is heavily concentrated, and increases in rates, changes in business conditions, or any disruptions to the service of our third-party printing service providers could significantly affect us.

Our production of printed learning materials is outsourced to printers with whom we have contracts. We are subject to delays in the graphic production of our material, errors in production or even the bankruptcy of our partner printing companies, which could cause damage to our image with our customers and to our operating results.

In addition, increases in the rates of the third-party printing service providers that produce our printed educational materials could have a negative impact on our results if we are unable to fully pass on these cost increases to our customers. Finally, the printing market is a heavily concentrated one, which may reduce our bargaining power and result in less favorable rates, with an adverse effect on our business.

We depend on our subsidiaries’ financial results, and we may be adversely affected if the performance of our subsidiaries is not positive or if Brazil imposes legal restrictions on, or imposes taxes on, the distribution of dividends by subsidiaries.

We are a pure holding company, and our activities are carried out by our subsidiaries. Our material assets are our direct and indirect equity interests in our subsidiaries. We are, therefore, dependent upon payments, dividends and distributions from our subsidiaries for funds to pay our holding company’s operating and other expenses, to comply with our financial obligations and to potentially pay future cash dividends or distributions, if any, to holders of our Class A common shares. The amount of any dividends or distributions which may be paid to us from time to time will depend on many factors including, for example, such subsidiaries’ results of operations and financial condition; limits on dividends under applicable law; their constitutional documents; documents governing any indebtedness; applicability of tax treaties; and other factors which may be outside our control. Furthermore, exchange rate fluctuation will affect the U.S. dollar value of any distributions our subsidiaries (which are mostly located in Brazil) make with respect to our equity interests in those subsidiaries. See “—Risks Relating to Brazil—Exchange rate instability may have adverse effects on the Brazilian economy, our business and the trading price of our Class A common shares”, and “—The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares”. There is no guarantee that the cash flow and profits of our controlled companies will be sufficient for us to comply with our financial obligations and pay dividends or interest on shareholders’ equity to our shareholders, or that the Brazilian federal government will not impose legal restrictions on, or impose taxes on, the distribution of dividends by our subsidiaries.

Any change in the tax treatment of our business or the loss or reduction in tax benefits on the sale of books (including digital books and e-readers) could materially adversely affect us.

We benefit from tax Law No. 10,865/04, as amended by Law No. 11,033/04, which provide that our tax rate on the sale of books is zero in respect of contributions to the social integration program tax (Programa de Integração Social, or PIS) and the social contributions on revenue tax (Contribuição para o Financiamento da Seguridade Social, or COFINS). The sale of books is also exempt by the Brazilian constitution from Brazilian municipal taxes, Brazilian services tax (Imposto Sobre Serviços, or ISS) and from the Brazilian tax on the circulation of goods, interstate and intercity transportation and communication services (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Services de Transporte Interestadual e Intermunicipal e de Comunicação, or ICMS). If the Brazilian federal or state governments or any Brazilian municipality or tax authority decides to change or review the tax treatment of our activities or cancel or reduce the tax benefits applicable to the sale of our products (including digital books and e-readers) and/or challenge such treatment, and we are unable to pass any corresponding cost increase onto our customers, our results of operations could be materially adversely affected. Tax exemptions available to physical books have been extended to digital books based on a decision by the Brazilian Supreme Court issued on March 8, 2017. However, there is no assurance that the Brazilian Supreme Court will not change its position in the future in regard to the taxation of digital books, which could have a material adverse effect on our business and results of operations.

 

We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to be completed or to produce the anticipated results, or the inability to fully integrate an acquired company, could harm our business.

We may from time to time, as opportunities arise or economic conditions permit, acquire or invest in complementary companies or businesses as part of our strategy to expand our operations, including through acquisitions or investments that may be material in size and/or of strategic relevance. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into, or complete a given transaction.

Any acquisition or investment involves a series of risks and challenges that could adversely affect our business, including due to a failure of such acquisition to contribute to our commercial strategy or improve our image. We may be unable to generate the expected returns and synergies on our investments. In addition, the amortization of acquired intangible assets could decrease our net profit and potential dividends. We may face challenges in integrating acquired companies, which may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may be unable to create and implement uniform and effective controls, procedures and policies, and we may incur increased costs for integrating systems, people, distribution methods or operating procedures. We may also be unable to integrate technologies of acquired businesses or retain key customers, executives and staff of the businesses acquired. In particular, we may face challenges in integrating staff working across different geographies and that may be accustomed to different corporate cultures, which would result in strained relations among existing and new personnel. We could also face challenges in negotiating favorable collective bargaining agreements with unions due to differences in the negotiating procedures used in different regions. Finally, we may pursue acquisitions where we acquire a majority stake in such acquisition, but with significant minority investors, or we may become minority investors in certain operations, wherein our ability to effectively control and manage the business may be limited. If we are unable to manage growth through acquisitions, our business and financial condition could be materially adversely affected.

We may also require approval from Brazil’s Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE, or other regulatory authorities, in order to conduct certain acquisitions or investments for education companies exceeding or equivalent to annual gross revenue of R$75 million. CADE may not approve our future acquisitions or may condition approval of our acquisitions on our disposal of certain operations of our targeted acquisitions or could impose other restrictions on the operations and business of the target. Failure to obtain approval from CADE or other regulatory authorities for future acquisitions, or any conditional approvals of future acquisitions, may result in expenses that could adversely affect our results of operations and financial condition.

In addition, in connection with any acquisition, we may face liabilities for contingencies related to, among others, (1) legal and/or administrative proceedings of the acquired company, including civil, regulatory, labor, tax, social security, environmental and intellectual property proceedings, and (2) financial, reputational and technical problems including those related to accounting practices, disclosures in financial statements and internal controls, as well as other regulatory issues. These contingencies may not have been identified prior to the acquisition and may not be sufficiently indemnifiable under the terms of the relevant acquisition agreement, which could have an adverse effect on our business and financial condition. Even if contingencies are indemnifiable under the relevant acquisition agreement, the agreed levels of indemnity may not be sufficient to cover actual contingencies as they materialize.

We may not be able to effectively implement our sales, marketing and advertising programs to attract and retain new customers.

In order to maintain and increase our revenue and margins, we need to continue to retain and attract new customers by means of the sales, marketing and advertising campaigns. A number of factors could adversely impact our ability to successfully implement our marketing campaigns, such as an inability of our sales team to effectively interact with potential clients, or potential clients do not find our products and services sufficient to meet their needs. If we are unable to successfully market our educational products and solutions, whether due to defects in our marketing tools and/or failure to adjust our strategy in order to meet the needs of current and potential customers, our ability to retain and attract new customers may be undermined, which would adversely affect our business and results of operations.

If we are unable to retain or replace our key personnel or are unable to attract, retain and develop other qualified employees, our business, financial situation and operating results may be adversely affected.

Part of our future success depends on the ability and efforts of a number of our key employees who have significant experience in our operations. Many of our key employees have been working for us over an extended period or have been specifically recruited by us on account of their experience and expertise in the sector. The loss of key personnel, including senior executives, members of the executive board, board members, key officers and managers, among others, and our inability to hire professionals with the same level of experience could have a material adverse effect on our business, financial condition and results of operations.

  

In addition, in order to successfully compete and increase the number of customers, we need to attract, recruit, retain and develop talented employees generally, who can provide the required expertise across the entire spectrum of our needs for high quality products, services and educational content, including for sales and marketing. A number of our key employees have significant experience in our operations, and we must develop adequate succession plans to maintain continuity amidst the natural uncertainties of the labor force. The market for skilled staff is competitive, and we may not be successful in recruiting or retaining staff or we may not be able to effectively replace key employees who leave. We must also continue to hire additional staff to execute our strategic plans. Our efforts to retain and develop personnel may also result in significant additional expenses that could adversely affect our business and results of operations.

We cannot guarantee that qualified employees will remain in our employment or that we will be able to attract and retain qualified personnel in the future. In particular, we may not be able to achieve the anticipated revenue growth by expanding our sales and marketing teams if we are not able to attract, develop and retain qualified sales and marketing personnel in the future. Any failure to retain or hire key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our management team’s interests may be focused on the short-term market price of our Class A common shares, which may not coincide with investors’ interests.

Our directors and executive officers, among others, may own shares in the company or be beneficiaries of our share-based compensation plans. We approved a restricted share unit plan in connection with our initial public offering. The maximum number shares that can be issued to beneficiaries under our restricted share unit plan may not exceed 3.0% of our share capital at any time.

Due to the issue of Class A common shares to members of our management team, a significant portion of these members’ compensation will be closely tied to our operating results and, more specifically, to the trading price of our Class A common shares, which may lead these individuals to run our business and manage our activities with an emphasis on generating short-term profits. As a result of these factors, our management team’s interests may not coincide with the interests of our other shareholders who have long-term investment objectives. Additionally, we cannot assure that Cogna’s and our management team’s interest will be aligned, or which party’s interest will prevail.

Moreover, our shareholders may experience dilution in their stakes in our capital stock and in the value of their investments if further shares are issued to honor share-based incentive plans for our management and employees.

In the case of further grants of stock options or restricted shares, our shareholders will be subject to further dilution. For additional information about our share option plan or restricted share plan, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan”.

Failure to prevent or detect a malicious cyber-attack on our systems and databases could result in a misappropriation of confidential information or access to highly sensitive information.

Cyber-attacks are becoming more sophisticated and pervasive. Across our business we hold large volumes of personally identifiable information including that of employees, partner schools, students, parents and legal guardians. Individuals may try to gain unauthorized access to our data in order to misappropriate such information for potentially fraudulent purposes, and our security measures may fail to prevent such unauthorized access. During the years ended December 31, 2023 and 2022, we detected certain attempts to breach the security of our IT systems, all of which were unsuccessful. Moreover, we continuously monitor potential vulnerabilities in our IT and data systems and strive to improve security. Current unfinished initiatives in this regard include: (i) a disaster recovery system for our data centers; (ii) implementation of the Secure Development program; and (iii) a continuous monitoring program for our Secure Ambient program. During the year ended December 31, 2023, there were no successful attempts to breach the security of our IT systems, though there can be no assurance that we will be able to stop all attempts to breach our IT systems.

Our board of directors, assisted by our Audit and Risk Committee, as part of its regular review of our risk management practices, performs periodic reviews of cyber-security threats and related controls, including reviews of periodic penetration tests performed by independent third parties. However, we cannot assure that these reviews will successfully prevent against a successful breach of our IT systems. A breach could result in a devastating impact on our reputation, with significant adverse effects on customer confidence and loyalty that could adversely affect our financial condition and the student experience. In addition, if we were unable to prove that our systems are properly designed to detect an intrusion, we could be subject to severe penalties under applicable laws and loss of existing or future business.

Failure to comply with data privacy regulations could result in reputational damage to our brands and adversely affect our business, financial condition and results of operations.

The nature of our business exposes us to risks related to possible shortcomings in data protection. Any perceived or actual unauthorized disclosure of personally identifiable information, whether through breach of our network by an unauthorized party, employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract and retain our customers, or subject us to claims or litigation arising from damages suffered by individuals.

 

We are subject to the General Personal Data Protection Law (Lei Geral de Proteção de Dados) (as amended), or the LGPD. As a result of any failure to comply with the LGPD or occurrence of cybersecurity incidents, we may be subject to the following penalties: (1) legal notices and the required adoption of corrective measures, (2) fines of up to 2.0% of our company’s or our group’s revenue up to a limit of R$50.0 million per infraction, (3) disclosure of the violation after its occurrence is duly verified and confirmed, and (4) blocking and erasing the personal data involved in the violation.

Failure to comply with the rules for the protection of personally identifiable information, including the LGPD, could potentially lead to legal proceedings or could result in penalties, significant remediation costs, reputational damage, the cancellation of existing contracts and difficulty in competing for future business. In addition, we could incur significant costs in complying with relevant laws and regulations regarding the unauthorized disclosure of personal information, which may be affected by any changes to data privacy legislation at both the federal and state levels.

Material weaknesses in our internal control over financial reporting have been identified, and if we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

While part of our business has been operated in the past as part of publicly traded companies in Brazil (Cogna and Somos), our accounting personnel and other resources are not structured in a manner consistent with the requirements applicable to a public company listed in the United States. In connection with the audit of the consolidated financial statements for the year ended December 31, 2023, our external auditors obtained an understanding of the internal controls relevant to their audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of our internal controls in accordance with the provisions of the Sarbanes-Oxley Act of 2002. During this process, material weaknesses in our internal controls over financial reporting as of December 31, 2023, were identified, which were communicated to management. A material weakness is a deficiency, or combination of controls deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Material weakness have been identified related to the Company’s control environment, risk assessment, information and communication, and monitoring activities resulting in material weaknesses related to the ineffective design, implementation, and operation of: (i) general information technology controls (GITCs) in the areas of user access, program change-management and computational operation over information technology systems and operational supporting systems that support the Company’s financial reporting processes, as well as the completeness and accuracy of reports used by the Company, which resulted in business process controls that are dependent on the affected GITCs also being considered ineffective because they could have been adversely impacted and (ii) controls within the financial reporting process related to review of reconciliation of accounts, review of consolidation, review and approval of journal entries and the preparation of financial statements including disclosures.

We have adopted, and continue to adopt, several measures to improve our internal control over financial reporting, including: (i) conducting a detailed assessment to understand the root causes and extent of the weaknesses; (ii) strengthening business process controls that were dependent on the affected GITCs; (iii) reviewing and redesigning controls within the financial reporting process related to the reconciliation of accounts, consolidation, reviewing and approval of journal entries, and the preparation of financial statements and disclosures and implement additional controls where necessary to address gaps and prevent future weaknesses; (iv) providing comprehensive training to employees involved in financial reporting processes to ensure they understand the importance of controls and their roles in maintaining them and increase awareness across the organization about the significance of control environment and compliance with established procedures; (v) conducting periodic reviews and internal audits with the support from a third party to identify any emerging weaknesses and address them promptly; (vi) investing in technology upgrades or enhancements to improve GITCs, ensuring robustness and effectiveness.

However, we cannot assure you that our efforts will be effective or prevent any future material weakness or significant deficiency in our internal control over financial reporting. For management´s remediation efforts related to identified material weakness see “Item 15. Controls and Procedures—B. Management’s annual report on internal control over financial reporting”.

After our initial public offering, we became subject to the Sarbanes‑Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. Under the current rules of the SEC, we are required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls over financial reporting as well as our disclosure controls and procedures.

We expect to incur additional accounting and auditing expenses and to spend significant management time in complying with these requirements. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies additional material weaknesses or significant deficiencies in our internal controls over financial reporting or in our disclosure controls and procedures, the market price of our Class A common shares may decline and we may be subject to investigations or sanctions by the SEC, the Financial Industry Regulatory Authority, Inc., or FINRA, or other regulatory authorities.