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Arco Platform Limited Reports Second Quarter and First Half 2019 Financial Results

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On-track to Deliver 2019 ACV Bookings of R$441 million (37% growth YoY)

SÃO PAULO, Brazil, Aug. 27, 2019 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (ARCE), today reported financial and operating results for the second quarter 2019 ended June 30, 2019.

“We continue to focus on our clients and invest in content and technology. We are confident that our efforts and competitive advantages will maintain our market positioning and generate sustainable, long-term oriented results.” said Ari de Sá Neto, CEO and founder of Arco.

First Half 2019 Results

  • Net Revenue of R$254.6 million;

  • Net Income of R$56.5 million;

  • Adjusted Net Income of R$91.6 million; and

  • Adjusted EBITDA of R$110.3 million.

Second Quarter 2019 Results

  • Net Revenue of R$137.6 million;

  • Net Income of R$25.7 million;

  • Adjusted Net Income of R$50.9 million; and

  • Adjusted EBITDA of R$61.4 million.

Revenue Recognition and Seasonality

As we report the second quarter 2019 results, it is important to highlight the revenue recognition and seasonality of our business.

We typically deliver our Core Curriculum content four times each year, in March, June, August and December and our Supplemental Solutions content twice each year, in June and December, usually two to three months prior to the start of each school quarter. The amount of revenue recognized is proportional to the amount of content made available, which is not linearly distributed among the quarters. This causes revenue seasonality in our business, in which the third quarter revenue is the lowest point of the year.

A significant portion of our expenses is also seasonal. Due to the nature of our business cycle, we require significant working capital, typically in September or October of each year, to cover costs related to production and accumulation of inventory, selling and marketing expenses, and delivery of our teaching materials at the end of each fiscal year in preparation for the beginning of each school year. Therefore, such operating expenses are generally incurred in the period between September and December of each year.

Third Quarter 2019 Guidance:

We expect to recognize in the third quarter (3Q19) 15% of the 2019 ACV Bookings of R$440.9 million.

Full Year 2019 Guidance:

Adjusted EBITDA margin is expected to be in the range of 35.5% to 37.5%.

About Arco Platform Limited (ARCE)

Arco has empowered hundreds of thousands of students to rewrite their futures through education. Our data-driven learning, interactive proprietary content, and scalable curriculum allows students to personalize their learning experience with high-quality solutions while enabling schools to provide a broader approach to education.

Forward-Looking Statements

This press release contains forward-looking statements as pertains to Arco Platform Limited (the “Company”) within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the Company’s expectations or predictions of future financial or business performance conditions. The achievement or success of the matters covered by statements herein involves substantial known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company’s results could differ materially from the results expressed or implied by the statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward looking statements are made based on the Company’s current expectations and projections relating to its financial conditions, result of operations, plans, objectives, future performance and business, and these statements are not guarantees of future performance.

Statements which herein address activities, events, conditions or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “evaluate,” “expect,” “explore,” “forecast,” “guidance,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “probable,” “project,” “seek,” “should,” “view,” or “will,” or the negative thereof or other variations thereon or comparable terminology. Moreover, all statements in this press release, whether forward looking or of historical fact, are based on the limited information available to the Company during the due diligence process of Positivo and its business operations (the “Positivo Business”) prior to the signing of the acquisition agreement discussed herein. This limited access to information may have impaired the Company’s ability to conduct a full and comprehensive assessment of the Positivo Business, thus leading to risks and uncertainties. Reasons for this uncertainty include, but are not limited to, the following: (i) the Positivo Business is a carve out of an entity with different businesses and, therefore, the analysis was conducted on the basis of pro forma, unaudited and adjusted financial statements of the Positivo Business; (ii) the accounting parameters and criteria adopted by the Positivo Business are different from the ones adopted by the Company; (iii) the transfer of the Positivo Business to a new entity limits the Company’s ability to assess the proper transfer of all assets and rights to such new entity. In addition, the forward-looking statements regarding the Positivo Business include risks and uncertainties related to statements about competition for the combined business; risks relating to the continued use of the Positivo brand in schools not run by the Company; restrictions and/or limitations on the acquisition of the Positivo Business that may be imposed by antitrust authorities or other regulatory agencies; risks relating to the Company’s ability to attract, upsell and retain customers of the Positivo Business; general market, political, economic, and business conditions in Brazil or abroad; and the Company’s financial targets are based on measures which include revenue, share count and other IFRS measures, as well as non-IFRS financial measures including gross margin, operating margin, net income per diluted share, EBITDA (as defined herein), Adjusted EBITDA (as defined herein) and free cash flow.

Forward-looking statements represent the Company management’s beliefs and assumptions only as of the date such statements are made, and the Company undertakes no obligation to update any forward-looking statements made in this presentation to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

Further information on these and other factors that could affect the Company’s financial results is included in filings the Company makes with the Securities and Exchange Commission from time to time, including the section titled “Risk Factors” in the Company’s most recent Forms 20-F and 6-K. These documents are available on the SEC Filings section of the Investor Relations section of the Company’s website at: https://investor.arcoplatform.com/

Key Business Metrics

ACV Bookings: We define ACV Bookings as the revenue we would contractually expect to recognize from a partner school in each school year pursuant to the terms of our contract with such partner school, assuming no further additions or reductions in the number of enrolled students that will access our content at such partner school in such school year (we define “school year” for purposes of calculation of ACV Bookings as the twelve-month period starting in October of the previous year to September of the mentioned current year). We calculate ACV Bookings by multiplying the number of enrolled students at each partner school with the average ticket per student per year; the related number of enrolled students and average ticket per student per year are each calculated in accordance with the terms of each contract with the related partner school.

Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board—IASB, we use Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income Margin which are non-GAAP financial measures.

We calculate Adjusted EBITDA as profit for the year (or period) plus income taxes plus/minus finance result plus depreciation and amortization plus share of loss of equity-accounted investees plus share-based compensation plan and plus M&A expenses.

We calculate Adjusted Net Income as profit for the year (or period) plus share-based compensation plan plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) rights on contracts, (ii) customer relationships, (iii) educational system, (iv) trademarks, and (v) non-compete agreement) less/plus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments—finance income, and plus (ii) changes in fair value of derivative instruments—finance costs) plus share of loss of equity-accounted investees plus interest expenses plus/minus changes in deferred tax assets and liabilities recognized in statements of income (corresponding to financial instruments from acquisition of interests, tax benefit from tax deductible goodwill, share-based compensation, restricted stock units and amortization of intangible assets), plus/minus foreign exchange gains/loss on cash and cash equivalents and plus M&A expenses.

We calculate Free Cash Flow as Net Cash Flows from Operating activities less acquisition of property and equipment less acquisition of intangible assets.

We understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income Margin are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS. Additionally, our calculations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income Margin may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

Conference Call Information

Arco will discuss its second quarter 2019 results today, August 27, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID:9876489), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through September 10, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 9876489. A webcast of the call will be available on the Investor Relations section of the Company’s website at https://arcoeducacao.gcs-web.com/.

Investor Relations Contact:

Arco Platform Limited
IR@arcoeducacao.com.br

Source: Arco Platform Ltd.

Arco Platform Limited

Unaudited Interim Condensed Consolidated Statements of Financial Position

June 30,

December 31,

(In thousands of Brazilian reais)

2019

2018

Assets

(unaudited)

Current assets

Cash and cash equivalents

8,530

12,301

Financial investments

869,141

806,789

Trade receivables

142,943

136,611

Inventories

14,598

15,131

Recoverable taxes

20,690

11,227

Other assets

12,838

6,091

Total current assets

1,068,740

988,150

Non-current assets

Financial instruments from acquisition of interests

21,261

26,630

Deferred income tax

133,419

99,460

Recoverable taxes

1,033

1,033

Financial investments

4,473

4,370

Loans to related parties

15,631

1,226

Other assets

6,027

1,060

Investments and interests in other entities

58,113

11,862

Property and equipment

15,959

13,347

Right-of-use assets

17,593

-

Intangible assets

157,960

187,740

Total non-current assets

431,469

346,728

Total assets

1,500,209

1,334,878

Liabilities

Current liabilities

Trade payables

13,991

14,845

Labor and social obligations

31,786

15,888

Advances from customers

20,506

5,997

Lease liabilities

4,736

-

Loans and financing

161

-

Taxes and contributions payable

1,509

2,555

Income taxes payable

26,731

17,294

Financial instruments from acquisition of interests

15,562

51

Accounts payable to selling shareholders

90,829

830

Other liabilities

138

428

Total current liabilities

205,949

57,888

Non-current liabilities

Labor and social obligations

2,064

-

Lease liabilities

16,752

-

Loans and financing

376

-

Financial instruments from acquisition of interests

49,242

25,046

Accounts payable to selling shareholders

106,931

180,551

Provision for legal proceedings

342

131

Deferred income tax

1,560

1,378

Other liabilities

125

-

Total non-current liabilities

177,392

207,106

Equity

Share capital

10

10

Capital reserve

1,066,710

1,089,505

Share-based compensation reserve

81,783

67,350

Accumulated losses

(31,635

)

(86,687

)

Equity attributable to equity holders of the parent

1,116,868

1,070,178

Non-controlling interests

-

(294

)

Total equity

1,116,868

1,069,884

Total liabilities and equity

1,500,209

1,334,878


Arco Platform Limited

Unaudited Interim Condensed Consolidated Statements of Income

Three-month period ended June 30,

Six-month period ended June 30,

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

2019

2018

2019

2018

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net revenue

137,566

81,436

254,621

195,070

Cost of sales

(25,827

)

(16,862

)

(47,696

)

(42,702

)

Gross profit

111,739

64,574

206,925

152,368

Operating expenses:

Selling expenses

(39,315

)

(24,074

)

(75,450

)

(48,386

)

General and administrative expenses

(44,926

)

(17,033

)

(65,758

)

(30,728

)

Other (expense) income, net

(437

)

(1,476

)

2,922

2,172

Operating profit

27,061

21,991

68,639

75,426

Finance income

13,961

3,582

30,917

7,291

Finance costs

(12,374

)

(3,840

)

(28,855

)

(7,765

)

Finance result

1,587

(258

)

2,062

(474

)

Share of loss of equity-accounted investees

(667

)

(229

)

(1,159

)

(294

)

Profit before income taxes

27,981

21,504

69,542

74,658

Income taxes - income (expense)

Current

(10,899

)

(6,071

)

(29,151

)

(20,879

)

Deferred

8,617

(1,517

)

16,149

528

Total income taxes – income (expense)

(2,282

)

(7,588

)

(13,002

)

(20,351

)

Profit for the period

25,699

13,916

56,540

54,307

Equity holders of the parent

25,699

14,143

56,540

54,682

Non-controlling interests

-

(227

)

-

(375

)

Basic earnings per share – in Brazilian reais

Class A

0.51

0.28

1.12

1.09

Class B

0.51

0.28

1.12

1.09

Diluted earnings per share – in Brazilian reais

Class A

0.49

0.27

1.09

1.04

Class B

0.50

0.27

1.10

1.05

Weighted-average shares used to compute net income per share:

Basic

50,709

50,261

50,505

50,261

Diluted

51,276

51,242

51,072

51,242


Arco Platform Limited

Unaudited Interim Condensed Consolidated Statements of Cash Flows

Three-month period ended June 30,

Six-month period ended June 30,

(In thousands of Brazilian reais)

2019

2018

2019

2018

Operating activities

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Profit before income taxes for the period

27,981

21,504

69,542

74,658

Adjustments to reconcile profit before income taxes

Depreciation and amortization

9,103

4,528

16,343

8,902

Inventory reserves

1,332

1,146

3,560

3,242

Allowance for doubtful accounts

550

(397

)

2,203

3,137

Residual value of property and equipment and intangible assets disposed

29

-

131

138

Changes in fair value of derivative instruments

-

(367

)

1,866

(1,974

)

Share of loss of equity-accounted investees

667

229

1,159

294

Share-based compensation plan

138

344

275

687

Restricted stock units

14,158

-

14,158

-

Provision for payroll taxes (restricted stock units)

6,518

-

6,518

-

Accrued interest

8,498

1,972

14,440

4,052

Interest in lease liabilities

387

-

782

-

Provision for legal proceedings

132

76

211

76

Foreign exchange results, net

592

-

516

-

Alienation of investment

2

-

(3,286

)

-

Other financial cost/revenue, net

(1,202

)

-

(1,202

)

-

68,885

29,035

127,216

93,212

Changes in assets and liabilities

Trade receivables

7,792

18,949

(8,409

)

3,087

Inventories

(2,067

)

(3,226

)

(2,031

)

(947

)

Recoverable taxes

(401

)

(307

)

(5,373

)

(1,190

)

Other assets

(9,778

)

(8,262

)

(7,826

)

(8,556

)

Trade payables

(27

)

2,166

659

1,574

Labor and social obligations

6,580

3,457

11,354

3,757

Taxes and contributions payable

(475

)

355

(1,047

)

639

Advances from customers

(5,830

)

4,638

14,998

7,645

Other liabilities

(53

)

937

(354

)

(911

)

Cash generated from operations

64,626

47,742

129,187

98,310

Income taxes paid

(5,175

)

(4,691

)

(23,210

)

(21,031

)

Interest paid on lease liabilities

(220

)

-

(220

)

-

Net cash flows from operating activities

59,231

43,051

105,757

77,279

Investing activities

Acquisition of property and equipment

(3,036

)

(1,228

)

(5,829

)

(2,158

)

Payment of investments and interests in other entities

(4,200

)

-

(4,200

)

-

Acquisition of subsidiaries, net of cash acquired

(16,137

)

(5,775

)

(16,137

)

(13,820

)

Acquisition of intangible assets

(6,887

)

(3,056

)

(18,379

)

(4,911

)

Financial investments

(36,238

)

53,756

(62,529

)

33,470

Loans to related parties

-

-

(14,000

)

-

Net cash flows from (used in) investing activities

(66,498

)

43,697

(121,074

)

12,581

Financing activities

Capital increase

12,611

-

13,829

-

Share issuance costs

-

-

(673

)

-

Payment of lease liabilities

(565

)

-

(1,080

)

-

Payment of loans and financing

(14

)

-

(14

)

-

Dividends paid

-

(85,050

)

-

(85,050

)

Net cash flows from (used in) financing activities

12,032

(85,050

)

12,062

(85,050

)

Foreign exchange effects on cash and cash equivalents

(592

)

-

(516

)

-

Increase (decrease) in cash and cash equivalents

4,173

1,698

(3,771

)

4,810

Cash and cash equivalents at the beginning of the period

4,357

3,946

12,301

834

Cash and cash equivalents at the end of the period

8,530

5,644

8,530

5,644

Increase (decrease) in cash and cash equivalents

4,173

1,698

(3,771

)

4,810


Arco Platform Limited
Reconciliation of Non-GAAP Measures

Three-month period ended

Six-month period ended

June 30,

June 30,

(In thousands of Brazilian reais)

2019

2018

2019

2018

Adjusted EBITDA Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Profit for the period

25,699

13,916

56,540

54,307

(+) Income taxes

2,282

7,588

13,002

20,351

(+/-) Finance result

(1,587)

258

(2,062)

474

(+) Depreciation and amortization

9,103

4,528

16,343

8,902

(+) Share of loss of equity-accounted investees

667

229

1,159

294

EBITDA

36,164

26,519

84,982

84,328

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

20,814

344

20,951

687

(+) M&A expenses

4,423

-

4,423

-

Adjusted EBITDA

61,401

26,863

110,356

85,015

Net Revenue

137,566

81,436

254,621

195,070

EBITDA Margin

26.3%

32.6%

33.4%

41.3%

Adjusted EBITDA Margin

44.6%

33.0%

43.3%

43.6%


Three-month period ended

Six-month period ended

June 30,

June 30,

(In thousands of Brazilian reais)

2019

2018

2019

2018

Adjusted Net Income Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Profit for the period

25,699

13,916

56,540

54,307

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

20,814

344

20,951

687

(+) Amortization of intangible assets from business combinations

3,085

2,798

6,065

5,831

(+/-) Changes in fair value of derivative instruments

-

(367)

1,866

(1,974)

(+) Share of loss of equity-accounted investees

667

229

1,159

294

(-) Tax effects

(10,732)

(954)

(13,724)

(832)

(+) Foreign exchange on cash and cash equivalents

592

-

516

-

(+) Interest expenses (income), net

6,357

2,326

13,881

4,824

(+) M&A expenses

4,423

-

4,423

-

Adjusted net income

50,905

18,292

91,677

63,137

Net Revenue

137,566

81,436

254,621

195,070

Adjusted Net Income Margin

37.0%

22.5%

36.0%

32.4%




Three-month period ended

Six-month period ended

June 30,

June 30,

(In thousands of Brazilian reais)

2019

2018

2019

2018

Free Cash Flow Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash Generated from Operations

64,626

47,742

129,187

98,310

(-) Income Tax Paid

(5,175)

(4,691)

(23,210)

(21,031)

(-) Interest paid on lease liabilities

(220)

-

(220)

-

Cash Flow from Operating Activities

59,231

43,051

105,757

77,279

(-) Acquisition of property and equipment

(3,036)

(1,228)

(5,829)

(2,158)

(-) Acquisition of intangible assets

(6,887)

(3,056)

(18,379)

(4,911)

Free Cash Flow

49,308

38,767

81,549

70,210