Healthy cash generation trend continues in the
2023 cycle
Financial & Management Solutions post
strong growth with margin gains
Arco Platform Limited, or Arco or the Company (Nasdaq:
ARCE), today reported financial and operating results for the
second quarter ended June 30, 2023.
2Q23
1H23
Consolidated
Consolidated
Net revenue
Cash gross profit
Net revenue
Cash gross profit
R$471.0M
R$330.4M
R$1,005.9M
R$700.6M
+14.3% YoY
+5.8% YoY
+19.4% YoY
+7.5% YoY
Adj. EBITDA
Adj. net income
Adj. EBITDA
Adj. net income
R$83.5M
R$78.1M
R$194.2M
R$36.1M
-24.6% YoY
n/a
-24.6% YoY
347.3%
2Q23
CTD23
Pedagogical business
Pedagogical business
Net revenue
Net revenue
R$395.7M
R$1,532.6M
-4.0% YoY
+18.0% YoY
Adj. EBITDA
Adj. EBITDA
R$85.3M
R$556.7M
-22.9% YoY
+16.3% YoY
Consolidated 2Q23 and 1H23 figures include full results of
isaac, our most recent acquisition, that is reported within
financial & management segment. Therefore, for an accurate
comparison year over year we recommend investors to reach
pedagogical business figures (core & supplemental
solutions).
Note: Please see adjusted EBITDA reconciliation and adjusted Net
Income reconciliation on page 15.
2Q23 & 1H23 Highlights
- Net revenue for the second quarter was R$471.0 million,
a 14.3% YoY increase, with Core solutions totaling R$371.9 million
(+1.2% YoY), Supplemental solutions totaling R$23.8 million (-46.9%
YoY due to a different distribution of the ACV recognition per
quarter relative to last year) and financial & management
solutions (F&M) posting a significant 104.3% YoY growth (versus
2Q22 pro-forma figures, prior to isaac’s acquisition by Arco) with
R$ 75.3 million. Net revenue for pedagogical business (Core
and Supplemental solutions) decreased 4.0% YoY in the second
quarter due to deliveries’ seasonality (20.5% ACV recognition in
2Q23 vs. 26.4% in 2Q22) and part of June deliveries deferred to
July, impacting 2Q23 ACV recognition in approximately R$ 36
million. Cycle-to-date figures (October through June) reaffirm the
solid ACV growth expected for the 2023 cycle, with Core totaling
R$1,210.9 million (+17.0% YoY) and Supplemental totaling R$331.6
million (+23.6% YoY). In June 2023, Arco reached 79.4% of its 2023
ACV recognized cycle-to-date vs. 83.2% in June 2022. We recommend
that investors analyze our P&L performance on a cycle-to-date
basis, for a more accurate assessment of the business underlying
profitability trends.
- Cash gross margin (gross margin excluding depreciation
and amortization) on a consolidated basis was 70.2% in 2Q23 (versus
75.8% in 2Q22) and 69.7%, in 1H23 (versus 77.4% in 1H22).
Pedagogical business cash gross margin was 74.9% in 2Q23
(versus 75.8% in 2Q22) and 74.7% in CTD23 (versus 79.3% in CTD22).
1H23 printing costs were affected by the previously discussed price
increases in the paper supply chain in the end of 2022 (consequence
of pulp and paper commodity prices hike), as printing contracts are
negotiated in advance of the collections. We continue to roll out
cost reduction initiatives, such as the centralization of our
supply operations to capture scale gains, which we expected to
offset and outpace such recent and punctual external cost pressures
and expect positive outcomes on 2H23 and, specially, in the 2024
cycle.
- In 2Q23, consolidated selling expenses excluding
depreciation and amortization totaled R$177.3 million (+20.3% YoY).
For 1H23, consolidated selling expenses excluding depreciation and
amortization totaled R$338.6 (+18.7 YoY). Pedagogical
business posted R$160.0 million in selling expenses in 2Q23
(+8.6% YoY). Cycle-to-date selling expenses for the pedagogical
business reached R$465.9 million, up 15.9% YoY and representing
30.4% of revenues in the cycle, vs 31.0% in the same period
2022.
- General and administrative expenses (G&A) figures
excluding depreciation and amortization totaled R$115.7 million in
2Q23 (+75.4% YoY), an increase driven by the consolidation of isaac
structure. For the first six months of 2023, G&A expenses
excluding depreciation and amortization were R$267.1 (+92.7% YoY)
mostly related to isaac operations (teams & tech).
Pedagogical business G&A expenses excluding depreciation
and amortization reached R$92.1 million (+39.6% YoY versus 2Q22).
Cycle-to-date G&A for the pedagogical business increased 17.7%
YoY, representing 16.0% of revenues in the 2023 cycle, vs 16.1% in
the same period 2022.
- Consolidated adjusted EBITDA was R$83.5 million in 2Q23
(-24.6% YoY), with an adjusted EBITDA margin of 17.7%. In 1H23,
consolidated adjusted EBITDA was R$194.2 (-24.6% YoY), with an
adjusted EBITDA margin of 19.3% (vs. 30.6% for the same period in
2022). Pedagogical business delivered an adjusted EBITDA of
R$85.3 million (-22.9% YoY) with an adjusted EBITDA margin of 21.6%
versus 26.9% in 2Q23, pressured by the lower revenue recognition
seasonality. In the 2023 cycle-to-date, adjusted EBITDA margin was
36.3% for the pedagogical business versus 36.8% CTD 22. As
previously mentioned, atypical deliveries deferring to July not
only impacted revenue recognition but also Adjusted EBITDA cycle to
date. For a better comparable analysis cycle to date, we have
included July results. In the period between October and July, 2023
cycle posted a 23% adjusted EBITDA growth, delivering 36.3%
Adjusted EBITDA margin, versus 34.8% margin in the 2022 cycle until
July. We reiterate our 2023 guidance for EBITDA margin between
36.5% and 38.5%. F&M vertical posted an adjusted EBITDA
of R$(1.8) million in 2Q23, versus a pro-forma R$(32.5) million in
2Q22 (prior to the acquisition by Arco), representing an EBITDA
margin improvement of 85.8 p.p., from (88.3)% in 2Q22 to (2.4%) in
2Q23. In 1H23, F&M posted an Adjusted EBITDA margin of (12.2)%
versus a pro forma (92.4)% margin in the first half of 2022.
- Consolidated adjusted net income (loss) in 2Q23 was
R$78.1 million, with an adjusted net margin of 16.6% (versus -5.6%
in 2Q22). For 1H23, consolidated adjusted net income totalized
R$36.1 million, with an adjusted net margin of 3.6 % (versus 1.0%
in 1H22).
- Consolidated cash from operations in the 1H23 reached
R$365.5 million (up from R$294.3 million in 1H22). For the first
half of the year, free cash flow to firm (managerial)
was R$252.7 million, a R$96.1 million improvement compared to the
R$156.6 million free cash flow to firm of 1H22. After interest
payment, Arco generated R$ 47.7 million of free cash flow
(representing 4.7% of net revenues) in the first half of 2023 (vs.
R$85.4 million in 1H22, representing 10.1% of net revenues).
Free cash flow to firm
(managerial)
Consolidated
1H23
1H22
% of net revenue
1H23
% of net revenue
1H22
YoY
(% of net revenues)
Adjusted EBITDA
194.2
257.3
19.3
%
30.6
%
-11.3 p.p
(+/-) Non-cash adjustments
60.1
(15.6
)
6.0
%
-1.9
%
+7.8 p.p
(+/-) Working capital
111.2
52.6
11.1
%
6.2
%
+4.8 p.p
(-) Income taxes paid
(33.4
)
(47.5
)
-3.3
%
-5.6
%
+2.3p.p
(-) CAPEX¹
(79.4
)
(90.2
)
-7.9
%
-10.7
%
+2.8p.p
Free cash flow to firm
(managerial)
252.7
156.6
25.1
%
18.6
%
+6.5p.p
1) Excludes R$14.2 million related to
M&A payments (PGS’ and Mentes’ acquisition).
Pedagogical business free cash flow to
firm keeps the pace from previous quarter, delivering significant
improvement year over year. Free cash flow to firm
(managerial) cycle-to-date was R$205.2 million, R$285.9.0
million above the R$(80.7) million free cash flow to firm of CTD
2022, showing important improvements across cash flow drivers,
including working capital, capex and taxes.
Free cash flow to firm
(managerial)
Pedagogical
CTD23
CTD22
% of net revenue
CTD23
% of net revenue
CTD22
YoY
(% of net revenues)
Adjusted EBITDA
556.7
478.5
36.3
%
36.8
%
(0.5) p.p.
(+/-) Non-cash adjustments
71.0
(3.6
)
4.6
%
-0.3
%
+4.9 p.p.
(+/-) Working capital
(283.2
)
(318.9
)
-18.5
%
-24.6
%
+6.1 p.p.
(-) Income taxes paid
(36.0
)
(49.4
)
-2.3
%
-3.8
%
+1.5 p.p
(-) CAPEX¹
(103.3
)
(187.4
)
-6.7
%
-14.4
%
+7.7 p.p.
Free cash flow to firm
(managerial)
205.2
(80.7
)
13.4
%
-6.2
%
+19.6 p.p.
1) Excludes R$14.2 million related to
M&A payments (PGS’ and Mentes’ acquisition)
To obtain better price conditions for the
2024 cycle, we anticipated the paper acquisition in 2Q23 versus
previous years (R$58M as of June), increasing inventory levels
earlier in the cycle. To maintain comparability between quarters,
we have disclosed a pro-forma days of inventory, adjusted by
the paper acquisition.
- Pedagogical solutions days of sales outstanding (DSO) in
2Q23 was 142 days vs 141 days in the 2Q22. Delinquency figures for
pedagogical business continue posting YoY improvement and ended
2Q23 at 4.6% from 5.6% in 2Q22 and 5.3% in 1Q23, driven by our
collection initiatives.
Provision for expected credit
losses Pedagogical business (R$M)
2Q23
2Q22
YoY
1Q23
QoQ
Allowance for doubtful accounts
2.1
0.4
425.0
%
5.5
-61.8
%
% of net revenue
0.4
%
0.1
%
0.3 p.p.
1.2
%
-0.8 p.p.
Days of sales outstanding
June. 30, 2023
June. 30, 2022
YoY
June.30 2023
(pedagogical)
June 30, 2022
YoY
Trade receivables (R$M)
983.1
687.6
43.0
%
794.4
687.6
15.5
%
(-) Allowance for doubtful accounts
(151.7
)
(79.7
)
90.2
%
(91.8
)
(79.7
)
15.1
%
Trade receivables, net (R$M)
831.4
607.8
36.8
%
702.6
607.8
15.6
%
Net revenue LTM pro-forma¹
1,939.1
1,568.9
23.6
%
1,801.3
1,568.9
14.8
%
Adjusted DSO
156
141
10.6
%
142
141
0.7
%
1) Calculated as net revenues for the last
twelve months (for 2022 added to the pro forma revenues from
businesses acquired in the period to accurately reflect the
Company’s operations).
CAPEX in 2Q23 was R$42.4 million, or
9.0% of net revenue (versus 10.5% of net revenue in 2Q22, when
excluding R$ 8.7 million from PGS and Mentes acquisition).
Pedagogical business CAPEX was R$ 30.1 million, or 7.6% of
net revenue (versus 10.5% of net revenue in 2Q22). In the 2023
cycle to date, CAPEX reached 6.7% of revenues vs 14.4% in the 2022
cycle so far and has contributed to significant expansion on the
Adj. EBITDA minus CAPEX metric that reached 29.6% cycle to date in
June, 2023, versus 22.4% cycle to date 2022.
CAPEX (R$M) - Consolidated
2Q23
2Q22
YoY
1Q23
QoQ
Acquisition of intangible
assets¹
39.2
41.5
-6
%
35.4
11
%
Educational platform - content
development
(0.3
)
4.5
-126
%
0.3
-485
%
Educational platform - platforms &
tech
14.4
17.9
-20
%
17.6
-18
%
Software
21.7
16.5
32
%
15.7
38
%
Copyrights and others
3.3
2.6
61
%
1.8
133
%
Acquisition of PP&E
3.2
1.7
89
%
1.6
101
%
TOTAL¹
42.4
43.2
-2
%
37.0
15
%
1) For 2022 excludes R$14.2 million
related to M&A payments (PGS’ and Mentes’ acquisition).
- Arco’s corporate restructuring is ongoing and
progressing as planned. Future incorporation processes include
Escola da Inteligência (2023), Pleno (2023) and SAE Digital (2024).
As we keep incorporating other businesses into CBE, we expect to
capture additional tax benefits and therefore further reduce our
effective tax rate, currently at 8.4% in 1H23 (versus 10.3% in
1H22).
Intangible assets - net balances
(R$M)
June 30, 2023
June 30, 2022
YoY
Mar. 31, 2023
QoQ
Business Combination
3,523.4
2,949.9
19.4
%
3,522.4
0.0
%
Trademarks
476.5
488.8
-2.5
%
486.7
-2.1
%
Customer relationships
226.4
255.8
-11.5
%
236.6
-4.2
%
Educational system
188.3
224.6
-16.2
%
198.0
-4.9
%
Softwares
3.5
8.6
-59.3
%
14.3
-75.5
%
Educational platform
5.4
4.4
22.7
%
5.1
5.9
%
Others¹
13.7
16.8
-18.5
%
17.1
19.9
%
Goodwill
2,609.6
1,950.9
33.8
%
2,564,9
1.7
%
Operational
340.1
288.1
18.0
%
329.6
3.2
%
Educational platform²
166.9
200.1
-16.6
%
179.4
-7.0
%
Softwares
143.5
77.1
86.1
%
124.2
15.5
%
Copyrights
27.3
10.8
152.8
%
26.0
5.0
%
Customer relationships
-
0.1
-100.0
%
-
n/a
Others¹
2.4
-
n/a
-
n/a
TOTAL
3,863.5
3,253.9
19.3
%
3,852.0
0.3
%
1) Non-compete agreements and rights on
contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
2Q23
2Q22
YoY
1Q23
QoQ
Business Combination
(110.0
)
(73.5
)
49.7
%
(80.5
)
36.7
%
Trademarks
(16.8
)
(8.0
)
110.0
%
(7.9
)
112.7.%
Customer relationships
(19.3
)
(9.4
)
105.3
%
(10.8
)
78.7
%
Educational system
(17.6
)
(9.4
)
87.2
%
(8.8
)
100.0
%
Softwares
(2.6
)
(0.7
)
271.4
%
(1.2
)
116.0
%
Educational platform
(0.5
)
(0.2
)
150.0
%
(0.2
)
150.0
%
Others¹
(3.1
)
(1.5
)
106.7
%
(1.5
)
106.7
%
Goodwill
(50.1
)
(44.3
)
-100.0
%
(50.1
)
-0.1
%
Operational
(73.1
)
(29.1
)
151..2%
(35.7
)
104.7
%
Educational platform²
(50.1
)
(21.7
)
131.0
%
(27.4
)
82.9
%
Softwares
(17.8
)
(5.4
)
229.7
%
(6.2
)
187.1
%
Copyrights
(4.3
)
(1.8
)
140.9
%
(2.1
)
106.5
%
Customer relationships
-
(0.2
)
-85.5
%
-
n/a
Others¹
0.8
-
n/a
-
n/a
TOTAL
(183.1
)
(102.5
)
78.7
%
(116.2
)
57.6
%
1) Non-compete agreements and rights on
contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
Impacts P&L
Originates tax benefit
Amortization with tax benefit
in 2Q23²
Amortization
Tax benefit
Impact on net income
Business Combination
(103.6
)
19.9
(83.7
)
Trademarks
Yes
Yes²
(8.9
)
0.8
(8.1
)
Customer relationships
Yes
Yes²
(9.4
)
1.0
(8.4
)
Educational system
Yes
Yes²
(8.9
)
0.9
(7.9
)
Educational platform
Yes
Yes²
(25.1
)
-
(25.1
)
Others¹
Yes
Yes²
(1.2
)
0.1
(1.1
)
Goodwill
No
Yes²
(50.1
)
17.1
(33.1
)
Operational
Yes
Yes
(73.1
)
24.8
(48.2
)
TOTAL
(176.7
)
44.7
(131.9
)
1) Non-compete agreements and rights on
contracts. 2) Amortizations are tax deductible only after the
incorporation of the acquired business.
Amortization of intangible assets
from
business combination that generate tax
benefit
– breakdown by type (R$M)
Businesses with current tax
benefit
Undefined²
2023
2024
2025
2026+
Trademarks
27
27
27
318
65
Customer relationships
25
25
25
59
111
Educational system
27
27
27
106
32
Software license
-
-
-
-
10
Rights on contracts
1
1
1
2
1
Others
2
2
1
1
8
Goodwill
237
231
227
761
343
Total
319
313
308
1.247
571
Maximum tax benefit
108
106
105
424
194
Amortization of intangible assets
from
business combination that generate tax
benefit
– breakdown by solutions (R$M)
Businesses with current tax
benefit
Undefined²
2023
2024
2025
2026+
Geekie
42
42
42
279
-
NAVE
9
9
9
11
-
P2D
89
89
89
364
-
Positivo, Conquista, PES English
170
170
168
593
-
Other Companies
9
3
-
-
-
Acquired companies not yet
incorporated
N/A
N/A
N/A
N/A
571
Total
319
313
308
1.247
571
Maximum tax benefit
108
106
105
424
194
- Arco’s cash and cash equivalents plus financial investments
position as of June 30th, 2023 was R$549.9 million, while
financial debt¹ and accounts payable to selling
shareholders were R$2,451.9 million, resulting in a net debt of
R$1,902.0 million. 1) Excludes Convertible notes: considers the
conversion into equity of the convertible senior notes with no
future disbursement of principal (US$150 M) issued on Nov 30, 2021.
These notes mature in 7 years, on Nov 15, 2028, and bear interest
at 8% per year fixed in Brazilian reais (R$66 M per year). 2) Cash
position refers to cash and cash equivalents plus financial
investments (short and long term) plus the New Debentures and FIDIC
(issued in 3Q23). 3) Amount subject to an arbitration process.
Please reference the Financial Statements as of June 30th, 2023,
for additional details..
- In July, Arco concluded the issuance of 550,000
non-convertible debentures, each at a par value of R$1,000 (the
“Debentures”), totaling R$550 million (approximately US$115
million), for public distribution in Brazil with restricted
placement efforts to institutional investors (the “Offering”). The
Offering is part of Arco’s balance sheet management strategy to
strengthen its cash position, and to extend its debt maturity
profile. The Debentures mature on July 12, 2028, with the principal
to be amortized in three equal instalments payable on July 12,
2026, July 12, 2027, and July 12, 2028. The Debentures bear
interest at 100% of the CDI interest rate (the average of interbank
overnight rates in Brazil, based on 252 business days) plus 2.60%
per annum, payable semi-annually on January 12 and July 12, and are
guaranteed by Arco Educação S.A.
- In August, isaac announced the first K-12 dedicated FIDC
(Receivables-backed investment fund). The raised amount totaled
R$112 million with amortization in 2025. This allows isaac to raise
capital from third parties to fund its revenue guarantee product
working capital. The fundraising was oversubscribed, despite the
lack of track-record, which we expect to reduce cost of capital
significantly as the operation matures.
- In August 10, Arco announced that entered into agreement to
go private. Please refer to press-release from August 10 and 6K
filled on August 11 for more details (available at
https://investor.arcoplatform.com/).
Conference Call Information
Arco will discuss its first quarter 2023 results today, August
31, 2023, via a conference call at 5 p.m. Eastern Time (6 p.m.
Brasilia Time). To access the call, please dial: +1 (412) 717-9627,
+1 (844) 204-8942 or +55 (11) 4090-1621. For enhanced audio
connection investors may connect through Web Phone (access code:
7636515).
An audio replay of the call will be available through September
6th, 2023, by dialing +55 (11) 4118-5151 and entering access code
219191#. A live and archived Webcast of the call will be available
on the Investor Relations section of the Company’s website at
https://investor.arcoplatform.com/.
About Arco Platform Limited (Nasdaq: ARCE)
Arco has empowered millions of students to rewrite their futures
through education. Our data-driven learning methodology,
proprietary adaptable curriculum, interactive hybrid content, and
high-quality pedagogical services allow students to personalize
their learning experience while enabling schools to thrive.
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, including with respect to the COVID-19 pandemic.
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. All statements
other than statements of historical fact could be deemed forward
looking, including risks and uncertainties related to statements
about our competition; our ability to attract, upsell and retain
customers; our ability to increase the price of our solutions; our
ability to expand our sales and marketing capabilities; general
market, political, economic, and business conditions in Brazil or
abroad; and our financial targets which include revenue, share
count and other IFRS measures, as well as non-GAAP financial
measures including Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin,
Taxable Income Reconciliation and Managerial 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 press release 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 - Pedagogical
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.
Key Business Metrics – Financial & Management
(“revenue guarantee” solution)
Contracted schools are the primary operating metric and
represent the total number of schools with active contracts with
isaac. Schools sign contracts for 1 year (or longer) with isaac to
guarantee tuition from all of the enrolled students. After signing
and onboarding a partner school, services can be initiated at any
month of the year.
Total payment value (TPV) indicates the full amount to be
transacted by isaac to contracted schools. It is calculated by the
total tuition fee owed by parents to their schools.
Take rate is the primary revenue driver and is a percentage of
TPV agreed upon contract signing. It is priced upon school sign-up
based on school historical delinquency rate, risk profile and
operating costs. It may be renegotiated or adjusted based on the
contract’s performance.
Annual recurring revenue (ARR) is the contracted annualized
revenue for a given month. Annual contracts and recurring nature
make ARR a good proxy for growth, given isaac’s high growth
profile, mitigating seasonal and onboarding effects.
Non-GAAP Financial Measures
To supplement the Company's condensed 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, Adjusted Net
Income Margin, Managerial Free Cash Flow and Reconciliation of
Taxable Income and which are non-GAAP financial measures.
We calculate Adjusted EBITDA as profit (loss) for the year (or
period) plus/minus income taxes, plus/minus finance result, plus
depreciation and amortization, plus/minus share of (profit) loss of
equity-accounted investees, plus share-based compensation plan and
restricted stock units, plus provision for payroll taxes
(restricted stock units), plus/minus M&A expenses (expenses
related to acquisitions, and legal services mainly due to
International School arbitration), minus other changes to equity
accounted on investees (which refers to gains related to capital
contribution from others on investees leading to an increase in
equity of the investee) and plus non-recurring expenses (expenses
related to our organizational restructuring in such as consulting
services expenses and workforce reduction expenses). We calculate
Adjusted EBITDA Margin as Adjusted EBITDA divided by Net
Revenue.
We calculate Adjusted Net Income (Loss) as profit (loss) for the
year (or period), plus share-based compensation plan, restricted
stock units and related payroll taxes (restricted stock units),
plus M&A expenses (expenses related to acquisitions, and legal
services mainly due to International School arbitration), minus
other changes to equity accounted on investees (which refers to
gains related to capital contribution from others on investees
leading to an increase in equity of the investee), plus
non-recurring expenses (expenses related to our organizational
restructuring in such as consulting services expenses and workforce
reduction expenses), plus amortization of intangible assets from
business combinations (which refers to the amortization of the
following intangible assets from business combinations: (i)
trademarks, (ii) customer relationships, (iii) educational system,
(iv) software resulting from acquisitions, (v) educational
platform, (vi) non-compete agreement and (vii) rights on
contracts), plus/minus changes in accounts payable to selling
shareholders (which refers to changes in fair value of contingent
consideration and accounts payable to selling shareholders—finance
costs), plus interest expenses, net (which refers to interest
expenses related to accounts payable to selling shareholders from
business combinations adjusted by fair value), plus/minus non-cash
adjustments related to derivatives and convertible notes (which
Refers to changes in fair value of derivative instruments from put
option to convert senior notes) and plus/minus changes in current
and deferred tax recognized in statements of income applied to all
adjustments to net income (loss), which refers to tax effects of
changes in deferred tax assets and liabilities recognized in profit
or loss corresponding to financial instruments from acquisition of
interests, tax benefit from tax deductible goodwill, share-based
compensation and amortization of intangible assets).
We calculate Managerial Free Cash Flow as Net Cash Flows from
Operating activities, less acquisition of property and equipment,
less acquisition of intangible assets, adjusted by M&A-related
payments that may be classified as CAPEX or as payment of
contingent consideration. We consider Free Cash Flow to be a
liquidity measure that provides useful information to management
and investors about the amount of cash generated by operating
activities and cash used for investments in property and equipment
required to maintain and grow our business.
We calculate Taxable Income Reconciliation as profit (loss) for
the year (or period) adjusted for permanent and temporary additions
and exclusions (for example, adjustments to provisions and
amortizations in the period) and for all tax benefits that Arco is
entitled to (for example, goodwill). The effective tax rate will be
the current taxes for the period divided by the taxable income. In
Brazil, taxes are charged based on the taxable income, not the
accounting income, which means companies can have an accounting
loss and a taxable profit. Additionally, Arco owns several
companies and taxes are calculated individually.
We understand that, although Adjusted EBITDA, Adjusted EBITDA
Margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss)
Margin and Managerial Free Cash Flow and Taxable Income
Reconciliation 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 (Loss),
Adjusted Net Income (Loss) Margin, Managerial Free Cash Flow and
Taxable Income Reconciliation 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.
Arco Platform Limited
Interim condensed consolidated
statements of financial position
June 30,
December 31,
(In thousands of Brazilian
reais)
2023
2022
Assets
(unaudited)
Current assets
Cash and cash equivalents
400,326
216,360
Financial investments
117,131
391,785
Trade receivables
831,428
856,887
Inventories
283,723
254,060
Recoverable taxes
71,173
67,166
Related parties
-
3,956
Other assets
136,376
82,515
Total current assets
1,840,157
1,872,729
Non-current assets
Financial investments
32,441
30,861
Recoverable taxes
9,189
11,108
Deferred income tax
484,919
337,267
Other assets
75,315
78,038
Investments and interests in other
entities
22,820
111,631
Property and equipment
53,362
59,031
Right-of-use assets
60,152
68,696
Intangible assets
3,863,557
3,184,047
Total non-current assets
4,601,755
3,880,679
Total assets
6,441,912
5,753,408
Liabilities
Current liabilities
Trade payables
236,346
182,748
Labor and social obligations
138,718
89,044
Lease liabilities
33,584
34,329
Loans and financing
99,809
102,873
Derivative financial instruments
6,946
3,693
Taxes and contributions payable
10,393
9,488
Income taxes payable
11,946
28,576
Advances from customers
111,768
16,079
Accounts payable to selling
shareholders
808,331
1,060,746
Other liabilities
6,989
6,013
Total current liabilities
1,464,830
1,533,589
Non-current liabilities
Labor and social obligations
4,652
1,451
Lease liabilities
35,836
42,576
Loans and financing
1,788,802
1,833,956
Derivative financial instruments
63,590
110,154
Provision for legal proceedings
2,369
3,174
Accounts payable to selling
shareholders
349,696
330,457
Other liabilities
217
621
Total non-current liabilities
2,245,162
2,322,389
Equity
Share capital
14
11
Capital reserve
2,763,402
2,009,799
Treasury shares
-
(8,205
)
Share-based compensation reserve
151,101
95,008
Accumulated losses
(182,597
)
(199,183
)
Total equity
2,731,920
1,897,430
Total liabilities and equity
6,441,912
5,753,408
Arco Platform Limited
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)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Revenue
470,962
412,137
1,005,868
842,174
Cost of sales
(178,973
)
(133,054
)
(394,707
)
(249,632
)
Gross profit
291,989
279,083
611,161
592,542
Operating expenses:
Selling expenses
(206,332
)
(174,439
)
(397,503
)
(338,792
)
General and administrative expenses
(129,029
)
(80,037
)
(292,711
)
(166,137
)
Other (expense) income, net
3,766
1,676
159,953
19,070
Operating (loss) profit
(39,606
)
26,283
80,900
106,683
Finance income
78,221
214,382
181,152
373,615
Finance costs
(147,622
)
(238,485
)
(309,524
)
(363,586
)
Finance result
(69,401
)
(24,103
)
(128,372
)
10,029
Share of loss of equity-accounted
investees
(591
)
(14,294
)
(1,443
)
(19,936
)
(Loss) profit before income
taxes
(109,598
)
(12,114
)
(48,915
)
96,776
Income taxes - income (expense)
Current
416
8,038
(14,669
)
(13,809
)
Deferred
35,146
(9,265
)
80,170
6,351
Total income taxes – income
(expense)
35,562
(1,227
)
65,501
(7,458
)
Net (loss) profit for the
period
(74,036
)
(13,341
)
16,586
89,318
Basic (loss) earnings per share – in
Brazilian reais
Class A
(1.12
)
(0.24
)
0.25
1.59
Class B
(1.12
)
(0.24
)
0.25
1.59
Diluted (loss) earnings per share – in
Brazilian reais
Class A
(1.19
)
(0.24
)
(0.91
)
(1.45
)
Class B
(1.12
)
(0.24
)
0.25
1.59
Weighted-average shares used to compute
net (loss) profit per share:
Basic
66,242
55,917
66,012
56,008
Diluted
71,888
61,089
71,678
61,680
Arco Platform Limited
Interim condensed consolidated
statements of cash flows
Three-month
period ended
June 30,
Six-month
period ended
June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Operating activities
(Loss) profit before income taxes
(109,598
)
(12,114
)
(48,915
)
96,776
Adjustments to reconcile (loss) profit
before income taxes to cash from operations
Depreciation and amortization
80,779
74,302
173,955
140,083
Inventory allowances
14,521
10,940
23,885
13,339
Provision (reversal) for expected credit
losses
36,351
(372
)
66,428
(6,603
)
Loss (profit) on sale/disposal of property
and equipment and intangible
502
(114
)
1,044
(192
)
Fair value change in derivative financial
instruments
2,920
(84,320
)
(40,874
)
(95,973
)
Fair value adjustment in accounts payable
to selling shareholders
8,695
(33,348
)
26,296
(26,320
)
Share of loss of equity-accounted
investees
591
14,294
1,443
19,936
Share-based compensation plan
20,306
2,851
41,130
9,046
Accrued interest on loans and
financing
67,262
56,774
137,124
105,544
Interest accretion on accounts payable to
selling shareholders
39,700
45,744
82,522
89,674
Interest from financial investments
(2,076
)
(17,793
)
(3,406
)
(38,353
)
Interest on lease liabilities
2,309
1,126
5,233
2,287
(Reversal) provision for legal
proceedings
22
11
(821
)
106
Provision for payroll taxes (restricted
stock units)
5,560
177
2,427
(3,083
)
Foreign exchange effects, net
(32,310
)
61,644
(48,501
)
(43,662
)
Fair value of previously held interest in
associate
(13,863
)
-
(170,277
)
-
Gain on changes of interest of
investment
-
(1,345
)
-
(17,758
)
Loss on sale of investment
7,439
-
7,439
-
Other financial expense (income), net
(536
)
(2,205
)
(1,760
)
(3,128
)
128,574
116,252
254,372
241,719
Changes in assets and liabilities
Trade receivables
148,292
202,582
60,511
(4,344
)
Inventories
(75,779
)
(29,786
)
(60,460
)
(27,671
)
Recoverable taxes
1,812
5,266
8,153
8,448
Other assets
(10,508
)
(27,067
)
(39,756
)
(35,077
)
Trade payables
18,296
22,182
42,909
51,637
Labor and social obligations
1,683
11,630
25,265
25,745
Taxes and contributions payable
(8,938
)
228
(1,584
)
(978
)
Advances from customers
(128,437
)
(109,529
)
78,783
25,641
Other liabilities
14,720
(196
)
(2,654
)
9,228
Cash from operations
89,715
191,562
365,539
294,348
Income taxes paid
(2,222
)
(4,792
)
(33,387
)
(47,474
)
Interest paid on lease liabilities
(1,859
)
(1,039
)
(4,223
)
(2,346
)
Interest paid on accounts payable to
selling shareholders
(73,341
)
(36,536
)
(73,568
)
(36,914
)
Interest paid on loans and financing
(16,646
)
(16,412
)
(127,239
)
(31,992
)
Payments for contingent consideration
(19,620
)
(70,541
)
(37,221
)
(70,541
)
Payment for stock options
-
(75,578
)
-
(75,578
)
Net cash flows (used in) from operating
activities
(23,973
)
(13,336
)
89,901
29,503
Investing activities
Acquisition of property and equipment
(3,174
)
(1,726
)
(4,818
)
(8,398
)
Payment of investments and interests in
other entities
-
-
(20
)
(18
)
Cash attributed from acquisition of
subsidiaries
-
-
164,252
-
Sale of interest in subsidiary, net of
cash sold
452
-
452
-
Acquisition of intangible assets
(39,200
)
(50,241
)
(74,596
)
(96,053
)
Purchase of financial investments
(74,674
)
(362,091
)
(184,466
)
(529,891
)
Redemption of financial investments
69,334
729,613
451,639
1,152,356
Interest received from financial
investments
1,641
14,666
9,307
18,428
Loans to related parties
-
(4,812
)
-
(4,812
)
Net cash flows (used in) from investing
activities
(45,621
)
325,409
361,750
531,612
Financing activities
Purchase of treasury shares
-
(16,893
)
-
(51,616
)
Payment of lease liabilities
(8,896
)
(5,712
)
(18,900
)
(12,005
)
Payment of accounts payable to selling
shareholders
(209,316
)
(119,293
)
(236,474
)
(121,270
)
Loans and financing payments
(5,899
)
(5,469
)
(11,854
)
(211,329
)
Net cash flows used in financing
activities
(224,111
)
(147,367
)
(267,228
)
(396,220
)
Foreign exchange effects on cash and cash
equivalents
123
1,743
(457
)
(285
)
(Decrease) increase in cash and cash
equivalents
(293,582
)
166,449
183,966
164,610
Cash and cash equivalents
At the beginning of the period
693,908
209,304
216,360
211,143
At the end of the period
400,326
375,753
400,326
375,753
(Decrease) increase in cash and cash
equivalents
(293,582
)
166,449
183,966
164,610
Arco Platform Limited
Reconciliation of Non-GAAP
Measures
Reconciliation of Adjusted
EBITDA
Three-month period
ended June 30,
Six-month period
ended June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Net (loss) profit for the period
(74,036
)
(13,341
)
16,586
89,318
(+/-) Income taxes
(35,562
)
1,227
(65,501
)
7,458
(+/-) Finance result
69,401
24,103
128,372
(10,029
)
(+) Depreciation and amortization
80,779
74,302
173,955
140,083
(+) Share of loss of equity-accounted
investees
591
14,294
1,443
19,936
EBITDA
41,173
100,585
254,855
246,766
(+) Share-based compensation plan
22,944
3,726
59,924
19,149
(+) Share-based compensation plan and
restricted stock units
20,306
1,810
41,130
9,830
(+) Provision for payroll taxes
(restricted stock units)
2,638
1,916
18,794
9,319
(+) M&A expenses
14,307
7,714
17,396
9,186
(-) Other changes to equity accounted
investees
(13,863
)
(1,345
)
(170,277
)
(17,758
)
(+) Non-recurring expenses
18,907
-
32,255
-
Adjusted EBITDA
83,468
110,680
194,153
257,343
Revenue
470,962
412,137
1,005,868
842,174
EBITDA Margin
8.7
%
24.4
%
25.3
%
29.3
%
Adjusted EBITDA Margin
17.7
%
26.9
%
19.3
%
30.6
%
Reconciliation of Adjusted Net
Income (Loss)
Three-month period
ended June 30,
Six-month period
ended June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Net profit (loss) for the period
(74,036
)
(13,341
)
16,586
89,318
(+) Share-based compensation plan
22,944
3,726
59,924
19,149
(+) Share-based compensation plan and
restricted stock units
20,306
1,810
41,130
9,830
(+) Provision for payroll taxes
(restricted stock units)
2,638
1,916
18,794
9,319
(+) M&A expenses
14,307
7,714
17,396
9,186
(-) Other changes to equity accounted
investees
(13,863
)
(1,345
)
(170,277
)
(17,758
)
(+) Non-recurring expenses
18,907
-
32,255
-
(+/-) Adjustments related to business
combination
43,187
8,134
100,182
58,037
(+) Amortization of intangible assets from
business combinations
29,554
29,142
59,917
57,599
(+/-) Changes in accounts payable to
selling shareholders
8,695
(33,348
)
26,296
(26,320
)
(+) Interest expenses, net (adjusted by
fair value)
4,938
12,340
13,969
26,758
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes
(24,244
)
(19,571
)
(79,227
)
(125,220
)
(+/-) Tax effects
90,933
(8,500
)
59,271
(24,640
)
Adjusted Net Income (Loss)
78,135
(23,183
)
36,110
8,072
Net Revenue
470,962
412,137
1,005,868
842,174
Adjusted Net Income Margin
16.6
%
-5.6
%
3.6
%
1.0
%
Weighted average shares
66,242
55,917
66,012
56,008
Adjusted EPS
1.18
(0.41
)
0.55
0.14
Reconciliation of Free Cash
Flow
Three-month period
ended June 30,
Six-month period
ended June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Loss) profit before income
taxes
(109,598)
(12,114)
(48,915)
96,776
(+/-) Non-cash adjustments to reconcile
Adj, EBITDA to cash from operations
238,172
128,366
303,287
144,943
(+/-) Working capital (Changes in assets
and liabilities)
(38,859)
75,310
111,167
52,629
Cash from operations
89,715
191,562
365,539
294,348
(-) Income tax paid
(2,222)
(4,792)
(33,387)
(47,474)
(-) CAPEX
(42,374)
(51,967)
(79,414)
(104,451)
Free cash flow to firm
45,119
134,803
252,738
142,423
(-) Interest paid on loans and financings
& lease liabilities
(18,505)
(17,451)
(131,462)
(34,338)
(-) Interest paid on accounts payable to
selling shareholders
(73,341)
(36,536)
(73,568)
(36,914)
(-) Payments for contingent
consideration2
(19,620)
(70,541)
(37,221)
(70,541)
(-) Payments of stock options3
-
(75,578)
-
(75,578)
Free cash flow
(66,347)
(65,303)
10,487
(74,948)
(-) M&A classified as payments for
contingent consideration2
19,620
70,541
37,221
70,541
(-) M&A classified as payments of
stock options3
-
75,578
-
75,578
(-) M&A classified as intangible
assets acquisition (CAPEX1)
-
8,701
-
14,208
Free cash flow (managerial)
(46,727)
89,517
47,708
85,379
1)
For 2022, is related to M&A payments
(PGS’ and Mentes’ acquisition, being R$5.5 million in 1Q22 and
R$8.7 million in 2Q22), from the accounting CAPEX of R$42.4 million
in 1Q22 and R$37.0 million in 2Q22
2)
Related to M&A payment (difference
between amount in the PPA and the final transaction amount
calculated by the earn-out multiple related to the acquisition of
subsidiaries).
3)
Related to M&A payment (Geekie employees’ SOP).
Three-month period
ended June 30,
Six-month period
ended June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Free cash flow to firm
45,119
134,803
252,738
142,423
(+) M&A classified as CAPEX¹
-
8,701
-
14,208
Free cash flow to firm
(managerial)
45,119
143,504
252,738
156,631
1)
For 2022, is related to M&A
payments (PGS’ and Mentes’ acquisition, being R$5.5 million in 1Q22
and R$8.7 million in 2Q22), from the accounting CAPEX of R$42.4
million in 1Q22 and R$37.0 million in 2Q22.
Reconciliation of Taxable
Income
Three-month period ended June
30,
Six-month period
ended June 30,
(In thousands of Brazilian
reais)
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(Loss) profit before income
taxes
(109,598
)
(12,114
)
(48,915
)
96,776
(+) Share-based compensation plan, RSU and
provision for payroll taxes¹
18,778
(16,582
)
43,907
(18,814
)
(+) Amortization of intangible assets from
business combinations before incorporation¹
4,087
6,094
8,268
13,846
(+/-) Changes in accounts payable to
selling shareholders¹
(49,413
)
(6,269
)
(58,639
)
23,604
(+/-) Share of loss of equity‑accounted
investees
591
14,294
1,443
19,936
(+) Net income from Arco Platform
(Cayman)
(14,102
)
5,007
(191,544
)
(104,508
)
(+) Fiscal loss without deferred
12,257
6,695
14,187
11,846
(+/-) Provisions booked in the period
33,923
12,834
137,279
44,119
(+) Tax loss carryforward
195,478
7,344
265,365
37,023
(+) Others
2,840
5,092
3,368
10,172
Taxable income
94,841
22,395
174,719
134,000
Current income tax under actual profit
method
(32,245
)
(7,614
)
(59,404
)
(45,560
)
% Tax rate under actual profit method
34.0
%
34.0
%
34.0
%
34.0
%
Effective current income tax
(32,245
)
(7,614
)
(59,404
)
(45,560
)
% Effective tax rate
34.0
%
34.0
%
34.0
%
34.0
%
(+) Recognition of tax-deductible
amortization of goodwill and added value²
20,694
15,546
41,387
26,868
(+/-) Other additions (exclusions)
11,967
106
3,348
4,883
Effective current income tax accounted
for goodwill benefit
416
8,038
(14,669
)
(13,809
)
% Effective tax rate accounting for
goodwill benefit
-0.4
%
-35.9
%
8.4
%
10.3
%
1)
Temporary differences between the carrying
amount of an asset or liability in the balance sheet and its tax
base that will yield amounts that can be deducted in the future
when determining taxable profit or loss.
2)
Added value refers to the fair value of
intangible assets from business combinations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230831904764/en/
Investor Relations Contact Arco Platform Limited
IR@arcoeducacao.com.br https://investor.arcoplatform.com/
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