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Arco Platform Limited Reports First Quarter 2019 Financial Results

On-track to Deliver 2019 ACV Bookings of R$441 Million

SÃO PAULO, Brazil, May 21, 2019 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the first quarter 2019 ended March 31, 2019.

“We are on-track to deliver 2019 ACV bookings of R$441 million and in a strong position to build the 2020 ACV,” said Ari de Sá Neto, CEO and founder of Arco. “We remain focused on enhancing the value proposition of our platform and expanding our network of schools.  Consistent with our M&A strategy, we recently announced our acquisition of Sistema Positivo de Ensino, which will double our reach to partner schools and students, add complementary regions, and strengthen our capacity to invest in high-quality content and technology. Our acquisition of Positivo is also in line with our long-term vision to become a one stop shop platform, continuously expanding our product offering and positively impacting students’ learning experiences.”

First Quarter 2019 Results

  • Net Revenue of R$117.1 million;
  • Net Income of R$30.8 million;
  • Adjusted Net Income of R$40.8 million; and
  • Adjusted EBITDA of R$49.0 million.

Revenue Recognition and Seasonality

As we report first 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.

Second Quarter 2019 Guidance:

We expect to recognize in the second quarter (2Q19) 24% to 26% of the 2019 ACV Bookings of R$440.9 million.
Net Revenue is expected to be in the range of R$105.8 million to R$114.6 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 (Nasdaq: 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 on the basis of 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” by purposes of calculation 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.

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, share-based compensation and amortization of intangible assets) and plus/minus foreign exchange gains/loss on cash and cash equivalents.

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 first quarter 2019 results today, May 21, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 5872488), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through May 28, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 5872488. 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  
   
  March 31, December 31,  
(In thousands of Brazilian reais) 2019   2018  
Assets (unaudited)      
Current assets        
Cash and cash equivalents  4,357      12,301    
Financial investments  832,956      806,789    
Trade receivables  151,159      136,611    
Inventories  13,768      15,131    
Taxes recoverable  16,770      11,227    
Other assets  4,665     6,091    
Total current assets 1,023,675     988,150    
Non-current assets        
Financial instruments from acquisition of interests  21,261      26,630    
Deferred income tax  112,647      99,460    
Taxes recoverable  1,033      1,033    
Financial investments  4,421      4,370    
Loans to related parties 15,378     1,226    
Other assets  4,812     1,060    
Investments and interests in other entities  11,370      11,862    
Property and equipment  13,738      13,347    
Right-of-use assets 18,403     -    
Intangible assets  178,339      187,740    
Total non-current assets  381,402     346,728    
         
Total assets 1,405,077     1,334,878    
     
Liabilities        
Current liabilities        
Trade payables  13,970      14,845    
Labor and social obligations  20,513      15,888    
Advances from customers  26,332      5,997    
Lease liabilities  4,232     -    
Taxes and contributions payable 1,922     2,555    
Income taxes payable 18,134     17,294    
Financial instruments from acquisition of interests  -      51    
Accounts payable to selling shareholders 841     830    
Other liabilities  127      428    
Total current liabilities  86,071     57,888    
Non-current liabilities        
Financial instruments from acquisition of interests  21,594      25,046    
Lease liabilities  17,410     -    
Provision for legal proceedings 210     131    
Deferred income tax  1,167      1,378    
Accounts payable to selling shareholders  187,201     180,551    
Total non-current liabilities  227,582     207,106    
         
Equity        
Share capital  10      10    
Capital reserve  1,081,261      1,089,505    
Share-based compensation reserve  67,487      67,350    
Accumulated losses  (57,334 )    (86,687 )  
Equity attributable to equity holders of the parent  1,091,424      1,070,178    
Non-controlling interests -      (294 )  
Total equity 1,091,424      1,069,884    
         
Total liabilities and equity   1,405,077     1,334,878    

/EIN News/ --

Arco Platform Limited  
Unaudited Interim Condensed Consolidated Statements of income  
   
  March 31, March 31,  
(In thousands of Brazilian reais, except earnings per share) 2019   2018  
  (unaudited)   (unaudited)  
Net revenue    117,055       113,634    
Cost of sales   (21,869 )     (25,840 )  
Gross profit   95,186       87,794    
Operating expenses:        
Selling expenses   (36,135 )     (24,312 )  
General and administrative expenses   (20,832 )     (13,695 )  
Other income, net   3,359       3,648    
Operating profit   41,578       53,435    
Finance income   16,956       3,709    
Finance costs   (16,481 )     (3,925 )  
Finance result   475       (216 )  
Share of loss of equity-accounted investees   (492 )     (65 )  
         
Profit before income taxes   41,561       53,154    
Income taxes - income (expense)        
Current   (18,252 )     (14,808 )  
Deferred   7,532       2,045    
Total income taxes – income (expense)   (10,720 )     (12,763 )  
Profit for the period 30,841       40,391    
Equity holders of the parent   30,841       40,539    
Non-controlling interests   -        (148 )  
         
Basic earnings per share – in Brazilian reais    
Class A 0.61     0.81    
Class B 0.61     0.81    
Diluted earnings per share – in Brazilian reais        
Class A 0.59     0.77    
Class B 0.59     0.78    
         
Weighted-average shares used to compute net income per share:        
Basic 50,298     50,298    
Diluted 51,157     51,242    

                                                                                          


Arco Platform Limited  
Unaudited Interim Condensed Consolidated Statements of Cash Flows  
   
  March 31, March 31,  
(In thousands of Brazilian reais) 2019   2018  
  (unaudited)   (unaudited)  
Operating activities        
Profit before income taxes for the period 41,561     53,154    
Adjustments to reconcile profit before income taxes        
Depreciation and amortization 7,240     4,374    
Inventory reserves 2,228     2,096    
Allowance for doubtful accounts 1,653     3,534    
Residual value of property and equipment and intangible assets disposed 102     138    
Changes in fair value of derivative instruments 1,866     (1,607 )  
Share of loss of equity-accounted investees 492     65    
Share-based compensation plan 137     343    
Accrued interest 5,942       2,080    
Interest in lease liabilities 395     -    
Provision for legal proceedings 79     -    
Foreign exchange income (76 )   -    
Alienation of investment (3,288 )   -    
  58,331     64,177    
         
Changes in assets and liabilities        
Trade receivables (16,201 )    (15,862 )  
Inventories 36       2,279    
Taxes recoverable (4,972 )    (883 )  
Other assets  1,952      (294 )  
Trade payables 686       (592 )  
Labor and social obligations 4,774       300    
Taxes and contributions payable  (572 )     284    
Advances from customers 20,828      3,007    
Other liabilities  (301 )    (1,848 )  
Cash generated from operations 64,561     50,568    
Income taxes paid (18,035 )   (16,340 )  
Net cash flows from operating activities 46,526     34,228    
         
Investing activities        
Acquisition of property and equipment (2,793 )   (930 )  
Acquisition of subsidiaries, net of cash acquired -     (8,045 )  
Acquisition of intangible assets (11,492 )   (1,855 )  
Financial investments (26,291 )   (20,286 )  
Loans to related parties (14,000 )   -    
Net cash flows used in investing activities (54,576 )   (31,116 )  
         
Financing activities        
Capital increase 1,218     -    
Share issuance costs (673 )   -    
Payment of lease liabilities (515 )   -    
Net cash flows from financing activities 30     -    
         
Foreign exchange effects on cash and cash equivalents 76     -    
         
Increase (decrease) in cash and cash equivalents (7,944 )   3,112    
         
Cash and cash equivalents at the beginning of the period 12,301     834    
Cash and cash equivalents at the end of the period 4,357     3,946    
Increase (decrease) in cash and cash equivalents (7,944 )   3,112    





Arco Platform Limited
Reconciliation of Non-GAAP Measures
(unaudited)
 
    Three months ended
    March 31,
(In thousands of Brazilian reais)   2019     2018    
Adjusted EBITDA Reconciliation   (unaudited)   (unaudited)  
Profit for the period   30,841     40,391    
(+) Income taxes   10,720     12,763    
(+/-) Finance result   (475 )   216    
(+) Depreciation and amortization   7,240     4,374    
(+) Share of loss of equity-accounted investees   492     65    
EBITDA   48,818     57,809    
(+) Share-based compensation plan   137     343    
Adjusted EBITDA   48,955     58,152    
           
Net Revenue   117,055     113,634    
Adjusted EBITDA Margin   41.8 %   51.2 %  


    Three months ended
    March 31,
(In thousands of Brazilian reais)   2019     2018    
Adjusted Net Income Reconciliation   (unaudited)   (unaudited)  
Profit for the period   30,841     40,391    
(+) Share-based compensation plan   137     343    
(+) Amortization of intangible assets from business combinations 2,980     3,033    
(+/-) Changes in fair value of derivative instruments 1,866       (1,607 )  
(+) Share of loss of equity-accounted investees   492     65    
(-) Tax effects   (2,992 )    122    
(+) Foreign exchange on cash and cash equivalents   (76 )    -    
(+) Interest expenses   7,524       2,498    
Adjusted net income   40,772       44,845    
           
Net Revenue   117,055     113,634    
Adjusted Net Income Margin   34.8 %   39.5 %  


    Three months ended
    March 31,
(In thousands of Brazilian reais)   2019     2018      
Free Cash Flow Reconciliation   (unaudited)   (unaudited)    
Cash Generated from Operations   64,561     50,568      
(-) Income Tax Paid   (18,035 )   (16,340 )    
Cash Flow from Operating Activities   46,526     34,228      
(-) Acquisition of property and equipment    (2,793 )   (930 )    
(-) Acquisition of intangible assets    (11,492 )   (1,855 )    
Free Cash Flow   32,241     31,443      

 

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