Arco concluded the 2022 cycle with organic net
revenue growth of 34% over the 2021 cycle at R$1,561 million (100%
ACV recognition) and improved profitability
Arco Platform Limited, or Arco or Company (Nasdaq: ARCE),
today reported financial and operating results for the third
quarter ended September 30th, 2022.
"We are concluding the 2022 cycle with 100%
ACV bookings recognition, leading to a 48% top line growth and an
increase in profitability. Initiatives put in place this year were
a great first step in a long path towards improving efficiency and
integration, reducing redundancy, and making Arco a more agile
company to better service our partner schools and generate greater
value to our shareholders. In this context free cash flow is a key
success metric for our management team, together with growth,
which, with a now comprehensive portfolio that includes
pedagogical, financial and software solutions, will be powered by a
more mature cross-selling strategy."
Ari de Sá Neto, CEO and founder
Net revenue
Cash Gross profit
Adj. EBITDA
2022 cycle
R$1,561M
R$1,249M
R$526M
+47.7% YoY
+49.0% YoY
+58.3% YoY
3Q22
9M22
Net revenue
Cash gross profit
Net revenue
Cash gross profit
R$253.9M
R$206.7M
R$1,096.1M
R$858.3M
Adj. EBITDA
Adj. Net income
Adj. EBITDA
Adj. Net income
R$37.2M
R$(61.9)M
R$294.5M
R$(51.8)M
Note: Please see Adjusted EBITDA
Reconciliation on page 17 and Adjusted Net Income Reconciliation on
pages 17 and 18.
Cycle Highlights
Arco concluded the 2022 cycle with net revenue of R$1,561
million (100% recognition of the 2022 ACV bookings provided
at the beginning of the year), a 47.7% increase year-over-year (or
33.8% organic top line growth YoY). Net revenue for Core solutions
totaled R$1.237 million (+46.9% YoY), while net revenue for
Supplemental solutions totaled R$325 million (+50.7% YoY).
Cash gross profit was R$1,249 million (+49.0% YoY),
leading to an 80.0% cash gross margin (versus 79.3% for the 2021
cycle).
Integration and efficiency initiatives contributed to an
adjusted EBITDA of R$526 million for the 2022 cycle,
translating into a 230-basis point expansion in adjusted EBITDA
margin to 33.7%.
3Q22 and 9M22 Highlights
Net revenue for the third quarter was R$253.9 million, a
38.6% YoY increase, with Core solutions totaling R$207.1 million
(+38.1% YoY) and Supplemental solutions totaling R$46.8 million
(+40.5% YoY). For the first nine months of 2022, net revenue
increased 42.1% YoY to R$1,096.1 million, with Core solutions
increasing 49.8% to R$920.6 million and Supplemental solutions
increasing 12.1% to R$175.5 million. Excluding recent M&A1, net
revenue increased 19.5% YoY in 3Q22 and 28.6% YoY in 9M22 YoY.
Cash gross margin (gross margin excluding depreciation
and amortization) was 81.4% in 3Q22 (vs. 79.7% in 3Q21). For the
first nine months of 2022, cash gross margin was 78.3% (vs. 78.7%
in 9M21). The positive results from our integration and efficiency
initiatives were key to partially offset non-recurring costs
resulting from late additional orders of pedagogical materials by
our partner schools in the second quarter, as rush printing costs
are on average 25% higher than regular printing costs and books
were shipped using express tariffs and through more expensive
shipping methods (air, dedicated trucks). In the first nine months
of 2022, Arco delivered R$33 million in cost savings, above the
total amount expected in cost savings for the full year.
Higher selling expenses excluding depreciation and
amortization at R$128.5 million in 3Q22 (+42.1% YoY) and R$413.8
million (+47.7% YoY) in the first nine months of 2022 reflect (i)
higher investments in commercial activities (identifying and
developing leads and cross sell opportunities, intensifying
pedagogical support to partner schools, resumption of in-person
interactions and events, among others), which are key to fostering
strong growth potential opportunities and capturing more market
share over time in both Core and Supplemental segments, and (ii)
higher inflation for the period (mainly impacting travel expenses).
Excluding recent M&A¹, selling expenses increased 35.5% in 3Q22
and 41.3% in 9M22. As a result of the diligent cash collection
process and its close relationship with partner schools, Arco was
able to improve the quality of its receivables, resulting in a
consistent decrease in allowance for doubtful accounts.
1 Recent M&As refer to businesses
acquired in 2021 (Me Salva, Eduqo, Edupass, COC, Dom Bosco) and
2022 (PGS, Mentes).
Allowance for doubtful accounts
(R$M)
3Q22
3Q21
YoY
2Q22
QoQ
9M22
9M21
YoY
Allowance for doubtful accounts
(1.9)
6.0
N/A
0.4
N/A
(8.5)
16.5
N/A
% of net revenue
- 0.8%
3.3%
-4.1 p.p.
-0.1%
0.7p.p.
-0.8%
2.1%
-2.9 p.p.
General and administrative expenses (G&A) continue to
show the trend of a more integrated back-office strategy. In 3Q22,
G&A expenses excluding depreciation and amortization were
R$70.5 million (-29.1% YoY) and represented 27.8% of net revenue
(versus 54.2% in 3Q21). Excluding recent M&A¹, G&A expenses
decreased to R$67.7 million (-31.7% YoY) in 3Q22. Share-based
compensation plan expenses increased 47.4% YoY in 3Q22 (excluding
Geekie’s SOP2 in 2021), representing 8.5% of 3Q22 revenue (vs. 8.0%
of revenue in 3Q21). For the first nine months of 2022, G&A
expenses excluding depreciation and amortization were R$209.1
million (-4.6% YoY) and represented 19.1% of net revenue (versus
28.4% in 9M21). Excluding the effects of recent M&A¹, G&A
expenses decreased 10.7% YoY in 9M22 to R$194.2 million.
Share-based compensation plan expenses increased 24.3% YoY in 9M22,
representing 3.7% of 9M22 revenue (vs. 4.3% of revenue in 9M21).
From a cost savings perspective, Arco surpassed its initial goal
for the year, delivering G&A savings of R$59 million in 9M22,
above the R$47 million goal for the full year.
Adjusted EBITDA was R$37.2 million in 3Q22 (+135.1% YoY),
with an adjusted EBITDA margin of 14.6% (versus 8.6% in
3Q21). As for the first nine months of 2022, adjusted EBITDA
increased 42.6% YoY to R$294.5 million, and adjusted EBITDA margin
was 26.9% (versus 26.8% in 9M21). We expect the 2022 full year
adjusted EBITDA margin to be around the bottom of the 36.5% and
38.5% guidance range we provided at the beginning of the year.
Adjusted net income (loss) in 3Q22 was R$(61.9) million,
with an adjusted net margin of -24.4% (versus -11.9% in 3Q21),
impacted by higher finance expenses and depreciation and
amortization. For the nine-month period ended September 30th, 2022,
adjusted net income was R$(51.8) million, with an adjusted net
margin of -4.7% (versus 7.0% in 9M21).
A solid cash collection process in the quarter led to an
important improvement in the quality of accounts receivable, with a
reduction in days of sales outstanding (DSO) to 98 days in
3Q22 from 141 days in 2Q22 and 104 days in 3Q21, and a 2.1 p.p.
reduction in delinquency levels to 4.0% in 3Q22 from 5.6% in
2Q22 and 6.1% in 3Q21.
Days of sales outstanding
Sep. 30, 2022
Sep. 30, 2021
YoY
June 30, 2022
QoQ
Trade receivables (R$M)
510.9
382.3
34%
687.6
-26%
(-) Allowance for doubtful accounts
77.4
77.1
0%
79.7
-3%
Trade receivables, net (R$M)
433.5
305.1
42%
607.8
-29%
Net revenue LTM pro-forma¹
1,614.5
1,073.2
50%
1,568.9
3%
Adjusted DSO
98
104
-6%
141
-30%
1) Calculated as net revenue for the last
twelve months added to the pro forma revenues from businesses
acquired in the period to accurately reflect the Company’s
operations.
Arco’s corporate restructuring is ongoing. In October
Arco concluded the incorporation of Geekie into CBE (Companhia
Brasileira de Educação e Sistemas de Ensino, Arco’s wholly-owned
entity which incorporates acquired businesses), leading to
estimated future annual income tax savings of approximately
R$17million. Future incorporations include Pleno (2023), Escola da
Inteligência (2023) and SAE Digital (2024). As we keep
incorporating other businesses into CBE, we expect to capture
additional tax benefits and therefore further reduce our effective
tax rate, currently at 8.7% in 9M22 (versus 17.3% in 9M21).
2 As part of Geekie’s acquisition, Arco
acquired management future stake in Geekie, resulting from the
exercise of their existing SOP. The fair value of SOP was
calculated using the same valuation method as the accounts payable
to selling shareholders for the acquisition of the remaining
interest, resulting in the final transaction price, which were
updated quarterly for Geekie’s most recent fair value, until was
settled in June/2022.
Intangible assets - net balances
(R$M)
Sep. 30, 2022
Sep. 30, 2021
YoY
June 30, 2022
QoQ
Business Combination
2,922.5
2,334.6
25%
2,949.9
-1%
Trademarks
479.6
437.3
10%
488.8
-2%
Customer relationships
246.4
261.4
-6%
255.8
-4%
Educational system
215.7
209.6
3%
224.6
-4%
Softwares
9.8
11.4
-14%
8.6
14%
Educational platform
4.7
5.7
-18%
4.4
7%
Others¹
15.4
16.4
-6%
16.8
-8%
Goodwill
1,950.9
1,392.8
40%
1,950.9
0%
Operational
279.8
206.5
35%
288.1
-3%
Educational platform²
178.1
141.7
26%
200.1
-11%
Softwares
77.1
53.0
45%
77.1
0%
Copyrights
24.6
11.8
108%
10.8
127%
Customer relationships
0.1
0.1
-35%
0.1
-35%
TOTAL
3,202.2
2,541.2
26%
3,238.0
-1%
1) Non-compete agreements and rights on contracts. 2) Includes
content development in progress.
Amortization of intangible assets
(R$M)
3Q22
3Q21
YoY
2Q22
QoQ
9M22
9M21
YoY
Business Combination
(79.2)
(55.9)
42%
(73.5)
8%
(213.0)
(165.9)
28%
Trademarks
(8)
(6.5)
20%
(8.0)
-3%
(23.5)
(19.3)
22%
Customer relationships
(9.7)
(8.6)
13%
(9.4)
3%
(28.2)
(25.6)
10%
Educational system
(8.9)
(8.1)
9%
(9.4)
-6%
(27.6)
(24.2)
14%
Softwares
(0.7)
(0.9)
-22%
(0.7)
1%
(2.1)
(2.1)
0%
Educational platform
(0.2)
(0.3)
-17%
(0.2)
24%
(0.6)
(0.7)
-7%
Others¹
(1.4)
(1.3)
4%
(1.5)
-10%
(4.3)
(3.6)
18%
Goodwill
(50.6)
(30.1)
68%
(44.3)
14%
(126.8)
(90.3)
40%
Operational
(34.2)
(22.8)
50%
(29.1)
17%
(92.8)
(61.6)
51%
Educational platform²
(26.8)
(16.3)
64%
(21.7)
24%
(70.8)
(45.3)
56%
Softwares
(5.6)
(4.5)
24%
(5.4)
4%
(16.2)
(10.1)
60%
Copyrights
(1.6)
(2.0)
-20%
(1.8)
-11%
(5.3)
(6.1)
-13%
Customer relationships
(0.2)
-
NA
(0.2)
-10%
(0.5)
(0.1)
380%
TOTAL
(113.4)
(78.7)
44%
(102.6)
11%
(305.9)
(227.5)
34%
1) Non-compete agreements and rights on
contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
Impacts P&L
Originates tax benefit
Amortization with tax benefit
in 3Q22²
Amortization
Tax benefit
Impact on net income
Business Combination
(58.8)
20.0
(38.8)
Trademarks
Yes
Yes²
(2.0)
0.7
(1.3)
Customer relationships
Yes
Yes²
(2.9)
1.0
(1.9)
Educational system
Yes
Yes²
(3.3)
1.1
(2.2)
Educational platform
Yes
Yes²
0.5
(0.2)
0.4
Others¹
Yes
Yes²
(0.5)
0.2
(0.4)
Goodwill
No
Yes²
(50.6)
17.2
(33.4)
Operational
Yes
Yes
(34.2)
11.6
(22.6)
TOTAL
(93.0)
31.6
(61.4)
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
2022¹
2023
2024
2025
2026+
Trademarks
21
27
27
27
318
66
Customer relationships
21
25
25
25
59
111
Educational system
25
27
27
27
106
32
Software license
-
-
-
-
-
11
Rights on contracts
1
1
1
1
3
1
Others
2
2
2
1
1
10
Goodwill
183
237
231
227
761
355
Total
253
319
313
308
1.247
587
Maximum tax benefit
86
108
106
105
424
199
1) Considers the maximum tax benefit for
full year 2022. In 3Q22 we have benefited from R$17.6 million
(totalizing R$44.6 million in 9M22). 2) Businesses with future tax
benefit (not yet incorporated).
Amortization of intangible assets from
business combination that generate tax benefit – breakdown by
solutions (R$M)
Businesses with current tax
benefit
Undefined²
2022¹
2023
2024
2025
2026+
Geekie
7
42
42
42
279
-
NAVE
9
9
9
9
11
-
P2D3
57
89
89
89
364
-
Positivo, Conquista, PES English
170
170
170
169
593
-
Other Companies
10
10
4
-
-
-
Acquired companies not yet
incorporated
N/A
N/A
N/A
N/A
N/A
587
Total
253
319
313
308
1.247
587
Maximum tax benefit
86
108
106
105
424
199
1) Considers the maximum tax benefit for
full year 2022. In 3Q22 we have benefited from R$17.6 million
(totalizing R$44.6 in 9M22). 2) Businesses with future tax benefit
(not yet incorporated). 3) Refer to COC and Dom Bosco solutions
acquired in 2021.
CAPEX in 3Q22 was R$30.9 million, representing 12.2% of
net revenue (versus 21.4% of net revenue in 3Q21). For 9M22, CAPEX
totaled R$121.1 million, or 11.1% of net revenue (versus 14.8% of
net revenue in 9M21), and within the guidance range of 10.0% to
12.0% of net revenue for 2022 full year we provided in 3Q21.
CAPEX (R$M)
3Q22
3Q21
YoY
2Q22
QoQ
9M22
9M21
YoY
Acquisition of intangible
assets¹
27.0
35.0
-23%
41.5
-35%
108.8
104.8
4%
Educational platform - content
development
0.9
13.4
-93%
4.5
-80%
9.3
31.7
-71%
Educational platform - platforms &
tech
15.2
8.5
79%
17.9
-15%
57.7
35.7
62%
Software
7.7
10.5
-27%
16.5
-54%
34.5
30.2
14%
Copyrights and others
3.2
2.5
29%
2.6
22%
7.3
7.2
2%
Acquisition of PP&E
3.9
4.0
-2%
1.7
128%
12.3
9.5
30%
TOTAL¹
30.9
39.0
-21%
43.2
-29%
121.1
114.3
6%
1) For 9M22 excludes R$14.2 million
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$135.4 million.
Cash from operations for 3Q22 and 9M22 were R$89.7
million (from R$74.1 million in 3Q21) and R$384.1 million (from
R$276.5 million in 9M21), respectively. Free cash flow to firm3 in
3Q22 increased 253.5% YoY to R$55.7 million, representing 22.0% of
net revenues (vs. 8.6% of net revenue in 3Q21). For the nine-month
period ended September 30th, 2022, free cash flow to firm also
presented a significant improvement, increasing 131.9% YoY to
R$212.4 million, or 19.4% of net revenue (vs. 11.9% in 9M21).
3 Please reference page 19 (reconciliation
of free cash flow) for additional details.
Free cash flow to firm
(managerial)
9M21
% of net revenue
9M22
% of net revenue
YoY
Adjusted EBITDA
206.5
26.8%
294.5
26.9%
+43%
(+/-) Noncash adjustments
(2.4)
-0.3%
(12.6)
-1.2%
+430%
(+/-) Working capital
72.5
9.4%
102.2
9.3%
+41%
(-) Income taxes paid
(70.7)
-9.2%
(50.6)
-4.6%
-28%
(-) CAPEX¹
(114.3)
-14.8%
(121.1)
-11.1%
+6%
Free cash flow to firm
(managerial)
91.6
11.9%
212.4
19.4%
+132%
1) Excludes R$14.2 million 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$135.4 million for 9M22
Arco’s cash and cash equivalents plus financial investments
position as of September 30th, 2022, was R$1,015 million, while
financial debt and accounts payable to selling
shareholders were R$2,797 million, leading to a net debt of
R$1,782 million. As part of Arco’s balance sheet management
strategy, on August 5th, 2022, we announced the closing of a new
Debentures issuance amounting to R$1,200 million. Net proceeds were
partially used to prepay the Debentures issued in August 2021, and
the balance was used to strengthen Arco’s cash position while
extending its debt maturity profile. The new Debentures mature on
August 3rd, 2027, with principal to be amortized in three equal
installments payable on August 3rd, 2025, August 3rd, 2026, and
August 3rd, 2027, and bear interest at CDI +2.30% per annum,
payable semi-annually on February 3rd and August 3rd.
We had another strong commercial cycle for the 2023
school year, with a new student intake and upsell for both
Core and Supplemental solutions indicating healthy organic growth
YoY. Retention rates remained consistent with historical trends and
average price increase was 2-3 p.p. above inflation (considers
expected inflation – IPCA – of 5.88% for 2022 and 5.01% for 2023,
as per Brazilian Central Bank Focus Report as of November 18th,
2022). Cross-sell initiatives were again a key driver to our
go-to-market strategy, leading to a ~2 p.p. increase in the number
of schools in our core base with at least one Supplemental solution
to ~17% (from ~15% in 2022 school year). We are providing a 2023
ACV guidance for our pedagogical solutions of approximately R$1,930
million, which represents approximately 24% organic growth versus
2022 cycle net revenues of R$1,561 million.
COC, one of our recently acquired Core solutions had positive
results for its first commercial cycle post acquisition, with a
17-point increase in the NPS to 66 leading to a 15 p.p. improvement
in retention rate for the 2023 school year to 95%. We were able to
implement significant price increases for the 2023 cycle (~4 p.p.
above expected inflation). Finally, the year-over-year ACV growth
was over 30%.
We are also providing an adjusted EBITDA margin guidance
range for 2023 fiscal year for our pedagogical solutions of
36.5% to 38.5%, in line with the range provided for 2022 fiscal
year, and a CAPEX as a percentage of revenue guidance range for
2023 fiscal year of 8.0% to 10.0%, below the 10.0% to 12.0%
range provided for 2022 fiscal year. The expansion of our adjusted
EBITDA – CAPEX as a percentage of revenue metric reflects Arco’s
integration initiatives and corporate restructuring in place as
Arco paves the way to become a portfolio hub of education solutions
and a more efficient company, including (i) strategic sourcing,
(ii) supply chain: printing costs & freight, (iii) IT systems
optimization, (iv) corporate reorganization, (v) supplemental
synergies, (vi) sales & operations planning, (vii) increased
cooperation among core units, and (viii) technology
integration.
Arco initiated its efficiency and integration agenda in 2021,
with the goal of improving our operations, internal processes, and
capital allocation strategy, leading to enhanced cash generation
and generating more value to our shareholders. Accordingly, free
cash flow became a key success metric to management, with three
main drivers: (i) continuous margin expansion; (ii) return of capex
to pre-covid levels as a percentage of revenue (at high
single-digit rates), and (iii) normalization of working
capital.
Finally, the Brazilian antitrust agency (CADE) approved the
isaac acquisition on November 16th. The transaction is
expected to close on January 2nd, 2023.
Conference Call Information
Arco will discuss its third quarter 2022 results today, December
1st, 2022, 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 December
7th, 2022, by dialing +55 (11) 3193-1012 and entering access code
1608874#. 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 hundreds of thousands 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 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
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 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 and Managerial Free Cash Flow 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 related (gains) losses
and expenses, plus non-recurring expenses and plus effects related
to COVID-19 pandemic. We calculate Adjusted EBITDA Margin as
Adjusted EBITDA divided by Net Revenue.
We calculate Adjusted Net Income as profit (loss) for the year,
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,
(v) non-compete agreement and (vi) software resulting from
acquisitions), 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 income (expenses), net (which refers to
interest expenses related to accounts payable to selling
shareholders from business combinations adjusted by fair value),
plus share-based compensation plan, restricted stock units and
related payroll taxes (restricted stock units), plus/minus non-cash
adjustments related to Derivatives and Convertible Notes, 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, plus non-recurring
expenses, which are related to consulting expenses for
Sarbanes-Oxley implementation, plus effects related to COVID-19
pandemic, which includes the revision of the Company’s estimated
credit losses from its trade receivables based on expected
increases in financial default and in unemployment rates in Brazil
for the year and plus/minus changes in current and deferred tax
recognized in statements of income applied to all adjustments to
net income (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).
For purposes of the calculation of Adjusted Net Income for the
year ended December 31, 2021, we have excluded the following
adjustments that we applied to the calculation of Adjusted Net
Income for prior periods: (i) Interest income (expenses) linked to
a fixed rate (we will maintain the adjustment for Interest income
(expenses) that refers to adjustments by fair value); (ii) Foreign
exchange effects on cash and cash equivalents and (iii) share of
loss of equity accounted investees and. These adjustments will not
be applied to the calculation of Adjusted Net Income going forward.
We believe that eliminating these adjustments from our calculation
of Adjusted Net Income for the year ended December 31, 2021 and
going forward does not impact our investors’ ability to assess our
results of operations. We have not retroactively restated Net
Adjusted Income for the periods prior to 2021.
We calculate Managerial Free Cash Flow as Net Cash Flows from
Operating activities, less acquisition of property and equipment,
less acquisition of intangible assets, less M&A-related
payments. 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 understand that, although Adjusted EBITDA, Adjusted EBITDA
Margin, Adjusted Net Income, Adjusted Net Income Margin and
Managerial Free Cash Flow 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,
Adjusted Net Income Margin and Managerial Free Cash Flow 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
September 30,
December 31,
(In thousands of Brazilian
reais)
2022
2021
Assets
(unaudited)
Current assets
Cash and cash equivalents
314,015
211,143
Financial investments
661,465
973,294
Trade receivables
433,491
593,263
Inventories
231,470
158,582
Recoverable taxes
65,069
38,811
Derivative financial instruments
-
301
Related parties
3,838
4,571
Other assets
87,948
66,962
Total current assets
1,797,296
2,046,927
Non-current assets
Financial investments
39,057
40,762
Derivative financial instruments
-
560
Related parties
-
6,819
Recoverable taxes
12,657
22,216
Deferred income tax
367,340
321,223
Other assets
73,916
57,534
Investments and interests in other
entities
121,787
126,873
Property and equipment
64,558
73,885
Right-of-use assets
25,229
35,960
Intangible assets
3,202,214
3,257,360
Total non-current assets
3,906,758
3,943,192
Total assets
5,704,054
5,990,119
September 30,
December 31,
(In thousands of Brazilian
reais)
2022
2021
Liabilities
(unaudited)
Current liabilities
Trade payables
152,336
103,292
Labor and social obligations
108,087
157,601
Lease liabilities
20,688
20,122
Loans and financing
58,772
228,448
Derivative financial instruments
2,671
-
Taxes and contributions payable
5,384
7,953
Income taxes payable
13,468
37,775
Advances from customers
5,731
35,291
Accounts payable to selling
shareholders
879,418
799,553
Other liabilities
5,188
3,176
Total current liabilities
1,251,743
1,393,211
Non-current liabilities
Labor and social obligations
1,179
661
Lease liabilities
10,611
22,996
Loans and financing
1,853,495
1,602,879
Derivative financial instruments
63,947
223,561
Provision for legal proceedings
2,821
1,398
Accounts payable to selling
shareholders
653,917
869,233
Other liabilities
365
946
Total non-current liabilities
2,586,335
2,721,674
Equity
Share capital
11
11
Capital reserve
2,103,699
2,203,857
Treasury shares
(114,701)
(180,775)
Share-based compensation reserve
98,785
90,813
Accumulated losses
(221,818)
(238,672)
Total equity
1,865,976
1,875,234
Total liabilities and equity
5,704,054
5,990,119
Arco Platform Limited
Interim condensed consolidated
statements of income
Three-month period ended
September 30,
Nine-month period ended
September 30,
(In thousands of Brazilian reais,
except earnings per share)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Revenue
253,922
183,267
1,096,096
771,240
Cost of sales
(62,820)
(44,766)
(312,452)
(199,994)
Gross profit
191,102
138,501
783,644
571,246
Operating expenses:
Selling expenses
(153,549)
(114,982)
(492,341)
(353,367)
General and administrative expenses
(85,518)
(109,867)
(251,655)
(246,161)
Other income, net
(1,714)
413
17,356
2,913
Operating profit
(49,679)
(85,935)
57,004
(25,369)
Finance income
105,629
20,353
479,244
42,407
Finance costs
(159,511)
(124,947)
(523,097)
(209,239)
Finance result
(53,882)
(104,594)
(43,853)
(166,832)
Share of loss of equity-accounted
investees
(4,284)
(5,575)
(24,220)
(8,326)
(Loss) profit before income
taxes
(107,845)
(196,104)
(11,069)
(200,527)
Income taxes - income (expense)
Current
(4,385)
(1,246)
(18,194)
(37,143)
Deferred
39,766
53,290
46,117
85,402
Total income taxes – income (expense)
35,381
52,044
27,923
48,259
Net (loss) profit for the
period
(72,464)
(144,060)
16,854
(152,268)
Basic earnings per share – in Brazilian
reais
Class A
(1.30)
(2,53)
0.30
(2.67)
Class B
(1.30)
(2,53)
0.30
(2.67)
Diluted earnings per share – in Brazilian
reais
Class A
(1.30)
(2,53)
0.30
(2.67)
Class B
(1.30)
(2,53)
0.30
(2.67)
Weighted-average shares used to compute
net (loss) profit per share:
Basic
55,807
56,902
55,940
57,109
Diluted
55,807
57,122
61,228
57,329
Arco Platform Limited
Interim condensed consolidated
statements of cash flows
Three-month period ended
September 30,
Nine-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Operating activities
Loss before income taxes
(107,845)
(196,104)
(11,069)
(200,527)
Adjustments to reconcile loss before
income taxes to cash from operations
Depreciation and amortization
55,617
42,605
195,700
136,080
Inventory reserves
9,264
5,579
22,603
12,965
Provision (reversal) for expected credit
losses
(1,919)
5,987
(8,522)
16,486
Loss (profit) on sale/disposal of property
and equipment and intangible
2
87
(190)
222
Fair value change in financial
derivative
(58,589)
-
(154,562)
-
Fair value adjustment in accounts payable
to selling shareholders
-
74,664
(26,320)
75,153
Share of loss of equity-accounted
investees
4,284
5,575
24,220
8,326
Share-based compensation plan
17,706
41,760
26,752
57,315
Accrued interest on loans and
financing
72,549
11,705
178,093
20,610
Interest accretion on accounts payable to
selling shareholders
47,268
30,802
136,942
84,826
Interest from financial investment
(24,763)
(6,421)
(63,116)
(14,916)
Interest on lease liabilities
1,001
1,204
3,288
3,361
Provision for legal proceedings
1,317
248
1,423
37
Provision for payroll taxes (restricted
stock units)
3,871
1,259
788
2,686
Foreign exchange (income) expenses,
net
21,316
(1,945)
(22,346)
2,147
Gain on changes of interest of
investment
46
-
(17,712)
-
Other financial expense (income), net
(987)
1,792
(4,115)
(706)
40,138
18,797
281,857
204,065
Changes in assets and liabilities
Trade receivables
170,531
95,594
166,187
95,979
Inventories
(47,514)
(6,372)
(75,185)
(18,339)
Recoverable taxes
(16,421)
(5,463)
(7,973)
(2,996)
Other assets
9,867
(12,776)
(25,210)
(21,231)
Trade payables
(2,593)
21,809
49,044
29,034
Labor and social obligations
324
1,069
26,069
11,325
Taxes and contributions payable
(1,671)
(1,388)
(2,649)
(6,471)
Advances from customers
(55,201)
(36,559)
(29,560)
(16,574)
Other liabilities
(7,713)
(574)
1,515
1,730
Cash from operations
89,747
74,137
384,095
276,522
Income taxes paid
(3,101)
(19,167)
(50,575)
(70,684)
Interest paid on lease liabilities
(1,250)
(918)
(3,596)
(2,521)
Interest paid on accounts payable to
selling shareholders
(1,702)
(1,031)
(38,616)
(5,254)
Interest paid on loans and financing
(115,856)
(5,461)
(147,848)
(13,406)
Payments for contingent consideration
(146)
-
(70,687)
(332)
Payments for stock options
-
-
(75,578)
-
Net cash flows from operating
activities
(32,308)
47,560
(2,805)
184,325
Investing activities
Acquisition of property and equipment
(3,925)
(4,010)
(12,323)
(9,542)
Payment of investments and interests in
other entities
(14)
(53,538)
(32)
(126,760)
Acquisition of subsidiaries, net of cash
acquired
-
(15,839)
-
(31,056)
Payments of accounts payable to selling
shareholders
(1,270)
(8,449)
(1,270)
(101,285)
Acquisition of intangible assets
(26,976)
(35,190)
(123,029)
(104,733)
Maturity of financial investments
(264,243)
213,374
376,650
366,309
Loans to related parties
1
-
(4,811)
-
Net cash flows from (used in) investing
activities
(296,427)
96,348
235,185
(7,067)
Financing activities
Purchase of treasury shares
(1,523)
(25,069)
(53,139)
(134,806)
Payment of lease liabilities
(3,774)
(4,245)
(15,779)
(10,599)
Payment of accounts payable to selling
shareholders
(10,884)
(13)
(132,154)
(19,455)
Loans and financings - additions
1,189,058
891,116
1,189,058
887,673
Loans and financings – payment
(905,582)
-
(1,116,911)
-
Net cash flows (used in) from financing
activities
267,295
861,789
(128,925)
722,813
Foreign exchange effects on cash and cash
equivalents
(298)
1,945
(583)
(2,147)
Increase in cash and cash
equivalents
(61,738)
1,007,642
102,872
897,924
Cash and cash equivalents
At the beginning of the period
375,753
314,692
211,143
424,410
At the end of the period
314,015
1,322,334
314,015
1,322,334
Increase in cash and cash
equivalents
(61,738)
1,007,642
102,872
897,924
Arco Platform Limited
Reconciliation of Non-GAAP
Measures
Reconciliation of Adjusted
EBITDA
Three-month period ended
September 30,
Nine-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Net (loss) profit for the period
(72,464)
(144,060)
16,854
(152,268)
(+/-) Income taxes
(35,381)
(52,044)
(27,923)
(48,259)
(+/-) Finance result
53,882
104,594
43,853
166,832
(+) Depreciation and amortization
55,617
42,605
195,700
136,080
(+) Share of loss of equity-accounted
investees
4,284
5,575
24,220
8,326
EBITDA
5,938
(43,330)
252,704
110,711
(+) Share-based compensation plan
21,596
42,993
40,745
64,041
(+) Share-based compensation plan and
restricted stock units
16,922
41,630
26,752
57,315
(+) Provision for payroll taxes
(restricted stock units)
4,674
1,363
13,993
6,726
(+) M&A expenses
1,490
15,299
10,676
29,055
(+/-) Other changes to equity accounted
investees3
46
-
(17,712)
-
(+) Non-recurring expenses
8,083
296
8,083
948
(+) Effects related to Covid-19
pandemic
-
544
-
1,696
Adjusted EBITDA
37,153
15,802
294,496
206,451
Revenue
253,922
183,267
1,096,096
771,240
EBITDA Margin
2.3%
-23.6%
23.1%
14.4%
Adjusted EBITDA Margin
14.6%
8.6%
26.9%
26.8%
Reconciliation of Adjusted Net
Income
Three-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021 pro forma1
2021 reported
(unaudited)
(unaudited)
(unaudited)
Net loss for the period
(72,464)
(144,060)
(144,060)
(+) Share-based compensation plan
21,596
42,993
42,993
(+) Share-based compensation plan and
restricted stock units
16,922
41,630
41,630
(+) Provision for payroll taxes
(restricted stock units)
4,674
1,363
1,363
(+) M&A expenses
1,490
15,299
14,353
(+/-) Other changes to equity accounted
investees3
46
-
-
(+) Non-recurring expenses
8,083
296
1,242
(+) Effects related to Covid-19
pandemic
-
544
544
(+/-) Adjustments related to business
combination
31,435
114,669
131,064
(+) Amortization of intangible assets from
business combinations
23,911
25,598
25,598
(+/-) Changes in accounts payable to
selling shareholders
-
74,664
74,664
(+) Interest expenses, net (adjusted by
fair value)
7,524
14,407
14,407
(+) Interest on acquisition of
investments, net (linked to a fixed rate)1
-
-
16,395
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes
(32,690)
-
-
(+/-) Foreign exchange on cash and cash
equivalents1
-
-
(1,945)
(+) Share of loss of equity-accounted
investees1
-
-
5,575
(+/-) Tax effects
(19,441)
(51,579)
(61,738)
Adjusted Net Income
(61,945)
(21,838)
(11,972)
Net Revenue
253,922
183,267
183,267
Adjusted Net Income Margin
-24.4%
-11.9%
-6.5%
Weighted average shares
55,807
56,902
56,902
Adjusted EPS
(1.11)
(0.38)
(0.21)
Nine-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021 pro forma1
2021 Reported
(unaudited)
(unaudited)
(unaudited)
Net (loss) profit for the period
16,854
(152,268)
(152,268)
(+) Share-based compensation plan
40,745
64,041
64,041
(+) Share-based compensation plan and
restricted stock units
26,752
57,315
57,315
(+) Provision for payroll taxes
(restricted stock units)
13,993
6,726
6,726
(+) M&A expenses
10,676
29,055
22,203
(+/-) Other changes to equity accounted
investees3
(17,712)
-
-
(+) Non-recurring expenses
8,083
948
7,800
(+) Effects related to Covid-19
pandemic
-
1,696
1,696
(+/-) Adjustments related to business
combination
89,472
204,482
235,329
(+) Amortization of intangible assets from
business combinations
81,510
75,350
75,350
(+/-) Changes in accounts payable to
selling shareholders
(26,320)
75,153
75,153
(+) Interest expenses, net (adjusted by
fair value)
34,282
53,979
53,979
(+) Interest on acquisition of
investments, net (linked to a fixed rate)1
-
-
30,847
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes2
(157,910)
-
-
(+/-) Foreign exchange on cash and cash
equivalents1
-
-
2,147
(+) Share of loss of equity-accounted
investees1
-
-
8,326
(+/-) Tax effects
(41,963)
(93,634)
(103,793)
Adjusted Net Income
(51,755)
54,320
85,481
Net Revenue
1,096,096
771,240
771,240
Adjusted Net Income Margin
-4.7%
7.0%
11.1%
Weighted average shares
55,940
57,109
57,109
Adjusted EPS
(0.93)
0.95
1.50
1)
Adjusted net income for previous
periods presented in this column excludes the following
adjustments: (i) Interest on acquisition of investments, net
(linked to a fixed rate); (ii) Foreign exchange on cash and cash
equivalents; and (iii) Share of loss of equity-accounted investees.
Such adjustments will be no longer consider in the net income
reconciliation from 4Q21 onwards and are presented for comparison
purposes only in the “Reported” column.
2)
Such adjustment was previously
named “(+/−) Changes in fair value of derivative instruments”.
3)
Refers to (gains) losses related
to capital contribution from others on investees leading to an
increase in equity of the investee.
Reconciliation of Free Cash
Flow
Three-month period ended
September 30,
Nine-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Loss profit before income taxes
(107,845)
(196,104)
(11,069)
(200,527)
(+/-) Non-cash adjustments to reconcile
Adj. EBITDA to cash from operations
147,983
214,901
292,926
404,592
(+/-) Working capital (Changes in assets
and liabilities)
49,609
55,340
102,238
72,457
Cash from operations
89,747
74,137
384,095
276,522
(-) Income tax paid
(3,101)
(19,167)
(50,575)
(70,684)
(-) CAPEX
(30,901)
(39,200)
(135,352)
(114,275)
Free cash flow to firm
55,745
15,770
198,168
91,563
(-) Interest paid on loans and financings
& lease liabilities
(117,106)
(6,379)
(151,444)
(15,927)
(-) Interest paid on accounts payable to
selling shareholders
(1,702)
(1,031)
(38,616)
(5,254)
(-) Payments for contingent
consideration
(146)
-
(70,687)
(332)
(-) Payments of stock options¹
-
-
(75,578)
-
Free cash flow
(63,209)
8,360
(138,157)
70,050
(-) M&A classified as Payments of
stock options¹
-
-
75,578
-
(-) M&A classified as CAPEX²
-
-
14,208
-
(-) M&A classified as payments for
contingent consideration³
146
-
70,687
332
Free cash flow (managerial)
(63,063)
8,360
22,316
70,382
1)
For 9M22 considers R$75 million
related to M&A payment booked as stock option plan expense
(Geekie employees’ SOP).
2)
For 9M22, considers R$14.2
million 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$135.4 million.
3)
For 9M22, considers R$70 million
of contingent consideration related to M&A payment (difference
between amount in the PPA and the final transaction amount
calculated by the earn-out multiple.
Three-month period ended
September 30,
Nine-month period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Free cash flow to firm
55,745
15,770
198,168
91,563
(+) M&A classified as CAPEX¹
-
-
14,208
-
Free cash flow to firm
(managerial)
55,745
15,770
212,376
91,563
1)
For 9M22, considers R$14.2 million 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$135.4 million.
Reconciliation of Taxable
Income
Three months period ended
September 30,
Nine months period ended
September 30,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Loss before income taxes
(107,845)
(196,104)
(11,069)
(200,527)
(+) Share-based compensation plan, RSU and
provision for payroll taxes¹
26,215
44,929
7,401
53,965
(+) Amortization of intangible assets from
business combinations before incorporation¹
7,477
725
21,323
10,485
(+/-) Changes in accounts payable to
selling shareholders¹
17,751
92,173
41,355
131,584
(+/-) Share of loss of equity‑accounted
investees
4,284
(1,896)
24,220
(2,831)
(+) Net income from Arco Platform
(Cayman)
(7,719)
2,971
(112,227)
16,771
(+) Fiscal loss without deferred
3,487
4,168
15,333
8,935
(+/-) Provisions booked in the period
(14,706)
(3,546)
29,413
9,781
(+) Tax loss carryforward
131,869
77,673
168,892
169,039
(+) Others
13,471
9,349
23,643
17,868
Taxable income
74,284
30,442
208,284
215,070
Current income tax under actual profit
method
(25,257)
(10,350)
(70,817)
(73,123)
% Tax rate under actual profit method
34.0%
34.0%
34.0%
34.0%
(+) Effect of presumed profit benefit
-
-
-
3,266
Effective current income tax
(25,257)
(10,350)
(70,817)
(69,857)
% Effective tax rate
34.0%
34.0%
34.0%
32.5%
(+) Recognition of tax-deductible
amortization of goodwill and added value²
17,692
10,867
44,560
32,802
(+/-) Other additions (exclusions)
3,181
(1,763)
8,063
(88)
Effective current income tax accounted
for goodwill benefit
(4,385)
(1,246)
(18,194)
(37,143)
% Effective tax rate accounting for
goodwill benefit
5.9%
4.1%
8.7%
17.3%
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/20221201005928/en/
Carina Carreira (carinacarreira@arcoeducacacao.com.br)
Investor Relations Contact Arco Platform Limited
IR@arcoeducacao.com.br https://investor.arcoplatform.com/
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