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

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

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

First Half 2019 Results

• Net Revenue of R$254.6 million;
• Net Income of R$56.5 million;
• Adjusted Net Income of R$91.6 million; and
• Adjusted EBITDA of R$110.3 million.

Second Quarter 2019 Results

• Net Revenue of R$137.6 million;
• Net Income of R$25.7 million;
• Adjusted Net Income of R$50.9 million; and
• Adjusted EBITDA of R$61.4 million.

Revenue Recognition and Seasonality

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

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

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

Third Quarter 2019 Guidance:

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

Full Year 2019 Guidance:

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

About Arco Platform Limited (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 based on the Company's current expectations and projections relating to its financial conditions, result of operations, plans, objectives, future performance and business, and these statements are not guarantees of future performance.

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

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

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

Key Business Metrics

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

Non-GAAP Financial Measures

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

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

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

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

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

Conference Call Information

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

Investor Relations Contact:

Arco Platform Limited
IR@arcoeducacao.com.br

Source: Arco Platform Ltd.

Arco Platform Limited
Unaudited Interim Condensed Consolidated Statements of Financial Position
		June 30,			December 31,
(In thousands of Brazilian reais)		2019			2018
Assets		(unaudited)
Current assets
Cash and cash equivalents		8,530			12,301
Financial investments		869,141			806,789
Trade receivables		142,943			136,611
Inventories		14,598			15,131
Recoverable taxes		20,690			11,227
Other assets		12,838			6,091
Total current assets		1,068,740			988,150
Non-current assets
Financial instruments from acquisition of interests		21,261			26,630
Deferred income tax		133,419			99,460
Recoverable taxes		1,033			1,033
Financial investments		4,473			4,370
Loans to related parties		15,631			1,226
Other assets		6,027			1,060
Investments and interests in other entities		58,113			11,862
Property and equipment		15,959			13,347
Right-of-use assets		17,593			-
Intangible assets		157,960			187,740
Total non-current assets		431,469			346,728
Total assets		1,500,209			1,334,878
Liabilities
Current liabilities
Trade payables		13,991			14,845
Labor and social obligations		31,786			15,888
Advances from customers		20,506			5,997
Lease liabilities		4,736			-
Loans and financing		161			-
Taxes and contributions payable		1,509			2,555
Income taxes payable		26,731			17,294
Financial instruments from acquisition of interests		15,562			51
Accounts payable to selling shareholders		90,829			830
Other liabilities		138			428
Total current liabilities		205,949			57,888
Non-current liabilities
Labor and social obligations		2,064			-
Lease liabilities		16,752			-
Loans and financing		376			-
Financial instruments from acquisition of interests		49,242			25,046
Accounts payable to selling shareholders		106,931			180,551
Provision for legal proceedings		342			131
Deferred income tax		1,560			1,378
Other liabilities		125			-
Total non-current liabilities		177,392			207,106
Equity
Share capital		10			10
Capital reserve		1,066,710			1,089,505
Share-based compensation reserve		81,783			67,350
Accumulated losses		(31,635	)		(86,687	)
Equity attributable to equity holders of the parent		1,116,868			1,070,178
Non-controlling interests		-			(294	)
Total equity		1,116,868			1,069,884
Total liabilities and equity		1,500,209			1,334,878

Arco Platform Limited
Unaudited Interim Condensed Consolidated Statements of Income
	Three-month period ended June 30,		Six-month period ended June 30,
(In thousands of Brazilian reais, except earnings per share)	2019		2018		2019		2018
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net revenue	137,566			81,436			254,621			195,070
Cost of sales	(25,827	)		(16,862	)		(47,696	)		(42,702	)
Gross profit	111,739			64,574			206,925			152,368
Operating expenses:
Selling expenses	(39,315	)		(24,074	)		(75,450	)		(48,386	)
General and administrative expenses	(44,926	)		(17,033	)		(65,758	)		(30,728	)
Other (expense) income, net	(437	)		(1,476	)		2,922			2,172
Operating profit	27,061			21,991			68,639			75,426
Finance income	13,961			3,582			30,917			7,291
Finance costs	(12,374	)		(3,840	)		(28,855	)		(7,765	)
Finance result	1,587			(258	)		2,062			(474	)
Share of loss of equity-accounted investees	(667	)		(229	)		(1,159	)		(294	)
Profit before income taxes	27,981			21,504			69,542			74,658
Income taxes - income (expense)
Current	(10,899	)		(6,071	)		(29,151	)		(20,879	)
Deferred	8,617			(1,517	)		16,149			528
Total income taxes – income (expense)	(2,282	)		(7,588	)		(13,002	)		(20,351	)
Profit for the period	25,699			13,916			56,540			54,307
Equity holders of the parent	25,699			14,143			56,540			54,682
Non-controlling interests	-			(227	)		-			(375	)
Basic earnings per share – in Brazilian reais
Class A	0.51			0.28			1.12			1.09
Class B	0.51			0.28			1.12			1.09
Diluted earnings per share – in Brazilian reais
Class A	0.49			0.27			1.09			1.04
Class B	0.50			0.27			1.10			1.05
Weighted-average shares used to compute net income per share:
Basic	50,709			50,261			50,505			50,261
Diluted	51,276			51,242			51,072			51,242

Arco Platform Limited
Unaudited Interim Condensed Consolidated Statements of Cash Flows
	Three-month period ended June 30,		Six-month period ended June 30,
(In thousands of Brazilian reais)	2019			2018			2019			2018
Operating activities	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Profit before income taxes for the period	27,981			21,504			69,542			74,658
Adjustments to reconcile profit before income taxes
Depreciation and amortization	9,103			4,528			16,343			8,902
Inventory reserves	1,332			1,146			3,560			3,242
Allowance for doubtful accounts	550			(397	)		2,203			3,137
Residual value of property and equipment and intangible assets disposed	29			-			131			138
Changes in fair value of derivative instruments	-			(367	)		1,866			(1,974	)
Share of loss of equity-accounted investees	667			229			1,159			294
Share-based compensation plan	138			344			275			687
Restricted stock units	14,158			-			14,158			-
Provision for payroll taxes (restricted stock units)	6,518			-			6,518			-
Accrued interest	8,498			1,972			14,440			4,052
Interest in lease liabilities	387			-			782			-
Provision for legal proceedings	132			76			211			76
Foreign exchange results, net	592			-			516			-
Alienation of investment	2			-			(3,286	)		-
Other financial cost/revenue, net	(1,202	)		-			(1,202	)		-
	68,885			29,035			127,216			93,212
Changes in assets and liabilities
Trade receivables	7,792			18,949			(8,409	)		3,087
Inventories	(2,067	)		(3,226	)		(2,031	)		(947	)
Recoverable taxes	(401	)		(307	)		(5,373	)		(1,190	)
Other assets	(9,778	)		(8,262	)		(7,826	)		(8,556	)
Trade payables	(27	)		2,166			659			1,574
Labor and social obligations	6,580			3,457			11,354			3,757
Taxes and contributions payable	(475	)		355			(1,047	)		639
Advances from customers	(5,830	)		4,638			14,998			7,645
Other liabilities	(53	)		937			(354	)		(911	)
Cash generated from operations	64,626			47,742			129,187			98,310
Income taxes paid	(5,175	)		(4,691	)		(23,210	)		(21,031	)
Interest paid on lease liabilities	(220	)		-			(220	)		-
Net cash flows from operating activities	59,231			43,051			105,757			77,279
Investing activities
Acquisition of property and equipment	(3,036	)		(1,228	)		(5,829	)		(2,158	)
Payment of investments and interests in other entities	(4,200	)		-			(4,200	)		-
Acquisition of subsidiaries, net of cash acquired	(16,137	)		(5,775	)		(16,137	)		(13,820	)
Acquisition of intangible assets	(6,887	)		(3,056	)		(18,379	)		(4,911	)
Financial investments	(36,238	)		53,756			(62,529	)		33,470
Loans to related parties	-			-			(14,000	)		-
Net cash flows from (used in) investing activities	(66,498	)		43,697			(121,074	)		12,581
Financing activities
Capital increase	12,611			-			13,829			-
Share issuance costs	-			-			(673	)		-
Payment of lease liabilities	(565	)		-			(1,080	)		-
Payment of loans and financing	(14	)		-			(14	)		-
Dividends paid	-			(85,050	)		-			(85,050	)
Net cash flows from (used in) financing activities	12,032			(85,050	)		12,062			(85,050	)
Foreign exchange effects on cash and cash equivalents	(592	)		-			(516	)		-
Increase (decrease) in cash and cash equivalents	4,173			1,698			(3,771	)		4,810
Cash and cash equivalents at the beginning of the period	4,357			3,946			12,301			834
Cash and cash equivalents at the end of the period	8,530			5,644			8,530			5,644
Increase (decrease) in cash and cash equivalents	4,173			1,698			(3,771	)		4,810

                                                                                          

Arco Platform Limited
Reconciliation of Non-GAAP Measures

	Three-month period ended		Six-month period ended
	June 30,		June 30,
(In thousands of Brazilian reais)	2019			2018			2019			2018
Adjusted EBITDA Reconciliation	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Profit for the period	25,699			13,916			56,540			54,307
(+) Income taxes	2,282			7,588			13,002			20,351
(+/-) Finance result	(1,587)			258			(2,062)			474
(+) Depreciation and amortization	9,103			4,528			16,343			8,902
(+) Share of loss of equity-accounted investees	667			229			1,159			294
EBITDA	36,164			26,519			84,982			84,328
(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).	20,814			344			20,951			687
(+) M&A expenses	4,423			-			4,423			-
Adjusted EBITDA	61,401			26,863			110,356			85,015
Net Revenue	137,566			81,436			254,621			195,070
EBITDA Margin	26.3%			32.6%			33.4%			41.3%
Adjusted EBITDA Margin	44.6%			33.0%			43.3%			43.6%

	Three-month period ended		Six-month period ended
	June 30,		June 30,
(In thousands of Brazilian reais)	2019			2018			2019			2018
Adjusted Net Income Reconciliation	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Profit for the period	25,699			13,916			56,540			54,307
(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).	20,814			344			20,951			687
(+) Amortization of intangible assets from business combinations	3,085			2,798			6,065			5,831
(+/-) Changes in fair value of derivative instruments	-			(367)			1,866			(1,974)
(+) Share of loss of equity-accounted investees	667			229			1,159			294
(-) Tax effects	(10,732)			(954)			(13,724)			(832)
(+) Foreign exchange on cash and cash equivalents	592			-			516			-
(+) Interest expenses (income), net	6,357			2,326			13,881			4,824
(+) M&A expenses	4,423			-			4,423			-
Adjusted net income	50,905			18,292			91,677			63,137
Net Revenue	137,566			81,436			254,621			195,070
Adjusted Net Income Margin	37.0%			22.5%			36.0%			32.4%

		Three-month period ended		Six-month period ended
		June 30,		June 30,
(In thousands of Brazilian reais)		2019			2018			2019			2018
Free Cash Flow Reconciliation		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Cash Generated from Operations		64,626			47,742			129,187			98,310
(-) Income Tax Paid		(5,175)			(4,691)			(23,210)			(21,031)
(-) Interest paid on lease liabilities		(220)			-			(220)			-
Cash Flow from Operating Activities		59,231			43,051			105,757			77,279
(-) Acquisition of property and equipment		(3,036)			(1,228)			(5,829)			(2,158)
(-) Acquisition of intangible assets		(6,887)			(3,056)			(18,379)			(4,911)
Free Cash Flow		49,308			38,767			81,549			70,210