Arco delivers strong cash performance in 1Q23
with R$ 208M free cash flow to firm and debuts new financial &
management segment in the p&l following isaac acquisition
Arco Platform Limited, or Arco or the Company (Nasdaq:
ARCE), today reported financial and operating results for the
first quarter ended March 31, 2023.
1Q23
1Q23
CTD23
Consolidated
Pedagogical business
Pedagogical business
Net revenue
Cash gross profit
Net revenue
Net revenue
R$534.9M
R$370.2M
R$472.4M
R$1,136.9M
+24.4% YoY
+9.1% YoY
+9.8% YoY
+28.3% YoY
Adj. EBITDA
Adj. net income
Adj. EBITDA
Adj. EBITDA
R$110.7M
R$(42.0)M
R$125.5M
R$471.4M
-24.5% YoY
n/a
-14.5% YoY
+28.2% YoY
Consolidated 1Q23 figures includes 1Q23 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.
1Q23 Highlights
- Net revenue for the first quarter was R$534.9 million, a
24.4% YoY increase, with Core solutions totaling R$392.0 million
(+13.2% YoY), Supplemental solutions totaling R$80.4 million (-4.2%
YoY due to more concentrated deliveries in fourth quarter versus
previous cycle) and financial & management (F&M) solutions
debuting with R$ 62.5 million.
- Excluding newly created F&M segment, net revenue for
pedagogical business (core and supplemental) increased 9.8%
YoY. Cycle to date figures reaffirms the strong ACV expected for
the 2023 cycle, with Core totaling R$839.0 million (+25.7% YoY) and
Supplemental totaling R$307.9 million (+37.8% YoY).
In the 1Q23, Arco recognized 24.5% of its
2023 ACV vs 27.6% in the 1Q22, thus we recommend investors to
analyze our P&L performance on a cycle-to-date basis, for a
more accurate assessment on the business underlying profitability
trends.
- Cash gross margin (gross margin excluding depreciation
and amortization) on a consolidated basis was 69.2% in 1Q23 (versus
78.9% in 1Q22).
- Pedagogical business cash gross margin was 72.0% (versus
78.9% in 1Q22). Since 4Q22 Arco’s COGS has been impacted by the
already discussed price increase in the paper supply chain
(consequence of pulp and paper hike around the globe), resulting in
increased costs for printing our initial patches for the 2023
educational content. We continue to roll-out cost reduction
initiatives to offset and outpace such recent and punctual cost
pressures and expect positive outcomes on quarters to come,
especially in the 2H23.
- On the opposite direction, Arco delivered a strong performance
on SG&A, especially when analyzing the figures cycle-to-date,
which we consider a more adequate comparison given the difference
in revenue recognition.
- In the quarter, consolidated selling expenses excluding
depreciation and amortization totaled R$161.3 million in 1Q23
(+17.2% YoY).
- Pedagogical business posted R$157.4 million in selling
expenses in 1Q23 (+14.4% YoY). Cycle-to-date, selling expenses for
the pedagogical business reached R$305.9 million, up 20.2% YoY and
representing 26.9% of revenues in the cycle, vs 28.7% in the same
period 2022.
- General and administrative expenses (G&A) figures
excluding depreciation and amortization increased on consolidated
basis due to the consolidation of isaac structure, totaling R$151.5
million in 1Q23.
- Pedagogical business G&A expenses excluding
depreciation and amortization reached R$85.0 million (+16.9% YoY
versus 1Q22). Cycle-to-date G&A for the pedagogical business
increased 7.6% YoY, for almost 300bps dilution YoY to 13.5% of
revenues in the 2023 cycle.
- Consolidated adjusted EBITDA was R$110.7 million in 1Q23
(-24.5% YoY), with an adjusted EBITDA margin of 20.7%.
- Pedagogical business delivered an adjusted EBITDA of
R$125.5 million (-14.5% YoY) with an adjusted EBITDA margin of
26.6% versus 34.1% in 1Q22. The lower revenue recognition in the
quarter combined with the aforementioned cost pressures explain the
margin performance. In the 2023 cycle to date, adjusted EBITDA
margin remained stable YoY at 41.5% for the pedagogical business
and we reiterate our 2023 guidance for EBITDA margin between 36.5%
and 38.5%.
- Consolidated adjusted net income (loss) in 1Q23 was
R$(42.0) million, with an adjusted net margin of (7.9) % (versus
7.3% in 1Q22), impacted by higher finance expenses, the
consolidation of isaac structure and higher depreciation and
amortization.
- Moving to cash flow, consolidated cash from operations
in the 1Q23 reached R$275.8 million (from R$102.8 million in 1Q22).
For the quarter, free cash flow to firm was R$207.6 million,
or R$194.5 million above the R$13.1 million free cash flow to firm
of 1Q22. After interest payment, Arco generated R$ 94.4 million of
free cash flow (representing 17.7% of net revenues) in the
first quarter of 2023 (vs. -R$4.1 million in 1Q22, representing
-1.0% of net revenues). The significant improvement in cash flow
generation reflects an ongoing normalization in working capital
behavior combined with a more disciplined capital allocation
strategy.
Free cash flow to firm
(managerial)
1Q23
1Q22
% of net revenue
1Q23
% of net revenue
1Q22
YoY
Adjusted EBITDA
110.7
146.7
20.7
%
34.1
%
-13 p.p
(+/-) Non-cash adjustments
15.1
(21.2
)
2.8
%
-4.9
%
+8 p.p
(+/-) Working capital
150.0
(22.7
)
28.0
%
-5.3
%
+33 p.p
(-) Income taxes paid
(31.2
)
(42.7
)
-5.8
%
-9.9
%
+4 p.p
(-) CAPEX¹
(37.0
)
(47.0
)
-6.9
%
-10.9
%
+4 p.p
Free cash flow to firm
(managerial)
207.6
13.1
38.8
%
3.1
%
+36 p.p
1) Excludes R$5.5 million related to M&A payments (PGS’ and
Mentes’ acquisition).
- Pedagogical business generated its highest free cash
flow to firm in Arco’s history at 39.7% vs 3.1% of revenues in the
1Q22, showing important improvements across all the most relevant
cash flow drivers, including working capital (both DSO and DIO),
capex and taxes.
- Consolidated days of sales outstanding already brought
important improvements with DSO in 1Q23 at 187 days versus 212
days in 1Q22.
- Pedagogical business DSO in 1Q23 was 188 days vs 212
days in the 1Q22. Delinquency figures for pedagogical business
remained at healthy levels and ended 1Q23 at 5.3% from 4.2% in 4Q22
and 7.2% in 1Q22.
Provision for expected credit
losses Pedagogical business (R$M)
1Q23
1Q22
YoY
4Q22
QoQ
Allowance for doubtful accounts
5.5
(6.2
)
n.a.
6.3
-13
%
% of net revenue
1.2
%
-1.4
%
2.5p.p.
0.9
%
0.3p.p.
Days of sales outstanding
Mar. 31, 2023
Mar. 31, 2022
YoY
Mar. 31 2023
(pedagogical)
Mar. 31, 2022
YoY
Trade receivables (R$M)
1,132.8
887.1
28
%
1,027.6
887.1
16
%
(-) Allowance for doubtful accounts
(116.2
)
(80.9
)
44
%
(90.5
)
(80.9
)
12
%
Trade receivables, net (R$M)
1,016.6
806.2
26
%
937.1
806.2
16
%
Net revenue LTM pro-forma¹
1,988.3
1,387.3
43
%
1,817.2
1,387.3
31
%
Adjusted DSO
187
212
-12
%
188
212
-11
%
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 1Q23 was R$37.0 million, or 6.9% of net revenue
(versus 10.9% of net revenue in 1Q22).
- Pedagogical business CAPEX was R$ 28.4 million, or 6.0%
of net revenue (versus 10.9% of net revenue in 1Q22). In the 2023
cycle to date, CAPEX reached 6.4% of revenues vs 16.3% in the 2022
cycle so far and has contributed to significant expansion on the
Adj. EBITDA minus CAPEX metric that reached 35.0% cycle to date in
March, 2023, versus 25.2% cycle to date 2022.
CAPEX (R$M)
1Q23
1Q22
YoY
4Q22
QoQ
Acquisition of intangible
assets¹
35.4
40.3
-12.2
%
42.8
-17.3
%
Educational platform - content
development
0.3
3.9
-92.3
%
0.2
50.0
%
Educational platform - platforms &
tech
17.6
24.6
-28.5
%
35.9
-51.0
%
Software
15.7
10.3
52.4
%
2.8
460.7
%
Copyrights and others
1.8
1.5
20.0
%
3.9
-53.8
%
Acquisition of PP&E
1.6
6.7
-76.1
%
2.0
-20.0
%
TOTAL¹
37.0
47.0
-21.3
%
44.8
-17.4
%
1) For 2022 excludes R$5.5 million related
to M&A payments (PGS’ and Mentes’ acquisition from the
accounting CAPEX of R$52.5 million.
- Arco’s corporate restructuring is ongoing and
progressing as planned. On May 1, 2023, the Company completed a
corporate reorganization through the incorporation of INCO Limited
(“isaac”) by Arco Platform Limited. INCO Limited was domiciled in
Cayman Island and was incorporated by Arco Platform Ltd. (another
Cayman Island company). Cayman Island tax legislation diverge from
Brazil legislation: in Brazil it is possible to take tax benefits
from incorporated acquired companies. Once the incorporation did
not occur among Brazilian entities, there is no additional tax
benefit regarding INCO acquisition. Future incorporation processes
include Escola da Inteligência (2023), Pleno (2023) and SAE Digital
(2024). As we keep incorporating other businesses into CBE, we
expect to capture additional tax benefits and therefore further
reduce our effective tax rate, currently at 18.9% in 1Q23 (versus
19.6% in 1Q22).
Intangible assets - net balances
(R$M)
Mar 31, 2023
Mar. 31, 2022
YoY
Dec. 31, 2022
QoQ
Business Combination
3,522.4
2,977.8
18.3
%
2,893.8
21.7
%
Trademarks
486.7
495.2
-1.7
%
471.8
3.2
%
Customer relationships
236.3
265.5
-11.0
%
237.0
-0.3
%
Educational system
198.0
233.9
-15.3
%
206.9
-4.3
%
Softwares
14.3
10.3
38.8
%
8.4
70.2
%
Educational platform
5.1
4.1
24.4
%
4.7
8.5
%
Others¹
17.1
18.9
-9.5
%
14.1
21.3
%
Goodwill
2,564.9
1,949.9
31.5
%
1,950.9
31.5
%
Operational
329.6
276.1
19.4
%
290.2
13.6
%
Educational platform²
179.4
198.2
-9.5
%
188.3
-4.7
%
Softwares
124.2
66.8
85.9
%
76.7
61.9
%
Copyrights
26.0
11.0
136.4
%
25.2
3.2
%
Customer relationships
-
0.1
-100.0
%
-
n/a
TOTAL
3,852.0
3,253.9
18.4
%
3,184.0
21.0
%
1) Non-compete agreements and rights on
contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
1Q23
1Q22
YoY
4Q22
QoQ
Business Combination
(80.5
)
(60.4
)
33.3
%
(84.4
)
-4.6
%
Trademarks
(7.9
)
(7.7
)
2.6
%
(8.0
)
-1.3
%
Customer relationships
(10.8
)
(9.2
)
17.4
%
(8.7
)
24.1
%
Educational system
(8.8
)
(9.3
)
-5.4
%
(8.8
)
0.0
%
Softwares
(1.2
)
(0.7
)
71.4
%
(0.7
)
71.4
%
Educational platform
(0.2
)
(0.2
)
0.0
%
(0.2
)
0.0
%
Others¹
(1.5
)
(1.4
)
7.1
%
(1.6
)
-6.3
%
Goodwill
(50.1
)
(31.9
)
57.1
%
(56.4
)
-11.2
%
Operational
(35.7
)
(29.5
)
21.0
%
(33.0
)
8.2
%
Educational platform²
(27.4
)
(22.3
)
22.9
%
(20.4
)
34.3
%
Softwares
(6.2
)
(5.2
)
19.2
%
(6.3
)
-1.6
%
Copyrights
(2.1
)
(1.9
)
10.5
%
(6.1
)
-65.6
%
Customer relationships
-
(0.1
)
-100.0
%
(0.2
)
-100.0
%
TOTAL
(116.2
)
(89.8
)
29.3
%
(117.4
)
-1.0
%
1) Non-compete agreements and rights on contracts. 2) Includes
content development in progress.
Amortization of intangible assets
(R$M)
Impacts P&L
Originates tax benefit
Amortization with tax benefit
in 1Q23²
Amortization
Tax benefit
Impact on net income
Business Combination
(58.7
)
19.9
(38.7
)
Trademarks
Yes
Yes²
(2.4
)
0.8
(1.6
)
Customer relationships
Yes
Yes²
(2.9
)
1.0
(1.9
)
Educational system
Yes
Yes²
(2.8
)
0.9
(1.8
)
Others¹
Yes
Yes²
(0.5
)
0.2
(0.3
)
Goodwill
No
Yes²
(50.1
)
17.0
(33.1
)
Operational
Yes
Yes
(35.7
)
12.1
(23.6
)
TOTAL
(94.4
)
32.0
(62.3
)
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$M)
Businesses with current tax
benefit
Undefined²
2023
2024
2025
2026+
Trademarks
27
27
27
318
)
66
Customer relationships
25
25
25
59
111
Educational system
27
27
27
106
32
Software license
-
-
-
-
11
Rights on contracts
1
1
1
2
1
Others
2
2
1
1
10
Goodwill
237
231
227
761
355
Total
319
313
308
1.247
587
Maximum tax benefit
108
106
105
424
199
Amortization of intangible assets from
business combination that generate tax benefit – breakdown by
solutions (R$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
587
Total
319
313
308
1.247
587
Maximum tax benefit
108
106
105
424
199
- Arco’s cash and cash equivalents plus financial investments
position as of March 31st, 2023 was R$837.7 million, while
financial debt¹ and accounts payable to selling
shareholders were R$2,675.6 million, resulting in a net debt of
R$1,837.9 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) Amount subject to an
arbitration process. Please reference the Financial Statements as
of March 31st, 2023, for additional details.
Conference Call
Information
Arco will discuss its first quarter 2023 results today, May 25,
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 June 1,
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
represents 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 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 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
March 31,
December 31,
(In thousands of Brazilian
reais)
2023
2022
Assets
(unaudited)
Current assets
Cash and cash equivalents
693,908
216,360
Financial investments
119,963
391,785
Trade receivables
1,016,611
856,887
Inventories
219,245
254,060
Recoverable taxes
69,570
67,166
Related parties
4,079
3,956
Other assets
121,548
82,515
Total current assets
2,244,924
1,872,729
Non-current assets
Financial investments
23,834
30,861
Recoverable taxes
11,010
11,108
Deferred income tax
449,766
337,267
Other assets
78,334
78,038
Investments and interests in other
entities
23,093
111,631
Property and equipment
56,870
59,031
Right-of-use assets
69,136
68,696
Intangible assets
3,851,953
3,184,047
Total non-current assets
4,563,996
3,880,679
Total assets
6,808,920
5,753,408
Liabilities
Current liabilities
Trade payables
218,138
182,748
Labor and social obligations
134,054
89,044
Lease liabilities
35,124
34,329
Loans and financing
55,373
102,873
Derivative financial instruments
5,181
3,693
Taxes and contributions payable
19,232
9,488
Income taxes payable
13,352
28,576
Advances from customers
223,299
16,079
Accounts payable to selling
shareholders
1,073,957
1,060,746
Other liabilities
8,155
6,013
Total current liabilities
1,785,865
1,533,589
Non-current liabilities
Labor and social obligations
2,605
1,451
Lease liabilities
42,459
42,576
Loans and financing
1,819,346
1,833,956
Derivative financial instruments
63,800
110,154
Provision for legal proceedings
2,358
3,174
Accounts payable to selling
shareholders
347,980
330,457
Other liabilities
600
621
Total non-current liabilities
2,279,148
2,322,389
Equity
Share capital
14
11
Capital reserve
2,757,393
2,009,799
Treasury shares
-
(8,205
)
Share-based compensation reserve
95,061
95,008
Accumulated losses
(108,561
)
(199,183
)
Total equity
2,743,907
1,897,430
Total liabilities and equity
6,808,920
5,753,408
Arco Platform Limited
Interim condensed consolidated
statements of income
Three-month period ended March
31,
(In thousands of Brazilian reais,
except earnings per share)
2023
2022
(unaudited)
(unaudited)
Revenue
534,906
430,037
Cost of sales
(215,734
)
(116,578
)
Gross profit
319,172
313,459
Operating expenses:
Selling expenses
(191,171
)
(164,353
)
General and administrative expenses
(163,682
)
(86,100
)
Other income, net
156,187
17,394
Operating profit
120,506
80,400
Finance income
102,931
159,233
Finance costs
(161,902
)
(125,101
)
Finance result
(58,971
)
34,132
Share of loss of equity-accounted
investees
(852
)
(5,642
)
Profit before income taxes
60,683
108,890
Income taxes - income (expense)
Current
(15,085
)
(21,847
)
Deferred
45,024
15,616
Total income taxes – income
(expense)
29,939
(6,231
)
Net profit for the period
90,622
102,659
Basic earnings per share – in Brazilian
reais
Class A
1.38
1.83
Class B
1.38
1.83
Diluted earnings per share – in Brazilian
reais
Class A
0.28
(1.42
)
Class B
1.38
1.83
Weighted-average shares used to compute
net profit per share:
Basic
65,778
56,100
Diluted
71,402
61,380
Arco Platform Limited
Interim condensed consolidated
statements of cash flows
Three-month period ended March
31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Operating activities
Profit before income taxes
60,683
108,890
Adjustments to reconcile profit before
income taxes to cash from operations
Depreciation and amortization
93,176
65,781
Inventory allowances
9,364
2,399
Provision (reversal) for expected credit
losses
30,077
(6,231
)
Loss (profit) on sale/disposal of property
and equipment and intangible
542
(78
)
Fair value change in derivative financial
instruments
(43,794
)
(11,653
)
Fair value adjustment in accounts payable
to selling shareholders
17,601
7,028
Share of loss of equity-accounted
investees
852
5,642
Share-based compensation plan
20,824
6,195
Accrued interest on loans and
financing
69,862
48,770
Interest accretion on accounts payable to
selling shareholders
42,822
43,930
Income from financial investment
(1,330
)
(20,560
)
Interest on lease liabilities
2,924
1,161
(Reversal) provision for legal
proceedings
(843
)
95
Provision for payroll taxes (restricted
stock units)
(3,133
)
(3,260
)
Foreign exchange effects, net
(16,191
)
(105,306
)
Fair value of previously held interest in
associate
(156,414
)
-
Gain on changes of interest of
investment
-
(16,413
)
Other financial expense (income), net
(1,224
)
(923
)
125,798
125,467
Changes in assets and liabilities
Trade receivables
(87,781
)
(206,926
)
Inventories
15,319
2,115
Recoverable taxes
6,341
3,182
Other assets
(29,248
)
(8,010
)
Trade payables
24,613
29,455
Labor and social obligations
23,582
14,115
Taxes and contributions payable
7,354
(1,206
)
Advances from customers
207,220
135,170
Other liabilities
(17,374
)
9,424
Cash from operations
275,824
102,786
Income taxes paid
(31,165
)
(42,682
)
Interest paid on lease liabilities
(2,364
)
(1,307
)
Interest paid on accounts payable to
selling shareholders
(227
)
(378
)
Interest paid on loans and financing
(110,593
)
(15,580
)
Payments for contingent consideration
(17,601
)
-
Net cash flows generated from operating
activities
113,874
42,839
Investing activities
Acquisition of property and equipment
(1,644
)
(6,672
)
Payment of investments and interests in
other entities
(20
)
(18
)
Cash attributed from acquisition of
subsidiaries
164,252
-
Acquisition of intangible assets
(35,396
)
(45,812
)
Purchase of financial investments
(109,792
)
(167,800
)
Redemption of financial investments
382,305
422,743
Interest received from financial
investments
7,666
3,762
Net cash flows generated from investing
activities
407,371
206,203
Financing activities
Purchase of treasury shares
-
(34,723
)
Payment of lease liabilities
(10,004
)
(6,293
)
Payment of accounts payable to selling
shareholders
(27,158
)
(1,977
)
Loans and financings payments
(5,955
)
(205,860
)
Net cash flows used in financing
activities
(43,117
)
(248,853
)
Foreign exchange effects on cash and cash
equivalents
(580
)
(2,028
)
Increase (decreased) in cash and cash
equivalents
477,548
(1,839
)
Cash and cash equivalents
At the beginning of the period
216,360
211,143
At the end of the period
693,908
209,304
Increase (decreased) in cash and cash
equivalents
477,548
(1,839
)
Arco Platform Limited
Reconciliation of Non-GAAP
Measures
Reconciliation of Adjusted
EBITDA
Three-month period ended March
31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Net profit for the period
90,622
102,659
(+/-) Income taxes
(29,939
)
6,231
(+/-) Finance result
58,971
(34,132
)
(+) Depreciation and amortization
93,176
65,781
(+) Share of loss of equity-accounted
investees
852
5,642
EBITDA
213,682
146,181
(+) Share-based compensation plan
36,980
15,423
(+) Share-based compensation plan and
restricted stock units
20,824
8,020
(+) Provision for payroll taxes
(restricted stock units)
16,156
7,403
(+) M&A expenses
3,089
1,472
(-) Other changes to equity accounted
investees
(156,414
)
(16,413
)
(+) Non-recurring expenses
13,348
-
Adjusted EBITDA
110,685
146,663
Revenue
534,906
430,037
EBITDA Margin
39.9
%
34.0
%
Adjusted EBITDA Margin
20.7
%
34.1
%
Reconciliation of Adjusted Net
Income (Loss)
Three-month period ended March
31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Net profit for the period
90,622
102,659
(+) Share-based compensation plan
36,980
15,423
(+) Share-based compensation plan and
restricted stock units
20,824
8,020
(+) Provision for payroll taxes
(restricted stock units)
16,156
7,403
(+) M&A expenses
3,089
1,472
(-) Other changes to equity accounted
investees
(156,414
)
(16,413
)
(+) Non-recurring expenses
13,348
-
(+/-) Adjustments related to business
combination
56,995
49,903
(+) Amortization of intangible assets from
business combinations
30,363
28,457
(+/-) Changes in accounts payable to
selling shareholders
17,601
7,028
(+) Interest expenses, net (adjusted by
fair value)
9,031
14,418
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes
(54,983
)
(105,649
)
(+/-) Tax effects
(31,662
)
(16,140
)
Adjusted Net Income (Loss)
(42,025
)
31,255
Net Revenue
534,906
430,037
Adjusted Net Income Margin
-7.9
%
7.3
%
Weighted average shares
65,778
56,100
Adjusted EPS
(0.64
)
0.56
Reconciliation of Free Cash
Flow
Three-month period ended March
31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Profit before income taxes
60,683
108,890
(+/-) Non-cash adjustments to reconcile
Adj, EBITDA to cash from operations
65,115
16,577
(+/-) Working capital (Changes in assets
and liabilities)
150,026
(22,681
)
Cash from operations
275,824
102,786
(-) Income tax paid
(31,165
)
(42,682
)
(-) CAPEX
(37,040
)
(52,484
)
Free cash flow to firm
207,619
7,620
(-) Interest paid on loans and financings
& lease liabilities
(112,957
)
(16,887
)
(-) Interest paid on accounts payable to
selling shareholders
(227
)
(378
)
(-) Payments for contingent
consideration2
(17,601
)
-
Free cash flow
76,834
(9,645
)
(-) M&A classified as intangible
assets acquisition (CAPEX1)
-
5,507
(-) M&A classified as payments for
contingent consideration2
17,601
-
Free cash flow (managerial)
94,435
(4,138
)
1)
For 2022, considers R$5.5 million related
to M&A payments (PGS’ and Mentes’ acquisition) from the
accounting CAPEX of R$52.5 million.
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).
Three-month period ended March
31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Free cash flow to firm
207,619
7,620
(+) M&A classified as CAPEX¹
-
5,507
Free cash flow to firm
(managerial)
207,619
13,127
1)
For 2022, considers R$5.5 million related
to M&A payments (PGS’ and Mentes’ acquisition) from the
accounting CAPEX of R$52.5 million.
Reconciliation of Taxable
Income
Three months period ended
March 31,
(In thousands of Brazilian
reais)
2023
2022
(unaudited)
(unaudited)
Profit before income taxes
60,683
108,890
(+) Share-based compensation plan, RSU and
provision for payroll taxes¹
25,129
(2,232
)
(+) Amortization of intangible assets from
business combinations before incorporation¹
4,181
7,752
(+/-) Changes in accounts payable to
selling shareholders¹
(9,226
)
29,873
(+) Share of loss of equity‑accounted
investees
852
5,642
(+) Net income from Arco Platform
(Cayman)
(177,442
)
(109,515
)
(+) Fiscal loss without deferred
1,930
5,151
(+/-) Provisions booked in the period
103,356
31,285
(+) Tax loss carryforward
69,887
29,679
(+) Others
528
5,080
Taxable income
79,878
111,605
Current income tax under actual profit
method
(27,159
)
(37,946
)
% Tax rate under actual profit method
34.0
%
34.0
%
Effective current income tax
(27,159
)
(37,946
)
% Effective tax rate
34.0
%
32.5
%
(+) Recognition of tax-deductible
amortization of goodwill and added value²
20,693
11,322
(+/-) Other additions (exclusions)
(8,619
)
4,777
Effective current income tax accounted
for goodwill benefit
(15,085
)
(21,847
)
% Effective tax rate accounting for
goodwill benefit
18.9
%
19.6
%
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/20230525005734/en/
Arco Platform Limited IR@arcoeducacao.com.br
https://investor.arcoplatform.com/
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