$ARCE Arco Reports Second Quarter 2021 Results

on August 19, 2021 News and Tags: , , , with 0 comments

Arco Platform Limited, or Arco or Company (Nasdaq: ARCE), today reported financial and operating results for the second quarter ended June 30, 2021.

“Operating results for the 2Q21 still reflect the challenges imposed by the COVID-19 in the sector and the schools' operations. Despite the revenue seasonality and the higher investments in product and sales force impacting our margins this quarter, we reaffirm our margin guidance for 2021. The sales cycle for the 2022 school year continues strong, with YTD organic growth pace for our core legacy solutions multiple times ahead of 2020 and in-line with 2019 levels and renewal rates following historical trends. As for the supplemental business, YTD data points to an acceleration versus last cycle but a two-step recovery to pre-pandemic growth pace, while renewal rates are, at this point, much stronger versus 2020. Finally, we are very proud of our first ESG report, released on August 10, in which we disclose material themes to the Company that will guide us in our path to further expand our impact on Brazilian Education. We are confident that the worst is behind us and as vaccination progresses in the country and we keep investing in evolving our solutions we will be able to reaccelerate growth and fulfill our mission to transform the way students learn by delivering high-quality education at scale,” said Ari de Sá Neto, CEO and founder of Arco.

Second Quarter 2021 Results

Net revenue of R$256.3 million;
Gross profit of R$188.2 million;
Adjusted EBITDA of R$72.3 million; and
Adjusted net income of R$36.4 million.

First Half 2021 Results

Net Revenue of R$588.0 million;
Gross Profit of R$432.7 million;
Adjusted EBITDA of R$190.6 million; and
Adjusted Net Income of R$97.5 million.

Key Messages

Net revenues for the quarter increased 9% year-over-year to R$256.3 million, representing a 21.9% revenue recognition of the ACV bookings, above revenue recognition guidance provided in 1Q21 but below historical levels. Core solutions presented a 14% drop versus 2Q20 to R$200.2 million as part of the revenue recognition was anticipated to 1Q21, while Supplemental solutions increased to R$56.1 million (versus R$1.8 million in 2Q20), impacted by the acquisition of Escola da Inteligência concluded in December 2020. For the 6 months of 2021, net revenues increased 18% year-over-year to R$588.0 million, with Core solutions increasing 2% to R$464.8 million and Supplemental solutions increasing 188% to R$ 123.2 million.

Adjusted EBITDA was R$72.3 million in 2Q21, a 28% drop versus 2Q20, impacted by lower revenue recognition due to the impact of COVID-19’s second wave, product development and investments in sales & marketing as Arco paves the way for future growth. As a result, adjusted EBITDA margin was 28.2% in the quarter versus 42.8% in 2Q20. For the 6 months of 2021, adjusted EBITDA was R$190.6 million, resulting in a margin of 32.4% versus 39.8% for 6M20. When excluding M&As concluded this year, and therefore not incorporated in the guidance, margin was 28.8% for 2Q21 and 32.8% for 6M21. We are maintaining our 2021 adjusted EBITDA margin guidance unchanged at 35.5%-37.5%.

Free cash flow presented an 8% year-over-year increase to R$ 63.7 million in 2Q21 and a significant improvement versus 1Q21, mainly due to the collection of trade receivables generated in previous quarters when the Company opted to assist its partner schools by extending payment terms. As a result, free cash flow/adjusted EBITDA ratio reached 88.2% (versus 58.7% in 2Q20 and -1.7% in 1Q21).

Free cash flow (R$ MM)

2Q21

2Q20

YoY

1Q21

QoQ

Cash generated from operations

113,157

89,878

26

%

89,228

27

%

(-) Income tax paid

(4,529

)

(6,477

)

-30

%

(46,988

)

-90

%

(-) Interest paid on lease liabilities

(743

)

(285

)

161

%

(860

)

-14

%

(-) Interest paid on investment acquisition

(70

)

-

n/a

(4,153

)

-98

%

(-) Interest paid on loans and financing

(4,378

)

-

n/a

(3,567

)

23

%

(-) Payments for contingent consideration

(332

)

-

n/a

-

n/a

Cash Flow from Operating Activities

103,105

83,116

24

%

33,660

206

%

(-) Acquisition of property, plant and equipment

(2,534

)

(1,665

)

52

%

(2,998

)

-15

%

(-) Acquisition of intangible assets

(36,842

)

(22,421

)

64

%

(32,701

)

13

%

Free cash flow

63,729

59,030

8

%

(2,039

)

n/a

The 19% QoQ reduction in trade receivables reflects Arco’s business resilience and its capacity to collect from partner schools to whom we provided support through more flexible payment terms.

Trade Receivables - Aging (R$ MM)

2Q21

2Q20

YoY

1Q21

QoQ

Neither past due nor impaired

357.2

247.4

44

%

481.9

-26

%

1 to 60 days

36.9

38.0

-3

%

20.5

80

%

61 to 90 days

9.3

12.7

-27

%

6.9

35

%

91 to 120 days

7.1

10.3

-31

%

4.5

58

%

121 to 180 days

7.9

8.0

-2

%

11.0

-28

%

More than 180 days

59.3

23.9

148

%

65.1

-9

%

Trade receivables

477.7

340.5

40

%

589.8

-19

%

Days of sales outstanding

2Q21

2Q20

YoY

1Q21

QoQ

Trade receivables (R$ MM)

477.7

340.5

40

%

589.8

-19

%

(-) Allowance for doubtful accounts

(71.3

)

(42.0

)

70

%

(67.3

)

6

%

Trade receivables, net (R$ MM)

406.4

298.4

36

%

522.5

-22

%

Net revenue LTM pro-forma1

1,118.6

911.8

23

%

1,130.2

-1

%

Adjusted DSO

133

119

11

%

169

-21

%

1)

Calculated as net revenues for the last twelve months added to the pro forma revenues from businesses acquired in the period to accurately reflect the Company’s operations.

No significant change in the allowance for doubtful accounts, reflecting solid receivables profile and a strong collection process following our strategy to assist our partner schools by providing more flexible payment terms during the pandemic.

Allowance for doubtful accounts (R$ MM)

2Q21

2Q20

YoY

1Q21

QoQ

Allowance for doubtful accounts

(6.6

)

(6.4

)

3

%

(3.8

)

74

%

% of Revenues

-2.6

%

-2.7

%

0.1 p.p.

-1.2

%

-1.4 p.p.

Allowance for doubtful accounts adjusted for COVID impact¹

(6.6

)

(5.5

)

20

%

(3.8

)

74

%

% of Revenues

-2.6

%

-2.3

%

-0.3 p.p.

-1.1

%

-1.5 p.p.

1)

Calculated excluding COVID-19 impact on allowance for doubtful accounts to better reflect a normalized level of this line.

The increase in CAPEX observed in the 2Q21, reaching R$39.4 million or 15.4% of the net revenues, is mainly explained by an increase in investments in software as Arco concludes Positivo’s operational system integration. The integration of other businesses acquired in recent years will continue in upcoming quarters but should be less complex and therefore demand less investment.

CAPEX (R$ MM)¹

2Q21

2Q20

YoY

1Q21

QoQ

Acquisition of intangible assets

36.8

22.4

64%

32.7

13%

Educational platform - content development

8.1

9.7

-16%

8.7

-7%

Educational platform - platforms and educational technology

13.0

3.6

261%

15.6

17%

Software

13.6

7.2

89%

5.8

134%

Copyrights and others

2.1

1.9

11%

2.6

-19%

Acquisition of property, plant and equipment

2.5

1.7

47%

3.0

-17%

TOTAL

39.4

24.1

63%

35.7

10%

1)

Excluding the effect of business combinations.

Arco’s corporate restructuring continues to take place. On July 1st, we concluded the incorporation of SAS subsidiaries, that will result in annual tax savings of approximately R$ 30 million. We expect to incorporate Nave a Vela in 2021, followed by Escola em Movimento (2022), Pleno (2022) and Studos (2022). As we keep incorporating other businesses into CBE (Companhia Brasileira de Educação e Sistemas de Ensino S.A., entity incorporating acquired businesses) we will be able to capture additional tax benefits and therefore further reduce our effective tax rate, currently at 19.4% for 6M21 (versus 29.2% for 6M20).

Intangible assets - net balances (R$ MM)

2Q21

2Q20

YoY

1Q21

QoQ

Business Combination

2,374.1

1,683.7

41%

2,398.6

-1%

Trademarks

443.0

337.8

31%

449.5

-1%

Customer relationships

266.8

181.2

47%

275.3

-3%

Educational system

216.4

215.9

0%

224.5

-4%

Software

7.3

2.8

156%

7.9

-8%

Educational platform

6.0

13.4

-56%

6.1

-3%

Others¹

15.9

15.8

0%

16.8

-6%

Goodwill

1,418.7

916.8

55%

1,418.4

0%

Operational

193.0

109.9

76%

177.0

9%

Educational platform²

136.0

79.4

71%

130.2

4%

Software

45.3

20.5

121%

34.8

30%

Copyrights

11.7

9.9

19%

11.8

-1%

Customer relationships

0.1

0.2

-34%

0.1

-12%

TOTAL

2,567.1

1,793.7

43%

2,575.6

0%

Amortization of intangible assets (R$ MM)

2Q21

2Q20

YoY

1Q21

QoQ

Business Combination

(55.0

)

(17.6

)

212

%

(55.0

)

0

%

Trademarks

(6.4

)

(4.6

)

38

%

(6.4

)

-1

%

Customer relationships

(8.5

)

(5.9

)

44

%

(8.5

)

0

%

Educational system

(8.1

)

(6.5

)

24

%

(8.0

)

1

%

Software

(0.6

)

(0.3

)

119

%

(0.6

)

-4

%

Educational platform

(0.2

)

0.2

-180

%

(0.2

)

0

%

Others¹

(1.2

)

(0.5

)

118

%

(1.1

)

4

%

Goodwill

(30.1

)

-

NA

(30.1

)

0

%

Operational

(20.6

)

(8.3

)

149

%

(18.6

)

11

%

Educational platform²

(15.2

)

(5.5

)

175

%

(13.6

)

11

%

Software

(3.4

)

(1.2

)

177

%

(2.9

)

16

%

Copyrights

(2.1

)

(1.5

)

36

%

(2.0

)

2

%

Customer relationships

(0.0

)

(0.0

)

0

%

(0.0

)

0

%

TOTAL

(75.7

)

(25.9

)

192

%

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(73.6

)

3

%

1)

Non-compete agreements and rights on contracts.

2)

Includes content development in progress.

Amortization of intangible assets (R$ MM)

Impacts
P&L

Originates
tax
benefit

Amortizations with tax benefit in 2Q21

Amortization

Tax benefit

Impact on net income

Business Combination

(46.3

)

15.8

(30.6

)

Trademarks

Yes

Yes²

(4.3

)

1.5

(2.8

)

Customer relationships

Yes

Yes²

(5.3

)

1.8

(3.5

)

Educational system

Yes

Yes²

(5.9

)

2.0

(3.9

)

Educational platform

Yes

Yes²

(0.2

)

0.1

(0.1

)

Others¹

Yes

Yes²

(0.5

)

0.2

(0.3

)

Goodwill

No

Yes²

(30.1

)

10.2

(19.9

)

Operational

Yes

Yes

(20.6

)

7.0

(13.6

)

TOTAL

(66.9

)

22.8

(44.2

)

1)

Non-compete agreements and rights on contracts.

2)

Amortizations are tax deductible only after the incorporation of the acquired business. In 2Q21, 22% of the balance of the intangible assets from business combinations generates tax benefits.

Amortization of intangible assets from business combination that generate tax benefit - schedule (R$ MM)

Businesses with current tax benefit

(already incorporated)

Undefined¹

2021

2022

2023

2024

2025 +

Trademarks

16.9

16.9

16.9

16.9

244.0

132.0

Customer relationships

21.6

20.5

20.5

20.5

74.4

121.7

Educational system

23.0

21.9

21.0

21.0

101.7

33.9

Software

-

-

-

-

-

8.5

Educational platform

0.7

0.7

0.7

0.7

3.5

0.0

Others

1.3

1.2

1.1

0.9

- 0.0

9.1

Goodwill

120.5

120.5

120.5

114.6

341.2

631.4

Total

184.1

181.8

180.8

174.7

764.9

936.7

Maximum tax benefit

62.6

61.8

61.5

59.4

260.1

318.5

1)

Businesses with future tax benefit (to be incorporated).

Arco’s cash and cash equivalent position (Sum of cash and cash equivalents and short-term financial investment) of R$866 million is enough to meet the obligations for the year of R$633 million in debt and accounts payable to selling shareholders (Accounts payable to selling shareholders do not include acquisitions announced still pending anti-trust approval or acquisitions closed after June 30, 2021). Additionally, we are currently working on a credit line of approximately R$900 million at attractive conditions to finance the previously announced acquisition of COC and Dom Bosco Core learning systems from Pearson and refinance existing debt.

Despite early in the commercial cycle, we see a clear acceleration in the pace of organic growth versus 2020. Cross-sell initiatives continue to play an important role in our commercial strategy, representing at this point 85% of the supplemental intake for the 2022 school year. Additionally, cross-sell initiatives are now powered by the creation of a centralized supplemental business unit, ArcoPlus, which will enable synergies among solutions.

In 2021 Arco launched SAS Adapt, a version of our legacy brand SAS that allows for higher customization, provides more detailed information on students’ engagement and pedagogical gaps, creates higher connectivity among all content available in the platform, and enables more personalized tracks and flexible curriculum. Such product evolution increases our reach to schools that demand more customization possibilities, especially the premium segment, as it allows them to adapt their curriculum and plan pedagogical interventions to fulfill their students’ needs. The access to the premium segment will also be a great opportunity to further improve our solutions as we gather feedback from the best schools in the country. SAS Adapt was created using the best technology available, relying on features from Studos, the adaptive learning solution acquired in September 2020, and Eduqo, a LMS provider acquired in July 2021.

Aligned with our commitment to continuously evolve our solutions, Arco is in the process of creating a single technology backbone for all our solutions. A dedicated area was created to lead this project, ArcoTech, that will consolidate Arco’s features and services such as WPensar, Escola em Movimento, Studos and Eduqo, while gathering the best technological features of the platforms of each of our brands, allowing us to simplify our structure and become an even more agile and responsive company, enhancing our solutions, and delivering a better experience to our clients. Eduqo, acquired in July 2021, further improves the backbone of our platform​ as its solutions fit into every school routine, with the mission of providing a personalized learning experience and helping schools to acquire more students based on data intelligence.

On August 10, Arco released its first ESG report, an important step towards disclosure improvement and commitment to increase our impact in the Brazilian Education sector. Our materiality assessment confirmed the three main themes to be addresses in this first report: impact on education, the focus on people and strong and sustainable structure. The report can be downloaded at https://investor.arcoplatform.com/esg/.

Conference Call Information

Arco will discuss its second quarter 2021 results today, August 19, 2021, 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) 3181-8565. An audio replay of the call will be available through August 25, 2021, 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/.

Information related to COVID-19 pandemic

As of June 30, 2021, there was a total net impact of R$937 thousand on the Company's condensed consolidated financial statements related to the COVID-19 pandemic mainly related to: (i) additional expenses of R$ 1,102 thousand related to health care in food and emotional health programs to the Company’s employees, and (iv) savings on rent concessions, regarding leased buildings, that occurred as a direct consequence of the COVID-19 pandemic, amounting R$165 thousand.

The Company assessed the existence of potential impairment indicators and the possible impacts on the key assumptions and projections caused by the pandemic on the recoverability of long-lived assets and concluded that there are no indications that demonstrate the need to recognize a provision for impairment of long-lived assets in the consolidated financial statements.

The future impact of the COVID-19 pandemic on an ongoing basis is still uncertain, and the Company’s management team will continue to closely monitor and assess the potential impacts it may have on the Company’s business, its financial performance and position.

For full disclosure regarding the COVID-19 discussion, please refer to the June 30, 2021 condensed consolidated financial statements submitted to the Securities and Exchange Commission on Form 6-K.

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-IFRS financial measures including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income 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 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 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, Free Cash Flow and Taxable Income Reconciliation 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, restricted stock units and provision for payroll taxes (restricted stock units), plus M&A 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 (or period), plus share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units), 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 (vi) software and (vii) educational platform resulting from acquisitions), plus/minus 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/minus changes in accounts payable to selling shareholders, plus/minus share of (profit) loss of equity-accounted investees, plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income, plus/minus foreign exchange gains/loss on cash and cash equivalents, plus interest expenses, net, plus M&A expenses, plus non-recurring expenses and plus effects related to COVID-19 pandemic. We calculate Adjusted Net Income Margin as Adjusted Net Income divided by Net Revenue.

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

Consolidated Statements of Financial Position

June 30,

December 31,

(In thousands of Brazilian reais)

2021

2020

Assets

(unaudited)

Current assets

Cash and cash equivalents

314,692

424,410

Financial investments

550,936

712,645

Trade receivables

406,408

415,282

Inventories

86,410

74,076

Recoverable taxes

20,377

19,304

Related parties

4,421

9,970

Other assets

35,363

24,073

Total current assets

1,418,607

1,679,760

Non-current assets

Deferred income tax

269,015

236,903

Recoverable taxes

1,122

1,121

Financial investments

27,618

10,349

Related parties

6,554

10,508

Other assets

31,044

22,239

Investments and interests in other entities

80,248

9,654

Property and equipment

26,222

26,087

Right-of-use assets

39,057

30,022

Intangible assets

2,567,100

2,549,637

Total non-current assets

3,047,980

2,896,520

Total assets

4,466,587

4,576,280

June 30,

December 31,

(In thousands of Brazilian reais)

2021

2020

Liabilities

(unaudited)

Current liabilities

Trade payables

48,764

40,925

Labor and social obligations

96,711

85,069

Taxes and contributions payable

4,883

9,676

Income taxes payable

32,584

44,731

Advances from customers

43,387

23,080

Lease liabilities

16,622

12,742

Loans and financing

305,587

107,706

Accounts payable to selling shareholders

676,378

656,014

Other liabilities

4,781

331

Total current liabilities

1,229,697

980,274

Non-current liabilities

Labor and social obligations

39,815

36,570

Lease liabilities

28,982

22,478

Loans and financing

3,142

203,413

Provision for legal proceedings

1,853

1,366

Accounts payable to selling shareholders

1,066,610

1,130,501

Other liabilities

772

794

Total non-current liabilities

1,141,174

1,395,122

Equity

Share capital

11

11

Capital reserve

2,203,141

2,200,645

Treasury shares

(107,936

)

-

Share-based compensation reserve

89,297

80,817

Accumulated losses

(88,797

)

(80,589

)

Total equity

2,095,716

2,200,884

Total liabilities and equity

4,466,587

4,576,280

Arco Platform Limited

Interim Condensed Consolidated Statements of Income

Three months period ended
June 30,

Six months period ended
June 30,

(In thousands of Brazilian reais, except earnings per share)

2021

2020

2021

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net revenue

256,301

234,864

587,973

496,443

Cost of sales

(68,103

)

(43,120

)

(155,228

)

(110,340

)

Gross profit

188,198

191,744

432,745

386,103

Operating expenses:

Selling expenses

(118,727

)

(88,070

)

(238,385

)

(175,970

)

General and administrative expenses

(61,988

)

(60,139

)

(136,294

)

(126,922

)

Other income (expense), net

975

347

2,500

759

Operating profit

8,458

43,882

60,566

83,970

Finance income

12,114

12,792

22,054

22,179

Finance costs

(45,678

)

(30,752

)

(84,292

)

(69,091

)

Finance result

(33,564

)

(17,960

)

(62,238

)

(46,912

)

Share of loss of equity-accounted investees

(1,728

)

(3,293

)

(2,751

)

(3,999

)

(Loss) profit before income taxes

(26,834

)

22,629

(4,423

)

33,059

Income taxes - income (expense)

Current

(18,544

)

(22,435

)

(35,897

)

(54,623

)

Deferred

25,359

16,050

32,112

41,629

Total income taxes – income (expense)

6,815

(6,385

)

(3,785

)

(12,994

)

(Loss) net profit for the period

(20,019

)

16,244

(8,208

)

20,065

Basic earnings per share – in Brazilian reais

Class A

(0.35

)

0.30

(0.14

)

0.37

Class B

(0.35

)

0.30

(0.14

)

0.37

Diluted earnings per share – in Brazilian reais

Class A

(0.35

)

0.29

(0.14

)

0.36

Class B

(0.35

)

0.30

(0.14

)

0.37

Weighted-average shares used to compute net (loss) profit per share:

Basic

57,020

54,942

57,214

54,941

Diluted

57,307

55,335

57,501

55,334

Arco Platform Limited

Interim Condensed Consolidated Statements of Cash Flows

Three months period
ended June 30,

Six months period
ended June 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating activities

(Loss) profit before income taxes for the period

(26,834

)

22,629

(4,423

)

33,059

Adjustments to reconcile (loss) profit before income taxes

Depreciation and amortization

45,423

31,373

93,475

60,048

Inventory reserves

5,162

1,538

7,386

3,644

Allowance for doubtful accounts

6,610

6,386

10,499

12,554

Loss on sale/disposal of property and equipment and intangible assets disposed

2

780

135

1,452

Fair value change in financial instruments from acquisition interests

-

(913

)

-

(859

)

Changes in accounts payable to selling shareholders

2,677

294

489

6,894

Share of loss of equity-accounted investees

1,728

3,293

2,751

3,999

Share-based compensation plan

6,189

8,741

15,555

17,648

Accrued interest

5,216

5,733

8,905

6,975

Interest accretion on acquisition liability

26,643

16,711

54,024

36,977

Income non-cash equivalents

(4,729

)

(3,617

)

(8,495

)

(5,656

)

Interest on lease liabilities

1,138

687

2,157

1,419

Provision for legal proceedings

(857

)

561

(211

)

594

Provision for payroll taxes (restricted stock units)

1,948

3,158

1,427

9,046

Foreign exchange income

3,813

922

4,092

180

Other financial cost/revenue, net

(2,139

)

(1,038

)

(2,498

)

(1,038

)

71,990

97,238

185,268

186,936

Changes in assets and liabilities

Trade receivables

109,460

39,179

385

18,467

Inventories

(15,545

)

(7,078

)

(11,967

)

(7,563

)

Recoverable taxes

2,944

(2,610

)

2,467

(4,304

)

Other assets

(4,524

)

(1,865

)

(8,455

)

(18,901

)

Trade payables

(4,893

)

(16,353

)

7,225

(3,715

)

Labor and social obligations

7,921

21,164

10,256

15,622

Taxes and contributions payable

(2,279

)

(219

)

(5,083

)

(2,779

)

Advances from customers

(53,798

)

(38,654

)

19,985

10,826

Other liabilities

1,881

(924

)

2,304

(982

)

Cash generated from operations

113,157

89,878

202,385

193,607

Income taxes paid

(4,529

)

(6,477

)

(51,517

)

(64,020

)

Interest paid on lease liabilities

(743

)

(285

)

(1,603

)

(710

)

Interest paid on accounts payable to selling shareholders

(70

)

-

(4,223

)

-

Interest paid on loans and financing

(4,378

)

-

(7,945

)

-

Payments for contingent consideration

(332

)

-

(332

)

(3,696

)

Net cash flows from operating activities

103,105

83,116

136,765

125,181

Investing activities

Acquisition of property and equipment

(2,534

)

(1,665

)

(5,532

)

(4,042

)

Investments in unconsolidated entities

(48,195

)

-

(73,222

)

(12,675

)

Acquisition of subsidiaries, net of cash acquired

-

-

(15,217

)

-

Payment of accounts payable to selling shareholders

(92,836

)

-

(92,836

)

-

Acquisition of intangible assets

(36,842

)

(22,421

)

(69,543

)

(39,480

)

Sale (purchase) of financial investments

97,818

60,774

152,935

(122,402

)

Net cash flows (used in) from investing activities

(82,589

)

36,688

(103,415

)

(178,599

)

Financing activities

Purchase of treasury shares

(56,711

)

-

(109,737

)

-

Payment of lease liabilities

(2,964

)

(3,779

)

(6,354

)

(3,779

)

Payment to owners to acquire entity’s shares

(949

)

(1,001

)

(19,442

)

(1,001

)

Loans and financing

(1,743

)

1,801

(3,443

)

198,372

Net cash flows (used in) from financing activities

(62,367

)

(2,979

)

(138,976

)

193,592

Foreign exchange effects on cash and cash equivalents

(3,813

)

(922

)

(4,092

)

(180

)

Decrease (increase) in cash and cash equivalents

(45,664

)

115,903

(109,718

)

139,994

Cash and cash equivalents at the beginning of the period

360,356

72,991

424,410

48,900

Cash and cash equivalents at the end of the period

314,692

188,894

314,692

188,894

Decrease (increase) in cash and cash equivalents

(45,664

)

115,903

(109,718

)

139,994

Arco Platform Limited

Reconciliation of Non-GAAP Measures

Three months period
ended June 30,

Six months period
ended June 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

Adjusted EBITDA Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(Loss) profit for the period

(20,019

)

16,244

(8,208

)

20,065

(+/-) Income taxes

(6,815

)

6,385

3,785

12,994

(+/-) Finance result

33,564

17,960

62,238

46,912

(+) Depreciation and amortization

45,423

31,373

93,475

60,048

(+) Share of loss of equity-accounted investees

1,728

3,293

2,751

3,999

EBITDA

53,881

75,255

154,041

144,018

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

9,324

15,480

21,048

31,440

(+) M&A expenses

3,853

2,427

7,850

3,991

(+) Non-recurring expenses

4,683

2,827

6,558

10,058

(+) Effects related to Covid-19 pandemic

523

4,591

1,152

7,993

Adjusted EBITDA

72,264

100,580

190,649

197,500

Net Revenue

256,301

234,864

587,973

496,443

EBITDA Margin

21.0

%

32.0

%

26.2

%

29.0

%

Adjusted EBITDA Margin

28.2

%

42.8

%

32.4

%

39.8

%

Three months period
ended June 30,

Six months period
ended June 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

Adjusted Net Income Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(Loss) profit for the period

(20,019

)

16,244

(8,208

)

20,065

(+/-) Adjustments related to business combination

32,477

13,028

62,210

37,201

(+) Amortization of intangible assets from business combinations

24,890

18,252

49,752

36,235

(+/-) Changes in accounts payable to selling shareholders

2,677

294

489

6,894

(+) Interest on acquisition of investments, net (linked to a fixed rate)¹

9,545

7,557

14,452

16,256

(+) Interest on acquisition of investments, net (adjusted by fair value)²

17,098

8,921

39,572

20,240

(+/-) Tax effects

(21,733

)

(21,996

)

(42,055

)

(42,424

)

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

9,324

15,480

21,048

31,440

(+/-) Changes in fair value of derivative instruments

-

(913

)

-

(859

)

(+) Share of loss of equity-accounted investees

1,728

3,293

2,751

3,999

(+/-) Foreign exchange on cash and cash equivalents

3,813

922

4,092

180

(+) M&A expenses

3,853

2,427

7,850

3,991

(+) Non-recurring expenses

4,683

2,827

6,558

10,058

(+) Effects related to Covid-19 pandemic

523

4,591

1,152

7,993

Adjusted Net Income

36,382

57,899

97,453

114,068

Net Revenue

256,301

234,864

587,973

496,443

Adjusted Net Income Margin

14.2

%

24.7

%

16.6

%

23.0

%

1)

Refer to interest expenses on liabilities related to business combinations and investments in associates that are linked to a fixed rate (CDI or SELIC).

2)

Refer to interest expense on liabilities related to business combinations and investments in associates that are adjusted by the fair value of the acquired business.

Three months period
ended June 30,

Six months period
ended June 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

Free Cash Flow Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash generated from operations

113,157

89,878

202,385

193,607

(-) Income tax paid

(4,529

)

(6,477

)

(51,517

)

(64,020

)

(-) Interest paid on lease liabilities

(743

)

(285

)

(1,603

)

(710

)

(-) Interest paid on investment acquisition

(70

)

-

(4,223

)

-

(-) Interest paid on loans and financing

(4,378

)

-

(7,945

)

-

(-) Payments for contingent consideration

(332

)

-

(332

)

(3,696

)

Cash Flow from Operating Activities

103,105

83,116

136,765

125,181

(-) Acquisition of property and equipment

(2,534

)

(1,665

)

(5,532

)

(4,042

)

(-) Acquisition of intangible assets

(36,842

)

(22,421

)

(69,543

)

(39,480

)

Free Cash Flow

63,729

59,030

61,690

81,659

Three months period
ended June 30,

Six months period
ended June 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

Taxable Income Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(Loss) profit before income taxes

(26,834

)

22,629

(4,423

)

33,059

(+) Share-based compensation plan, RSU and provision for payroll taxes¹

466

16,567

9,036

25,776

(+) Amortization of intangible assets from business combinations before incorporation¹

4,859

25,025

9,760

39,549

(+/-) Changes in accounts payable to selling shareholders¹

21,765

15,765

39,411

32,883

(+/-) Share of loss of equity‑accounted investees

(587

)

(1,120

)

(935

)

(1,360

)

(+) Net income from Arco Platform (Cayman)

8,151

4,649

13,800

5,279

(+) Fiscal loss without deferred

3,383

1,150

4,767

2,463

(+/-) Provisions booked in the period

8,854

13,288

13,327

24,598

(+) Tax loss carryforward

74,312

(12,493

)

91,366

17,276

(+) Others

4,756

2,105

8,519

7,831

Taxable income

99,125

87,565

184,628

187,353

Current income tax under actual profit method

(33,702

)

(29,773

)

(62,773

)

(63,700

)

% Tax rate under actual profit method

34.0

%

34.0

%

34.0

%

34.0

%

(+) Effect of presumed profit benefit

2,774

4,368

3,266

4,929

Effective current income tax

(30,928

)

(25,405

)

(59,507

)

(58,771

)

% Effective tax rate

31.2

%

29.0

%

32.2

%

31.4

%

(+) Recognition of tax-deductible amortization of goodwill and added value²

11,097

923

21,935

1,845

(+/-) Other additions (exclusions)

1,287

2,047

1,675

2,303

Effective current income tax accounted for goodwill benefit

(18,544

)

(22,435

)

(35,897

)

(54,623

)

% Effective tax rate accounting for goodwill benefit

18.7

%

25.6

%

19.4

%

29.2

%

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/20210819005754/en/

Contacts:

Investor Relations Contact:
Arco Platform Limited
IR@arcoeducacao.com.br