ARCE - Arco Platform Limited Reports Fourth Quarter and Full Year 2018 Financial Results

March, 19 2019 04:05 PM Arco Platform Limited

Full Year Net Revenue Increases 56% Year-Over-Year to R$381.0 Million

Fourth Quarter Net Revenue Increases 73% Year-Over-Year to R$121.0 Million

SÃO PAULO, Brazil, March 19, 2019 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the fourth quarter and full year 2018 ended December 31, 2018.

“A year ago, we set highly ambitious goals for 2018. We wanted to improve the quality of our solutions and increase our customers’ satisfaction, while expanding our network of schools. We are pleased with what we accomplished. It was a direct result of the hard work of our talented team and strong culture,” said Ari de Sá Neto, CEO and founder of Arco.

“In 2019, we remain relentlessly committed to delivering the best platform to more than 1,450 partner schools, with high quality content, relevant technology and personalized services, impacting the lives of nearly half a million students.”

Full Year 2018 Highlights

Net Revenue was R$381.0 million, an increase of 56% compared to R$244.4 million in 2017.
Net Loss was R$82.9 million compared to Net income of R$43.6 million in 2017.
Adjusted Net Income was R$112.3 million compared to R$66.6 million in 2017.
Adjusted EBITDA was R$142.0 million compared to R$91.1 million in 2017.

Fourth Quarter 2018 Results

Net Revenue was R$121.0 million, an increase of 73% compared to R$69.9 million in the fourth quarter of 2017.
Net Loss was R$76.9 million compared to Net income of R$8.1 million in the fourth quarter of 2017.
Adjusted Net Income was R$43.1 million compared to R$14.4 million in the fourth quarter of 2017.
Adjusted EBITDA was R$46.1 million compared to R$20.7 million in the fourth quarter of 2017.

Revenue Recognition and Seasonality

As we report fourth quarter and full year 2018 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.

2019 ACV Bookings Confirmation (From October 2018 to September 2019):

2019 ACV Bookings is R$440.9 million, an increase of 37% against the 2018 ACV Bookings.

First Quarter 2019 Guidance:

We expect to recognize in the first quarter (1Q19) 22% to 25% of the ACV Bookings 2019.
Net Revenue is expected to be in the range of R$97.0 million to R$110.2 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 within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. 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, and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share, and free cash flow.

We undertake 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.

The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect our financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled “Risk Factors” in our most recent Rule 424(b) prospectus. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://arcoeducacao.gcs-web.com/.

Key Business Metrics

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

Non-GAAP Financial Measures

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

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

We calculate Adjusted Net Income as profit (loss) 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 (ii) changes in fair value of derivative instruments—finance costs), plus changes in accounts payable to selling shareholders, plus share of loss of equity-accounted investees plus interest expenses, minus changes in deferred tax assets and liabilities recognized in profit or loss (corresponding to financial instruments from acquisition of interests, share-based compensation and amortization of intangible assets) and plus foreign exchange on cash and cash equivalents.

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

We understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin and Free Cash Flow are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS. Additionally, our calculations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income 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 fourth quarter and full year 2018 results today, March 19, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 5468529), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through April 2, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 5468529. 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
Vitor Hiraiwa
IR@arcoeducacao.com.br

Source: Arco Platform Ltd.

Arco Platform Limited
Consolidated Statements of Financial Position


December 31,
December 31,
(in thousands)
2018

2017
Assets
R$

R$
Current assets




Cash and cash equivalents

12,301


834
Financial investments

806,789


83,009
Trade receivables

136,611


94,936
Inventories

15,131


18,820
Taxes recoverable

11,227


5,112
Other assets

6,091


7,329
Total current assets

988,150


210,040
Non-current assets






Financial instruments from acquisition of interests

26,630


12,511
Deferred income tax

99,460


5,860
Taxes recoverable

1,033


3,288
Financial investments

4,370


199
Other assets

2,286


1,295
Investments and interests in other entities

11,862


12,654
Property and equipment

13,347


9,079
Intangible assets

187,740


175,483
Total non-current assets

346,728


220,369







Total assets


1,334,878



430,409








Liabilities






Current liabilities




Trade payables

14,845


3,918
Labor and social obligations

15,888


8,719
Taxes and contributions payable

2,555


1,079
Income taxes payable

17,294


17,375
Dividends payable

-


10,511
Advances from customers

5,997


5,898
Financial instruments from acquisition of interests

51


1,784
Accounts payable to selling shareholders

830


14,936
Other liabilities

428


5,454
Total current liabilities

57,888


69,674
Non-current liabilities






Financial instruments from acquisition of interests

25,046


11,853
Provision for legal proceedings

131


-
Deferred income tax

1,378


80
Accounts payable to selling shareholders

180,551


43,067
Total non-current liabilities

207,106


55,000







Equity




Share capital

10


55,897
Capital reserve

1,089,505


160,682
Earnings reserves

-


81,992
Share-based compensation reserve

67,350


7,053
Accumulated losses

(86,687
)

-
Equity attributable to equity holders of the parent

1,070,178


305,624
Non-controlling interests

(294
)

111
Total equity

1,069,884


305,735







Total liabilities and equity


1,334,878



430,409

Arco Platform Limited
Consolidated Statements of Income (Loss)



Three months ended December 31,

Twelve months ended December 31,
(in thousands, except per share data)
2018

2017

2018

2017

R$


R$


R$

R$
Net revenue

121,009




69,872




380,981




244,382


Cost of sales
(23,917
)


(18,072
)


(80,745
)


(58,517
)

Gross profit
97,092



51,800



300,236



185,865


Operating expenses:











Selling expenses
(35,201
)


(19,748
)


(113,270
)


(65,314
)

General and administrative expenses
(22,010
)


(17,991
)


(129,754
)


(48,931
)

Other income, net
342



1,571



4,856



3,299


Operating profit
40,223



15,632



62,068



74,919


Finance income
22,835



240



36,618



12,531


Finance costs
(182,789
)


(3,505
)


(198,795
)


(20,389
)

Finance result
(159,954
)


(3,265
)


(162,177
)


(7,858
)

Share of loss of equity-accounted investees
(243
)


(36
)


(792
)


(705
)













Profit (loss) before income taxes
(119,974
)


12,331



(100,901
)


66,356


Income taxes - income (expense)











Current
(3,304
)


(8,287
)


(26,553
)


(31,010
)

Deferred
46,389



4,011



44,538



8,294


Total income taxes – income (expense)
43,085



(4,276
)


17,985



(22,716
)

Profit (loss) for the year

(76,889
)



8,055




(82,916
)



43,640


Equity holders of the parent

(76,819
)



7,964




(82,380
)



44,255


Non-controlling interests

(70
)



91




(536
)



(615
)









Basic earnings per share – in Brazilian reais







Class A

(1.53
)



0.16




(1.64
)



0.88


Class B

(1.53
)



0.16




(1.64
)



0.88


Diluted earnings per share – in Brazilian reais















Class A

(1.53
)



0.15




(1.64
)



0.85


Class B

(1.53
)



0.15




(1.64
)



0.85


















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







Basic
50,261



50,261



50,261



50,261


Diluted
50,261



51,192



50,261



51,192


Arco Platform Limited
Consolidated Statements of Cash Flows




Three months ended December 31,

Twelve months ended December 31,
(in thousands)
2018

2017

2018

2017

Operating activities
R$

R$


R$

R$

Profit (loss) before income taxes
(119,974
)


12,331



(100,901
)

66,356

Adjustments to reconcile profit (loss) before income taxes









Depreciation and amortization
5,735



4,417



19,594


14,288

Inventory reserves
4,875



2,842



7,252


4,481

Allowance for doubtful accounts
3,875



2,196



9,588


5,227

Residual value of property and equipment and intangible assets disposed
-



150



138


664

Financial instruments from acquisition of interests
2,243



2,352



(659
)

6,657

Changes in accounts payable to selling shareholders
130,378



-



130,378


-

Share of loss of equity-accounted investees
243



36



792


705

Changes in fair value of step acquisitions
-



-



-


(1,184
)
Share-based compensation plan
138



658



60,297


1,890

Accrued interest
2,378



2,588



8,704


11,179

Provision for legal proceedings
(10
)


-



131


-

Foreign exchange loss
34,435



-



34,435


-


64,316



27,570



169,749


110,263

Changes in assets and liabilities









Trade receivables
(83,440
)


(51,025
)


(57,020
)

(24,347
)
Inventories
1,476



(6,815
)


(3,563
)

(8,914
)
Taxes recoverable
(3,789
)


(636
)


(3,807
)

(2,777
)
Other assets
469



1,598



(2,254
)

(320
)
Trade payables
5,420



(1,143
)


10,256


(1,512
)
Labor and social obligations
1,840



(826
)


7,169


3,081

Taxes and contributions payable
1,038



547



1,476


553

Advances from customers
2,028



3,581



99


3,950

Other liabilities
1,822



206



(3,342
)

(654
)
Cash generated from operations
(8,820
)


(26,943
)


118,763


79,323











Income taxes paid
(1,174
)


(3,640
)


(26,639
)

(16,673
)
Net cash flows from (used in) operating activities
(9,994
)


(30,583
)


92,124


62,650











Investing activities









Acquisition of property and equipment
(2,807
)


(1,419
)


(6,854
)

(5,314
)
Payment of investments and interests in other entities
-



(7,700
)


(2,000
)

(19,900
)
Acquisition of subsidiaries, net of cash acquired
(936
)


-



(14,756
)

(28,347
)
Acquisition of intangible assets
(19,555
)


(1,437
)


(29,403
)

(6,047
)
Financial investments
(756,473
)


29,214



(727,951
)

(17,361
)
Other
-



-



-


(300
)
Net cash flows from (used in) investing activities
(779,771
)


18,658



(780,964
)

(77,269
)










Financing activities









Capital increase
-



-



3,091


86,148

Proceeds from initial public offering
-



-



895,182


-

Share issuance costs
(12,954
)


-



(78,531
)

-

Dividends paid
-



-



(85,000
)

(75,053
)
Net cash flows from (used in) financing activities
(12,954
)


-



734,742


11,095











Net foreign exchange difference
(34,435
)


-



(34,435
)

-











Increase (decrease) in cash and cash equivalents
(837,154
)


(11,925
)


11,467


(3,524
)
Cash and cash equivalents at the beginning of the year
849,455



12,759



834


4,358

Cash and cash equivalents at the end of the year
12,301



834



12,301


834

Increase (decrease) in cash and cash equivalents
(837,154
)


(11,925
)


11,467


(3,524
)

Arco Platform Limited
Reconciliation of Non-GAAP Measures



Three months ended
Twelve months ended


December 31,
December 31,


2018


2017


2018


2017

Adjusted EBITDA Reconciliation

R$

R$

R$

R$
Profit (loss) for the year

(76,889
)

8,055


(82,916
)

43,640

(+) Income taxes

(43,085
)

4,276


(17,985
)

22,716

(+/-) Finance result

159,954


3,265


162,177


7,858

(+) Depreciation and amortization

5,735


4,417


19,594


14,288

(+) Share of loss of equity-accounted investees

243


36


792


705

EBITDA

45,958


20,049


81,662


89,207

(+) Share-based compensation plan

138


658


60,297


1,890

Adjusted EBITDA

46,096


20,707


141,959


91,097










Net Revenue

121,009


69,872


380,981


244,382

Adjusted EBITDA Margin

38.1
%

29.6
%

37.3
%

37.3
%



Three months ended
Twelve months ended


December 31,
December 31,


2018


2017


2018


2017

Adjusted Net Income Reconciliation

R$

R$

R$

R$
Profit (loss) for the year

(76,889
)

8,055


(82,916
)

43,640

(+) Share-based compensation plan

138


658


60,297


1,890

(+) Amortization of intangible assets from business combinations
2,958


2,942


11,766


9,573

(+/-) Changes in fair value of derivative instruments
2,243


2,352


(659
)

6,657

(+) Changes in accounts payable to selling shareholders
130,378


-


130,378


-

(+) Share of loss of equity-accounted investees

243


36


792


705

(-) Tax effects

(52,797
)

(2,196
)

(51,525
)

(7,064
)
(+) Foreign exchange on cash and cash equivalents

34,435


-


34,435


-

(+) Interest expenses

2,419


2,530


9,781


11,179

Adjusted net income

43,128


14,377


112,349


66,580










Net Revenue

121,009


69,872


380,981


244,382

Adjusted Net Income Margin

35.6
%

20.6
%

29.5
%

27.2
%



Three months ended
Twelve months ended


December 31,
December 31,


2018


2017


2018


2017

Free Cash Flow Reconciliation

R$

R$

R$

R$
Cash Generated from Operations

(8,820
)

(26,943
)

118,763


79,323

(-) Income Tax Paid

(1,174
)

(3,640
)

(26,639
)

(16,673
)
Cash Flow from Operating Activities

(9,994
)

(30,583
)

92,124


62,650

(-) Acquisition of property and equipment

(2,807
)

(1,419
)

(6,854
)

(5,314
)
(-) Acquisition of intangible assets

(19,555
)

(1,437
)

(29,403
)

(6,047
)
Free Cash Flow

(32,356
)

(33,439
)

55,867


51,289

Company Name:	Arco Platform Limited
Stock Symbol:	ARCE
Market:	NASDAQ
Website:	arcoeducacao.com.br

Twitter