ARCE - Arco Platform Limited Reports Fourth Quarter and Full Year 2019 Financial Results

Arco beat its adjusted EBITDA margin guidance, achieving 37.9% excluding the M&A effect and confirmed the 2020 ACV of R$1,006 million. 

SÃO PAULO, Brazil, March 16, 2020 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the fourth quarter and full year ended December 31, 2019.

“2019 was a very successful year for Arco with several milestones achieved, such as the acquisition of Positivo and the expansion and diversification of our platform of solutions to schools. We concluded another very strong sales cycle, beating our initial expectations for both Arco stand-alone and Positivo, reaching 1,360,000 students spread throughout 5,400 schools. We are extremely excited with the opportunities ahead of us.” said Ari de Sá Neto, CEO and founder of Arco.

“We are committed to grow fast and responsibly, maintaining the constant improvement of our solutions while effectively controlling costs, as shown by our margins”.

Full Year 2019 Results

• Net Revenue of R$572.8 million;
• Net Loss of R$9.4 million;
• Adjusted Net Income of R$169.5 million; and
• Adjusted EBITDA of R$209.4 million.

Fourth Quarter 2019 Results

• Net Revenue of R$247.6 million;
• Net Profit of R$42.5 million;
• Adjusted Net Income of R$77.0 million; and
• Adjusted EBITDA of R$106.3 million.

Revenue Recognition and Seasonality

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

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

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

2020 ACV Bookings Confirmation (From October 2019 to September 2020):

• 2020 ACV Bookings for Arco Platform is R$1,006 million.
• ACV Bookings for Arco, excluding Positivo, grows at 35% YoY.

First Quarter 2020 guidance:

• We expect to recognize in the first quarter (1Q20) 23% to 26% of the consolidated ACV Bookings 2020.

Full Year 2020 guidance:

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

Synergies resulting from the integration of Positivo Soluções Didáticas (“Positivo”): Arco’s revised integration plan estimates between R$50 million to R$70 million in annual EBITDA impact by the fourth year of integration. Besides that, the Purchase Price Allocation for the acquisition of Positivo based on October 2019 figures resulted in an estimate of R$1,557 million of both identifiable intangible assets and goodwill, which should generate an estimated tax benefit of R$529 million over their amortization period, from the time the incorporation of Positivo by EAS Educação is finalized, which we expect will happen in the third quarter 2020. The unused portion in the year of the amortization, should generate a tax loss, which may be offset in the coming years, limited to 30% of the tax profit.

About Arco Platform Limited (Nasdaq: ARCE)

Arco has empowered hundreds of thousands of students to rewrite their futures through education. Our data-driven learning, interactive proprietary content, and scalable curriculum allows students to personalize their learning experience with high-quality solutions while enabling schools to provide a broader approach to education.

Forward-Looking Statements

This press release contains forward-looking statements as pertains to Arco Platform Limited (the “Company”) within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the Company’s expectations or predictions of future financial or business performance conditions. The achievement or success of the matters covered by statements herein involves substantial known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company’s results could differ materially from the results expressed or implied by the statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward looking statements are made based on the Company’s current expectations and projections relating to its financial conditions, result of operations, plans, objectives, future performance and business, and these statements are not guarantees of future performance.

Statements which herein address activities, events, conditions or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “evaluate,” “expect,” “explore,” “forecast,” “guidance,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “probable,” “project,” “seek,” “should,” “view,” or “will,” or the negative thereof or other variations thereon or comparable terminology. 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 and Free Cash Flow.

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

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

Key Business Metrics

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

Non-GAAP Financial Measures

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

We calculate Adjusted EBITDA as profit for the year (or period) plus income taxes plus/minus finance result plus depreciation and amortization plus share of loss of equity-accounted investees plus share-based compensation plan, plus M&A expenses and plus non-recurring expenses. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by Net Revenue, multiplied by 100%.

We calculate Adjusted Net Income as profit for the year (or period) plus share-based compensation plan plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) rights on contracts, (ii) customer relationships, (iii) educational system, (iv) trademarks, (v) non-compete agreement and (vi) softwares resulting from aquisitions) less/plus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments—finance income, and plus (ii) changes in fair value of derivative instruments—finance costs), less/plus changes in accounts payable to selling shareholders plus share of loss of equity-accounted investees plus interest expenses 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 M&A expenses and plus non-recurring expenses. We calculate Adjusted Net Income Margin as Adjusted Net Income divided by Net Revenue, multiplied by 100%.

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 understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income 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, Adjusted Net Income Margin and Free Cash Flow may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

Conference Call Information

Arco will discuss its fourth quarter and full year 2019 results today, March 16, 2020, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 7458624), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through March 30, 2020 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 7458624. A webcast of the call will be available on the Investor Relations section of the Company’s website at https://arcoeducacao.gcs-web.com/.

Investor Relations Contact:

Arco Platform Limited
IR@arcoeducacao.com.br
Source: Arco Platform Ltd.