SÃO PAULO--(BUSINESS WIRE)--Arco Platform Limited, or Arco or Company (Nasdaq: ARCE), today reported financial and operating results for the first quarter ended March 31, 2022.
“The year started at a very strong pace, favored by the resumption of classes in the Brazilian private K-12 schools and the return of students who dropped-out during the pandemic. There was a significant increase in additional orders of our bookings during the quarter and, for some of these orders that were received late in the quarter, delivery to customers was concluded in April. Consequently, revenues that are traditionally recognized in the first quarter slipped to the next quarter. We took advantage of this positive environment to invest in selling initiatives, anticipating our marketing/commercial activities to the very beginning of the year, with an emphasis on our cross-selling strategy, which already shows very positives signs to date. On the cost side, we are confident our integration and efficiency initiatives will outpace inflationary pressures in Brazil and drive our margins this year to meet the adjusted EBITDA margin guidance provided for 2022. The conclusion of the incorporation of COC and Dom Bosco, combined with a more normalized CAPEX level and a high level of neither due nor impaired receivables put us on track to deliver healthy cash generation in 2022 and forward. We are very confident on the full conversion of our ACV into revenues this year, as evidenced by the fact that we have already delivered approximately 66% of our ACV cycle to date (from October 2021 thru April 2022), the highest revenue recognition for the period over the past several years”, said Ari de Sá Neto, CEO and founder of Arco.
First Quarter 2022 Results
- Net revenue of R$430.0 million
- Gross profit of R$313.5 million
- Adjusted EBITDA of R$146.7 million
- Net income of R$102.7 million
- Adjusted net income of R$31.3 million
Key Messages
- Net revenue for the first quarter was R$430.0 million, a 30% year-over-year increase, representing a 27.6% revenue recognition of 2022 ACV bookings. Core solutions totaled R$346.2 million (+31% YoY), while Supplemental solutions were R$83.9 million (+25% YoY). Excluding the acquisitions concluded in 2021 (MeSalva!, Eduqo, Edupass, COC and Dom Bosco) and 2022 (PGS and Mentes), net revenue increased 19% YoY in 1Q22.
- Additionally, due to the atypically high level of additional orders placed by partner schools in 1Q22, we delivered part of these orders in April 2022. Accordingly, these orders will be recognized in 2Q22. When analyzing the numbers for the first four months of 20221, revenue grew 47% versus 4M21 (or +32% YoY excluding M&A), leading to a 65.8% ACV recognition cycle to date, the highest for the period over the past several years. Such 4M22 top line growth is in line with 2022 ACV growth. Our business operates through annual contracts; therefore, we recommend investors to analyze our numbers on an annual basis.
| _______________ |
1 Figures for the first four months of 2022 are preliminary, unaudited, and subject to change. |
- Gross margin for 1Q22 decreased 0.8 percentage points YoY to 72.9% (vs 73.7% in 1Q221), impacted by the recent acquisitions concluded after March 31st, 2021. Excluding M&As, gross margin improved to 74.5% in 1Q22.
- Higher selling expenses excluding depreciation and amortization for 1Q22 (+46% YoY) reflect the anticipation of commercial initiatives to Q1 and higher investments in cross-sell initiatives, taking advantage of the positive environment in schools across Brazil as students returned to the classrooms. Excluding the effect of businesses acquired in 2021 and 2022, selling expenses increased 37% in 1Q22. Allowance for doubtful accounts decreased 260.2% YoY in 1Q22. Excluding businesses acquired in 2021 and 2022, allowance for doubtful accounts decreased 260.1% YoY in 1Q22, reflecting our improved collection process, combined with increasingly B2C profile of our customers (pursuit to which the credit card payment model implies lower credit risks).
- The quality of Arco’s receivables profile and strong credit and collection processes led to a decrease in allowance for doubtful accounts back to historical levels. Throughout the COVID-19 pandemic, Arco supported its partner schools through the extension of payment terms. Delinquency also decreased to 7.2% in 1Q22, from 8.2% in 1Q21, and the coverage index decreased to 9% in 1Q22 (from 11% in 1Q21) and 12%, excluding receivables from transactions with no credit risk such as direct sales to parents using credit cards (from 17% in 1Q21).
Allowance for doubtful accounts (R$ MM) |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Allowance for doubtful accounts |
6.2 |
(3.8) |
-264% |
10.1 |
-38% |
% of Revenues |
1.4% |
-1.2% |
2.6 p.p. |
-2.2% |
3.6 p.p. |
Allowance for doubtful accounts adjusted for COVID impact¹ |
6.2 |
(3.8) |
-264% |
10.1 |
-38% |
% of Revenues |
1.4% |
-1.1% |
2.5 p.p. |
-2.2% |
3.6 p.p. |
1) |
Calculated excluding COVID-19 impact on allowance for doubtful accounts to better reflect a normalized level of this line. |
- G&A expenses excluding depreciation and amortization increased 7% YoY in 1Q22, below top line growth, reflecting our initial efforts towards increased efficiency.
- Adjusted EBITDA was R$ 146.7 million in 1Q22, +24% YoY, with an adj. EBITDA margin of 34.1% versus 35.7% in 1Q21. Excluding the impact of the M&As concluded in 2021 and 2022, adjusted EBITDA margin for the quarter improved to 35.9%. We are reaffirming the 36.5% and 38.5% adjusted EBITDA margin guidance for 2022. As discussed above, part of the ACV from additional orders placed in 1Q22 that we typically deliver in Q1 (as it will be used inside classrooms in Q2) was delivered in the beginning of April 2022 and will be recognized in 2Q22. When analyzing the numbers for the first four months of 2022, Adjusted EBITDA grew 64% versus 4M21, a 300bps YoY margin expansion for 4M22. Alternatively, in a scenario where those revenues and respective costs were recognized in the Q1, its original quarter considering the content deliveries for the period, Arco’s adj. EBITDA margin would have been 39,5% in 1Q22, up 380bps YoY.
- There was a clear YoY profitability improvement of our business in the 2022 cycle, with net revenue increasing 52% YoY cycle to date and adjusted EBITDA increasing 72% YoY cycle to date, with an adjusted EBITDA margin expansion of 450bps.
- Adjusted net income in 1Q22 was R$31.3 million, 43% below 1Q212, with an adjusted net margin of 7.3%, impacted by higher finance expenses and D&A.
- Arco delivered healthy operating profit in 1Q22, maintaining the ratio of CAPEX/net revenues3 stable at 10.9% (versus 10.8% in 1Q21), and lowered its effective tax rate to 19.6% (versus 20.3% in 1Q21).
- Lower delinquency and better collection process led to a better receivables profile, with a lower percentual level of past due receivables YoY (12.2% of total trade receivables in 1Q22, from 18.3% in 1Q21). Free cash flow is expected to improve in Q2 as a relevant portion of receivables started to be collected in April.
| ______________ |
2 Pro forma adjusted net Income for 1Q21, excluding the following adjustments: (i) Interest on acquisition of investments, net (linked to a fixed rate); (ii) Foreign exchange on cash and cash equivalents; and (iii) Share of loss of equity accounted investees. For comparison purposes only. |
3PGS & Mentes acquisition was not characterized as a business combination once there was no company acquisition, but an asset purchase instead. In 1Q22, R$5.5 million was paid regarding such operation and accounted as intangible acquisition. Such disbursement has an economic nature of M&A and was excluded pro-forma for the CAPEX analysis above. Including PGS & Mentes acquisition, CAPEX would represent 12.2% of revenues. |
Trade Receivables - Aging (R$ MM) |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Neither past due nor impaired |
779.2 |
481.9 |
62% |
567.5 |
37% |
1 to 60 days |
32.6 |
20.5 |
59% |
15.4 |
112% |
61 to 90 days |
10.1 |
6.9 |
47% |
8.4 |
21% |
91 to 120 days |
3.1 |
4.5 |
-30% |
10.3 |
-70% |
121 to 180 days |
6.8 |
11.0 |
-39% |
16.3 |
-59% |
More than 180 days |
55.3 |
65.1 |
-15% |
62.5 |
-12% |
Trade receivables |
887.1 |
589.8 |
50% |
680.4 |
30% |
Days of sales outstanding |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Trade receivables (R$ MM) |
887.1 |
589.8 |
50% |
680.4 |
30% |
(-) Allowance for doubtful accounts |
80.9 |
67.3 |
20% |
87.1 |
-7% |
Trade receivables, net (R$ MM) |
806.2 |
522.5 |
54% |
593.3 |
36% |
Net revenue LTM pro-forma¹ |
1,387.3 |
1,130.2 |
23% |
1,328.0 |
4% |
Adjusted DSO |
212 |
169 |
26% |
163 |
30% |
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. |
CAPEX¹ (R$ MM) |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Acquisition of intangible assets¹ |
40.3 |
32.7 |
23% |
46.6 |
-14% |
Educational platform - content development |
3.9 |
17.0 |
-77% |
6.6 |
-41% |
Educational platform - platforms and educational technology |
24.6 |
7.4 |
234% |
25.0 |
-2% |
Software |
10.3 |
5.8 |
79% |
13.2 |
-22% |
Copyrights and others |
1.5 |
2.6 |
-41% |
1.8 |
-14% |
Acquisition of property, plant and equipment |
6.7 |
3.0 |
123% |
50.5 |
-87% |
TOTAL¹ |
47.0 |
35.7 |
32% |
97.1 |
-52% |
1) |
For 1Q22, the acquisition of intangibles asset accordingly to the financial statements included the first portion (R$5.5 million) of PGS & Mentes acquisition that was settled in February 2022. It was characterized as CAPEX instead of business combination as they were not companies, but assets purchased. In the table above such acquisition was not consider due to its M&A nature. Considering PGS & Mentes acquisition, the acquisition of intangibles assets would totalize R$45.8 million and CAPEX would totalize R$52.5 million. |
- Arco’s corporate restructuring is ongoing. We concluded the incorporation of COC and Dom Bosco in May 2022, leading to future annual income tax savings of approximately R$12 million. Future incorporations include Geekie (2022), SAE Digital (2023), Pleno (2023) and Escola da Inteligência (2023). As we keep incorporating other businesses into CBE (Companhia Brasileira de Educação e Sistemas de Ensino, our wholly owned entity which incorporates acquired businesses) we expect to be able to capture additional tax benefits and therefore expect to further reduce our effective tax rate, currently at 19.6% in 1Q22 (versus 20.3% in 1Q21).
Intangible assets - net balances (R$ MM) |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Business Combination |
2,977.8 |
2,398.6 |
24% |
2,992.3 |
0% |
Trademarks |
495.2 |
449.5 |
10% |
488.8 |
1% |
Customer relationships |
265.5 |
275.3 |
-4% |
274.6 |
-3% |
Educational system |
233.9 |
224.5 |
4% |
243.3 |
-4% |
Softwares |
10.3 |
7.9 |
30% |
11.0 |
-6% |
Educational platform |
4.1 |
6.1 |
-33% |
5.6 |
-27% |
Others¹ |
19.0 |
16.8 |
13% |
19.1 |
-1% |
Goodwill |
1,949.9 |
1,418.4 |
37% |
1,949.9 |
0% |
Operational |
276.1 |
177.0 |
56% |
265.1 |
4% |
Educational platform² |
198.3 |
130.2 |
52% |
192.0 |
3% |
Softwares |
66.8 |
34.8 |
92% |
61.6 |
8% |
Copyrights |
11.0 |
11.8 |
-7% |
11.4 |
-4% |
Customer relationships |
0.1 |
0.1 |
-35% |
0.1 |
-35% |
TOTAL |
3,253.9 |
2,575.6 |
26% |
3,257.4 |
0% |
Amortization of intangible assets (R$ MM) |
1Q22 |
1Q21 |
YoY |
4Q21 |
QoQ |
Business Combination |
(60.4) |
(54.9) |
10% |
(59.5) |
2% |
Trademarks |
(7.7) |
(6.4) |
20% |
(7.3) |
5% |
Customer relationships |
(9.2) |
(8.5) |
8% |
(9.7) |
-5% |
Educational system |
(9.3) |
(8.0) |
16% |
(9.4) |
-1% |
Softwares |
(0.7) |
(0.6) |
17% |
(0.5) |
40% |
Educational platform |
(0.2) |
(0.2) |
0% |
(0.1) |
100% |
Others¹ |
(1.4) |
(1.1) |
27% |
(0.5) |
180% |
Goodwill |
(31.9) |
(30.1) |
6% |
(31.9) |
0% |
Operational |
(29.5) |
(18.1) |
63% |
(27.2) |
8% |
Educational platform² |
(22.3) |
(13.8) |
62% |
(19.8) |
13% |
Softwares |
(5.2) |
(2.2) |
136% |
(4.5) |
16% |
Copyrights |
(1.9) |
(2.0) |
-5% |
(2.0) |
-5% |
Customer relationships |
(0.1) |
(0.1) |
0% |
(0.9) |
-89% |
TOTAL |
(89.9) |
(73.0) |
23% |
(86.6) |
4% |
1) |
Non-compete agreements and rights on contracts. |
2) |
Includes content development in progress. |
| Amortization of intangible assets
(R$ MM) |
Impacts
|
Originates
|
Amortization with tax benefit in 1Q22² |
||
Amortization |
Tax
|
Impact on
|
|||
Business Combination |
|
|
(38.2) |
12.9 |
(25.3) |
Trademarks |
Yes |
Yes² |
(1.5) |
0.5 |
(1.0) |
Customer relationships |
Yes |
Yes² |
(2.4) |
0.8 |
(1.6) |
Educational system |
Yes |
Yes² |
(1.8) |
0.6 |
(1.2) |
Educational platform |
Yes |
Yes² |
(0.3) |
0.1 |
(0.2) |
Others¹ |
Yes |
Yes² |
(0.3) |
0.1 |
(0.2) |
Goodwill |
No |
Yes² |
(31.9) |
10.8 |
(21.1) |
Operational |
Yes |
Yes |
(29.5) |
10.0 |
(19.5) |
TOTAL |
|
|
(67.7) |
22.9 |
(44.8) |
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$ MM) | Businesses with current tax benefit |
Undefined² |
||||
2022¹ |
2023 |
2024 |
2025 |
2026 + |
||
Trademarks |
19 |
20 |
20 |
20 |
277 |
128 |
Customer relationships |
21 |
25 |
25 |
25 |
59 |
111 |
Educational system |
25 |
27 |
27 |
27 |
106 |
32 |
Software license |
- |
- |
- |
- |
- |
11 |
Rights on contracts |
1 |
1 |
1 |
1 |
3 |
1 |
Others |
2 |
2 |
2 |
1 |
1 |
10 |
Goodwill |
202 |
239 |
234 |
230 |
382 |
514 |
Total |
270 |
314 |
308 |
303 |
828 |
808 |
Maximum tax benefit |
92 |
107 |
105 |
103 |
281 |
275 |
1) |
Considers the maximum tax benefit for full year 2022. In 1Q22 we have benefited from R$ 12 million. |
2) |
Businesses with future tax benefit (incorporation process to begin). |
| Amortization of intangible assets from business combination that generate tax benefit – breakdown by solutions (R$ MM) | Businesses with current tax benefit |
Undefined¹ |
||||
2022 |
2023 |
2024 |
2025 |
2026 + |
||
NAVE |
8 |
9 |
9 |
9 |
8 |
- |
P2D² |
82 |
126 |
126 |
126 |
227 |
- |
Positivo |
170 |
170 |
170 |
169 |
593 |
- |
Other Companies |
10 |
10 |
4 |
0 |
0 |
808 |
Total |
270 |
314 |
308 |
303 |
828 |
808 |
Maximum tax benefit |
92 |
107 |
105 |
103 |
281 |
275 |
1) |
Businesses with future tax benefit (incorporation process to begin). |
2) |
Refer to COC and Dom Bosco solutions acquired in 2021. |
- Arco’s cash and cash equivalents plus financial investments position of R$958 million is currently adequate to meet obligations for the year of R$849 million in debt and accounts payable to selling shareholders. As part of Arco’s balance sheet management strategy, we are currently discussing a potential extension in the length of our indebtedness.
Conference Call Information
Arco will discuss its first quarter 2022 results today, May 24th, 2022, 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 May 30, 2022, 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 March 31, 2022, the Company did not recognize any additional expenses related to COVID-19, mainly due to flexibility of restricted measures and the high percentage of the target population vaccinated in Brazil.
The Company does not expect to incur additional expenses from COVID-19, but management will continue to monitor and assess the impact COVID-19 may have on the Company’s business operations, financial performance, financial position, and cash flows.
For full disclosure regarding the impacts of COVID-19, please refer to our condensed consolidated financial statements as of and for the three months ended March 31, 2022, 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 (Loss), Adjusted Net Income (Loss) 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 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
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 and restricted stock units, plus provision for payroll taxes (restricted stock units), plus/minus M&A related (gains) losses and 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, 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) software resulting from acquisitions), 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 income (expenses), net (which refers to interest expenses related to accounts payable to selling shareholders from business combinations adjusted by fair value), plus share-based compensation plan, restricted stock units and related payroll taxes (restricted stock units), plus/minus non-cash adjustments related to Derivatives and Convertible Notes, 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, plus non-recurring expenses, which are related to consulting expenses for Sarbanes-Oxley implementation, plus effects related to COVID-19 pandemic, which includes the revision of the Company’s estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the year and plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income (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).
For purposes of the calculation of Adjusted Net Income for the year ended December 31, 2021, we have excluded the following adjustments that we applied to the calculation of Adjusted Net Income for prior periods: (i) Interest income (expenses) linked to a fixed rate (we will maintain the adjustment for Interest income (expenses) that refers to adjustments by fair value); (ii) Foreign exchange effects on cash and cash equivalents and (iii) share of loss of equity-accounted investees and. These adjustments will not be applied to the calculation of Adjusted Net Income going forward. We believe that eliminating these adjustments from our calculation of Adjusted Net Income for the year ended December 31, 2021 and going forward does not impact our investors’ ability to assess our results of operations. We have not retroactively restated Net Adjusted Income for the periods prior to 2021.
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 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, 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 |
||||
Interim condensed consolidated statements of financial position |
||||
|
|
|
|
|
|
|
March 31, |
|
December 31, |
(In thousands of Brazilian reais) |
|
2022 |
|
2021 |
Assets |
|
(unaudited) |
|
|
Current assets |
|
|
|
|
Cash and cash equivalents |
|
209,304 |
|
211,143 |
Financial investments |
|
748,329 |
|
973,294 |
Trade receivables |
|
806,201 |
|
593,263 |
Inventories |
|
158,220 |
|
158,582 |
Recoverable taxes |
|
37,409 |
|
38,811 |
Derivative financial instruments assets |
|
- |
|
301 |
Related parties |
|
4,693 |
|
4,571 |
Other assets |
|
76,474 |
|
66,962 |
Total current assets |
|
2,040,630 |
|
2,046,927 |
|
|
|
|
|
Non-current assets |
|
|
|
|
Deferred income tax |
|
336,839 |
|
321,223 |
Recoverable taxes |
|
22,216 |
|
22,216 |
Financial investments |
|
27,582 |
|
40,762 |
Derivative financial instruments assets |
|
- |
|
560 |
Related parties |
|
6,929 |
|
6,819 |
Other assets |
|
56,503 |
|
57,534 |
Investments and interests in other entities |
|
137,655 |
|
126,873 |
Property and equipment |
|
73,565 |
|
73,885 |
Right-of-use assets |
|
31,667 |
|
35,960 |
Intangible assets |
|
3,253,894 |
|
3,257,360 |
Total non-current assets |
|
3,946,850 |
|
3,943,192 |
|
|
|
|
|
Total assets |
|
5,987,480 |
|
5,990,119 |
|
|
March 31, |
|
December 31, |
(In thousands of Brazilian reais) |
|
2022 |
|
2021 |
Liabilities |
|
(unaudited) |
|
|
Current liabilities |
|
|
|
|
Trade payables |
|
132,747 |
|
103,292 |
Labor and social obligations |
|
171,427 |
|
157,601 |
Taxes and contributions payable |
|
6,762 |
|
7,953 |
Income taxes payable |
|
18,498 |
|
37,775 |
Advances from customers |
|
170,461 |
|
35,291 |
Lease liabilities |
|
18,513 |
|
20,122 |
Loans and financing |
|
26,032 |
|
228,448 |
Derivative financial liabilities |
|
3,452 |
|
- |
Accounts payable to selling shareholders |
|
823,154 |
|
799,553 |
Other liabilities |
|
21,278 |
|
3,176 |
Total current liabilities |
|
1,392,324 |
|
1,393,211 |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Labor and social obligations |
|
295 |
|
661 |
Lease liabilities |
|
18,749 |
|
22,996 |
Loans and financing |
|
1,525,580 |
|
1,602,879 |
Derivative financial liabilities |
|
207,308 |
|
223,561 |
Provision for legal proceedings |
|
1,274 |
|
1,398 |
Accounts payable to selling shareholders |
|
894,234 |
|
869,233 |
Other liabilities |
|
956 |
|
946 |
Total non-current liabilities |
|
2,648,396 |
|
2,721,674 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
|
11 |
|
11 |
Capital reserve |
|
2,203,857 |
|
2,203,857 |
Treasury shares |
|
(199,809) |
|
(180,775) |
Share-based compensation reserve |
|
78,714 |
|
90,813 |
Accumulated losses |
|
(136,013) |
|
(238,672) |
Total equity |
|
1,946,760 |
|
1,875,234 |
|
|
|
|
|
Total liabilities and equity |
5,987,480 |
5,990,119 |
Arco Platform Limited |
||||
Interim condensed consolidated statements of income |
||||
Three months period ended
|
||||
(In thousands of Brazilian reais, except earnings per share) |
2022 |
2021 |
||
(unaudited) |
(unaudited) |
|||
Revenue |
430,037 |
331,672 |
||
Cost of sales |
(116,578) |
(87,125) |
||
Gross profit |
313,459 |
244,547 |
||
Operating expenses: |
||||
Selling expenses |
(164,353) |
(119,658) |
||
General and administrative expenses |
(86,100) |
(74,306) |
||
Other income, net |
17,394 |
1,525 |
||
Operating profit |
80,400 |
52,108 |
||
|
|
|
||
Finance income |
159,233 |
9,940 |
||
Finance costs |
(125,101) |
(38,614) |
||
Finance result |
34,132 |
(28,674) |
||
|
|
|
||
Share of loss of equity-accounted investees |
(5,642) |
(1,023) |
||
|
|
|||
Profit before income taxes |
108,890 |
22,411 |
||
Income taxes - income (expense) |
||||
Current |
(21,847) |
(17,353) |
||
Deferred |
15,616 |
6,753 |
||
Total income taxes – income (expense) |
(6,231) |
(10,600) |
||
|
|
|
||
Net profit for the period |
102,659 |
11,811 |
||
Basic earnings per share – in Brazilian reais |
||||
Class A |
1.83 |
0.21 |
||
Class B |
1.83 |
0.21 |
||
Diluted earnings per share – in Brazilian reais |
|
|
||
Class A |
1.82 |
0.20 |
||
Class B |
1.83 |
0.21 |
||
Weighted-average shares used to compute net (loss) profit per share: |
||||
Basic |
56,100 |
57,411 |
||
Diluted |
56,208 |
57,631 |
||
Arco Platform Limited |
||||
Interim condensed consolidated statements of cash flows |
||||
|
||||
Three months period ended
|
||||
(In thousands of Brazilian reais) |
2022 |
2021 |
||
(unaudited) |
(unaudited) |
|||
Operating activities |
||||
Profit before income taxes |
108,890 |
22,411 |
||
Adjustments to reconcile loss before income taxes to cash from operations |
|
|
||
Depreciation and amortization |
65,781 |
48,052 |
||
Inventory reserves |
2,399 |
2,224 |
||
Allowance for doubtful accounts |
(6,231) |
3,889 |
||
Loss on sale/disposal of property and equipment and intangible |
(78) |
133 |
||
Fair value change in financial derivatives |
(11,653) |
- |
||
Changes in accounts payable to selling shareholders |
7,028 |
(2,188) |
||
Share of loss of equity-accounted investees |
5,642 |
1,023 |
||
Share-based compensation plan |
6,195 |
9,366 |
||
Accrued interest on loans and financing |
48,770 |
3,689 |
||
Interest accretion on acquisition liability |
43,930 |
27,381 |
||
Income from financial investments |
(20,560) |
(3,766) |
||
Interest on lease liabilities |
1,161 |
1,019 |
||
Provision for legal proceedings |
95 |
646 |
||
Provision for payroll taxes (restricted stock units) |
(3,260) |
(521) |
||
Foreign exchange income (expenses), net |
(105,306) |
279 |
||
Gain on changes of interest of investment |
(16,413) |
- |
||
Other financial cost/revenue, net |
(923) |
(359) |
||
125,467 |
113,278 |
|||
Changes in assets and liabilities |
|
|
||
Trade receivables |
(206,926) |
(109,075) |
||
Inventories |
2,115 |
3,578 |
||
Recoverable taxes |
3,182 |
(477) |
||
Other assets |
(8,010) |
(3,931) |
||
Trade payables |
29,455 |
12,118 |
||
Labor and social obligations |
14,115 |
2,335 |
||
Taxes and contributions payable |
(1,206) |
(2,804) |
||
Advances from customers |
135,170 |
73,783 |
||
Other liabilities |
9,424 |
423 |
||
Cash flows from operations |
102,786 |
89,228 |
||
Income taxes paid |
(42,682) |
(46,988) |
||
Interest paid on lease liabilities |
(1,307) |
(860) |
||
Interest paid on accounts payable to selling shareholders |
(378) |
(4,153) |
||
Interest paid on loans and financing |
(15,580) |
(3,567) |
||
Net cash flows from operating activities |
42,839 |
33,660 |
||
Investing activities |
||||
Acquisition of property and equipment |
(6,672) |
(2,998) |
||
Payment of investments and interests in other entities |
(18) |
(25,027) |
||
Acquisition of subsidiaries, net of cash acquired |
- |
(15,217) |
||
Acquisition of intangible assets |
(45,812) |
(32,701) |
||
(Purchase) maturity of financial investments |
258,705 |
55,117 |
||
Net cash flows from (used in) investing activities |
206,203 |
(20,826) |
||
Financing activities |
||||
Purchase of treasury shares |
(34,723) |
(53,026) |
||
Payment of lease liabilities |
(6,293) |
(3,390) |
||
Payment to owners to acquire entity’s shares |
(1,977) |
(18,493) |
||
Loans and financing paid – principal |
(205,803) |
(1,700) |
||
Loans and financing transaction costs |
(57) |
- |
||
Net cash flows used in financing activities |
(248,853) |
(76,609) |
||
Foreign exchange effects on cash and cash equivalents |
(2,028) |
(279) |
||
Decrease in cash and cash equivalents |
(1,839) |
(64,054) |
||
Cash and cash equivalents |
|
|
||
At the beginning of the period |
211,143 |
424,410 |
||
At the end of the period |
209,304 |
360,356 |
||
Decrease in cash and cash equivalents |
(1,839) |
(64,054) |
||
Arco Platform Limited |
||||
Reconciliation of non-GAAP measures |
||||
Three months period ended
|
||||
(In thousands of Brazilian reais) |
2022 |
2021 |
||
Adjusted EBITDA Reconciliation |
(unaudited) |
|
(unaudited) |
|
Profit for the period |
102,659 |
|
11,811 |
|
(+/-) Income taxes |
6,231 |
|
10,600 |
|
(+/-) Finance result |
(34,132) |
|
28,674 |
|
(+) Depreciation and amortization |
65,781 |
|
48,052 |
|
(+) Share of loss of equity-accounted investees |
5,642 |
|
1,023 |
|
EBITDA |
146,181 |
|
100,160 |
|
(+) Share-based compensation plan |
|
15,423 |
|
11,724 |
(+) Share-based compensation plan and restricted stock units |
8,020 |
|
9,366 |
|
(+) Provision for payroll taxes (restricted stock units) |
|
7,403 |
|
2,358 |
(+) M&A expenses |
1,472 |
|
5,304 |
|
(-) Other changes to equity accounted investees³ |
|
(16,413) |
|
- |
(+) Non-recurring expenses |
- |
|
568 |
|
(+) Effects related to Covid-19 pandemic |
- |
|
629 |
|
Adjusted EBITDA |
146,663 |
|
118,385 |
|
|
|
|
||
Net Revenue |
430,037 |
|
331,672 |
|
EBITDA Margin |
34.0% |
|
30.2% |
|
Adjusted EBITDA Margin |
34.1% |
|
35.7% |
|
Three months period ended
|
||||||
(In thousands of Brazilian reais) |
2022 |
2021 pro forma¹ |
2021 reported |
|||
Adjusted Net Income Reconciliation |
|
(unaudited) |
(unaudited) |
(unaudited) |
||
Profit for the period |
102,659 |
11,811 |
11,811 |
|||
(+/-) Adjustments related to business combination |
|
49,903 |
45,148 |
50,055 |
||
(+) Amortization of intangible assets from business combinations |
|
28,457 |
24,862 |
24,862 |
||
(+/-) Changes in accounts payable to selling shareholders |
|
7,028 |
(2,188) |
(2,188) |
||
(+) Interest expenses, net (adjusted by fair value) |
|
14,418 |
22,474 |
22,474 |
||
(+) Interest on acquisition of investments, net (linked to a fixed rate)1 |
|
- |
- |
4,907 |
||
(+) Share-based compensation plan |
|
15,423 |
11,724 |
11,724 |
||
(+) Share-based compensation plan and restricted stock units |
8,020 |
9,366 |
9,366 |
|||
(+) Provision for payroll taxes (restricted stock units) |
|
7,403 |
2,358 |
2,358 |
||
(+/-) Non-cash adjustments related to Derivatives and Convertible Notes² |
(105,649) |
- |
- |
|||
(+) M&A expenses |
|
1,472 |
5,304 |
3,997 |
||
(-) Other changes to equity accounted investees³ |
|
(16,413) |
- |
- |
||
(+) Non-recurring expenses |
|
- |
568 |
1,875 |
||
(+) Effects related to Covid-19 pandemic |
|
- |
629 |
629 |
||
(+/-) Foreign exchange on cash and cash equivalents¹ |
|
- |
- |
279 |
||
(+) Share of loss of equity-accounted investees¹ |
|
- |
- |
1,023 |
||
(+/-) Tax effects |
(16,140) |
(20,322) |
(20,322) |
|||
Adjusted Net Income |
31,255 |
54,862 |
61,071 |
|||
|
|
|
||||
Net Revenue |
430,037 |
331,672 |
331,672 |
|||
Adjusted Net Income (Loss) Margin |
7.3% |
16.5% |
18.4% |
|||
1) |
Adjusted net income for previous periods presented in this column excludes the following adjustments: (i) Interest on acquisition of investments, net (linked to a fixed rate); (ii) Foreign exchange on cash and cash equivalents; and (iii) Share of loss of equity accounted investees. Such adjustments will be no longer consider in the net income reconciliation from 4Q21 onwards and are presented for comparison purposes only in the “Reported” column. |
2) |
Such adjustment was previously named “(+/−) Changes in fair value of derivative instruments”. |
3) |
Refers to (gains) losses related to capital contribution from others on investees leading to an increase in equity of the investee. |
Three months period ended
|
||||
(In thousands of Brazilian reais) |
2022 |
2021 |
||
Free Cash Flow Reconciliation |
(unaudited) |
(unaudited) |
||
Adj. EBITDA |
146,663 |
118,385 |
||
Non-cash adjustments to reconcile Adj. EBITDA to cash from operations |
(21,196) |
(5,107) |
||
Working capital (Changes in assets and liabilities) |
(22,681) |
(24,050) |
||
Cash generated from operations |
102,786 |
89,228 |
||
(-) Income tax paid |
(42,682) |
(46,988) |
||
Cash generated from operations net of income taxes paid |
60,104 |
42,240 |
||
(-) CAPEX³ |
(46,977) |
(35,699) |
||
Cash Flow net of CAPEX³ |
13,127 |
6,541 |
||
(-) M&A classified as intangible assets acquisition (CAPEX³) |
(5,507) |
- |
||
(-) Interest paid on loans and financing & lease liabilities |
(16,887) |
(4,427) |
||
(-) Interest paid on accounts payable to selling shareholders |
(378) |
(4,153) |
||
Free Cash Flow |
(9,645) |
(2,039) |
||
Three months period ended
|
||||
(In thousands of Brazilian reais) |
2022 |
2021 |
||
Taxable Income Reconciliation |
(unaudited) |
(unaudited) |
||
Profit before income taxes |
108,890 |
22,411 |
||
(+) Share-based compensation plan, RSU and provision for payroll taxes¹ |
949 |
8,570 |
||
(+) Amortization of intangible assets from business combinations before incorporation¹ |
7,752 |
4,901 |
||
(+/-) Changes in accounts payable to selling shareholders¹ |
29,873 |
17,646 |
||
(+/-) Share of loss of equity-accounted investees |
5,642 |
(348) |
||
(+) Net income from Arco Platform (Cayman) |
(109,515) |
5,649 |
||
(+) Fiscal loss without deferred |
5,151 |
1,384 |
||
(+/-) Provisions booked in the period |
24,349 |
4,473 |
||
(+) Tax loss carryforward |
33,434 |
17,054 |
||
(+) Others |
5,080 |
3,763 |
||
Taxable income |
111,605 |
85,503 |
||
|
|
|
||
Current income tax under actual profit method |
(37,946) |
(29,071) |
||
% Tax rate under actual profit method |
34.0% |
34.0% |
||
(+) Effect of presumed profit benefit |
- |
492 |
||
Effective current income tax |
(37,946) |
(28,579) |
||
% Effective tax rate |
34.0% |
33.4% |
||
(+) Recognition of tax-deductible amortization of goodwill and added value² |
11,322 |
10,838 |
||
(+/-) Other additions (exclusions) |
4,777 |
388 |
||
Effective current income tax accounted for goodwill benefit |
(21,847) |
(17,353) |
||
% Effective tax rate accounting for goodwill benefit |
19.6% |
20.3% |
||
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. |
3) |
For 1Q22, the acquisition of intangibles asset accordingly to the financial statements included the first portion (R$5.5 million) of PGS & Mentes acquisition that was settled in February 2022. It was characterized as CAPEX instead of business combination as they were not companies, but assets purchased. In the table above such acquisition was not consider due to its M&A nature. Considering PGS & Mentes acquisition, the acquisition of intangibles assets would totalize R$45.8 million and CAPEX would totalize R$52.5 million. |
