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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

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

March 19, 2019

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 LimitedVitor 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 - 150 138 664 assets disposed 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 LimitedReconciliation 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 ------- - ------- - ------- - ------- -