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

Arco Platform Limited Reports First Quarter 2019 Financial Results

May 21, 2019

On-track to Deliver 2019 ACV Bookings of R$441 Million

SÃO PAULO, Brazil, May 21, 2019 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the first quarter 2019 ended March 31, 2019.

“We are on-track to deliver 2019 ACV bookings of R$441 million and in a strong position to build the 2020 ACV,” said Ari de Sá Neto, CEO and founder of Arco. “We remain focused on enhancing the value proposition of our platform and expanding our network of schools. Consistent with our M&A strategy, we recently announced our acquisition of Sistema Positivo de Ensino, which will double our reach to partner schools and students, add complementary regions, and strengthen our capacity to invest in high-quality content and technology. Our acquisition of Positivo is also in line with our long-term vision to become a one stop shop platform, continuously expanding our product offering and positively impacting students’ learning experiences.”

First Quarter 2019 Results

-- Net Revenue of R$117.1 million; -- Net Income of R$30.8 million; -- Adjusted Net Income of R$40.8 million; and -- Adjusted EBITDA of R$49.0 million.

Revenue Recognition and Seasonality

As we report first quarter 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.

Second Quarter 2019 Guidance:

We expect to recognize in the second quarter (2Q19) 24% to 26% of the 2019 ACV Bookings of R$440.9 million.Net Revenue is expected to be in the range of R$105.8 million to R$114.6 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 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 on the basis of 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. Moreover, all statements in this press release, whether forward looking or of historical fact, are based on the limited information available to the Company during the due diligence process of Positivo and its business operations (the “Positivo Business”) prior to the signing of the acquisition agreement discussed herein. This limited access to information may have impaired the Company’s ability to conduct a full and comprehensive assessment of the Positivo Business, thus leading to risks and uncertainties. Reasons for this uncertainty include, but are not limited to, the following: (i) the Positivo Business is a carve out of an entity with different businesses and, therefore, the analysis was conducted on the basis of pro forma, unaudited and adjusted financial statements of the Positivo Business; (ii) the accounting parameters and criteria adopted by the Positivo Business are different from the ones adopted by the Company; (iii) the transfer of the Positivo Business to a new entity limits the Company’s ability to assess the proper transfer of all assets and rights to such new entity. In addition, the forward-looking statements regarding the Positivo Business include risks and uncertainties related to statements about competition for the combined business; risks relating to the continued use of the Positivo brand in schools not run by the Company; restrictions and/or limitations on the acquisition of the Positivo Business that may be imposed by antitrust authorities or other regulatory agencies; risks relating to the Company’s ability to attract, upsell and retain customers of the Positivo Business; general market, political, economic, and business conditions in Brazil or abroad; and the Company’s financial targets are based on measures which include revenue, share count and other IFRS measures, as well as non-IFRS financial measures including gross margin, operating margin, net income per diluted share, EBITDA (as defined herein), Adjusted EBITDA (as defined herein) 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” 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 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.

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, 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 plus (ii) changes in fair value of derivative instruments—finance costs) plus share of loss of equity-accounted investees plus interest expenses plus/minus changes in deferred tax assets and liabilities recognized in statements of income (corresponding to financial instruments from acquisition of interests, share-based compensation and amortization of intangible assets) and plus/minus foreign exchange gains/loss 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 and Adjusted Net Income Margin 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 first quarter 2019 results today, May 21, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 5872488), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through May 28, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 5872488. 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.

Arco Platform Limited Unaudited Interim Condensed Consolidated Statements of Financial Position March 31, December 31, (In thousands of Brazilian reais) 2019 2018 ------------ ------------ Assets (unaudited) Current assets Cash and cash equivalents 4,357 12,301 Financial investments 832,956 806,789 Trade receivables 151,159 136,611 Inventories 13,768 15,131 Taxes recoverable 16,770 11,227 Other assets 4,665 6,091 --------- - --------- - Total current assets 1,023,675 988,150 Non-current assets Financial instruments from acquisition of interests 21,261 26,630 Deferred income tax 112,647 99,460 Taxes recoverable 1,033 1,033 Financial investments 4,421 4,370 Loans to related parties 15,378 1,226 Other assets 4,812 1,060 Investments and interests in other entities 11,370 11,862 Property and equipment 13,738 13,347 Right-of-use assets 18,403 - Intangible assets 178,339 187,740 --------- - --------- - Total non-current assets 381,402 346,728 --------- - --------- - Total assets 1,405,077 1,334,878 --------- - -- --------- - - Liabilities Current liabilities Trade payables 13,970 14,845 Labor and social obligations 20,513 15,888 Advances from customers 26,332 5,997 Lease liabilities 4,232 - Taxes and contributions payable 1,922 2,555 Income taxes payable 18,134 17,294 Financial instruments from acquisition of interests - 51 Accounts payable to selling shareholders 841 830 Other liabilities 127 428 --------- - --------- - Total current liabilities 86,071 57,888 --------- - --------- - Non-current liabilities Financial instruments from acquisition of interests 21,594 25,046 Lease liabilities 17,410 - Provision for legal proceedings 210 131 Deferred income tax 1,167 1,378 Accounts payable to selling shareholders 187,201 180,551 --------- - --------- - Total non-current liabilities 227,582 207,106 --------- - --------- - Equity Share capital 10 10 Capital reserve 1,081,261 1,089,505 Share-based compensation reserve 67,487 67,350 Accumulated losses (57,334 ) (86,687 ) --------- - --------- - Equity attributable to equity holders of the parent 1,091,424 1,070,178 Non-controlling interests - (294 ) --------- - --------- - Total equity 1,091,424 1,069,884 ----------- ----------- Total liabilities and equity 1,405,077 1,334,878 --------- - --------- -

Arco Platform Limited Unaudited Interim Condensed Consolidated Statements of income March 31, March 31, (In thousands of Brazilian reais, except earnings per share) 2019 2018 (unaudited (unaudited ) ) Net revenue 117,055 113,634 Cost of sales (21,869 ) (25,840 ) ------- - ------- - Gross profit 95,186 87,794 ------- - ------- - Operating expenses: Selling expenses (36,135 ) (24,312 ) General and administrative expenses (20,832 ) (13,695 ) Other income, net 3,359 3,648 ------- - ------- - Operating profit 41,578 53,435 ------- - ------- - Finance income 16,956 3,709 Finance costs (16,481 ) (3,925 ) ------- - ------- - Finance result 475 (216 ) ------- - ------- - Share of loss of equity-accounted investees (492 ) (65 ) --------- --------- Profit before income taxes 41,561 53,154 ------- - ------- - Income taxes - income (expense) Current (18,252 ) (14,808 ) Deferred 7,532 2,045 ------- - ------- - Total income taxes – income (expense) (10,720 ) (12,763 ) ------- - ------- - Profit for the period 30,841 40,391 ------- - ------- - Equity holders of the parent 30,841 40,539 Non-controlling interests - (148 ) Basic earnings per share – in Brazilian reais Class A 0.61 0.81 Class B 0.61 0.81 Diluted earnings per share – in Brazilian reais Class A 0.59 0.77 Class B 0.59 0.78 Weighted-average shares used to compute net income per share: Basic 50,298 50,298 Diluted 51,157 51,242

Arco Platform Limited Unaudited Interim Condensed Consolidated Statements of Cash Flows March 31, March 31, (In thousands of Brazilian reais) 2019 2018 ---------- ---------- (unaudited (unaudited ) ) Operating activities Profit before income taxes for the period 41,561 53,154 Adjustments to reconcile profit before income taxes Depreciation and amortization 7,240 4,374 Inventory reserves 2,228 2,096 Allowance for doubtful accounts 1,653 3,534 Residual value of property and equipment and intangible assets disposed 102 138 Changes in fair value of derivative instruments 1,866 (1,607 ) Share of loss of equity-accounted investees 492 65 Share-based compensation plan 137 343 Accrued interest 5,942 2,080 Interest in lease liabilities 395 - Provision for legal proceedings 79 - Foreign exchange income (76 ) - Alienation of investment (3,288 ) - ------- - ------- - 58,331 64,177 Changes in assets and liabilities Trade receivables (16,201 ) (15,862 ) Inventories 36 2,279 Taxes recoverable (4,972 ) (883 ) Other assets 1,952 (294 ) Trade payables 686 (592 ) Labor and social obligations 4,774 300 Taxes and contributions payable (572 ) 284 Advances from customers 20,828 3,007 Other liabilities (301 ) (1,848 ) ------- - ------- - Cash generated from operations 64,561 50,568 Income taxes paid (18,035 ) (16,340 ) ------- - ------- - Net cash flows from operating activities 46,526 34,228 Investing activities Acquisition of property and equipment (2,793 ) (930 ) Acquisition of subsidiaries, net of cash acquired - (8,045 ) Acquisition of intangible assets (11,492 ) (1,855 ) Financial investments (26,291 ) (20,286 ) Loans to related parties (14,000 ) - ------- - ------- - Net cash flows used in investing activities (54,576 ) (31,116 ) Financing activities Capital increase 1,218 - Share issuance costs (673 ) - Payment of lease liabilities (515 ) - ------- - ------- - Net cash flows from financing activities 30 - Foreign exchange effects on cash and cash equivalents 76 - --------- --------- Increase (decrease) in cash and cash equivalents (7,944 ) 3,112 ------- - ------- - Cash and cash equivalents at the beginning of the period 12,301 834 Cash and cash equivalents at the end of the period 4,357 3,946 ------- - ------- - Increase (decrease) in cash and cash equivalents (7,944 ) 3,112 ------- - ------- -

Arco Platform Limited Reconciliation of Non-GAAP Measures (unaudited) Three months ended March 31, (In thousands of Brazilian reais) 2019 2018 ------- - ------- - Adjusted EBITDA Reconciliation (unaudited (unaudited ) ) Profit for the period 30,841 40,391 (+) Income taxes 10,720 12,763 (+/-) Finance result (475 ) 216 (+) Depreciation and amortization 7,240 4,374 (+) Share of loss of equity-accounted investees 492 65 EBITDA 48,818 57,809 (+) Share-based compensation plan 137 343 Adjusted EBITDA 48,955 58,152 ------- - ------- - Net Revenue 117,055 113,634 Adjusted EBITDA Margin 41.8 % 51.2 %

Three months ended March 31, (In thousands of Brazilian reais) 2019 2018 ------- - ------- - Adjusted Net Income Reconciliation (unaudited (unaudited ) ) Profit for the period 30,841 40,391 (+) Share-based compensation plan 137 343 (+) Amortization of intangible assets from business combinations 2,980 3,033 (+/-) Changes in fair value of derivative instruments 1,866 (1,607 ) (+) Share of loss of equity-accounted investees 492 65 (-) Tax effects (2,992 ) 122 (+) Foreign exchange on cash and cash equivalents (76 ) - (+) Interest expenses 7,524 2,498 Adjusted net income 40,772 44,845 ------- - ------- - Net Revenue 117,055 113,634 Adjusted Net Income Margin 34.8 % 39.5 %

Three months ended March 31, (In thousands of Brazilian reais) 2019 2018 Free Cash Flow Reconciliation (unaudited (unaudited ) ) Cash Generated from Operations 64,561 50,568 (-) Income Tax Paid (18,035 ) (16,340 ) ------- - ------- - Cash Flow from Operating Activities 46,526 34,228 (-) Acquisition of property and equipment (2,793 ) (930 ) (-) Acquisition of intangible assets (11,492 ) (1,855 ) ------- - ------- - Free Cash Flow 32,241 31,443

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