In 2022 Arco delivered a 44% increase in
revenues to R$1,775 million and a 50% increase in adjusted EBITDA
to R$648 million; 2023 ACV confirmed at R$1,930 million, a 24% YoY
growth
Arco Platform Limited, or Arco or the Company (Nasdaq:
ARCE), today reported financial and operating results for the
fourth quarter ended December 31, 2022.
"We are happy and proud of what we have
achieved in 2022. After two years of restrictions due to the
COVID-19 pandemic, we resumed our growth profile, delivering a 44%
YoY revenue growth, and improved our profitability, increasing our
adjusted EBITDA margin to 36.5% from 35.0% in 2021. We ended 2022
with a feeling of mission accomplished, as we went further to
deliver our commitment to our customers, evolving significantly in
the process. We integrated functions, areas and systems, simplified
our structure and better allocated our resources. As a result, we
delivered an adjusted EBITDA minus CAPEX margin of 27.1%, from
17.8% in 2022 and back to historical levels. Looking ahead, we
concluded one more successful commercial cycle for the 2023 school
year, resulting in a 24% YoY ACV growth to R$1,930 million, serving
over 8 thousand schools and surpassing the mark of 2.6 million
students. We will remain focused on improving our solutions and our
structure, in order to continue growing in an even more sustainable
and profitable way."
Ari de Sá Neto, CEO and founder
4Q22
2022
Net revenue
Cash gross profit
Net revenue
Cash gross profit
R$679.3M
R$530.7M
R$1,775.4M
R$1,389.0M
+47.4% YoY
+37.4% YoY
+44.1% YoY
+39.8% YoY
Adj. EBITDA
Adj. net income
Adj. EBITDA
Adj. net income
R$353.2M
R$117.0M
R$647.7M
R$65.2M
+57.4% YoY
+31.8% YoY
+50.3% YoY
-50.9% YoY
Note: Please see adjusted EBITDA
reconciliation on page 15 and adjusted Net Income reconciliation on
pages 15 and 16.
4Q22 and 2022 Highlights
- Net revenue for the fourth quarter was R$679.3 million,
a 47.4% YoY increase, with Core solutions totaling R$447.0 million
(+39.1% YoY) and Supplemental solutions totaling R$232.3 million
(+66.4% YoY). For 2022, net revenue increased 44.1% YoY to
R$1,775.4 million, with Core solutions increasing 46.1% to
R$1,367.7 million and Supplemental solutions increasing 37.7% to
R$407.8 million. Excluding recent M&A activity¹, net revenue
increased 52.6% YoY in 4Q22 and 37.1% YoY in 2022 YoY.
- Cash gross margin (gross margin excluding depreciation
and amortization) was 78.1% in 4Q22 (versus 83.8% in 4Q21). For
2022, cash gross margin was 78.2% (versus 80.6% in 2021). Despite
positive results from our integration and efficiency initiatives,
costs in 2022 were impacted by: (i) non-recurring costs related to
atypically late additional orders of pedagogical materials by our
partner schools in 2Q22, as rush printing costs are on average 25%
higher than regular printing costs and books were shipped using
express tariffs and were delivered through more expensive shipping
methods (air, dedicated trucks) and (ii) increased costs for
printing our 2023 educational materials due to widespread price
increase in the paper supply chain, affected by pulp and paper
price increases around the globe.
- Higher selling expenses excluding depreciation and
amortization totaling R$148.5 million in 4Q22 (+27.4% YoY) and
R$562.4 million (+41.7% YoY) in 2022 reflect (i) higher investments
in commercial activities (identifying and developing leads and
cross selling opportunities, enhancing pedagogical support to
partner schools, and the resumption of in-person interactions and
events, among others), which are key to fostering strong growth
potential opportunities and capturing more market share over time
in both our Core and Supplemental segments, and (ii) higher
inflation for the period (mainly impacting travel expenses).
Excluding recent M&A activities¹, selling expenses increased
33.2% in 4Q22 and 39.0% in 2022. As a result of the diligent cash
collection process and Arco’s close relationship with partner
schools, we were able to further improve the quality of
receivables, resulting in a consistent decrease in allowance for
doubtful accounts.
Allowance for doubtful accounts
(R$M)
4Q22
4Q21
YoY
3Q22
QoQ
2022
2021
YoY
Allowance for doubtful accounts
6.3
10.1
-38%
(1.9)
n.a.
2.2
(26.6)
-108%
% of net revenue
0.9%
2.2%
-1.3p.p.
-0.8%
1.7p.p.
0.1%
-2.2%
2.3p.p.
- General and administrative expenses (G&A) continue
to decrease as a result of a more integrated back-office. In 4Q22,
G&A expenses excluding depreciation and amortization were
R$68.5 million (-2.0% YoY) and represented 10.1% of net revenue
(versus 15.2% in 4Q21). Excluding recent M&A activities¹,
G&A expenses were R$65.8 million (+3.0% YoY) in 4Q22. For 2022,
G&A expenses excluding depreciation and amortization were
R$277.6 million (-4.0% YoY) and represented 15.6% of net revenue
(versus 23.5% in 2021). Excluding the effects of recent M&A
activities¹, G&A expenses decreased 7.5% YoY in 2022 to R$260.0
million. Share-based compensation plan expenses decreased as a
percentage of revenue in 2022, reaching 3.3% (versus 4.2% of
revenue in 2021, excluding Geekie’s SOP²). From a G&A savings
perspective, Arco surpassed its initial goal for the year by 59.7%,
delivering G&A savings of R$74.5 million in 2022 (versus
estimated R$46.7) as a result of the diligent execution of its
integration agenda across main corporate areas.
- Adjusted EBITDA was R$353.2 million in 4Q22 (+57.4%
YoY), with an adjusted EBITDA margin of 52.0% (versus 48.7%
in 4Q21). In 2022, adjusted EBITDA increased 50.3% YoY to R$647.7
million, and adjusted EBTIDA margin was 36.5% (versus 35.0% in
2021), within the guidance range we provided at the beginning of
2022.
- Adjusted net income (loss) in 4Q22 was R$117.0 million,
with an adjusted net margin of 17.2% (versus 19.3% in 4Q21),
impacted by higher finance expenses and depreciation and
amortization. For 2022, adjusted net income was R$65.2 million,
with an adjusted net margin of 3.7% (versus 10.8% in 2021).
- Stronger revenue recognition in Q4 and a higher
percentage of Supplemental solutions in Arco’s ACV mix (which
have a longer collection cycle than Core solutions) led to an
increase in days of sales outstanding (DSO) to 176 days in
4Q22 (versus 163 days in 4Q21). Delinquency figures were stable,
ending 4Q22 at 4.2% from 4.0% in 3Q22 and 4.5% in 4Q21.
¹ Recent M&A activities refer to businesses acquired in 2021
(Me Salva, Eduqo, Edupass, COC, Dom Bosco) and 2022 (PGS,
Mentes).
² As part of the acquisition, Arco
acquired Geekie’s management future stake in Geekie, resulting from
the exercise of their existing SOP. The fair value of the SOP was
calculated using the same valuation method as the accounts payable
to selling shareholders for the acquisition of the remaining
interest at the time, resulting in the final transaction price,
which were updated quarterly for Geekie’s most recent fair value,
until its effective settlement in 2022. As a result of Geekie’s
strong commercial performance in 2021, its updated fair value
impacted both the SOP (registered in the “Share-based compensation
plan expenses” line) and accounts payable to selling shareholders.
In 2021, such impact was R$37 million in the “Share-based
compensation plan expenses” line.
Days of sales outstanding
Dec. 31, 2022
Dec. 31, 2021
YoY
Trade receivables (R$M)
942.1
680.4
38%
(-) Allowance for doubtful accounts
(85.2)
(87.1)
-2%
Trade receivables, net (R$M)
856.9
593.3
44%
Net revenue LTM pro-forma¹
1,775.4
1,328.3
34%
Adjusted DSO
176
163
8%
1) Calculated as net revenues for the last
twelve months (for 2021 added to the pro forma revenues from
businesses acquired in the period to accurately reflect the
Company’s operations).
- Arco’s corporate restructuring is ongoing and
progressing as planned. Future incorporation processes include
Escola da Inteligência (2023), Pleno (2023) and SAE Digital (2024).
As we keep incorporating other businesses into CBE, we expect to
capture additional tax benefits and therefore further reduce our
effective tax rate, currently at 13.1% in 2022 (versus 17.8% in
2021).
Intangible assets - net balances
(R$M)
Dec. 31, 2022
Dec. 31, 2021
YoY
Sep. 30, 2022
QoQ
Business Combination
2,893.8
2,992.2
-3.3%
2,922.5
-1.0%
Trademarks
471.8
488.7
-3.5%
479.6
-1.6%
Customer relationships
237.0
274.7
-13.7%
246.4
-3.8%
Educational system
206.9
242.0
-14.5%
215.7
-4.1%
Softwares
8.4
11.0
-23.6%
9.8
-14.3%
Educational platform
4.7
6.9
-31.9%
4.7
0.0%
Others¹
14.1
19.1
-26.2%
15.4
-8.4%
Goodwill
1,950.9
1,949.9
0.1%
1,950.9
0.0%
Operational
290.2
265.2
9.4%
279.8
3.7%
Educational platform²
188.3
192.0
-1.9%
178.1
5.7%
Softwares
76.7
61.7
24.3%
77.1
-0.5%
Copyrights
25.2
11.4
121.1%
24.6
2.4%
Customer relationships
-
0.1
-100.0%
0.1
-100.0%
TOTAL
3,184.0
3,257.4
-2.3%
3,202.2
-0.6%
Atua1) Non-compete agreements and rights
on contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
4Q22
4Q21
YoY
3Q22
QoQ
2022
2021
YoY
Business Combination
(84.4)
(59.5)
41.8%
(79.2)
6.5%
(297.5)
(225.4)
32.0%
Trademarks
(8.0)
(7.3)
9.6%
(7.8)
2.6%
(31.4)
(26.6)
18.0%
Customer relationships
(8.7)
(9.7)
-10.3%
(9.7)
-10.3%
(37.0)
(34.6)
6.9%
Educational system
(8.8)
(9.4)
-6.4%
(8.9)
-1.1%
(36.4)
(33.7)
8.0%
Softwares
(0.7)
(0.5)
40.0%
(0.7)
0.0%
(2.8)
(2.6)
7.7%
Educational platform
(0.2)
(0.1)
100.0%
(0.2)
0.0%
(0.8)
(0.8)
0.0%
Others¹
(1.6)
(0.5)
220.0%
(1.4)
14.3%
(5.9)
(4.9)
20.4%
Goodwill
(56.4)
(31.9)
76.7%
(50.6)
11.4%
(183.2)
(122.2)
49.9%
Operational
(33.0)
(27.2)
21.3%
(34.2)
-3.4%
(125.8)
(89.0)
41.3%
Educational platform²
(20.4)
(19.8)
3.0%
(26.8)
-23.9%
(91.2)
(64.9)
40.5%
Softwares
(6.3)
(4.5)
40.1%
(5.6)
12.6%
(22.5)
(15.3)
47.1%
Copyrights
(6.1)
(2.0)
205%
(1.6)
278.5%
(11.4)
(8.0)
42.5%
Customer relationships
(0.2)
(0.9)
-75,5%
(0.2)
0%
(0.7)
(0.8)
-13,7%
TOTAL
(117.4)
(86.6)
35.6%
(113.4)
3.5%
(423.3)
(314.4)
34.6%
1) Non-compete agreements and rights on
contracts. 2) Includes content development in progress.
Amortization of intangible assets
(R$M)
Impacts P&L
Originates tax benefit
Amortization with tax benefit
in 4Q22²
Amortization
Tax benefit
Impact on net income
Business Combination
(64.6)
22.0
(42.6)
Trademarks
Yes
Yes²
(2.0)
0.7
(1.3)
Customer relationships
Yes
Yes²
(2.9)
1.0
(1.9)
Educational system
Yes
Yes²
(3.3)
1.1
(2.2)
Educational platform
Yes
Yes²
0.5
(0.2)
0.4
Others¹
Yes
Yes²
(0.5)
0.2
(0.4)
Goodwill
No
Yes²
(56.4)
19.2
(37.2)
Operational
Yes
Yes
(33.0)
11.2
(21.8)
TOTAL
(97.6)
33.2
(64.4)
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$M)
Businesses with current tax
benefit
Undefined²
2023
2024
2025
2026+
Trademarks
27
27
27
318
66
Customer relationships
25
25
25
59
111
Educational system
27
27
27
106
32
Software license
-
-
-
-
11
Rights on contracts
1
1
1
2
1
Others
2
2
1
1
10
Goodwill
237
231
227
761
355
Total
319
313
308
1.247
587
Maximum tax benefit
108
106
105
424
199
Amortization of intangible assets from
business combination that generate tax benefit – breakdown by
solutions (R$M)
Businesses with current tax
benefit
Undefined²
2023
2024
2025
2026+
Geekie
42
42
42
279
-
NAVE
9
9
9
11
-
P2D3
89
89
89
364
-
Positivo, Conquista, PES English
170
170
168
593
-
Other Companies
9
3
-
-
-
Acquired companies not yet
incorporated
N/A
N/A
N/A
N/A
587
Total
319
313
308
1.247
587
Maximum tax benefit
108
106
105
424
199
- CAPEX in 4Q22 was R$44.8 million, or 6.6% of net revenue
(versus 21.1% of net revenue in 4Q21). For 2022, CAPEX¹ totaled
R$165.9 million, or 9.3% of net revenue (versus 17.2% of net
revenue in 2021), below the guidance range of 10.0% to 12.0% of net
revenue for full year 2022 we provided in 4Q21.
CAPEX (R$M)
4Q22
4Q21
YoY
3Q22
QoQ
2022
2021
YoY
Acquisition of intangible
assets¹
42.8
46.6
-8.2%
27.0
58.5%
151.6
151.3
0.2%
Educational platform - content
development
0.2
6.6
-97.0%
0.9
-77.8%
9.5
75.5
-87.4%
Educational platform - platforms &
tech
35.9
25.0
43.6%
15.2
136.2%
93.6
23.2
303.4%
Software
2.8
13.2
-78.8%
7.7
-63.6%
37.3
43.6
-14.4%
Copyrights and others
3.9
1.8
116.7%
3.2
21.9%
11.2
9.0
24.4%
Acquisition of PP&E
2.0
50.5
n/a
3.9
-48.7%
14.3
60.1
-76,2%
TOTAL¹
44.8
97.1
216.1%
30.9
45.0%
165.9
211.4
-21.5%
1) For 2022 excludes R$14.2 million
related to M&A payments (PGS’ and Mentes’ acquisition, being
R$5.5 million in 1Q22 and R$8.7 million in 2Q22) from the
accounting CAPEX of R$180.2 million.
- Cash from operations for 4Q22 and 2022 was -R$42.8
million (from -R$138.4 million in 4Q21) and R$341.3 million (from
R$138.2 million in 2021), respectively. For 2022, free cash flow
to firm was R$121.6 million, R$267.4 million above the -R$145.8
million free cash flow to firm of 2021.
Free cash flow to firm
(managerial)
2022
% of net revenue
2021
% of net revenue
YoY
Adjusted EBITDA
647.7
36.5%
430.9
35.0%
50.3%
(+/-) Non-cash adjustments
54.6
3.1%
6.4
0.5%
n.a.
(+/-) Working capital
(361.0)
-20.3%
(299.1)
-24.3%
20.7%
(-) Income taxes paid
(53.7)
-3.0%
(72.6)
-5.9%
-26.0%
(-) CAPEX¹
(166.0)
-9.3%
(211.4)
-17.2%
-21.5%
Free cash flow to firm
(managerial)
121.6
6.9%
-145.8
-11.8%
n.a.
1) Excludes R$14.2 million related to
M&A payments (PGS’ and Mentes’ acquisition, being R$5.5 million
in 1Q22 and R$8.7 million in 2Q22) from the accounting CAPEX of
R$180.2 million for 2022
- Arco’s cash and cash equivalents plus financial investments
position as of December 31st, 2022, was R$639.0 million, while
financial debt¹ and accounts payable to selling
shareholders were R$2,696.3 million, resulting in a net debt of
R$2,057.3 million.
1) Excludes Convertible notes: considers
the conversion into equity of the convertible senior notes with no
future disbursement of principal (US$150 M) issued on Nov 30, 2021.
These notes mature in 7 years, on Nov 15, 2028, and bear interest
at 8% per year fixed in Brazilian reais (R$66 M per year). 2)
Amount subject to an arbitration process. Please reference Note 28
of the Financial Statements as of December 31st, 2022, for
additional details.
- Arco confirmed it’s 2023 ACV at R$1,930 million, a 24% organic
growth versus 2022 ACV of R$1,560 million. Core solutions presented
a 23% YoY growth and Supplemental content solutions grew 35% YoY.
Retention rates remained consistent with historical trends and
average price increase was 3 p.p. above inflation (inflation index
IPCA for 2022 was 5.79%). Main highlights of this commercial cycle
include: (i) COC: approximately 30% YoY growth and price increase
5p.p. above inflation; (ii) Geekie: over 40% YoY growth, being the
leader in upselling within existing partner schools; (iii)
Socioemotional solutions (Escola da Inteligência & Pleno):
above 40% YoY growth, confirming the importance of socioemotional
subjects being taught at our partner schools. Cross-selling was
once again key to a successful commercial cycle for Supplemental
content solutions, with 71% of Supplemental new school intake
originating from cross-selling initiatives. For the 2023 school
year, this led to a 3p.p. increase in the number of our Core
students with at least one Supplemental content solution to 18%
(from ~15% in 2022 school year), and referrals increased ~23x the
lead conversion of Supplemental content solutions and reduced Core
churn by 50%.
- Arco’s main priorities for 2023 include:
- Continue to improve our structure to better serve our
clients;
- Use the power of our platform to sustain our high growth
profile;
- Boost our cash flow generation through the capture of
efficiencies and better capital allocation.
- Arco has today released its 2022 ESG report, in which we
update our initiatives and key ESG metrics. Main highlights of the
year include:
- Impact on Education:
- Number of students up 15% to 2.6 mm for the 2023 school
year
- Students approved in universities through SISU up 33%
- Number of students impacted by Arco Institute up 423%
- Focus on People:
- 42% of women in leadership positions (vs. 41% in 2021)
- 35% of ethnical diversity (vs. 33% in 2021)
- Voluntary turnover down 4.6 p.p. to 15.8% (vs. 20.4% in
2021)
- e-NPS up 6 points to 62 (vs. 56 in 2021)
- Strong & Sustainable Structure:
- 100% of our paper is FSC certified and properly disposed and/or
recycled
- First Carbon Footprint measurement (scopes 1 & 2)
For further information, please see our 2022 ESG Report
published on our ESG website
(https://arcoeducacao.com.br/esg-en/).
Conference Call Information
Arco will discuss its fourth quarter 2022 results today, March
30, 2023, 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 April 5,
2023, by dialing +55 (11) 4118-5151 and entering access code
219191#. 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/.
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-GAAP financial
measures including Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin,
Taxable Income Reconciliation and Managerial 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 and Managerial Free Cash Flow and 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 Managerial Free Cash Flow as Net Cash Flows from
Operating activities, less acquisition of property and equipment,
less acquisition of intangible assets, less M&A-related
payments. 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
Managerial 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 Managerial 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.
Arco Platform Limited
Consolidated statements of
financial position
December 31,
December 31,
(In thousands of Brazilian
reais)
2022
2021
Assets
Current assets
Cash and cash equivalents
216,360
211,143
Financial investments
391,785
973,294
Trade receivables
856,887
593,263
Inventories
254,060
158,582
Recoverable taxes
67,166
38,811
Derivative financial instruments
-
301
Related parties
3,956
4,571
Other assets
82,515
66,962
Total current assets
1,872,729
2,046,927
Non-current assets
Financial investments
30,861
40,762
Derivative financial instruments
-
560
Related parties
-
6,819
Recoverable taxes
11,108
22,216
Deferred income tax
337,267
321,223
Other assets
78,038
57,534
Investments and interests in other
entities
111,631
126,873
Property and equipment
59,031
73,885
Right-of-use assets
68,696
35,960
Intangible assets
3,184,047
3,257,360
Total non-current assets
3,880,679
3,943,192
Total assets
5,753,408
5,990,119
December 31,
December 31,
(In thousands of Brazilian
reais)
2022
2021
Liabilities
Current liabilities
Trade payables
182,748
103,292
Labor and social obligations
89,044
157,601
Lease liabilities
34,329
20,122
Loans and financing
102,873
228,448
Derivative financial instruments
3,693
-
Taxes and contributions payable
9,488
7,953
Income taxes payable
28,576
37,775
Advances from customers
16,079
35,291
Accounts payable to selling
shareholders
1,060,746
799,553
Other liabilities
6,013
3,176
Total current liabilities
1,533,589
1,393,211
Non-current liabilities
Labor and social obligations
1,451
661
Lease liabilities
42,576
22,996
Loans and financing
1,833,956
1,602,879
Derivative financial instruments
110,154
223,561
Provision for legal proceedings
3,174
1,398
Accounts payable to selling
shareholders
330,457
869,233
Other liabilities
621
946
Total non-current liabilities
2,322,389
2,721,674
Equity
Share capital
11
11
Capital reserve
2,009,799
2,203,857
Treasury shares
(8,205)
(180,775)
Share-based compensation reserve
95,008
90,813
Accumulated losses
(199,183)
(238,672)
Total equity
1,897,430
1,875,234
Total liabilities and equity
5,753,408
5,990,119
Arco Platform Limited
Consolidated statements of
income
Three-month period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian reais,
except earnings per share)
2022
2021
2022
2021
Revenue
679,331
460,834
1,775,427
1,232,074
Cost of sales
(188,074)
(94,413)
(500,526)
(294,407)
Gross profit
491,257
366,421
1,274,901
937,667
Operating expenses:
Selling expenses
(172,673)
(142,931)
(665,014)
(496,298)
General and administrative expenses
(86,607)
(82,482)
(338,262)
(328,643)
Other income (expenses), net
6,548
13,760
23,904
16,673
Operating profit
238,525
154,768
295,529
129,399
Finance income
(34,007)
48,805
445,237
91,212
Finance costs
(115,386)
(162,847)
(638,483)
(372,086)
Finance result
(149,393)
(114,042)
(193,246)
(280,874)
Share of loss of equity-accounted
investees
(10,145)
(13,856)
(34,365)
(22,182)
Profit (loss) before income
taxes
78,987
26,870
67,918
(173,657)
Income taxes - income (expense)
Current
(26,279)
(28,466)
(44,473)
(65,609)
Deferred
(30,073)
(4,219)
16,044
81,183
Total income taxes – income (expense)
(56,352)
(32,685)
(28,429)
15,574
Net profit (loss) for the year
22,635
(5,815)
39,489
(158,083)
Basic earnings (loss) per share – in
Brazilian reais
Class A
0.40
(0.10)
0.71
(3.18)
Class B
0.40
(0.10)
0.71
(3.18)
Diluted earnings (loss) per share – in
Brazilian reais
Class A
0.40
(0.10)
(1.49)
(3.18)
Class B
0.40
(0.10)
0.71
(3.18)
Weighted-average shares used to compute
net (loss) profit per share:
Basic
55,902
56,459
55,931
49,701
Diluted
61,074
56,601
61,152
49,843
Arco Platform Limited
Consolidated statements of
cash flows
Three-month period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
Operating activities
Profit (loss) before income taxes
78,987
26,870
67,918
(173,657)
Adjustments to reconcile profit (loss)
before income taxes to cash from operations
Depreciation and amortization
81,758
58,805
277,458
194,885
Inventory allowances
18,068
13,813
40,671
26,778
(Reversal) provision for expected credit
losses
6,275
10,124
(2,247)
26,610
Gain on sale/disposal of property and
equipment and intangible
620
686
430
908
Fair value change in derivative financial
instruments
48,183
37,291
(106,379)
37,291
Fair value adjustment in accounts payable
to selling shareholders
26,888
12,667
568
87,820
Share of loss of equity-accounted
investees
10,145
13,856
34,365
22,182
Share-based compensation plan
8,819
12,812
35,571
70,127
Accrued interest on loans and
financing
69,741
36,635
247,834
57,245
Interest accretion on accounts payable to
selling shareholders
47,276
36,785
184,218
121,611
Income from financial investment
43,655
(11,014)
(19,461)
(25,930)
Interest on lease liabilities
1,134
1,434
4,422
4,795
Provision for legal proceedings
353
(186)
1,776
(149)
Provision for payroll taxes (restricted
stock units)
1,236
(2,451))
2,024
235
Foreign exchange (income) expenses,
net
(22,943)
(375)
(45,289)
1,772
Gain on changes of interest of
investment
-
(14,022)
(17,712)
(14,022)
Other financial expense (income), net
170
(570)
(3,945)
(1,276)
420,365
233,160
702,222
437,225
Changes in operating assets and
liabilities
Trade receivables
(429,551)
(280,451)
(263,364)
(184,472)
Inventories
(47,424)
(43,873)
(122,609)
(62,212)
Recoverable taxes
(8,763)
(36,203)
(16,736)
(39,199)
Other assets
(3,391)
(41,571)
(28,601)
(62,802)
Trade payables
30,412
23,881
79,456
52,915
Labor and social obligations
(20,007)
(17,965)
6,062
(6,640)
Taxes and contributions payable
4,028
3,881
1,379
(2,590)
Advances from customers
10,348
28,239
(19,212)
11,665
Other liabilities
1,157
(7,454)
2,672
(5,724)
Cash from operations
(42,826)
(138,356)
341,269
138,166
Income taxes paid
(3,101)
(1,880)
(53,676)
(72,564)
Interest paid on lease liabilities
(395)
(773)
(3,991)
(3,294)
Interest paid on accounts payable to
selling shareholders
(34,314)
(8,446)
(72,930)
(13,700)
Interest paid on loans and financing
(16,688)
(6,869)
(164,536)
(20,275)
Payments for contingent consideration
-
(3,505)
(70,687)
(3,837)
Payments of stock options - Geekie
-
-
(75,578)
-
Net cash flows (used in) generated from
operating activities
(97,324)
(159,829)
(100,129)
24,496
Investing activities
Acquisition of property and equipment
(1,999)
(50,536)
(14,322)
(60,078)
Payment of investments and interests in
other entities
-
1,487
(32)
(125,273)
Acquisition of subsidiaries, net of cash
acquired
-
(764,849)
-
(795,905)
Payments of accounts payable to selling
shareholders
-
(1)
(1,270)
(101,286)
Acquisition of intangible assets
(42,817)
(46,585)
(165,846)
(151,318)
Purchase of financial investments
(975,525)
(2,269,029)
(975,525)
(2,269,029)
Redemption of financial investments
1,193,198
1,627,469
1,537,243
1,963,256
Interest received from financial
investments
16,548
10,119
49,153
40,641
Loans to related parties
-
5,000
(4,811)
5,000
Net cash flows (used in) generated from
investing activities
189,405
(1,486,925)
424,590
(1,493,992)
Financing activities
Purchase of treasury shares
-
(65,945)
(53,139)
(200,751)
Payment of lease liabilities
(5,706)
(5,130)
(21,485)
(15,729)
Payment of accounts payable to selling
shareholders
(177,528)
(174,499)
(309,682)
(193,954)
Cash received (payment) for financial
derivatives
(2,474)
185,409
(2,474)
185,409
Loans and financing issued, net of
costs
(78)
686,844
1,188,980
1,578,298
Loans and financing payments
(3,113)
(106,034)
(1,120,024)
(109,815)
Net cash flows (used in) generated from
financing activities
(188,899)
520,645
(317,824)
1,243,458
Foreign exchange effects on cash and cash
equivalents
(837)
14,918
(1,420)
12,771
Increase (decrease) in cash and cash
equivalents
(97,655)
(1,111,191)
5,217
(213,267)
Cash and cash equivalents
At the beginning of the year
314,015
1,322,334
211,143
424,410
At the end of the year
216,360
211,143
216,360
211,143
Increase (decrease) in cash and cash
equivalents
(97,655)
(1,111,191)
5,217
(213,267)
Arco Platform Limited
Reconciliation of Non-GAAP
Measures
Reconciliation of Adjusted
EBITDA
Three-month period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
Net profit (loss) for the year
22,635
(5,815)
39,489
(158,083)
(+/-) Income taxes
56,352
32,685
28,429
(15,574)
(+/-) Finance result
149,393
114,042
193,246
280,874
(+) Depreciation and amortization
81,758
58,805
277,458
194,885
(+) Share of loss of equity-accounted
investees
10,145
13,856
34,365
22,182
EBITDA
320,283
213,573
572,987
324,284
(+) Share-based compensation plan
17,583
23,749
58,328
87,790
(+) Share-based compensation plan and
restricted stock units
8,819
12,812
35,571
70,127
(+) Provision for payroll taxes
(restricted stock units)
8,764
10,937
22,757
17,663
(+) M&A expenses
14,779
(13,005)
7,743
16,050
(+) Non-recurring expenses
545
(339)
8,628
609
(+) Effects related to Covid-19
pandemic
-
425
-
2,121
Adjusted EBITDA
353,190
224,403
647,686
430,854
Revenue
679,331
460,834
1,775,427
1,232,074
EBITDA Margin
47.1%
46.3%
32.3%
26.3%
Adjusted EBITDA Margin
52.0%
48.7%
36.5%
35.0%
Reconciliation of Adjusted Net
Income
Three-month period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
Net profit (loss) for the period
22,635
(5,815)
(+) Share-based compensation plan
17,583
23,749
(+) Share-based compensation plan and
restricted stock units
8,819
12,812
(+) Provision for payroll taxes
(restricted stock units)
8,764
10,937
(+) M&A expenses
14,779
(13,005)
(+) Non-recurring expenses
545
(339)
(+) Effects related to Covid-19
pandemic
-
425
(+/-) Adjustments related to business
combination
71,548
57,917
(+) Amortization of intangible assets from
business combinations
32,829
27,844
(+/-) Changes in accounts payable to
selling shareholders
26,888
12,667
(+) Interest expenses, net (adjusted by
fair value)
11,831
17,406
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes
31,020
39,225
(+/-) Tax effects
(41,152)
(13,412)
Adjusted Net Income
116,958
88,745
Net Revenue
679,331
460,834
Adjusted Net Income Margin
17.2%
19.3%
Weighted average shares
55,902
56,902
Adjusted EPS
2.09
1.56
Twelve month period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
Net profit (loss) for the year
39,489
(158,083)
(+) Share-based compensation plan
58,328
87,790
(+) Share-based compensation plan and
restricted stock units
35,571
70,127
(+) Provision for payroll taxes
(restricted stock units)
22,757
17,663
(+) M&A expenses
7,743
16,050
(+) Non-recurring expenses
8,628
609
(+) Effects related to Covid-19
pandemic
-
2,121
(+/-) Adjustments related to business
combination
161,020
262,399
(+) Amortization of intangible assets from
business combinations
114,339
103,194
(+/-) Changes in accounts payable to
selling shareholders
568
87,820
(+) Interest expenses, net (adjusted by
fair value)
46,113
71,385
(+/-) Non-cash adjustments related to
derivative instruments and convertible notes
(126,890)
39,225
(+/-) Tax effects
(83,115)
(117,205)
Adjusted Net Income
65,203
132,906
Net Revenue
1,775,427
1,232,074
Adjusted Net Income Margin
3.7%
10.8%
Weighted average shares
55,931
49,701
Adjusted EPS
1.17
2.67
Reconciliation of Free Cash
Flow
Three-month period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
Profit (loss) before income
taxes
78,987
26,870
67,918
(173,657)
(+/-) Non-cash adjustments to reconcile
Adj. EBITDA to cash from operations
341,378
206,290
634,304
610,882
(+/-) Working capital (Changes in assets
and liabilities)
(463,191)
(371,516)
(360,953)
(299,059)
Cash from operations
(42,826)
(138,356)
341,269
138,166
(-) Income tax paid
(3,101)
(1,880)
(53,676)
(72,564)
(-) CAPEX
(44,816)
(97,121)
(180,168)
(211,396)
Free cash flow to firm
(90,743)
(237,357)
107,425
(145,794)
(-) Interest paid on loans and financings
& lease liabilities
(17,083)
(7,642)
(168,527)
(23,569)
(-) Interest paid on accounts payable to
selling shareholders
(34,314)
(8,446)
(72,930)
(13,700)
(-) Payments for contingent
consideration
-
(3,505)
(70,687)
(3,837)
(-) Payments of stock options¹
-
-
(75,578)
-
Free cash flow
(142,140)
(256,950)
(280,297)
(186,900)
(-) M&A classified as Payments of
stock options¹
-
-
75,578
-
(-) M&A classified as CAPEX²
-
-
14,208
-
(-) M&A classified as payments for
contingent consideration³
-
3,505
70,687
3,837
Free cash flow (managerial)
(142,140)
(253,445)
(119,824)
(183,063)
1)
For 2022 considers R$75 million related to
M&A payment booked as stock option plan expense (Geekie
employees’ SOP).
2)
For 2022, considers R$14.2 million related
to M&A payments (PGS’ and Mentes’ acquisition, being R$5.5
million in 1Q22 and R$8.7 million in 2Q22) from the accounting
CAPEX of R$180.2 million.
3)
Related to M&A payment (difference
between amount in the PPA and the final transaction amount
calculated by the earn-out multiple related to the acquisition of
subsidiaries).
Three-month period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
Free cash flow to firm
(90,743)
(237,357)
107,425
(145,794)
(+) M&A classified as CAPEX¹
-
-
14,208
-
Free cash flow to firm
(managerial)
(90,743)
(237,357)
121,633
(145,794)
1)
For 2022, considers R$14.2 million related
to M&A payments (PGS’ and Mentes’ acquisition, being R$5.5
million in 1Q22 and R$8.7 million in 2Q22) from the accounting
CAPEX of R$180.2 million.
Reconciliation of Taxable
Income
Three months period ended
December 31,
Twelve months period ended
December 31,
(In thousands of Brazilian
reais)
2022
2021
2022
2021
Profit (loss) before income
taxes
78,987
26,870
67,918
(173,657)
(+) Share-based compensation plan, RSU and
provision for payroll taxes¹
(844)
(5,469)
6,557
48,496
(+) Amortization of intangible assets from
business combinations before incorporation¹
4,184
12,147
25,507
22,632
(+/-) Changes in accounts payable to
selling shareholders¹
51,852
36,125
93,207
167,709
(+) Share of loss of equity‑accounted
investees
10,145
25,013
34,365
22,182
(+) Net income from Arco Platform
(Cayman)
68,186
36,637
(44,041)
53,408
(+) Fiscal loss without deferred
1,689
4,270
17,022
13,205
(+/-) Provisions booked in the period
(80,366)
37,846
(50,953)
47,627
(+) Tax loss carryforward
(10,301)
(43,472)
158,591
125,567
(+) Others
7,928
24,149
31,571
42,017
Taxable income
131,460
154,115
339,744
369,185
Current income tax under actual profit
method
(44,696)
(52,399)
(115,513)
(125,522)
% Tax rate under actual profit method
34.0%
34.0%
34.0%
34.0%
(+) Effect of presumed profit benefit
-
-
-
3.266
Effective current income tax
(44.696)
(52.399)
(115.513)
(122.256)
% Effective tax rate
34,0%
34,0%
34,0%
32,5%
(+) Recognition of tax-deductible
amortization of goodwill and added value²
19,712
11,361
64,272
44,163
(+/-) Other additions (exclusions)
(1,295)
12,573
6,768
12,485
Effective current income tax accounted
for goodwill benefit
(26,279)
(28,466)
(44,473)
(65,609)
% Effective tax rate accounting for
goodwill benefit
20.0%
18.5%
13.1%
17.8%
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.
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Arco Platform Limited IR@arcoeducacao.com.br
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