SÃO PAULO--(BUSINESS WIRE)--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$37 million in the "Share-based compensation plan expenses" line. |
Days of sales outstanding | Dec. 31,
| Dec. 31,
| YoY |
Trade receivables (R$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,
| Dec. 31,
| YoY | Sep. 30,
| 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
| Originates
| Amortization with tax benefit in 4Q22² | ||
Amortization | Tax benefit | Impact on net
| |||
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
| 2021 | % of net
| 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)
- Impact on Education:
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
| Twelve months period ended
| ||||||
(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
| Twelve months period ended
| ||||||
(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
| Twelve months period ended
| |||||||
(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
| Twelve months period ended
| |||||||
(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
| Twelve months period ended
| |||||||
(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
| Twelve months period ended
| |||||||
(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. |
Contacts
Arco Platform Limited
IR@arcoeducacao.com.br
https://investor.arcoplatform.com/
