Le Lézard
Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Arco Reports Third Quarter 2021 Results


Arco Platform Limited, or Arco or Company (Nasdaq: ARCE), today reported financial and operating results for the third quarter ended September 30, 2021.

"Operating results for the 3Q21 conclude the 2021 commercial cycle and we leave behind a challenging period not only for us, but for our partner schools, teachers, parents and students. As we look ahead, we are excited about the positive results achieved for the 2022 commercial cycle as schools normalize their operations, students go back to school, and we evolve our product for all stakeholders to have the best learning experience. The organic growth for our Core solutions for the 2022 commercial cycle returned to pre-pandemic levels, while average retention remained at high levels and average price increase was slightly above expected inflation for 2022. We are confident this strong recovery was possible because of our client-centric culture, and we are proud to have that reflected in the 2021 NPS for our Core brands, which increased to 84 (from 82 in 2020), with a particular focus on the Positivo brands. Supplemental solutions also experienced a strong acceleration from 2020 levels as schools became increasingly more interested in complementing the learning journey beyond the cognitive. As a result, we expect our consolidated ACV to grow between 27% and 29% organically, or 38% to 42% including M&A, and we are confident we will recognize Revenues in line with, or above, pre-pandemic levels ACV in 2022, as we see potential upside to our ACV guidance as partner schools gradually see their operations return to full capacity. Arco is also undergoing an important transformation as we begin to integrate our processes, reduce operational complexity, and improve profitability, which in turn will allow us to free up cash to reinvest in growth, quality, and our people. We believe 2022 will be a year of strong growth and increased efficiency, placing Arco's rule of 40 (the idea that a software/SaaS company's combined growth rate and profit margin should be greater than 40%) above the 60% level." said Ari de Sá Neto, CEO and founder of Arco.

Third Quarter 2021 Results

Nine-months ended September 30 2021 Results

Key Messages

Allowance for doubtful accounts (R$ MM)

3Q21

3Q20

YoY

2Q21

QoQ

Allowance for doubtful accounts

(6.0)

(15.7)

-61.8%

(6.7)

-10.2%

% of Revenues

-3.3%

-7.5%

4.2 p.p.

-2.6%

-0.7 p.p.

Allowance for doubtful accounts adjusted for COVID impact¹

(6.0)

(14.8)

-59.4%

(6.7)

-10.0%

% of Revenues

-3.3%

-7.1%

3.8 p.p.

-2.6%

-0.7 p.p.

1) Calculated excluding COVID-19 impact on allowance for doubtful accounts to better reflect a normalized level of this line.

Free cash flow (R$ MM)

3Q21

3Q20

YoY

2Q21

QoQ

Cash generated from operations

74,137

68,934

8%

113,157

-34%

(-) Income tax paid

(19,167)

(26,392)

-27%

(4,529)

323%

(-) Interest paid on lease liabilities

(918)

(476)

93%

(743)

24%

(-) Interest paid on investment acquisition

(1,031)

(47)

n/a

(70)

n/a

(-) Interest paid on loans and financing

(5,461)

(9,867)

-45%

(4,378)

25%

(-) Payments for contingent consideration

-

-

n/a

(332)

n/a

Cash Flow from Operating Activities

47,560

32,152

48%

103,105

-146%

(-) Acquisition of property, plant and equipment

(4,010)

(1,621)

147%

(2,534)

58%

(-) Acquisition of intangible assets

(35,190)

(23,589)

49%

(36,842)

-4%

Free cash flow

8,360

6,942

20%

63,729

-87%

Trade Receivables - Aging (R$ MM)

3Q21

3Q20

YoY

2Q21

QoQ

Neither past due nor impaired

246.7

191.7

29%

357.2

-31%

1 to 60 days

34.8

42.7

-19%

36.9

-6%

61 to 90 days

13.0

17.9

-28%

9.3

39%

91 to 120 days

10.7

14.0

-23%

7.1

52%

121 to 180 days

14.5

18.5

-22%

7.9

84%

More than 180 days

62.7

33.6

87%

59.3

6%

Trade receivables

382.3

318.3

20%

477.7

-20%

Days of sales outstanding

3Q21

3Q20

YoY

2Q21

QoQ

Trade receivables (R$ MM)

382.3

318.3

20%

477.7

-20%

(-) Allowance for doubtful accounts

(77.1)

(57.8)

34%

(71.3)

8%

Trade receivables, net (R$ MM)

305.1

260.6

17%

406.4

-25%

Net revenue LTM pro-forma¹

1,073.2

1,078.5

-1%

1,122.7

-4%

Adjusted DSO

104

88

18%

132

-22%

1) Calculated as net revenues for the last twelve months added to the pro forma revenues from businesses acquired in the period to accurately reflect the Company's operations.

CAPEX (R$ MM)¹

3Q21

3Q20

YoY

2Q21

QoQ

Acquisition of intangible assets

35.0

23.6

48%

36.8

-5%

Educational platform - content development

13.4

11.2

20%

8.1

66%

Educational platform - platforms and educational technology

8.5

4.5

91%

13.0

-34%

Software

10.5

5.4

96%

13.7

-23%

Copyrights and others

2.5

2.6

-2%

2.1

21%

Acquisition of property, plant and equipment

4.0

1.6

147%

2.53

58%

TOTAL

39.0

25.2

55%

39.4

-1%

1) Excluding the effect of business combinations.

Intangible assets - net balances (R$ MM)

3Q21

3Q20

YoY

2Q21

QoQ

Business Combination

2,334.6

1,708.9

214%

2,374.1

0%

Trademarks

437.3

333.1

31%

443.0

-1%

Customer relationships

261.4

176.1

48%

266.8

-2%

Educational system

209.6

214.9

-3%

216.4

-4%

Softwares

11.4

6.8

51%

7.3

42%

Educational platform

5.7

13.2

-47%

6.0

18%

Others¹

16.4

15.9

-4%

15.9

-4%

Goodwill

1,392.8

948.9

47%

1,418.7

2%

Operational

206.5

122.1

69%

193.0

7%

Educational platform²

141.7

86.2

64%

136.0

4%

Softwares

53.0

25.2

110%

45.3

17%

Copyrights

11.8

10.5

13%

11.7

1%

Customer relationships

0.1

0.2

-38%

0.1

-14%

TOTAL

2,541.2

1,831.0

39%

2,567.1

0%

Amortization of intangible assets (R$ MM)

3Q21

3Q20

YoY

2Q21

QoQ

Business Combination

(55.7)

(18.5)

202%

(55.0)

1%

Trademarks

(6.5)

(4.6)

39%

(6.4)

1%

Customer relationships

(8.6)

(6.1)

40%

(8.5)

1%

Educational system

(8.1)

(6.6)

21%

(8.1)

0%

Softwares

(0.9)

(0.5)

81%

(0.6)

42%

Educational platform

(0.3)

(0.2)

104%

(0.2)

74%

Others¹

(1.3)

(0.4)

216%

(1.2)

18%

Goodwill

(30.1)

0.0

n/a

(30.1)

0%

Operational

(22.8)

(12.0)

90%

(20.6)

23%

Educational platform²

(16.3)

(8.7)

87%

(15.2)

19%

Softwares

(4.5)

(1.5)

194%

(3.4)

54%

Copyrights

(2.0)

(1.7)

17%

(2.1)

0%

Customer relationships

(0.0)

(0.0)

100%

(0.0)

100%

TOTAL

(78.5)

(30.4)

158%

(75.7)

7%

1) Non-compete agreements and rights on contracts.

2) Includes content development in progress.

Amortization of intangible assets

(R$ MM)

Impacts
P&L

Originates
tax
benefit

Amortizations with tax benefit in 3Q21²

Amortization

Tax
benefit

Impact on net income

Business Combination

 

 

(45.7)

15.5

(30.1)

Trademarks

Yes

Yes²

(4.2)

1.4

(2.7)

Customer relationships

Yes

Yes²

(5.3)

1.8

(3.5)

Educational system

Yes

Yes²

(5.4)

1.8

(3.5)

Educational platform

Yes

Yes²

(0.2)

0.1

(0.1)

Others¹

Yes

Yes²

(0.5)

0.2

(0.3)

Goodwill

No

Yes²

(30.1)

10.2

(19.9)

Operational

Yes

Yes

(22.8)

7.8

(15.1)

TOTAL

 

 

(68.5)

23.3

(45.2)

1) Non-compete agreements and rights on contracts.

2) Amortizations are tax deductible only after the incorporation of the acquired business. In 3Q21, 28% of the balance of the intangible assets from business combinations generates tax benefits.

Amortization of intangible assets from business combination that generate tax benefit - schedule (R$ MM)

Businesses with current tax benefit
(already incorporated)

Undefined¹

2021

2022

2023

2024

2025 +

Trademarks

6.5

26.0

26.0

25.9

350.1

15.6

Customer relationships

8.6

33.2

32.9

32.8

153.9

26.6

Educational system

8.3

33.2

30.8

30.2

108.1

21.2

Software

1.7

6.8

5.7

4.3

6.9

16.9

Others

1.0

4.6

4.6

4.3

0.9

1.9

Goodwill

30.1

120.5

120.5

114.6

341.2

513.6

Total

56.2

223.2

220.6

212.0

961.2

595.8

Maximum tax benefit

19.1

75.9

75.0

72.1

326.8

202.6

1) Businesses with future tax benefit (to be incorporated).

Conference Call Information

Arco will discuss its third quarter 2021 results today, November 29, 2021, via a conference call at 5 p.m. Eastern Time (7 p.m. Brasilia Time). To access the call, please dial: +1 (412) 717-9627, +1 (844) 204-8942, +55 (11) 4090-1621 or +55 (11) 4210-1803. An audio replay of the call will be available through December 5, 2021, by dialing +55 (11) 3193-1012 and entering access code 1608874#. A live and archived webcast of the call will be available on the Investor Relations section of the Company's website at https://investor.arcoplatform.com/.

Information related to COVID-19 pandemic

As of September 30, 2021, there was a total net impact of R$1,419 thousand on the Company's condensed consolidated financial statements related to the COVID-19 pandemic mainly related to: (i) additional expenses of R$1,646 thousand related to health care in food and emotional health programs provided to the Company's employees, and (ii) savings on rent concessions, in connection with leased buildings, as a direct consequence of the COVID-19 pandemic, amounting to R$217 thousand.

The Company assessed the existence of potential impairment indicators and the possible impacts on the key assumptions and projections caused by the pandemic on the recoverability of long-lived assets and concluded that there are no indications that demonstrate the need to recognize a provision for impairment of long-lived assets in the consolidated financial statements.

The future impact of the COVID-19 pandemic on an ongoing basis is still uncertain, and the Company's management team will continue to closely monitor and assess the potential impacts it may have on the Company's business, its financial performance and position.

For full disclosure regarding the COVID-19 discussion, please refer to the September 30, 2021, condensed consolidated financial statements submitted to the Securities and Exchange Commission on Form 6-K.

About Arco Platform Limited (Nasdaq: ARCE)

Arco has empowered hundreds of thousands of students to rewrite their futures through education. Our data-driven learning methodology, proprietary adaptable curriculum, interactive hybrid content, and high-quality pedagogical services allow students to personalize their learning experience while enabling schools to thrive.

Forward-Looking Statements

This press release contains forward-looking statements as pertains to Arco Platform Limited (the "Company") within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the Company's expectations or predictions of future financial or business performance conditions. The achievement or success of the matters covered by statements herein involves substantial known and unknown risks, uncertainties, and assumptions, including with respect to the COVID-19 pandemic. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company's results could differ materially from the results expressed or implied by the statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward looking statements are made based on the Company's current expectations and projections relating to its financial conditions, result of operations, plans, objectives, future performance and business, and these statements are not guarantees of future performance.

Statements which herein address activities, events, conditions or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements. You can generally identify forward-looking statements by the use of forward-looking terminology such as "anticipate," "believe," "can," "continue," "could," "estimate," "evaluate," "expect," "explore," "forecast," "guidance," "intend," "likely," "may," "might," "outlook," "plan," "potential," "predict," "probable," "project," "seek," "should," "view," or "will," or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain customers; our ability to increase the price of our solutions; our ability to expand our sales and marketing capabilities; general market, political, economic, and business conditions in Brazil or abroad; and our financial targets which include revenue, share count and other IFRS measures, as well as non-IFRS financial measures including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin, Taxable Income Reconciliation and Free Cash Flow.

Forward-looking statements represent the Company management's beliefs and assumptions only as of the date such statements are made, and the Company undertakes no obligation to update any forward-looking statements made in this 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" for purposes of calculation of ACV Bookings as the twelve-month period starting in October of the previous year to September of the mentioned current year). We calculate ACV Bookings by multiplying the number of enrolled students at each partner school with the average ticket per student per year; the related number of enrolled students and average ticket per student per year are each calculated in accordance with the terms of each contract with the related partner school.

Non-GAAP Financial Measures

To supplement the Company's condensed consolidated financial statements, which are prepared and presented in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board?IASB, we use Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Taxable Income Reconciliation which are non-GAAP financial measures.

We calculate Adjusted EBITDA as profit (loss) for the year (or period) plus/minus income taxes, plus/minus finance result, plus depreciation and amortization, plus/minus share of (profit) loss of equity-accounted investees, plus share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units), plus M&A 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 (or period), plus share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units), 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 (vi) software and (vii) educational platform resulting from acquisitions), plus/minus 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/minus changes in accounts payable to selling shareholders, plus/minus share of (profit) loss of equity-accounted investees, plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income, plus/minus foreign exchange gains/loss on cash and cash equivalents, plus interest expenses, net, plus M&A expenses, plus non-recurring expenses and plus effects related to COVID-19 pandemic. We calculate Adjusted Net Income Margin as Adjusted Net Income divided by Net Revenue.

We calculate Free Cash Flow as Net Cash Flows from Operating activities, less acquisition of property and equipment, less acquisition of intangible assets. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by operating activities and cash used for investments in property and equipment required to maintain and grow our business.

We calculate Taxable Income Reconciliation as profit (loss) for the year (or period) adjusted for permanent and temporary additions and exclusions (for example, adjustments to provisions and amortizations in the period) and for all tax benefits that Arco is entitled to (for example, goodwill). The effective tax rate will be the current taxes for the period divided by the taxable income. In Brazil, taxes are charged based on the taxable income, not the accounting income, which means companies can have an accounting loss and a taxable profit. Additionally, Arco owns several companies and taxes are calculated individually.

We understand that, although Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Taxable Income Reconciliation are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS. Additionally, our calculations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income, Adjusted Net Income Margin, Free Cash Flow and Taxable Income Reconciliation may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

Arco Platform Limited

Consolidated Statements of Financial Position

 

 

 

 

 

 

 

September 30,

 

December 31,

(In thousands of Brazilian reais)

 

2021

 

2020

Assets

 

(unaudited)

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

1,322,334

 

424,410

Financial investments

 

333,166

 

712,645

Trade receivables

 

305,149

 

415,282

Inventories

 

99,692

 

74,076

Recoverable taxes

 

44,591

 

19,304

Related parties

 

4,481

 

9,970

Other assets

 

35,622

 

24,073

Total current assets

 

2,145,035

 

1,679,760

 

 

 

 

 

Non-current assets

 

 

 

 

Deferred income tax

 

322,305

 

236,903

Recoverable taxes

 

1,122

 

1,121

Financial investments

 

38,434

 

10,349

Related parties

 

6,733

 

10,508

Other assets

 

41,365

 

22,239

Investments and interests in other entities

 

128,202

 

9,654

Property and equipment

 

27,335

 

26,087

Right-of-use assets

 

36,748

 

30,022

Intangible assets

 

2,541,254

 

2,549,637

Total non-current assets

 

3,143,498

 

2,896,520

 

 

 

 

 

Total assets

 

5,288,533

 

4,576,280

 

 

September 30,

 

December 31,

(In thousands of Brazilian reais)

 

2021

 

2020

Liabilities

 

(unaudited)

 

 

Current liabilities

 

 

 

 

Trade payables

 

70,674

 

40,925

Labor and social obligations

 

167,783

 

85,069

Taxes and contributions payable

 

3,974

 

9,676

Income taxes payable

 

33,274

 

44,731

Advances from customers

 

6,850

 

23,080

Lease liabilities

 

16,052

 

12,742

Loans and financing

 

305,305

 

107,706

Accounts payable to selling shareholders

 

775,464

 

656,014

Other liabilities

 

4,363

 

331

Total current liabilities

 

1,383,739

 

980,274

 

 

 

 

 

Non-current liabilities

 

 

 

 

Labor and social obligations

 

346

 

36,570

Lease liabilities

 

27,502

 

22,478

Loans and financing

 

900,902

 

203,413

Provision for legal proceedings

 

2,066

 

1,366

Accounts payable to selling shareholders

 

1,033,318

 

1,130,501

Other liabilities

 

1,134

 

794

Total non-current liabilities

 

1,965,268

 

1,395,122

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

11

 

11

Capital reserve

 

2,203,167

 

2,200,645

Treasury shares

 

(132,929)

 

-

Share-based compensation reserve

 

102,134

 

80,817

Accumulated losses

 

(232,857)

 

(80,589)

Total equity

 

1,939,526

 

2,200,884

 

 

 

 

 

Total liabilities and equity

5,288,533

 

4,576,280

Arco Platform Limited

Interim Condensed Consolidated Statements of Income

 

Three months period ended
September 30,

 

Nine months period ended
September 30,

(In thousands of Brazilian reais, except earnings per share)

2021

 

2020

 

2021

 

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net revenue

183,267

208,730

771,240

705,173

Cost of sales

(44,766)

(44,485)

(199,994)

(154,825)

Gross profit

138,501

164,245

571,246

550,348

Operating expenses:

Selling expenses

(114,982)

(98,612)

(353,367)

(274,582)

General and administrative expenses

(109,867)

(72,108)

(246,161)

(199,030)

Other income (expenses), net

413

3,234

2,913

3,993

Operating profit (loss)

(85,935)

(3,241)

(25,369)

80,729

 

 

 

 

 

 

 

 

Finance income

20,353

13,418

42,407

35,597

Finance costs

(124,947)

(44,812)

(209,239)

(113,903)

Finance result

(104,594)

(31,394)

(166,832)

(78,306)

 

 

 

 

 

 

 

 

Share of loss of equity-accounted investees

(5,575)

(4,042)

(8,326)

(8,041)

 

 

 

 

 

Loss before income taxes

(196,104)

(38,677)

(200,527)

(5,618)

Income taxes - income (expense)

Current

(1,246)

(14,218)

(37,143)

(68,841)

Deferred

53,290

25,407

85,402

67,036

Total income taxes ? income (expense)

52,044

11,189

48,259

(1,805)

 

 

 

 

 

 

 

 

Loss for the period

(144,060)

(27,488)

(152,268)

(7,423)

 

Basic earnings per share ? in Brazilian reais

Class A

(2.53)

 

(0.49)

 

(2.67)

 

(0.13)

Class B

(2.53)

 

(0.49)

 

(2.67)

 

(0.13)

Diluted earnings per share ? in Brazilian reais

 

 

 

 

 

 

 

Class A

(2.53)

 

(0.49)

 

(2.67)

 

(0.13)

Class B

(2.53)

 

(0.49)

 

(2.67)

 

(0.13)

 

Weighted-average shares used to compute net (loss) profit per share:

Basic

56,902

 

55,545

 

57,109

 

55,144

Diluted

57,122

 

55,737

 

57,329

 

55,336

Arco Platform Limited

Interim Condensed Consolidated Statements of Cash Flows

 

Three months period ended
September 30,

Nine months period ended
September 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating activities

Loss before income taxes

(196,104)

 

(38,677)

 

(200,527)

 

(5,618)

Adjustments to reconcile loss before income taxes

 

 

 

 

 

 

 

Depreciation and amortization

42,605

 

29,715

 

136,080

 

89,763

Inventory reserves

5,579

 

(305)

 

12,965

 

3,339

Allowance for doubtful accounts

5,987

 

15,679

 

16,486

 

28,233

Loss on sale/disposal of property and equipment and intangible assets disposed

87

 

72

 

222

 

1,524

Fair value change in financial instruments from acquisition interests

-

 

421

 

-

 

(438)

Changes in accounts payable to selling shareholders

74,664

 

12,978

 

75,153

 

19,872

Share of loss of equity-accounted investees

5,575

 

4,042

 

8,326

 

8,041

Share-based compensation plan

41,760

 

(2,339)

 

57,315

 

15,309

Accrued interest

11,705

 

9,077

 

20,610

 

16,052

Interest accretion on acquisition liability

30,802

 

13,013

 

84,826

 

49,990

Income non-cash equivalents

(6,421)

 

(4,200)

 

(14,916)

 

(9,856)

Interest on lease liabilities

1,204

 

641

 

3,361

 

2,060

Provision for legal proceedings

248

 

-

 

37

 

594

Provision for payroll taxes (restricted stock units)

1,259

 

(10,212)

 

2,686

 

(1,166)

Foreign exchange income

(1,945)

 

(551)

 

2,147

 

(371)

Changes in fair value of step acquisitions

-

 

(3,248)

 

-

 

(3,248)

Other financial cost/revenue, net

1,792

 

(811)

 

(706)

 

(1,849)

18,797

 

25,295

 

204,065

 

212,231

Changes in assets and liabilities

 

 

 

 

 

 

 

Trade receivables

95,594

 

22,354

 

95,979

 

40,821

Inventories

(6,372)

 

(489)

 

(18,339)

 

(8,052)

Recoverable taxes

(5,463)

 

(514)

 

(2,996)

 

(4,818)

Other assets

(12,776)

 

11,582

 

(21,231)

 

(7,319)

Trade payables

21,809

 

(76)

 

29,034

 

(3,791)

Labor and social obligations

1,069

 

29,210

 

11,325

 

44,832

Taxes and contributions payable

(1,388)

 

12,576

 

(6,471)

 

9,797

Advances from customers

(36,559)

 

(31,099)

 

(16,574)

 

(20,273)

Other liabilities

(574)

 

95

 

1,730

 

(887)

Cash generated from operations

74,137

 

68,934

 

276,522

 

262,541

Income taxes paid

(19,167)

 

(26,392)

 

(70,684)

 

(90,412)

Interest paid on lease liabilities

(918)

 

(476)

 

(2,521)

 

(1,186)

Interest paid on accounts payable to selling shareholders

(1,031)

 

(47)

 

(5,254)

 

(47)

Interest paid on loans and financing

(5,461)

 

(9,867)

 

(13,406)

 

(9,867)

Payments for contingent consideration

-

 

-

 

(332)

 

(3,696)

Net cash flows from operating activities

47,560

 

32,152

 

184,325

 

157,333

 

Investing activities

Acquisition of property and equipment

(4,010)

 

(1,621)

 

(9,542)

 

(5,663)

Investments in unconsolidated entities

(53,538)

 

(19,953)

 

(126,760)

 

(32,628)

Acquisition of subsidiaries, net of cash acquired

(15,839)

 

(22,002)

 

(31,056)

 

(22,002)

Payment of accounts payable to selling shareholders

(8,449)

 

-

 

(101,285)

 

-

Acquisition of intangible assets

(35,190)

 

(23,589)

 

(104,733)

 

(63,069)

Sale (purchase) of financial investments

213,374

 

(199,739)

 

366,309

 

(322,141)

Net cash flows used in investing activities

96,348

 

(266,904)

 

(7,067)

 

(445,503)

 

Financing activities

Purchase of treasury shares

(25,069)

 

-

 

(134,806)

 

-

Capital increase proceeds from public offering

-

 

591,898

 

-

 

591,898

Share issuance costs

-

 

(17,531)

 

-

 

(17,531)

Payment of lease liabilities

(4,245)

 

(1,949)

 

(10,599)

 

(5,728)

Long term payments of accounts payable to selling shareholders

(13)

 

47

 

(19,455)

 

(954)

Loans and financing

899,666

 

198,611

 

896,223

 

198,611

Loans and financing transaction costs

(8,550)

 

(198,925)

 

(8,550)

 

(553)

Net cash flows from financing activities

861,789

 

572,151

 

722,813

 

765,743

 

Foreign exchange effects on cash and cash equivalents

1,945

 

551

 

(2,147)

 

371

Increase in cash and cash equivalents

1,007,642

 

337,950

 

897,924

 

477,944

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

314,692

 

188,894

 

424,410

 

48,900

Cash and cash equivalents at the end of the period

1,322,334

 

526,844

 

1,322,334

 

526,844

Increase in cash and cash equivalents

1,007,642

 

337,950

 

897,924

 

477,944

Arco Platform Limited

Reconciliation of Non-GAAP Measures

 

Three months period ended
September 30,

Nine months period ended
September 30,

(In thousands of Brazilian reais)

2021

2020

2021

2020

Adjusted EBITDA Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Loss for the period

(144,060)

 

(27,488)

 

(152,268)

 

(7,423)

(+/-) Income taxes

(52,044)

 

(11,189)

 

(48,259)

 

1,805

(+/-) Finance result

104,594

 

31,394

 

166,832

 

78,306

(+) Depreciation and amortization

42,605

 

29,715

 

136,080

 

89,763

(+) Share of loss of equity-accounted investees

5,575

 

4,042

 

8,326

 

8,041

EBITDA

(43,330)

 

26,474

 

110,711

 

170,492

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

42,993

 

19,840

 

64,041

 

51,280

(+) M&A expenses

14,353

 

1,697

 

22,203

 

5,688

(+) Non-recurring expenses

1,242

 

6,694

 

7,800

 

16,752

(+) Effects related to Covid-19 pandemic

544

 

2,922

 

1,696

 

10,915

Adjusted EBITDA

15,802

 

57,627

 

206,451

 

255,127

 

 

 

 

 

 

 

Net Revenue

183,267

 

208,730

 

771,240

 

705,173

EBITDA Margin

-23.6%

 

12.7%

 

14.4%

 

24.2%

Adjusted EBITDA Margin

8.6%

 

27.6%

 

26.8%

 

36.2%

 

Three months period ended
September 30,

Nine months period ended
September 30,

(In thousands of Brazilian reais)

2021

 

2020

 

2021

 

2020

Adjusted Net Income (Loss) Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Loss for the period

(144,060)

 

(27,488)

 

(152,268)

 

(7,423)

(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).

42,993

 

19,840

 

64,041

 

51,280

(+) Amortization of intangible assets from business combinations

25,598

 

18,483

 

75,350

 

54,718

(+/-) Changes in fair value of derivative instruments

-

 

421

 

-

 

(438)

(+/-) Changes in accounts payable to selling shareholders

74,664

 

12,978

 

75,153

 

19,872

(+/-) Share of loss of equity-accounted investees

5,575

 

4,042

 

8,326

 

8,041

(+/-) Tax effects

(61,738)

 

(12,768)

 

(103,793)

 

(55,192)

(+/-) Foreign exchange on cash and cash equivalents

(1,945)

 

(551)

 

2,147

 

(371)

(+) Interest on acquisition of investments, net (linked to a fixed rate)¹

16,395

 

4,507

 

30,847

 

20,763

(+) Interest on acquisition of investments, net (adjusted by fair value)²

14,407

 

8,006

 

53,979

 

28,246

(+) M&A expenses

14,353

 

1,697

 

22,203

 

5,688

(+) Non-recurring expenses

1,242

 

6,694

 

7,800

 

16,752

(+) Effects related to Covid-19 pandemic

544

 

2,922

 

1,696

 

10,915

Adjusted Net Income (Loss)

(11,972)

 

38,783

 

85,481

 

152,851

 

 

 

 

 

 

 

Net Revenue

183,267

 

208,730

 

771,240

 

705,173

Adjusted Net Income (Loss) Margin

-6.5%

 

18.6%

 

11.1%

 

21.7%

1) Refer to interest expenses on liabilities related to business combinations and investments in associates that are linked to a fixed rate (CDI or SELIC).

2) Refer to interest expense on liabilities related to business combinations and investments in associates that are adjusted by the fair value of the acquired business.

Three months period ended
September 30,

Nine months period ended
September 30,

(In thousands of Brazilian reais)

2021

 

2020

 

2021

 

2020

Free Cash Flow Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash generated from operations

74,137

 

68,934

 

276,522

 

262,541

(-) Income tax paid

(19,167)

 

(26,392)

 

(70,684)

 

(90,412)

(-) Interest paid on lease liabilities

(918)

 

(476)

 

(2,521)

 

(1,186)

(-) Interest paid on investment acquisition

(1,031)

 

(47)

 

(5,254)

 

(47)

(-) Interest paid on loans and financing

(5,461)

 

(9,867)

 

(13,406)

 

(9,867)

(-) Payments for contingent consideration

-

 

-

 

(332)

 

(3,696)

Cash Flow from Operating Activities

47,560

 

32,152

 

184,325

 

157,333

(-) Acquisition of property and equipment

(4,010)

 

(1,621)

 

(9,542)

 

(5,663)

(-) Acquisition of intangible assets

(35,190)

 

(23,589)

 

(104,733)

 

(63,069)

Free Cash Flow

8,360

 

6,942

 

70,050

 

88,601

 

Three months period ended
September 30,

Nine months period ended
September 30,

(In thousands of Brazilian reais)

2021

 

2020

 

2021

 

2020

Taxable Income Reconciliation

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Loss before income taxes

(196,104)

 

(38,677)

 

(200,527)

 

(5,618)

(+) Share-based compensation plan, RSU and provision for payroll taxes¹

44,929

 

(3,897)

 

53,965

 

21,879

(+) Amortization of intangible assets from business combinations before incorporation¹

725

 

(5,344)

 

10,485

 

34,205

(+/-) Changes in accounts payable to selling shareholders¹

92,173

 

21,297

 

131,584

 

54,180

(+/-) Share of loss of equity?accounted investees

(1,896)

 

(1,374)

 

(2,831)

 

(2,734)

(+) Net income from Arco Platform (Cayman)

2,971

 

6,839

 

16,771

 

12,118

(+) Fiscal loss without deferred

4,168

 

1,780

 

8,935

 

4,243

(+/-) Provisions booked in the period

(3,546)

 

16,427

 

9,781

 

41,025

(+) Tax loss carryforward

77,673

 

66,396

 

169,039

 

83,672

(+) Others

9,349

 

(1,405)

 

17,868

 

6,426

Taxable income

30,442

 

62,042

 

215,070

 

249,396

 

 

 

 

 

 

 

 

Current income tax under actual profit method

(10,350)

 

(21,094)

 

(73,123)

 

(84,794)

% Tax rate under actual profit method

34.0%

 

34.0%

 

34.0%

 

34.0%

(+) Effect of presumed profit benefit

-

 

(254)

 

3,266

 

4,675

Effective current income tax

(10,350)

 

(21,348)

 

(69,857)

 

(80,119)

% Effective tax rate

34.0%

 

34.4%

 

32.5%

 

32.1%

(+) Recognition of tax-deductible amortization of goodwill and added value²

10,867

 

7,434

 

32,802

 

9,279

(+/-) Other additions (exclusions)

(1,763)

 

(304)

 

(88)

 

1,999

Effective current income tax accounted for goodwill benefit

(1,246)

 

(14,218)

 

(37,143)

 

(68,841)

% Effective tax rate accounting for goodwill benefit

4.1%

 

22.9%

 

17.3%

 

27.6%

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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