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

Full Year Net Revenue Increases 56% Year-Over-Year to R$381.0 Million

Fourth Quarter Net Revenue Increases 73% Year-Over-Year to R$121.0 Million

SÃO PAULO, Brazil, March 19, 2019 (GLOBE NEWSWIRE) -- Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the fourth quarter and full year 2018 ended December 31, 2018.

“A year ago, we set highly ambitious goals for 2018. We wanted to improve the quality of our solutions and increase our customers’ satisfaction, while expanding our network of schools. We are pleased with what we accomplished. It was a direct result of the hard work of our talented team and strong culture,” said Ari de Sá Neto, CEO and founder of Arco.

“In 2019, we remain relentlessly committed to delivering the best platform to more than 1,450 partner schools, with high quality content, relevant technology and personalized services, impacting the lives of nearly half a million students.”   

Full Year 2018 Highlights

• Net Revenue was R$381.0 million, an increase of 56% compared to R$244.4 million in 2017.
• Net Loss was R$82.9 million compared to Net income of R$43.6 million in 2017.
• Adjusted Net Income was R$112.3 million compared to R$66.6 million in 2017.
• Adjusted EBITDA was R$142.0 million compared to R$91.1 million in 2017.

Fourth Quarter 2018 Results

• Net Revenue was R$121.0 million, an increase of 73% compared to R$69.9 million in the fourth quarter of 2017.
• Net Loss was R$76.9 million compared to Net income of R$8.1 million in the fourth quarter of 2017.
• Adjusted Net Income was R$43.1 million compared to R$14.4 million in the fourth quarter of 2017.
• Adjusted EBITDA was R$46.1 million compared to R$20.7 million in the fourth quarter of 2017.

Revenue Recognition and Seasonality

As we report fourth quarter and full year 2018 results, it is important to highlight the revenue recognition and seasonality of our business.

We typically deliver our Core Curriculum content four times each year, in March, June, August and December and our Supplemental Solutions content twice each year, in June and December, usually two to three months prior to the start of each school quarter. The amount of revenue recognized is proportional to the amount of content made available, which is not linearly distributed among the quarters. This causes revenue seasonality in our business, in which the third quarter revenue is the lowest point of the year.

A significant portion of our expenses is also seasonal. Due to the nature of our business cycle, we require significant working capital, typically in September or October of each year, to cover costs related to production and accumulation of inventory, selling and marketing expenses, and delivery of our teaching materials at the end of each fiscal year in preparation for the beginning of each school year. Therefore, such operating expenses are generally incurred in the period between September and December of each year.

2019 ACV Bookings Confirmation (From October 2018 to September 2019):

2019 ACV Bookings is R$440.9 million, an increase of 37% against the 2018 ACV Bookings. 

First Quarter 2019 Guidance:

We expect to recognize in the first quarter (1Q19) 22% to 25% of the ACV Bookings 2019.
Net Revenue is expected to be in the range of R$97.0 million to R$110.2 million.

Full Year 2019 Guidance:

Adjusted EBITDA margin is expected to be in the range of 35.5% to 37.5%.

About Arco Platform Limited (Nasdaq: ARCE)

Arco has empowered hundreds of thousands of students to rewrite their futures through education. Our data-driven learning, interactive proprietary content, and scalable curriculum allows students to personalize their learning experience with high-quality solutions while enabling schools to provide a broader approach to education.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to statements about our competition; our ability to attract, upsell and retain customers; our ability to increase the price of our solutions; our ability to expand our sales and marketing capabilities; general market, political, economic, and business conditions, and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share, and free cash flow.

We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. Further information on these and other factors that could affect our financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled “Risk Factors” in our most recent Rule 424(b) prospectus. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://arcoeducacao.gcs-web.com/.

Key Business Metrics

ACV Bookings: We define ACV Bookings as the revenue we would contractually expect to recognize from a partner school in each school year pursuant to the terms of our contract with such partner school, assuming no further additions or reductions in the number of enrolled students that will access our content at such partner school in such school year (we define “school year” by purposes of calculation ACV Bookings as the twelve-month period starting in October of the previous year to September of the mentioned current year). We calculate ACV Bookings by multiplying the number of enrolled students at each partner school with the average ticket per student per year; the related number of enrolled students and average ticket per student per year are each calculated in accordance with the terms of each contract with the related partner school.

Non-GAAP Financial Measures

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

We calculate Adjusted EBITDA as profit (loss) for the year (or period) plus income taxes plus/minus finance result plus depreciation and amortization plus share of loss of equity-accounted investees plus share-based compensation plan.

We calculate Adjusted Net Income as profit (loss) for the year (or period) plus share-based compensation plan plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) rights on contracts, (ii) customer relationships, (iii) educational system, (iv) trademarks, and (v) non-compete agreement) less/plus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments—finance income and (ii) changes in fair value of derivative instruments—finance costs), plus changes in accounts payable to selling shareholders, plus share of loss of equity-accounted investees plus interest expenses, minus changes in deferred tax assets and liabilities recognized in profit or loss (corresponding to financial instruments from acquisition of interests, share-based compensation and amortization of intangible assets) and plus foreign exchange on cash and cash equivalents.

We calculate Free Cash Flow as Net Cash Flows from Operating activities less acquisition of property and equipment less acquisition of intangible assets.

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

Conference Call Information

Arco will discuss its fourth quarter and full year 2018 results today, March 19, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 5468529), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through April 2, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 5468529. A webcast of the call will be available on the Investor Relations section of the Company’s website at https://arcoeducacao.gcs-web.com/.

Investor Relations Contact:

Arco Platform Limited
Vitor Hiraiwa
IR@arcoeducacao.com.br

Source: Arco Platform Ltd.

Arco Platform Limited
Reconciliation of Non-GAAP Measures