Arco Reports Second Quarter 2022 Results

Arco Platform Limited, or Arco or Company (Nasdaq: ARCE), today reported financial and operating results for the second quarter ended June 30, 2022.

“The resumption of in-person classes in the Brazilian private K-12 segment and consequent return of students who dropped-out during the pandemic led to great enthusiasm inside our partner schools. The significant increase in additional orders of our ACV bookings impacted our revenue recognition seasonality, as part of the books typically delivered in Q1 were delivered in April instead and, as a result, 2Q22 had a stronger top line. Looking at the broader picture, we have already recognized 83.2% of the ACV bookings for the 2022 cycle and we are confident that we will recognize 100% by Q3. Our integration and efficiency agenda is progressing well, and initial results can be observed in all lines, from costs and expenses to working capital and capex. As for the commercial cycle for 2023, although still early - the strongest months for new contracts are typically September, October, and November -, our ability to attend and promote in-person events and visit our partner schools has proven to be an extremely powerful tool to retain our partner schools and convert leads developed in prior cycles.”

Ari de Sá Neto, CEO and founder

2Q22					6M22
Net Revenue		Gross Profit			Net Revenue		Gross Profit
R$412.1M		R$279.1M			R$842.2M		R$592.5M
Adj. EBITDA¹		Adj. Net Income²			Adj. EBITDA¹		Adj. Net Income²
R$110.7M		R$(23.2)M			R$257.3M		R$8.1M
1) Please see Adjusted EBITDA Reconciliation on page 17. 2) Please see Adjusted Net Income Reconciliation on pages 17 and 18.

Financial Highlights

Net revenue for the second quarter was R$412.1 million, a 61% year-over-year (YoY) increase, representing a 26.4% revenue recognition of 2022 ACV bookings. Core solutions totaled R$367.3 million (+83% YoY), while Supplemental solutions were R$44.8 million (-20% YoY) as most of the revenue recognition for this segment takes place in Q4 (cycle-to-date 82.7% of the Supplemental solutions’ ACV has already been recognized). For the first six months of 2022, net revenue increased 43% year-over-year to R$842.2 million, with Core solutions increasing 54% to R$713.5 million and Supplemental solutions increasing 4% to R$128.7 million. Excluding recent M&A¹, net revenue increased 47% YoY in 2Q22 and 31% in 6M22 YoY. On a cycle-to-date (CTD) perspective, Arco already recognized 83.2% of the 2022 ACV and is confident that will be able to recognize 100% by Q3.

The positive effects of our integration and efficiency agenda were crucial to partially offset non-recurring increase in operating costs (content providing and freight) resulting from late orders, as rush printing costs are on average 25% higher than regular printing costs and books were shipped under express tariffs and through more expensive shipping methods (air, dedicated trucks). As a result, gross margin in 2Q22 was 67.7% (vs 73.4% in 2Q21). When excluding depreciation and amortization, cash gross margin was 75.8% for the same period (vs. 78.1% in 2Q21). For the 6 months of 2022, gross margin was 70.4% (vs 73.6% in 6M21) and cash gross margin was 77.4% (vs 78.4% in 6M21). Excluding those non-recurring impacts and recent M&A¹, cash gross margin for 6M22 would be 80.9%.

Higher selling expenses excluding depreciation and amortization at R$147.4 million in 2Q22 (+54% YoY) and R$285.3 million (+50% YoY) in the first six months of 2022 reflect higher investments in commercial activities (identifying and developing leads and cross sell opportunities, intensifying pedagogical support to partner schools, resumption of in-person interactions and events, etc), which are crucial to foster the strong growth potential opportunities and to capture more market share over time in both Core and Supplemental segments, as well as higher inflation for the period (mainly impacting travel expenses). Excluding recent M&A¹, selling expenses increased 50% in 2Q22 and 44% in 6M22. Due to the diligent cash collection process and close relationship with partner schools, Arco was able to improve the quality of its receivables, resulting in a consistent reduction of allowance for doubtful accounts (-106% YoY in 2Q22, -163% YoY in 6M22).

Allowance for doubtful accounts (R$M)		2Q22		2Q21		YoY		1Q22		QoQ			6M22		6M21		YoY
Allowance for doubtful accounts		0.4		(6.6)		-106%		6.2		-94%			6.6		(10.5)		-163%
% of net revenues		0.1%		-2.6%		2.7 p.p.		1.4%		-1.3 p.p.			0.8%		-1.8%		2.6 p.p.

General & administrative expenses (G&A) continue to show the results of a more integrated back-office strategy. In 2Q22, G&A expenses excluding depreciation and amortization were R$66.0 million (+28% YoY) and represented 16% of net revenue (versus 20% in 2Q21). Excluding recent M&A¹ G&A expenses increased to R$62.9 million (+25% YoY) in 2Q22. Share-based compensation plan increased 3% in 2Q22 YoY. For the first six months of 2022, G&A expenses excluding depreciation and amortization were R$138.6 million (+16% YoY) and represented 17% of net revenue (versus 20% in 6M21). Excluding the effects of recent M&A¹, G&A expenses increased 7% YoY in 6M22 to R$126.5 million.

___________________________________

1 Recent M&As refer to businesses acquired in 2021 (Me Salva, Eduqo, Edupass, COC, Dom Bosco) and 2022 (PGS, Mentes).

Adjusted EBITDA was R$110.7 million in 2Q22 (+53% YoY), with an adjusted EBITDA margin of 26.9% (versus 28.2% in 2Q21). Despite temporarily lower cash gross margin in 2Q22 (-2.3 p.p. YoY), adjusted EBTIDA was positively impacted by G&A efficiencies (+4.1 p.p. YoY). As for the first six months of 2022, adjusted EBITDA increased 35% YoY to R$257.3 million, and adjusted EBTIDA margin was 30.6% (versus 32.4% in 6M21). Excluding the one-off impact from late orders, adjusted EBITDA margin was 31.4% in 2Q22 and 33.2% in 6M22. We expect the adjusted EBITDA margin to be within the 36.5% and 38.5% guidance range by the end of 2022.

Arco presented an adjusted net income (loss) in 2Q22 of R$(23.2) million and adjusted net margin of -5.6% (-14p.p. YoY), impacted by higher finance expenses and D&A. For the six-month period of 2022, adjusted net income was R$8.1 million, with an adjusted net margin of 1.0% (versus 13.0% in 6M21).

From a cycle perspective, 48% revenue growth CTD (35% excluding M&A) is consistent with the robust volume of ACV bookings announced for the 2022 commercial cycle. Efficiency improvements also demonstrate the initial results of our integration strategy, delivering 52% adjusted EBITDA growth and a 1p.p. adjusted EBITDA margin growth versus 2021 CTD (2.7 p.p. growth excluding one-off impact of late orders).

A solid cash collection process led to an important improvement in the quality of accounts receivable, with reduced days sales outstanding - DSO (141 days in 2Q22 from 212 days in 1Q22) and delinquency levels (5.6% in 2Q22 from 10.0% in 2Q21). In 2Q22, R$519 million of receivables were collected, 30% above the R$400 million estimated for the 2Q22 at 1Q22 earnings result.

Days of sales outstanding		2Q22		2Q21		YoY		1Q22		QoQ			6M22		6M21		YoY
Trade receivables (R$M)		687.6		477.7		44%		887.1		-22%			687.6		477.7		44%
(-) Allowance for doubtful accounts		(79.7)		(71.3)		12%		(80.9)		-1%			(79.7)		(71.3)		12%
Trade receivables, net (R$M)		607.8		406.4		50%		806.2		-25%			607.8		406.4		50%
Net revenue LTM pro-forma¹		1,568.9		1,118.6		40%		1,387.3		13%			1,568.9		1,118.6		40%
Adjusted DSO		141		133		7%		212		-33%			141		133		7%
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 in 2Q22 was R$43.2 million, a 9.6% increase YoY and 10.5% of net revenue (versus 15.4% in 2Q21). For 6M22 CAPEX totaled R$90.2 million, down 210 bps YoY to 10.7% of net revenue (versus 12.8% in 6M21), within the guidance range of 10% to 12% of revenues for 2022 full year.

CAPEX (R$M)		2Q22		2Q21		YoY		1Q22		QoQ			6M22		6M21		YoY
Acquisition of intangible assets¹		41.5		36.8		13%		40.3		3%			81.8		69.6		18%
Educational platform - content development		4.5		1.3		246%		3.9		15%			8.4		18.3		-54%
Educational platform - platforms & tech		17.9		19.7		-9%		24.6		-27%			42.5		27.1		57%
Software		16.5		13.8		20%		10.3		60%			26.8		19.6		37%
Copyrights and others		2.6		2.1		24%		1.5		73%			4.1		4.7		-13%
Acquisition of PP&E		1.7		2.5		-32%		6.7		-75%			8.4		5.5		53%
TOTAL¹		43.2		39.4		10%		47.0		-8%			90.2		75.1		20%
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$52.0 million for 2Q22 and R$104.5 million for 6M22.

Cash from operations for 2Q22 and 6M22 highlights a better cash generation profile versus previous years. In 2Q22 cash from operations increased to R$191.6 million, from R$113.2 million in 2Q21, representing 173.1% of the 2Q22 adjusted EBITDA (+16.5 p.p. versus 156.6% of the 2Q21 adjusted EBITDA). Adjusted free cash flow² in 2Q22 increased to R$89.5 million, from R$64.10 million in 2Q21, representing 80.9% of the 2Q22 adjusted EBITDA (-7.8 p.p. versus 88.7% of the 2Q21 adjusted EBITDA). For the six-month period ended June 30, 2022, cash from operations increased to R$294.3 million, from R$202.4 million in 6M21, representing 114.4% of 6M22 adjusted EBITDA (+8.2 p.p. versus 106.2% of 6M21 adjusted EBITDA). Even in a scenario of rising interest rates, adjusted free cash flow grew 38% YoY in 6M22, representing 33.2% of the 6M22 adjusted EBITDA versus 32.5% in 6M21.

Arco’s corporate restructuring is ongoing. In May 2022 Arco concluded the incorporation of COC and Dom Bosco into CBE (Companhia Brasileira de Educação e Sistemas de Ensino, Arco’s wholly-owned entity which incorporates acquired businesses), leading to estimated future annual income tax savings of approximately R$12 million. Additionally, in June, Arco completed the acquisition of the remaining 42.6% stake in Geekie for R$223.9 million and its incorporation is in progress with conclusion expected for 4Q22. Future incorporations include SAE Digital (2023), Pleno (2023) and Escola da Inteligência (2023). 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 10% in 6M22 (versus 19% in 6M21).

Intangible assets - net balances (R$M)		2Q22		2Q21		YoY		1Q22		QoQ			6M22		6M21		YoY
Business Combination		2,949.9		2,374.1		24%		2,977.8		-1%			2,949.9		2,374.1		24%
Trademarks		488.8		443.0		10%		495.2		-1%			488.8		443.0		10%
Customer relationships		255.8		266.8		-4%		265.5		-4%			255.8		266.8		-4%
Educational system		224.6		216.4		4%		233.9		-4%			224.6		216.4		4%
Softwares		8.6		7.3		18%		10.3		-17%			8.6		7.3		18%
Educational platform		4.4		6.0		-27%		4.1		7%			4.4		6		-27%
Others¹		16.8		15.9		6%		19.0		-11%			16.8		15.9		6%
Goodwill		1,950.9		1,418.7		38%		1,949.9		0%			1,950.9		1,418.7		38%
Operational		288.1		193.0		49%		276.1		4%			288.1		193.0		49%
Educational platform²		200.1		136.0		47%		198.3		1%			200.1		136.0		47%
Softwares		77.1		45.3		70%		66.8		15%			77.1		45.3		70%
Copyrights		10.8		11.7		-8%		11.0		-2%			10.8		11.7		-8%
Customer relationships		0.1		0.1		-100%		0.1		0%			0.1		0.1		-100%
TOTAL		3,238.0		2,567.1		26%		3,253.9		0%			3,238.0		2,567.1		26%
1) Non-compete agreements and rights on contracts. 2) Includes content development in progress.

Amortization of intangible assets (R$M)		2Q22		2Q21		YoY		1Q22		QoQ			6M22		6M21		YoY
Business Combination		(73.5)		(55.0)		34%		(60.4)		22%			(133.8)		(110.0)		22%
Trademarks		(8.0)		(6.4)		25%		(7.7)		4%			(15.7)		(12.8)		23%
Customer relationships		(9.4)		(8.5)		11%		(9.2)		2%			(18.5)		(17.0)		9%
Educational system		(9.4)		(8.1)		16%		(9.3)		1%			(18.7)		(16.1)		16%
Softwares		(0.7)		(0.6)		17%		(0.7)		0%			(1.4)		(1.2)		17%
Educational platform		(0.2)		(0.2)		0%		(0.2)		0%			(0.5)		(0.4)		25%
Others¹		(1.5)		(1.2)		25%		(1.4)		7%			(2.8)		(2.3)		22%
Goodwill		(44.3)		(30.1)		47%		(31.9)		39%			(76.2)		(60.2)		27%
Operational		(29.1)		(20.6)		41%		(29.5)		-1%			(58.5)		(38.8)		51%
Educational platform²		(21.7)		(15.2)		42%		(22.3)		-3%			(43.9)		(29.0)		51%
Softwares		(5.4)		(3.4)		59%		(5.2)		4%			(10.6)		(5.6)		89%
Copyrights		(1.8)		(2.1)		-14%		(1.9)		-5%			(3.7)		(4.1)		-11%
Customer relationships		(0.2)		(0.0)		n.a.		(0.1)		100%			(0.3)		(0.1)		220%
TOTAL		(102.6)		(75.7)		36%		(89.9)		14%			(192.3)		(148.8)		29%
1) Non-compete agreements and rights on contracts. 2) Includes content development in progress.

_______________________________

2 Please see Adjusted Free Cash Flow Reconciliation on page 18.

Amortization of intangible assets (R$M)		Impacts P&L		Originates tax benefit		Amortization with tax benefit in 2Q22²
						Amortization		Tax benefit		Impact on net income
Business Combination						(52.6)		17.9		(34.7)
Trademarks		Yes		Yes²		(2.0)		0.7		(1.3)
Customer relationships		Yes		Yes²		(2.9)		1.0		(1.9)
Educational system		Yes		Yes²		(3.4)		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		(44.3)		15.1		(29.3)
Operational		Yes		Yes		(29.1)		9.9		(19.2)
TOTAL						(81.7)		27.8		(53.9)
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
		2022¹		2023		2024		2025		2026+
Trademarks		19		20		20		20		277		128
Customer relationships		21		25		25		25		59		111
Educational system		25		27		27		27		106		32
Software license		-		-		-		-		-		11
Rights on contracts		1		1		1		1		3		1
Others		2		2		2		1		1		10
Goodwill		177		202		196		192		520		514
Total		246		277		271		266		965		808
Maximum tax benefit		83		94		92		90		328		275
1) Considers the maximum tax benefit for full year 2022. In 2Q22 we have benefited from R$17.9 million, adding to R$29.9 million in 6M22. 2) Businesses with future tax benefit (not yet incorporated).

Amortization of intangible assets from business combination that generate tax benefit – breakdown by solutions (R$M)		Businesses with current tax benefit										Undefined²
		2022¹		2023		2024		2025		2026+
NAVE		8		9		9		9		8		-
P2D³		57		89		89		89		364		-
Positivo, Conquista, PES English		170		170		170		169		593		-
Other Companies		10		10		4		0		0		808
Total		246		277		271		266		965		808
Maximum tax benefit		83		94		92		90		328		275
1) Considers the maximum tax benefit for full year 2022. In 2Q22 we have benefited from R$16.4 million, adding to R$28.4 million in 6M22. 2) Businesses with future tax benefit (not yet incorporated). 3) Refers to COC and Dom Bosco solutions acquired in 2021.

Arco’s cash and cash equivalents plus financial investments position as of June 30, 2022 was R$753.9 million, while debt and accounts payable to selling shareholders was R$2,528.4 million, leading to a net debt of R$1,774.5 million. As part of Arco’s balance sheet management strategy, on August 5 we announced the closing of a Debentures issuance amounting to R$1,200.0 million. Net proceeds were partially used to prepay the debentures issued in August 2021 and the balance will strengthen Arco’s cash position while extending the debt maturity profile. The Debentures mature on August 3, 2027, with principal to be amortized in three equal installments payable on August 3, 2025, August 3, 2026, and August 3, 2027, and bear interest at CDI +2.30% per annum, payable semi-annually on February 3 and August 3.

Although early in the commercial cycle for the 2023 school year, the schools’ enthusiasm shows encouraging preliminary results, boosted by the resumption of in-person interactions and events.

Conference Call Information

Arco will discuss its second quarter 2022 results today, August 18, 2022, via a conference call at 5 p.m. Eastern Time (6 p.m. Brasilia Time). To access the call, please dial: [phone], [phone] or [phone]. For enhanced audio connection investors may connect through Web Phone (access code: 7636515).

An audio replay of the call will be available through August 24, 2022, by dialing [phone] 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/.

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 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 Adjusted 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 Adjusted 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 Adjusted 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 Adjusted 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
Interim condensed consolidated statements of financial position
		June 30,		December 31,
(In thousands of Brazilian reais)		2022		2021
Assets		(unaudited)
Current assets
Cash and cash equivalents		375,753		211,143
Financial investments		378,134		973,294
Trade receivables		607,826		593,263
Inventories		174,021		158,582
Recoverable taxes		39,055		38,811
Derivative financial assets		-		301
Related parties		-		4,571
Other assets		95,378		66,962
Total current assets		1,670,167		2,046,927
Non-current assets
Deferred income tax		327,574		321,223
Recoverable taxes		22,216		22,216
Financial investments		33,382		40,762
Derivative financial assets		-		560
Related parties		3,722		6,819
Other assets		69,835		57,534
Investments and interests in other entities		126,116		126,873
Property and equipment		67,932		73,885
Right-of-use assets		29,160		35,960
Intangible assets		3,237,964		3,257,360
Total non-current assets		3,917,901		3,943,192
Total assets		5,588,068		5,990,119

		June 30,		December 31,
(In thousands of Brazilian reais)		2022		2021
Liabilities		(unaudited)
Current liabilities
Trade payables		154,929		103,292
Labor and social obligations		104,422		157,601
Taxes and contributions payable		7,047		7,953
Income taxes payable		12,404		37,775
Advances from customers		60,932		35,291
Lease liabilities		19,251		20,122
Loans and financing		28,466		228,448
Derivative financial liabilities		2,394		-
Accounts payable to selling shareholders		857,979		799,553
Other liabilities		12,140		3,176
Total current liabilities		1,259,964		1,393,211
Non-current liabilities
Labor and social obligations		651		661
Lease liabilities		15,210		22,996
Loans and financing		1,621,957		1,602,879
Derivative financial liabilities		123,513		223,561
Provision for legal proceedings		1,292		1,398
Accounts payable to selling shareholders		642,086		869,233
Other liabilities		1,140		946
Total non-current liabilities		2,405,849		2,721,674
Equity
Share capital		11		11
Capital reserve		2,222,912		2,203,857
Treasury shares		(232,391)		(180,775)
Share-based compensation reserve		81,077		90,813
Accumulated losses		(149,354)		(238,672)
Total equity		1,922,255		1,875,234
Total liabilities and equity		5,588,068		5,990,119

Arco Platform Limited
Interim condensed consolidated statements of income
	Three-month period ended June 30,				Six-month period ended June 30,
(In thousands of Brazilian reais, except earnings per share)	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue	412,137		256,301		842,174		587,973
Cost of sales	(133,054)		(68,103)		(249,632)		(155,228)
Gross profit	279,083		188,198		592,542		432,745
Operating expenses:
Selling expenses	(174,439)		(118,727)		(338,792)		(238,385)
General and administrative expenses	(80,037)		(61,988)		(166,137)		(136,294)
Other income, net	1,676		975		19,070		2,500
Operating profit	26,283		8,458		106,683		60,566
Finance income	214,382		12,114		373,615		22,054
Finance costs	(238,485)		(45,678)		(363,586)		(84,292)
Finance result	(24,103)		(33,564)		10,029		(62,238)
Share of loss of equity-accounted investees	(14,294)		(1,728)		(19,936)		(2,751)
(Loss) profit before income taxes	(12,114)		(26,834)		96,776		(4,423)
Income taxes - income (expense)
Current	8,038		(18,544)		(13,809)		(35,897)
Deferred	(9,265)		25,359		6,351		32,112
Total income taxes – income (expense)	(1,227)		6,815		(7,458)		(3,785)
Net (loss) profit for the period	(13,341)		(20,019)		89,318		(8,208)
Basic earnings per share – in Brazilian reais
Class A	(0.24)		(0.35)		1.59		(0.14)
Class B	(0.24)		(0.35)		1.59		(0.14)
Diluted earnings per share – in Brazilian reais
Class A	(0.24)		(0.35)		(1.45)		(0.14)
Class B	(0.24)		(0.35)		1.59		(0.14)
Weighted-average shares used to compute net (loss) profit per share:
Basic	55,917		57,020		56,008		57,214
Diluted	55,917		57,020		61,180		57,214

Arco Platform Limited
Interim condensed consolidated statements of cash flows
	Three-month period ended June 30,				Six-month period ended June 30,
(In thousands of Brazilian reais)	2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Operating activities
Profit (loss) before income taxes for the period	(12,114)		(26,834)		96,776		(4,423)
Adj. to reconcile profit (loss) before income taxes to cash from operations
Depreciation and amortization	74,302		45,423		140,083		93,475
Inventory reserves	10,940		5,162		13,339		7,386
Allowance for doubtful accounts	(372)		6,610		(6,603)		10,499
Loss on sale/disposal of property and equipment and intangible	(114)		2		(192)		135
Fair value change in financial derivatives	(84,320)		-		(95,973)		-
Changes in accounts payable to selling shareholders	(33,348)		2,677		(26,320)		489
Share of loss of equity-accounted investees	14,294		1,728		19,936		2,751
Share-based compensation plan	2,851		6,189		9,046		15,555
Accrued interest on loans and financing	56,774		5,216		105,544		8,905
Interest accretion on acquisition liability	45,744		26,643		89,674		54,024
Income from financial investments	(17,793)		(4,729)		(38,353)		(8,495)
Interest on lease liabilities	1,126		1,138		2,287		2,157
Provision for legal proceedings	11		(857)		106		(211)
Provision for payroll taxes (restricted stock units)	177		1,948		(3,083)		1,427
Foreign exchange (income) expenses, net	61,644		3,813		(43,662)		4,092
Gain on changes of interest of investment	(1,345)		-		(17,758)		-
Other financial expense (income), net	(2,205)		(2,139)		(3,128)		(2,498)
	116,252		71,990		241,719		185,268
Changes in assets and liabilities
Trade receivables	202,582		109,460		(4,344)		385
Inventories	(29,786)		(15,545)		(27,671)		(11,967)
Recoverable taxes	5,266		2,944		8,448		2,467
Other assets	(27,067)		(4,524)		(35,077)		(8,455)
Trade payables	22,182		(4,893)		51,637		7,225
Labor and social obligations	11,630		7,921		25,745		10,256
Taxes and contributions payable	228		(2,279)		(978)		(5,083)
Advances from customers	(109,529)		(53,798)		25,641		19,985
Other liabilities	(196)		1,881		9,228		2,304
Cash from operations	191,562		113,157		294,348		202,385
Income taxes paid	(4,792)		(4,529)		(47,474)		(51,517)
Interest paid on lease liabilities	(1,039)		(743)		(2,346)		(1,603)
Interest paid on accounts payable to selling shareholders	(36,536)		(70)		(36,914)		(4,223)
Interest paid on loans and financing	(16,412)		(4,378)		(31,992)		(7,945)
Payments for contingent consideration	(70,541)		(332)		(70,541)		(332)
Payments of stock options	(75,578)		-		(75,578)		-
Net cash flows from operating activities	(13,336)		103,105		29,503		136,765
Investing activities
Acquisition of property and equipment	(1,726)		(2,534)		(8,398)		(5,532)
Payment of investments and interests in other entities	-		(48,195)		(18)		(73,222)
Acquisition of subsidiaries. net of cash acquired	-		-		-		(15,217)
Payments of accounts payable to selling shareholders	-		(92,836)		-		(92,836)
Acquisition of intangible assets	(50,241)		(36,842)		(96,053)		(69,543)
Maturity of financial investments	382,188		97,818		640,893		152,935
Loans to related parties	(4,812)		-		(4,812)		-
Net cash flows from (used in) investing activities	325,409		(82,589)		531,612		(103,415)
Financing activities
Purchase of treasury shares	(16,893)		(56,711)		(51,616)		(109,737)
Payment of lease liabilities	(5,712)		(2,964)		(12,005)		(6,354)
Payment to owners to acquire entity’s shares	(119,293)		(949)		(121,270)		(19,442)
Loans and financings paid	(5,469)		(1,743)		(211,329)		(3,443)
Net cash flows used in financing activities	(147,367)		(62,367)		(396,220)		(138,976)
Foreign exchange effects on cash and cash equivalents	1,743		(3,813)		(285)		(4,092)
(Decrease) increase in cash and cash equivalents	166,449		(45,664)		164,610		(109,718)
Cash and cash equivalents
At the beginning of the period	209,304		360,356		211,143		424,410
At the end of the period	375,753		314,692		375,753		314,692
(Decrease) increase in cash and cash equivalents	166,449		(45,664)		164,610		(109,718)

Arco Platform Limited
Reconciliation of Taxable Income
		Three-months period ended June 30,				Six-months period ended June 30,
(In thousands of Brazilian reais)		2022		2021		2022		2021
Taxable Income Reconciliation		(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Loss) profit before income taxes		(12,114)		(26,834)		96,776		(4,423)
(+) Share-based compensation plan, RSU and provision for payroll taxes¹		(19,763)		466		(18,814)		9,036
(+) Amortization of intangible assets from business combinations before incorporation¹		6,094		4,859		13,846		9,760
(+/-) Changes in accounts payable to selling shareholders¹		(6,269)		21,765		23,604		39,411
(+/-) Share of loss of equity‑accounted investees		14,294		(587)		19,936		(935)
(+) Net income from Arco Platform (Cayman)		5,007		8,151		(104,508)		13,800
(+) Fiscal loss without deferred		6,694		3,383		11,846		4,767
(+/-) Provisions booked in the period		19,770		8,854		44,119		13,327
(+) Tax loss carryforward		3,588		74,312		37,023		91,366
(+) Others		5,094		4,756		10,172		8,519
Taxable income		22,395		99,125		134,000		184,628
Current income tax under actual profit method		(7,614)		(33,703)		(45,560)		(62,774)
% Tax rate under actual profit method		34.0%		34.0%		34.0%		34.0%
(+) Effect of presumed profit benefit		-		2,774		-		3,266
Effective current income tax		(7,614)		(30,929)		(45,560)		(59,508)
% Effective tax rate		34.0%		31.2%		34.0%		32.2%
(+) Recognition of tax-deductible amortization of goodwill and added value²		15,546		11,097		26,868		21,935
(+/-) Other additions (exclusions)		106		1,287		4,882		1,675
Effective current income tax accounted for goodwill benefit		8,038		(18,545)		(13,810)		(35,898)
% Effective tax rate accounting for goodwill benefit		-35.9%		18.7%		10.3%		19.4%
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.

Arco Platform Limited
Reconciliation of Non-GAAP Measures
		Three-month period ended June 30,				Six-month period ended June 30,
(In thousands of Brazilian reais)		2022		2021		2022		2021
Adjusted EBITDA Reconciliation		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net (loss) profit for the period		(13,341)		(20,019)		89,318		(8,208)
(+/-) Income taxes		1,227		(6,815)		7,458		3,785
(+/-) Finance result		24,103		33,564		(10,029)		62,238
(+) Depreciation and amortization		74,302		45,423		140,083		93,475
(+) Share of loss of equity-accounted investees		14,294		1,728		19,936		2,751
EBITDA		100,585		53,881		246,766		154,041
(+) Share-based compensation plan		3,726		9,324		19,149		21,048
(+) Share-based compensation plan and restricted stock units		1,810		6,319		9,830		15,685
(+) Provision for payroll taxes (restricted stock units)		1,916		3,005		9,319		5,363
(+) M&A expenses		7,714		8,452		9,186		13,756
(-) Other changes to equity accounted investees3		(1,345)		-		(17,758)		-
(+) Non-recurring expenses		-		84		-		652
(+) Effects related to Covid-19 pandemic		-		523		-		1,152
Adjusted EBITDA		110,680		72,264		257,343		190,649
Revenue		412,137		256,301		842,174		587,973
EBITDA Margin		24.4%		21.0%		29.3%		26.2%
Adjusted EBITDA Margin		26.9%		28.2%		30.6%		32.4%

		Three-month period ended June 30,
(In thousands of Brazilian reais, except earnings per share)		2022		2021 pro forma1		2021 reported
Adjusted Net Income Reconciliation		(unaudited)		(unaudited)		(unaudited)
Net (loss) profit for the period		(13,341)		(20,019)		(20,019)
(+/-) Adjustments related to business combination		8,134		44,665		54,210
(+) Amortization of intangible assets from business combinations		29,142		24,890		24,890
(+/-) Changes in accounts payable to selling shareholders		(33,348)		2,677		2,677
(+) Interest expenses, net (adjusted by fair value)		12,340		17,098		17,098
(+) Interest on acquisition of investments, net (linked to a fixed rate)1		-		-		9,545
(+) Share-based compensation plan		3,726		9,324		9,324
(+) Share-based compensation plan and restricted stock units		1,810		6,319		6,319
(+) Provision for payroll taxes (restricted stock units)		1,916		3,005		3,005
(+/-) Non-cash adjustments related to derivative instruments and convertible notes		(19,571)		-		-
(+) M&A expenses		7,714		8,452		3,853
(-) Other changes to equity accounted investees3		(1,345)		-		-
(+) Non-recurring expenses		-		84		4,683
(+) Effects related to Covid-19 pandemic		-		523		523
(+/-) Foreign exchange on cash and cash equivalents1		-		-		3,813
(+) Share of loss of equity-accounted investees1		-		-		1,728
(+/-) Tax effects		(8,500)		(21,733)		(21,733)
Adjusted Net Income		(23,183)		21,296		36,382
Net Revenue		412,137		256,301		256,301
Adjusted Net Income Margin		-5.6%		8.3%		14.2%
Weighted-average shares		55,917		57,020		57,020
Adjusted EPS		(0.41)		0.37		0.64

		Six-month period ended June 30,
(In thousands of Brazilian reais)		2022		2021 pro forma1		2021 reported
Adjusted Net Income Reconciliation		(unaudited)		(unaudited)		(unaudited)
Net (loss) profit for the period		89,318		(8,208)		(8,208)
(+/-) Adjustments related to business combination		58,037		89,813		104,265
(+) Amortization of intangible assets from business combinations		57,599		49,752		49,752
(+/-) Changes in accounts payable to selling shareholders		(26,320)		489		489
(+) Interest expenses, net (adjusted by fair value)		26,758		39,572		39,572
(+) Interest on acquisition of investments, net (linked to a fixed rate)1		-		-		14,452
(+) Share-based compensation plan		19,149		21,048		21,048
(+) Share-based compensation plan and restricted stock units		9,830		15,685		15,685
(+) Provision for payroll taxes (restricted stock units)		9,319		5,363		5,363
(+/-) Non-cash adjustments related to derivative instruments and convertible notes2		(125,220)		-		-
(+) M&A expenses		9,186		13,756		7,850
(-) Other changes to equity accounted investees3		(17,758)		-		-
(+) Non-recurring expenses		-		652		6,558
(+) Effects related to Covid-19 pandemic		-		1,152		1,152
(+/-) Foreign exchange on cash and cash equivalents1		-		-		4,092
(+) Share of loss of equity-accounted investees1		-		-		2,751
(+/-) Tax effects		(24,640)		(42,055)		(42,055)
Adjusted Net Income		8,072		76,158		97,453
Net Revenue		842,174		587,973		587,973
Adjusted Net Income Margin		1.0%		13.0%		16.6%
Weighted-average shares		56,008		57,214		57,214
Adjusted EPS		0.14		1.33		1.70
1) Adj. net income for previous periods presented in this column excludes the following adjustments: (i) Interest on acquisition of investments, net (linked to a fixed rate); (ii) Foreign exchange on cash and cash equivalents; and (iii) Share of loss of equity-accounted investees. Such adjustments will be no longer consider in the net income reconciliation from 4Q21 onwards and are presented for comparison purposes only in the “Reported” column. 2) Such adjustment was previously named “(+/−) Changes in fair value of derivative instruments”. 3) Refers to (gains) losses related to capital contribution from others on investees leading to an increase in equity of the investee.

		Three-month period ended June 30,				Six-month period ended June 30,
(In thousands of Brazilian reais)		2022		2021		2022		2021
Adjusted Free Cash Flow Reconciliation		(unaudited)		(unaudited)		(unaudited)		(unaudited)
(Loss) profit before income taxes		(12,114)		(26,834)		96,776		(4,423)
(+/-) Non-cash adjustments		128,366		98,824		144,943		189,691
(+/-) Working capital (Changes in assets and liabilities)		75,310		41,167		52,629		17,117
Cash from operations		191,562		113,157		294,348		202,385
(-) Income tax paid		(4,792)		(4,529)		(47,474)		(51,517)
(-) Interest paid on loans and financings & lease liabilities		(17,451)		(5,121)		(34,338)		(9,548)
(-) Interest paid on accounts payable to selling shareholders		(36,536)		(70)		(36,914)		(4,223)
(-) Payments for contingent consideration		(70,541)		(332)		(70,541)		(332)
(-) Payments of stock options¹		(75,578)		-		(75,578)		-
Net cash flows from operating activities		(13,336)		103,105		29,503		136,765
(-) CAPEX		(51,967)		(39,376)		(104,451)		(75,075)
Free cash flow		(65,303)		63,729		(74,948)		61,690
(-) M&A classified as Payments of stock options¹		75,578		-		75,578		-
(-) M&A classified as CAPEX²		8,701		-		14,208		-
(-) M&A classified as Payments for contingent consideration³		70,541		332		70,541		332
Adjusted free cash flow		89,517		64,061		85,379		62,022
1) Related to M&A payment (Geekie employees’ SOP). 2) Related to M&A payments (PGS’ and Mentes’ acquisition, being R$5.5 million in 1Q22 and R$8.7 million in 2Q22). 3) Related to M&A payment (difference between the amount in PPA and the final transaction amount calculated by the earn-out multiple, related to Geekie’s acquisition).

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220818005506/en/

The Arco Platform Limited Registered (A) Stock at the time of publication of the news with a raise of +0,48 % to 15,80USD on Nasdaq stock exchange (18. August 2022, 21:54 Uhr).