UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August, 2019 

 

Commission File Number: 001-38673

 

Arco Platform Ltd.

(Exact name of registrant as specified in its charter)

 

Rua Augusta 2840, 9th floor, suite 91

Consolação, São Paulo – SP

01412-100, Brazil
+55 (11) 3047-2655

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

X

 

 

 

 

 

TABLE OF CONTENTS

 

ITEM  
1. Press release dated August 27, 2019
   

 

 

ITEM 1

 

 

 

 

 

Arco Platform Limited Reports Second Quarter and First Half 2019 Financial Results

 

On-track to Deliver 2019 ACV Bookings of R$441 million (37% growth YoY)

 

São Paulo, Brazil, August 27, 2019 – Arco Platform Limited, or Arco (Nasdaq: ARCE), today reported financial and operating results for the second quarter 2019 ended June 30, 2019.

 

“We continue to focus on our clients and invest in content and technology. We are confident that our efforts and competitive advantages will maintain our market positioning and generate sustainable, long-term oriented results.” said Ari de Sá Neto, CEO and founder of Arco.

 

First Half 2019 Results

 

·Net Revenue of R$254.6 million;

·Net Income of R$56.5 million;

·Adjusted Net Income of R$91.6 million; and

·Adjusted EBITDA of R$110.3 million.

 

Second Quarter 2019 Results

 

·Net Revenue of R$137.6 million;

·Net Income of R$25.7 million;

·Adjusted Net Income of R$50.9 million; and

·Adjusted EBITDA of R$61.4 million.

 

Revenue Recognition and Seasonality

 

As we report the second quarter 2019 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.

 

Third Quarter 2019 Guidance:

 

We expect to recognize in the third quarter (3Q19) 15% of the 2019 ACV Bookings of R$440.9 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 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. 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. Moreover, all statements in this press release, whether forward looking or of historical fact, are based on the limited information available to the Company during the due diligence process of Positivo and its business operations (the “Positivo Business”) prior to the signing of the acquisition agreement discussed herein. This limited access to information may have impaired the Company’s ability to conduct a full and comprehensive assessment of the Positivo Business, thus leading to risks and uncertainties. Reasons for this uncertainty include, but are not limited to, the following: (i) the Positivo Business is a carve out of an entity with different businesses and, therefore, the analysis was conducted on the basis of pro forma, unaudited and adjusted financial statements of the Positivo Business; (ii) the accounting parameters and criteria adopted by the Positivo Business are different from the ones adopted by

 

 

 

the Company; (iii) the transfer of the Positivo Business to a new entity limits the Company’s ability to assess the proper transfer of all assets and rights to such new entity. In addition, the forward-looking statements regarding the Positivo Business include risks and uncertainties related to statements about competition for the combined business; risks relating to the continued use of the Positivo brand in schools not run by the Company; restrictions and/or limitations on the acquisition of the Positivo Business that may be imposed by antitrust authorities or other regulatory agencies; risks relating to the Company’s ability to attract, upsell and retain customers of the Positivo Business; general market, political, economic, and business conditions in Brazil or abroad; and the Company’s financial targets are based on measures which include revenue, share count and other IFRS measures, as well as non-IFRS financial measures including gross margin, operating margin, net income per diluted share, EBITDA (as defined herein), Adjusted EBITDA (as defined herein) 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 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 and Adjusted Net Income Margin which are non-GAAP financial measures.

 

We calculate Adjusted EBITDA as profit 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 and plus M&A expenses.

 

We calculate Adjusted Net Income as profit 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 plus (ii) changes in fair value of derivative instruments—finance costs) plus share of loss of equity-accounted investees plus interest expenses plus/minus changes in deferred tax assets and liabilities recognized in statements of income (corresponding to financial instruments from acquisition of interests, tax benefit from tax deductible goodwill, share-based compensation, restricted stock units and amortization of intangible assets), plus/minus foreign exchange gains/loss on cash and cash equivalents and plus M&A expenses.

 

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 and Adjusted Net Income Margin 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 second quarter 2019 results today, August 27, 2019, via a conference call at 4:30 p.m. Eastern Time. To access the call (ID: 9876489), please dial: (866) 679-4032 or +1 (409) 217-8315. An audio replay of the call will be available through September 10, 2019 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 9876489. 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

[email protected]

 

Source: Arco Platform Ltd.

 

 

 

Arco Platform Limited
Unaudited Interim Condensed Consolidated Statements of Financial Position
 
June 30,  December 31,
(In thousands of Brazilian reais)  2019  2018
Assets  (unaudited)   
Current assets          
Cash and cash equivalents   8,530    12,301 
Financial investments   869,141    806,789 
Trade receivables   142,943    136,611 
Inventories   14,598    15,131 
Recoverable taxes   20,690    11,227 
Other assets   12,838    6,091 
Total current assets   1,068,740    988,150 
Non-current assets          
Financial instruments from acquisition of interests   21,261    26,630 
Deferred income tax   133,419    99,460 
Recoverable taxes   1,033    1,033 
Financial investments   4,473    4,370 
Loans to related parties   15,631    1,226 
Other assets   6,027    1,060 
Investments and interests in other entities   58,113    11,862 
Property and equipment   15,959    13,347 
Right-of-use assets   17,593    - 
Intangible assets   157,960    187,740 
Total non-current assets   431,469    346,728 
Total assets   1,500,209    1,334,878 
Liabilities          
Current liabilities          
Trade payables   13,991    14,845 
Labor and social obligations   31,786    15,888 
Advances from customers   20,506    5,997 
Lease liabilities   4,736    - 
Loans and financing   161    - 
Taxes and contributions payable   1,509    2,555 
Income taxes payable   26,731    17,294 
Financial instruments from acquisition of interests   15,562    51 
Accounts payable to selling shareholders   90,829    830 
Other liabilities   138    428 
Total current liabilities   205,949    57,888 
Non-current liabilities          
Labor and social obligations   2,064    - 
Lease liabilities   16,752    - 
Loans and financing   376    - 
Financial instruments from acquisition of interests   49,242    25,046 
Accounts payable to selling shareholders   106,931    180,551 
Provision for legal proceedings   342    131 
Deferred income tax   1,560    1,378 
Other liabilities   125    - 
Total non-current liabilities   177,392    207,106 
Equity          
Share capital   10    10 
Capital reserve   1,066,710    1,089,505 
Share-based compensation reserve   81,783    67,350 
Accumulated losses   (31,635)   (86,687)
Equity attributable to equity holders of the parent   1,116,868    1,070,178 
Non-controlling interests   -    (294)
Total equity   1,116,868    1,069,884 
Total liabilities and equity   1,500,209    1,334,878 

 

 

  Arco Platform Limited    
Unaudited 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)  2019  2018  2019  2018
  (unaudited)  (unaudited)  (unaudited)  (unaudited)
Net revenue   137,566    81,436    254,621    195,070 
Cost of sales   (25,827)   (16,862)   (47,696)   (42,702)
Gross profit   111,739    64,574    206,925    152,368 
Operating expenses:                    
Selling expenses   (39,315)   (24,074)   (75,450)   (48,386)
General and administrative expenses   (44,926)   (17,033)   (65,758)   (30,728)
Other (expense) income, net   (437)   (1,476)   2,922    2,172 
Operating profit   27,061    21,991    68,639    75,426 
Finance income   13,961    3,582    30,917    7,291 
Finance costs   (12,374)   (3,840)   (28,855)   (7,765)
Finance result   1,587    (258)   2,062    (474)
Share of loss of equity-accounted investees   (667)   (229)   (1,159)   (294)
Profit before income taxes   27,981    21,504    69,542    74,658 
Income taxes - income (expense)                    
Current   (10,899)   (6,071)   (29,151)   (20,879)
Deferred   8,617    (1,517)   16,149    528 
Total income taxes – income (expense)   (2,282)   (7,588)   (13,002)   (20,351)
Profit for the period   25,699    13,916    56,540    54,307 
Equity holders of the parent   25,699    14,143    56,540    54,682 
Non-controlling interests   -    (227)   -    (375)
Basic earnings per share – in Brazilian reais                    
Class A   0.51    0.28    1.12    1.09 
Class B   0.51    0.28    1.12    1.09 
Diluted earnings per share – in Brazilian reais                    
Class A   0.49    0.27    1.09    1.04 
Class B   0.50    0.27    1.10    1.05 
Weighted-average shares used to compute net income per share:                    
Basic   50,709    50,261    50,505    50,261 
Diluted   51,276    51,242    51,072    51,242 

 

 

 
Arco Platform Limited
Unaudited Interim Condensed Consolidated Statements of Cash Flows
 
  Three-month period ended June 30,  Six-month period ended June 30,
(In thousands of Brazilian reais)  2019  2018  2019  2018
Operating activities  (unaudited)  (unaudited)  (unaudited)   
Profit before income taxes for the period   27,981    21,504    69,542    74,658 
Adjustments to reconcile profit before income taxes                    
Depreciation and amortization   9,103    4,528    16,343    8,902 
Inventory reserves   1,332    1,146    3,560    3,242 
Allowance for doubtful accounts   550    (397)   2,203    3,137 
Residual value of property and equipment and intangible assets disposed   29    -    131    138 
 Changes in fair value of derivative instruments   -    (367)   1,866    (1,974)
Share of loss of equity-accounted investees   667    229    1,159    294 
Share-based compensation plan   138    344    275    687 
Restricted stock units   14,158    -    14,158    - 
Provision for payroll taxes (restricted stock units)   6,518    -    6,518    - 
Accrued interest   8,498    1,972    14,440    4,052 
Interest in lease liabilities   387    -    782    - 
Provision for legal proceedings   132    76    211    76 
Foreign exchange results, net   592    -    516    - 
Alienation of investment   2    -    (3,286)   - 
Other financial cost/revenue, net   (1,202)   -    (1,202)   - 
    68,885    29,035    127,216    93,212 
Changes in assets and liabilities                    
Trade receivables   7,792    18,949    (8,409)   3,087 
Inventories   (2,067)   (3,226)   (2,031)   (947)
Recoverable taxes   (401)   (307)   (5,373)   (1,190)
Other assets   (9,778)   (8,262)   (7,826)   (8,556)
Trade payables   (27)   2,166    659    1,574 
Labor and social obligations   6,580    3,457    11,354    3,757 
Taxes and contributions payable   (475)   355    (1,047)   639 
Advances from customers   (5,830)   4,638    14,998    7,645 
Other liabilities   (53)   937    (354)   (911)
Cash generated from operations   64,626    47,742    129,187    98,310 
Income taxes paid   (5,175)   (4,691)   (23,210)   (21,031)
Interest paid on lease liabilities   (220)   -    (220)   - 
Net cash flows from operating activities   59,231    43,051    105,757    77,279 
Investing activities                    
Acquisition of property and equipment   (3,036)   (1,228)   (5,829)   (2,158)
Payment of investments and interests in other entities   (4,200)   -    (4,200)   - 
Acquisition of subsidiaries, net of cash acquired   (16,137)   (5,775)   (16,137)   (13,820)
Acquisition of intangible assets   (6,887)   (3,056)   (18,379)   (4,911)
Financial investments   (36,238)   53,756    (62,529)   33,470 
Loans to related parties   -    -    (14,000)   - 
Net cash flows from (used in) investing activities   (66,498)   43,697    (121,074)   12,581 
Financing activities                    
Capital increase   12,611    -    13,829    - 
Share issuance costs   -    -    (673)   - 
Payment of lease liabilities   (565)   -    (1,080)   - 
Payment of loans and financing   (14)   -    (14)   - 
Dividends paid   -    (85,050)   -    (85,050)
Net cash flows from (used in) financing activities   12,032    (85,050)   12,062    (85,050)
Foreign exchange effects on cash and cash equivalents   (592)   -    (516)   - 
Increase (decrease) in cash and cash equivalents   4,173    1,698    (3,771)   4,810 
Cash and cash equivalents at the beginning of the period   4,357    3,946    12,301    834 
Cash and cash equivalents at the end of the period   8,530    5,644    8,530    5,644 
Increase (decrease) in cash and cash equivalents   4,173    1,698    (3,771)   4,810 

 

 

Arco Platform Limited

Reconciliation of Non-GAAP Measures

 

   Three-month period ended  Six-month period ended
   June 30,  June 30,
(In thousands of Brazilian reais)  2019  2018  2019  2018
Adjusted EBITDA Reconciliation  (unaudited)  (unaudited)  (unaudited)  (unaudited)
Profit for the period   25,699    13,916    56,540    54,307 
(+) Income taxes   2,282    7,588    13,002    20,351 
(+/-) Finance result   (1,587)   258    (2,062)   474 
(+) Depreciation and amortization   9,103    4,528    16,343    8,902 
(+) Share of loss of equity-accounted investees   667    229    1,159    294 
EBITDA   36,164    26,519    84,982    84,328 
(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).   20,814    344    20,951    687 
(+) M&A expenses   4,423    -    4,423    - 
Adjusted EBITDA   61,401    26,863    110,356    85,015 
                     
Net Revenue   137,566    81,436    254,621    195,070 
EBITDA Margin   26.3%   32.6%   33.4%   41.3%
Adjusted EBITDA Margin   44.6%   33.0%   43.3%   43.6%

 

  Three-month period ended  Six-month period ended
  June 30,  June 30,
(In thousands of Brazilian reais)  2019  2018  2019  2018
Adjusted Net Income Reconciliation  (unaudited)  (unaudited)  (unaudited)  (unaudited)
Profit for the period   25,699    13,916    56,540    54,307 
(+) Share-based compensation plan, restricted stock units and provision for payroll taxes (restricted stock units).   20,814    344    20,951    687 
(+) Amortization of intangible assets from business combinations   3,085    2,798    6,065    5,831 
(+/-) Changes in fair value of derivative instruments   -    (367)   1,866    (1,974)
(+) Share of loss of equity-accounted investees   667    229    1,159    294 
(-) Tax effects   (10,732)   (954)   (13,724)   (832)
(+) Foreign exchange on cash and cash equivalents   592    -    516    - 
(+) Interest expenses (income), net   6,357    2,326    13,881    4,824 
(+) M&A expenses   4,423    -    4,423    - 
Adjusted net income   50,905    18,292    91,677    63,137 
Net Revenue   137,566    81,436    254,621    195,070 
Adjusted Net Income Margin   37.0%   22.5%   36.0%   32.4%

 

 

   Three-month period ended  Six-month period ended
   June 30,  June 30,
(In thousands of Brazilian reais)  2019  2018  2019  2018
Free Cash Flow Reconciliation  (unaudited)  (unaudited)  (unaudited)  (unaudited)
Cash Generated from Operations   64,626    47,742    129,187    98,310 
(-) Income Tax Paid   (5,175)   (4,691)   (23,210)   (21,031)
(-) Interest paid on lease liabilities   (220)   -    (220)   - 
Cash Flow from Operating Activities   59,231    43,051    105,757    77,279 
(-) Acquisition of property and equipment   (3,036)   (1,228)   (5,829)   (2,158)
(-) Acquisition of intangible assets   (6,887)   (3,056)   (18,379)   (4,911)
Free Cash Flow   49,308    38,767    81,549    70,210 
                     

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Arco Platform Ltd.
     
     
      By: /s/ Ari de Sá Cavalcante Neto
        Name: Ari de Sá Cavalcante Neto
        Title: Chief Executive Officer

Date: August 27, 2019