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Filed pursuant to Rule 424(b)(7)
Registration Statement No. 333-234215

The information in this preliminary prospectus supplement is not complete and may be changed. Neither this preliminary prospectus supplement nor the accompanying prospectus is an offer to sell these securities, nor does it solicit offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated October 23, 2019.

Preliminary prospectus supplement
(To prospectus dated October 21, 2019)

7,719,503 Class A Common Shares

GRAPHIC

Arco Platform Limited
(Incorporated in the Cayman Islands)

          This is an offering of an aggregate of 7,719,503 Class A common shares, US$0.00005 par value per share, of Arco Platform Limited, or Arco. Arco is offering 3,450,656 Class A common shares. The selling shareholders identified in this prospectus supplement are offering an additional 4,268,847 Class A common shares. We will not receive any proceeds from the sale of Class A common shares by the selling shareholders.

          Our Class A common shares are currently listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol "ARCE." On October 22, 2019, the last reported sale price of our Class A common shares on the Nasdaq Global Select Market was US$43.47. The final public offering price will be determined through negotiation between us and the lead underwriters in the offering and the recent market price used throughout this prospectus supplement may not be indicative of the final offering price.

          Following this offering, Oto Brasil de Sá Cavalcante, Margarida Maria Porto Soares de Sá Cavalcante, Ari de Sá Cavalcante Neto, Mariana Magalhães de Sá Cavalcante, Patrícia Soares de Sá Cavalcante, Paula Soares de Sá Cavalcante and Luciana Soares de Sá Cavalcante Moraes, or the Founding Shareholders, will beneficially own 1.1% of our Class A common shares and 50.5% of our outstanding share capital, assuming no exercise of the underwriters' option to purchase additional shares referred to below. The shares held by the Founding Shareholders are Class B common shares, which carry rights that are identical to the Class A common shares being sold in this offering, except that (i) holders of Class B common shares are entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights, and (iii) holders of Class B common shares are entitled to preemptive rights in the event that additional Class A common shares are issued in order to maintain their proportional ownership interest. For further information, see "Description of Share Capital" in the accompanying prospectus. As a result, the Founding Shareholders will control approximately 91.0% of the voting power of our outstanding share capital following this offering, assuming no exercise of the underwriters' option to purchase additional shares.

          Investing in these securities involves a high degree of risk. You should carefully consider the risks described under "Item 3. Key Information—D. Risk Factors" in our Annual Report on Form 20-F for the year ended December 31, 2018, as filed with the SEC on April 17, 2019 and amended on May 2, 2019, and any further amendments thereto (our "2018 Annual Report"), incorporated by reference herein, and "Risk Factors" beginning on page S-36 of this prospectus supplement.

          We are an "emerging-growth company" as defined in the U.S. Jumpstart Our Business Startups Act of 2012, and, as such, have elected to comply with certain reduced public company reporting requirements.

       
 
 
  Per Class A
common share

  Total
 

Offering price

  US$             US$          
 

Underwriting discounts and commissions

  US$             US$          
 

Proceeds, before expenses, to us(1)

  US$             US$          
 

Proceeds, before expenses, to selling shareholders(1)

  US$             US$          

 

(1)
See "Underwriting" for a description of all compensation payable to the underwriters.

          General Atlantic Arco (Bermuda), L.P., or the GA Entity, one of the selling shareholders, has granted the underwriters an option for a period of 30 days from the date of this prospectus supplement to purchase up to 1,157,925 additional Class A common shares to cover the underwriters' option to purchase additional shares, if any, at the offering price, less underwriting discounts and commissions.

          Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

          The underwriters expect to deliver the Class A common shares against payment in New York, New York, on or about                                    , 2019.

Global Coordinators

Goldman Sachs & Co. LLC   Morgan Stanley   Itaú BBA

The date of this prospectus supplement is                            , 2019.


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PROSPECTUS SUPPLEMENT

 
  Page  

About This Prospectus Supplement

    S-iii  

Special Note on Forward-Looking Statements

    S-iv  

Summary

    S-1  

The Offering

    S-21  

Summary Financial and Other Information

    S-25  

Risk Factors

    S-36  

Use of Proceeds

    S-44  

Capitalization

    S-45  

Dividend Policy

    S-46  

Dilution

    S-47  

Management's Discussion and Analysis of Financial Condition and Results of Operations of Arco

    S-48  

Management's Discussion and Analysis of Financial Condition and Results of Operations of Positivo

    S-65  

Unaudited Pro Forma Condensed Consolidated Financial Information

    S-82  

Business of Positivo

    S-90  

Principal and Selling Shareholders

    S-95  

Class A Common Shares Eligible For Future Sale

    S-98  

Taxation

    S-100  

Underwriting

    S-104  

Legal Matters

    S-116  

Experts

    S-117  

Where You Can Find More Information

    S-118  

Incorporation of Documents by Reference

    S-119  

Index to Financial Statements

    F-1  


PROSPECTUS

 
  Page  

About This Prospectus

    1  

Special Note On Forward-Looking Statements

    2  

The Company

    4  

Risk Factors

    5  

Enforceability of Civil Liabilities

    6  

Capitalization

    9  

Selling Shareholders

    10  

Use of Proceeds

    11  

Description of Share Capital

    12  

Taxation

    29  

Description of Debt Securities

    30  

Description of Debt Warrants

    35  

Description of Rights

    36  

Description of Units

    37  

Plan of Distribution

    38  

Legal Matters

    42  

Experts

    43  

Where You Can Find More Information

    44  

Incorporation of Documents by Reference

    45  

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        You should rely only on the information contained or incorporated by reference into this prospectus supplement, the accompanying prospectus or any free writing prospectus we file with the United States Securities and Exchange Commission, or the "SEC." We, the selling shareholders, and the underwriters have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on such different or inconsistent information. We, the selling shareholders, and the underwriters are not, making an offer of the Class A common shares in any jurisdiction where such offer is not permitted. You should not assume that the information contained or incorporated by reference into this prospectus supplement and the accompanying prospectus or in any free writing prospectus is accurate as of any date other than the respective dates thereof. Our business, financial condition, results of operations and prospects may have changed since those dates. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer, or an invitation on our behalf, the selling shareholders' behalf or the underwriters' behalf, to subscribe for and purchase any of the Class A common shares and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

        For investors outside the United States: Neither we, the selling shareholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus supplement in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus supplement must inform themselves about, and observe any restrictions relating to, the offering of our Class A common shares and the distribution of this prospectus supplement outside the United States and in their jurisdiction.

        We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus supplement are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus supplement are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

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ABOUT THIS PROSPECTUS SUPPLEMENT

        This prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the SEC utilizing a "shelf" registration process. Under the shelf registration process, we may, from time to time, offer and sell any combination of the securities described in the accompanying prospectus in one or more offerings. This document consists of two parts. The first part is the prospectus supplement, which describes the specific terms of this offering and supplements information contained in the accompanying prospectus and certain documents incorporated by reference into the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information about us and the securities we may offer from time to time under our shelf registration statement, some of which may not be applicable to this offering.

        To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus or any previously filed document incorporated by reference into this prospectus supplement or the accompanying prospectus, on the other hand, you should rely on the information in this prospectus supplement.

        You should carefully read the accompanying prospectus, this prospectus supplement, the documents incorporated by reference in the accompanying prospectus and in this prospectus supplement, and any free writing prospectus that we have authorized for use in connection with this offering, in their entirety before making an investment decision, together with additional information described below under the heading "Where You Can Find More Information" and "Incorporation of Documents by Reference."

        Unless otherwise indicated or the context otherwise requires, all references in this prospectus to "Arco" or the "Company," "we," "our," "ours," "us" or similar terms refer to Arco Platform Limited, together with its subsidiaries. The Class A common shares that may be offered using this prospectus supplement are referred to collectively as the securities.

        The term "Brazil" refers to the Federative Republic of Brazil and the phrase "Brazilian government" refers to the federal government of Brazil. "Central Bank" refers to the Brazilian Central Bank (Banco Central do Brasil). References in the prospectus to "real," "reais" or "R$" refer to the Brazilian real, the official currency of Brazil and references to "U.S. dollar," "U.S. dollars" or "US$" refer to U.S. dollars, the official currency of the United States.

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

        The prospectus, the registration statement of which it forms a part, this prospectus supplement and the documents incorporated by reference into these documents contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Many of the forward-looking statements contained in this prospectus supplement can be identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "should," "plan," "intend," "may," "predict," "continue," "estimate" and "potential," among others.

        Forward-looking statements appear in a number of places in this prospectus supplement and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled "Risk Factors" in this prospectus supplement. These risks and uncertainties include factors relating to:

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        Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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SUMMARY

        This summary highlights information contained elsewhere in this prospectus supplement, the accompanying prospectus as well as the documents incorporated by reference. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and (i) our consolidated financial statements and notes thereto, (ii) Positivo's (as defined below) combined carve-out financial statements, and (iii) our unaudited pro forma condensed consolidated financial information, each included elsewhere in this prospectus supplement, the accompanying prospectus as well as the documents incorporated by reference, before deciding to invest in our Class A common shares.

Overview

        Our mission is to transform the way students learn by delivering high-quality education at scale through technology to private primary and secondary, or "K-12", schools.

        We provide a complete pedagogical system with technology-enabled features to deliver educational content to private schools in Brazil. Our turnkey curriculum solutions provide educational content in both printed and digital formats delivered through our platform to improve the learning process.

        Our network as of March 31, 2019 consisted of 1,464 partner schools, compared to 1,140 schools as of March 31, 2018, 835 schools as of March 31, 2017 and 667 schools as of March 31, 2016, representing annual growth rates of 28.4%, 36.5% and 25.2%, respectively. We had 498,553 enrolled students across all Brazilian states as of March 31, 2019, compared to 405,814 enrolled students as of March 31, 2018, 322,031 as of March 31, 2017 and 265,354 as of March 31, 2016, representing annual growth rates of 22.9%, 26.0% and 21.4%, respectively.

        We have an asset-light, highly scalable business model that emphasizes operational efficiency and profitability. We operate through long-term service contracts with private schools. These contracts generally have initial terms that average three years, pursuant to which we provide educational content in printed and digital format to private schools. Our revenue is driven by the number of enrolled students at each customer using the solutions and the agreed-upon price per student per year, all in accordance with the terms and conditions set forth in each contract. As a result, we benefit from high visibility in our net revenue and operating margin, which we calculate by dividing our operating profit by net revenue over a given period. Our annual retention rate in 2017 and 2018 was 95.0%, which makes our recurring revenue base highly stable.

        Our business model has allowed us to grow and achieve profitability since our founding. Our net revenue totaled R$381.0 million, R$244.4 million, and R$159.3 million in 2018, 2017 and 2016, respectively, representing annual growth rates of 55.9% and 53.4% in 2018 and 2017, respectively, and R$254.6 million and R$195.1 million in the six months ended June 30, 2019 and 2018, respectively, representing a growth rate of 30.5%. We generated operating profit of R$62.1 million, R$74.9 million and R$48.6 million in 2018, 2017 and 2016, respectively. We had a loss of R$82.9 million in 2018, and profit of R$43.6 million and R$74.4 million in 2017 and 2016, respectively. We generated operating profit of R$68.6 million and R$75.4 million in the six months ended June 30, 2019 and 2018, respectively, representing a decrease of 9.0% and profit for the period of R$56.5 million and R$54.3 million in the six months ended June 30, 2019 and 2018, respectively. Our partner-school base is highly diversified, which reduces our dependence on a concentrated number of large clients. Our 10 largest clients represented only 8.1% and 5.6% of our net revenue in 2018 and the six months ended June 30, 2019, respectively.

        We believe that the quality of our platform, together with the credibility of our client base and the strong reputation of our brand, has driven our significant growth, allowing us to quickly and efficiently

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expand our footprint in Brazil since our founding. As of December 31, 2018, 216 (or 15%) of our partner schools ranked as one of the top three schools of their respective cities, according to the Exame Nacional do Ensino Médio, or "ENEM," the principal national standardized test for university entrance in Brazil. Furthermore, Arco's schools are among the top 10 in 13 out of 27 Brazilian states according to ENEM results as of December 31, 2018, and Arco has the highest penetration among top 10 performing schools according to rankings based on data from the Ministry of Education and our existing partner schools.

        Consistent with our mergers and acquisitions strategy and in line with our long-term vision to become a one stop shop platform, in May 2019 we entered into a purchase agreement with the shareholders of Positivo Soluções Didáticas Ltda., or "Positivo," to acquire the entire share capital of Positivo, one of the largest K-12 content providers to private schools in Brazil, and other companies of the Positivo Group (as defined below), or the "Positivo Acquisition." We believe the Positivo Acquisition will allow us to increase our student base, accelerate our growth while maintaining our B2B2C model, and enable us to broaden our product offerings and expand our footprint. For more information about the Positivo Acquisition and Positivo, see "—Recent Developments—Acquisition of Positivo Soluções Didáticas" and "Business of Positivo."

Context

        The 21st century has been characterized by rapid and accelerating technological innovation, with students at the forefront of the adoption of new technologies. We believe that we can deliver a more effective, personal, engaging and enjoyable learning experience for students by combining high-quality proprietary content and software applications in our simple, integrated and personalized educational platform. We aim to move beyond traditional educational models used by schools by empowering educators, school administrators and students to achieve their highest potential through our educational platform.

        We founded our company with the aim of creating high-quality products that simplify learning and make the education process more efficient. Traditionally, school administrators required a multitude of vendors for developing content, engaging in teacher training, and commercializing and managing K-12 education. Simultaneously, students acquired educational content through textbooks from various publishers across retail channels. Our platform aims to replace this multitude of third-party educational providers with a streamlined, one-stop solution that delivers high-quality education at scale.

        Our Core Curriculum and Supplemental Solutions enable students, teachers and school administrators to have access to engaging and easy-to-use resources that propel academic success and meet students' diverse learning needs. Pairing our printed and digital curriculum with real-time data and teacher-led learning allows us to personalize learning at the individual level, improving both individual student and aggregate school performance.

        We develop our educational content using a model based on extensive research and performance-based standards. We combine printed and digital content with online lecturettes featuring expert, on-screen teachers and tailored assignments and assessments to engage students and help them master their subject areas. With this integrated approach, students can track their progress and performance, teachers can access real-time data to evaluate students and personalize their teaching, and school administrators can better manage their school's performance both on absolute and comparative terms.

        The increase in Internet penetration and the rapid increase in the use of mobile devices and cloud-based services is broadening access to educational content and services and expanding the potential reach of educational institutions. Our platform does not require our partner schools to make any significant capital expenditures or setup investments, and is compatible with most mainstream computing platforms (including tablets and mobile phones). Our solutions are designed to be highly

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interactive and enjoyable, which we believe results in enhanced educational outcomes when compared to traditional models.

Underlying Trends

        We believe that the strength of our business and growth prospects is supported by strong underlying market and industry trends, including:

Demand for quality education is driving a shift from public to private K-12 education

        A wide gap in the quality of education exists between public and private K-12 institutions in Brazil, and within the private school market itself. Test performance is significantly better in private primary and secondary education, as illustrated by the average quality index differential of the primary and secondary education development index (Índice de Desenvolvimento da Educação Básica), or "IDEB." As of December 31, 2017, private K-12 education schools had an average education quality index score 47% higher than that of public primary and secondary schools across all school years according to the IDEB quality index differential. As a result, over the last eight years, student enrollments in private K-12 institutions have increased 15.9%, from 6.9 million in 2010 to 8.0 million in 2018.

Technological innovation is driving enhancements in private K-12 education

        In a 2019 survey conducted by Getulio Vargas Foundation (Fundação Getulio Vargas), or "FGV," the number of smartphones in Brazil was expected to reach 230 million by May 2019, or approximately 1.6 smartphone devices per Brazilian. Brazil is a mass adopter of disruptive technological innovations in a number of areas, and it is among the five largest markets for Waze®, the digital traffic map application for Android® and iOS®, with São Paulo serving as its largest city in terms of number of users, according to an April 2019 article in Época Negócios, a Brazilian financial magazine. Brazil is also the second-largest market in the world for Instagram® in terms of number of users according to a May 2019 article in Exame, a Brazilian business magazine, and one the most popular destinations for Airbnb®, with Rio de Janeiro ranking fifth behind Moscow, New York City, Paris and London, according to an August 2018 article in Época Negócios.

        We believe that this digital transition can provide significant benefits and opportunities for education service and content providers, such as:

    revenue diversification, as technological developments in education platforms, such as new tools or capabilities, may be sold for different purposes and to different consumers;

    customization enabled by technology and tied to a soft adaptation, which allows for distribution to different customers and a scaling by companies that offer different solutions; and

    margin gains, given a lower cost per student and a larger consumer base that is accessible through technological developments.

Importance of K-12 performance in university admissions processes

        The best higher education institutions in Brazil are public, with a highly competitive admissions process based largely on challenging standardized admissions exams. According to the World University Rankings 2020 published by Times Higher Education (THE), 39 out of the 46 top ranked universities in Brazil were public as of September 11, 2019. In recent years, competition for admission into public universities has increased, a trend driven both by greater student demand and a decrease in the number of available seats. In 2012, there were on average 11 applicants per available seat in public universities, as compared to 14 applicants in 2016, according to Oliver Wyman, a global management consulting firm, while the number of public university seats decreased by 6.3% from 2012 to 2016. As a result of this competition, parents are increasingly focused on schools that over perform in the standardized

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university admissions tests. According to a 2017 study by the Brazilian Institute of Public Opinion and Statistics (Instituto Brasileiro de Opinião Pública e Estatística), or the "IBOPE," education is the number one spending priority for Brazilian families. Our solution is designed to enhance our students' ability to perform on these exams.

Expansion of school hours and after-school programs including, but not limited to, "English as a Second Language," or ESL, bilingual programs and 21st century skills programs

        The increased focus on education has led to an increase in the length of the average school day. After-school education, comprising tutoring, language courses, 21st century skills, such as critical thinking, leadership, collaboration and communication skills, and robotics, among other extracurricular activities, is also becoming more popular, offering a variety of training and learning programs in which students can participate according to their personal interests and preferences.

        For many parents, after-school education is considered a lifeline that helps them work without worry and balance their schedules, given (i) that Brazil has one of the highest average working hours per week in the world, and (ii) the increased participation of women in the workforce. In addition, an increase in disposable income has increased demand for private education and after-school programs, and parent expectations for their children's education are high considering the strong competition to gain admission into top public universities. Accordingly, after-school education represents a growing opportunity for private institutions, with an addressable market of R$18.7 billion compared to R$6.5 billion of potential market for private K-12 learning systems and textbooks in Brazil, based on EY-Parthenon's assessment of the private K-12 learning systems market. This is especially the case given the wide variety of supplemental solutions that can be offered to students during after-school hours.

Obsolescence of traditional content-distribution models

        We believe that traditional content-distribution models are becoming obsolete. Traditional educational publishers are almost exclusively focused on physical textbooks, which they sell through retailers rather than directly to schools. These traditional suppliers have limited capability to develop and offer integrated digital solutions to schools, teachers and students, and typically rely on third-party authors, illustrators and graphic designers to develop new content. In contrast, because of our robust technology backbone, use of data and strong relationships with teachers and administrators, we can offer a comprehensive solution and content that is continuously updated and improved.

Limited and unintegrated product offering

        Due to the lack of turnkey education solutions, school administrators often rely on a multitude of third-party vendors for K-12 educational content, teacher training, student testing, management and communication tools.

        Traditional education providers have struggled to develop mission-critical education platforms for several reasons, including the significant costs associated with the development of content and technologies, as well as the lack of extensive in-house technological expertise. In addition, developing a comprehensive and effective methodology is difficult to achieve since it requires many years of proven educational experience and a successful track record.

Our Market Opportunity

        We believe that the challenges inherent in the traditional content-distribution model, coupled with increasing demand for modern content and integrated value-added services, present a unique market opportunity for our business. By providing an affordable, modern and efficient platform, we believe

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that we can continue to disrupt the Brazilian education market and increase our penetration into current and new markets.

The Arco Way

        We believe that by combining our platform, our ability to innovate and our corporate culture, we can help create value for our partner schools and competitive advantages for our business.

GRAPHIC

Our Business Model

        Our Business-to-Business-to-Consumer, or B2B2C, model is financially aligned with our partner schools.    Our revenues consist of wholesale content fees paid by our partner schools annually on a per-student, per-year basis. On average, partner schools charge students' parents an incremental markup on top of our wholesale fees, ensuring that their incentives are aligned with ours. Accordingly, we provide a supplemental revenue stream to our partner schools through our B2B2C model, which is a feature that the traditional education model does not employ. Once schools adopt our platform for a particular class year, access to, and payment for, our platform becomes mandatory for all enrolled students in each class year, and such payments are charged as a supplement to tuition. Typically, we revise our contract fees annually, in line with our price-setting policies, which are usually above published inflation indices, to account for changes in our cost-and-expenses structure and for improvements in our platform.

        Long-term contracts, high retention rates and high financial predictability.    Our three-year standard contract provides a revenue stream with long-term cash flow visibility. We have a lead time (which we define as the period from the moment of first contact to the execution of a contract) for the acquisition of new partner schools, and we typically enter into contracts with new partner schools within one year from the moment of first contact. Once our content is adopted, switching costs (which are the costs that schools incur as a result of switching to our platform) and time associated with updating the teaching curriculum for each class year work to our advantage. Most of our average 5.0% annual

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attrition rate is attributable to the early termination or suspension of performance by us, at our option, of contracts with certain partner schools as a result of their failure to timely pay our contract fees.

        Asset-light and scalable business model, with high operating leverage and limited capex requirements.    By outsourcing distribution activities to third parties and developing standard solutions, we have an asset-light and scalable business model that enables us to quickly expand our customer base with low associated expenses and capital expenditures. This allows us to increasingly expand our margins as we grow the number of students we serve, while generating cash to fund the development of new products and features, as well as identify acquisitions and strategic investments.

        Our platform is difficult to replicate.    We have continuously developed our platform since our founding, with the benefit of over 50 years of an evolving educational methodology and a dedicated team of education specialists focused on developing and improving our Core Curriculum and Supplemental Solutions materials. Accordingly, we believe that the depth of our educational content and the technological experience necessary to develop our products makes our platform difficult to replicate.

Our Cohort Economics

        We believe that an annualized cohort analysis is a useful indicator of demand for our platform. We define a cohort as the amount spent by all of our partner schools on our platform over each 12-month period. We calculate the total contractual fees payable by our partner schools in each cohort as of the end of each academic year, or the yearly contract fee amount. We have a track record of attracting new partner schools and increasing the amount of fees they pay us over time. For further information, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations of Arco—Our Cohort Economics."

Our Solutions

        In the education sector, we believe that quality is fundamental. Our platform was developed with the benefit of over 50 years of an evolving educational methodology and robust track record of academic results. Our track record of high-performing educational outcomes motivated us to create a digital, technology-driven product that could deliver high-quality education at scale.

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        We provide a complete suite of turnkey curriculum solutions and technology-enabled features to help our students, teachers, partner schools and parents, targeting our students' educational success.

GRAPHIC

        Our turnkey educational platform solutions comprise core K-12 curricula, as well as supplemental instructional content currently focused on English as a second language.

Benefits Across Our Educational Platform

        We deliver the following benefits to all the stakeholders engaged in the learning process:

    Students:  We deliver a personalized, multimedia learning experience in an omni-channel format. Students can access content in various formats, including digital, video, print and other audiovisual media aligned with the daily curriculum of their classes. Our platform provides real-time feedback to students on areas for improvement and benchmarking relative to their peers, which enables us to simultaneously ensure that education is provided on an individual basis, and that our content is complete, up to date and readily available.

    Teachers:  We offer a range of tools to help improve teacher efficiency and learning outcomes. We provide teaching plans for each class, digital content for classroom review, premade class videos, a test-builder platform and homework-correction automation tools. In addition, teachers are able to access students' performance reports and identify which students are having difficulties in progressing in a given class at any time.

    Administrators:  We provide a supplemental revenue stream to our partner schools. In addition, our platform provides back-office administrative support, alongside data and analytics to support decision-making processes. Administrators receive student reports and are able to analyze student participation rates, detailed individual performance, an overview by area of knowledge and their schools' national ranking. They are also able to benchmark teacher performance to optimize the effectiveness of their teaching staff.

    Parents:  Our software brings parents closer to the education process, through an informal communication channel and the opportunity to closely monitor and engage with their children's performance and development.

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Our Products

        We believe that innovation is an important part of our success. As a technology company in the education sector, we believe that our dynamic and adaptive nature is essential to our continued growth. Our product offerings comprise two main segments that operate in concert: (i) Core Curriculum; and (ii) Supplemental Solutions.

        Our Core Curriculum comprises high-quality content solutions that are designed to address the Ministry of Education's national K-12 curriculum requirements through a personalized and interactive learning experience. Students access content in various formats, such as digital, video, print and other audiovisual media that are aligned with the daily curriculum of their classes. Our Core Curriculum offering serves a broad range of price points, allowing us to maximize our market reach and penetration. It is offered in two different versions, consisting of (i) SAS Plataforma de Educação, or "SAS," a premium solution focused on high-income private schools, and (ii) SAE Digital S.A., or "SAE," a basic solution focused on upper-middle-income private schools.

        SAS and SAE share certain key attributes, such as:

    Online homework assessment:  An extensive questions and problem-solving activities database that provides additional teacher-led instructional content to help meet individual student or small student-group needs.

    Adaptive learning:  A personalized instruction and assessment tool delivered through our exam management portal to help students prepare for and take exams.

    Interactive learning:  Augmented reality and video features throughout our materials, contributing to a more interactive and engaging learning experience.

    Students and teachers web portal:  An online environment aggregating relevant content for students and teachers by grade.

    In-app communication:  A responsive, simple and user-friendly communication tool for partner schools, students and parents.

    Support to partner schools:  Back office management, educational consulting services, training programs for teachers to assess and improve the quality of their teaching methods and marketing advisory services.

        Our Supplemental Solutions comprise additional value-added content for which partner schools can opt-in as an addition to our Core Curriculum. We have a Supplemental Solutions market share of 1%, calculated by dividing Arco's Supplementary Solutions ACV Bookings for the 2019 school year by the total addressable market for Supplemental Solutions, which consists of ESL, bilingual programs and 21st century skills programs, based on EY-Parthenon's assessment of the private K-12 learning systems market. Currently, our primary Supplemental Solutions offering is an ESL bilingual program, first offered in 2015 following our acquisition of an interest in International School Serviços de Ensino, Treinamento, Editoração e Franqueadora S.A., or "International School." International School provides students with an internationally-oriented education, in a multi-cultural environment, based on a curriculum like the International Baccalaureate or Cambridge International Examinations.

        In December 2015 and January 2017, our subsidiary EAS Educação (at the time, SAS Educação S.A.), or "EAS Brazil," acquired 40% and 11.48% interests, respectively, in the share capital of International School from Mr. Ulisses Borges Cardinot, pursuant to an investment and other covenants agreement (Contrato de Investimento e Outras Avenças) dated December 21, 2015 (as amended on January 28, 2016 and January 23, 2017), or the "Investment Agreement." Mr. Cardinot is currently the chief executive officer of International School pursuant to a shareholders' agreement

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between Mr. Cardinot and EAS Brazil. For further information, see "Item 4.A. History and Development of the Company—Acquisitions" in our 2018 Annual Report.

        The Investment Agreement contains certain contractual arrangements for the acquisition by EAS Brazil of the remaining 48.52% interest in the share capital of International School held by Mr. Cardinot, or the "Remaining Interest," divided in two steps: (1) 25% of the share capital between January 1, 2020 and April 30, 2020 at a purchase price equal to the product of 30% and 10 times the accounting EBITDA of International School for the 2019 school year (twelve-month period between October and September) (subject to certain adjustments); and (2) 23.52% of the share capital between January 1, 2021 and April 30, 2021 at a purchase price equal to the product of 30% and 10 times the accounting EBITDA of International School for the 2020 school year (subject to certain adjustments). In addition, Mr. Cardinot may elect to allocate up to 50% of the total purchase price to subscribe for EAS Brazil shares (which would be valued at the product of 30% and 10 times the accounting EBITDA of EAS Brazil (subject to certain adjustments) for the applicable school year). See note 4 to our audited consolidated financial statements in our 2018 Annual Report.

        Pursuant to the Investment Agreement, with the approval of an initial public offering of EAS Brazil (1) certain contractual arrangements for the acquisition by EAS Brazil of the Remaining Interest are accelerated; and (2) Mr. Cardinot's option to allocate up to 50% of the total purchase price to subscribe for EAS Brazil shares must be exercised by Mr. Cardinot at the shareholder meeting approving an initial public offering by EAS Brazil. We recorded a financial liability as of June 30, 2019 in the amount of R$188.6 million, which represented the present value of the estimated amount payable to Mr. Cardinot. This financial liability may vary in subsequent financial periods and depending on the final basis for calculation of the purchase price of the Remaining Interest and it will be updated accordingly in our financial statements for future financial periods.

        In 2019, to further enhance our portfolio in line with growing international education trends focusing on 21st century skills, we invested in Nave à Vela Editora e Comercializadora de Materiais Educacionais S.A. (formerly Nave à Vela Ltda), or "NAV," a competence-based learning solutions company with proprietary, high-quality content and a methodology fully integrated with the K-12 curriculum, present in more than 50 schools and reaching 16,000 students, according to NAV's website. Through projects, problem solving and technology, NAV helps students develop transferable skills, such as critical and creative thinking, and communication skills. In addition, we also started to develop our proprietary solution, Pleno, a Social-Emotional Learning (SEL) program. We intend to add additional, non-core supplemental educational modules to our Supplemental Solutions over time.

        The key attributes of our Supplemental Solutions are:

    Proprietary applications:  Two complementary applications providing content and English-based games that form part of students' school-year collections, including a communications tool for partner schools, students and parents.

    Robotics:  Pioneering activities that enable students to build and program their own Lego® robots as a way to maximize learning beyond the classroom experience.

    Combination of concrete materials and animations:  Print and digital textbooks combined with interactive animations, educational videos and exercises.

    Crowdsourced education:  Collaborative and versatile platform for classrooms that allows students to collaborate in project building and problem solving.

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What Sets Us Apart

        We believe that we have the following business strengths that allow us to disrupt the private K-12 education market:

Disruptive approach to traditional school model

        Instead of simply delivering content as a product through textbooks, we provide an education solution through a technology-based platform. We believe that our platform is cutting-edge, modern, dynamic and client-oriented. We offer a multichannel experience, combining proprietary content and software that would otherwise require the purchase of multiple, nonintegrated solutions.

        According to internal studies, we believe that the parents of students enrolled at our partner schools enjoy significant savings since our content solutions are less expensive than a traditional collection of textbooks, mainly because we can avoid incremental costs associated with a traditional retail distribution chain by primarily selling directly to our partner schools, as well as certain incremental costs relating to content production. In contrast, the sale of traditional textbooks often requires publishers to pay authors royalties for each book sold, and traditional textbooks are frequently marketed as penned by specific authors, each of which generally entails higher total royalty costs, whereas we generally acquire rights to content from a large pool of available authors, without variable payments relating to royalties. Furthermore, we deliver a supplemental revenue stream for our partner schools. As of December 31, 2018, partner schools charged parents an incremental markup on our wholesale per-student prices.

Strong combination of content-development team and technology to develop a best-in-class learning experience

        As of June 30, 2019, we had a dedicated team of over 319 technology and content-development employees focused on developing and improving our Core Curriculum and Supplemental Solutions materials. They achieve this by leveraging feedback from our (i) highly qualified base of over 1,200 experienced educational authors in Brazil on the quality of materials we produce, and (ii) network of partner schools and teachers on the impact of our materials on student performance. The advanced state of our platform reflects a process of evolution spanning over a decade, making it difficult to replicate.

        We also have a team of over 122 employees focused on the product design and digital presentation of our education materials on our platform.

Widespread positive customer satisfaction and strong academic outcomes

        We monitor our user experience on a regular basis by measuring our Net Promoter Scores, or "NPS," a widely known survey methodology used to measure overall customer satisfaction. As of December 31, 2018, we had an NPS score of 83 according to our internal analysis. Our NPS score compares to 55 for Apple iPhone as of October 26, 2017, 61 for Amazon as of October 19, 2017 and 50 for Google as of October 31, 2017, according to NPS Benchmarks.

        Our customer satisfaction is driven by our ability to meaningfully improve the performance of our partner schools' enrolled students on the ENEM a prerequisite for entrance into almost all higher education undergraduate institutions in Brazil. According to the 2018 results of the ENEM:

    Three of the 10 top schools in the Brazilian national school rankings use our solutions;

    Our schools are among the top 10 in 13 out of 27 Brazilian states; and

    216 of our partner schools are ranked among the top three schools in their respective cities.

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        In addition, we have the highest penetration among top 10 performing schools, according to rankings based on data from the Ministry of Education and our existing partner schools.

Strong brand equity and aligned incentives resulting in high retention rates

        We prioritize quality by employing a "white glove" service model across our business, with clear financial incentives (in the form of bonuses) to our sales force that drive long-term relationships with our partner schools. Educational performance is one of the main drivers of school growth, and the success of our partner schools is a critical part of our value proposition. Due to the quality of our academic outcomes, we rarely lose clients. In addition, we have historically been highly effective in increasing contract values, achieving an annual retention rate in net revenue of 95.0% in 2017 and 2018.

Attractive financial model with a high level of visibility and predictability

        We have cash flow visibility given our long-term contracts with partner schools. Initial contract terms generally average three years, with high switching costs resulting in a customer churn of approximately 5.0% in 2018. In addition, we benefit from increasing enrollments across partner schools as our relationships mature and deployments increase, leading to revenue growth and increased operating margins, which contribute to the predictability of our business.

Founder-led and experienced management, innovation-driven culture

        Our culture flows from our founder and CEO's family, who have specialized in education for over 50 years. Our founder and CEO, Mr. Ari de Sá Cavalcante Neto, has brought his family's successful school formula to scale by creating a leading educational platform. We strive to innovate and instill in our professionals a passion for serving all our stakeholders and seeking impactful next-generation solutions for private K-12 education.

        As of March 31, 2019, the average age of our employees was 30, and 53% of our employees were women. Also, we offer a long-term incentive plan for key employees and apply meritocratic methods to engage them, recognize their value and maintain their motivation.

Our Growth Strategies

        We aim to continue driving rapid, profitable growth and to generate greater shareholder value by implementing the following strategic initiatives:

Deepen relationships with our existing customer base

        We intend to increase student enrollments within our existing partner schools at a minimum marginal cost as we see major opportunities for increased penetration through:

    Increasing the number of class years that adopt our Core Curriculum at each partner school. As of December 31, 2018, our up-selling potential would increase our student enrollments by 44%, translating to around 218,000 students; and

    Cross-selling our Supplemental Solutions to currently enrolled class years at our partner schools. As of December 31, 2018, only 3.6% of our client base used both our Core Curriculum and Supplemental Solutions, thus representing a cross-sell opportunity of around 396,000 students.

Expand our partner-school base

        We estimate that the top five private education providers in Brazil accounted for less than 2% of the private education market as of December 31, 2017. We believe that our sales efforts will benefit as

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the performance of partners schools using our educational platform becomes more widespread and widely known.

Add new Supplemental Solutions

        We consistently review potential opportunities to provide additional after-school educational solutions that we may integrate into our Supplemental Solutions. We plan to enforce a disciplined approach to growth by using market-validation techniques to assess the likelihood of our partner schools adopting our solutions, as well as their potential spending. We will also aim to ensure that any new vertical fits within our proven business strategy, through a careful assessment of available alternatives, such as the number and size of potential adjacent market opportunities, and their relative risk and return.

Continue to innovate and extend our technological leadership

        Innovation is a cornerstone of our culture. As such, we employ significant efforts and resources to ensure the constant development and improvement of our portfolio of solutions. We have also invested in a select group of education-technology startups in an effort to bring new ideas and solutions into our ecosystem. These initiatives have helped us identify new business potential to enhance our overall growth prospects, such as education IT systems (WPensar S.A., or "Wpensar," and EEM Licenciamento de Programas Educacionais S.A., or "EEM"), supplemental instruction content (International School, NAV and Pleno) and digital-native content platform (Geekie Desenvolvimento de Softwares S.A., or "Geekie").

        We intend to increase the functionality of our platform and continue our investment in the development and acquisition of new applications that extend our technological leadership. We also intend to continue to improve and update our print and digital content based on the real-time feedback we receive from our partner schools.

Continue to pursue M&A opportunities

        We plan to continue to opportunistically pursue acquisitions that are complementary to, or that will help us diversify, our business. We intend to maintain a disciplined approach toward evaluating possible targets and integrating acquisitions into our business model. Our preferred acquisition targets are core or supplemental educational platform providers that engage in delivering K-12 educational content through software-based platforms. We are currently evaluating possible acquisition opportunities and submit nonbinding proposals from time to time. We intend to use the net proceeds from this offering to fund in part the Positivo Acquisition (as defined below) and future acquisitions or investments in complementary businesses, products or technologies. For further information, see "Use of Proceeds."

        We believe that we have developed a strong capability and track record of identifying, negotiating and integrating acquisitions. Moreover, we have developed a systematic model that enables us to integrate our acquired businesses in a timely and efficient manner. Since 2011, we have successfully acquired or invested in 14 companies. Our acquisition strategy is focused on expanding our operations into new regions within Brazil and adding new products and technologies to accelerate our pace of innovation and broaden our footprint.

        We have executed three strategic transactions since our initial public offering. These acquisitions have a strong fit with our business and have been executed based on three main pillars: (i) boost growth, accelerating the expansion of our partner-school base; (ii) increase cross-sell opportunities, extending our product offering; and (iii) enhance the client experience, adding value-add tech features. See "—Recent Developments."

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Recent Developments

    Request for Arbitration

        On September 19, 2019, Mr. Ulisses Borges Cardinot, a 48.52% shareholder in our subsidiary, International School, filed a request for arbitration with the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada in Brazil against Arco Platform Limited, EAS Educação S.A. and Arco Educação S.A.

        This request for arbitration purporting to assert Mr. Cardinot's rights under the Investment Agreement (for more information regarding the Investment Agreement, see "Summary—Our Products") is still at an early stage; therefore, it is not possible to confirm which claims will be asserted by Mr. Cardinot in the course of the proceedings. Mr. Cardinot, however, has asserted that, among others, he is entitled to receive shares of Arco Platform and the purchase price due pursuant to the Investment Agreement is materially higher. On October 10, 2019, we filed our response to the request for arbitration, denying Mr. Cardinot's claims and affirming that Arco Platform and Arco Educação cannot be parties to the arbitration since they are not parties to the Investment Agreement.

        We intend to vigorously defend ourselves against the existing claims and any additional claims that may be asserted against us in the future by Mr. Cardinot. If an unfavorable decision in the arbitration were to occur, it could result in a material adverse impact on our financial position and results of operations in the period in which the decision occurs, or in future periods, and on the price of our Class A common shares.

    Acquisition of Positivo Soluções Didáticas

        On May 7, 2019, we entered into a purchase agreement with the shareholders of Positivo to acquire the entire share capital of Positivo, one of the largest K-12 content providers to private schools in Brazil, and other companies of the Positivo Group (as defined below). Positivo is part of a group founded in 1972 in Curitiba by a group of teachers as a preparatory course focused on preparing students for admission exams to universities in the state of Paraná, or the "Positivo Group." This carve-out acquisition encompasses only the private school learning systems and does not include the other assets of the Positivo Group, such as the public-schools learning system, the printing company, the Universidade Positivo postsecondary education business, and the Colégio Positivo proprietary schools. The agreed purchase price is R$1,684.8 million (equity value), of which (i) 50% will be payable in cash on the transaction closing date, and (ii) the remaining 50% will be paid in four installments as follows: (1) 10% to be paid in cash in each of 2021 and 2022, and (2) 15% to be paid in cash in each of 2023 and 2024, all as adjusted by the CDI rate (Brazilian interest rates). The closing of the transaction is subject to customary conditions precedent, including antitrust and other regulatory approvals. We obtained the final approval from the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Economica, or "CADE") with no conditions, on October 23, 2019.

        The Positivo Acquisition will allow us to increase our student base twofold, reaching over 1.2 million students. In addition, it will allow us to accelerate expansion and our growth with the same B2B2C business model, with predictable subscription-based revenue, high operating leverage and cash flow conversion while remaining asset-light. By adding complementary assets, Positivo also enables us to broaden our product offerings and expand our footprint. Positivo comprises two different brands with reciprocal business profiles: (i) Sistema de Ensino Positivo, or "SPE," an educational solution consisting of content, technology and services provided to private schools serving upper middle class students; and (ii) Conquista Solução Educacional, or "Conquista," which is focused on private schools serving lower-middle income class students. Together, SPE and Conquista enhance our Core Curriculum offering, allowing us to reach a larger base of schools at different price points. In addition, Positivo also owns Positivo English Solution, or "PES," an affordably-priced second language offering that enhances our Supplemental Solutions.

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        Positivo has a strong presence in the South and Southeast regions of Brazil, with relatively low geographic overlap with our student base. The acquisition will also allow us to add opportunities through our scale and technology, strengthening our capacity to invest in high-quality content and technology and enabling us to enhance our student base experience and academic outcomes through technology improvements and our cross-selling capabilities. For further information, see "Business of Positivo."

Acquisition of EEM

        On April 29, 2019, we entered in an agreement to acquire all the shares of EEM, hereinafter referred to as the "EEM Acquisition," an app developer with more than 600,000 enrolled students at more than 1,000 schools that enhances communication between schools and parents by providing chat-based interactions, location-based identifications, NPS tool to assess parent's satisfaction and pilot project related to payments. The purchase consideration transferred was R$18.3 million. The amount of R$16.1 million was paid on the closing date, the amount of R$0.3 million was paid on June 29, 2019, and the deferred payment in the amount of R$1.9 million, which has been retained for a period of two years as guarantee for the payment of any contingent liabilities, will be released in accordance with the provisions of the agreement. Any remaining balance will be transferred to the former owners of the acquired entity. For further information, see note 3 to our unaudited consolidated interim financial statements as of June 30, 2019 and for the six months then ended included elsewhere in this prospectus supplement.

Acquisition of NAV

        In May 2019, we acquired a 13.2% interest in the share capital of NAV, a developer of competence-based learning content present in more than 50 schools and reaching 16,000 students, according to NAV's website, for the total subscription price of R$4.2 million, hereinafter referred to as the "NAV Acquisition." Pursuant to the investment and share purchase agreement, we have agreed to acquire the remaining 86.8% of the outstanding share capital of NAV in three tranches, as follows: (i) Tranche 1, corresponding to 37.8% of the outstanding share capital of NAV, which we intend to acquire on October 29, 2019, (ii) Tranche 2, corresponding to 24% of the outstanding share capital of NAV, which we intend to acquire on February 15, 2021, and (iii) Tranche 3, corresponding to 25% of the outstanding share capital of NAV, which we intend to acquire on February 15, 2022. The purchase price will be paid in cash. For further information, see note 10 to our unaudited consolidated interim financial statements as of June 30, 2019 and for the six months then ended, included elsewhere in this prospectus supplement.

        NAV enhances our Supplemental Solutions offering and the cross-selling capacity of our Core Curriculum offering through a competence-based curriculum to address 21st century skills. The EEM Acquisition and NAV Acquisition provide us with new capabilities that further increases our value proposition to partner schools, parents and students, and also allows us to access each acquisition's network of schools.

Increase of Interest in Geekie

        On September 20, 2019, we acquired an additional 0.96% interest in the share capital of Geekie, an entity that provides technology for adaptive assessment and learning products and engages in the production, development and licensing of software tailored to the specific requirements of education sector customers, through a capital increase of R$1.2 million. On September 24, 2019, we acquired an additional 18.44% interest in the share capital of Geekie from a minority shareholder, the consummation of which is subject to the exercise by the other shareholders of their preferential rights by October 25, 2019. In addition, on October 14, 2019, we acquired an additional 1.92% interest in the share capital of Geekie through a capital increase of R$2.5 million, increasing our total interest to

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29.36%, provided no shareholder exercises its preferential rights. As of the date of this prospectus supplement, discussions with the other Geekie shareholders are ongoing in connection with the acquisition of additional interests and additional capital increases in Geekie. For further information, see "Item 4. Information on the Company—A. History and Development of the Company—Acquisitions" on our 2018 Annual Report and note 11 to our audited consolidated financial statements.

Restricted Shares Grant Plan

        On April 30, 2019, our board of directors approved our restricted share long-term incentive program, or the "Restricted Shares Grant Plan." The maximum number of shares that can be issued under the Restricted Shares Grant Plan may not exceed 5% of our share capital at any time. The Restricted Shares Grant Plan will be administered by our board of directors or a designated committee.

        Our and our controlled companies' directors, officers, employees and professionals of any nature may participate in the Restricted Shares Grant Plan, which is composed of two underlying programs: (i) the regular program, pursuant to which we will grant restricted shares to the participant at no cost, subject to certain vesting conditions and (ii) the matching shares program, pursuant to which we will match the number of Class A shares (at no additional cost to the participant) that were acquired by the participant at fair market value ("investment shares"), using the amounts received by the participant as a short term incentive and designated by our board of directors to be used as an investment in investment shares, provided certain vesting conditions are satisfied.

        Under the matching shares program, participants are required to (i) be employed or providing services to us through each vesting date, as set forth in the applicable award agreement and (ii) hold the investment shares through each vesting date. The vesting period may not exceed five years. In addition, upon each vesting date, a portion of the investment shares will become free of restrictions and the participant will be allowed to freely negotiate such shares. Under the regular shares program, the participant's right to receive the restricted shares will be subject to the participant remaining continuously bound as our employee, officer or director, as applicable, through each vesting, which may not exceed five years.

        If a participant is dismissed by us with cause or voluntarily terminates his or her employment or service relationship with us, the participant will forfeit any right to the unvested shares. In the event that the participant is dismissed by us without cause or by mutual agreement between us and the participant, the participant will be entitled to receive his or her vested shares and a pro-rata amount of the granted and unvested shares, by reference to the vesting period in which the termination occurred and based on the number of days the participant was employed by us. In case of the participant's death or permanent disability, the participant (or his or her heirs) will be entitled to receive all the granted shares, whether or not vested, which will be delivered upon termination of the original vesting period.

        If our shares cease to be publicly traded or in an event of a change in our control, the vesting period of the granted shares will be accelerated, as applicable. In each such case, each participant may elect to (i) sell his or her granted shares at a price equal to the price at which the shares were sold in connection with the transaction resulting in the Company becoming privately owned or in a change of control, or (ii) remain a shareholder of the Company subject to the approval of the board of directors.

        Awards of restricted shares and matching shares may be settled in shares or cash, as determined by our board of directors. The restricted shares and matching shares may not be pledged, assigned or transferred to third parties, without the prior approval of our board of directors. Participants in the Restricted Share Grant Plan will be subject to a two year post-termination of employment or service non-compete and prohibition against soliciting our employees, service providers and customers.

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        By November 28, 2019, we will issue 136,366 Class A common shares underlying restricted shares units pursuant to the Restricted Shares Grant Plan, of which 68,876 Class A common shares were issued on October 21, 2019 and will be sold in this offering.

Board of Directors

        On July 15, 2019, we appointed Edward Ruiz to our board of directors and our audit committee as an independent member, and on August 7, 2019, we appointed Pablo Doberti to our board of directors and our audit committee as an independent member, increasing the size of our board to six directors.

        Mr. Ruiz is a member of our board of directors, as an independent director, and a member of our audit committee since July 15, 2019. He is currently also a board member and audit committee chair at Nexa Resources, a mining company listed on the New York Stock Exchange and Toronto Stock Exchange and with mining and smelting operations in Brazil and Peru. Mr. Ruiz has over 48 years of experience in public and private accounting. He has been a Certified Public Accountant in the United States since 1972. Mr. Ruiz retired from Deloitte in 2012, where he was an audit partner and member of Deloitte's IFRS Specialist Group in Brazil. Prior to Deloitte, he held executive positions in internal audit at JP Morgan and PepsiCo Inc. in the United States. Mr. Ruiz holds a bachelor's degree in business administration from Pace University (in New York City) and has taken advanced courses, including an executive MBA at FIA in São Paulo and governance courses at the Harvard Business School. Since his retirement, Mr. Ruiz has gained extensive board-level experience as a member and audit committee chair of several publicly traded companies in Brazil.

        Mr. Doberti is a member of our board of directors, as an independent director, a position he has held since August 7, 2019. He is an education executive with more than 25 years of experience in the sector. He is the founder and CEO of Agaton Educação, a startup incubator and accelerator focused on education in Brazil and Mexico. He is also the founder and CEO of Vivadi. Prior to Vivadi, Mr. Doberti was the General Global Director of Uno Internacional Santillana, creating the business model and leading the international expansion and the entrance of Unoi in Brazil. Mr. Doberti holds a bachelor's degree in psychology from Universidad de Buenos Aires.

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Organizational Structure

        The diagram below depicts our organizational structure, after giving effect to this offering:

GRAPHIC


(1)
Includes Class B common shares beneficially owned by our Founding Shareholders.

(2)
Includes Class A common shares beneficially owned by the GA Entity. See "Principal and Selling Shareholders."

Summary of Risk Factors

        An investment in our Class A common shares is subject to a number of risks, including risks relating to our business and industry, risks related to Brazil, risks related to the Positivo Acquisition, and risks related to the offering and our Class A common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled "Risk Factors" in this prospectus supplement and under the heading "Risk Factors" in our 2018 Annual Report, as well as the risks that are described in other documents incorporated by reference in this prospectus supplement and the accompanying prospectus, for a more thorough description of these and other risks.

Risks Relating to Our Business and Industry

    Our revenue derives from the contract fees per student that we generate from the sales of our educational content to our partner schools. Any disruption in our relationship with our partner

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      schools, or an increase in delays and/or defaults in the payment of amounts owed to us by the partner schools, may adversely affect our income and cash flow and may materially affect us.

    Any increase in the attrition rates of students in our partner schools may adversely affect our results of operations.

    Increases in the price of certain inputs used to produce our printed educational materials and increases in the fees of our third-party printer providers may materially affect us.

    Our success depends on our ability to monitor and adapt to technological changes in the education sector and maintain a technological infrastructure that works adequately and without interruption.

    Any change or review of the tax treatment applied to our activities, or the loss or reduction in tax benefits on the sale of books (including digital content), may materially adversely affect us.

    Our principal operating subsidiary in Brazil is obliged to adapt its business activities related to data processing to the Law No. 13,709/2018 (Lei Geral de Proteção de Dados, or the "LGPD") that will come into force in August 2020.

Risks Relating to Brazil

    The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil's current political and economic conditions could harm us and the price of our Class A common shares.

    The ongoing economic uncertainty and political instability in Brazil may harm us and the price of our Class A common shares.

    Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our Class A common shares.

    Exchange-rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.

    Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.

Risks Related to the Positivo Acquisition

    If we are unable to complete the Positivo Acquisition in a timely manner or at all, our business and the price of our Class A common shares may be adversely affected.

    We may not realize the benefits anticipated from the Positivo Acquisition, which could adversely affect the price of our Class A common shares.

    Uncertainty about the Positivo Acquisition may adversely affect our relationships with customers and employees, which could negatively affect our business, whether or not the Positivo Acquisition is completed.

    The Positivo Acquisition may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.

    The regulatory approvals required in connection with the Positivo Acquisition may not be obtained or may contain materially burdensome conditions.

    The use of cash and incurrence of significant indebtedness in connection with the financing of the Positivo Acquisition may have an adverse impact on our liquidity, limit our flexibility in

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      responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions.

    Positivo relies significantly on a key supplier for the printing of its educational materials.

    Positivo's core business relies on educational materials, but not all agreements signed by the authors set forth the full and unrestricted assignment of copyrights to Positivo over such material. By consequence, Positivo may have restricted copyrights over certain educational materials and may be subject to lawsuits filed by said authors to prevent Positivo from marketing or using them and/or claiming royalties to use them.

    The due diligence performed on the acquired companies of the Positivo Group and the indemnification provided for in the purchase agreement of the Positivo Acquisition may not be sufficient to cover all liabilities of the acquired companies.

Risks Relating to the Offering and our Class A Common Shares

    The Founding Shareholders, our largest group of shareholders, own 100% of our outstanding Class B common shares, which will represent approximately 91.0% of the voting power of our issued share capital following this offering, and control all matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

    Our dual class capital structure means our shares are not included in certain indices. We cannot predict the impact this may have on our share price.

    The dual class structure of our common stock has the effect of concentrating voting control with the Founding Shareholders; this will limit or preclude your ability to influence corporate matters.

    Our Class A common shares may not be a suitable investment for all investors, as investment in our Class A common shares presents risks and the possibility of financial losses.

Corporate Information

        Our principal executive offices are located at Rua Augusta 2840, 9th floor, suite 91, Consolação, São Paulo—SP, 01412-100, Brazil. Our telephone number at this address is +55 55 (11) 3047-2655.

        Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is www.arcoeducacao.com.br. The information contained in, or accessible through, our website is not incorporated into this prospectus supplement or the registration statement of which it forms a part.

Implications of Being an Emerging-Growth Company

        As a company with less than US$1.07 billion in revenue during our last fiscal year, we qualify as an "emerging-growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the "JOBS Act." An emerging-growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

    a requirement to have only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations disclosure;

    an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the "Sarbanes-Oxley Act," in the assessment of our internal control over financial reporting;

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    reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

    exemptions from the requirements of holding nonbinding advisory votes on executive compensation and golden parachute arrangements.

        We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging-growth company. We would cease to be an emerging-growth company if we had more than US$1.07 billion in annual revenue, had more than US$700 million in market value of our Class A common shares held by nonaffiliates, or issued more than US$1.0 billion of nonconvertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus supplement, although we may choose to do so in future filings, and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.

        In addition, under the JOBS Act, emerging-growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.

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THE OFFERING

        This summary highlights information presented in greater detail elsewhere in this prospectus supplement, the accompanying prospectus as well as the documents incorporated by reference. This summary is not complete and does not contain all the information you should consider before investing in our Class A common shares. You should carefully read this entire prospectus supplement, the accompanying prospectus as well as the documents incorporated by reference before investing in our Class A common shares, including "Risk Factors" and (i) our consolidated financial statements and notes thereto, (ii) Positivo's combined carve-out financial statements, and (iii) our unaudited pro forma condensed consolidated financial information, each included elsewhere in this prospectus supplement.

Issuer

  Arco Platform Limited

Class A common shares offered by us

 

3,450,656 Class A common shares.

Class A common shares offered by the selling shareholders

 

4,268,847 Class A common shares (or 5,426,772 Class A common shares if the underwriters exercise in full their option to purchase additional shares).

Voting rights

 

The Class A common shares will be entitled to one vote per share, whereas the Class B common shares (which are not being sold in this offering) will be entitled to 10 votes per share.

 

Each Class B common share may be converted into one Class A common share at the option of the holder.

 

If, at any time, the total number of the issued and outstanding Class B common shares is less than 10% of the total number of shares outstanding, then each Class B common share will convert automatically into one Class A common share.

 

In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, except for certain transfers to other holders of Class B common shares or their affiliates or to certain unrelated third parties as described under "Description of Share Capital—Conversion."

 

Holders of Class A common shares and Class B common shares will vote together as a single class on all matters unless otherwise required by law and subject to certain exceptions set forth in our Articles of Association as described under "Description of Share Capital—Voting Rights."

 

Upon consummation of this offering, assuming no exercise of the underwriters' option to purchase additional shares, (1) holders of Class A common shares will hold approximately 9.0% of the combined voting power of our outstanding common shares and approximately 49.5% of our total equity ownership, and (2) holders of Class B common shares will hold approximately 91.0% of the combined voting power of our outstanding common shares and approximately 50.5% of our total equity ownership.

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If the underwriters exercise their option to purchase additional shares in full, (1) holders of Class A common shares will hold approximately 9.0% of the combined voting power of our outstanding common shares and approximately 49.5% of our total equity ownership, and (2) holders of Class B common shares will hold approximately 91.0% of the combined voting power of our outstanding common shares and approximately 50.5% of our total equity ownership.

 

The rights of the holders of Class A common shares and Class B common shares are identical, except with respect to voting, conversion and transfer restrictions applicable to the Class B common shares, and holders of Class B common shares are entitled to preemptive rights to purchase additional Class B common shares in the event that additional Class A common shares are issued, upon the same economic terms and at the same price, in order to maintain such holder's proportional ownership interest in us. See "Description of Share Capital" in the accompanying prospectus for a description of the material terms of our common shares.

Option to purchase additional Class A common shares

 

The GA Entity has granted the underwriters the right to purchase up to an additional 1,157,925 Class A common shares from it within 30 days of the date of this prospectus supplement, at the public offering price, less underwriting discounts and commissions, on the same terms as set forth in this prospectus supplement. We will not receive any proceeds from the sale of Class A common shares by the GA Entity.

Listing

 

Our Class A common shares are listed on the Nasdaq Global Select Market under the symbol "ARCE."

Use of proceeds

 

We estimate that the net proceeds to us from the offering will be approximately US$144.6 million, assuming an offering price of US$43.47 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from the offering to fund in part the Positivo Acquisition and future acquisitions or investments in complementary businesses, products or technologies, as well as for general corporate purposes. See "Use of Proceeds."

 

We will not receive any proceeds from the sale of Class A common shares by the selling shareholders.

Share capital before and after offering

 

As of the date of this prospectus supplement, our authorized share capital is US$50,000, consisting of 1,000,000,000 shares of par value US$0.00005 each. Of those authorized shares, (i) 500,000,000 are designated as Class A common shares, (ii) 250,000,000 are designated as Class B common shares, and (iii) 250,000,000 are as yet undesignated and may be issued as common shares or shares with preferred rights.

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Immediately after the offering, we will have 27,470,749 Class A common shares outstanding, assuming no exercise of the underwriters' option to purchase additional shares.

Dividend policy

 

The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders. We do not anticipate paying any cash dividends in the foreseeable future.

Lock-up agreements

 

We have agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 90-day period following the date of this prospectus supplement. Members of our board of directors, our executive officers, the selling shareholders and our principal shareholders, have agreed to substantially similar lock-up provisions, subject to certain exceptions. See "Underwriting."

Risk factors

 

See "Risk Factors" and the other information included in this prospectus supplement and the accompanying prospectus, as well as the documents incorporated by reference, for a discussion of factors you should consider before deciding to invest in our Class A common shares.

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Cayman Islands exempted company with limited liability

 

We are a Cayman Islands exempted company with limited liability. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (i) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not properly fetter the exercise of future discretion; (iv) duty to exercise powers fairly as between different sections of shareholders; (v) duty to exercise independent judgment; and (vi) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. In comparison, under the Delaware General Corporation Law, a director of a Delaware corporation owes fiduciary duties to the corporation and its stockholders comprised of the duty of care and the duty of loyalty. Such duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See "Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law" in the accompanying prospectus.

        Unless otherwise indicated, all information contained in this prospectus supplement (i) assumes no exercise of the option granted to the underwriters to purchase up to additional 1,157,925 Class A common shares in connection with the offering, and (ii) excludes the issuance of 67,490 Class A common shares issuable by November 28, 2019 upon the settlement of outstanding restricted shares units granted under the Restricted Shares Grant Plan. See "Summary—Recent Developments—Restricted shares and matching programs."

        When the selling shareholders consummate sales of Class B common shares in this offering, the Class B common shares sold will automatically convert into Class A common shares on a share-for-share basis. As a result, purchasers of our common shares in this offering will only receive Class A common shares, and only Class A common shares are being offered by this prospectus supplement. Class B common shares that are not sold by the selling shareholders will remain Class B common shares unless otherwise converted into Class A common shares. See "Description of Share Capital" in the accompanying prospectus.

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SUMMARY FINANCIAL AND OTHER INFORMATION

        The following tables set forth, for the periods and as of the dates indicated, our summary financial and other data. This information should be read in conjunction with (i) our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018 and the notes thereto, included elsewhere in this prospectus supplement, (ii) our audited consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 and the notes thereto, included in our 2018 Annual Report and incorporated by reference in this prospectus supplement, and (iii) "Item 3.A. Selected Financial Data" and "Item 5. Operating and Financial Review and Prospects" in our 2018 Annual Report, which is qualified in its entirety by reference to our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements, and the related notes thereto.

        The following tables also set forth, for the periods and as of the dates indicated, (i) the summary financial information of Positivo, which should be read in conjunction with Positivo's unaudited interim condensed combined carve-out financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018 and the notes thereto, and Positivo's audited combined carve-out financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 and the notes thereto, each included elsewhere in this prospectus supplement, and (ii) our pro forma summary financial information, which should be read in conjunction with our unaudited pro forma condensed consolidated financial information as of and for the six months ended June 30, 2019 and for the year ended December 31, 2018 and the notes thereto, included elsewhere in this prospectus supplement.

Arco

        Our interim statements of financial position as of June 30, 2019 and the interim statements of operations for the six months ended June 30, 2019 and 2018 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus supplement, prepared in accordance with International Financial Reporting Standard IAS No. 34 "Interim Financial Reporting," or "IAS 34." The summary statements of financial position as of December 31, 2018, 2017 and 2016 and the statements of operations for the years ended December 31, 2018, 2017 and 2016 have been derived from our audited consolidated financial statements incorporated by reference in this prospectus supplement, prepared in accordance with IFRS, as issued by the IASB. The results of

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operations for the six months ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the entire year ending December 31, 2019.

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
 
  2019   2019   2018   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 
 
  (unaudited)
   
   
   
   
 

Statement of Operations Data:

                                           

Net revenue

    66.4     254.6     195.1     99.4     381.0     244.4     159.3  

Cost of sales

    (12.4 )   (47.7 )   (42.7 )   (21.1 )   (80.7 )   (58.5 )   (41.3 )

Gross profit

    54.0     206.9     152.4     78.3     300.2     185.9     117.9  

Selling expenses

    (19.7 )   (75.5 )   (48.4 )   (29.6 )   (113.3 )   (65.3 )   (40.3 )

General and administrative expenses

    (17.2 )   (65.8 )   (30.7 )   (33.9 )   (129.8 )   (48.9 )   (32.7 )

Other income, net

    0.8     2.9     2.2     1.3     4.9     3.3     3.6  

Operating profit

    17.9     68.6     75.4     16.2     62.1     74.9     48.6  

Finance income

    8.1     30.9     7.3     9.6     36.6     12.5     47.2  

Finance costs

    (7.5 )   (28.9 )   (7.8 )   (51.9 )   (198.8 )   (20.4 )   (1.8 )

Finance result

    0.5     2.1     (0.5 )   (42.3 )   (162.2 )   (7.9 )   45.4  

Share of loss of equity-accounted investees

    (0.3 )   (1.2 )   (0.3 )   (0.2 )   (0.8 )   (0.7 )   (1.1 )

Profit (loss) before income taxes

    18.1     69.5     74.7     (26.3 )   (100.9 )   66.4     92.8  

Income taxes-income (expense)

    (3.4 )   (13.0 )   (20.4 )   4.7     18.0     (22.7 )   (18.4 )

Current

    (7.6 )   (29.2 )   (20.9 )   (6.9 )   (26.5 )   (31.0 )   (13.0 )

Deferred

    4.2     16.1     0.5     11.6     44.5     8.3     (5.5 )

Profit (loss) for the period / year

    14.7     56.5     54.3     (21.6 )   (82.9 )   43.6     74.4  

Profit (loss) attributable to:

                                           

Equity holders of the parent

    14.7     56.5     54.7     (21.5 )   (82.4 )   44.3     75.1  

Noncontrolling interests

            (0.4 )   (0.1 )   (0.5 )   (0.6 )   (0.7 )

Basic earnings per share-R$(unless otherwise indicated)

                                           

Class A Common Shares

    0.29     1.12     1.09     (0.43 )   (1.64 )   0.88     1.49  

Class B Common Shares

    0.29     1.12     1.09     (0.43 )   (1.64 )   0.88     1.49  

Diluted earnings per share-R$(unless otherwise indicated)

                                           

Class A Common Shares

    0.28     1.09     1.04     (0.43 )   (1.64 )   0.85     1.44  

Class B Common Shares

    0.29     1.10     1.05     (0.43 )   (1.64 )   0.85     1.45  

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by

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    the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 
  As of June 30,   As of December 31,  
 
  2019   2019   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 
 
  (unaudited)
   
   
   
   
 

Balance Sheet Data:

                                     

Assets

                                     

Total current assets

    278.9     1,068.7     257.9     988.1     210.0     162.0  

Total non-current assets

    112.6     431.5     90.5     346.7     220.4     160.8  

Total assets

    391.5     1,500.2     348.4     1,334.9     430.4     322.9  

Liabilities and Equity

                                     

Total current liabilities

    53.7     205.9     15.1     57.9     69.7     50.1  

Total non-current liabilities

    46.3     177.4     54.0     207.1     55.0     31.6  

Total liabilities

    100.0     383.3     69.2     265.0     124.7     81.7  

Total equity

    291.5     1,116.9     279.2     1,069.9     305.7     241.2  

Total liabilities and equity

    391.5     1,500.2     348.4     1,334.9     430.4     322.9  

(1)
For convenience purposes only, amounts in reais as of June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

Positivo

        The unaudited interim condensed combined carve-out balance sheet as of June 30, 2019 and the unaudited interim condensed combined carve-out statements of income for the six months ended June 30, 2019 and 2018 of Positivo have been derived from the unaudited interim condensed combined carve-out financial statements of Positivo included elsewhere in this prospectus supplement, prepared in accordance with IAS 34. The audited combined carve-out balance sheets as of December 31, 2018 and 2017 and the audited combined carve-out statements of income for the years ended December 31, 2018, 2017 and 2016 of Positivo have been derived from the audited combined carve-out financial statements of Positivo included elsewhere in this prospectus supplement, prepared in accordance with IFRS, as issued by the IASB. The results of operations of Positivo for the six months ended June 30,

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2019 are not necessarily indicative of the results of operations that may be expected for the entire year ending December 31, 2019.

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
 
  2019   2019   2018   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Statement of Income Data:

                                           

Net revenue from sales

    61.2     234.4     231.8     106.1     406.4     405.8     340.5  

Cost of sales

    (16.4 )   (62.9 )   (58.1 )   (25.3 )   (97.1 )   (111.5 )   (98.6 )

Gross profit

    44.8     171.5     173.7     80.8     309.3     294.3     241.9  

General and administrative expenses

    (8.6 )   (32.8 )   (31.3 )   (17.6 )   (67.6 )   (63.7 )   (51.1 )

Selling and distribution expenses

    (9.2 )   (35.1 )   (28.8 )   (16.4 )   (63.0 )   (89.3 )   (72.9 )

Other operating income (expenses), net

            0.7     (0.1 )   (0.5 )       0.1  

Impairment loss on accounts receivable

        (0.1 )   (3.1 )   (1.0 )   (4.0 )   (11.1 )   (5.6 )

Income before financial income and taxes

    27.0     103.5     111.2     45.7     174.2     130.2     112.4  

Financial revenues

    0.9     3.6     1.8     1.2     4.7     3.7     2.6  

Financial expenses

    (0.2 )   (0.7 )   (1.0 )   (0.5 )   (1.8 )   (5.7 )   (4.8 )

Income before income tax and social contribution

    27.7     106.4     112.0     46.4     177.1     128.2     110.2  

Income tax and social contribution

                                           

Current

    (7.5 )   (28.6 )   (39.7 )   (17.7 )   (68.0 )   (44.9 )   (44.0 )

Deferred

    (1.9 )   (7.1 )   1.6     2.4     9.3     1.3     6.5  

Net income for the period/year

    18.4     70.7     73.9     30.9     118.6     84.6     72.8  

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by

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    the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 
  As of June 30,   As of December 31,  
 
  2019   2019   2018   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Balance Sheet Data:

                               

Assets

                               

Total current assets

    30.5     116.8     33.4     127.8     119.5  

Total non-current assets

    14.1     54.0     13.6     52.2     40.5  

Total assets

    44.6     170.8     47.0     180.0     160.0  

Liabilities and Parent's Net Investments

                               

Total current liabilities

    16.3     62.5     14.6     55.9     100.8  

Total non-current liabilities

    2.5     9.5     1.7     6.5     4.7  

Total parent's net investments(2)

    25.8     98.8     30.7     117.6     54.5  

Total liabilities and parent's net investments

    44.6     170.8     47.0     180.0     160.0  

(1)
For convenience purposes only, amounts in reais as of June 30, 2019 and as of December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
Represents the net contributions (to)/from Positivo Group on the combined carve-out financial statements. For further information, see note 2 to Positivo's audited combined carve-out financial statements included elsewhere in this prospectus supplement.

Pro Forma Financial Information

        The unaudited pro forma summary interim statement of financial position as of June 30, 2019 and the unaudited pro forma interim statements of operations for the six months ended June 30, 2019 and for the year ended December 31, 2018, have been derived from our unaudited pro forma condensed

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consolidated financial information and related notes thereto, included elsewhere in this prospectus supplement.

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
 
  2019   2019   2018   2018  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 
 
  (unaudited)
 

Statement of Income Data:

                         

Net revenue

    127.6     489.0     205.5     787.4  

Cost of sales

    (28.1 )   (107.8 )   (44.4 )   (170.2 )

Gross profit

    99.5     381.3     161.1     617.2  

Selling expenses

    (37.6 )   (144.1 )   (64.5 )   (247.3 )

General and administrative expenses

    (24.8 )   (95.2 )   (51.7 )   (198.2 )

Other income, net

    0.8     3.0     1.1     4.4  

Operating profit

    37.8     144.9     46.0     176.1  

Finance income

    9.0     34.5     10.8     41.4  

Finance costs

    (15.0 )   (57.3 )   (66.4 )   (254.4 )

Finance result

    (5.9 )   (22.8 )   (55.6 )   (213.1 )

Share of loss of equity-accounted investees

    (0.3 )   (1.2 )   (0.2 )   (0.8 )

Profit (loss) before income taxes

    31.6     120.9     (9.8 )   (37.7 )

Income taxes

    (7.8 )   (30.0 )   (0.5 )   (1.9 )

Profit (loss) for the period/year

    23.7     91.0     (10.3 )   (39.6 )

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by

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    the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

 
  As of June 30,  
 
  2019   2019  
 
  US$ millions(1)
  R$ millions
 
 
  (unaudited)
 

Balance Sheet Data:

             

Assets

             

Total current assets

    86.2     330.2  

Total non-current assets

    547.3     2,097.4  

Total assets

    633.5     2,427.6  

Liabilities and Equity

             

Total current liabilities

    70.1     268.5  

Total non-current liabilities

    272.0     1,042.3  

Total liabilities

    342.0     1,310.7  

Total equity

    291.5     1,116.9  

Total liabilities and equity

    633.5     2,427.6  

(1)
For convenience purposes only, amounts in reais as of June 30, 2019 and as of December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

Non-GAAP Financial Measures

        The following table presents our Adjusted EBITDA, Adjusted Net Income and Free Cash Flow information for the convenience of investors. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are the key performance indicators used by us to measure financial operating performance. Our management believes that these Non-GAAP financial measures provide useful information to investors and shareholders. We also use these measures internally to establish budgets and operational goals to manage and monitor our business, evaluate our underlying historical performance and business strategies and to report our results to the board of directors.

        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, restricted stock units and related payroll charges (restricted stock units) plus M&A expenses.

        We calculate Adjusted Net Income as profit (loss) for the year plus share-based compensation plan, restricted stock units and related payroll charges (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, and (v) non-compete agreement) plus/minus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments—finance income, plus (ii) changes in fair value of derivative instruments—finance costs) plus 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 share of loss of equity-accounted investees plus foreign exchange on cash and cash equivalents plus interest expenses related

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to accounts payable to selling shareholders from business combinations and investments in associates, net of interest income related to receivables from sale of subsidiary and loans to related parties, plus tax effects (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) 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 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 Net Income 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 Net Income and Free Cash Flow may be different from the calculations 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.

Reconciliations for Non-GAAP Financial Measures

        The following tables set forth reconciliations of Adjusted EBITDA and Adjusted Net Income to our profit for the six months ended June 30, 2019 and 2018 and for the years ended December 31, 2018, 2017 and 2016, our most recent directly comparable financial measures calculated and presented in accordance with IFRS, as well as reconciliations between Free Cash Flow and net cash flows from operating activities for the six months ended June 30, 2019 and 2018 and for the years ended December 31, 2018, 2017 and 2016, our most recent directly comparable financial measures calculated and presented in accordance with IFRS.

Reconciliation between Adjusted EBITDA and Profit (Loss) for the Period / Year

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
Adjusted EBITDA reconciliation
  2019   2019   2018   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Profit (loss) for the period / year

    14.7     56.5     54.3     (21.6 )   (82.9 )   43.6     74.4  

(+) Income taxes

    3.4     13.0     20.4     (4.7 )   (18.0 )   22.7     18.4  

(+/–) Finance result

    (0.5 )   (2.1 )   0.5     42.3     162.2     7.9     (45.4 )

(+) Depreciation and amortization

    4.3     16.3     8.9     5.1     19.6     14.3     5.8  

(+) Share of loss of equity-accounted investees

    0.3     1.2     0.3     0.2     0.8     0.7     1.1  

(+) Share-based compensation plan, restricted stock units and related payroll charges (restricted stock units)

    5.5     21.0     0.7     15.7     60.3     1.9     2.0  

(+) M&A expenses

    1.1     4.4                      

Adjusted EBITDA

    28.8     110.4     85.0     37.1     142.0     91.1     56.4  

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

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Reconciliation of Adjusted Net Income from Profit (Loss) for the Period / Year

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
Reconciliation of Adjusted Net Income
  2019   2019   2018   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Profit (loss) for the period / year

    14.7     56.5     54.3     (21.6 )   (82.9 )   43.6     74.4  

(+) Share-based compensation plan restricted stock units and related payroll charges (restricted stock units)

    5.5     21.0     0.7     15.7     60.3     1.9     2.0  

(+) Amortization of intangible assets from business combinations(2)

    1.6     6.1     5.8     3.1     11.8     9.6     4.4  

(+/–) Changes in fair value of derivative instruments(3)

    0.5     1.9     (2.0 )   (0.2 )   (0.7 )   6.7     (31.7 )

(+/-) Changes in accounts payable to selling shareholders(4)

                34.0     130.4          

(+) Share of loss of equity-accounted investees

    0.3     1.2     0.3     0.2     0.8     0.7     1.1  

(+) Foreign exchange on cash and cash equivalents

    0.1     0.5         9.0     34.4          

(+) Interest expenses, net(5)

    3.6     13.9     4.8     2.6     9.8     11.2     0.1  

(+/–) Tax effects(6)

    (3.6 )   (13.7 )   (0.8 )   (13.4 )   (51.5 )   (7.1 )   9.9  

(+) M&A expenses

    1.1     4.4                      

Adjusted Net Income

    24.0     91.8     63.1     29.3     112.3     66.6     60.3  

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
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. For further information, see note 13 to our unaudited interim consolidated financial statements included elsewhere in this prospectus supplement.

(3)
Refers to (i) changes in fair value of derivative instruments—finance income, plus (ii) changes in fair value of derivative instruments—finance costs. For further information, see note 21 to our unaudited interim consolidated financial statements included elsewhere in this prospectus supplement.

(4)
Refers to changes in fair value of contingent consideration and accounts payable to selling shareholders—finance costs. For further information, see note 21 to our unaudited interim consolidated financial statements included elsewhere in this prospectus supplement.

(5)
Refers to interest expenses related to accounts payable to selling shareholders from business combinations and investments in associates, net of interest income related to receivables from sale of subsidiary and loans to related parties.

(6)
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 further information,

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    see note 22 to our unaudited interim consolidated financial statements included elsewhere in this prospectus supplement.

Reconciliation of Free Cash Flow from Net Cash Flows from Operating Activities

 
  For the Six Months Ended
June 30,
  For the Year Ended
December 31,
 
Reconciliation of Free Cash Flow
  2019   2019   2018   2018   2018   2017   2016  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Net cash flows from operating activities

    27.6     105.8     77.3     24.0     92.1     62.7     41.2  

Acquisition of property and equipment

    (1.5 )   (5.8 )   (2.2 )   (1.8 )   (6.9 )   (5.3 )   (1.6 )

Acquisition of intangible assets

    (4.8 )   (18.4 )   (4.9 )   (7.7 )   (29.4 )   (6.0 )   (5.6 )

Free Cash Flow

    21.3     81.5     70.2     14.6     55.9     51.3     34.1  

(1)
For convenience purposes only, amounts in reais for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

Operating Data

ACV Bookings

        The following table sets forth our ACV Bookings for the periods indicated, for the convenience of investors. ACV Bookings represents our partner schools' commitments to pay for our solutions offerings. We believe it is a meaningful indicator of demand for our platform and the market's response to it. In particular, we believe ACV Bookings is a helpful metric because it is designed to show amounts that we expect to be recognized as revenue for the twelve-month period between October of one fiscal year through September of the following fiscal year. We deliver our educational materials to our partner schools for their convenience in the last calendar quarter of each year so that our partner schools can prepare their classes in advance prior to the start of the following school year in January. As a result, our results of operations for the last quarter of a given fiscal year contain revenues relating to the following school year, which reflect the content that has been delivered prior to the start of the new fiscal year. Therefore, ACV Bookings conveys information that has predictive value for subsequent months and which may not be as clearly conveyed or understood by simply analyzing our revenues in our statements of operations, especially in view of our recent growth.

        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. ACV Bookings is a non-accounting managerial operating metric and is not prepared in accordance with IFRS. 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. Although our contracts with our partner schools are typically for three-year terms, we record one year of revenue under such contracts as ACV Bookings. For example, if a school enters into a three-year contract with us to provide our Core Curriculum solution to 100 students for a contractual fee of $100 per student per year, we record $10,000 as ACV Bookings, not $30,000.

        We measure our ACV Bookings on a monthly basis throughout the school year, starting in November of the preceding fiscal year. Pursuant to the terms of our contracts with our partner schools,

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they are required, by the end of November of each year, to provide us with an estimate of the number of enrolled students that will access our platform in the next school year. Since we allow our partner schools to make small adjustments to their estimates to account for late admissions and dropouts, this number may fluctuate slightly until March 31, when it becomes more accurate. Accordingly, we believe this metric is most accurately reflected as of March 31 of each year. Average ticket per student per year reflects the average price per student for the relevant school year, and is presented in order to link this average price with the number of enrolled students in our partner schools, resulting in the ACV Bookings metric.

        We understand that, although ACV Bookings may be used by investors and securities analysts in their evaluation of companies, it has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under IFRS.

 
  As of March 31,  
 
  2019   2019(2)   2018(3)   2017(4)   2016(5)  
 
  US$(except
number of
enrolled
students)(1)

  R$(except number of enrolled students)
 

Number of enrolled students

    n/a     498,553     405,814     322,031     265,354  

Average ticket per student per year

    230.8     884.3     793.8     711.9     622.0  

ACV Bookings (in millions)

    115.1     440.9     322.1     229.3     165.1  

(1)
For convenience purposes only, amounts in reais as of March 31, 2019 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
For the 2019 school year (which we define for purposes of ACV Bookings as the period starting in October 2018 and ending in September 2019).

(3)
For the 2018 school year (which we define for purposes of ACV Bookings as the period starting in October 2017 and ending in September 2018).

(4)
For the 2017 school year (which we define for purposes of ACV Bookings as the period starting in October 2016 and ending in September 2017).

(5)
For the 2016 school year (which we define for purposes of ACV Bookings as the period starting in October 2015 and ending in September 2016). Includes the ACV Bookings of SAE, which we acquired in June 2016, for the full year 2016. On a stand-alone basis, SAE had ACV Bookings for the full year 2016 totaling R$21.5 million and net revenue totaling R$11.9 million. If the acquisition had taken place on January 1, 2016, SAE's total net revenue would have been R$24.6 million and our total net revenue would have been R$172.7 million.

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RISK FACTORS

        Investing in the securities offered using this prospectus supplement and the accompanying prospectus involves risk. Before you decide to buy our securities, you should carefully consider the following risks and the risks described under the heading "Risk Factors" in our 2018 Annual Report, which is incorporated herein by reference, as well as the risks that are described in other documents incorporated by reference into this prospectus supplement and the accompanying prospectus. If any of these risks actually occur, our business, financial condition and results of operations could suffer, and the trading price and liquidity of the securities offered using this prospectus supplement and the accompanying prospectus could decline, in which case you may lose all or part of your investment. Please see "Where You Can Find More Information" and "Incorporation of Documents by Reference" for information on where you can find the documents we have filed with or furnished to the SEC and which are incorporated into this prospectus supplement and the accompanying prospectus by reference.

Risks Related to the Positivo Acquisition

If we are unable to complete the Positivo Acquisition in a timely manner or at all, our business and the price of our Class A common shares may be adversely affected.

        The completion of the Positivo Acquisition is subject to the satisfaction or waiver of certain customary conditions, including: (i) the receipt of regulatory clearance in Brazil; (iii) the receipt of all governmental approvals; (ii) the absence of any order, legal restriction or the enactment of any law, prohibiting or preventing the Positivo Acquisition; (iii) the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the acquisition agreement; and (iv) the absence of any material adverse effect on Positivo since the date of the acquisition agreement. As many of these conditions are outside of our control, we cannot assure you that the conditions to the completion of the Positivo Acquisition will be satisfied in a timely manner or at all, which may affect when and whether the Positivo Acquisition will occur. If the Positivo Acquisition is not completed, the price of our Class A common shares could fall to the extent that our current price reflects an assumption that we will complete the Positivo Acquisition. Furthermore, if the Positivo Acquisition is not completed and the acquisition agreement is terminated, we may suffer other consequences that could adversely affect our business, results of operations and share price, including the following:

        In addition, until we receive all relevant governmental approvals, we are not permitted to access any strategic information of Positivo. Any prolonged delay until the completion of the Positivo Acquisition could adversely affect the business of Positivo if we do not have access to such strategic information in a timely manner for the commercial cycle of 2020.

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We may not realize the benefits anticipated from the Positivo Acquisition, which could adversely affect the price of our Class A common shares.

        The Positivo Acquisition, if completed, will be our largest acquisition to date. The anticipated benefits from the Positivo Acquisition are, necessarily, based on projections and assumptions of expert advisors hired by us about the combined businesses of Arco and Positivo, which may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully and efficiently integrate the business and operations of Positivo with our business and achieve the expected synergies. We may encounter significant challenges with successfully integrating and recognizing the anticipated benefits of the Positivo Acquisition once completed, including the following:

        If we do not successfully manage these issues and the other challenges inherent in integrating an acquired business of the scale of Positivo, then we may not achieve the anticipated benefits of the Positivo Acquisition, we could incur unanticipated expenses and charges and our operating results and the value of our Class A common shares could be materially and adversely affected.

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Uncertainty about the Positivo Acquisition may adversely affect our relationships with customers and employees, which could negatively affect our business, whether or not the Positivo Acquisition is completed.

        The announcement of the Positivo Acquisition on May 7, 2019, whether or not completed, may cause uncertainties in our relationships with our partner schools, which could impair our ability to or expand our historical partner school sales growth. Furthermore, uncertainties about the Positivo Acquisition may cause our current and prospective employees to experience uncertainty about their future with us. These uncertainties may impair our ability to retain, recruit or motivate key employees, which could affect our business. Additionally, even if completed, the Positivo Acquisition could still adversely affect our relationship with customers and employees, since the general public might not be able to distinguish the business acquired by us, which will continue to use the trademark "Positivo", and the Positivo Group. Legal proceedings (including criminal charges, civil or administrative proceedings) involving, as well as acts of, Positivo Group or any of its employees could cause damage to "Positivo Group" which may be erroneously associated to "Positivo" and may adversely affect our B2B2C base.

The Positivo Acquisition may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.

        The financial results of the combined company, following our acquisition of Positivo, may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our integration of the business and operations of Positivo. Furthermore, as a result of the transaction, we will record a significant amount of goodwill and other intangible assets on our consolidated financial statements, which could be subject to impairment based upon future adverse changes in our business or prospects, including our inability to recognize the benefits anticipated by the transaction.

The use of cash and incurrence of significant indebtedness in connection with the financing of the Positivo Acquisition may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions.

        The Positivo Acquisition will be funded by existing cash and cash equivalents and financial investments and a portion of the proceeds from this offering. As of June 30, 2019, we had R$882.1 million in cash and cash equivalents and financial investments. The use of cash on hand to finance the Positivo Acquisition will reduce our liquidity, thereby reducing the availability of our cash flow for working capital, dividend and capital expenditure needs or to pursue other potential strategic plans.

Positivo relies significantly on a key supplier for the printing of its educational materials

        Positivo currently relies significantly on a key supplier, Posigraf, a Positivo Group company that we did not acquire as part of the Positivo Acquisition, for the printing of its educational content. In the event that Posigraf ceases operations or otherwise ceases to do business with Positivo, or to the extent there are any disruptions in Positivo's relationship with Posigraf or any delays or interruptions by Posigraf in the printing of the educational content of Positivo, it may take a substantial amount of time and expense for Positivo to secure substitute suppliers, and it may harm Positivo's ability to deliver its printed educational content to its partner schools in a timely manner. This could hurt Positivo's relationships with its partner schools, prevent Positivo from acquiring new partner schools, and harm Positivo's reputation and business, which in turn, would harm our business.

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The unaudited pro forma financial information included in this prospectus supplement is presented for illustrative purposes only and may not be indicative of our consolidated financial condition or results of operations after giving effect to the Positivo Acquisition.

        The unaudited pro forma financial information contained in this prospectus supplement is presented for illustrative purposes only, is based on various adjustments, assumptions and preliminary estimates, and may not be indicative of our consolidated financial condition or results of operations after giving effect to the Positivo Acquisition. See the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial Information included elsewhere in this prospectus supplement. Our actual financial condition and results of operations after giving effect to the Positivo Acquisition may not be consistent with, or evident from, our unaudited pro forma financial information. In addition, the assumptions used in preparing the unaudited pro forma financial information may not prove to be accurate, and other factors may affect our financial condition or results of operations after giving effect to the Positivo Acquisition.

Risks Relating to Our Class A Common Shares and the Offering

The Founding Shareholders, our largest group of shareholders, own 100% of our outstanding Class B common shares, which will represent approximately 91.0% of the voting power of our issued share capital following this offering, and control all matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

        The Founding Shareholders control our company and immediately following this offering, will beneficially own 50.5% of our issued share capital through their beneficial ownership of all of our outstanding Class B common shares, and consequently, 91.0% of the combined voting power of our issued share capital (or 91.0% if the underwriters' option to purchase additional Class A common shares is exercised in full). Our Class B common shares are entitled to 10 votes per share and our Class A common shares, which are the common shares we are offering in this offering, are entitled to one vote per share. Our Class B common shares are convertible into an equivalent number of Class A common shares and generally convert into Class A common shares upon transfer subject to limited exceptions. As a result, the Founding Shareholders control the outcome of all decisions at our shareholders' meetings, and are able to elect a majority of the members of our board of directors. They are also able to direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses. For example, the Founding Shareholders may cause us to make acquisitions that increase the amount of our indebtedness or outstanding Class A common shares, sell revenue-generating assets or inhibit change of control transactions that benefit other shareholders. The Founding Shareholders' decisions on these matters may be contrary to your expectations or preferences, and they may take actions that could be contrary to your interests. They are able to prevent any other shareholders, including you, from blocking these actions. For further information regarding shareholdings in our company, see "Principal and Selling Shareholders."

        So long as the Founding Shareholders continue to beneficially own a sufficient number of Class B common shares, even if they beneficially own significantly less than 50% of our outstanding share capital, acting together, they will be able to effectively control our decisions. For example, if our Class B common shares amounted to 15% of our outstanding common shares, beneficial owners of our Class B common shares (consisting of the Founding Shareholders), would collectively control 63.8% of the voting power of our outstanding common shares. If the Founding Shareholders sell or transfer any of their Class B common shares, they will generally convert automatically into Class A common shares, subject to limited exceptions, such as transfers to affiliates, to trustees for the holder or its affiliates and certain transfers to U.S. tax exempt organizations. The fact that any Class B common shares convert into Class A common shares if the Founding Shareholders sell or transfer them means that the Founding Shareholders will in many situations continue to control a majority of the combined voting power of our outstanding share capital, due to the voting rights of any Class B common shares that

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they retain. However, if our Class B common shares at any time represent less than 10% of the total number of shares in the capital of the Company outstanding, the Class B common shares then outstanding will automatically convert into Class A common shares. For a description of the dual class structure, see "Description of Share Capital" in the accompanying prospectus.

Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.

        The market price of our Class A common shares may decline as a result of sales of a large number of our Class A common shares in the market after this offering (including Class A common shares issuable upon conversion of Class B common shares) or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

        Following the completion of this offering, we will have outstanding 27,470,749 Class A common shares and 27,400,848 Class B common shares. Subject to the lock-up agreements described below, the Class A common shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.

        Our principal shareholders or entities controlled by them or their permitted transferees will, subject to the lock-up agreements described below, be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If any of our shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their Class A common shares, the market price of our Class A common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our Class A common shares to decline.

        We have agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares in our share capital or securities convertible into or exchangeable or exercisable for any shares in our share capital during the 90-day period following the date of this prospectus supplement. Members of our board of directors, our executive officers, the selling shareholders and our principal shareholders, have agreed to substantially similar lock-up provisions. However, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in "Underwriting," including the right for our company to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.

        Sales of a substantial number of our Class A common shares upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your Class A common shares at a time and price that you deem appropriate.

Our Articles of Association contain anti-takeover provisions that may discourage a third party from acquiring us and adversely affect the rights of holders of our Class A common shares.

        Our Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. These provisions could have the effect of depriving our shareholders of the opportunity to sell their

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shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common shares and our trading volume could decline.

        The trading market for our Class A common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our Class A common shares or publish inaccurate or unfavorable research about our business, the price of our Class A common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common shares could decrease, which might cause the price of our Class A common shares and trading volume to decline.

We do not anticipate paying any cash dividends in the foreseeable future.

        We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the operation of our business and future growth. We do not intend to pay any dividends to holders of our Class A common shares. As a result, capital appreciation in the price of our Class A common shares, if any, will be your only source of gain on an investment in our Class A common shares.

Our dual class capital structure means our shares are not included in certain indices. We cannot predict the impact this may have on our share price.

        In 2017, FTSE Russell, S&P Dow Jones and MSCI announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of shares of common stock, such as ours, from being added to such indices. FTSE Russell announced plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders, whereas S&P Dow Jones announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. MSCI also opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from its ACWI Investable Market Index and U.S. Investable Market 2500 Index; however, in October 2018, MSCI announced its decision to include equity securities "with unequal voting structures" in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. We cannot assure you that other stock indices will not take a similar approach to FTSE Russell, S&P Dow Jones and MSCI in the future. Under the announced policies, our dual class capital structure is not eligible for inclusion in any of these indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. It continues to be somewhat unclear what effect, if any, these policies will have on the valuations of publicly traded companies excluded from the indices, but in certain situations they may depress these valuations compared to those of other similar companies that are included. Exclusion from indices could make our Class A common shares less attractive to investors and, as a result, the market price of our Class A common shares could be adversely affected.

The dual class structure of our common stock has the effect of concentrating voting control with the Founding Shareholders; this will limit or preclude your ability to influence corporate matters.

        Each Class A common share entitles its holder to one vote per share, and each Class B common share will entitle its holder to ten votes per share, so long as the total number of the issued and outstanding Class B common shares is at least 10% of the total number of shares outstanding. Due to the ten-to-one voting ratio between our Class B and Class A common shares, the beneficial owners of our Class B common shares (composed of the Founding Shareholders) collectively will continue to

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control a majority of the combined voting power of our common shares and therefore be able to control all matters submitted to our shareholders so long as the total number of the issued and outstanding Class B common shares is at least 10% of the total number of shares outstanding.

        In addition, our Articles of Association provide that at any time when there are Class A common shares in issue, additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits, (2) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration, or (3) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership interests in Arco (following an offer by us to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure that such holder may maintain a proportional ownership interest in Arco pursuant to our Articles of Association).

        Future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions, such as certain transfers effected to permitted transferees or for estate planning or charitable purposes. The conversion of Class B common shares to Class A common shares will have the effect, over time, of increasing the relative voting power of those holders of Class B common shares who retain their shares in the long term.

        In light of the above provisions relating to the issuance of additional Class B common shares, the fact that future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions as provided in the Articles of Association; as well as the ten-to-one voting ratio of our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain control of all matters requiring shareholder approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. For a description of our dual class structure, see "Description of Share Capital—Voting Rights" in the accompanying prospectus.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

        Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Class A common shares. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, results of operations and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. See "Use of Proceeds."

Our Class A common shares may not be a suitable investment for all investors, as investment in our Class A common shares presents risks and the possibility of financial losses.

        The investment in our Class A common shares is subject to risks. Investors who wish to invest in our Class A common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our Class A common shares, us, the sector in which we operate, our shareholders and the general macroeconomic environment in Brazil, among other risks.

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        Each potential investor in our Class A common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

New investors in our Class A common shares will experience immediate and substantial book value dilution after this offering.

        The public offering price of our Class A common shares will be substantially higher than the pro forma net tangible book value per share of the outstanding Class A common shares immediately after the offering. Based on a public offering price of US$43.47 per share and our net tangible book value as of October 22, 2019 if you purchase our common shares in this offering you will pay more for your shares than the amounts paid by our existing shareholders for their shares and you will suffer immediate dilution of approximately US$36.27 per share in pro forma net tangible book value. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation. See "Dilution."

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USE OF PROCEEDS

        We estimate that the net proceeds from our issuance and sale of shares of our Class A common shares in this offering will be approximately US$144.6 million, assuming an offering price of US$43.47 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        Each US$1.00 increase (decrease) in the assumed offering price of US$43.47 per share would increase (decrease) the net proceeds to us from this offering by approximately US$3.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus supplement, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately US$42.4 million, assuming that the assumed offering price stays the same.

        We intend to use the net proceeds from this offering to fund in part the Positivo Acquisition and future acquisitions or investments in complementary businesses, products or technologies. Any remaining net proceeds will be used for general corporate purposes. We will have broad discretion in allocating the net proceeds from this offering.

        Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including the factors described under "Risk Factors" in this prospectus supplement and under the heading "Risk Factors" in our 2018 Annual Report, as well as the risks that are described in other documents incorporated by reference in this prospectus supplement and the accompanying prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

        Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, interest-bearing instruments and Brazilian and U.S. government securities.

        We will not receive any proceeds from the sale of shares by the selling shareholders.

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CAPITALIZATION

        The table below sets forth our total capitalization (defined as non-current loans and financing and lease liabilities and total equity) as of June 30, 2019, as follows:

        Investors should read this table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus supplement and the accompanying prospectus, with the sections of this prospectus supplement and the accompanying prospectus entitled "Summary Financial and Other Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Arco," as well as "Item 3.A. Selected Financial Data" and "Item 5. Operating and Financial Review and Prospects" in our 2018 Annual Report, which is qualified in its entirety by reference to our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements, and the related notes thereto.

 
  As of June 30, 2019  
 
  Actual   As adjusted for the offering(2)  
 
  (US$ millions)(1)
  (R$ millions)
  (US$ millions)(1)
  (R$ millions)
 

Non-current lease liabilities

    4.4     16.8     4.4     16.8  

Non-current loans and financing

    0.1     0.4     0.1     0.4  

Total equity(3)

    291.5     1,116.9     436.1     1,671.0  

Total capitalization(3)(4)

    295.9     1,134.0     440.5     1,688.1  

(1)
For convenience purposes only, amounts in reais as of June 30, 2019 have been translated to U.S. dollars at the exchange rate of R$3.832 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
As adjusted to reflect the issuance and sale of the Class A common shares in the offering, and the receipt of approximately US$144.6 million (R$554.1 million) in estimated net proceeds, considering an offering price of US$43.47 (R$166.6) per Class A common share, after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, and the use of proceeds therefrom (and assuming no exercise of the underwriters' option to purchase additional shares and placement of all offered Class A common shares).

(3)
Each US$1.00 increase (decrease) in the offering price per Class A common share would increase (decrease) our total capitalization and shareholders' equity by R$12.8 million.

(4)
Total capitalization consists of non-current loans and financing and lease liabilities and total equity.

        Other than as set forth above, there have been no material changes to our capitalization since June 30, 2019.

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DIVIDEND POLICY

        We have not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future.

Certain Cayman Islands and Brazilian Legal Requirements Related to Dividends

        Under the Companies Law and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For further information, see "Taxation—Cayman Islands Tax Considerations."

        Additionally, please refer to "Risk Factors—Certain Factors Relating to Our Business and Industry—We depend on dividend distributions by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive or if Brazil imposes legal restrictions on dividend distributions by subsidiaries" in our 2018 Annual Report. Our ability to pay dividends is directly related to positive and distributable net results from our Brazilian subsidiaries. If, for any legal reasons due to new laws or bilateral agreements between countries, they are unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.

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DILUTION

        As of June 30, 2019, we had a net tangible book value of R$958.9 million, corresponding to a net tangible book value of R$18.67 per share. Net tangible book value represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by 51,352,066, the total number of shares outstanding as of June 30, 2019.

        After giving effect to the sale of the Class A common shares offered by us in the offering, and considering an offering price of US$43.47 per Class A common share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated as of June 30, 2019 would have been approximately US$394.8 million, representing US$7.20 per share. This represents an immediate increase in net tangible book value of US$2.32 per share to existing shareholders and an immediate dilution in net tangible book value of US$36.27 per share to new investors purchasing Class A common shares in this offering. Dilution for this purpose represents the difference between the price per Class A common shares paid by these purchasers and net tangible book value per Class A common share immediately after the completion of the offering.

        If you invest in our Class A common shares, your interest will be diluted to the extent of the difference between the offering price per Class A common share (when converted into reais) and the pro forma net tangible book value per Class A common share after accounting for the issuance and sale of new common shares in this offering.

        Because the Class A common shares and Class B common shares of Arco have the same dividend and other rights, except for voting, preemption and conversion rights, we have counted the Class A common shares and Class B common shares equally for purposes of the dilution calculations below.

        The following table illustrates this dilution to new investors purchasing Class A common shares in the offering.

Net tangible book value per share as of June 30, 2019

  US$ 4.87  

Increase in net tangible book value per share attributable to new investors

  US$ 2.32  

Pro forma net tangible book value per share after the offering

  US$ 7.20  

Dilution per Class A common share to new investors

  US$ 36.27  

Percentage of dilution in net tangible book value per Class A common share for new investors

    83.4 %

        Each US$1.00 increase (decrease) in the offering price per Class A common share, respectively, would increase (decrease) the net tangible book value after this offering by US$0.06 per Class A common share and the dilution to investors in the offering by US$0.94 per Class A common share.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ARCO

        The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018 and the notes thereto, included elsewhere in this prospectus supplement, and "Item 5. Operating and Financial Review and Prospects" in our 2018 Annual Report.

        The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in "Special Note on Forward-Looking Statements" and "Risk Factors."

Overview

        We provide a complete pedagogical system with technology-enabled features to deliver educational content to private schools in Brazil.

        We founded our company with the aim of creating high-quality products that simplify learning and make the education process more efficient. Traditionally, school administrators required a multitude of vendors for content development, training, commercializing and managing K-12 education. Simultaneously, students acquired educational content through textbooks from various publishers across retail channels. Our platform aims to replace this multitude of third-party educational providers with a streamlined, one-stop solution that delivers high-quality education at scale.

        We believe the success of our platform, together with the quality of our client base and the popularity of our brand, has driven our significant growth, allowing us to quickly and efficiently expand our footprint in Brazil.

        We provide a complete suite of turnkey curriculum solutions and technology-enabled features to help our students, teachers, partner schools and parents, targeting our students' educational success. Our turnkey educational platform solutions consist of core K-12 curricula, as well as supplemental instructional content currently focused on English as a second language.

        As of March 31, 2019 we had 1,464 unique partner schools. These schools are spread across 488 cities located across all of the states of Brazil. Our partner-school base is highly diversified, which reduces our dependence on major accounts.

Our Cohort Economics

        We believe that an annualized cohort analysis is a useful indicator of demand for our platform. We define a cohort as the amount spent by all of our partner schools on our platform over each 12-month period. We calculate the total contractual fees payable by our partner schools in each cohort as of the end of each academic year, or the yearly contract fee amount. These amounts increase as a result of (i) increases in the total number of enrolled students at our partner schools served by our platform, and (ii) annual adjustments of our contract fees. These amounts decrease when customers terminate their contracts, downgrade their contracts to a lower price point, or if there is a decrease in the number of enrolled students at our partner schools.

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GRAPHIC

        We focus on attracting new partner schools and increasing the value we offer to them. Accordingly, each cohort of new partner schools tends to generate higher fees payable to us over time. We have a track record of attracting new partner schools and increasing the amount of fees they pay us over time, as illustrated by the chart below.

        Customer expansion can be seen in the Annual Contract Value, or ACV, growth in cohorts over the last five fiscal years. Our cohorts of customers from 2014 through 2018 have grown their ACV, on a real-weighted average basis, by an average of 27% by the end of the first contract year (Year 1), 39% by the end of the second contract year (Year 2), 48% by the end of the third contract year (Year 3), 59% by the end of the fourth contract year (Year 4) and 77% by the end of the fifth contract year (Year 5).

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GRAPHIC

        The strength of our partner-school base and our ability to expand sales are demonstrated in the increasing portion of our ACV derived from existing clients and up-sell in existing clients, combining for 79.1%, 44.5%, 43.4% and 37.6% growth in 2016, 2017, 2018 and 2019, respectively.

GRAPHIC

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Our Growth

        Our revenue growth has been driven by:

Revenue Recognition and Seasonality

        Prior to the adoption of IFRS 15, revenue was recognized when the significant risks and rewards of ownership were transferred to the customer, recovery of the consideration was probable, the associated costs and possible return of educational content could be estimated reliably, there was no continuing management involvement with the educational content, and the amount of revenue could be measured reliably. Upon the adoption of IFRS 15, revenue is recognized when the performance obligation is satisfied. We recognize our revenue at the moment we deliver our content to our partner schools in printed format or via access to our digital platform. The technology is provided solely to optimize the use of our educational content. Our printed materials can be used independently of the technology we provide, as the content of both our printed materials and online materials is substantially the same.

        We generate substantially all of our revenue from contracts that have an average term of three years, pursuant to which we provide educational content in printed and digital format to partner schools. Our revenue is driven by the number of enrolled students at each partner school using our solutions and the agreed price per student per year, all in accordance with the terms and conditions set forth in each contract. Each contract contemplates penalties ranging between 20% and 100% of the remaining total value of the contract in the event of termination, and the content already delivered by us through the termination date is not returned to us by the partner school.

        Our partner schools pay us our fees directly, and pass that cost on to their enrolled students' parents, who in turn are charged through a mandatory supplement to school tuition, in lieu of paying for textbooks from several vendors. Most of our partner schools charge parents an incremental markup from which we do not earn any additional revenue on top of our wholesale prices.

        Pursuant to the terms of our contracts with our partner schools, they are required, by the end of November of each year, to provide us with an estimate of the number of enrolled students that will access our content in the next school year (which typically starts in February of the following year). Since we allow our partner schools to make small adjustments to their estimates to account for late admissions and dropouts, this number may fluctuate slightly until March 31, when it becomes more accurate.

        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, typically two to three months prior to the start of each school quarter. This allows our partner schools and their

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teachers to prepare classes in advance of each school quarter. Because we recognize revenue at the moment of delivery of our educational content, our fourth-quarter results reflect the growth in the number of our students from one school year to another. Consequently, we generally produce higher revenues in the fourth quarter of our fiscal year compared to the preceding quarters.

        In addition, we bill partner schools and collect the sales we charge them in the first half of each academic collections year, generally resulting in a higher cash position in the first half of each fiscal year relative to the second half of each fiscal year.

        Accordingly, we expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our liquidity and cash flows. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial position.

        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 and/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.

Key Business Metrics

        We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

Enrolled Students

        The number of enrolled students is the primary operational metric our management reviews. It represents the total number of students at our partner schools served by our platform during a given school year. Although our primary customers are the partner schools we attract to our base, our revenues are determined by the number of students enrolled in our partner schools.

        We typically have high visibility of the number of students we will serve before the school year starts, typically by the end of November. Since we allow our partner schools to make small adjustments to their estimates to account for late admissions and dropouts, this number may fluctuate slightly until March 31, when it becomes more accurate. Accordingly, we believe this metric is most accurately reflected as of March 31 of each year.

        As of March 31, 2019, 2018, 2017 and 2016, we had 498,553, 405,814, 322,031 and 265,354 enrolled students, respectively, representing a CAGR of 23.4%.

        In our Core Curriculum segment, we had 413,678, 363,824, 303,950 and 265,354 students as of March 31, 2019, 2018, 2017 and 2016, respectively, representing a CAGR of 16.0%. In our Supplemental Solutions segment, which we began consolidating in our financial statements in 2017, we had 84,875, 41,990 and 18,081 students as of March 31, 2019, 2018 and 2017, respectively.

        The following table sets forth the number of enrolled students at our partner schools as of the dates indicated.

 
  As of March 31,  
 
  2019   2018   2017   2016  

Number of enrolled students

    498,553     405,814     322,031     265,354  

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ACV Bookings

        ACV Bookings is an operating metric and represents our partner schools' commitment to pay for our solutions offerings. We believe that they are a meaningful indicator of demand for our platform and the market's response to it.

        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. ACV Bookings is a non-accounting managerial operating metric and is not prepared in accordance with IFRS. We calculate ACV Bookings by multiplying the number of enrolled students at each partner school with the average ticket per student per year, all in accordance with the terms of our contract with such partner school. Although our contracts with our partner schools are typically for three-year terms, we record one year of revenue under such contracts as ACV Bookings. For example, if a school enters into a three-year contract with us to provide our Core Curriculum solution to 100 students for a contractual fee of $100 per student per year, we record $10,000 as ACV Bookings, not $30,000.

        We measure our ACV Bookings on a monthly basis throughout the school year, starting in November of the preceding fiscal year. Pursuant to the terms of our contracts with our partner schools, they are required, by the end of November of each year, to provide us with an estimate of the number of enrolled students that will access our platform in the next school year. Since we allow our partner schools to make small adjustments to their estimates to account for late admissions and dropouts, this number may fluctuate slightly until March 31, when it becomes more accurate. Accordingly, we believe this metric is most accurately reflected as of March 31 of each year.

        The following table sets forth our ACV Bookings for the periods presented.

 
  As of March 31,  
 
  2019   2019(2)   2018(3)   2017(4)   2016(5)  
 
  US$
(except number
of enrolled
students)(1)

  R$ (except number of enrolled students)
 

Number of enrolled students

    n/a     498,553     405,814     322,031     265,354  

Average ticket per student per year

    230.8     884.3     793.8     711.9     622.0  

ACV Bookings (in millions)

    115.1     440.9     322.1     229.3     165.1  

(1)
For convenience purposes only, amounts in reais as of March 31, 2019 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
For the 2019 school year (which we define for purposes of ACV Bookings as the period starting in October 2018 and ending in September 2019).

(3)
For the 2018 school year (which we define for purposes of ACV Bookings as the period starting in October 2017 and ending in September 2018).

(4)
For the 2017 school year (which we define for purposes of ACV Bookings as the period starting in October 2016 and ending in September 2017).

(5)
For the 2016 school year (which we define for purposes of ACV Bookings as the period starting in October 2015 and ending in September 2016). Includes the ACV Bookings of SAE, which we acquired in June 2016, for the full year 2016. On a stand-alone basis, SAE had ACV Bookings for

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    the full year 2016 totaling R$21.5 million and net revenue totaling R$11.9 million. If the acquisition had taken place on January 1, 2016, SAE's total net revenue would have been R$24.6 million and our total net revenue would have been R$172.7 million.

        As of March 31, 2019, our total number of students enrolled was 498,553, our average ticket per student per year was R$884.3 and our total ACV Bookings were R$440.9.million.

GRAPHIC


(1)
Includes the ACV Bookings of SAE, which we acquired in June 2016, for the full year 2016. On a stand-alone basis, SAE had ACV Bookings for the full year 2016 totaling R$21.5 million and net revenue totaling R$11.9 million. If the acquisition had taken place on January 1, 2016, SAE's total net revenue would have been R$24.6 million and our total net revenue would have been R$172.7 million.

        The following table sets forth the approximate number of enrolled students and ACV Bookings for our supplemental segment for the periods presented.

 
  As of March 31,  
 
  2019   2019(2)   2018(3)   2017(4)   2016(5)  
 
  US$
(except number
of enrolled
students)(1)

  R$ (except number of enrolled students)
 

Number of enrolled students

    n/a     84,875     42,000     18,000     6,000  

ACV Bookings (in millions)

    26.2     100.4     45.0     20.0     6.0  

(1)
For convenience purposes only, amounts in reais as of March 31, 2019 have been translated to U.S. dollars using an exchange rate of R$3.832 to US$1.00, the commercial selling rate for U.S. dollars as of June 30, 2019 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate.

(2)
For the 2019 school year (which we define for purposes of ACV Bookings as the period starting in October 2018 and ending in September 2019).

(3)
For the 2018 school year (which we define for purposes of ACV Bookings as the period starting in October 2017 and ending in September 2018).

(4)
For the 2017 school year (which we define for purposes of ACV Bookings as the period starting in October 2016 and ending in September 2017).

(5)
For the 2016 school year (which we define for purposes of ACV Bookings as the period starting in October 2015 and ending in September 2016).

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        For our supplemental segment, as of March 31, 2019, the approximate number of enrolled students was 84,875 and ACV Bookings were approximately R$100.4 million.

Brazilian Macroeconomic Environment

        We believe that our results of operations and financial performance are and will continue to be affected by the following macroeconomic trends and factors:

        All of our operations are located in Brazil. As a result, our revenues and profitability are affected by political and economic developments in Brazil and the effect that these factors have on the availability of credit, disposable income, employment rates and average wages in Brazil. Our operations, and the industry in general, are particularly sensitive to changes in economic conditions.

        Brazil is the largest economy in Latin America, as measured by gross domestic product, or GDP. The following table shows data for real GDP, inflation and interest rates in Brazil and the U.S.-dollar/real exchange rate at the dates and for the periods indicated.

 
  For the
Six Months
Ended
June 30,
  For the Year Ended
December 31,
 
 
  2019   2018   2018   2017   2016  

Real growth (contraction) in gross domestic product

    n/a     n/a     1.1 %   1.0 %   (3.5 )%

Inflation (IGP-M)(1)

    4.3 %   5.4 %   7.6 %   (0.5 )%   7.2 %

Inflation (IPCA)(2)

    2.2 %   2.6 %   3.8 %   2.9 %   6.3 %

Long-term interest rates—TJLP (average)(3)

    6.7 %   6.7 %   6.7 %   7.0 %   7.5 %

CDI interest rate (average)(4)

    6.4 %   6.6 %   6.9 %   10.1 %   14.1 %

Period-end exchange rate-reais per US$1.00

    3.832     3.856     3.875     3.308     3.259  

Average exchange rate—reais per US$1.00(5)

    3.859     3.427     3.656     3.203     3.483  

Appreciation (depreciation) of the real vs. US$ in the period(6)

    12.6 %   (17.9 )%   (17.1 )%   (1.5 )%   16.6 %

Unemployment rate(7)

    12.0 %   12.8 %   11.6 %   12.7 %   11.5 %

Source: FGV, IBGE, Central Bank and Bloomberg.

(1)
Inflation (IGP-M) is the general market price index measured by the FGV.

(2)
Inflation (IPCA) is a broad consumer price index measured by the IBGE.

(3)
TJLP is the Brazilian long-term interest rate (average of monthly rates for the period).

(4)
The CDI interest rate is an average of interbank overnight rates in Brazil (daily average for the period).

(5)
Average of the exchange rate on each business day of the year.

(6)
Comparing the US$ closing selling exchange rate as reported by the Central Bank at the end of the period's last day with the day immediately prior to the first day of the period discussed.

(7)
Average unemployment rate for year as measured by the IBGE.

        For the years ended December 31, 2018, 2017 and 2016, we have been able to offset the inflation effects by adjusting the contractual fees per student that we charge our partner schools above the IPCA rate. Our financial performance is also tied to fluctuations in interest rates, such as the CDI rate, because such fluctuations affect the value of our financial investments.

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Printer Costs; Raw Materials

        We outsource the printing and binding of our educational materials. Printer costs are one of our principal costs; printer fees are impacted by changes in the price of paper, one of the principal raw materials required for the production of our educational materials. The cost of paper is generally impacted by fluctuations in the U.S.-dollar/real exchange rate, and is also impacted by inflation, but not necessarily linked to a specific inflation index. Such changes in prices are reflected as inflation adjustments in the fees charged by our third-party printers, which produce our printed materials. To the extent we cannot offset the impact of printer costs by adjusting the contractual fees per student that we charge our partner schools, our margins may be negatively affected.

Components of Our Results of Operations

        The following is a summary of the principal line items comprising our statements of operations.

Net Revenue

        We generate substantially all of our revenue from contracts that have a standard term of three years, pursuant to which we provide educational content in printed and digital format to partner schools.

        Our revenue is driven by the number of enrolled students at each partner school using our solutions and the agreed price per student per year, all in accordance with the terms and conditions set forth in each contract. We recognize our revenue at the moment we make our content available to our partner schools in printed format or via access to our digital platform. 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, typically two to three months prior to the start of each school quarter. This allows our partner schools and their teachers to prepare classes in advance of each school quarter.

Cost of sales

        Cost of sales primarily consists of expenses related to the production and delivery of our content and technology, which are mainly composed of printing costs, employee-related costs and the purchase of long-term intellectual property assets such as educational content produced by third-party authors, as well as inventory write-off costs.

        We intend to continue to invest additional resources in our content development and technology platform. The timing of these expenses will affect our cost of sales in the affected periods. Also, we may launch new products that require additional resources and can affect our cost of sales.

Expenses

        We classify our operating expenses as selling expenses, general and administrative expenses, and other expenses. The largest component of our operating expenses is employee and labor-related expenses, which includes salaries and bonuses, employee benefit expenses and contractor costs. We allocate expenses such as information technology infrastructure costs related to our operations and rent and occupancy charges in each expense category based on employee headcount in that category.

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        We allocate share-based payment expense to general and administrative expenses. These share-based expenses represent granted share options to selected employees we consider to be key executives. We recognize our share-based payments as an expense in the statement of operations based on their fair value over the vesting period. These charges have been significant in the past, and we expect that they will increase as we hire more employees and seek to retain existing employees.

Other income (expenses), net

        Our other income (expenses), net, line item consists mainly of miscellaneous income and/or expense items.

Finance result

        Our finance result includes finance income and finance costs.

        Finance income includes mainly income from cash equivalents and financial investments and changes in fair value of derivative instruments from business combinations and acquisition of interest in associates and joint ventures. Finance costs consist mainly of changes in fair value of derivatives instruments and interest expenses of liabilities from business combinations and other financial discounts and bank fees.

Income taxes

        Income taxes include current and deferred income taxes. Deferred tax expenses are mainly related to provisions for bonuses, inventories reserve, allowance for doubtful accounts, share-based compensation plan, intangible amortization and derivatives from acquisition of interests and business combinations.

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Our Results of Operations

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

        The following table sets forth our unaudited interim condensed consolidated statements of income for the six months ended June 30, 2019 and 2018:

 
  For the Six Months Ended
June 30,
 
 
  2019   2018   Variation (%)  
 
  (in R$ millions, except for percentages)
 
 
  (unaudited)
 

Statement of Income Data:

                   

Net revenue

    254.6     195.1     30.5  

Core(1)

    200.0     161.9     23.5  

Supplemental(1)

    54.6     33.1     64.9  

Cost of sales

    (47.7 )   (42.7 )   11.7  

Gross profit

    206.9     152.4     35.8  

Selling expenses

    (75.5 )   (48.4 )   55.9  

General and administrative expenses

    (65.8 )   (30.7 )   114.0  

Other income, net

    2.9     2.2     34.5  

Operating profit

    68.6     75.4     (9.0 )

Finance income

    30.9     7.3     324.0  

Finance costs

    (28.9 )   (7.8 )   271.6  

Finance result

    2.1     (0.5 )   n.m. (2)

Share of loss of equity-accounted investees

    (1.2 )   (0.3 )   294.2  

Profit before income taxes

    69.5     74.7     (6.9 )

Income taxes-income (expense)

    (13.0 )   (20.4 )   (36.1 )

Current

    (29.2 )   (20.9 )   39.6  

Deferred

    16.1     0.5     2,958.5  

Profit for the period

    56.5     54.3     4.1  

Profit attributable to:

                   

Equity holders of the parent

    56.5     54.7     3.4  

Noncontrolling interests

        (0.4 )   n.m.  

(1)
Our operating segments consist of our Core Curriculum segment and our Supplemental Solutions segment. For further information, please see notes 19 and 23 to our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018, included elsewhere in this prospectus supplement.

(2)
Not meaningful.

        Net revenue for the six months ended June 30, 2019 was R$254.6 million, an increase of R$59.5 million, or 30.5%, from R$195.1 million for the six months ended June 30, 2018.

        This increase was primarily attributable to:

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        In our Core segment, net revenue for the six months ended June 30, 2019 was R$200.0 million, an increase of R$38.1 million, or 23.5%, from R$161.9 million for the six months ended June 30, 2018. In our Supplemental segment, net revenue for the six months ended June 30, 2019 was R$54.6 million, an increase of R$21.5 million, or 64.9%, from R$33.1 million for the six months ended June 30, 2018.

        Cost of sales for the six months ended June 30, 2019 was R$47.7 million, an increase of R$5.0 million, or 11.7%, from R$42.7 million for the six months ended June 30, 2018. The increase of 11.7% was lower than our revenue growth, reflecting benefits from economies of scale, and was primarily attributable to:

        As a percentage of net revenue, our cost of sales decreased to 18.7% for the six months ended June 30, 2019, compared to 21.9% for the six months ended June 30, 2018.

        In our Core segment, cost of sales for the six months ended June 30, 2019 was R$40.3 million, an increase of R$3.0 million, or 7.9%, from R$37.3 million for the six months ended June 30, 2018. This increase was primarily attributable to the overall increase in the production volume of our educational materials, resulting from the positive impact of our organic growth and our continued focus on content development. As a percentage of net revenue in our Core segment, cost of sales decreased to 20.1% in the six months ended June 30, 2019, compared to 23.1% in the six months ended June 30, 2018.

        In our Supplemental segment, cost of sales for the six months ended June 30, 2019 was R$7.4 million, an increase of R$2.0 million, or 38.2%, from R$5.4 million for the six months ended June 30, 2018. This increase was primarily attributable to the overall increase in the production volume of our educational materials, resulting from the growth of our base of partner schools adopting our products. As a percentage of net revenue in our Supplemental segment, cost of sales decreased to 13.6% in the six months ended June 30, 2019, compared to 16.2% in the six months ended June 30, 2018.

        For the reasons discussed above, gross profit for the six months ended June 30, 2019 was R$206.9 million, an increase of R$54.5 million, or 35.8%, from R$152.4 million for the six months ended June 30, 2018. In our Core segment, gross profit for the six months ended June 30, 2019 was R$159.7 million, an increase of R$35.1 million, or 28.2%, from R$124.6 million for the six months ended June 30, 2018. In our Supplemental segment, gross profit for the six months ended June 30,

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2019 was R$47.2 million, an increase of R$19.4 million, or 70.0%, from R$27.8 million for the six months ended June 30, 2018.

        Selling expenses for the six months ended June 30, 2019 were R$75.5 million, an increase of R$27.1 million, or 55.9%, from R$48.4 million for the six months ended June 30, 2018. This increase was primarily attributable to:

        In our Core segment, selling expenses for the six months ended June 30, 2019 were R$57.7 million, an increase of R$18.5 million, or 47.1%, from R$39.2 million for the six months ended June 30, 2018. This increase was primarily attributable to an increase in (i) the number of employees in our educational and pedagogical consulting teams, and (ii) customer support and travel expenses.

        In our Supplemental segment, selling expenses for the six months ended June 30, 2019 were R$17.7 million, an increase of R$8.6 million, or 93.7%, from R$9.1 million for the six months ended June 30, 2018. This increase was primarily attributable to an increase in (i) the number of employees in our educational and pedagogical consulting teams, and (ii) customer support expenses.

        General and administrative expenses for the six months ended June 30, 2019 were R$65.8 million, an increase of R$35.1 million, or 114.0%, from R$30.7 million for the six months ended June 30, 2018. This increase was primarily attributable to:

        For the reasons discussed above, operating profit for the six months ended June 30, 2019 was R$68.6 million, a decrease of R$6.8 million, or 9.0%, from R$75.4 million for the six months ended June 30, 2018.

        Finance result for the six months ended June 30, 2019 was a finance income, net of R$2.1 million, compared to a finance cost, net of R$0.5 million for the six months ended June 30, 2018, for the reasons described below.

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        Finance income.    Finance income for the six months ended June 30, 2019 was R$30.9 million, an increase of R$23.6 million, or 324.0%, from R$7.3 million for the six months ended June 30, 2018. This increase was primarily attributable to increase in income from financial investments, reflecting our higher cash position, increase in income from changes in fair value of financial investments, and the increase in fair value of derivative financial instruments, composed of the put and call options of our business acquisitions and investments in associates and joint ventures.

        Finance costs.    Finance costs for the six months ended June 30, 2019 were R$28.9 million, an increase of R$21.1 million, from R$7.8 million for the six months ended June 30, 2018. This increase was primarily attributable to the interest expenses from accounts payable to selling shareholders and the increase in expenses from fair value of derivative financial instruments, composed of the put and call options of our business acquisitions and investments in associates and joint ventures.

        For the reasons discussed above, profit before income taxes for the six months ended June 30, 2019 was R$69.5 million, a decrease of R$5.2 million, or 6.9%, from R$74.7 million for the six months ended June 30, 2018.

        Income taxes expenses for the six months ended June 30, 2019 were R$13.0 million, a decrease of R$7.4 million, or 36.1%, from R$20.4 million for the six months ended June 30, 2018. This decrease was primarily attributable to the reduction in our taxable income.

        As a result of the foregoing, profit for the six months ended June 30, 2019 was R$56.5 million, an increase of R$2.2 million, or 4.1%, from R$54.3 million for the six months ended June 30, 2018.

Our Liquidity and Capital Resources

        As of June 30, 2019, we had R$882.1 million in cash and cash equivalents and financial investments. We believe that our current available cash and cash equivalents and financial investments and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.

 
  For the Six Months
Ended June 30,
 
 
  2019   2018  
 
  (in thousands of reais)
 
 
  (unaudited)
 

Cash Flow Data

             

Net cash flows from operating activities

    105,757     77,279  

Net cash flows from (used in) investing activities

    (121,074 )   12,581  

Net cash flows from (used in) financing activities

    12,062     (85,050 )

        Our net cash flows from operating activities increased by 36.9% from R$77.3 million in the six months ended June 30, 2018 to R$105.8 million in the six months ended June 30, 2019, primarily due to: (1) an increase in advances from customers as a result of our organic growth through the addition

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of new partner schools and (2) an increase in up-sales of our solutions during the period, which was partially offset by an increase in payments to suppliers and personnel expenses.

        Our net cash flows from (used in) investing activities changed from net cash from investing activities of R$12.6 million in the six months ended June 30, 2018, to net cash used in investing activities of R$121.1 million in the six months ended June 30, 2019, primarily due: (1) to the R$33.5 million cash from financial investments in the six months ended June 30, 2018, compared to a R$62.5 million cash used of financial investments in the six months ended June 30, 2019; (2) an increase in acquisition of subsidiaries, such as EEM, from R$13.8 million in the six months ended June 30, 2018 to R$16.1 million in the six months ended June 30, 2019; and (3) a loan to related parties of R$14.0 million made to Geekie and its controlling shareholder, a related party, in the six months ended June 30, 2019.

        Our net cash flows from financing activities in the six months ended June 30, 2019 was R$12.1 million, compared to net cash used in financing activities of R$85.1 million in the six months ended June 30, 2018, primarily due to: (1) a dividend payment of R$85.1 million in the six months ended June 30, 2018; and (2) a capital increase in the amount of R$13.8 million in the six months ended June 30, 2019.

Indebtedness

        As of June 30, 2019, we had loans and financing of R$0.5 million and lease liabilities of R$21.5 million.

Capital Expenditures

        In the six months ended June 30, 2019, we made capital expenditures of R$24.2 million. These capital expenditures mainly include expenditures related to the acquisition of property and equipment and the acquisition of intangible assets.

        We expect to increase our capital expenditures to support the growth in our business and operations. We expect to meet our capital expenditure needs for the foreseeable future from our operating cash flow, our existing cash and cash equivalents, and with the net proceeds of this offering. Our future capital requirements will depend on several factors, including our growth rate, the expansion of our research and development efforts, employee headcount, marketing and sales activities, the introduction of new features to our existing products, and the continued market acceptance of our products.

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Tabular Disclosure of Contractual Obligations

        The following is a summary of our contractual obligations as of June 30, 2019:

 
  Payments Due by Period as of June 30, 2019  
 
  Less than 1 year   1 -3 years   3 -5 years   More than 5 years   Total  
 
  (in thousands of reais)
 

Trade payables

    13,991                 13,991  

Lease liabilities

    4,736     8,986     7,766         21,488  

Loans and financing

    161     376             537  

Financial instruments from acquisition of interests(1)

    15,562     49,242             64,804  

Accounts payable to selling shareholders

    90,829     103,156     3,775         197,760  

Total

    125,279     161,760     11,541         298,580  

(1)
As of June 30, 2019 it includes (i) an option to acquire the remaining 91.95% of the outstanding share capital of Geekie in May 2022 pursuant to the share purchase agreement dated as of December 8, 2016, as part of our acquisition of our current 8.05% interest in the share capital of Geekie, (ii) an option to acquire the remaining 75% of the outstanding share capital of WPensar between July 10, 2020 and July 10, 2021 and (iii) a forward contract to acquire the remaining 86.8% of the total capital of NAV between February 15, 2020 and February 15, 2022.

Off-Balance Sheet Arrangements

        As of June 30, 2019 and as of December 31, 2018, we did not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

Standards, interpretations and amendments adopted in 2019

        We started applying IFRS 16—Leases beginning on January 1, 2019. For further information, see note 2.3 to our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the six months then ended, included elsewhere in this prospectus supplement. Other standards, amendments and interpretations were applied for the first time in 2019, but did not have a significant impact on our unaudited interim condensed consolidated financial statements.

IFRS 16—Leases

        We adopted IFRS 16 "Leases" on January 1, 2019 using the modified retrospective approach. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. See note 2.3 to our unaudited interim condensed consolidated financial statements for additional information on the adoption of IFRS 16.

Quantitative and Qualitative Disclosure About Market Risk

        We monitor market, credit and operational risks in line with the objectives in capital management, supported by the oversight of our Board of Directors, in decisions related to capital management and to ensure their consistency with our objectives and assessment of risks. Information relating to quantitative and qualitative disclosures about these market risks is described below. For further

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information, see note 25 to our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the six months then ended, included elsewhere in this prospectus supplement.

Foreign Exchange Risk

        As of June 30, 2019, our exposure to foreign exchange risk is related to cash and cash equivalents and financial investments held in foreign currency. We do not operate outside Brazil and our results are not subject to significant fluctuations resulting from the effects of the volatility of any exchange rate.

Liquidity Risk

        Our management is responsible for mitigating liquidity risk. In order to achieve this, management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities. The main requirements for financial resources used by us arise from the need to make payments for printing educational content, freight expenses, operating expenses, labor and social obligations and other operating disbursements.

Financial Counterparty Risk

        This risk arises from the possibility that we may incur losses due to the default of our counterparties. To mitigate these risks, we adopt as a practice the analysis of the financial and equity situation of our counterparties. Counterparty credit limits, which take published credit ratings and other factors into account, are set to cover our total aggregate exposure to a single financial institution. Exposures and limits applicable to each financial institution are approved by our treasury within guidelines approved by the board and are reviewed on a regular basis.

Interest Rate Risk

        Interest rate risk represents the chance that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Our exposure to this risk relates primarily to our financial investments with floating interest rates. We are primarily exposed to fluctuations in CDI interest rates on financial investments. See note 25 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus supplement for a sensitivity analysis of the impact of a hypothetical 10% change in the CDI on our cash, bank deposits and cash equivalents and financial investments as of June 30, 2019 and December 31, 2018.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF POSITIVO

        The following discussion of Positivo's financial condition and results of operations should be read in conjunction with Positivo's unaudited interim condensed combined carve-out financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018 and Positivo's audited combined carve-out financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 and the notes thereto, included elsewhere in this prospectus supplement.

        The following discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in "Special Note on Forward-Looking Statements" and "Risk Factors."

Overview

        The Positivo Group was founded in 1972 in Curitiba by a group of teachers as a preparatory course focused on preparing students for admission exams to universities in the state of Paraná. The preparatory course reached 2,300 enrolled students in the first year of operation and its success led the group to quickly open new schools for all K-12 grades under the brand Colégio Positivo. In a short period of time, the proprietary content and methodology developed and used by Colégio Positivo schools achieved significant recognition among teachers, parents and students. The high-quality content and its dynamic approach led to the foundation of Positivo in 1979, allowing the Positivo brand to expand far beyond the reach of Colégio Positivo, being adopted by third-party schools in several cities of the state of Paraná and other Brazilian states.

        With over 40 years of brand legacy, Positivo evolved to become a leading content providing platform that currently transforms the lives of over 698,000 students in nearly 3,400 private schools across all Brazilian states. This is a vibrant ecosystem with several opportunities to effectively address the needs of parents, students, teachers and school owners. Positivo is focused on building long-term relationships with partner schools and this approach is an important factor to its success, proven by the fact that more than 50% of its client base has over 10 years of relationship.

        Positivo's product offering can be divided into two parts: Core Curriculum and Supplemental Solution. The SPE and Conquista brands are part of the Core Curriculum, both delivering high-quality content aligned with the national curriculum to schools with different socioeconomic profiles. The Supplemental Solution is PES, which offers an English curriculum for K-12 schools in Brazil.

        On May 7, 2019, we entered into a purchase agreement with the shareholders of Positivo to acquire the entire share capital of Positivo, one of the largest K-12 content providers to private schools in Brazil, and other companies of the Positivo Group. This carve-out acquisition encompasses only the private school learning systems and does not include the other assets of the Positivo Group, such as the public-schools learning system, the printing company, the Universidade Positivo postsecondary education business, and the Colégio Positivo proprietary schools. The closing of the transaction is subject to customary conditions precedent, including antitrust and other regulatory approvals. We obtained the final approval from CADE with no conditions, on October 23, 2019.

Components of Positivo's Results of Operations

        The following is a summary of the principal line items comprising Positivo's statements of income.

Net Revenue from sales

        Positivo generates substantially all of its revenue from the sale of learning systems to private schools. This is achieved through contracts between Positivo and partner schools that have a minimum

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term of one year, pursuant to which Positivo provides to partner schools educational content in printed and digital format.

        Positivo's revenue is driven by the number of enrolled students at each partner school using an agreed-on price per student per year, in accordance with the terms and conditions set forth in each contract. It recognizes revenue at the moment it delivers its educational content and makes it available for use to its partner schools. Positivo typically delivers its printed SPE content four times each year in March, June, August and December, typically two to three months prior to the start of the school year, and its other SPE content and Conquista materials once each year in December. This allows its partner schools and their teachers to prepare classes in advance of each school quarter.

Cost of sales

        Cost of sales primarily consists of the expenses related to (i) the resale of goods and consumption material used, which mainly comprises printing costs and amortization of intellectual property, and (ii) personnel expenses of the content producing and educational technology teams.

Expenses

        Positivo classifies its operating expenses as general and administrative expenses, selling and distribution expenses and other expenses. The largest component of its operating expenses comprises employee and labor-related expenses, which includes salaries and bonuses, employee benefit expenses and contractor costs.

Financial income

        Positivo's financial income includes financial revenues and financial expenses. Financial revenues consists mainly of income from discounts obtained, income from interest charged on accounts receivable, and yield from financial investments. Financial expenses consist mainly of discounts granted, expenses relating to interest on loans and leases, and bank expenses.

Income tax and social contribution

        Income taxes include current and deferred income taxes. Current tax expenses are mainly related to the tax payable or receivable on the taxable income for the year and any adjustments to taxes payable in relation to prior years. Deferred tax expenses are mainly related to provisions for bonuses, copyright and commissions, impairment loss on accounts receivable, provision of services, provision for revenue cut-off, provision to tax, labor, civil risks, and others.

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Results of Operations of Positivo

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

        The following table sets forth the unaudited interim combined carve-out statements of income of Positivo for the six months ended June 30, 2019 and 2018:

 
  For the Six Months Ended
June 30,
 
 
  2019   2018   Variation (%)  
 
  (in R$ millions, except for
percentages)

 

Statement of Income Data:

                   

Net revenue from sales

    234.4     231.8     1.1  

Cost of sales

    (62.9 )   (58.1 )   8.3  

Gross profit

    171.5     173.7     (1.3 )

General and administrative expenses

    (32.8 )   (31.3 )   4.8  

Selling and distribution expenses

    (35.1 )   (28.8 )   21.9  

Other operating income, net

        0.7      

Impairment loss on accounts receivable

    (0.1 )   (3.1 )   (96.8 )

Income before financial income and taxes

    103.5     111.2     (6.9 )

Financial income

    2.9     0.8     262.5  

Financial revenues

    3.6     1.8     100.0  

Financial expenses

    (0.7 )   (1.0 )   (30.0 )

Income before income tax and social contribution

    106.4     112.0     (5.0 )

Income tax and social contribution

                   

Current

    (28.6 )   (39.7 )   (28.0 )

Deferred

    (7.1 )   1.6     n.m.(1 )

Net income for the year

    70.7     73.9     (4.3 )

(1)
Not meaningful.

        Net revenue from sales for the six months ended June 30, 2019 was R$234.4 million, an increase of R$2.6 million, or 1.1%, from R$231.8 million for the six months ended June 30, 2018. This result is in line with the prior period, and the growth was negatively impacted by the partial discontinuation of a non-subscription-based product. Non-subscription-based products do not affect the ACV, as they are not tied to long-term contracts.

        Cost of sales for the six months ended June 30, 2019 was R$62.9 million, an increase of R$4.8 million, or 8.3%, from R$58.1 million for the six months ended June 30, 2018. This increase was primarily attributable to a R$5.0 million, or 10.5%, increase in resale material and consumption material used, which comprises the preparation, printing and delivery of products, mainly as a result of the increase in the number of PES and Conquista students during the period.

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        For the reasons discussed above, gross profit for the six months ended June 30, 2019 was R$171.5 million, a decrease of R$2.2 million, or 1.3%, from R$173.7 million for the six months ended June 30, 2018.

        General and administrative expenses for the six months ended June 30, 2019 were R$32.8 million, an increase of R$1.5 million, or 4.8%, from R$31.3 million for the six months ended June 30, 2018. This increase was primarily attributable to:

        Selling and distribution expenses for the six months ended June 30, 2019 were R$35.1 million, an increase of R$6.3 million, or 21.9%, from R$28.8 million for the six months ended June 30, 2018. This increase was primarily attributable to:

        For the six months ended June 30, 2019, Positivo did not record other operating income, net, whereas for the six months ended June 30, 2018, Positivo recorded other operating income, net of R$0.7 million.

        Impairment loss on accounts receivable for the six months ended June 30, 2019 was R$0.1 million, a decrease of R$3.0 million, or 96.8%, from R$3.1 million for the six months ended June 30, 2018. This decrease was primarily attributable to the improvement in the profile of Conquista's partner schools in 2018, which resulted in a decrease in delinquency rates and, in turn, allowances for doubtful accounts.

        For the reasons discussed above, income before financial income and taxes for the six months ended June 30, 2019 was R$103.5 million, a decrease of R$7.7 million, or 6.9%, from R$111.2 million for the six months ended June 30, 2018.

        Financial income for the six months ended June 30, 2019 was R$2.9 million, an increase of R$2.1 million, from R$0.8 million for the six months ended June 30, 2018, for the reasons described below.

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        Financial revenues for the six months ended June 30, 2019 was R$3.6 million, an increase of R$1.8 million, or 100.0%, from R$1.8 million for the six months ended June 30, 2018. This increase was primarily attributable to an increase in income from interest charged on late payments from partner schools.

        Financial expenses for the six months ended June 30, 2019 were R$0.7 million, a decrease of R$0.3 million, or 30.0%, from R$1.0 million for the six months ended June 30, 2018. This decrease was mainly related to the decrease in interest payments on indebtedness as a result of the repayment in February 2018 of the loan agreement entered into with the Brazilian Bank for Economic and Social Development (Banco Nacional de Desenvolvimento, or "BNDES") in May 2016.

        For the reasons discussed above, income before income tax and social contribution for the six months ended June 30, 2019 was R$106.4 million, a decrease of R$5.6 million, or 5.0%, from R$112 million for the six months ended June 30, 2018.

        Current income tax and social contribution expenses for the six months ended June 30, 2019 were R$28.6 million, a decrease of R$11.1 million, or 28.0%, from R$39.7 million for the six months ended June 30, 2018.

        Deferred income tax and social contribution expenses for the six months ended June 30, 2019 of R$7.1 million, compared to deferred income tax and social contribution income of R$1.6 million for the six months ended June 30, 2018.

        As a result of the foregoing, net income for the six months ended June 30, 2019 was R$70.7 million, a decrease of R$3.2 million, or 4.3%, from R$73.9 million for the six months ended June 30, 2018.

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Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

        The following table sets forth the combined carve-out statements of income of Positivo for the years ended December 31, 2018 and 2017:

 
  For the Year Ended December 31,  
 
  2018   2017   Variation (%)  
 
  (in R$ millions, except for percentages)