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TABLE OF CONTENTS

Table of Contents

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

Prospectus supplement
(To prospectus dated October 21, 2019)

5,563,203 Class A Common Shares

LOGO

Arco Platform Limited
(Incorporated in the Cayman Islands)

        This is an offering by the selling shareholders identified in this prospectus supplement, or the selling shareholders, of an aggregate of 5,563,203 Class A common shares, US$0.00005 par value per share, of Arco Platform Limited, or Arco. 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 June 1, 2020, the last reported sale price of our Class A common shares on the Nasdaq Global Select Market was US$50.19.

        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. 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. Following this offering, the Founding Shareholders will continue to control approximately 91.0% of the voting power of our outstanding share capital.

        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, 2019, as filed with the SEC on March 31, 2020, and any further amendments thereto (our "2019 Annual Report"), incorporated by reference herein, and "Risk Factors" beginning on page S-31 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$47.70   US$265,364,783.10
 

Underwriting discounts and commissions

  US$0.37   US$2,058,385.11
 

Proceeds, before expenses, to selling shareholders(1)

  US$47.33   US$263,306,397.99

 

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

        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 June 4, 2020.

Goldman Sachs & Co. LLC   Itaú BBA

   

The date of this prospectus supplement is June 2, 2020.


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PROSPECTUS SUPPLEMENT

 
  Page  

About This Prospectus Supplement

    S-ii  

Special Note on Forward-Looking Statements

    S-iv  

Summary

    S-1  

The Offering

    S-17  

Summary Financial and Other Information

    S-20  

Risk Factors

    S-31  

Use of Proceeds

    S-36  

Capitalization

    S-37  

Dividend Policy

    S-38  

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

    S-39  

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

    S-46  

Principal and Selling Shareholders

    S-63  

Class A Common Shares Eligible For Future Sale

    S-65  

Taxation

    S-67  

Underwriting

    S-71  

Legal Matters

    S-82  

Experts

    S-83  

Where You Can Find More Information

    S-84  

Incorporation of Documents By Reference

    S-85  


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

    41  

Experts

    42  

Where You Can Find More Information

    43  

Incorporation of Documents by Reference

    44  

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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.


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 and the information contained in the accompanying prospectus or any previously filed document incorporated by reference into this prospectus supplement or the accompanying prospectus, 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

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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, incorporated by reference in this prospectus supplement, and (iii) our unaudited pro forma condensed consolidated financial information, incorporated by reference 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. Positivo Solucoes Didaticas, or Positivo, was acquired on November 1, 2019 (which we refer to as the "Positivo Acquisition") and therefore, Positivo information for periods prior to November 1, 2019 is not included or reflected in our consolidated information.

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, 2020 consisted of 5,414 partner schools (being 3,736 partner schools of Positivo), compared to 1,464 schools as of March 31, 2019, 1,140 schools as of March 31, 2018 and 835 schools as of March 31, 2017, representing annual growth rates of 269.8%, 28.4% and 36.5%, respectively. We had 1,362,141 enrolled students across all Brazilian states as of March 31, 2020 (being 710,705 enrolled students of Positivo), compared to 498,553 enrolled students as of March 31, 2019, 405,814 as of March 31, 2018 and 322,031 as of March 31, 2017, representing annual growth rates of 173.2%, 22.9% and 26.0%, 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 was 93% in 2019 and 95% in 2018 and 2017, 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$572.8 million, R$381.0 million and R$244.4 million in 2019, 2018 and 2017, respectively, representing annual growth rates of 50.3% and 55.9% in 2019 and 2018, respectively and R$261.6 million and R$117.1 million in the three months ended March 31, 2020 and 2019, respectively, representing a growth rate of 123.4% (which includes the impact from the Positivo Acquisition). We generated operating profit of R$58.1 million, R$62.1 million and R$74.9 million in 2019, 2018 and 2017, respectively. We had a loss of R$9.4 million in 2019, a loss of R$82.9 million in 2018, and a profit of R$43.6 million in 2017, respectively. We generated operating profit of R$40.1 million and R$41.6 million in the three months ended March 31, 2020 and 2019, 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 5.6%, 9.6% and 12.0% of our combined annual contract value bookings, or ACV Bookings, in 2019, 2018 and 2017, respectively.

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        ACV Bookings, for the core curriculum and supplemental solution totaled R$1,005.8 million for the 2020 school year. Together, Positivo's combined ACV Bookings for the 2020 school year plus Arco's combined ACV Bookings for the 2020 school year result in a 4% ACV market share of the total addressable market, which includes after-school education and the 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. In addressing the core solutions market, Positivo's combined ACV Bookings for the 2020 school year plus Arco's Core Solutions ACV Bookings for the 2020 school year result in an 12% core solutions market share, which includes the 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.

        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 expand our footprint in Brazil since our founding. As of December 31, 2018, 490 (or 10%) of our partner schools ranked as one of the top three schools of their respective cities, according to the Exame Nacional do Ensino Médio—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 Brazilian Ministry of Education and our existing partner schools.

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

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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 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 nine years, student enrollments in private K-12 institutions have increased 18.2%, from 6.9 million in 2010 to 8.2 million in 2019.

    Technological innovation is driving enhancements in private K-12 education

        In a 2019 survey conducted by Getulio Vargas Foundation (Fundação Getúlio 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, by means of 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.

        Technology has created opportunities to make learning more affordable, accessible, flexible, personal and effective. Classroom instruction and delivery models are changing and are likely to have a substantial impact on the industry.

    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

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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, 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 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 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 of 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. Language courses are among the most popular after-school activities and represent an area with significant room for growth, primarily as a result of:

    the increasing relevance of languages, especially English, in a globalized context;

    the low English proficiency level in Brazil; and

    the emphasis in language classes currently offered by K-12 schools on reading and written communication, despite the fact that the labor market relies more heavily on oral communication (which also creates a market for bilingual schools).

        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 as of October 2019. 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.

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    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.

        We are able to replace a multitude of third-party educational vendors with a streamlined and consolidated solution, offering a one-stop shop that delivers enhanced learning across the educational spectrum.

Our Market Opportunity

        According to EY-Parthenon's assessment of the private K-12 learning systems market, the existing addressable market in Brazil for core curriculum solutions and supplemental solutions totals approximately R$25.2 billion in sales revenues as of October 2019, of which we currently capture approximately 4% based on our 2020 ACV Bookings as of March 31, 2020. We can address this market by launching new solutions and entering new categories.

        We benefit from structural differences in our market, when compared to the education markets in the United States and Europe. Private schools in Brazil are generally for-profit institutions, and the private education market in Brazil is large and highly fragmented, primarily a result of lower overall levels of government funding for K-12 public education. As of December 31, 2019, approximately 8.2 million students were enrolled in approximately 41,700 private schools (19.1% of the total number of K-12 students in Brazil), according to the Brazilian National Institute for Studies and Research (Instituto Nacional de Estudos e Pesquisas), or INEP, and the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or IBGE. In addition, the national curriculum set by the Ministry of Education requires standardized content across Brazilian schools, which helps create demand for a unified curriculum. Finally, teachers' unions in Brazil are relatively less influential than their counterparts in the United States and Europe, where such unions often serve as obstacles to the adoption of innovations.

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

The Arco Way

        Quality, a key component for the success in the private K-12 market, is always at the center of our decisions and it has been the gear of our virtuous cycle over the years.

        As we continuously invest in quality and customer support, we assist our schools to achieve higher academic results. This is illustrated by the ENEM strong results of our partner schools, one of the main metrics to measure education quality in Brazil. According to the 2018 results of the ENEM exam, (i) three of the 10 top schools in the Brazilian national school rankings use our solutions; (ii) partner schools ranked among the top 10 in 13 out of 27 Brazilian states; and (iii) 490 of our partner schools ranked among the top three schools in their respective cities. The strong results achieved by our partner schools improve our brand equity, help build our reputation and consequently, tends to contribute to our healthy, sustainable organic growth.

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        As we grow and add new partner schools, our network becomes a powerful source of leads generation and data. In addition, the increased scale allows us to reinvest in content, quality and service, contributing to the positive loop.

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 improvements in our platform and for changes in our cost and expenses structure.

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        The following chart illustrates our business-to-business-to-consumer model:

GRAPHIC

        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. A portion of our average 5.0% annual 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.

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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.

        Additionally, Positivo is the pioneer in the learning system segment in Brazil and has served the K-12 private school market for more than 40 years. The pedagogical methodology developed inside the Colégio Positivo schools was transformed into a comprehensive educational solution that quickly expanded to other schools in Brazil. Over time, Positivo expanded its product offering to address different profiles of schools and increase its addressable market.

        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.

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        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, pre-made class videos, a test builder platform and homework correction automation tools. In addition,

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      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.

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. Assessments enable thorough, customized evaluations of student performance over a single lesson, over the course of a topic, or throughout the entire academic year.

    Adaptive learning:  A personalized instruction and assessment tool delivered through our exam management portal to help students prepare for and take exams. The user-friendly reporting and ongoing progress monitoring features enable educators to pinpoint student needs down to the sub-skill level, while providing real-time feedback at the class level, school and national level. The platform also enables teachers to generate exams based on a given class profile, using a database containing a broad range of questions.

    Interactive learning:  Leveraging the combined abilities of our pedagogical and EdTech teams, we have created augmented reality and video features throughout our materials, allowing students to point their digital devices at certain sections in our materials to view educational animations or recorded videos that provide further information on the topic in question, 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 the form of digital classes, exam database, assessment templates, teachers' guides and lesson plans, exams and textbooks' problem solving in addition to articles and general educational-related tips.

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    In-app communication:  A responsive, simple and user-friendly communication tool for partner schools, students and parents, giving them access to exam results and problem solving, video classes, student grades, as well as the school calendar and attendance records.

    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.

        As part of our Core Curriculum, we offer complementary support services to partner schools consisting of:

    Back office management tools:  HR tools with financial, student recruiting and administrative features.

    Educational consulting services to partner schools:  Personalized support to ensure complete understanding and appropriate implementation of our learning platform. This includes, constant support to partner schools throughout the school year in connection with educational practices, administrative, human resources and financial aspects, development of customized students' assessment models, organization of education congresses and pedagogical meetings, as well as parents and students counselling.

    Training programs for teachers and school administrators:  A suite of materials to allow partner schools and teachers to assess the quality of their teaching methods and how they can improve them. This includes local, regional and national educational congresses, forums, seminars and lectures, in addition to training sessions.

    School marketing advisory:  A comprehensive range of marketing and communication materials, events and support, including marketing brochures and recruitment campaigns.

        Additionally, through Positivo, our Core Curriculum solutions include (i) Sistema de Ensino Positivo, or SPE, an educational solution consisting of content, technology and services provided to upper-middle-income class private schools, and (ii) Conquista Solução Educacional, or Conquista, which is focused on lower-middle-income private schools, a profile of school that we previously did not target. As part of our Core Curriculum, we also deliver, through Positivo, traditional solutions which are annually sold to partner schools without long-term contracts on a case by case basis.

        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 2020 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 multicultural environment, based on a curriculum like the International Baccalaureate or Cambridge International Examinations. We intend to add additional, non-core supplemental educational modules to our Supplemental Solutions over time.

        Additionally, through Positivo, our Supplemental Solution also offers Positivo English Solution, or PES, a bilingual program with an approach that promotes integrated learning of content and language, in partnership with Cambridge University Press. The program consists of 2-5 weekly hours of English classes with several tools to develop the skills needed to communicate well. PES also provides teachers' training and pedagogical support to its partner schools. PES was launched in 2015 and has a strong cross-sell potential within our Core Solution partner schools network and to expand to schools that

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have not yet adopted our solution. Positivo's focus on student outcomes and long-term relationships with partner schools is proven by the strong results achieved in national exams.

        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.

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 multi-channel experience, combining proprietary content and software that would otherwise require the purchase of multiple, non-integrated 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 March 31, 2020, 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 March 31, 2020, we had a dedicated team of 718 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 990 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.

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    Widespread positive customer satisfaction and strong academic outcomes

        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 exam:

    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

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

        In addition, we have the highest penetration among top 10 performing schools, according to rankings based on data from the Brazilian 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 of 93% in 2019 and 95% in 2018 and 2017.

    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 7% in 2019. 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, 2020, the average age of our employees was 32 and 55% 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 March 31, 2020, our up selling potential would increase our student enrollments by 32%, translating to approximately 360,000 students; and

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    Cross-selling our Supplemental Solutions to currently-enrolled class years at our partner schools. As of March 31, 2020, only 2% of our client base used both our Core Curriculum and Supplemental Solutions, thus representing a cross-sell opportunity of approximately 1,000,000 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 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, PES, Nave à Vela Editora e Comercializadora de Materiais Educacionais S.A. (formerly Nave à Vela Ltda), or 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 pursue acquisitions that are complementary to, or that will help us diversify, our business. We intend to maintain a disciplined approach towards 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 pursuant to B2B2C business models. We are currently evaluating possible acquisition opportunities and submit non-binding proposals from time to time.

        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.

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        We have already executed a number of 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.

Recent Developments

    COVID-19

        As a result of the global outbreak of a new strain of coronavirus, or COVID-19, economic uncertainties have arisen that continue to have an adverse impact on global economic and market conditions, including Brazil. In particular and in the interest of public health and safety, state and local governments in Brazil have required mandatory school closures for an unspecified period of time, which has strengthened our role as a mission critical partner of schools and as a technology provider.

        To date, the COVID-19 pandemic has not had a material impact on our operations, distribution capacity and revenue recognition. However, we revised our estimated credit losses from our trade receivables (which resulted in an increase of R$3.1 million in allowance for doubtful accounts as of March 31, 2020). In response to the outbreak, we have implemented several measures aimed at safeguarding the health of our employees and the stability of our operations, including: (1) the implementation of a work-from-home policy and several related preventive measures; (2) an integrated platform of each of our core brands that provides daily live streaming and recorded classes and structured materials organized in study plans to our students; (3) remote client support by our team of pedagogical consultants and technical support to deliver high-quality content to our students and maintain high levels of engagement and a superior learning experience; and (4) re-thinking and re-designing our go-to-market strategy to leverage digital leads created and hosting webinars and events with existing and prospective clients. In addition, in March 2020, we made available free of charge access to our webinars and live streaming classes, to allow all students from public and private schools to have access to high-quality content during this period of school closures.

        The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including the duration and spread of the outbreak and its impact on our clients, partner schools, logistics service providers and employees, all of which are uncertain and cannot be predicted. If the pandemic or the resulting economic downturn continues to worsen, we could experience loss of clients or higher levels of allowances for doubtful accounts, which could have a material adverse effect on our results of operations and cash flows. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, clients, partner schools and stockholders.

        For further information, please see "Risk Factors—Risks Relating to Our Business and Industry—Our operations and results may be negatively impacted by the coronavirus (COVID-19) outbreak."

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 2019 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.

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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 schools may materially adversely 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 of our activities, or the loss or reduction in tax benefits on the sale of books (including digital content) may materially adversely affect us.

    Our operations and results may be negatively impacted by the coronavirus (COVID-19) outbreak.

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.

    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 Relating to the Positivo Acquisition

    We may not realize the benefits and synergies 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.

    The use of cash on hand to finance the Positivo Acquisition will reduce our liquidity.

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

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.

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    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 (11) 3047-2655.

        The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. 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;

    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 taken advantage of some of these reduced reporting burdens in this prospectus supplement, and we may choose to take advantage of others 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, incorporated by reference in this prospectus supplement, and (iii) our unaudited pro forma condensed consolidated financial information, incorporated by reference in this prospectus supplement.

Issuer

  Arco Platform Limited

Class A common shares offered by the selling shareholders

 

5,563,203 Class A common 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 (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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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.

Listing

 

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

Use of proceeds

 

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

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.

 

Immediately before and after the offering, we will have 27,541,422 Class A common shares outstanding.

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 30-day period following the date of this prospectus supplement. Alfaco Holding Inc. (one of the selling shareholders in this offering), or Alfaco, has 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. See "Underwriting."

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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.

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.

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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 March 31, 2020 and for the three months ended March 31, 2020 and 2019 and the notes thereto, incorporated by reference in this prospectus supplement, (ii) our audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 and the notes thereto, included in our 2019 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 2019 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 October 31, 2019 and for the ten months ended October 31, 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 incorporated by reference 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 for the year ended December 31, 2019 and the notes thereto, incorporated by reference in this prospectus supplement.

Arco

        Our interim statements of financial position as of March 31, 2020 and the interim statements of operations for the three months ended March 31, 2020 and 2019 have been derived from our unaudited interim condensed consolidated financial statements incorporated by reference in this prospectus supplement, prepared in accordance with International Financial Reporting Standard IAS No. 34 "Interim Financial Reporting," or "IAS 34." Our summary statements of financial position as of December 31, 2019, 2018 and 2017 and the income (loss) for the years ended December 31, 2019, 2018

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and 2017 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.

 
  For the Three Months Ended March 31,   For the Year Ended December 31,  
 
  2020   2020   2019   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Statement of Operations Data

                                           

Net revenue

    50.3     261.6     117.1     110.2     572.8     381.0     244.4  

Cost of sales

    (12.9 )   (67.2 )   (21.9 )   (22.6 )   (117.3 )   (80.7 )   (58.5 )

Gross profit

    37.4     194.4     95.2     87.6     455.5     300.2     185.9  

Selling expenses

    (16.9 )   (87.9 )   (36.1 )   (38.4 )   (199.8 )   (113.3 )   (65.3 )

General and administrative expenses

    (12.8 )   (66.8 )   (20.8 )   (36.8 )   (191.4 )   (129.8 )   (48.9 )

Other income (expenses), net

    0.1     0.4     3.4     (1.2 )   (6.2 )   4.9     3.3  

Operating profit

    7.7     40.1     41.6     11.2     58.1     62.1     74.9  

Finance income

    1.8     9.4     17.0     13.8     72.0     36.6     12.5  

Finance costs

    (7.4 )   (38.3 )   (16.5 )   (32.9 )   (170.8 )   (198.8 )   (20.4 )

Finance result

    (5.6 )   (29.0 )   0.5     (19.0 )   (98.8 )   (162.2 )   (7.9 )

Share of loss of equity-accounted investees

    (0.1 )   (0.7 )   (0.5 )   (0.3 )   (1.8 )   (0.8 )   (0.7 )

Profit (loss) before income taxes

    2.0     10.4     41.6     (8.2 )   (42.5 )   (100.9 )   66.4  

Income taxes—income (expense)

    (1.3 )   (6.6 )   (10.7 )   6.4     33.1     18.0     (22.7 )

Current

    (6.2 )   (32.2 )   18.3 )   (9.0 )   (46.9 )   (26.5 )   (31.0 )

Deferred

    4.9     25.6     7.5     15.4     80.0     44.5     8.3  

Profit (loss) for the period year

    0.7     3.8     30.8     (1.8 )   (9.4 )   (82.9 )   43.6  

Profit (loss) attributable to:

                                           

Equity holders of the parent

    0.7     3.8     30.8     (1.8 )   (9.4 )   (82.4 )   44.3  

Noncontrolling interests

                        (0.5 )   (0.6 )

Basic earnings per share—R$ (unless otherwise indicated)(2)

                                           

Class A Common Shares

    0.01     0.07     0.61     (0.03 )   (0.18 )   (1.64 )   0.88  

Class B Common Shares

    0.01     0.07     0.61     (0.03 )   (0.18 )   (1.64 )   0.88  

Diluted earnings per share—R$ (unless otherwise indicated)(3)

                                           

Class A Common Shares

    0.01     0.07     0.59     (0.03 )   (0.18 )   (1.64 )   0.85  

Class B Common Shares

    0.01     0.07     0.59     (0.03 )   (0.18 )   (1.64 )   0.85  

(1)
For convenience purposes only, amounts in reais for the three months ended March 31, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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)
Calculated by dividing the profit (loss) attributable to the shareholders by the weighted average number of common shares outstanding during the year.

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(3)
Calculated by dividing the profit (loss) attributable to the shareholders by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all potential common shares with dilutive effects.
 
  As of March 31,   As of December 31,  
 
  2020   2020   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Balance Sheet Data:

                                     

Assets

                                     

Total current assets

    245.8     1,278.0     197.9     1,028.6     988.1     210.0  

Total non-current assets

    414.5     2,154.9     410.3     2,132.8     346.7     220.4  

Total assets

    660.3     3,432.9     608.1     3,161.4     1,334.9     430.4  

Liabilities

                                     

Total current liabilities

    129.8     674.8     79.3     412.1     57.9     69.7  

Total non-current liabilities

    221.3     1,150.5     222.1     1,154.5     207.1     55.0  

Total liabilities

    351.1     1,825.3     301.3     1,566.6     265.0     124.7  

Equity

                                     

Total equity

    309.2     1,607.5     306.8     1,594.8     1,069.9     305.7  

Total liabilities and equity

    660.3     3,432.9     608.1     3,161.4     1,334.9     430.4  

(1)
For convenience purposes only, amounts in reais as of March 31, 2020 and December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 October 31, 2019 and the unaudited interim condensed combined carve-out statements of income for the ten months ended October 31, 2019 and 2018 of Positivo have been derived from the unaudited interim condensed combined carve-out financial statements of Positivo incorporated by reference 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 incorporated by reference in this prospectus supplement, prepared in accordance with IFRS, as issued by the IASB. The results of operations of Positivo for the

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

 
  For the Ten Months Ended
October 31,
  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

    61.9     321.6     324.2     78.2     406.4     405.8     340.5  

Cost of sales

    (16.9 )   (87.8 )   (77.3 )   (18.7 )   (97.1 )   (111.5 )   (98.6 )

Gross profit

    45.0     233.8     246.9     59.5     309.3     294.3     241.9  

General and administrative expenses

    (10.2 )   (53.2 )   (53.2 )   (13.0 )   (67.6 )   (63.7 )   (51.1 )

Selling and distribution expenses

    (11.6 )   (60.3 )   (49.4 )   (12.1 )   (63.0 )   (89.3 )   (72.9 )

Other operating income, net

            0.7     (0.1 )   (0.5 )       0.1  

Impairment loss on accounts receivable

    (0.2 )   (0.8 )   (3.1 )   (0.8 )   (4.0 )   (11.1 )   (5.6 )

Income before financial income and taxes

    23.0     119.5     141.9     33.5     174.2     130.2     112.4  

Financial revenues

    0.8     4.0     3.5     0.9     4.7     3.7     2.6  

Financial expenses

    (0.2 )   (1.1 )   (1.4 )   (0.3 )   (1.8 )   (5.7 )   (4.8 )

Income before income tax and social contribution

    23.6     122.4     144.0     34.1     177.1     128.2     110.2  

Income tax and social contribution

                                           

Current

    (6.4 )   (33.4 )   (50.9 )   (13.1 )   (68.0 )   (44.9 )   (44.0 )

Deferred

    (1.5 )   (7.8 )   2.0     1.8     9.3     1.3     6.5  

Net income for the period/year

    15.7     81.2     95.1     22.8     118.6     84.6     72.8  

(1)
For convenience purposes only, amounts in reais for the ten months ended October 31, 2019 and for the year ended December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 as reported by the Central Bank. These translations should not be considered representations that

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    any such amounts have been, could have been or could be converted at that or any other exchange rate.

 
  As of October 31,   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

    23.0     119.8     24.6     127.8     119.5  

Total non-current assets

    10.2     53.2     10.0     52.2     40.5  

Total assets

    33.3     173.0     34.6     180.0     160.0  

Liabilities and Parent's Net Investments

                               

Total current liabilities

    10.9     56.5     10.8     55.9     100.8  

Total non-current liabilities

    1.6     8.5     1.3     6.5     4.7  

Total parent's net investments(2)

    20.8     108.0     22.6     117.6     54.5  

Total liabilities and parent's net investments

    33.3     173.0     34.6     180.0     160.0  

(1)
For convenience purposes only, amounts in reais as of October 31, 2019 and December 31, 2018 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 incorporated by reference in this prospectus supplement.

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Pro Forma Financial Information

        The unaudited pro forma summary statement of income information for the year ended December 31, 2019 has been derived from our unaudited pro forma condensed consolidated financial information and related notes thereto, incorporated by reference in this prospectus supplement.

 
  For the Year Ended
December 31,
 
 
  2019   2019  
 
  US$ millions(1)
  R$ millions
 
 
  (unaudited)
 

Statement of Income Data:

             

Net revenue

    170.1     884.5  

Cost of sales

    (36.8 )   (191.2 )

Gross profit

    133.4     693.3  

Selling expenses

    (58.8 )   (305.5 )

General and administrative expenses

    (42.9 )   (222.9 )

Other income, net

    (1.2 )   (6.2 )

Operating profit

    30.5     158.6  

Finance income

    14.6     75.9  

Finance costs

    (41.4 )   (215.0 )

Finance result

    (26.8 )   (139.1 )

Share of loss of equity-accounted investees

    (0.3 )   (1.8 )

Profit before income taxes

    3.4     17.8  

Income taxes

    2.6     13.4  

Profit for the period/year

    6.0     31.1  

(1)
For convenience purposes only, amounts in reais for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 taxes (restricted stock units), plus M&A expenses, plus non-recurring expenses which are related to consulting and legal services for the implementation of the Sarbanes-Oxley Act and effects related to COVID-19 pandemic, which includes the revision of the Company's estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the next months.

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        We calculate Adjusted Net Income as profit (loss) for the year (or period) plus share-based compensation plan, restricted stock units and related payroll taxes (restricted stock units) plus amortization of intangible assets from business combinations (which refers to the amortization of the following intangible assets from business combinations: (i) rights on contracts, (ii) customer relationships, (iii) educational system, (iv) trademarks, (v) non-compete agreement and (vi) software resulting from acquisitions) less/plus changes in fair value of derivative instruments (which refers to (i) changes in fair value of derivative instruments—finance income, and plus (ii) changes in fair value of derivative instruments—finance costs), less/plus changes in accounts payable to selling shareholders plus share of loss of equity-accounted investees plus interest expenses plus/minus changes in current and deferred tax recognized in statements of income applied to all adjustments to net income (which refers to tax effects of changes in deferred tax assets and liabilities recognized in profit or loss corresponding to financial instruments from acquisition of interests, tax benefit from tax deductible goodwill, share-based compensation and amortization of intangible assets), plus/minus foreign exchange gains/loss on cash and cash equivalents, plus M&A expenses, plus non-recurring expenses which are related to consulting and legal services for the implementation of the Sarbanes-Oxley Act and effects related to COVID-19 pandemic, which includes the revision of the Company's estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the next months.

        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.

    Adjusted EBITDA, Adjusted Net Income and Free Cash Flow

 
  For the Three Months Ended
March 31,
  For the Year Ended
December 31,
 
 
  2020   2020   2019   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Adjusted EBITDA(2)

    18.6     96.9     49.0     40.3     209.4     142.0     91.1  

Adjusted Net Income(3)

    10.8     56.3     40.8     32.6     169.6     112.3     66.6  

Free Cash Flow(4)

    5.1     26.3     32.2     (11.9 )   (61.7 )   55.9     51.3  

(1)
For convenience purposes only, amounts in reais for the three months ended March 31, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 a reconciliation between our Adjusted EBITDA and our profit for the year, see "—Reconciliations for Non-GAAP Financial Measures—Reconciliation between Adjusted EBITDA and Profit for the Year."

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(3)
For a reconciliation of our Adjusted Net Income, see "—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Adjusted Net Income from Profit (Loss) for the Year."

(4)
For a reconciliation of our Free Cash Flow, see "—Reconciliations for Non-GAAP Financial Measures—Reconciliation of Free Cash Flow from Net Cash Flows from Operating Activities."

Reconciliations for Non-GAAP Financial Measures

        The following tables set forth reconciliations of Adjusted EBITDA and Adjusted Net Income to our profit (loss) for the three months ended March 31, 2020 and 2019 and the years ended December 31, 2019, 2018 and 2017, 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 three months ended March 31, 2020 and 2019 and the years ended December 31, 2019, 2018 and 2017, our most recent directly comparable financial measures calculated and presented in accordance with IFRS.

Reconciliation between Adjusted EBITDA and Profit for the Year

 
  For the Three Months Ended
March 31,
  For the Year Ended December 31,  
 
  2020   2020   2019   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Profit (loss) for the year

    0.7     3.8     30.8     (1.8 )   (9.4 )   (82.9 )   43.6  

(+/–) Income taxes

    1.3     6.6     10.7     (6.4 )   (33.1 )   (18.0 )   22.7  

(+/–) Finance result

    5.6     29.0     (0.5 )   19.0     98.8     162.2     7.9  

(+) Depreciation and amortization

    5.5     28.7     7.2     9.3     48.3     19.6     14.3  

(+) Share of loss of equity-accounted investees

    0.1     0.7     0.5     0.3     1.8     0.8     0.7  

(+) Share-based compensation plan

    3.1     16.0     0.1     12.9     67.0     60.3     1.9  

(+) M&A expenses(2)

    0.3     1.6         5.6     28.9          

(+) Non-recurring expenses(3)

    2.0     10.6         1.4     7.1          

Adjusted EBITDA

    18.6     97.0     48.8     40.3     209.4     142.0     91.1  

(1)
For convenience purposes only, amounts in reais for the three months ended March 31, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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)
M&A expenses corresponds to the non-recurring expenses related to the acquisitions of the year, which was recorded in the statement of operations by Arco of R$28.9 million for the year ended December 31, 2019 and of R$1.6 million for the three months ended March 31, 2020.

(3)
Non-recurring expenses are related to consulting and legal services for the implementation of the Sarbanes-Oxley Act and effects related to COVID-19 pandemic, which includes the revision of the Company's estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the next months.

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

 
  For the Three Months Ended
March 31,
  For the Year Ended
December 31,
 
 
  2020   2020   2019   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Profit (loss) for the year

    0.7     3.8     30.8     (1.8 )   (9.4 )   (82.9 )   43.6  

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

    3.1     16.0     0.1     12.9     67.0     60.3     1.9  

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

    3.5     18.0     3.0     4.4     23.1     11.8     9.6  

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

        0.1     1.9     (0.1 )   (0.5 )   (0.7 )   6.7  

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

    1.3     6.6         17.2     89.4     130.4      

(+) Share of loss of equity-accounted investees

    0.1     0.7     0.5     0.3     1.8     0.8     0.7  

(+) Foreign exchange on cash and cash equivalents

    (0.1 )   (0.7 )   (0.1 )   0.1     0.6     34.4      

(+) Interest expenses (income), net(5)

    3.8     20.0     7.5     7.9     41.2     9.8     11.2  

(+/–) Tax effects(6)

    3.9     (20.4 )   (3.0 )   (15.3 )   (79.6 )   (51.5 )   (7.1 )

(+) M&A expenses(7)

    0.3     1.6         5.6     28.9          

(+) Non-recurring expenses(8)

    2.0     10.6         1.4     7.1          

Adjusted Net Income

    10.8     56.3     40.7     32.6     169.6     112.3     66.6  

(1)
For convenience purposes only, amounts in reais for the three months ended March 31, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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, (v) non-compete agreement, and (vi) software. For further information, see notes 11 and 14 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020 and our audited consolidated financial statements for the year ended December 31, 2019, respectively, incorporated by reference into 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 notes 20 and note 23 to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020 and our audited consolidated financial statements for the year ended December 31, 2019, respectively, incorporated by reference into 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 17 to our audited consolidated financial statements.

(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

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    compensation and amortization of intangible assets. For further information, see note 24 to our audited consolidated financial statements incorporated by reference into this prospectus supplement.

(7)
M&A expenses corresponds to the non-recurring expenses related to the acquisitions of the year, which was recorded in the statement of operations by Arco of R$28.9 million for the year ended December 31, 2019 and of R$1.6 million for the three months ended March 31, 2020.

(8)
Non-recurring expenses are related to consulting and legal services for the implementation of the Sarbanes-Oxley Act and effects related to COVID-19 pandemic, which includes the revision of the Company's estimated credit losses from its trade receivables based on expected increases in financial default and in unemployment rates in Brazil for the next months.

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

 
  For the Three Months Ended
March 31,
  For the Year Ended
December 31,
 
 
  2020   2020   2019   2019   2019   2018   2017  
 
  US$ millions(1)
  R$ millions
  US$ millions(1)
  R$ millions
 

Net cash flows from operating activities

    8.8     45.8     46.5     (1.5 )   (7.6 )   92.1     62.7  

Acquisition of property and equipment

    (0.5 )   (2.4 )   (2.8 )   (2.1 )   (11.0 )   (6.9 )   (5.3 )

Acquisition of intangible assets

    (3.3 )   (17.1 )   (11.5 )   (8.3 )   (43.1 )   (29.4 )   (6.0 )

Free Cash Flow

    5.0     26.3     32.3     (11.9 )   (61.7 )   55.9     51.3  

(1)
For convenience purposes only, amounts in reais for the three months ended March 31, 2020 and for the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 12-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 reflects 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 income (loss), 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,

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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 Booking 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, 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,  
 
  2020(1)   2020(2)   2019(3)   2018(4)   2017(5)  
 
  US$ (except
number of
enrolled
students)(1)

  R$ (except
number of
enrolled
students)

  R$ (except number of enrolled students)
 

Number of enrolled students

    n/a     1,362,141     498,553     405,814     322,031  

Average ticket per student per year

    142.0     738.4     884.3     793.8     711.9  

ACV Bookings (in millions)

    193.5     1,005.8     440.9     322.1     229.3  

(1)
For convenience purposes only, amounts in reais as of March 31, 2020 have been translated to U.S. dollars using an exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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 2020 school year (which we define for purposes of ACV Bookings as the period starting in October 2019 and ending in September 2020). Includes the ACV Bookings of Positivo, which we acquired in November 2019.

(3)
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).

(4)
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).

(5)
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).

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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 2019 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 Relating to Our Business and Industry

Our operations and results may be negatively impacted by the coronavirus (COVID-19) outbreak.

        Since December 2019, a novel strain of COVID-19 has spread in over 150 countries, including China, Italy, U.S. and Brazil. On March 11, 2020, the World Health Organization, revised the classification of COVID-19 from an epidemic (when a disease spreads through a specific community or region) to a pandemic, which according to World Health Organization's definition is when there is a worldwide spread of a new disease. The classification of the disease as a pandemic was motivated by the rapid increase in the number of cases and the number of affected countries on all continents, triggering measures by governments, companies and societies to contain the advances of COVID-19. The measures vary from country to country in quantity and degree of severity but in Brazil basically involve: (1) recommendations to adopt voluntary isolation (avoid going out on the streets, avoiding crowds, avoiding physical contact with other people, etc.); (2) internal restrictions regarding the movement of people; (3) closing of schools; (4) closing of public places (parks and leisure centers); (5) closures of shopping malls, bars and restaurants; (6) adoption of remote working practices (home office) by companies, whenever possible and permitted by their activities; (7) restriction and/or suspension of trade in non-essential goods and services in the context of COVID-19 (while supermarkets, drugstores, gas stations and other essential services remain available); (8) purchase restrictions for certain essential items to avoid scarcity; (9) interruption of production activities of consumer items not essential to combat the pandemic; (10) restriction on the delivery of products to homes other than essentials; (11) compulsory reduction of working hours; (12) cancellation of public events; and (13) other restrictive measures.

        Such events have adversely impacted regional economies and have caused disruption of regional or global economic activity. In particular and in the interest of public health and safety, state and local governments in Brazil have required mandatory school closures for an unspecified period of time, which has changed the manner in which schools and students use our products and has increased dependence on technology. In addition to such school closures, which could reduce the number of schools and students that use our products or result in an increase in payment defaults, the reduction in the production of our materials provided by third parties and the stoppage or closing of transportation companies for undetermined periods could also materially and adversely affect our operation and financial results.

        We cannot predict the extent of the pandemic, and consequently, its direct and indirect impacts on local and world economies in the short, medium and long terms. In a prolonged contraction scenario, the virus could spread globally without a seasonal decline and the impacts could include: (1) increased number of deaths; (2) demand shock; (3) overloading health-care systems in many countries, especially in less developed areas; (4) large scale human and economic impact; (5) layoffs and bankruptcies in the most affected sectors rising sharply throughout 2020; (6) severe global economic impact, with significant

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gross domestic product, contraction in most major economies in 2020 and a slow-moving recovery; (7) infrastructure collapse and lack of basic services, particularly in less developed countries; and (8) compromised government planning, coordination and reaction capacity according to the speed that the disease progresses.

        Despite the measures adopted to contain the progress of COVID-19 and aid measures announced by governments around the world, including the Brazilian government, as of the date hereof, we cannot predict the extent, duration and impacts of such containment measures, or the results of aid measures in Brazil, including the impact on our costs or access to capital and funding resources, and general economic and social uncertainty, such as increases in interest rates, variations in foreign exchange rates, inflation and unemployment.

        The extent to which COVID-19 impacts our financial results and operations will depend on future developments, which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the impact of the COVID-19 pandemic. Based on future developments of COVID-19, it is possible the we may, in the future, be required to take actions or steps in relation to our business that could have a disruptive or a material and adverse effect on our business.

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% of the voting power of our issued share capital following this offering, and will 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 do not hold any of our Class A common shares, but immediately following this offering, will beneficially own 50.4% of our issued share capital through their beneficial ownership of all of our outstanding Class B common shares, and consequently, 91% of the combined voting power of our issued share capital. 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."

        As 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

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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 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 27,541,422 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 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 and Alfaco 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 30-day and 90-day period, respectively, following the date of this prospectus supplement. However, Goldman Sachs & 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 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.

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.

        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:

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USE OF PROCEEDS

        We will not receive any proceeds from the sale of Class A common shares by the selling shareholders. The selling shareholders are selling all of the Class A common shares in this offering.

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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 March 31, 2020, on a historical basis.

        Investors should read this table in conjunction with our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements and the related notes incorporated by reference 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 2019 Annual Report.

 
  As of March 31, 2020  
 
  Actual  
 
  (US$ millions)(1)
  (R$ millions)
 

Non-current lease liabilities

    3.4     17.7  

Non-current loans and financing

    0.2     1.2  

Total equity

    309.2     1,607.5  

Total capitalization(2)

    312.8     1,626.4  

(1)
For convenience purposes only, amounts in reais as of March 31, 2020 have been translated to U.S. dollars at the exchange rate of R$5.1987 to US$1.00, the commercial selling rate for U.S. dollars as of March 31, 2020 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)
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 March 31, 2020.

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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 2019 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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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 March 31, 2020 and for the three months ended March 31, 2020 and 2019 and the notes thereto, incorporated by reference in this prospectus supplement, and "Item 5. Operating and Financial Review and Prospects" in our 2019 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."

Our Results of Operations

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

        The following table sets forth our consolidated statements of income (loss) for the three months ended March 31, 2020 and 2019. The consolidated statements of income (loss) for the three months ended March 31, 2019 do not include the consolidated statements of income (loss) of Positivo, which we acquired on November 1, 2019:

 
  For the Year Ended
March 31,
 
 
  2020   2019   Variation (%)  
 
  (in R$ millions, except
for percentages)

 

Statement of Income Data:

                   

Net revenue

    261.6     117.1     123.4  

Core(1)

    220.7     99.2     122.5  

Supplemental(1)

    40.9     17.9     128.5  

Cost of sales

    (67.2 )   (21.9 )   206.8  

Gross profit

    194.4     95.2     104.2  

Selling expenses

    (87.9 )   (36.1 )   143.5  

General and administrative expenses

    (66.8 )   (20.8 )   221.2  

Other income (expenses), net

    0.4     3.4     (88.2 )

Operating profit

    40.1     41.6     (3.6 )

Finance income

    9.4     17.0     (44.7 )

Finance costs

    (38.3 )   (16.5 )   132.1  

Finance result

    (29.0 )   0.5     n.m.  

Share of loss of equity-accounted investees

    (0.7 )   (0.5 )   40.0  

Income before income taxes

    10.4     41.6     (75.0 )

Income taxes—expense

    (6.6 )   (10.7 )   (38.3 )

Current

    (32.2 )   (18.3 )   76.0  

Deferred

    25.6     7.5     241.3  

Income for the year

    3.8     30.8     (87.7 )

n.m.
= not meaningful

(1)
Our operating segments consist of our Core segment and our Supplemental segment. For further information, see note 22 to our unaudited interim condensed consolidated financial statements.

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        Net revenue for the three months ended March 31, 2020 was R$261.6 million, an increase of R$144.5 million, or 123.4%, from R$117.1 million for the three months ended March 31, 2019.

        This increase was primarily attributable to the positive impact of (i) our organic growth through the addition of new partner schools and an increase in up-sales of our solutions, and (ii) the Positivo Acquisition, which resulted in a 173.2% increase in the total number of students enrolled at our partner schools, to 1,362,141 students distributed across our partner schools as of March 31, 2020 from 498,553 students distributed across our partner schools as of March 31, 2019.

        In our Core segment, net revenue for the three months ended March 31, 2020 was R$220.7 million, an increase of R$121.5 million, or 122.6%, from R$99.2 million for the three months ended March 31, 2019.

        This increase was primarily attributable to the 174% increase in the number of enrolled students at partner schools, from 413,678 enrolled students as of March 31, 2019 to 1,131,691 enrolled students as of March 31, 2020, as a result of the impact of our organic growth and the Positivo Acquisition.

        In our Supplemental segment, net revenue for the three months ended March 31, 2020 was R$40.9 million, an increase of R$23.0 million, or 128.4% from R$17.9 million for the three months ended March 31, 2019.

        This increase was primarily attributable to the 172% increase in the number of enrolled students at partner schools, from 84,875 enrolled students as of March 31, 2019 to 230,450 enrolled students as of March 31, 2020, as a result of (i) the impact of our organic growth and the Positivo Acquisition, and (ii) the addition of new supplemental solutions in our portfolio.

        Cost of sales for the three months ended March 31, 2020 was R$67.2 million, an increase of R$45.3 million, or 206.8%, from R$21.9 million for the three months ended March 31, 2019. This increase was primarily attributable to the overall increase in the production volume of our educational materials, resulting from the impact of our organic growth and the Positivo Acquisition. The increase in cost of sales was higher than our revenue growth, reflecting a different revenue recognition among our brands as compared to the previous year, and added to the fact that our acquisitions have a lower gross margin than us.

        As a percentage of net revenue, our cost of sales increased to 25.7% for the three months ended March 31, 2020, compared to 18.7% for the three months ended March 31, 2019.

        In our Core segment, cost of sales for the three months ended March 31, 2020 was R$59.2 million, an increase of R$19.7 million, or 201.0%, from R$39.6 million for the three months ended March 31, 2019. As mentioned above, this increase was primarily attributable to the overall increase in the production volume of our educational materials, resulting from the impact of our organic growth and the Positivo Acquisition. As a percentage of net revenue in our Core segment, cost of sales increased to 30.4% in the three months ended March 31, 2020, compared to 22.1% in the three months ended March 31, 2019.

        In our Supplemental segment, cost of sales for the three months ended March 31, 2020 was R$8.0 million, an increase of R$6.8 million, or 265.2% from R$2.2 million for the three months ended March 31, 2019. This increase was also primarily attributable to the overall increase in the production volume of our educational materials, resulting from the impact of our organic growth, the Positivo Acquisition and the addition of our supplemental solutions in our portfolio. As a percentage of net revenue in our Supplemental segment, cost of sales decreased to 0.1% in the three months ended March 31, 2020, compared to 0.2% in the three months ended March 31, 2019.

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        For the reasons discussed above, gross profit for the three months ended March 31, 2020 was R$194.4 million, an increase of R$99.2 million, or 104.2%, from R$95.2 million for the three months ended March 31, 2019. In our Core segment, gross profit for the three months ended March 31, 2020 was R$161.4 million, an increase of R$81.9 million, or 304.2%, from R$79.5 million for the three months ended March 31, 2019. In our Supplemental segment, gross profit for the three months ended March 31, 2020 was R$32.9 million, an increase of R$17.2 million or 404.2%, from R$15.8 million for the three months ended March 31, 2019.

        Selling expenses for the three months ended March 31, 2020 were R$87.9 million, an increase of R$51.8 million, or 143.5%, from R$36.1 million for the three months ended March 31, 2019. This increase was primarily attributable to:

        General and administrative expenses for the three months ended March 31, 2020 were R$66.8 million, an increase of R$46.0 million, or 221.2%, from R$20.8 million for the three months ended March 31, 2019. This increase was primarily attributable to:

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        For the reasons discussed above, operating profit for the three months ended March 31, 2020 was R$40.1 million, a decrease of R$1.5 million, or 3.6%, from R$41.6 million for the three months ended March 31, 2019.

        Finance result for the three months ended March 31, 2020 was a net finance cost of R$29.0 million, compared to a net finance cost of R$0.5 million for the three months ended March 31, 2019, for the reasons described below.

        Finance income.    Finance income for the three months ended March 31, 2020 was R$9.4 million, a decrease of R$7.6 million, or 44.7%, from R$17.0 million for the three months ended March 31, 2019. This decrease was mainly attributable to a decrease in interest generated from financial investments, as a result of the lower performance of our financial investments for the three months ended March 31, 2020 when compared to the same period in 2019.

        Finance costs.    Finance costs for the three months ended March 31, 2020 was R$38.3. million, an increase of R$21.8 million, from R$16.5 million for the three months ended March 31, 2019. This increase was attributable to the effects of fair value adjustments of our accounts payable to selling shareholders and interest on acquisition of investments and accrued interest from the loan agreement with Banco Bradesco S.A.

        Share of loss of equity-accounted investees for the three months ended March 31, 2020 increased to R$0.7 million, from R$0.5 million for the three months ended March 31, 2019, attributable to the performance of our equity-accounted investees.

        For the reasons discussed above, for the three months ended March 31, 2020, we recorded income before income taxes of R$10.4 million compared to an income of R$41.6 million for the three months ended March 31, 2019.

        For the three months ended March 31, 2020, we recorded an income tax expense of R$6.6 million compared to an income tax expense of R$10.7 million for the three months ended March 31, 2019, principally due to the lower taxable income for the three months ended March 31, 2020.

        As a result of the foregoing, income for the three months ended March 31, 2020 was R$3.8 million compared to income of R$30.8 million for the three months ended March 31, 2019.

Our Liquidity and Capital Resources

        As of March 31, 2020, we had R$832.9 million in cash and cash equivalents and financial investments (current). 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.

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        The following discussion of our liquidity and capital resources is based on the financial information derived from our unaudited interim condensed consolidated financial statements, incorporated by reference in this prospectus supplement.

Cash Flows

 
  For the Three Months
Ended March 31,
 
 
  2020   2019  
 
  (in thousands of reais)
 
 
  (unaudited)
 

Cash Flow Data

             

Net cash flows from operating activities

    45,761     46,526  

Net cash flows used in investing activities

    (215,287 )   (54,576 )

Net cash flows from financing activities

    192,875     30  

        We recorded net cash flows from operating activities of R$45.8 million in the three months ended March 31, 2020, compared to net cash flows from operating activities of R$46.5 million in the corresponding period on 2019. In three months ended March 31, 2020, our net cash flows from operating activities were affected by non-cash adjustments mainly comprised of changes in interest from financial investments, which was partially offset by the increase in income taxes paid.

        Our net cash used in investing activities was R$215.3 million in the three months ended March 31, 2020, compared to net cash used in investing activities of R$54.6 million in the corresponding period of 2019, primarily due to (i) the impact of the addition of new financial investments totaling R$183.2 million, and (ii) the payment of investments and interests in other entities totaling R$12.7 million, which is related to the acquisition of an additional 10.51% interest in the share capital of Geekie through the purchase of shares from minority shareholders.

        Our net cash flows from financing activities for the three months ended March 31, 2020 was R$192.9 million, primarily due to a R$200.0 million secured loan agreement we entered into on March 23, 2020.

Indebtedness

        As of March 31, 2020, our total outstanding indebtedness was R$299.3 million.

Related Party Transactions

        On March 27, 2020 and April 15, 2020, Arco entered into two loan agreements with Arco Educação S.A. in the amounts of R$5 million and R$11.5 million, respectively. Both loans accrue interest at a rate equal to 100% of the CDI and mature on March 27, 2023.

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        On March 31, 2020, Arco Ventures S.A. entered into a loan agreement with NAV, in the amount of R$5 million. The loan accrues interest at a rate equal to 0.65% per month and matures on March 31, 2022.

Capital Expenditures

        In the three months ended March 31, 2020 and 2019, we made capital expenditures of R$19.4 million and R$14.3 million, respectively. These capital expenditures mainly include expenditures related to the acquisition of property and equipment and the acquisition of intangible assets. Our capital expenditures increased in the three months ended March 31, 2020 as compared to the corresponding period of 2019 mainly due to (i) investments made in educational technology totaling R$1.8 million; (ii) the development of educational content totaling R$2.5 million; (iii) investments in software and user licenses totaling R$2.7 million; and (iv) expenses related to compliance with the Base Nacional Comum Curricular totaling R$2.3 million.

        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. 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.

Tabular Disclosure of Contractual Obligations

        The following is a summary of our contractual obligations as of March 31, 2020:

 
  Payments Due by Period as of
March 31, 2020
 
 
  Less than
1 year
  1 - 3
years
  3 - 5
years
  More than
5 years
  Total  
 
  (in thousands of reais)
 

Trade payables

    47,159                 47,159  

Lease liabilities

    6,774     12,678     5,036         24,488  

Loans and financing

    298,069     1,211             299,280  

Financial instruments from acquisition of interests(1)

        29,899             29,899  

Accounts payable to selling shareholders

    143,089     1,096,313             1,239,402  

Total

    495,091     1,140,101     5,036         1,640,228  

(1)
As of March 31, 2020 it includes (i) an option to acquire the remaining 51.96% of the outstanding share capital of Geekie in May 2022 pursuant to the share purchase agreement dated as of December 8, 2016, and (ii) an option to acquire the remaining 75% of the outstanding share capital of WPensar between July 10, 2020 and July 10, 2021.

Off-Balance Sheet Arrangements

        As of March 31, 2020, we did not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosure About Market Risk

        We are exposed to market risks associated with foreign exchange and interest rates. In accordance with our policies, we seek to manage our exposure to these various market-based risks.

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        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.

Foreign Exchange Risk

        Our results are not subject to significant fluctuations resulting from the effects of the volatility of any exchange rate. As of March 31, 2020, we have cash and cash equivalents and financial investments denominated in U.S. dollars in the amount of R$4.3 million.

Liquidity Risk

        We regularly review the liquidity risk and maintain appropriate reserves, including bank credit facilities with first tier financial institutions. We also continuously monitor projected and actual cash flows and the combination of 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. See "—Tabular disclosure of contractual obligations" for a table summarizing our contractual obligations as of March 31, 2020.

Financial Counterparty Risk

        The financial counterparty risk arises from the possibility that we may incur losses due to the default of our counterparties. We adopt as practice the analysis of the financial and equity situation of our counter parts in order to control this risk.

        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 investments with floating interest rates. We are primarily exposed to fluctuations in CDI interest rates on financial investments. Our exposure to cash, bank deposits and cash equivalents and financial investments indexed to the CDI totaled R$833.4 million as of March 31, 2020. See note 24 to our unaudited interim condensed consolidated financial statements, incorporated by reference in this prospectus supplement, for a sensitivity analysis of the impact of a hypothetical 10% change in the CDI on our cash and cash equivalents and financial investments as of March 31, 2020.

        For further information on our market risks, see note 24 to our unaudited interim condensed consolidated financial statements, incorporated by reference in this prospectus supplement.

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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 October 31, 2019 and for the ten months ended October 31, 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, incorporated by reference 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

        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), or Positivo Acquisition. 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 Positivo Group. 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. The Positivo Acquisition was completed on November 1, 2019.

        With over 40 years of brand legacy, Positivo evolved to become a leading content providing platform that transforms the lives of over 710,000 students in nearly 3,700 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 ten 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.

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

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        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

Ten months ended October 31, 2019 Compared to ten months ended October 31, 2018

        The following table sets forth the unaudited interim combined carve-out statements of income of Positivo for the ten months ended October 31, 2019 and 2018:

 
  For the Ten Months Ended
October 31,
 
 
  2019   2018   Variation (%)  
 
  (in R$ millions, except for
percentages)

 

Statement of Income Data:

                   

Net revenue from sales

    321.6     324.2     (0.8 )

Cost of sales

    (87.8 )   (77.3 )   13.6  

Gross profit

    233.8     246.9     (5.3 )

General and administrative expenses

    (53.2 )   (53.2 )   0.1  

Selling and distribution expenses

    (60.3 )   (49.4 )   22.1  

Other operating income, net

        0.7      

Impairment loss on accounts receivable

    (0.8 )   (3.1 )   (74.8 )

Income before financial income and taxes

    119.5     141.9     (15.8 )

Financial income

    2.9     2.1     37.5  

Financial revenues

    4.0     3.5     14.2  

Financial expenses

    (1.1 )   (1.4 )   (21.6 )

Income before income tax and social contribution

    122.4     144.0     (15.0 )

Income tax and social contribution

                   

Current

    (33.4 )   (50.9 )   (34.4 )

Deferred

    (7.8 )   2.0     (497.9 )

Net income for the year

    81.2     95.1     (14.6 )

        Net revenue from sales for the ten months ended October 31, 2019 was R$321.6 million, a decrease of R$2.6 million, or 0.8%, from R$324.2 million for the ten months ended October 31, 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 ten months ended October 31, 2019 was R$87.8 million, an increase of R$10.5 million, or 13.6%, from R$77.3 million for the ten months ended October 31, 2018. This increase was primarily attributable to a R$11.5 million, or 20.4%, 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.

        As a percentage of net revenue, Positivo's cost of sales increase to 27.3% for the ten months ended October 31, 2019, compared to 23.8% for the ten months ended October 31, 2018.

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        For the reasons discussed above, gross profit for the ten months ended October 31, 2019 was R$233.8 million, a decrease of R$13.1 million, or 5.3%, from R$246.9 million for the ten months ended October 31, 2018.

        General and administrative expenses for the ten months ended October 31, 2019 were R$53.2 million, an increase of 0.1%, from R$53.2 million for the ten months ended October 31, 2018.

        Selling and distribution expenses for the ten months ended October 31, 2019 were R$60.3 million, an increase of R$10.9 million, or 22.1%, from R$49.4 million for the ten months ended October 31, 2018. This increase was primarily attributable to:

        For the ten months ended October 31, 2019, Positivo did not record other operating income, net, whereas for the ten months ended October 31, 2018, Positivo recorded other operating income, net of R$0.7 million.

        Impairment loss on accounts receivable for the ten months ended October 31, 2019 was R$0.8 million, a decrease of R$2.3 million, or 74.8%, from R$3.1 million for the ten months ended October 31, 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 ten months ended October 31, 2019 was R$119.5 million, a decrease of R$22.4 million, or 15.8%, from R$141.9 million for the ten months ended October 31, 2018.

        Financial income for the ten months ended October 31, 2019 was financial revenues, net of R$2.9 million, compared to financial revenues, net of R$2.1 million for the ten months ended October 31, 2018, for the reasons described below.

        Financial revenues for the ten months ended October 31, 2019 was R$4.0 million, an increase of R$0.5 million, or 14.2%, from R$3.5 million for the ten months ended October 31, 2018. This increase was primarily attributable to an increase in income from interest charged on late payments from partner schools.

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        Financial expenses for the ten months ended October 31, 2019 were R$1.1 million, a decrease of R$0.3 million, or 21.6%, from R$1.4 million for the ten months ended October 31, 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 ten months ended October 31, 2019 was R$122.4 million, a decrease of R$21.6 million, or 15.0%, from R$144.0 million for the ten months ended October 31, 2018.

        Current income tax and social contribution expenses for the ten months ended October 31, 2019 were R$33.4 million, a decrease of R$17.5 million, or 34.4%, from R$50.9 million for the ten months ended October 31, 2018.

        Deferred income tax and social contribution expense for the ten months ended October 31, 2019 was R$7.8 million, an increase of R$9.8 million, or 497.9%, compared to deferred income tax and social contribution income of R$2.0 million for the ten months ended October 31, 2018.

        As a result of the foregoing, net income for the ten months ended October 31, 2019 was R$81.2 million, a decrease of R$13.9 million, or 14.6%, from R$95.1 million for the ten months ended October 31, 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)

 

Statement of Income Data:

                   

Net revenue

    406.4     405.8     0.2  

Cost of sales

    (97.1 )   (111.5 )   (12.9 )

Gross profit

    309.3     294.3     5.1  

General and administrative expenses

    (67.6 )   (63.7 )   6.1  

Selling and distribution expenses

    (63.0 )   (89.3 )   (29.5 )

Other operating income, net

    (0.5 )        

Impairment loss on accounts receivable

    (4.0 )   (11.1 )   (64.0 )

Income before financial income and taxes

    174.2     130.2     33.8  

Financial income

    2.9     (2.0 )   (245.0 )

Financial revenues

    4.7     3.7     27.0  

Financial expenses

    (1.8 )   (5.7 )   (68.4 )

Income before income tax and social contribution

    177.1     128.2     38.1  

Income tax and social contribution

                   

Current

    (68.0 )   (44.9 )   51.4  

Deferred

    9.3     1.3     615.4  

Net income for the year

    118.4     84.6     40.0  

        Net revenue from sales for the year ended December 31, 2018 was R$406.4 million, an increase of R$0.6 million, or 0.2%, from R$405.8 million for the year ended December 31, 2017. 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 year ended December 31, 2018 was R$97.1 million, a decrease of R$14.4 million, or 12.9%, from R$111.5 million for the year ended December 31, 2017. This decrease was primarily attributable to the discontinuation of two non-subscription products, which resulted in a decrease in the headcount of the editorial team for those products, and a decrease in resale material and consumption material used, which comprises the preparation, printing and delivery of products.

        As a percentage of net revenue, Positivo's cost of sales decreased to 23.9% for the year ended December 31, 2018, compared to 27.5% for the year ended December 31, 2017.

        For the reasons discussed above, gross profit for the year ended December 31, 2018 was R$309.3 million, an increase of R$15 million, or 5.1%, from R$294.3 million for the year ended December 31, 2017.

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        General and administrative expenses for the year ended December 31, 2018 were R$67.6 million, an increase of R$3.9 million, or 6.1%, from R$63.7 million for the year ended December 31, 2017. This increase was primarily attributable to a R$6.6 million, or 16.5%, increase in personnel expenses as a result of increases in variable compensation and mandatory salary adjustments in connection with collective bargaining agreements with the applicable workers' unions.

        Selling and distribution expenses for the year ended December 31, 2018 were R$63.0 million, a decrease of R$26.3 million, or 29.5%, from R$89.3 million for the year ended December 31, 2017. This decrease was primarily attributable to a R$23.0 million, or 58.3%, decrease in advertising and publicity expenses, due to the fact that Positivo did not conduct specific marketing campaigns in 2018, unlike in 2016 and 2017 where Positivo conducted marketing campaigns to reinforce awareness of the SPE brand and highlight the ENEM results of partner schools.

        For the year ended December 31, 2018, Positivo recorded other operating expenses, net, of R$0.5 million, whereas for the year ended December 31, 2017, Positivo did not record other operating expenses, net.

        Impairment loss on accounts receivable for the year ended December 31, 2018 was R$4.0 million, a decrease of R$7.1 million, or 64.0%, from R$11.1 million for the year ended December 31, 2017. 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 year ended December 31, 2018 was R$174.2 million, a decrease of R$44 million, or 33.8%, from R$130.2 million for the year ended December 31, 2017.

        Financial revenues for the year ended December 31, 2018 was R$4.7 million, an increase of R$1 million, or 27.0%, from R$3.7 million for the year ended December 31, 2017. This increase was primarily attributable to an increase in income from interest charged on late payments from partner schools.

        Financial expenses for the year ended December 31, 2018 were R$1.8 million, a decrease of R$3.9 million, or 68.4%, from R$5.7 million for the year ended December 31, 2017. This decrease was primarily attributable to the repayment in February 2018 of the loan agreement entered into with the BNDES in May 2016.

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        For the reasons discussed above, income before income tax and social contribution for the year ended December 31, 2018 was R$177.1 million, an increase of R$48.9 million, or 38.1%, from R$128.2 million for the year ended December 31, 2017.

        Current income tax and social contribution expenses for the year ended December 31, 2018 were R$68.0 million, an increase of R$23.1 million, or 51.4%, from R$44.9 million for the year ended December 31, 2017. Positivo's effective tax rate was 34% for both periods, in line with the statutory tax rate.

        Deferred income tax and social contribution income for the year ended December 31, 2018 was R$9.3 million, an increase of R$8.0 million, or 615.4%, from R$1.3 million for the year ended December 31, 2017.

        As a result of the foregoing, net income for the year ended December 31, 2018 was R$118.4 million, an increase of R$33.8 million, or 40.0%, from R$84.6 million for the year ended December 31, 2017.

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

        The following table sets forth the combined carve-out statements of income of Positivo for the years ended December 31, 2017 and 2016:

 
  For the Year Ended December 31,  
 
  2017   2016   Variation (%)  
 
  (in R$ millions, except for
percentages)

 

Statement of Income Data:

                   

Net revenue

    405.8     340.5     19.2  

Cost of sales

    (111.5 )   (98.6 )   13.1  

Gross profit

    294.3     241.9     21.7  

General and administrative expenses

    (63.7 )   (51.1 )   24.7  

Selling and distribution expenses

    (89.3 )   (72.9 )   22.5  

Other operating income, net

        0.1      

Impairment loss on accounts receivable

    (11.1 )   (5.6 )   98.2  

Income before financial income and taxes

    130.2     112.4     15.8  

Financial income

    (2.0 )   (2.2 )   (9.1 )

Financial revenues

    3.7     2.6     42.3  

Financial expenses

    (5.7 )   (4.8 )   18.8  

Income before income tax and social contribution

    128.2     110.2     16.3  

Income tax and social contribution

                   

Current

    (44.9 )   (44.0 )   2.0  

Deferred

    1.3     6.5     (80.0 )

Net income for the year

    84.7     72.7     16.4  

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        Net revenue for the year ended December 31, 2017 was R$405.8 million, an increase of R$65.3 million, or 19.2%, from R$340.5 million for the year ended December 31, 2016. This increase was primarily attributable to (i) the ramp up of Conquista's operations, a new brand aimed at capturing an addressable market of lower tuition schools in Brazil, and (ii) an increase in sales of two non-subscription products.

        Cost of sales for the year ended December 31, 2017 was R$111.5 million, an increase of R$12.9 million, or 13.1%, from R$98.6 million for the year ended December 31, 2016. The increase of 13.1% was lower than Positivo's revenue growth, and reflects the net effect of:

        As a percentage of net revenue, Positivo's cost of sales decreased to 27.5% for the year ended December 31, 2017, compared to 29.0% for the year ended December 31, 2016.

        For the reasons discussed above, gross profit for the year ended December 31, 2017 was R$294.3 million, an increase of R$52.4 million, or 21.7%, from R$241.9 million for the year ended December 31, 2016.

        General and administrative expenses for the year ended December 31, 2017 were R$63.7 million, an increase of R$12.6 million, or 24.7%, from R$51.1 million for the year ended December 31, 2016. This increase was primarily attributable to:

        Selling and distribution expenses for the year ended December 31, 2017 were R$89.3 million, an increase of R$16.4 million, or 22.5%, from R$72.9 million for the year ended December 31, 2016. This increase was primarily attributable to a R$14.5 million, or 58.4%, increase in advertising and publicity expenses, due to the marketing campaigns conducted in 2017 to reinforce awareness of the SPE brand and highlight the ENEM results of partner schools.

        For the year ended December 31, 2017, Positivo did not record other operating expenses, net, whereas for the year ended December 31, 2016, Positivo recorded other operating income, net, of R$0.1 million.

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        Impairment loss on accounts receivable for the year ended December 31, 2017 was R$11.1 million, an increase of R$5.5 million, or 98.2%, from R$5.6 million for the year ended December 31, 2016. This increase was primarily attributable to the deterioration in the profile of Conquista's partner schools in 2017, which resulted in an increase in delinquency rates and, in turn, allowances for doubtful accounts.

        For the reasons discussed above, income before financial income and taxes for the year ended December 31, 2017 was R$130.2 million, an increase of R$17.7 million, or 15.8%, from R$112.4 million for the year ended December 31, 2016.

        Financial revenues for the year ended December 31, 2017 was R$3.7 million, an increase of R$1.1 million, or 42.3%, from R$2.6 million for the year ended December 31, 2016. This increase was primarily attributable to an increase in income from interest charged on late payments from partner schools.

        Financial expenses for the year ended December 31, 2017 were R$5.7 million, an increase of R$0.9 million, or 18.8%, from R$4.8 million for the year ended December 31, 2016. This increase was primarily attributable to debt servicing expenses related to the loan agreement entered into with the BNDES in May 2016.

        For the reasons discussed above, income before income tax and social contribution for the year ended December 31, 2017 was R$128.2 million, an increase of R$18 million, or 16.3%, from R$110.2 million for the year ended December 31, 2016.

        Current income tax and social contribution expenses for the year ended December 31, 2017 were R$44.9 million, an increase of R$0.9 million, or 2.0%, from R$44.0 million for the year ended December 31, 2016.

        Deferred income tax and social contribution income for the year ended December 31, 2017 was R$1.3 million, a decrease of R$5.2 million, or 80.0%, from R$6.5 million for the year ended December 31, 2016.

        As a result of the foregoing, net income for the year ended December 31, 2017 was R$84.6 million, an increase of R$11.9 million, or 16.4%, from R$72.7 million for the year ended December 31, 2016.

Liquidity and Capital Resources

        As of October 31, 2019, Positivo had R$37.6 million in cash and cash equivalents.

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Cash Flows

 
  For the Ten
Months Ended
October 31,
  For the Year Ended
December 31,
 
 
  2019   2018   2018   2017   2016  
 
  (in millions of reais)
 

Cash Flow Data

                               

Net cash flows from operating activities

    122.1     150.5     146.4     90.0     106.9  

Net cash flows used in investing activities

    (11.4 )   (10.4 )   (13.9 )   (9.7 )   (11.1 )

Net cash flows used in financing activities

    (93.4 )   (140.0 )   (112.5 )   (80.2 )   (95.6 )

        Positivo's net cash flows from operating activities (i) decreased by 15.8% from R$106.9 million in 2016, to R$90.0 million in 2017, mainly due to the increase in trade accounts receivable as a result of Conquista's revenue growth, as Positivo delivers its content once a year and clients pay in installments throughout the year, (ii) increased by 62.7% from R$90.0 million in 2017, to R$146.4 million in 2018, mainly due to the decrease in trade accounts receivable as a result of the improvement in the profile of Conquista's partner schools in 2018, and (iii) decreased by 18.9% from R$150.5 million in the ten months ended October 31, 2018 to R$122.1 million in the ten months ended October 31, 2019.

        Positivo's net cash flows used in investing activities (i) decreased by 12.8% from R$11.1 million in 2016, to R$9.7 million in 2017, (ii) increased by 43.8% from R$9.7 million in 2017, to R$13.9 million in 2018, and (iii) increased by 9.3% from R$10.4 million in the ten months ended October 31, 2018 to R$11.4 million in the ten months ended October 31, 2019. Net cash flows used in investing activities for the periods were composed primarily of investments in intangible assets made by Positivo in connection with content development.

        Positivo's net cash flows used in financing activities (i) decreased by 16.1% from R$95.6 million in 2016, to R$80.2 million in 2017, mainly due to the loan agreement entered into with the BNDES in May 2016, (ii) increased by 40.2% from R$80.2 million in 2017, to R$112.5 million in 2018, mainly due to the repayment of the loan with the BNDES in 2018, and (iii) decreased by 33.3% from R$140.0 million in the ten months ended October 31, 2018 to R$93.4 million in the ten months ended October 31, 2019, mainly due to the repayment of the loan with the BNDES in 2018 and the distribution of dividends to shareholders in the first half of 2019.

Indebtedness

        As of October 31, 2019 and as of December 31, 2018, Positivo had no outstanding indebtedness.

        In May 2016, Positivo entered into a loan agreement with the BNDES in an amount equal to R$56.4 million. The loan accrued interest at a rate per annum equal to 2% plus TJLP and was scheduled to mature on May 15, 2022. Positivo repaid the loan in full in February 2018.

Capital Expenditures

        In the ten months ended October 31, 2019, Positivo made capital expenditures of R$11.4 million. These capital expenditures mainly include expenditures related to the development of intellectual property related to learning systems, literature and educational platforms (software), and the

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acquisition of copyrights as well as other services provided by third parties (design project, text edition and design, among others).

        Positivo expects to increase its capital expenditures to support the growth in its business and operations. Positivo expects to meet its capital expenditure needs for the foreseeable future from its operating cash flow and its existing cash and cash equivalents. Positivo's future capital requirements will depend on several factors, including its growth rate, the expansion of its research and development efforts, employee headcount, marketing and sales activities, the introduction of new features to its existing products, and the continued market acceptance of its products.

Tabular Disclosure of Contractual Obligations

        The following is a summary of Positivo's contractual obligations as of October 31, 2019 and as of December 31, 2018:

 
  Payments Due by Maturity Age as of
October 31, 2019
 
 
  Less than
1 year
  1 - 3
years
  3 - 5
years
  More than
5 years
  Total  
 
  (in thousands of reais)
 

Suppliers

    6,381                 6,381  

Lease payable

    2,358     3,016             5,374  

Total

    8,739     3,016             11,755  

 

 
  Payments Due by Maturity Age as of
December 31, 2018
 
 
  Less than
1 year
  1 - 3
years
  3 - 5
years
  More than
5 years
  Total  
 
  (in thousands of reais)
 

Suppliers

    14,039                 14,039  

Lease payable

                     

Total

    14,039                 14,039  

Off-Balance Sheet Arrangements

        As of October 31, 2019 and as of December 31, 2018, Positivo did not have any off-balance sheet arrangements.

Critical Accounting Estimates and Judgments

        Positivo's combined carve-out financial statements are prepared in conformity with IFRS. In preparing its combined carve-out financial statements, Positivo makes assumptions, judgments and estimates that can have a significant impact on amounts reported in its combined carve-out financial statements. Positivo bases its assumptions, judgments and estimates on historical experience and various other factors that it believes to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Positivo regularly reevaluates its assumptions, judgments and estimates. Positivo's significant accounting policies are described in note 3 to its audited combined carve-out financial statements incorporated by reference in this prospectus supplement. Positivo believes that the following critical accounting policies are more

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affected by the significant judgments and estimates used in the preparation of its combined carve-out financial statements:

Trade accounts receivable

        Trade accounts receivable are initially recognized on the date that they were originated. All other financial assets and liabilities are initially recognized when Positivo becomes a party to the instrument's contractual provisions. A financial asset (unless it is trade accounts receivable without a significant financing component) or a financial liability is initially measured at fair value, plus, for an item not measured at fair value through profit or loss, transaction costs which are directly attributable to its acquisition or issuance. A trade accounts receivable without a significant financing component is initially measured at its transaction price.

Inventories

        Inventories are measured at the lower of cost and net realizable value. Inventory costs are valued at the average cost of purchase or production and include expenses incurred in the acquisition of inventories, production and conversion costs and other costs incurred in bringing them to their current locations and conditions. When applicable, a provision for inventory losses is measured and recognized for slow moving and obsolete resale materials based on management's best judgment, considering the assessment of the marketplace, industry trends, content relevance, feasibility of visual update and projected product demand as compared to the number of units currently in stock. If losses are no longer expected, the provision is reversed by corresponding proportion.

Property, plant and equipment and intangible assets

        Property, plant and equipment items are stated at historical acquisition or construction cost, including capitalized borrowing costs, net of accumulated depreciation and impairment losses. Any gains and losses on disposal a property, plant and equipment item are recognized in the statement of income.

        Intangible assets mainly comprise the expenditures incurred and directly associated with the development of intellectual property related to learning systems, literature and educational platforms (software). These expenditures substantially comprise the acquisition of copyrights as well as other services provided by third parties (design project, text edition and design, among others). Intangible assets are recognized only if the expenditure can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable, and Positivo intends to and has sufficient resources to complete development and to use or sell the asset. Intellectual properties are considered to meet the definition of intangible assets with finite useful lives, which are estimated as the period on which the business will be required to update the education methodology, book content and / or publishing format of books and learning systems. Intangible assets with a defined useful life are recorded at cost, net of accumulated amortization and accumulated impairment losses.

Current and deferred income tax and social contribution

        Current tax expense is the tax payable or receivable on the taxable income or loss for the year and any adjustments to taxes payable in relation to prior years. The amount of current taxes payable or receivable is recognized in the balance sheet as an asset or tax liability under the best estimate of the expected amount of taxes to be paid or received reflecting the uncertainties related to its calculation, if any. It is measured based on tax rates enacted at the balance sheet date.

        Deferred tax assets and liabilities are recognized in relation to the temporary differences between the book values of assets and liabilities for financial statement purpose and the related amounts used for taxation purposes. Changes in deferred tax assets and liabilities are recognized as deferred income

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and social contribution taxes. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized. Deferred tax assets, if any, are reviewed at each balance sheet date and reduced when their realization is no longer probable. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

        Positivo offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority.

Provisions

        Provisions are recognized when Positivo has a present obligation (legal or constructive) as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingencies of tax, civil and labor nature subject to judicial challenges are periodically reassessed and recorded based on management's opinion with the input of its legal advisors on the probable outcome of lawsuits on the dates of disclosure.

Measurement of fair value of financial instruments

        Fair value is the price that would be received upon the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date, on the primary market or, in the absence thereof, on the most advantageous market to which Positivo has access on such date. The fair value of a liability reflects its risk of non-performance, which includes, among others, Positivo's own credit risk.

        When available, Positivo measures the fair value of a security using the price quoted on an active market for such securities. A market is considered as active if the transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no price quoted on an active market, Positivo uses valuation techniques that maximize the use of relevant observable data and minimize the use of unobservable data. The chosen valuation technique incorporates all the factors market participants would take into account when pricing a transaction. If an asset or a liability measured at fair value has a purchase and a selling price, Positivo measures the assets based on purchase prices and liabilities based on selling prices.

        The best evidence of the fair value of a financial instrument upon initial recognition is usually the transaction price—i.e., the fair value of the consideration given or received. If Positivo determines that the fair value upon initial recognition differs from the transaction price and the fair value is not evidenced by either a price quoted on an active market for an identical asset or liability or based on a valuation technique for which any non-observable data are judged to be insignificant in relation to measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value upon initial recognition and the transaction price. This difference is subsequently recognized in the statement of income on an appropriate basis over the life of the instrument, or until such time when its valuation is fully supported by observable market data or the transaction is closed, whichever comes first.

Recent Accounting Pronouncements

New standards, interpretations and amendments adopted in 2018

        Positivo started applying IFRS 9—Financial Instruments and IFRS 15—Revenue from Contracts with Customers, beginning on January 1, 2018. For further information, see note 4 to Positivo's audited

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combined carve-out financial statements incorporated by reference in this prospectus supplement. Other amendments and interpretations were applied for the first time in 2018, but do not have an impact on Positivo's audited combined carve-out financial statements.

IFRS 9—Financial Instruments

        The IASB issued IFRS 9 relating to the classification and measurement of financial instruments. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, and this approach replaces the previous requirements of IAS 39. Positivo adopted IFRS 9 prospectively, with the initial application date of January 1, 2018.

        The adoption of IFRS 9 changed Positivo's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires Positivo to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that Positivo expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate. For trade receivables, Positivo has applied the standard's simplified approach and has calculated ECLs based on lifetime expected credit losses. Positivo has established a provision matrix that is based on its historical loss experience, adjusted for forward-looking factors specific to the debtors.

        Positivo concluded that there is no impact from the adoption of IFRS 9 on its operations. For further information, see note 4 to Positivo's audited combined carve-out financial statements incorporated by reference in this prospectus supplement.

IFRS 15—Revenue from Contracts with Customers

        IFRS 15 was issued in May 2014, and amended in April 2016. IFRS 15 affects any entity entering into contracts with customers, unless those contracts fall within the scope of other standards such as insurance contracts, financial instruments or lease contracts. IFRS 15 supersedes the revenue recognition requirements in IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, and the majority of other industry-specific guidance.

        Positivo adopted IFRS 15 as of January 1, 2018 using the cumulative effect method and the effects of adopting IFRS 15 are not material. Accordingly, 2017 and 2016 information is presented in accordance with IAS 18, IAS 11 and related interpretations. Moreover, the disclosure requirements of IFRS 15 in general were not applied to comparative information

        Positivo assessed the new standard and did not identify significant impacts on its combined carve-out financial statements, considering the nature of its main financial transactions. For further information, see note 4 to Positivo's audited combined carve-out financial statements incorporated by reference in this prospectus supplement.

Standards, interpretations and amendments adopted in 2019

        Positivo started applying IFRS 16—Leases beginning on January 1, 2019. For further information, see note 3 to Positivo's unaudited interim condensed combined carve-out financial statements incorporated by reference in this prospectus supplement. Other amendments and interpretations were applied for the first time in 2019, but do not have an impact on Positivo's unaudited interim condensed combined carve-out financial statements.

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IFRS 16—Leases

        The IASB recently issued IFRS 16 to replace IAS 17 "Leases." 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. This standard substantially carries forward the lessor accounting requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors.

        Positivo adopted IFRS 16 from its effective date of January 1, 2019 using the forward-looking transition approach and did not restate comparative amounts for the year prior to first adoption, and has applied available practical expedients wherein it: